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Managing Innovation with a Customer's Perception of Value

by Tony Ulwick and John Eisenhauer

A company successfully wages war on its competitors for years, carrying the torch of success like a pillar of light. But suddenly, a challenger develops a new product so innovative and different that it disrupts the very foundation upon which the incumbent built its fortress. The press speculates about the company's impending demise. The company is forced to relinquish its control to a new leader - a competitor that saw the future and got there first. As the industry of yesterday fades to the wayside, the industry of tomorrow grows up in its place. So once again, a company's failure to recognize and stay focused on what its customers’ value has caused its collapse. This age-old trap, like quicksand in the jungle, preys on unsuspecting companies journeying down a seemingly joyous path. So, how can this fate be avoided?


Avoiding extinction starts with understanding that a company must maintain a constant focus on creating customer value - but there is a catch. In order to maintain that focus, a company must be certain that its long-term perspective of value is the same as the one shared by its customers. Customers recognize that value is delivered when a product, service or solution helps them achieve something that is important to them. More specifically, as they attempt to execute a specific process, they look for solutions that will enable them to do so more efficiently. For example, a lawnmower is acquired to simplify the process of lawn maintenance. Services like E- Trade simplify the process of buying and selling stocks. Microprocessors simplify the process of data processing. All successful products and services can be linked to simplifying the execution of a specific process. Our economic system depends upon customers seeking out products and services – solutions – that help them execute processes more efficiently, in less time and for less cost. Therefore, in order to create ongoing customer value, organizations must understand and focus on the process that their solution helps execute.


Despite the fact that customers share this process perspective, companies often fall into the trap of upholding and standing by the solutions they produce for their customers. By doing so – and ignoring the process their customers are trying to execute – they unknowingly sentence their organizations to death row. By their very nature, extinction is the eventual end to all solutions. We can see this in the study of any product life cycle curve, or s-curve as it is called. The S-curves, thus the solutions, all have a beginning and an end. The life cycle ends when the evolution of a process gives birth to another more advanced solution and discards the old one. The newborn technologies take over where their predecessors leave off. History is full of examples. Calculators replaced slide rules, word processors replaced typewriters, CD's replaced records and flat screens are replacing picture tubes.


With the ceaseless advancement of technology, newer, better solutions to customers’ problems constantly emerge. Those that maintain a solution at the epicenter of their organization’s focus will eventually be forced to succumb to the will of a new champion – a new industry leader. Because of their inherent constraints, solutions are a limited platform upon which only incremental improvements can be made toward advancing a process to its ultimate level of performance. Once a solution has "peaked", its price often becomes the differentiating factor and the product takes on the look of a commodity. It is at this point that disruptive technologies can do the most damage; when the seeds are sown for revolution and the overthrow of the incumbent. Disaster looms on the horizon.


Historically, those that have survived such threatening technology peaks have done so by thinking "out of the box" – a box whose boundaries are defined by the incumbent solution. Only by breaking free of this box – the prison that stifles innovation and limits creativity – can an organization begin to define new methods of creating customer value. Solutions act only as interstitial bridges, spanning the precipice of time between an industry's technological breakthroughs and product advancements. Organizations must view their solutions, however great they seem today, as disposable tools. Only then will they be able to continually create customer value in the face of innovation and commoditization.


When focusing on solutions, organizations obstruct their vision of the larger, more important picture – the process. Thus they hinder their own ability to create customer value. They limit their own longevity and define their own mortality. History speaks for itself. Not one slide rule manufacturer successfully converted to the production of calculators. Why? They were convinced that their solution was fully evolved and could not be improved. They may have been correct from a solution perspective, but the process of executing mathematical computations was far from evolved in the eyes of the customer. A focus on solutions acts as a blinder, preventing an organization from seeing other opportunities outside its current competency that would allow it to create more customer value and avoid extinction. Dozens of companies that led the economy in the 1970's and 1980's do not exist today - many of them victims of loosing their footing at the end of the s-curve and falling to their demise.


So how can organizations avoid this endless cycle of innovation, success, commoditization and premature demise? They must focus on the process that their solution was originally created to support and dedicate themselves to evolving that process - not the current solution. The most important thing to understand about any solution is that its creation had only one purpose - to help improve some process. That underlying process is eternal. When a disruptive technology emerges, it is only disruptive to the solution – it is sustaining to the underlying process. For example, the underlying process of listening to recorded music has been sustained by solutions such as records, 8-track tapes, cassette tapes, CD's and now MP3. The process of getting to a business meeting at a distant location has been sustained by solutions such as the horse-and- buggy, trains, cars, airplanes and now video-conferencing. The process of executing mathematical computations has been sustained by solutions such as the abacus, the slide-rule, calculators and computers. The process of two-way communication has been sustained by solutions such as Morse code, the telegraph, the telephone, cellular phones and the Internet. Every process in history has a chain of solutions created to help advance that process. Organizations that follow the process enable themselves to create one breakthrough solution after another. In short, they open the door to the continual creation of customer value.


Processes span the distances between S-curves. Processes are raging rivers, unstoppable in their course. Organizations must learn to use solutions as the stepping-stones that allow them to safely cross these raging white waters. With an ongoing focus on the process of their customer's interest, organizations can predict the value of new and upcoming technologies; they can be prepared to reallocate their resources in support of the transition to a new S-curve. Additionally, they can justify the pursuit of new technologies despite the lack of a traditional business case. Further, they can maintain leadership positions in their markets over the long term, just as IBM successfully survived over 25 years in the turbulent data storage market by focusing on the process of storing and retrieving data.


Organizations that focus on improving their present solution are only prolonging the inevitable – extinction. Be assured, if an organization pledges its allegiance to a solution, another more powerful solution, driven by the endless evolutionary thrust of the underlying process, will overthrow the incumbent’s throne. Processes, on the other hand, are autonomous. They drive their own advancement with the aid of curiosity, technology and motivation. As companies continue in their efforts to evolve processes, new solutions will be born and old ones will die – but the organization will live on as eternally as the process itself. An ongoing focus on the process will propel an organization well beyond the bounds of its current solution, providing insights into new, breakthrough solutions - far into the future.


By aligning itself with processes rather than resisting them, the organization can stimulate and accelerate the continued growth of technology at amazing speeds. Salmon swim upstream to spawn, and many of them die as a result. Let’s take a lesson from nature and not fall prey to this inborn trap. Be prepared to let go of today's solutions and focus on the process you are trying to evolve. Doing so will enable you to evolve at the speed of technology and increase your organization’s life expectancy to immortality.

© 2023 by John A. Eisenhauer

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