This podcast provides proven, practical, and step-by-step elements from start to finish for an innovation program. A successful innovation program is a series of steps. Innovation programs need to meet certain criteria and objectives at the completion of a step before going onto the next step. Many people refer to this as the stage gate process, with the gate being the need to meet objectives before moving on.
Generally speaking there are about six steps. In some cases, some businesses will combine steps and others will split a single step into multiple steps. Some companies may also skip a step if they do not have the capabilities or need for a specific step – you need to recognize that, in most cases, this means that you take on more risk.
The six steps are: deep dive– covered in this podcast, vision and strategy, idea generation, concept learning, proof of concept, and introduction into the marketplace.
The purpose of the deep dive is to develop a very high quality understanding of your business and customer dynamics. You will examine strengths/weaknesses and competitive advantages/disadvantages. You will look at important trends. This is not just a numbers exercise. The output from the deep dive will be an important component of defining the vision and strategy for your innovation program. It will also become a powerful stimulus contributor in the quantum idea generating session that comes in a later step.
Let’s get started with step one – conducting a deep dive for your innovation program.
Your business: you want to start your deep dive by closely examining your own business. Here are some of the key elements you want to take a close look at.
You want to examine sales from at least two perspectives. First you want to examine dollar sales. One of the most important perspectives is to examine dollar sales trends. Are sales growing over the last 3 to 5 years and if so are they in line with meeting your business objectives. If dollar sales are declining, what are the causes, which can be anything from overall category sales are declining to one or more competitors are taking business away from you. The second perspective you want to have when examining sales is what I call equivalent unit sales. Sometimes unit sales can decrease while dollar sales increase which is probably due to price increases. In most cases, I am more interested in unit sales more than dollar sales since this is usually a better barometer of customer purchases than just dollar sales. Having said that, if you are a publicly held company, dollar sales are pretty darn important.
Having examined total sales, you then want to dig deeper into the details. You want to break total sales in to the appropriate product/brand groups. If some are growing, you want to understand why. If some are declining or flat, you also want to understand why. You also want to understand sales by geographical areas and types of customers. Again, you want to understand why sales are growing with some and declining with others.
Lastly, when it comes to sales, I have usually found that companies have a variety of analytical methods that they feel are appropriate for their businesses. When it comes to trying to draw conclusions from data, especially when attempting to draw conclusions between cause and effect, you want to use accepted statistical tools and evaluation methods. Specifically, you want to determine if there is a correlation between two factors you believe to be interacting and causing changes in business trends.
You want to start by conducting a similar analysis of profits as you just did for sales.
You typically also need to dig deeper than you have in sales analysis. For example, you may need to analyze the allocation of corporate overhead costs to your overall business and individual products/brands. If profit and sales trends are different, you clearly want to understand why. On the positive side, there could be significant one time cost savings projects that enable profits to grow faster than sales. On the negative side, production and/or raw material cost trends could result in profits growing more slowly than sales.
Market share.
A good place to start in evaluating competitors is to take a look at market share trends. For consumer products, this is typically done with syndicated data like Nielsen data collected from a wide variety of retail outlets. You want to understand from total brand, important brand parts, and geographical perspectives how you and your competitors are performing. If you are like most businesses that do not have access to this kind of data, you need to have a method for continually collecting information about competitors. For example, your sales organization can be required to regularly report important sales information –like new customers and lost customers. You not only want to know what but you also want to determine why competitors are growing or declining. With syndicated data there are numerous forms of data associated with businesses that can be used with this type of analysis. With businesses that do not have this data, you need to closely examine competitive products for changes – not only observable changes but collecting sales materials and public relations information from competitors. Bottom line – you want a clear picture of which competitors are growing/declining and why.
Competitor sales and profits.
With businesses that have syndicated data, you can develop a fairly clear picture of which competitors’ sales are growing/declining. Profits are more difficult to determine with or without this data, but if you know that a competitor has experienced raw material price increases and not increased their prices in line with this, you have a pretty good idea that they may be taking a profit hit. For publicly held companies, this data can be available although at a specific brand or business level it may not be readily available. Bottom line – you want to do your best to determine the sales and profit health of your competitors.
Competitive advantages/disadvantages.
While we will examine competitive advantages/disadvantages when we look at customers, you can determine the relative health of your advantages/disadvantages from marketplace observations. If you lost a sale, buyers will tell you why they bought a competitor instead of yours. If you made a sale at the expense of competitors, the buyer will tell you why. Bottom line – you want to do everything you can to develop an objective view of the state of advantages/disadvantages versus all of your competitors. Be careful when you do this because your bias will be to value your brands more than competitors. Be objective.
Customer evaluations: you want to use qualitative and quantitative research methods to determine how consumers rate all the major brands from both an overall perspective and from a key elements perspective – like performance, customer service, convenience, and price. In today’s world of online research, this can be done relatively quickly and inexpensively. This is the type of research you want to do on a fairly regular basis – like annually – so that you can see trends where you’re getting stronger/weaker relative to some, most, or all of your competitors.
How customers are using products like yours: in consumer products we call this kind of research habits and practices research. We want to understand qualitatively and quantitatively how our products are being used. In many cases, these habits and practices do not change dramatically unless a new competitor enters the field. But even with well-established products like laundry detergents, at one time research to determined more and more consumers were using only cold water in doing the wash. This resulted in significant product reformulations so that a product like Tide would perform in cold water as well as it did warm and hot water – they introduced a specific cold water formula product.
In-depth customer understanding. Your customers are not a homogeneous group. A type of research called segmentation research determines the major groups of consumers based upon things like demographics, how they use your products, and the circumstances in which they use your products. In a previous podcast I talked about two very valuable consumer groups when it comes to innovation – lead users and heavy users. The latter group is people that use dramatically more product over time than the average customer. Because they are heavy users, they tend to have a greater sensitivity to strengths and weaknesses of your and competitive products. This makes them a particularly good source for learning and sometimes for innovative ideas.
After listening to all this, you can easily conclude that there is a tremendous amount of data analysis and output from this analysis. What you want to do when all of it is done, is to select the 5 to 10 most important insights. Most of these are going to address competitive and customer dynamics – especially changes. When you’re done you want to step back and create a big picture look about what you have learned. You want to include not only a factual perspective but also a feeling or emotional perspective in this bigger picture.
There is a very important purpose in all of this. These insights will become an important component of creating a vision and strategy for your business. Many of the key insights will then become powerful stimulus in the quantum idea generating session. Net, there is tremendous value in doing a deep dive into your business as a part of your overall innovation program.
