A great Product Owner is critical for any company or team using an agile approach to software development. In Agile Product Management with Scrum: Creating Products that Customers Love) Roman Pichler focuses on this key role. Although it’s tempting to think of a product owner as just a new name for product manager, Pichler elaborates on the differences between these two roles. The product owner encompasses both traditional functions: product manager and product marketing manager. “Uniting the two product management aspects,” writes Pichler, “achieves end-to-end authority and accountability. We avoid handoffs, waiting, and delays as well as miscommunication and defects.” Pichler provides specific advice to product owners with common mistakes related to each ar...Read more
Pull: The Power of the Semantic Web to Transform Your Business is about technology transforming the way we do business, but it can be read as a book on a new category of products and user experiences. David Siegel describes the pull era as a time when “customers pull everyting to them on demand – products, services, information, knowledge, and advice.” Siegel says “it’s a world where customers pull and companies respond.” In the pull world, “you specifify what you want and it finds you.” The technology basis for the concept of pull is the semantic web–making information available and easibly discoverable online with a common name space in an unambiguous format. This book is mostly a set of futuristic scenarios categorized by the support...Read more
Agile projects rely on agile estimating and planning processes which answer the question: “What should we build and by when?” Answering this question requires first estimating (“how large is it?”) and scheduling (“when will it be done?”, “what can we deliver by then?). Agile Estimating and Planning covers planning challenges and goals, estimation, prioritizing features and backlogs, scheduling, monitoring, and communication. Mike Cohn presents a comprehensive handbook for agile estimating and planning that includes the rationale for the agile approach along with a point-by-point explanation of why traditional planning methods don’t work. Planning …planning is difficult. Teams often respond to this by going to one of two extremes: They e...Read more
Strategic Alliances and Marketing Partnerships seeks to answer two key questions: Why are some partnerships more effective than others? and How can I predict the likely outcome of the partnership and take steps to improve its performance? Gibbs and Humphries present eight partnership archetypes along with relationship management recommendations. For each type of partner, they provide techniques for identifying and resolving roadblocks and issues. Not surprisingly, the book essentially advocates moving from an entrenched, command and control, transactional mindset to an open, trusting, and highly committed stance towards partners. Jointly crafting objectives and performance measures are key tools for success along with openness to understanding the other company’s business and goals...Read more
Pricing decisions are frequently made based on isolated variables rather than a strategic view of the market and company. For authors Thomas Nagle and Reed Holden, the difference between setting prices and pricing strategically is “the difference between reacting to market conditions and proactively managing them.” There are many important considerations for pricing that go beyond near-term profitability and immediate pricing problems such as competitive reactions, marketing strategy, and alignment with sales and marketing programs. The Strategy and Tactics of Pricing is one of the best books available on pricing because it gives a comprehensive and detailed view of all issues which should be considered when pricing products and services. The authors are so adamant about strate...Read more
- Agile Product Management
- The Pull Era and the Semantic Web
- Agile Estimating and Planning
- Successful Partnerships
- Strategic Pricing
A great Product Owner is critical for any company or team using an agile approach to software development. In Agile Product Management with Scrum: Creating Products that Customers Love) Roman Pichler focuses on this key role. Although it’s tempting to think of a product owner as just a new name for product manager, Pichler elaborates on the differences between these two roles. The product owner encompasses both traditional functions: product manager and product marketing manager. “Uniting the two product management aspects,” writes Pichler, “achieves end-to-end authority and accountability. We avoid handoffs, waiting, and delays as well as miscommunication and defects.”
Pichler provides specific advice to product owners with common mistakes related to each area of agile product management. Each chapter has a set of reflective questions to compare current state product development processes to those described in the book. To assist new product owners, there is one chapter devoted to transitioning into the role. He gives specific advice on creating a product vision, managing the product backlog, release planning, and participation in Scrum meetings. He provides a lot of detail to complement the concepts and method.
The customer, who is the person purchasing the product, and the user, who is the individual using the product, determine the success or failure of the product.
A new paradigm for product management
Agile product management is different from traditional product management in several key areas. The product manager role and the Scrum team enable agile product management to take a different approach to challenges which have plagued software development.
|Old School||New School|
|The product marketing manager, product manager, and project manager share responsibility for building and delivering the product.||The Product Owner is responsible for the product and leadership of the project.|
|Product managers are separated from development teams by processes and reporting relationships.||The Product Owner is a member of the Scrum team responsible for delivery of the product.|
|Market research, product planning and business analysis activities are performed at the beginning of the project.||A minimal product vision is created up front to allow the team to begin moving forward quickly. A dynamic product backlog is in place to capture and respond to change.|
|Discovery activities and requirements definition is performed at the beginning of the project and frozen for the duration.||As the team learns and new knowledge is generated, the product backlog changes accordingly. There is no up front requirements definition phase to specify the entire system.|
|Customer feedback is solicited during market testing and after launch.||Regular, incremental and iterative releases combined with weekly sprint reviews supply customer and user feedback.|
The Product Owner
The product owner is a visionary who can envision the final product and communicate the vision. The product manager is also a doer who sees the vision through to completion. This includes describing requirements, closely collaborating with the team, accepting or rejecting work results, and steering the project by tracking and forecasting its progress. As an entrepreneur, the product owner facilitates creativity; encourages innovation; and is comfortable with change, ambiguity, debate, conflict, playfulness, experimentation and informed risk taking.
The Product Owner role, as “first among peers”, spans many activities traditionally split across multiple individuals:
- creating the product vision
- grooming the product backlog
- planning the release
- involving customers, users, and other stakeholders in product development
- managing the project budget
- preparing the product launch
- attending Scrum meetings and collaborating with the team
The product owner takes an inward view (traditionally the domain of a product manager) and an outward view (usually the focus of a product marketing manager) of the product and business. A visionary and the person responsible for relentlessly driving the vision to completion, the product owner is both a team leader and a team player. A successful product owner must be entrepreneurial, a great communicator, an adept negotiator, empowered, and committed to the success of the product, the team, and the business.
The Scrum team has many of the qualities of any great team: trust, collaboration, sufficient resources, sponsorship, closeness to the customer, and a common goal. Breaking down organizational barriers (within the company and between the company and its customers) are reinforced by many aspects of the agile method.
The team itself is self-organizing, cross-functional, and small. It should include all roles required to bring the product to life. All members of the Scrum team must form a close and trusing relationship, a symbiosis, and work together as peers. There must be no us and them. There can only be us.
Although the product owner effectively has end-to-end responsibility for delivering the product, she can reach across the organization to get support and assistance from senior executives and other functional leaders. This broadens the resource set available to the product owner while maintaing responsibility and accountability with one individual. With respect to project managment activities, Pichler says they are “no longer exercised by one person.” With the agile approach, these responsibilities are divided between the members of the Scrum team.
The product owner role can scale up by with a Chief Product Owner to whom several product owners report. Each product owner can be responsible for a feature or a component of the overall product. This addresses a frequent question about the agile approach: can it scale?
The Product Vision
The product vision is a foundational element of the agile approach and guides the team to its destination. A good vision answers the following questions:
- Who is the customer and the user of the product?
- What customer needs are fulfilled by the product?
- What is the value proposition?
- What attributes of the product are most important for meeting the customer needs?
- How is the product different from other offerings?
- What is the business model?
- Can the product be developed by the company given its resources and capabilities?
A great vision must be shared by the team and unify everyone involved. A broad and engaging vision will inspire and endure. Pichler advises using Ockham’s Razor to achieve a vision that is “short and sweet”–seek the simplest solution. Common mistakes to avoid when developing a vision are attempts at prophesy, paralysis through excessive analysis, and seeking perfection.
Methods to arrive at a product vision include using small projects incubated as part of “innovation time”, including vision exercises in the product backlog, prototypes and mockups, personas and scenarios, a vision box, and Kano model (also read “Leveraging the Kano Model for Optimal Results” at UX Magazine).
The Product Backlog
The backlog contains a prioritized list of all incomplete work items required to achieve the product vision. Items in the product backlog are ordered by priority and level of refinement. The most detailed and granular items are at the top, ready for the team to implement, while more coarse-grained and less well defined items (themes) are at the bottom.
Requirements are no longer frozen early on but instead are discovered and detailed throughout the entire project. As our understanding of customer needs and how they can be best met improves, existing requirements are likely to change or become redundant, and new requirements will emerge. Product discovery is therefore not limited to the early development stages, but covers the entire project in Scrum.
To guard against creating a backlog which is a dumping ground for every product idea anyone ever had, Pichler recommends focusing intensely on the customer need and ensuring that each and every backlog item clearly benefits the customer. Only the minimum functionality required to fulfill the customer need should be considered by the team–simplicity is your friend. Adding too much detail early on can overwhelm the team and make it difficult to prioritize.
Treat existing requirements as suspicious and consider them as a liability, not an asset.
A key to prioritizing the backlog is to prioritize themes first. This effectively orders the more detailed backlog items because the higher level groupings are in the right sequence. The backlog is frequently a mix of themes, epics, and stories. It’s the product owner’s responsibility to continually groom the backlog to provide a clear set of priorities for the team. Decomposing complex backlog items into more granular items is another key product owner activity.
Using the product vision as a guide, the product owner prioritizes backlog items based on customer value, risk, releasability, and dependencies. Front-loading risk can help the team learn and expose critical assumptions and assist architecture design and technology selection.
The Scrum team and Planning
As the product owner, you guide and influence the team. Your behavior matters. A lot. Frequently reflect on your intentions and actions.
In addition to crafting the product vision and being responsible for grooming the backlog, the Product Owner is involved in release planning, sprint planning, daily stand-up meetings, and sprint retrospectives. Principles of effective agile planning include using actual velocity to estimate future delivery (as opposed to idealized plans that extend far into the future) and maintaining a sustainable pace (rather than attempting to increase output by increasing work hours).
Pichler notes that the days of the lone wolf product manager are long gone–product owners must be outward-facing, an integral part of the Scrum team, and committed to collaboration. Likewise, there is no manager or project manager in Scrum–the team is self-organized, manages its own work and is accountable for its goals. Stakeholder involvement is critical for the success of the Scrum team and this is facilitated both by the product owner and the sprint review meeting.
An Introduction to Scrum
Pull: The Power of the Semantic Web to Transform Your Business is about technology transforming the way we do business, but it can be read as a book on a new category of products and user experiences. David Siegel describes the pull era as a time when “customers pull everyting to them on demand – products, services, information, knowledge, and advice.” Siegel says “it’s a world where customers pull and companies respond.” In the pull world, “you specifify what you want and it finds you.” The technology basis for the concept of pull is the semantic web–making information available and easibly discoverable online with a common name space in an unambiguous format.
This book is mostly a set of futuristic scenarios categorized by the supporting technology or design concept. It’s a highly ambitious project and Siegel reaches into the legal, taxation, and health care domains to sketch out his vision for the semantic web, intelligent data stores, and new ways of doing business. Siegel’s vision is quite ambitious, reaching towards an artificial intelligence that is guided by semantic search and global ontologies. He does, however, match up each prediction with current-day examples of supporting technologies and standards initiatives.
The pull idea not only describes an ecosystem of products and services that we’ll be using in the future, it’s also a mindset and set of principles that product designers and developers can adopt as they build the next generation of hardware and software technology. Pull is a design manifesto for customer powered information exchange.
In the push model, the website is at the center and people come and go. In the pull era, you are at the center; web sites get your identiy credentials by permission and authentication, rather than by asking you to fill out forms.
This book is similar to Bruce Sterling’s Shaping Things in that it describes a category of products and services that today exist only in splinters. Siegel references spimes because any object with an RFID tag that generates metadata and knows its location in space and time qualifies as a spime. Siegel gives an extended culinary example: your refrigerator will adjust its temperature setting based on the requirements of the contents, it will order items when they are used up, and you’ll be able to query the kitchen for dinner ideas based on available ingredients. Similarly, a catalog owned by a distributor could connect to its customer inventory database to suggest orders, discounts, and replacement items. A running shoe manufacturer which embeds RFID tags in running shoes so runners can register for races and track their results in a single location is moving towards a pull model.
The Semantic Web
The semantic web tries to make sense of written and spoken language that we intuitively understand but computers normally don’t–usually qualitative information like reviews, opinions, descriptions, directions, and definitions.
Two tests for semantic web:
1. Is it semantic? Are the terms unambiguous and tagged in a royalty-free format, governed by a nonprofit organization, that all software programs can understand?
2. Is it on the web? Is it online using a common name space that makes it easily findable? Is it shared among collaborators or companies? Does it use the information already online to get smarter as more people use it?
Core Principles of Pull
- Automatic generation of metadata – As we move through our lives, each transaction, product, and service touchpoint will generate data that will be stored in our personal data locker. Some events will generate data that will be sent back to the manufacturer to improve future products. The metadata must be in a shareable, reusable format.
- A customer-centered view of data - Siegel sees a power shift from traditional push tactics used today by marketers and service providers to a cusomter-centric pull paradim in which customers decide who sees their data and who they want to have relationships with. Services align around customers to provide greater value. Companies will organize around customers and customer groups, not capabilities.
- Intelligent data stores – The personal data locker is a foundational concept for the pull era. All devices will have intelligent meta data generators and decision systems–your call will send system status information to the manufacturer and automatically schedule maintenance. Resumes and other standard document formats will build themselves.
- Intelligent marketing – One of the benefits of the pull concept for marketers is the end of ad targeting based on keyword search and profile information. In the pull era, personal data lockers will make their owners’ preferences known to marketers explicitly. Personal data lockers will have permissions and visiblity levels that will govern which marketing entities can view and interact with which data and preferences.
- Data ownership and portability – This concept combines two pull themes: everyone owns all their data and decides how it is used and how visible it is; data can be made anvailable to any service or provider based on data locker permissions.
- Single source of truth for data – In the pull era, data will never be duplicated.
Key Enabling Technologies
- On-line data locker – The on-line data locker precludes the need for wallets, paper files, multiple user accounts, bank accounts, and most of the information storage and retrieval technologies we use today.
- Digital Birth Certificate – Each manufactured object will have a unique documented identity that will follow it through its life and document its lifecycle. This information will be used for product development, reuse, and ecologically mindful disposal.
- RFID – Although RFID has not seen the adoption that Siegel would like, the attributes of RFID that make it important for the pull vision are the ability of any object to make itself known to a local or global network and enable two-way communication information about its status.
- Taxonomies – Taxonomies structure information in a machine-readable format and make it available for the various processes and flows in the pull paradigm. For example, Extensible Business Reporting Language (XBRL) is a taxonomy that standardizes the data contained in financial reports in order to allow universal interchange of the information. This structured data can then be presented in a standard financial report or any other desired format.
- Ontologies – On-line ontologies are sets of rules which support answering questions (rather than just searching for keywords). This semantic search functionality is key to pull because it allows more effective use of on-line information.
- Semantic search – Rather than relying on keyword matching, semantic search answers questions, making information more accessible and enabling true decision support.
- Unique identity - To enable many of the pull concepts, everything and everyone needs a unique identity.
The History of Information
Siegel traces the evolution of information generation and storage in this video from its beginnings in the earliest writing to the explosion of data fueled by internet technologies and media.
He frames the problem by saying that the way we’re currently using information is broken at the scale we’ve achieved. After a keyword search, we visit each page to see if the answer is there; search engines don’t know if the answer to our question is on a given page; search engines only return keyword hits and links; search engines must guess the meaning of the information on the pages. Similarly, it’s not possible to compare similar items on different websites.
The solution is the pull concept described in the book which is supported by the semantic (unambiguous) web.
Your Online Data Locker
Much of the pull vision is supported by the idea of a personal data locker which not only stores all the information you generate and collect, but can also intelligently act upon that information to make decisions.
Here Siegel describes his vision of the personal data locker, a cloud-based desktop which contains all our information and applications/services.
Agile projects rely on agile estimating and planning processes which answer the question: “What should we build and by when?” Answering this question requires first estimating (“how large is it?”) and scheduling (“when will it be done?”, “what can we deliver by then?). Agile Estimating and Planning covers planning challenges and goals, estimation, prioritizing features and backlogs, scheduling, monitoring, and communication. Mike Cohn presents a comprehensive handbook for agile estimating and planning that includes the rationale for the agile approach along with a point-by-point explanation of why traditional planning methods don’t work.
…planning is difficult. Teams often respond to this by going to one of two extremes: They either do no planning at all, or they put so much effort into their plans that they become convinced that the plans must be right.
Plans and schedules are required for a number of business imperatives: industry events, customer delivery dates, marketing campaigns, budget and resource availability, and downstream activities such as training. Although these pragmatic considerations drive the need for planning, Cohn says planning is primarily “a quest for value.” A planning team addresses “what should we build?” by considering features, resources, and schedules in an iterative and incremental manner. A good planning process supports finding the right combination of these three variables by reducing risk, reducing uncertainy, supporting better decision making, establishing trust, and conveying information. Cohn notes that the biggest risk on a project is not missing the schedule or overspending the budget, it is building the wrong product. Trust, another important quality of successful projects and teams, is built in agile projects through reliable estimates and frequent delivery.
A good plan as one that stakeholders find sufficiently reliable that the they can use it as a basis for making decisions.
Agile planning welcomes change based on learning and new information. Balancing the time and effort required for planning with the foreknowledge that the plan will change is a key to successful agile planning. “This means we need plans that are easily changed,” writes Cohn. It’s important to note that agile planning does not automatically lead to date changes. In agile planning, dates may change, features may change, or quality may change–all depending on decisions made in the planning process. To support these principles, agile planning is spread through the entire duration of the project rather than front-loaded at the beginning.
Features are the unit of customer value. Planning should, therefore, be at the level of features, not activities.
Traditional planning focuses on activities rather than features which shifts the focus away from customer value and introduces a host of issues. Dependencies between activities create cascading schedule delays and individual activities rarely finish early. Moreover, features are not developed in order of priority and uncertainty is masked by the presence of an elaborate written plan.
The Agile Way
Projects should be viewed as rapidly and reliably generating a flow of useful new capabilities and new knowledge, rather than just a series of steps. Projects generate two types of new knowledge: knowledge about the product and knowledge about the project.
The Agile Manifesto written in February 2001 has four key principles that define the agile approach:
- Individuals and interactions over processes and tools
- Working softwre over comprehensive documentation
- Customer collaboration over contract negotiation
- Responding to change over following a plan
Taken together, these value statements guide the way agile teams work:
- Work as one team
- Work in short iterations
- Deliver something each iteration
- Focus on business priorities
- Inspect and adapt
Agile teams have specific roles including product owner (responsible for product vision and prioritizing features), customer (person paying for the project or purchasing the software), user, developer, and manager. Agile teams work in short iterations of pre-defined duration and deliver working software (including features prioritized according to business value) at the end of each iteration. Three levels of planning ar used: release planning, iteration planning, and daily planning. Release planning focuses on the Product Owner’s conditions of satisfaction which are comprised of user stories, budget and schedule. Iteration conditions of satisfaction consist of user stories and acceptance tests.
In agile projects, the desired features are written as user stories which are then estimated for size. Estimates are typically in the form of “story points” that provide relative size. Story point completion is tracked for each iteration to determine velocity (story points per iteration). Once velocity is calculated, a duration can be derived (based on best case, worst case, and average case velocity). From there, a schedule can be constructed.
Cohn suggest four factors to take into consideration when prioritizing based on business value:
- Financial value of having the feature
- Cost of developing (and maintaining) the feature
- The amount and significance of learning and new knowledge created by developing the feature
- The amount of risk removed by developing the feature
When considering risk, Cohn uses a risk/value matrix and recommends delivering high-risk / high-value features first, followed by low-risk / high value, and finally low-risk / low-value. High-risk / Low-value features should be avoided.
Revenue can be broken down into new revenue, incremental revenue, retained revenue, and operational efficiencies.
Cohn uses the Kano model of customer satisfaction to give context for feature prioritization decisions. The Kano model has two axes: customer satisfaction (low to high) and feature presence (absent to fully implemented). Features which provide high satisfaction based on even a partial implementation are “exciters and delighters”. Features which do not provide a higher level of customer satisfaction even when fully implemented are “must-haves or mandatory”.
Release planning and iteration planning form the core of scheduling activities in the agile approach. Iteration plans contain taks and are estimated in story points or ideal days; release plans contain user stories and are estimated in ideal hours. Iteration plans usually span multiple iterations and last three to six months. Essentially, an agile team will iterate until the conditions of satisfaction for the release can be met.
The agile scheduling process consists of these steps: 1) determine conditions of satisfaction; 2) estimate the user stories; 3) select an iteration length; 4) estimate velocity; 5) prioritize user stories; and 6) select stories and release date.
Cohn has an interesting chapter on buffering for uncertainty which addresses the inevitable unknowns in any project. He illustrates creating schedule buffers, feature buffers, and a combined buffer. In projects where time is of the essence, a schedule buffer can be implemented. For feature-driven projects, a feature buffer is used. A combined feature and schedule buffer can provide a range inside which a release or delivery can be made.
There’s a lot of detail in the book–it’s meant for a team to read and discuss together. He covers planning for multiple teams which is an important consideration for large projects. Also, Cohn explains how to monitor release and iteration plans and communicate status. There’s a case study at the end which tells the story of an agile team working on a hypothetical software product. If you buy in to the agile approach and want a book with which to start right away, this is a great pick. It covers all the bases and provides the conceptual framework along the way.
An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage. —Jack Welch
Agile and the Seven Deadly Sins of Project Management
Cohn gives a brief overview of the Agile method and then describes the seven deadly sins of project management (and how Agile addresses each):
- Gluttony – The desire to fix all dimensions of a project (scope, schedule, resources, and quality) which leads to impossible schedules and death marches. By timeboxing iterations and calculating velocity, Agile increases predictability. Since Agile iterations are fixed, the schedule is fixed and the focus is always on “what can we accomplish next?”
- Lust – An intense or unrestrained craving for features, all of which are critical. This results in lots of overtime and surprises. By developing features in priority order (forced stack ranking) Agile offers incremental gratification in two to four week increments. The team asks: “what is most important to do next?”
- Sloth - Failing to do high quality work at all times by testing quality at the end of the project. Sloth is characterized by instability during development, big delays, and unpredictable schedules. Agile/XP practices related to quality include: simple design, automated testing, test-driven development, continuous integration, pair programming, and refactoring.
- Opaqueness – Obscuring the progress, quality, or other attribute of a project which obviously leads to not knowing the true state of a project. Using the waterfall method, you have no idea if three months or three weeks is the right amount of time to schedule for testing. Agile addresses quality opaqueness by not letting bugs accumulate, using continuous integration, and avoiding the “90% done” syndrome by classifying features as either done or not done. Schedule opaqueness is handled via iterations that are timeboxed so teams get used to meeting deadlines. Because work is either done or not done, the release burndown chart shows real progress. Finally, scope opaqueness can be remedied by using actual velocity numbers to calculate best case, worst case, and average case velocity and predict how much work can be done in a give number of iterations.
- Pride – Believing we know everything needed to build the product. The causes of this are lack of stakeholder and user involvement which leads to failure to solicit feedback and failure to learn. Agile retrospectives, daily standup meetings, and engaging users with user stories are antidotes to this problem. Progressive refinement of user stories enables separating large stories into smaller, more specific ones.
- Wastefulness – Misuse of critical resources. This issue is experienced as loss of creativity, motivation, and time. It leads to delays and mailaise. Agile has several techniques to combat waste on projects: timeboxing iterations, daily standup meetings, iteration retrospectives, self-organizing teams, and spreading intensity out evenly.
- Myopia – Not seeing beyond your own work. The symptoms here are teams which don’t see the big picture and individuals who work only within their roles. This leads to unsuccessful products and delays. With Agile, planning is done at different levels (a release plan consisting of sprints) with cross-functional teams in order to provide context for everyone.
Agile Teams: Scope and Scale
In this video, Cohn discusses scaling Agile up to large teams–he starts with a 700 person team example. Cohn begins by saying that many Agile books can be read as describing “a lone team on a desert island”; however, Agile can scale up very well.
He says that in a large Agile project, there is no “one guy in charge”, rather, there is a Chief Product Owber who has a vision of where the product needs to go. Reporting to the Chief Product Owner are LIne Product Owners. For example, the Chief Product Owner could be responsible for Microsoft Office and the Line Product Owners are responsible for Excel, Word, and Power Point. The individual teams can coordinate work on their own and need three things: money, moral support, and guidance (from a Product Owner).
In addition to vertical Agile teams, he recommends horizontal teams; for example, server side developers and client side developers. The horizontal teams correspond to functional areas such as software engineering and are led by a role like VP of Development.
He concludes the interview by describing the Agile estimating and planning methodology–estimate softwrae in the way estimate in the real world. First, estimate the size and then derive the duration. Agile uses story points as relatively valid units to estimate size; velocity is then calculated at the end of each iteration as the number of points completed.
More on Agile planning:
Strategic Alliances and Marketing Partnerships seeks to answer two key questions: Why are some partnerships more effective than others? and How can I predict the likely outcome of the partnership and take steps to improve its performance? Gibbs and Humphries present eight partnership archetypes along with relationship management recommendations. For each type of partner, they provide techniques for identifying and resolving roadblocks and issues. Not surprisingly, the book essentially advocates moving from an entrenched, command and control, transactional mindset to an open, trusting, and highly committed stance towards partners. Jointly crafting objectives and performance measures are key tools for success along with openness to understanding the other company’s business and goals.
Companies can no longer “go it alone”–vertical integration and direct control over distribution channels, once winning strategies, now must be replaced with a partnership and joint value creation focus. Companies may choose partnership strategies in order to acquire skills and capabilities they lack or to gain prestige through a relationship with a market leader. Other motivations include competitive threat neutralization and joint value creation (especially when neither firm could create the value on their own).
The focus on relationship strategies is an outgrowth of outsourcing and supply chain management. Evaluating core vs. context capabilities can help identify which activities to consider for acquiring outside the current enterprise boundaries. This way, unique relationship become part of a firm’s core assets and differentiation. However, traditional siloed management approaches and insular performance measurement techniques will not create new value from partnerships. A collaborative mindset with a focus on joint value creation is required for effective alliances and business relationships.
Questions to ask about partnership strategies include:
- What industry changes have impacted your firm’s business model in the last 5 to 10 years?
- To what extent are your competitors today the same as five years ago?
- How has your firm’s business model changed in the last five to ten years? How will it change in the next five to ten?
- What percentage of your firm’s total revenue can be attributed to working with upstream and downstream partners?
- How adversarial are your negotiations with supply chain partners?
- To what extent do your IT systems interface directly with partners?
Gibbs+Humphries partnership types
The core of this book is a set of eight partnership types which are ranked by partnership quality, collaborative innovation, and value creation:
|Partnership Quality||Collaborative Innovation||Value Creation|
|No Can Dos||Low||Med-Low||Low|
|Evangelists||High level of mind share and positive references Although these mature relationships are overall very positive, they are often resting on their laurels and past their prime. When managing Evangelists, beware the inertia of the status quo.Evangelists thrive in stable environments and disruptive thinking is rarely found. These partners may not be the ones who take you to the next level.|
|Stable Pragmatists||Good culture fit and partnership built around solving tactical issues with supply chain management. Solid working relationship and above average performance. Use a systematic approach to relationship management to determine the right leverage points for achieving higher performance.|
|Rebellious Teenagers||Less mature, but still contain high degree of investment and contribution. However, the relationship benefits may have changed from its original objectives. Rebellious Teenagers may be the right partner for disruption and taking advantage of a new opportunity.|
|Evolving Pessimists||Partnerships which are attempting to evolve, but may be held back by systemic constraints due to complexity, customer requirements, or cultural obstacles. Improvements to this type of relationship may be possible if both parties are sufficiently battle weary.|
|Captive Sharks||In this type of relationship, partners need each other but harbor mistrust and have a good dose of conflict. Captive relationships may be improved by a willingness on both sides to deeply understand the other's business.|
|Cherry Pickers||The lack of commitment in this relationship can undermine future growth and value creation. Anchoring on and re-confirming the original intent and objectives of the relationship may rejuvenate this type of partnership.|
|No Can Dos||There is little to no positive outcome from this relationship which is characterized by low returns and lack of cooperation. Small, quick wins within individual teams may help thaw the ice.|
|Deserters||Not much value is created from this relationship. Unlike No Can Dos, Deserters are more likely to end the partnership.|
Gibbs and Humphries grade partnerships on three criteria: partnership quality, collaborative innovation, and value creation
Collaborative Innovation – Collaborative innovation moves beyond product, quality, and price metrics. Collaborative innovation includes ability to respond to new opportunities through cooperation, adaptability, and good communication. Partnership effectiveness indicates effectiveness through metrics such as customer satisfaction. Partnering effectiveness measures include: repeat business, market share, new market entry, and joint process re-engineering initiatives. The conditions that describe the effectiveness of the relationship and enable the partnership to be innovative and respond to opportunities are:
- Adaptability – ability of the partnership to adapt to changing conditions
- Innovation – extent to which the partnership encourages innovation and high performance
- Communication – Quality, relevance, timeliness and openness of communication
- Cooperation – Extent to which the partners cooperate effectively
Partnership Quality – Measures of partnership quality are: level of commitment, investment, joint reliance, knowledge sharing social bonding, and trust. Service and support factors are important but higher order outcomes and goals will create more value. Reference-ability is a good indicator of partnership quality–if your partner is willing to provide a positive reference to a key customer or buyer. Commitment to the partnership over the long term, open communication, trust, and shared objectives and goals are other measures of high quality business relationships. Reference-ability is a key measure for collaboration–joint public relations activities, presentations at conferences, joint customer visits, and reductions in competitive relationships. Key qualities of the relationship exchange including communication and trust are:
- Commitment – The motivation to invest in the maintenance and development of the partnership and the extent to which investments are made in the partnership by all parties
- Trust – The extent to which a partner is believed to be trustworthy, reliable and credible and the degree to which the partnership is operationalized in terms of mutual interests and benefits
Value Creation – Value creation covers all aspects of relationship-building, sustainment, and development including operations, performance management, and problem solving. Value creation for the business can be measured through cost decreases or margin increases that are directly attributable to the partnership. Value significance can be measured through sales numbers, margins, and extensions of current offerings. The efficiency of the partnership to create and capture the potential value that the partnership offers is based on:
- Conflict Management – The ability of the partnership to manage inherent conflicts and the degree to which the partnership creates an environment for creative issue or problem resolution
- Synergy - The extent to which the partners share common aims and objectives
- Value Creation – The strength of the underlying economic proposition of the partnership and the capacity of the partnership to constantly improve its competitive position through process improvements and cost initiatives
- Process Efficiency – ensuring a focus on continuous process improvement of the partnership outputs/deliverables
When evaluating partners, ask these questions to find new approaches for improving the relationship::
- How would your current and most recent partners describe your partnering maturity?
- List five investments that your firm has made in your partnerships that have/have not yielded the desired outcomes.
- What factors have determined whether these investments were ‘successful’ or not?
- List five things that your partnerships have taught you in the last five years.
- What changes to your processes have come about as a consequence of learning from your partnerships?
- What measures do you use to evaluate the quality of your partnering?
- Do you current KPIs give you the information and confidence to manage these partnerships effectively?
- Would they give you enough time to act if a relationship were going wrong?
Obstacles and Drivers
One chapter of the book is devoted to discussing positive and negative relationship spirals–cycles which reinforce and grow the relationship or which cause it to disintegrate and fail. Many companies hold back due to fear of losing hard dollar investments in partnerships that appear opaque. A high level of risk can be assigned to partnerships because priorities and leadership may change, adding to the lack of control over outcomes and deliverabls. Likewise, assets may be stranded if the relationship is not successful.
|Poor Performing Partnerships||High Performing Partnerships|
|Poor relationship management||Proactive relationship management|
|Lack of commitment||Joint objectives
High level commitment
|Adversarial practices||No blame culture|
|Fear of dependency||Joint planning and open communication|
|Inadequate joint performance measurement||High visibility performance measures|
Pricing decisions are frequently made based on isolated variables rather than a strategic view of the market and company. For authors Thomas Nagle and Reed Holden, the difference between setting prices and pricing strategically is “the difference between reacting to market conditions and proactively managing them.” There are many important considerations for pricing that go beyond near-term profitability and immediate pricing problems such as competitive reactions, marketing strategy, and alignment with sales and marketing programs.
The Strategy and Tactics of Pricing is one of the best books available on pricing because it gives a comprehensive and detailed view of all issues which should be considered when pricing products and services. The authors are so adamant about strategic pricing that they write: “Abdicating responsibility for pricing to the sales force or the distribution channel is abdicating responsibility for the strategic direction of the business.” In strategic pricing, prices are not set at the end of the product development process, rather the price is determined in line with all other elements of the solution being brought to market–”the only way to ensure profitable pricing is to reject early those ideas for which adequate value cannot be captured to justify the cost.” Instead of building the product first and handing off price setting to a different team, the price should be identified early on based on knowledge of customers and value and a product designed to support that price.
The reason pricing is ineffective is frequently not that the pricers have done a poor job. It is that decisions were made about costs, customers, and competitive strategy without correctly thinking through their broader financial implications.
Strategic pricing is the coordination of interrelated marketing, competitive, and financial decisions to set prices profitably.
Nagle situates pricing in the intersection between marketing and finance which “involves finding a balance between the customer’s desire to obtain good value and the firm’s need to cover costs and earn profits.” Marketing and sales managers, who should be in the best position to understand the value a company provides to its customers, must operate within and understand financial objectives. Conversely, financial managers must take a broader perspective than just covering costs. Profitable pricing is a result of a collaboration between the sales/marketing function (what is the value of the product to the customer?) and finance (what are the financial constraints required for profitability?).
Currently, the pricing function resides in several corporate departments–an August 2012 survey by the Professional Pricing Society found that 26% of pricing professionals report to top management with 34% residing in marketing and 20% in finance. Strategic pricing would have marketing and finance work closely together.
The problem with cost plus pricing
Cost plus pricing is based on the assumption that costs can be easily identified and allocated evenly as volume changes. In this model, fixed costs are allocated over a given unit volume; however, because price affects volume sales, the unit cost is a moving target. Attempting to use the cost-based price as a starting point is also futile–no one wants to raise prices regardless of sales volume. A vicious cycle results if volume decreases because now fixed costs must allocated over a smaller number of units. This results in overpricing in a weak market. Conversely, in growing markets, as volume increases, prices are decreased because fixed costs are allocated to a larger number of units, causing underpricing in a strong market.
Instead, two questions should be asked:
- How much more sales volume must we achieve to earn additional profit from a lower price?
- How much sales volume can we lose and still earn additional profit from a higher price?
Cost based pricing is founded on faulty logic because sales volume, which is the beginning assumption, depends on price, which is the outcome of the process. Rather, pricing managers should determine cost (based on value) first and then calculate price. This is the only way to break the cost-plus conundrum. Cost-based pricing is product driven: a product is designed, costs are incurred, and then finance is brought into the process at a later stage to determine fixed costs and allocating them across a projected sales volume. Marketing is then given the task of demonstrating value to customers.
Strategic pricing questions
It is the pricer’s job to work back from the price to understand the problem
Strategic pricing questions begin with the price, but quickly moves on to the broader business and marketing context:
- Is the price unprofitable because there is a better price to charge, or because the value has been ineffectively communicated?
- Is the market share goal too high, or is the market inadequately segmented?
- Is the product and service offering overbuilt (and therefore too expensive) for the value it delivers, or has the seller simply enabled customers to avoid paying for the value they get?
Asking each of these questions pulls the focus up from the price itself and encourages the business team to look at downstream go to market and upstream product and service design questions. Rather than using blunt force (to increase margin, raise the price; to make the sale, cut the price), strategic pricing questions are broader and more open-ended. Likewise, strategic pricing is cross-functional, and is not limited to a single discipline or department.
Profitable prices cannot be driven by a cost number with little or no understanding of how customers might respond, or by a customer’s demands with little or no information about how competitors might respond, or by a market-share goal with little or no understanding of the company’s ability to win a price war.
Key inputs to the pricing process include cost information (cost structures, cost levels, ROI parameters), competitor capabilities and intentions, and economic value from the perspective of the customer. This information must be integrated and applied against target customer segments and pricing objectives to determine the value-based pricing structure and segment-specific product variations. This flow puts pricing in context of product development and go to market decisions and eliminates myopic and reactive price setting.
Pricing for profitable growth in consumer markets
Strategy very often goes out of the window when it comes to competition
The participants of this panel discuss passing along input costs to consumers in a commodity market (consumer packaged goods in this case). Georg Muller recommends first looking across the entire value chain and asking: “what would happen if I passed along cost increases?” If that’s not possible, there may be options such as reformulating or resizing the product to make it cheaper to manufacture. Andrew Thomas says not to “send a shock to the system” by taking something away from the consumer in the process of changing the product and/or price. Nagle notes that if the whole market is raising costs in response to input price increases it is easier for any individual company to raise its prices; however, if competitors are not raising costs, it is difficult to step forward and be the first. The end consumer and your channel partners will resist raising prices purely for profit gains.
Nagle says that strategy is tossed aside when a competitor refuses to lower prices. In this case, he recommends stepping back and asking “what is the role of price in their strategy and what is the role of price in my strategy?” Market share becomes and important consideration because a market share leader may not want to do battle based on price against a smaller share company. Conversely, if two large share leaders go head to head, it may make sense to match one another’s pricing in order to avoid losing market share. Considering the whole marketing strategy, larger, national firm can raise ad spending in response to a regional competitor’s price decrease. Nagle says, “don’t assume that if [the competitor] picks price, I should also pick price”. The moderator summarizes by saying the best strategy is to compete in areas where you have the advantage and not in those, even if it’s price, where you do not.
Nagle says that companies should centralize pricing authority within a cross-functional team of Operations, Finance, and Sales in order to create a set of thoughtful pricing policies. Rather than assigning discounting thresholds by seniority (e.g., district manager can discount by 15%, VP of Sales can discount by any amount), companies should have clear pricing policies that empower anyone in the sales organization to provide discounts given definitive criteria. This enables the sales team to work closely with the customer to create win-win deals rather than respond to customer discounting pressure with “I have to talk to my boss” because the customer asked for a discount greater than what the sales person has authority to provide. Pricing policies also enable the company to proactively approach discounting through a focus on profitability rather than re-actively discounting in order to win volume.
Understanding Discounting Behavior
Pricing managers must balance the need to sell a piece of business and capture the value
Reed Holden (who also wrote Pricing with Confidence: 10 Ways to Stop Leaving Money on the Table) discusses key pricing issues. He observes that although technology is now available to pricing managers with which to manage and understand discounting behavior and price sensitivity, this capability is counterbalanced by well-informed and sophisticated customers who are adept at getting discounts. He says managers need to understand and remedy their discounting behavior by: 1) drawing a line in the sand and “firing some of their customers” who should not be receiving discounts; 2) go on a “value hunt” to understand the value their product provides; and 3) compensate the sales force for profitability rather than volume. Again, pricing is viewed not in isolation of an imminent deal, but within a broader context of customer value, corporate profitability, and future sales opportunities.
Once a growth initiative idea has been defined, it is important to assess it from a business model perspective. In Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity author Rita McGrath covers four steps in evaluating a new growth opportunity: establishing the viability of the proposed business in light of corporate requirements; analyzing the unit of business; analyzing the nearest competitive offer (NCO); and identifying key metrics.
The idea is that very early on, you need to get extremely practical and real about the proposed business as a business (and not just a cool idea).
Identifying the unit of business
The first step in evaluating a corporate growth program is to identify the unit of business–what the customer will be paying for. McGrath says this decision “shapes just about everything else that influences the way your business will unfold” and “has major implications for how you price, where profits come from, what your earnings logic is, and how you configure your operations.” Although for many companies, the unit of business is a physical object, for services like cell phones, one party sells the phone while another sells a subscription or a number of calls. Sometimes, companies give something away for free (e.g., iTunes software) so that they can gain revenues elsewhere (e.g., sales of iPods and music).
Redefining the unit of business
Sometimes, radically new opportunities open up when you can think of ways to change the unit of business, particularly if you can link the way customers pay you to an outcome that is desirable or salient to them.
Prepaid calling cards are a good example of an existing payment model (monthly service contract) turned on its head. It also created a set of complementary services such as those which “top off” prepaid minutes on cards. Another example is Apple offering single-song sales via iTunes rather than forcing consumers to purchase an album of songs.
Business model innovation and disruption is a highly covered topic–McGrath gives the example of Netflix changing the dominant movie rental model by charging for a group of titles (like the fitness club model where you pay the same regardless of usage) rather than videos individually. Another example is UPS changing from package delivery to providing third party logistics.
Because selecting the unit of business has “formidable consequences”, the McGrath advises a flexible and thoughtful approach that considers what might make a customer switch their buying pattern/behavior from your offering to a competitor’s and vice versa. Alternatively, if a competitor is locked into a unit of business that is hard for them to change, you may have the opportunity to take the offensive.
McGrath offers four approaches to finding alternative units of business:
- Match your offering’s value proposition to target segment needs
- Identify gaps in current offerings
- Look for external environment changes that could work to your advantage, especially if those changes will adversely affect your competitors
- Find customers who are either under served today or cannot afford current solutions. Ask: what are barriers to adoption?
Several examples that McGrath provides are businesses which re-defined their offering to be more broad than an initial specific benefit. For example, DuPont took one element of construction water management (plastic wrap) and expanded it to encompass all aspects of water management. DuPont management focused on examining the growth potential of the new unit of business and found it to be supportive of sustained profitability.
Bearing in mind that customers always have some way of getting a job done or a need met, McGrath outlines the Nearest Competitive Offer (NCO) process as a way of determining how your offering is different than the competition. To answer the “can you win?” question, consider some attributes of successful disruptive products and services:
- Differentiated “massively” on a dimension of performance that matters to customers (even if the product is worse in other respects)
- Radically changes the cost-benefit ration for its customers
- Changes the criteria that customers use to judge value
NCO analysis will point you in the direction of competitive advantage and clarify areas where there is no differentiation. By painting a portrait of the current customer context, NCO analysis provides the basis for transforming your product or service in the future.
Consumption Chain Analysis
This approach helps understand how your product or service will impact and fit into the total experience your customer has with you and your company. Consumption chain analysis begins with initial awareness, moves through purchase and usage and ends with disposal. Each step along the way offers insights into what customers value and how your offering impacts their lives. Additionally, it’s a great tool to ensure you have examined every link along the way and have not neglected key points like distribution and fulfillment. Comparing your solution to competitive offers along the entire value chain is a great way to determine gaps and opportunities for new value creation.
Finally, identifying key success metrics will help narrow down the options for changing the unit of business. McGrath suggests: sales growth, margin growth, operating effectiveness, capital effectiveness, and cost of capital. These come in handy for internal alignment and selling your business case.
Discovery-Driven Growth provides a set of steps to discover new growth opportunities. After making initial target market choices, McGrath’s method focuses on getting alignment from your organization and establishing criteria for investment. Once that groundwork is laid, focusing on the unit of business becomes the key decision to be made. After that, financial projects are made and project/program management takes over.
In the video below, co-authors Rita McGrath and Ian MacMillan discuss their discovery-driven growth model. McGrath says the two reasons companies fail at achieving growth are because they make the presumption that “you can be right in a world of massive uncertainty” and insisting on applying inflexible financial metrics in situations where knowledge is sparse. She says companies should take the entrepreneurial approach–”learning, change and redirection.”
McGrath says the first step is to identify areas where a small amount of resources can be freed up to pursue short-term growth opportunities. Unless this is done on a regular basis, the company is setting itself up for negative consequences in the future.
Contrary to traditional thinking, McGrath says that even core businesses are “sliding into uncertainty” so companies should pause to write down their key assumptions and map them against the changing reality of the marketplace.
Strategy is about learning. It’s not about sustainable competitive advantage or stable industry forces…Stop talking about being right and start talking about discipline…Stop talking about failure being bad and instead think about intelligent failures, low cost failures that are rich in learning
Ian MacMillan says that in uncertain environments, “I know that the plan is wrong”, discovery-driven growth is a “plan to learn” so you want to “learn cheap and learn fast.” Specifically, he says a company should identify its assumptions and devise plans to test them at discrete points in time. This allows the company to only invest as the product team learns.
Different types of innovations require different marketing strategies. Incremental and breakthrough innovations, particularly, require different choices for marketing strategies, interactions between marketing and R&D, market research, advertising, and pricing. In Marketing of High-Technology Products and Innovations the authors introduce the concept of the contingency model for high technology marketing which asserts that “the appropriate marketing strategy is contingent on the type of innovation.”
…the processes firms use to manage incremental innovation are not only not applicable to but may also be detrimental to the management of radical innovation. The firm’s challenge is to manage both types of innovation simultaneously.
Types of innovation
Incremental versus (breakthrough) radical innovation: Incremental innovations are continuations of or minor improvements to existing products and services which are built with existing technology and processes. Breakthrough innovations create new markets by introducing entirely new offerings that are based on changes to fundamental production methods.
Product versus process innovation: New products provide functional improvements, enhanced ease of use, or higher performance and are delivered as the final output of an organization’s efforts. New products can embody either incremental or breakthrough innovation. New processes result in increased efficiency or effectiveness in the techniques used for producing a firm’s goods. New processes can also encompass the discovery of new scientific or fabrication processes. One company’s product innovation can turn into another company’s process innovation as in the case of manufacturing tools produced by one company to be used in the factory of a different company.
Architectural versus component innovation: Architectural innovation is considered to work at the platform level (the way in which components of a larger system interact, can be configured and add value). Architectural innovation can frequently be radical given its impact to a broader ecosystem. Conversely, component innovation builds new components or sub-parts of existing technology platforms.
Sustaining versus disruptive innovation: This is the domain of Clayton Christensen’s Innovator’s Dilemma. Sustaining innovations target high end, demanding customers with expensive and/or high margin solutions that offer improved performance and features. Low-end disruptive innovation offers a “good enough” solution for low-end customers who cannot afford, or do not need, the high end solutions currently available. Eventually, low-end disruptions move up-market and disrupt the business models of the companies that provide those solutions. New-market disruptions convert non-customers into new customers and create new markets through delivery of new technologies.
Organizational innovation: Organizational innovation spans the creation of new strategies, new business models, and business practices. Business strategy innovations can include changes to financial management methods or an emphasis on social innovation. Changes to promotion methods, pricing, supply chain, or pricing are classified as marketing innovations.
Innovation can occur in various stages of the supply chain and not be visible to the end user. For example, extraction and processing of fuels may change dramatically, but the experience at the pump or at the thermostat does not.
The contingency model for high technology marketing
market planning that explicitly recognizes and accounts for the strategic distinction between market-driven and innovation-driven research goes a long way toward yielding better corporate performance
The right marketing strategy to choose is contingent on the type of innovation a company creates. Specifically, the type of interaction between the research and development group and the marketing team depends on the type of innovation being brought to market. In supply-driven markets, technology superiority is critical to success so a strong research & development group is required. The type of market research tools that are effective also changes–for breakthrough innovations, traditional market research will not likely be useful. The role of advertising is frequently more important in incremental markets where offerings are well understood and audiences are defined. Finally, entirely new products and services may be priced at a premium because they offer new value that is not available elsewhere.
In incremental innovation, found often in mature markets, the marketing function becomes more critical because the customer base and their needs are typically more well known. Because of their knowledge of and experience with the product and its benefits, customers can play an active role in product development. Standard market research tools can be used as marketing takes the lead role in defining the offer. Likewise, standard management controls and formal planning can be effective for this type of innovation. Advertising can be effectively used to stimulate demand in targeted market segments and pricing strategies need to take the competitive landscape into account.
incremental innovation moves along an existing technology trajectory (S-shaped curve)
producers of a mature product who have achieved high volume in their production processes have a strong incentive to make only incremental innovations that leverage their investments in existing technological platforms, potentially making them less open to radical change and more vulnerable to obsolescence.
Overall, incremental innovation extends existing products and processes in markets where product attributes are well defined. Competitive advantage is acquired through lower production costs and products are frequently developed in direct response to competitive dynamics. The book classifies this type of innovation as “demand-side” or “customer pull”, indicating that much of the impetus for change and improvement comes from the buyer.
Competitive advantage for a breakthrough technology is typically found in the superior functional performance that the new innovation offers over existing methods or products…typically…a leap to a new S-shaped curve.
Because radical innovation is developed by an R&D group that often hasn’t specifically thought about a particular commercial market application during the development process, the technology is pushed into the market to see where it might best be utilized. These innovations are created independently of the vision of the uses they might serve.
By contrast, breakthrough innovation occurs when new technologies create new markets, most often initiated by inventions from research and development teams. This type of innovation provides superior functional performance when compared to the existing technology; specific market opportunities and needs are secondary priority. This is a “supply-side market” with “technology push.”
An over-reliance on incremental innovation can diminish “the focus and capacity of companies to engage in truly breakthrough innovation” so both approaches must be managed thoughtfully. The authors caution that “marketers should not confuse the nature of the innovation with the potential payoff and wrongly assume that breakthrough innovations will have a large payoff.” Similarly, spreadsheets and traditional financial tools can eliminate a company’s ability to innovate.
Selecting the type of innovation to start with
Geoff Tuff from the Monitor Group discusses Doblin’s Ten Types of Innovation for classifying innovations based on a value chain view (finance, process, offering, and delivery). This is similar to the framework presented in Marketing of High-Technology Products and Innovations and covers many of the same types of innovation avenues. Although product performance innovation is the most popular type of innovation, successful companies allocate their innovation efforts throughout their value chain. Moreover, only 4% of the product innovations studied returned their initial investment. When this finding is taken into account and product innovations are compared to the other nine types by cumulative return on capital, business model and customer experience innovation turn out to be the most successful. Tuff calls these two types of innovation “integrative” because he says, “it is almost impossible to implement business model or customer experience innovation without impacting multiple other types of innovation along the way.” To effectively manage these different types of innovation, the guidelines from Marketing of High-Technology Products and Innovations are a good complement.
To develop breakthrough products, product teams need to stop gathering requirements and listening to “the voice of the customer” and start focusing on “jobs to be done” and the metrics by which customers evaluate products and services. What Customers Want: Using Outcome-Driven Innovation to Create Breakthrough Products and Services presents three product development tenets: customers buy products and services to help them get jobs done; customers use a set of metrics (performance measures) to judge how well a job is getting done and a product performs; customer metrics make possible the systematic and predictable creation of breakthrough products and services.
The foundation of the method presented in this book is a ranking calculation based on importance and satisfaction ratings from customer surveys. All downstream product development decisions are based on the list of prioritized jobs to be done, outcomes, and constraints. Author Anthony Ulwick approaches innovation from a process perspective–identifying inputs and outputs and mapping the steps in order to optimize.
For Ulwick , “innovation is simply the process of figuring out ‘what customers want.’” Specifically, “companies need to figure out what jobs customers want to get done and how they measure success in getting a job done before they can determine what solutions customers want.” This presupposes that customers know what jobs they want to get done and can articulate it, which may not be possible when creating entirely new offerings.
In terms of innovation success, Ulwick’s fundamental assumption is that “by identifying the stages of innovation and eliminating the factors that introduce variability into the innovation process, companies can realize higher innovation success rates and more breakthrough products and services.” The reduction of variability in innovation is a contested issue. Many innovation leaders assert that high variability is exactly what produces the best results–it is not possible to optimize the innovation process.
Moving beyond the customer-driven paradigm
The customer-driven model does not work because, Ulwick says, “when companies gather customer requirements they do not know what types of inputs they need to obtain from the customer. Neither does the customer. Consequently, the customer offers his requirements in a language that is convenient to him, but unfortunately that language is not particularly convenient for the creation of breakthrough products.”
The remedy is for companies “to know, well in advance, what criteria customers are going to use to judge a product’s value and dutifully design a product that ensures those criteria are met.” However, “customers have these metrics in their minds, but they seldom articulate them, and companies rarely understand them. We call these metrics the customers’ desired outcomes.” Identification of the outcomes through requirement gathering interviews and ranking them through surveys is Ulwick’s preferred method of prioritization.
Choosing your innovation strategy (types of innovation)
The first step in Ulwick’s method is to select the appropriate innovation strategy by choosing between various types of innovation: product/service innovation (improvements to existing offerings), new market innovation (where no product exists to do the job), operational innovation (increasing efficiency within business operations), and disruptive innovation (new technology which disrupts a dominant business model with a good enough solution). It’s also important to consider all relevant customers (including the end user) and decide where in the value chain you will focus your efforts. Once the broad innovation target has been established, customer inputs can then be gathered.
Capturing jobs, outcomes, and constraints
The objective of requirements gathering is for the product team to understand what metrics customers use to determine value when getting a job done (#jtbd on Twitter). While gathering requirements, teams typically face challenges with defining what requirements are, believing that they are getting the right kind of information from customers, and, in the process, not getting the right kind of information.
When asked, customers frequently offer solutions, design specifications, needs, or benefit statements. Because customers are not technologists or engineers, their solution recommendations often do not address the job to be done. Likewise, specifications from customers may not yield a better product. Needs are usually imprecise and open to interpretation, making them difficult for the company to incorporate into a product or service. Similarly, benefit statements are ambiguous and not actionable.
Given these challenges, the product team must focus on identifying the jobs customers are trying to get done (tasks and activities), outcomes the customers want to achieve (metrics used to define successful execution), and constraints that might prevent adoption. To discover these three inputs, Ulwick recommends user interviews with interviewer restatement and clarification. This method produces a concise requirements document which is then used as the basis of customer surveys for ranking purposes.
Identifying where the market is underserved and overserved
The core of Ulwick’s method is prioritizing the opportunities (jobs and outcomes that are underserved). Ulwick uses surveys and an algorithm to rank the opportunities that have been discovered. This ordered list of opportunities is then used to determine the order of investment for product and service development.
Specifically, a survey containing jobs, outcomes, and constraints gathered from customer interviews should be given to a statistically valid representation of the target market. In the survey, participants should be asked to rate the importance and their satisfaction with each element.
For Ulwick, Opportunity = Importance + max (Importance – Satisfaction, 0). For example, if a job had an importance of 10 and a satisfaction of 3, its Opportunity score would be 10 + max (10-3,0) = 17. The max function ensures that Opportunity is never a negative value (effectively prioritizing importance in the equation).
The Opportunity score is the core metric for determine which jobs, outcomes, and constraints to pursue. A score of 15 or above represents a highly attractive opportunity while a score of 10 to 15 are attractive for some markets, and scores of less than 10 represent overserved jobs and outcomes. This mapping can indicate overserved markets which might be candidates for a disruptive innovation.
Market segments (groups who have unique sets of underserved or overserved outcomes) are then defined by aggregated opportunity groups. To identify market segments, collect customers’ desired outcomes, choose the segmentation criteria (outcomes with the most variance), conduct cluster analysis to identify the groupings, and then profile the clusters. According to Ulwick, this process will identify unique opportunities in mature markets, customer segments willing to pay more for enhanced solutions, and undesirable customer segments. Growth targets can be identified through the same means–outcomes that are underserved. Focusing marketing message development and communication campaigns on outcomes and jobs to be done will ensure benefits are well understood by customers.
Although the products and services that satisfy a job to be done or outcome change over time, the outcomes customers are interested in do not. When an outcome is satisfied by a product or service, companies must look to other outcomes to create value or to unsatisfied/underserved outcomes. Assuming that outcomes and jobs to be done are available and correctly identified, a company can use this model to predict value migration from underserved to overserved outcomes.
You can’t put into Excel how customers will respond to a new idea — Jeff Bezos
The outcome-driven process moves away from ambiguous and non-actionable benefits statements, solutions, specifications and needs to higher order elements (jobs to be done, outcomes, constraints). It has a solid foundation in understanding the goals and objectives of your customers, but is heavily dependent on requirements sessions and surveys which may lead to blindspots that might be better discovered by other means. The risk in predominantly analytic method is that customers may change their minds about satisfaction and importance when presented with the final solution. Also, customers may know what jobs they are trying to get done today, but may not know the jobs they will try to get done tomorrow (new technology can present us with entirely new sets of jobs to be done and outcomes).
In the video below, Ulwick describes his epiphany having worked on the IBM PC jr product: “if we could address the criteria that people use when judging [a product's] value, then we’d have winning products”.
In this excerpt, Ulwick begins his systematic approach to the innovation process by noting that there is typically not a shared definition of “innovation” or “customer needs” within companies (although both are perceived as critical for success).