Part 1. Does every product deserve an innovation?
Quantify, don’t guess.
Allocating limited R&D resources can be tricky, especially if the product portfolio is extensive or varied. Multiple products wholly different in nature must somehow be assessed against each other. Dr. Mikhail Verbitsky, an innovation expert and Senior Principal at GEN3 Partners, recommends systematically scoring the products against a common matrix so that they can then be objectively ranked. The tools to construct this matrix are:
- ”Main Parameters of Value” (MPV), a measurement of those functions of a product that customers are willing to pay for.
- “Price Performance” (PP), a measurement of how a product's price compares to that of a similar, competitive product within the same category.
- “Gross Profit Potential” (GPP), the total profit pool available to participants in the market.
MPV analysis helps to unveil those product features that are of greatest value to the customer and which have the best potential for improvement. The ratio of MPV to PP, in turn, gives us Customer Value, a measure of competitive pressure for each of the products. Finally, plotting the products on a GPP vs. Customer Value matrix yields four clusters, each with a different meaning for innovation.
Group 1: Products with high customer value that address a large profit pool. Products in this cluster deliver significant value to their markets and therefore should (barring other barriers to success) enjoy strong market share and profits. This group is the Target Domain.
Group 2: Products that provide low customer value but have a high GPP. Although products in this cluster have a high profit potential, they are—or may become—vulnerable to competitive products with superior value. These products are high-priority candidates for value improvement innovation – which leads to improved market share.
Group 3: Products that have a small profit pool and provide less value to their customers than do competing products. Products in this cluster should be given low priority, but not before testing the potential to improve profit margins and/or market demand.
Group 4: Products that provide relatively high value to their customers but have low GPP. It is possible that the same competencies that created this high value could be applied to adjacent markets through product innovation, but these products should be given low priority.
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Been there; heard that.
There is no debating that sustainability is high on the agenda of every major corporation today. However, while many companies aspire to develop more sustainable products/processes, the reality is that these initiatives are often slow to take off. A recent BCG study reported that 70% of respondents claimed their organization did not have a compelling business case for sustainability, and for this reason, sustainability objectives aren’t always executed against.[1] Why is this?
Dr. Sam Kogan argues that this is because the “no business benefit to sustainability” perception is actually a misperception—and points to the historical record to make his case. He asks us to look at the implementation of child labor laws in the 1910’s, industrial safety regulations in the 1960’s and ISO quality standardizations in the 1970’s; all similar paradigm shifts that were likewise rejected by conventional wisdom as being business nonstarters, but which in fact turned out to be anything but.
- Child Labor Laws (1910s) -
Industry fought child labor laws, fearful that the cost of eliminating children from the workforce would cause a huge economic blow. In retrospect, the short-term cost was minimal and in the longer-term, the reverse was actually true: the less child labor, the greater GDP.[2]
- Safety Regulations (1960s) - Amid controversy, the Occupational Safety and Health Act of 1970 created OSHA as part of the U.S. Department of Labor. After OSHA’s launch, annual productivity gains were seen (fewer production labor hours for the same level of output) which, in effect, lowered total payroll costs.
- Quality Standards (1970s) – Firms that forewent ISO 9000 certification experienced substantial deteriorations in their ROAs relative to their competitors who did not.
These three movements had staying power and achieved business as usual status ultimately because they had an economic basis to do so. And, just as the above industrial movements evolved past initial narrow thinking as “cost added” requirements, time will prove that innovating for sustainability is a “value add” as well.
Dr. Kogan further contends that planning to win on sustainability in the long run does not mean having to suffer through elusive business results in the short run. In fact, companies can innovate against their sustainability objectives and win, now. The tools and processes to innovate for sustainability without sacrificing cost and/or performance are readily available today. To learn more download “Innovating for Sustainability, from Aspiration to Implementation”, a white paper that demonstrates how a systematic approach to innovation can help companies meet their sustainability targets with a clear line of sight to profitability.
[1] The Business of Sustainability – Imperatives, Advantages, and Actions, Boston Consulting Group, Sept. 2009
[2] http://www.greenlightapparel.com/child-labor-crisis