Getting customers to purchase next year’s product is a tried and true tactic for growing revenues. Apparel companies issue new looks. Automakers launch new models. Software publishers issue new versions. Almost every company depends, to some extent, on growth through product upgrades.
Product upgrades should be slam dunks because they leverage built-in customer base, company process, and sales teams. That’s why it’s shocking that a documented 25-45 percent of sustaining innovation projects fail to meet their objectives. And in practice, I’ve seen numbers closer to 60-70 percent.
But the more I researched, the more I understood why so many sustaining innovation projects fall to pieces — despite standing on a firm foundation. Two important case studies can help us understand why these projects don’t always work out.
Sustaining Innovation: Two Failed Case Studies
In the 1950s, Henry Ford put together a team of “Whiz Kids” to build the Ford’s 1957e Edsel. In 2014 dollars, Ford dropped $2.2 billion on the project… only for it to be dead in the water and synonymous with failure by 1960.
I know this story from the outside, as a customer of a large financial services institution that in 2012 had similar results when they launched a new offering to migrate low- and mid-end customers. Despite spending north of $10 million on the roll out, less than 1 percent of their client base has switched over to the new offering. It’s an understatement to say that the millions of dollars invested in the app failed to bring in the upgrade results expected.
What can we learn from these two examples? In both cases, leadership made differentiated, data-driven decisions backed up with ample research. Marketing and sales sold the USP on value, and Year 1 goals for these product launches were an achievable 5 percent and 4 percent of unit market share, respectively. But revenue in both examples quickly fell more than 50 percent behind projections. The Edsel was killed off. The app’s fate isn’t sealed, but it’s not looking good. Fifty-five years apart and both so unsuccessful, these case studies offer valuable insight to those looking to roll out successful sustaining innovation today:
1. Start with a problem, not a solution.
Ford failed to ask consumers if they wanted another mid-priced sedan or a more complete product. Executives at each company simply “knew” that that was what the market wanted. Customer research was used to modify the solution (e.g., should seat belts be standard?), rather than identifying customer problems (e.g., are there too few mid-priced sedans?).
To prevent your firm from wasting time with solutions looking for problems, deploy a “Red Team” to review and evaluate sustaining innovation project proposals. A red team is a team of knowledgeable individuals who review your sustaining innovation proposals to throw a red flag on serious problems and brainstorm solutions to those problems. This team is especially useful in disqualifying proposals that lead with the solution, rather than the customer’s problem.
2. Gather information about this specific project.
Full detail requirements aren’t realistic for most real projects, but you can gain a lot of momentum by gathering needed capabilities before you move forward. Don’t be overwhelmed by capabilities. Capabilities are not requirements. Capabilities simply state what you’ll be doing with the results of the project and this project will produce the planned value. Using Excel or another statistical tool, follow the Capabilities-Based Planning advice and sort out these capabilities into a customized priority so that you can perform the Analysis of Alternatives.
3. Safeguard against optimism with a credible estimate.
Humanity would have ended long ago if we weren’t inherently optimistic beings. But our innate optimism sometimes makes us suck at planning. We seem incapable of estimating any error or delay into our time estimates, let alone our long-term sustaining innovation estimates. The more complex and interrelated the projections, the more compounded this error, leading you to overestimate initial revenues and underestimate the cost much like 2012’s app case study.
These errors cultivate what Kahneman and Tversky coined as “The Planning Fallacy,” and to counteract it you need to arm yourself with a combination of Experience, Skills, Knowledge, Data, Tools, People, and Process. If you’re not careful, this form of optimism can infect proposals and business cases in dangerous ways. Perhaps we believe the learning curve applies to someone else, or that the market will find our early products and services more valuable than it actually does.
The solution is to do what you can to plan for less-than-stellar results. One CFO I know overcomes biases in proposals by halving the revenue numbers and doubling costs. That works, but it’s a bit brute force. Rather than building a project plan by identifying what needs to be done and documenting the duration and dependencies, start with what you know and what you don’t know. Build your sustaining innovation project with a knowledge-based approach, and you’ll have an easier time filling in the blanks. Take a wider view to understand why the results don’t meet projections, rather than your success hinging on a quick-fix estimate.
Sustaining innovation is a core principal of revenue generation for a reason. When executed correctly, it can meaningfully impact a company’s P&L for years. Your firm already has the resources, processes, and capabilities to succeed. Put it together with proactive sustaining innovation to beat the odds and implement an innovation that succeeds.
This article was written by BRIAN O’CONNOR from Business2Community and was legally licensed through the NewsCred publisher network.