Book Excerpt -- The Innovator's Solution - What Customers Really Want Is for You to Do Their Jobs

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 Of the 40 percent that do see the light of day, 40 percent fail to become profitable and are withdrawn from the market.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.

How I.T. Undermines the Success of Innovation

The IT systems in most companies collect, aggregate and summarize data in various ways to help managers make better decisions. The reports are undoubtedly helpful, but they also lead companies to develop new products and services destined to fail in the marketplace. Almost all corporate IT reports are structured around one of three constructs: products, customers and organizational units. The data shows managers how much of each product is being sold, how profitable each is, which customers are buying which products, and what costs and revenues are associated with servicing each customer. IT systems also report revenues and costs by business units so that managers can measure the success of the organizations for which they have responsibility. The odds of developing successful new products begin to tumble when managers collectively begin to assume that the customer’s world is structured in the same way that the data is aggregated. When managers define market segments along the lines for which data is available rather than the jobs that customers need to get done, it becomes impossible to predict whether a product idea will connect with an important customer job. Using this data to define market segments causes managers to aim innovation at phantom targets. When they frame the customer’s world in terms of products, innovators start racing against competitors by proliferating features, functions and flavors of products that mean little to customers. Framing markets in terms of customer demographics, they average across several different jobs that arise in customers’ lives and develop one-size-fits-all products that rarely leave most customers fully satisfied. And framing markets in terms of an organization’s boundaries further restricts innovators’ abilities to develop products that will truly help their customers get the job done perfectly.

Like it or not, although market researchers often develop a solid understanding of the jobs that customers are trying to do, the primary language through which the nature of the opportunity must be described in the resource allocation process is the language of market size. Asking marketers to understand this concept is not the solution to the problem?because whether it is called "marketing myopia" or "jobs to be done," this concept has been taught before. It is a process problem. Because senior managers typically hire market research to quantify the size of opportunities rather than to understand the customer, the resource allocation process systematically and predictably perverts companies’ concept of the structure of their market so that it ultimately conforms to the lines along which data is available.

As a result, corporate IT systems and the CIOs who administer them figure among the most important contributors to failure in innovation. Data purchased from external sources has the same impact, because it is structured by product attributes, not by job. The readily available data actually obfuscates the paths to growth.

The solution is not to use data that is collected for historical performance measurement purposes in the processes of new-product development. Keep such data quarantined: It is the wrong data for the job. The size and nature of job-based or circumstance-based market categories actually can be quantified, but this entails a different research process and statistical methodology than is typically employed in most market quantification efforts.

Using Circumstance-Based Segmentation to Gain a Disruptive Foothold

The first time that builders of a new-growth business need to assess what the target customers really are trying to get done is when they are searching for the disruptive foothold?the initial product or service that is the point of entry for a new-market disruption. When managers position a disruptive product squarely on a job that a lot of people are trying to get done, and which has been poorly addressed in the past, they create a launchpad for subsequent growth through sustaining innovations that build on the initial platform.

How can managers identify these foothold opportunities? It may never be possible to get every dimension of a product introduction in a new-market disruption right at the outset. We believe, however, that a jobs-to-be-done lens can help innovators come to market with an initial product that is much closer to what customers ultimately will discover that they value. The way to get as close as possible to this target is to develop hypotheses by carefully observing what people seem to be trying to achieve for themselves, and then to ask them about it.

Akio Morita, one of Sony’s founders, was a master at watching what consumers were trying to get done and at marrying those insights with solutions that helped them do the job better. Between 1950 and 1982, Sony successfully built twelve different new-market disruptive growth businesses. These included the original battery-powered pocket transistor radio, launched in 1955, and the first portable, solid-state black-and-white television, in 1959. They also included videocassette players; portable video recorders; the now-ubiquitous Walkman, introduced in 1979; and 3.5-inch floppy disk drives, launched in 1981. How did Sony find these foothold applications that yielded such tremendous upside fruit?

Every new-product launch decision during this era was made personally by Morita and a trusted group of about five associates. They searched for disruptive footholds by observing and questioning what people really were trying to get done. They looked for ways that miniaturized, solid-state electronics technology might help a larger population of less-skilled and less-affluent people to accomplish?more conveniently and at less expense?the jobs they were already trying to get done through awkward, unsatisfactory means. Morita and his team had an extraordinary track record in finding these footholds for disruption.

Interestingly, 1981 signaled the end of Sony’s disruptive odyssey, and for the next 18 years the company did not launch a single new disruptive growth business. The company continued to be innovative, but its innovations were sustaining in character?they were better products targeted at existing markets. Sony’s PlayStation, for example, is a great product, but it was a late entrant into a well-established market. Likewise, its Vaio notebook computers are great products, but they too were late entrants into a well-established market.

What caused this abrupt shift in Sony’s innovation strategy? In the early 1980s, Morita began to withdraw from active management of the company in order to involve himself in Japanese politics. To take his place, Sony began to employ marketers with MBAs to help identify new-growth opportunities. The MBAs brought with them sophisticated, quantitative, attribute-based techniques for segmenting markets and assessing market potential. Although these methods uncovered some underserved opportunities on trajectories of sustaining improvement in established markets, they were weak at synthesizing insights from intuitive observation. In searching for an initial product foothold in new-market disruption, observation and questioning to determine what customers are trying to do, coupled with strategies of rapid development and fast feedback, can greatly improve the probability that a company’s products will converge quickly upon a job that people are trying to get done.

Innovations That Will Sustain the Disruption

Gaining a foothold is just the first battle in the war. The exciting growth happens when an innovation improves in ways that allow it to displace incumbent offerings. These are sustaining improvements, relative to the initial innovation: improvements that stretch to meet the needs of more and more profitable customers. Choosing the right improvements is critical to the disruptive march up-market. Here again, job-based segmentation logic can help.

Let’s examine one of the hottest markets of the past decade?handheld wireless electronic devices. The BlackBerry, a handheld wireless e-mail device made by the Canadian company Research in Motion (RIM), is an important competitor in this field. RIM found the BlackBerry’s disruptive foothold at a new spot on the third axis in the disruption diagram, competing against nonconsumption by bringing the ability to receive and send e-mail to new contexts such as waiting lines, public transit and conference rooms. So what’s next? How does RIM sustain the product improvement and growth trajectory for its BlackBerry? Surely, dozens of new ideas are pouring into RIM executives’ offices every month for improvements that might be introduced in the next-generation BlackBerry. Which of these ideas should RIM invest in, and which should it ignore? These are crucial decisions, with hundreds of millions of dollars in profits at stake in a rapidly growing market.

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