innovation strategy (2023)

innovationIs the process of designing solutions to meet unmet customer needs. oneinnovation strategyIs the systematic identification of unmet customer needs in a given market, and which unmet needs are selected as targets for growth.

Identifying and prioritizing unmet customer needs allows businesses to increase market share or profits through reliable and successful product and service innovations. It also makes it easy to develop practical business model innovations.

work to be doneProvides the perfect lens through which to view your innovation strategy, as it allows you to uncover all your customers' unmet needs.

This article covers:

• Why Innovation Strategy Matters
• 5 steps to developing an innovation strategy
• 5 Innovation Strategies
• Benefits of a Solid Innovation Strategy
• Examples of Winning Innovation Strategies

1. What is the most efficient path to growth?

An effective innovation strategy maps out the most efficient growth path. It helps product teams prioritize unmet needs that, when addressed, will have the greatest impact on the largest customer base.

Severely unmet needs in 100% of the customer base take precedence over moderately unmet outcomes in 50% of the population. This is one of the common innovation strategy examples around.

This prioritization approach helps product teams accelerate value-creation efforts and stay away from competitors.

2. Are you creating a single platform-level product or a portfolio?

The innovation strategy also indicates whether the product team is creating a single platform-level product or a portfolio (multiple products targeting different market segments).

If you are creating a single platform-level product, you are optimizing that product to address the top unmet need of a single customer segment. When you target a product mix, you can target different market segments with specific offerings. Each product is optimized to address the most important unmet outcomes in each market segment.

3. What innovation strategy should you pursue?

After completing the first steps of an effective innovation strategy, product teams know with great certainty whether the rest of your innovation efforts should pursue a disruptive, dominant, discrete, or sustaining innovation strategy.

Knowing where to focus on creating value and which strategies to use can put product teams on a fast path to product market fit—better products for the job.

1. Define your market

People buy products and services to get work done. The first step in building a successful innovation strategy is to define your market around this work to be done.

Unlike products and technologies that will one day become obsolete, this job provides your company with a stable focus around which to create value.

Using this lens, your market should be defined as follows:

Market = group of people + job they want to get done

learn more: define your market

2. Uncover client outcomes

The second step in developing a credible innovation strategy is to extract market needs.

Clients expect the job to be done flawlessly. We find that customers consider between 50 and 150 metrics when evaluating how a product or service will help them do a given job. These metrics (or desired outcomes) are customer needs—and the force behind this innovation process. They define what perfection means and guide your company on how to create value.

You discover these needs by conducting a series of highly structured client interviews and organize them by creating a job map.

3. Quantify client outcomes

It uses qualitative, quantitative and analytical methods to deliver the insights we need to develop a robust innovation strategy - starting with quantifying each client's results.

Customers have underserved and overserved results. Knowing with statistical certainty which outcomes should be the focus of value creation and cost reduction ensures efficient deployment of resources and greatly improves your chances of success in the marketplace.

This step requires surveying the customer:

• How important is each result
• The current implementation status of each result

4. Uncover Hidden Snippets of Opportunity

Most segment their markets based on demographic, psychographic, behavioral and/or attitudinal market segmentation schemes that target their products and services directly at phantom targets - foisted on customers but not really there Subdivision classification.

Instead, the best way to segment customers is around unmet needs.

Different groups of people struggle differently with performing the work to be done. Most markets also have one or more underserved segments, as well as overserved segments.

Understanding the size of each segment, the unreached results of each segment, and how much people in each segment are willing to pay to do their jobs better is the secret to developing an effective innovation strategy.

learn more: market segmentation

5. Create an innovation strategy

The insights drawn from the first four steps of this process are instructive. Most companies have never had this kind of customer insight before, nor the decision-making edge that comes with it.

Using the insights gained from this innovation process, you can determine the best strategy to create a winning strategy.

Delve into: results-driven innovation

You may have heard of the four traditional innovation strategies:

• routine innovation
• disruptive innovation
• radical innovation
• architectural innovation

The problem with these strategies is that they don't tell you how to provide value to your customers. To understand how to deliver value, we need to view innovation through the lens of work to be done. Your options include:

• Differentiated innovation
• leading innovation
• Disruptive innovation (more precise definition)
• discrete innovation
• continue to innovate

Once you have completed the first four steps of building an innovation strategy, it will be clear which type of strategy your product team should pursue.

1. Differentiation strategy

A differentiated innovation strategy helps customers do their jobs better—but at a higher cost.

You'll want a differentiation strategy when you identify an underserved group of consumers, and you want to do their job (or jobs) better with a new product or service, but at a significantly higher price many.

Examples of differentiated products include:

• Nest thermostat
• Nespresso coffee and espresso machines
• Organic at Whole Foods
• Emirates international flights
• bmw sports car
• Sony's PlayStation (original model)
• Dyson vacuum cleaner

2. Dominant strategy

A dominant innovation strategy targets all consumers in the market with a new product or service that makes work better and less costly. Products with better performance and lower prices appeal to everyone.

exampleProducts that have successfully adopted the dominant strategy include:

• Google search
• uber
• Netflix
• progressive insuranceNon-standard car insurance
• Vanguard Personal Investment Services

3. Disruptive strategies

When you discover and target an overserved group of customers or non-consumers with a new product or service that helps them get their job done at a lower cost, you are pursuing a disruptive strategy—but less so than competing solutions.

Examples of disruptive products:

• Google Docs (vs. Microsoft Office)
• TurboTax (vs. traditional tax services)
• Razor products from Dollar Shave Club (vs. Gillette)
• eTrade's online trading platform (vs. traditional financial brokers)
• Coursera's online education service (vs. traditional universities)

4. Discrete strategy

Discrete innovation strategies target "restricted" customer segments with products that do a worse job but cost more. Lower performing, more expensive products will only appeal to customers who have limited (or no) alternatives.

This tactic can come into play in unique or atypical situations where the client has legal, physical, emotional, or other constraints on how work can be done.

example:

• Drinks sold at airports through security
• Stadium concessions for sporting events
• Check Cashing and Payday Loan Services
• ATMs in Remote Areas

5. Sustainment strategy

A continuous innovation strategy introduces a new product or service that does a job better and/or cheaper. This product probably won't attract any new customers. It's a poor strategy for new market entrants, but it may help established companies retain existing customers.

There are many examples of products that successfully employ a continuation strategy.

There are many benefits to an effective innovation strategy, most of which revolve around getting your various teams aligned to create value.

For customers and businesses, there is a clear link between innovation and value. In fact, BCG's historical data shows that the correlation between value and innovation has grown stronger over the past two decades.

All of the following benefits contribute to the long-term success of a business.

• Align teams around value creation
• Identify gaps in the product mix
• Prioritize new features
• Better position existing products
• Prevent interruption.

Align teams around value creation

Misalignment is inherent in product team design. Companies are organized into functions, each optimized to serve their specific purpose. Sales, marketing, product development, R&D—all have different goals, rely on different inputs to achieve them, and each have their own language for communicating how to create customer value.

When teams cannot agree on which actions will create value for customers, the best-case scenario is to agree on a common path forward.

The solution to the misalignment between organizational silos is to define value creation from the customer's perspective and build a common understanding of customer needs across functions. It is transformative for the organization when the team agrees on the definition of customer needs, what those needs are, and which of those needs are not being met.

in-depth study:Align your product teams around value creation

Find gaps in your product mix

Is your client piecing together a solution to make it all work? Usually, the answer is yes. However, only the most complete products and services can help customers get more work done in order to win the market.

An innovative strategy that outlines and prioritizes all customer needs makes it easy to see where the holes in your portfolio lie and work to fill them. This may mean creating new products yourself, or you may pursue partnerships, mergers or acquisitions to quickly fill gaps.

Cox MotorsFor example, insights from leveraging innovation strategies continue to inform M&A activity years after the initial research was completed.

Prioritize new features

Without a way to prioritize features around a clearly defined set of customer needs, you often end up with feature creep—more and different features than you originally planned.

It's no surprise, then, when products arrive late, cost more than planned, or include features that customers don't really care about.

Once your team has aligned around a common understanding of customer needs, defining a clear product roadmap is easy.

Using ODI for product feature prioritization unifies teams around a single version of the truth. You have the confidence that you're solving the right problem, that everyone is working on the same specific set of problems, and that everyone knows their role in the process. No one gets distracted by side projects or arguing over a different set of features - because they all agree with your quantified priorities.

learn more:Product Feature Prioritization - How to Align on the Right List

Better position existing products

Innovation doesn't always have to be around the product itself—you can also innovate how you communicate that product to the market.
An innovative Jobs-to-be-Done based strategy allows you to create enviable positioning and messaging by:

• Focus on the exact benefits and values ​​that matter to your customers.
• Discover unmet needs that your competitors are not addressing.
• Discover new ways to combine single products or point solutions in messaging.

For example, Arm & Hammer Animal Nutrition saw immediate growth by focusing on the right performers of the work and tweaking its message to match. Within a year, this new messaging strategy helped their customers see value in their products and services, resulting in a 30% increase in revenue.

MicrosoftRevenue also doubled year-over-year after repackaging existing solutions into more cohesive offerings to help customers get more work done.

learn more:How Marketing Teams Are Aligning Around Enviable Messaging

prevent interruption

Many companies today find themselves threatened by digital disruptors innovating around the broader customer experience. But focusing on the root reasons why customers use your product, rather than the product itself, allows you to build an anti-distraction advantage.

When you pool your resources to do your job better, you see all possible solutions as a natural part of your portfolio. In the long run, you are constantly focused on getting more and more client work done. This helps you understand and react to the broader competitive landscape, reducing the chances of being caught off guard by disruptive solutions.

On the other hand, a technology-focused company is more likely to miss out on opportunities and face disruption.

in-depth study:Your market is bigger than your product

When it comes to examples of innovation strategies, you often hear companies like Apple, Amazon, Google, and Starbucks. But what about some lesser-known but equally impressive and easier-to-replicate innovations?

Kroll Ontrack Disrupts Mature Market - Adds $200M in Revenue

In the early 2000s, Kroll Ontrack had an exciting technology that allowed them to digitize legal document discoveries for the first time. But their first two attempts to enter the market failed.

So they shift gears and apply our five-step innovation strategy to the challenge to understand what went wrong.

It turns out they were focusing on the wrong customer - the wrong performer of the work. Kroll was trying to sell their solution to IT departments, who positioned the technology as a solution that would allow them to efficiently retrieve data from hard drives.

But it's the legal team that needs a document discovery tool, and the legal team isn't trying to retrieve the data from the hard drive. They try to find information to support or refute the case. These lawyers have several important unmet needs.

Armed with this insight, Kroll made some important adjustments:

• They added search functionality to the data retrieval technology
• They market their solutions to legal teams, not IT

On their third launch attempt, they succeeded.

Kroll's electronic document discovery product grew from $0 to $200 million in about 3 years, and they were the market leader in this space for about 12 years.

CheckThe Complete Kroll Ontrack Case Study.

Cox Automotive grows product installed base 20-fold

Cox Automotive's vAuto division provides car dealerships with a SaaS solution to better manage their inventory. They've been very successful, but they no longer see the gains they need to continue to grow their market share.

The team had identified the most obvious opportunities for product innovation—now they needed to find the less obvious ones to stay ahead of the competition.

Randy Kobat, senior vice president of Cox Automotive, explained: "We spend time rolling out new features in the software, but they just don't get adopted. They don't make a measurable improvement in business performance."

How do they determine which features are really important to their customers?

They no longer guess at the right innovations. Instead, they use a five-step innovation strategy to discover exactly what customers want in a solution.

A few requirements that rose to the top of the list:

• Minimize the time needed to determine which promotional content to create for each vehicle
• Minimize the time required to create promotional content for each vehicle
• Minimize the time it takes for potential buyers to know that a vehicle to their specifications is available

These customer needs provided perfect guidance for Cox Automotive's product teams—they were able to rapidly roll out new features to meet these needs,Resulted in a 20x increase in product installs.

These insights even ended up informing M&A activity.

get all detailsThe complete Cox Automotive case study.

Arm & Hammer animal nutrition revenue up 30%+ year-over-year

How do you hope to achieve double-digit revenue growth without making any changes to product or pricing? Arm & Hammer's animal nutrition division uses this innovative strategy to achieve this goal.

The company considers their customers to be animal nutritionists. They sold to this client, got input from this client, and optimized their product and message for this client.

The premium products they sell actually do meet the nutritional needs of animals.

The problem is they define their market around their nutritional products and make assumptions about who their real customers are. Like Kroll Ontrack, they focus on the wrong jobs and the people who do them.

They should be focusing not on nutritionists - but on herd producers. Producers are customers who use nutritional products to get the job done, and it's the producer's job to increase herd productivity—not to improve nutrition.

They set out to get to know this customer, discover their needs, and determine which needs are not being met. Armed with this insight, Arm & Hammer adjusted their messaging and passed on new information to their sales team.

They align what they do more closely with what real customers want to accomplish—and without changing product or pricing, theyAchieve 30% year-on-year growth.

to know more informationComplete Arm & Hammer case study.