Customer-Centric Innovation is Driven by Outcomes, Not Ideas: Inside Scoop with Tony Ulwick of Strategyn

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CustomerThink Founder/CEO Bob Thompson interviews Tony Ulwick about ideas, outcome-driven innovation and why companies struggle to bring breakthrough products and services to market.

Interview recorded February 7, 2013. Transcript edited for clarity.

Bob Thompson:
Hello, this is Bob Thompson of CustomerThink. Welcome to another episode of my Inside Scoop interview program. Today our topic is customer-centric innovation, and I’m delighted to have as my guest, Tony Ulwick, who is the CEO of Strategyn, a corporate innovation and venturing firm that he founded some 22 years ago. It’s based in San Francisco. He’s also the author of one of my favorite books on innovation, “What Customers Want,” which was published in 2005. Tony, welcome to Inside Scoop.

Tony Ulwick:
Bob, thanks for having me.

Bob Thompson:
All right, so let’s go back to the beginning. It’s been more than two decades since you launched your firm. Why did you decide to focus on innovation and start your venture?

Tony Ulwick:
Well, I began my career in 1981 at IBM. I spent 10 years there and saw the PC business for IBM rise and fall. It was the “fall” part that really caught my attention. I really got interested in how companies allocate their investments and what products they choose to pursue. IBM made a lot of bad choices, and it really intrigued me that a company with all those resources could make those kind of choices.

So, I set out to find a better way to innovate. I quickly found out there really was no set process for innovation and nothing that really worked that well. My goal and my career for the last 22 years has really been spent on coming up with a better way to innovate and really finding tools in the process that would mitigate that risk of failure.

Bob Thompson:
And you work with clients around the United States, I assume? How about elsewhere in the world?

Tony Ulwick:
Our offices are around the world and we’ve worked with pretty much every geography.

Bob Thompson:
And is it mainly with companies that develop and ship real products or is it about service companies?

Tony Ulwick:
Sure it’s products and services, and I’d say about 40 percent of our efforts are in the service area. Even more recently, I see a trend towards product companies wrapping a service component around their products, as well, which has been exciting.

Bob Thompson:
OK, so we’re going to get into the methodology that you talk about with your company called outcome-driven innovation in just a second, but I’d like to start with something very basic. Could you please define what innovation means just in general? And also, if you wouldn’t mind mentioning a few companies that you think are doing a great job in being innovative?

Tony Ulwick:
Sure, I’d be happy to do that. I define innovation as the process of coming up with solutions that help customers get a job done significantly better. That really helps us define what the innovation process is going to be about and the goal, as well.

There’s really very, very few companies that do this well. Some companies are more innovative than others. The only company that I see that consistently adopts and uses the principles that we describe here is Apple. Some of our basic principles are that you have to get the job done significantly better, get lots of jobs done on a single platform, consider consumption chain jobs, and emotional jobs. They do all of this exceptionally well, and they’re really the only example of a company that’s created three product successes in a row using the same type of thinking. So, I would hold them up as the prime example.

Bob Thompson:
Apple is almost always held up as a great example of innovation. But since we’re talking about Apple, do you have a quick opinion about whether they’re going to be able to keep it going in the post Steve Jobs world?

Tony Ulwick:
I think they have something set in motion already with the iTV. I blogged about this recently. If Steve Jobs used the same kind of thinking he used to come up with the iPod, the iPad and the iPhone, then I think there’ll be a big success with the iTV, as well. I suspect that you’ll see a solution coming out some time this year that really focuses on getting the entire viewing job done, which starts, of course, with content selection, queuing it, programming it and watching it. It’s really a lot more than just the way the hardware manufacturers are thinking about it. It’s kind of like wrapping that service component around the hardware, itself, which I think they’ll do because they really get the idea of getting the entire job done on a single platform. So, I do expect that to be a big winner for them and that’s going to accelerate their growth again for the next couple of years.

The Problem with Ideation

Bob Thompson:
Well, it’ll certainly be interesting to watch. All right, let’s talk more specifically about how you approach innovation. I’ve read a number of books on innovation and lots of content. The general notion that I’ve seen out on the market is you start with a whole bunch of ideas. Lately, of course, you can use open innovation and crowd sourcing and so on to generate even more ideas.

So, get lots of ideas, that’s almost always at the beginning. After this ideation phase you basically filter these ideas through a series of phases or gates to get them down to those that you think are going to pan out, and then eventually out pops at the end of this process some kind of new product or service that hopefully makes money.

You’ve said – and I remember hearing you speak at an innovation conference last year – this is completely backwards. You approach it with this notion of outcome-driven innovation. Could you define what that means and why you believe that this gated phase process is backwards?

Tony Ulwick:
Sure, I’d be happy to. The idea’s first approach is truly a guessing game. Lots of ideas is the goal because companies aren’t sure which ideas are really going to succeed. The approach is to come up with an idea and then hope that the idea will be in a market that’s big enough to make sense for them to pursue. They hope the idea will address enough unmet needs. They hope the idea will get the job done significantly better, enough to make a difference and get people to adopt or to switch. They hope they can price it at a level at which they can make money, and they hope it will beat the competition. I just don’t think hope is a great strategy. What ends up happening is companies don’t have the answers to many of those questions until after they even launch the product, which, of course, is way too late. That’s why new product success rates are so low.

We think of outcome-driven innovation in a sense that we want to flip the equation around the other way. We don’t want to come up with ideas first. We want to discover a market that is large enough to pursue first and then we want to discover if there are unmet needs in that market. And then we want to figure out if we can create a solution that will get the job done significantly better, enough to make a difference and get people to switch. And we want to know if there’s a segment in that market that will pay considerably more to get the job done a lot better. We can answer all these questions before we even come up with the idea. The goal is really to pick the correct market, discover where to focus in that market, see if it’s worth focusing on creating a solution in that market, and once all those questions are asked, then come up with a solution that addresses the unmet needs in the market.

Bob Thompson:
Why is this a better approach than getting lots of ideas at the beginning with few successes at the end?

Tony Ulwick:
Well, the success rate’s a lot higher. So, think of it like this: You have lots of ideas. The chance of randomly coming up with an idea that’s in a great market, that addresses a lot of unmet needs in a significant manner is really about one in a million. What you try to do is using that approach, to figure out which of those million is the right solution.

Bob Thompson:
It’s like trying to find a needle in a haystack.

Understanding Customer Needs in Promising Markets

Tony Ulwick:
Well, that’s right, and the only way to figure it out accurately is to answer the questions I already posed. If you have an idea, the question you should ask is, “is it in a market that’s big enough to pursue?” “Is it getting unmet needs satisfied to a greater degree?” At some point, you have to understand the customers’ needs. Otherwise, you can never figure out if the solution’s addressing them to a great enough degree to warrant an investment upon it.

Bob Thompson:
What you’re talking about is that companies are starting with solutions — solutions in the guise of ideas — not with customers. And then they try to find out if some small percentage of these solutions would actually be attractive to customers down the line and could they make money at it?

Tony Ulwick:
That’s exactly right. And unfortunately, the way they’re going about it is they’re failing fast, their pivoting and they’re trying to figure it out as they go. What they’re actually doing as they go is they’re learning more about the customers and learning more about their needs and they’re trying to modify what they’re doing to address the needs better. The reason they’re doing this is because they don’t know the needs up front. So, they’re failing fast, they’re pivoting. They’re wasting a lot of time and money when they don’t have to.

How to Create a New Product in a Crowded Market

Bob Thompson:
It’s easier to spin up a lot of ideas than it is to actually do the customer needs research. All right, well maybe an example will help bring this into sharper focus. Can you give an illustration of perhaps one of your clients that’s used this approach and what product popped out of the process?

Tony Ulwick:
Sure, I’d like to offer a fairly simple example with Bosch and helping them create the CS20 circular saw. The circular saw, of course, has been around for a long time, about 80 years. Little innovation was done in that space – this was back in around 2005 or so. Think of Bosch, they’ve been in this space for years. They had hundreds of ideas. They just didn’t know which ones to include in their products or what to pursue. But their goal was to compete with DeWalt and Makita and break through the distribution of Lowe’s and Home Depot to try to get shelf space. So, they had to come up with a solution that would get the job done better at a similar price point. The goal was to figure out what the needs were.

The way we think about innovation is we look at the job the customer’s trying to get done, which is to cut wood in a straight line. We break that job down into its component parts and we figure out what metrics carpenters are using to measure success along each step of the way. And there are about 75 different metrics that they use to measure success. We created a survey, we put that survey in the field. We ask the importance of each of those metrics and the current level of satisfaction using today’s solutions and competing products. What that allows us to do is to find areas of opportunity, in other words, those needs that are important and poorly satisfied indicate to us where customers are struggling to get the job done better.

If you look at the broad market in that case, there were no opportunities. In other words, the market looked like it was appropriately served. What we had to do was segment the market around these needs, and we discovered a segment of customers that struggle more than others to get the job done.

Bob Thompson:
How did you make this discovery?

Tony Ulwick:
Well, we take all those needs, those 75 needs statements and we segment around the opportunity score. In other words, we’re looking for segments of customers that find the importance of satisfaction of those needs to be different. We use cluster analysis and factor analysis. That’s nothing new, but it’s what goes into the equation that makes this a very valuable approach. By doing that, we discovered a segment of finish carpenters who have to make more adjustments to their saw. They cut at a lot of different angles, they cut different depths. That group of customers were struggling along 14 different dimensions.

Bob Thompson:
OK, so basically, you’re trying to find a particular use case. Correct me if I’m misstating this, but a use case where there is a set of unmet needs. And if you then provide a product that meets those needs, you would sell it into a market that makes sense for the company.

Tony Ulwick:
That’s right. And, of course, the way to do it is to discover in a given market, are there a set of customers who are struggling to get the job done differently than anyone else? Like I said, in that case, there were 14 unmet needs. They put 14 different features on that CS20 circular saw and also did it in a way that they could put it out in the market at a similar price point. It’s been very successful for them for the past eight years.

Bob Thompson:
Can you quantify that at all, in terms of what success they’ve had with that product?

Tony Ulwick:
I know it’s their fastest-growing product in North American history. They don’t release sales numbers, unfortunately.

Innovation Process Starts with a “Job To Be Done”

Bob Thompson:
Help me understand another term I’ve been hearing a lot over the last few years — this notion of “jobs to be done.” Is that essentially the same idea as outcome-driven innovation? And if not, what’s the difference?

Tony Ulwick:
All right, so let’s talk about that. The concept of outcome-driven innovation is the end to end innovation process. And it begins by defining the “job to be done.” So, in the Bosch example, we talk about the job executor — the carpenter who’s trying to execute a job — which is to cut wood in a straight line. We define the job to be done as the process that they’re trying to execute. And then once we start studying that process, we break it down into its component steps, and we talk to customers about how they measure success along every step of the way. Those metrics are their outcomes, and those outcomes are their needs. So, we define customer needs as the set of metrics that customers use to measure success in getting a job done. Of course, customers don’t know what products are best and what solutions are best, but they certainly know what they’re trying to accomplish and how they measure success along each step of the way.

I kind of equate this to the Six Sigma for the revenue side of the equation. As an engineer back in the 80’s with Six Sigma coming aboard, we would measure everything, of course. It seemed odd to me that we couldn’t do something similar on the revenue side of the equation. But I think the beauty of jobs-to-be-done thinking is that when you consider the job to be a process and that people are buying products to help you execute that process better, what you do is you study the process. You break down that process, you study the metrics. People use the metrics of success along each step of the way. And then you end up with a value map or a job map, if you will, that describes everything they’re trying to achieve and how they measure perfection. With that blueprint, you then test different technologies, ideas, solutions against that blueprint to see which one gets the job done best. So, it gives you just a different method and a different focus for creating new products. And it’s tied to the way customers define value creation.

Bob Thompson:
Is it possible, though, to have a job that is more of an emotional outcome, a good feeling? At least my perspective on Apple is that part of their success is that they made their technology cool. It wasn’t just the functionality that they brought, which was great, but that somehow, they’re able to create this following of people who just wanted to use Apple products. Is that something that you consider in your methodology as an important outcome?

Tony Ulwick:
Yeah, we consider it an input into the process. So, outcome-driven innovation includes the original job to be done that we call the functional job. In other words, the circular saw has to cut wood in a straight line. Of course, the finish carpenter also wants to be perceived as professional and be perceived as artistic, and those needs are the emotional jobs, but you can’t build a product to help someone feel artsy or crafty.

Bob Thompson:
I get that point. There are some products out there on the market that are basically no function and all emotion, I suppose. The emotional side of it, the feeling good part of products or services is part of what drives loyalty. It is an important facet of this dynamic we’re talking about, isn’t it?

Tony Ulwick:
Yes, it sure is. The way we think about it is we create the product around the functional job and we position it around the emotional job. And by tying those things together, that becomes the complete package. That’s how you really best position your brand to grow and to generate that excitement.

Bob Thompson:
How were the circular saw people helped to feel better about their saw, beyond just the functionality of it? Was it the design with their marketing initiatives, something else that was done?

Tony Ulwick:
Yeah, and their goal was to bring that message across that by using this type of saw, you’ll feel like a better carpenter. You’ll feel more crafty, you’ll feel more artsy. Bringing that other emotion into play really helps to craft a different message. We do that through what we call an emotion function correlation analysis. Microsoft helped us develop this. We’ve done a lot of work with them over the years. It was very interesting to us to find that by adding some new function to a product, you can figure out what emotion that would help elicit in the customer. So, by drawing that correlation, you could position your product accordingly. If your new solution has features that address a certain function, that correlates to a certain motion. Then you combine that together to produce your marketing strategy. It works very effectively.

Organizing for New Product Innovation

Bob Thompson:
Let’s talk about the role of senior management. Everything that you’ve said makes complete sense to me. Start with the customer, solve their needs and so on and so forth. I’ve always thought a customer-centric business is about not just doing what’s good for customers, but doing it in a way that’s profitable for companies, as well. We’re singing out of the same hymn book, so to speak. Why don’t more companies do it this way?

Tony Ulwick:
Well, I think there’s a number of reasons. One, sometimes they don’t have to. If you think about innovation, I think about it along two different fronts. One is product improvement innovation where you’re just trying to improve your current products. Companies are actually pretty good at that. Success rates in product improvement with just incremental innovation are about 50 percent. And, 99% of all companies are really designed to help sell the current products and make them better, so they’re pretty good at that.

Where it becomes a problem is when companies have to come up with brand new products. Their current products run out of gas, or they have to change platforms. They need to invest in new markets, in order to continue to grow. That requires new product creation, and new product creation is very different. Success rates there are anemic. They’re less than 5 percent.

The difference here is there’s very few people in any company who are responsible for new product creation and new markets. Placing that responsibility in the hands of the product managers for the current team is a big mistake, because they’re really there to help keep the engine going and help keep the revenue stream going from the current product set. What has to happen is CEOs have to recognize that management is truly responsible for new product creation. It requires an investment decision in new markets and new technology. They have to make that call.

Bob Thompson:
When you say management, are you saying the CEO should be leading this? I haven’t heard this term, but should there be a Chief Innovation Officer or something along those lines?

Tony Ulwick:
Sure, and in many companies, there are Chief Innovation Officers. We’ve worked with several of them. The way they like to set this up is they work with business units that need to grow. We look for new market opportunities for them and put together the product strategy and investment case that makes sense. And then they decide if they want to do something like that internally or if it should be pursued through some M&A activity or through a venture partnership or that sort of thing. That’s how they need to grow their new products and new markets.

There are a number of companies that are getting pretty good at this and catching on to that as a good method or approach, but I think the first step is for management to realize that there are two different types of innovation. Our recommendation is don’t necessarily try to change your whole company. That doesn’t have to be a complete cultural change and everyone doesn’t have to think differently about innovation for you to grow. The big success has come from these new platform products like Apple’s done with the iPhone, the iPad, the iTV. These are new platforms that go after new customers to get new jobs done.

Bob Thompson:
Right, but hang on a second now. You’ve held up Apple a couple of different times now as a paragon of virtue in innovation. I’m not disagreeing with that, but I’ve also heard Steve Jobs quoted – I don’t know if this is true or if this is urban legend – of saying he does no consumer research. And so, I think there’s this popular fiction out there that somehow, Steve Jobs goes off into a back room and dreams up something new and he just goes and tells his product people to go build it and voilà, you’ve got the iPhone, the iPad and all these big hits. Can you bust that myth?

Tony Ulwick:
Sure. I think what Steve Jobs meant is that they don’t do traditional market research because traditional market research doesn’t work. Voice of the Customer has been around for 30 years. I love asking the question, “Have you ever worked on a project in your career where you’ve known all your customers’ needs?” And the answer is almost always “No.” That tells me that the methods being used today to understand needs just don’t work.

Steve Jobs recognized that, and his thought is much along the lines that the goal is to help customers get a complete job done. I think Steve Jobs’ brilliance lies in the idea that he truly understands the jobs that customers are trying to get done, and his focus was to get them done in an elegant manner, get the functional jobs done, execute the consumption chain jobs well, meaning make it easy to purchase, set up, install and maintain.

Bob Thompson:
The overall experience around the product is also well thought out in most cases.

Tony Ulwick:
Yeah, exactly, and he has that formula. That’s the formula we suggest that all companies use, and it all begins with this different understanding of what the customer’s trying to accomplish. There have been a few inventors like Steve Jobs and Thomas Edison over the years that really focused on markets from a customer-centric perspective and created products to get jobs done. It’s very hard to have three or four consistent successes by guessing. That’s against all odds. So, he’s clearly using some process or he has a technique, just the way he thinks.

Bob Thompson:
I’m going to be very interested to see whether Apple can keep it going. Their new leader is a bit more of a corporate manager type. I don’t mean any disrespect by that, but he does not have the same persona as Steve Jobs. Can they keep the process going without their fearless leader?

Tony Ulwick:
That’s what I wonder about, too. I wonder if that process lies in Steve Jobs or if it is some formal method and approach that was used, and time will tell.

Bob Thompson:
Well, Tony, this has been really a delight for me. Congratulations on your success and this concept of outcome-driven innovation, which is something that I think makes perfect sense for any company that wants to be customer-centric. Thanks for taking time with me today on Inside Scoop.

Tony Ulwick:
Bob, it’s been my pleasure. Thanks so much.

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