Clayton M. Christensen, who framed the problem The Innovator’s Dilemma in 1997, is back again, with coauthor Michael E. Raynor, to offer answers in The Innovator’s Solution. And with companies waiting expectantly for an economic upsurge and a return to aggressive innovation, the timing of this book may be perfect. In Dilemma, Christensen, a Harvard Business School professor, demonstrated that companies tend to reject disruptive ideas?those that don’t appeal to established customers or markets?in favor of sure bets with predictable outcomes. In Solution, written with Raynor, a director at Deloitte Research, the authors explain what companies should focus on in order to innovate and grow a business. This excerpt from Chapter 3 looks at how conventional customer and market segmentation typically dooms new products to fail. And CIOs should note that IT-derived market data is one of the big culprits. Instead of focusing on product attributes and on market size data, companies must learn what jobs customers want to perform with potential products, and use this as their marketing guidepost.

EXCERPT

All companies face the continual challenge of defining and developing products that customers will scramble to buy. But despite the best efforts of remarkably talented people, most attempts to create successful new products fail. More than 60 percent of all new-product development efforts are scuttled before they ever reach the market. Of the 40 percent that do see the light of day, 40 percent fail to become profitable and are withdrawn from the market. By the time you add it all up, three-quarters of the money spent in product development investments results in products that do not succeed commercially. These development efforts are all launched with the expectation of success, but they seem to flourish or flop in unexpected ways. We argue that the failures are really not random at all: They are predictable?and avoidable?if managers get the market segmentation right.

Only if managers define market segments that correspond to the circumstances in which customers find themselves when making purchasing decisions can they accurately theorize which products will connect with their customers. We believe that customer segmentation (or categorization) should be based on the notion that customers "hire" products to do specific "jobs." Doing so will help managers segment their markets to mirror the way their customers experience life. This approach can also uncover opportunities for disruptive innovation.

Predictable marketing requires an understanding of the circumstances in which customers buy or use things. Specifically, customers?people and companies?have "jobs" that arise regularly and need to get done. When customers become aware of a job that they need to get done in their lives, they look around for a product or service that they can "hire" to get the job done. This is how customers experience life. Their thought processes originate with an awareness of needing to get something done, and then they set out to hire something or someone to do the job as effectively, conveniently and inexpensively as possible. The functional, emotional and social dimensions of the jobs that customers need to get done constitute the circumstances in which they buy. In other words, the jobs that customers are trying to get done or the outcomes that they are trying to achieve constitute a circumstance-based categorization of markets. Companies that target their products at the circumstances in which customers find themselves, rather than at the customers themselves, are those that can launch predictably successful products. Put another way, the critical unit of analysis is the circumstance and not the customer.