P41 Innovation to Create New Business Segments with Home Depot and Intuit

  • This podcast takes a look at a particular kind of innovation that is exceptionally powerful. Innovation that creates an entirely new business segment is not an everyday occurrence, but when done successful it is a business breakthrough that redefines an industry.
  • Consistent with making this a podcast about best practices, the information in this particular podcast comes from the Harvard business review article sharing research in two case studies – Home Depot and Intuit.
  • This is a story about innovative companies breaking free from existing competition by creating an entirely new business concept. In so doing, they have no competitors – at least initially.
  • Let’s take a close look at Home Depot. Prior to the introduction of Home Depot, there were two ways that customers met their in-home needs for various kinds of home improvement and repair.
  • First, there was their local hardware store. It tended to have friendly employees who had some knowledge, but were not skilled practitioners in the field like plumbers and contractors. The aisles tended to be crowded and narrow. Product assortments were a bit of a maze and mystery. Prices tended to be high. Net, the local hardware store was not easy to shop, prices seemed high, and in-store expertise was unpredictable. After the shopping experience, the customer was then left with the not always pleasant and successful task of making a repair or improvement by themselves. Directions seemed to be few and far between. It is not surprising that many people when faced with a repair or improvement found it a daunting task.
  • From my own personal experience, I remember going to my local hardware store to get a part to fix the toilet. This was an older house built in 1926. I did my best to find the right part. I did my best to install the right part. At the end of the day, I had made things much worse. The result was that I needed to call a professional plumber to make an expensive repair.
  • The second option customers had was to hire a professional to come into their home to make a repair or create an improvement. Finding a trusted and vetted professional was not easy – this was prior to Angie’s list. A stranger was in their home, which was not always comfortable for some people. Sometimes the repair or improvement was successful and other times not so much. Sometimes bringing a contractor into your home required a person taking time off from work which added to the real cost. Customers chose this option when they recognized they did not have the competence to make the repair or improvement. It almost always proved to be far more expensive than most people would ever estimate. Net, making a repair or improvement by hiring a professional like a contractor, electrician, or plumber was seldom easy or fun.
  • The founders of Home Depot realized there was an opportunity here to create a new segment. They staff their stores with people who have considerable experience in areas like construction, electrical, and plumbing. These in-store experts not only could help you quickly and easily find the right materials for your job, they also have the ability to provide step-by-step advice. They were also in a position to recommend the right tools for a job. I know from my own personal experience, that the right tool for a job makes a remarkable difference.
  • The shopping experience was far better than the local hardware store. There were wide aisles, abundant signage, logically organized product categories, and ease of shopping. The pricing typically was significantly lower than the local hardware store. In the instances when a customer clearly knew they didn’t have the personal expertise to do a particular job, Home Depot could recommend and connect them with appropriate vetted professionals. For example, if you needed a new door, they could connect you with an installer they trusted. If you needed roofing repairs, a professional from their network could be contracted with in the store. So instead of crossing your fingers that you found somebody qualified in the Yellow Pages, you now contracted with professional who had a much higher chance of successfully making the repair or improvement.
  • For customers, it has made the prospect of home improvement far less daunting. They can now go into an easy to shop environment to look at kitchen cabinets, a new front door, and new windows to name just a few possibilities. They get quality advice in the store, attractive pricing, and the ability to connect with a quality professional as needed.
  • Now let’s take a look at Intuit a company we know for QuickBooks, Quicken, and TurboTax.
  • Prior to Intuit, customers relied upon a pencil and a calculator for their home accounting systems. People would receive their monthly printed checking account statement and engage in a reconciliation of their checkbook. It was not a task that most people looked forward to. It required close attention to detail and careful calculations. When numbers did not reconcile, it required a frustrating redo of the process.
  • Alternatively, they could’ve hired an accounting company to manage this for them. The vast majority of home accountants could not afford this option.
  • This situation existed for a long time. Customers had resigned themselves to this unpleasant monthly task.
  • Intuit created a new segment of computerized solutions with exceptional accuracy, an amazingly low price, and a very simple to use program. It not only made it easy for people to manage their home checking and accounting systems, it also brought the same benefits to many small businesses. The latter group may have had to previously rely on an accountant or accounting company. With the advent of a product like QuickBooks, small businesses had better control and understanding of their finances at a fraction of the cost.
  • Intuit used the same insight process when it came to personal taxes. Prior to TurboTax, customers were forced to either the do-it-yourself solution for tax preparation or hiring an external company to prepare the taxes. Customers did the former when they could not afford hiring an external company. Having made this decision, they faced significant risks of miscalculations and misunderstandings of tax law – something that is very easy to do. Customers hired a company when they recognized the challenges of doing it themselves and could afford to hire a professional.
  • Into the market came TurboTax. This relatively simple, step-by-step approach to do-it-yourself tax-preparation took virtually all the negatives out of personal tax preparation. The computerization insured accurate calculations. The tax advice built into the program helped ensure better choices through better understanding of tax law. The cost was dramatically lower than hiring an external tax-preparation company or accountant.
  • With the understanding of these two case studies, what can we learn about the innovation process that can potentially help your business?
  • This is innovation about creating a new value curve. Creating a new value curve through innovation can explore the following considerations.
  • First, from the current industry options what can be eliminated that would be very beneficial to customers? Intuit eliminated the need for personal calculations and increased consistent accuracy. Home Depot eliminated the often difficult shopping experience of the local hardware store.
  • Second, what can you reduce? Intuit dramatically reduced the cost of personal tax preparation guided by professional expertise built into their program. Home Depot reduced customer cost compared to their local hardware store.
  • Third, what can you create? Home Depot created a whole new way of hiring a trusted professional to come into your home for a repair or improvement. Intuit created a new level of speed and accuracy that had previously not been available in personal accounting systems.
  • Fourth, what can you raise? Home Depot created a whole new standard for the home improvement process. In the store, you could see many more kitchen remodeling options than you would ever see in a hardware store. Working with an in-store professional, you could clearly understand what a do-it-yourself solution would look like compared to hiring a professional. The process of hiring a professional became easier and had a higher likelihood of success. The bottom line is Home Depot set a whole new standard in the home improvement industry.
  • There’s another way that I like looking at this process of identifying a new market segment. Identify the current negatives. How can you replace the negatives with dramatic new positives? Remember the importance of dramatic differences in creating a successful new business.
  • Identify the current positives in existing alternatives. How can you take those positives to an even higher level?
  • How can you create dramatically better value? You create value by eliminating/reducing negatives, increasing – even dramatically increasing – positives, and do this for a startlingly great price. Put another way how do you provide a basket of benefits at a dramatically better price than is currently available? When you successfully answer this question, you have created exceptional value. You now have something that is dramatically better than existing alternatives. We know from Merwyn Technology that you can double your chances for success when you have something that is dramatically better than some, most, or all of the current options.
  • The process that we’ve just gone through is something that most companies can benefit from. To be successful, it will probably require a quantum idea generating session with all of its diversity and creative power. The end result can be major competitive advantages with a dramatic new market segment.

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