The Design of Opportunity

Common problems along the innovation path from opportunity identification to development

I thought I would share a typology of common issues that I think plague the "opportunity discovery, selection and targeting" first phase of innovation, which I am most interested in and which am trying to add system and process to bring new level of precision to a difficult area. Building on the terminology and process definition of David Teece on Dynamic Capabilities, and our own perspectives from working at this end of the innovation process (or rather the beginning),  I've categorised these issues according to four pre-development capabilities that innovators can develop to lead to better downstream outcomes, namely:

- Sense Opportunity

- Identify Opportunity

- Interpret or Shape Opportunity

- Seize Opportunity

I use this graphic and terminology to categorise the issues:

and here are short definitions / descriptions of each issue:

SCOPE - The scope of search for opportunities is not broad enough and may be limited to the firm’s core market, defined by what the firm already knows, to its closest competitors, to flawed voice of the customer inputs or to limited product definitions

FRAMEWORK - There is lack of a guiding analytical structure or framework to define search and interpretation of market and technological opportunities

PROCESS - Processes do not exist, are too unwieldy and do not surface key opportunities fast enough

FILTER - The organisation’s strategy does not provide the necessary filter to guide search and selection of opportunities

INPUTS - Wrong inputs are captured or are captured in a variety of different formats meaning that opportunities cannot be calibrated effectively, particularly so with customer needs

EVIDENCE - There is a lack of evidence available to quantify and prioritise needs and inputs

CUSTOMER-FOCUS - A lack of selectivity or consideration to know when or when not to rely on user- or customer-driven inputs

EXTERNAL INPUTS - Inability to find or draw on external technologies or ideas fast enough ahead of the competition

SPEED - Management is not informed quickly enough of new opportunities

NUANCE - Information is not combined and filtered appropriately to those who need to make sense of and act upon it so that the important nuances of opportunity are lost in repeated translation from one location, division or function to another

RISK-ORIENTATION - An imbalance in the relative influence of visionaries and champions of change on the one hand and detractors or conservative-minded individuals on the other

BOUNDARY-SETTING - Inappropriate setting of enterprise boundaries, whether and how to partner or go outside to source capabilities or technology inputs to execute opportunity, to seize its full profit potential (too narrow – too wide)

CREATIVE DEPENDENCY - Success is dependent on the creative traits of a few individuals or an outside agency

INTEGRATION - Lack of integration between functions that identify opportunities and those that execute against them, particularly when opportunities challenge status-quo thinking

SHORT-TERMISM - Entrenched attitudes amongst managers of existing product lines that starve investment in new lines. Limitations in capital budgeting focus on short-term discounted cash flows or net present value of future investments

DECISION-MAKING - Innovation investment decisions are made via committees, within too formal structures or are overly programmatic in nature, restricting the allocation of funds to pursue newer or more radical innovation opportunities, markets and technologies.

CONSENSUS AND VISIBILITY - Internal arguments and debate produce limited consensus leading to individual or inter-functional “Opportunity Propaganda Wars” leading to misaligned technology and requirements developments

Each is worthy of a blog entry in itself ! So any perspectives are most welcome. 

 

ZinC, our new healthcare innovation and growth strategy consultancy, launched..

Copy of press release:

ZinC brings unique capability to add rigour, precision and depth to difficult innovation and growth decisions faced by healthcare companies. Through a groundbreaking process known as Opportunity Design, ZinC helps healthcare executives to perform four critical business activities with superior confidence and lower risk:

1. Sense and identify attractive healthcare market opportunities to accelerate their company’s innovation and growth potential
2. Assess and refine their current innovation or growth strategy, plans, technologies, concepts or ideas to determine their potential for success
3. Seize and shape attractive healthcare market opportunities into compelling plans for innovation and growth
4. Build and transform their company’s own capability to deploy ZinC’s processes and do the same for themselves.

Chris Lawer, founder and CEO of ZinC, says, “Now more than ever before, complex healthcare markets demand advanced capabilities for sensing and capturing market and technological innovation opportunities, for seizing upon those opportunities and responding to threats, and for sustaining competitiveness through continuous renewal and reconfiguration of resources.

My vision for ZinC is to create a business with a reputation for delivering unmatched precision and depth of insight in the uncertain, costly and error-prone activities of the early phases of corporate innovation programmes.” Lawer said.

ZinC has been operating as the service company behind Strategyn UK (see www.strategyn.co.uk), which it continues to run, for the past two years and is set to hit the ground running with several new healthcare client wins in the past few months.

Lawer concludes, “I have no doubt that at a time when healthcare markets continue to grow yet also become more complex, our unique blend of deep healthcare market understanding, advanced market research and innovation management processes and applied technology and science expertise, will solve our clients’ biggest healthcare market growth and innovation challenges”.

Ends

About ZinC

ZinC helps healthcare companies of all size, status and type – whether incumbents or newcomers - to sense, identify, assess, refine and seize on market and technological opportunities for innovation and growth. With a unique blend of deep healthcare market understanding, advanced market research and innovation management processes and applied technology and science expertise, ZinC solves its clients’ healthcare market growth and innovation challenges and uncertainties.

For further details, please contact:
Chris Lawer, CEO

Tel: 0844 656 3104 (UK) or +44 (0)121 352 6613 (from overseas)
chris.lawer@zinc-healthcare.com

Notes to editor
For more information, please visit www.zinc-healthcare.com

The information contained in this press release is correct at the time of going to press.

Last Updated: 1st August 2011

The Design of Opportunity

The following problems continue to plague innovators:

• New product failure rates run at 75%-85%
• New business start-ups are even higher at 92% failure rate
• There is a high degree of iteration in ideas and business plans needed to succeed with the right formula
• Companies address the wrong opportunities or miss the nuances of the right opportunity
• Companies burn through cash propping up the wrong ideas and products
• Uncertainty rules; flux is constant

Many market research and innovation methods, philosophies (?) and techniques have been formulated to address these difficulties, yet improvements in capability seem merely piecemeal or incremental at best.  In my experience advising companies on the front-end of innovation for the past 8 years, I see many unanswered questions that remain ripe for new approaches and perspectives. These include:    

• How can we better and more reliably “Know our opportunity, know our market, know our customers” before we generate ideas and concepts?
• How can we better define our markets to frame the widest potential opportunity?
• How can we define "value" and understand, discover and realise new varieties of value leading to innovative products and services?
• When is the right time and context to engage customers / users in collaborative efforts at the front-end?
• How can we focus and constrain idea-generation without losing creativity and inspiration?
• How can we determine our market and innovation strategy based on fuller understanding of the market opportunity?
• How can we build more robust business cases that confidently predict our return on investment from addressing market opportunities? How can we determine willingness to pay, demand levels and market sizing before a concept is given the green-light for development?
• How can we better orchestrate and manage tangible and intangible assets to discover and address market opportunities?
• How can we build a repeatable capability for the front-end of innovation focused particularly on pre-concept opportunity discovery and validation?
• ... whilst still ensuring speed to market, rapid learning and assimilation of new insights, reduced failure rates and improved return on innovation investments..

Why “The Design of Opportunity”?

So I have decided to rename my blog The Design of Opportunity to provide a forum for my and other’s perspectives on exactly these questions. Why “Design of Opportunity”? Well, I see tremendous potential in taking a design-thinking approach to address the above questions. In other words, knowing which method or more likely blending of methods to apply for any given market, opportunity context or problem situation is a design problem in itself - one concerned with determining and deploying the best mix of enquiry methods, units of analysis, measurement techniques, modes and timing of user engagement, study contexts and definitions of customer value to answer the question "what is the market opportunity?" rather than the more typical question "what is the solution we should develop to address any given market opportunity?" More often, the emphasis at the front-end of innovation is weighted towards the design of the idea, the concept and the solution rather than determining the optimum practices needed to add depth, detail and nuance to an understanding of the market opportunity in the first place. If firms, entrepreneurs and innovators were able to perform the latter more reliably, robustly and repeatably, then they would experience fewer failures and lower wasted innovation investments, as would their venturing partners. Hence, The Design of Opportunity is solely concerned with the design of the enquiry methods and approaches used in the early, pre-concept, market opportunity discovery / validation stage of the front-end of the innovation. 

To execute "Design of Opportunity" thinking, I feel there is a need to strike a balance between linear, quantitative, input-output, systematic processes to the front end of innovation at one end of the spectrum (for example, of the Strategyn Outcome-Driven Innovation kind, which I have assisted many companies to deploy), and the more, experimental, iterative, prototype-centred, exploratory, intuitive, ideas-inspiration driven approaches at the other (as typified by IDEO). To quote a commonly used phrase, "one size does not fit all".

In my experience, most innovation practices are designed for technological or product innovation (NPD) and focus only on idea-to-launch management of a specific technology innovation; they fail in areas of defining and sizing market opportunity. Through this blog, I shall attempt to offer ideas and experiences that address these failings. As part of the global Strategyn network yet operating an independent company that is able to take a more blended, flexible perspective when circumstances dictate, I hope to bring a holistic, open-minded view of the front-end of innovation methodological landscape, something which my team is already bringing to its clients in the UK and Europe.

A few more thoughts on co-creation

I try and shape my thinking and therefore I guess, my definition of co-creation in terms of how the concept can help firms achieve their growth goals through innovating a product or platform into something of more relevance and greater sustainable value to the customer. This in turn will not only help the firm secure organic revenue growth but also, if executed correctly, deliver long-term returns in the form of continuous learning of customer needs, faster iteration towards enhanced value on existing platforms and path evolution towards repeated success at co-creation, which in reality is just a form of innovation.

I am not going to apologise for having a firm-centred view because after all, without the firm's investment in platforms and infrastructure for customers to meet their value-in-use goals, and to meet them in different space-time contexts, then it’s unlikely that, well, customers will meet their value-in-use goals, or in other words, get their jobs done.  So for me, the role of the firm is central to facilitate the genesis of the personalised, co-created experience opportunity for the users of its infrastructure.

So my view of CC, connected into SDL, is that firms exist to build the service and knowledge infrastructure and capability to make co-creation platforms, or value propositions for their customers. These platforms consist of network partners, underlying technology, customer interaction mechanisms, learning mechanisms, brand drivers, value exchanges and human resources to support the potential for the delivery of unique value propositions for its customers, who use the firm's platforms to derive superior, value-in-use for themselves. We use Apple’s iTunes and iPod platforms because their combination as a platform and brand helps us derive superior value-in-use to get the manage a personalised music experience job done, and the emotions we deem important when getting that job done.

Therefore in terms of the relational perspectives on co-creation, the question for me is “what comes first?”. Customers cannot enter into a relationship with a firm unless the infrastructure or platform for co-creation exists beforehand, one that allows me to derive superior value-in-use. I couldn’t enter into a relationship with Apple before  it created its personalised music experience platform. But then as it happens, although i use most of their services, I don’t actually feel I have a relationship with Apple. I may have a feeling of loyalty to Apple but only because it provides a very good platform or infrastructure for me to get my personal music experience jobs done pretty well.  Sure, customers can self-organise into communities and derive co-created value from each other yet more often than not, such communities sit on an infrastructure provided by a firm that orchestrates and integrates network partners into an ecosystem for its users to derive personalised value. Facebook is a platform for co-creation to help us get our “stay in touch with friends” and related jobs done. But do I have a relationship with Facebook? Not really, they just facilitate me to maintain relationships with friends and family.... the relationship isn’t managed or designed actively by Facebook. Rather, it’s just a by-product of the co-creation platform, inherent in the value that is co-created.

In my view, a firm-centred perspective on co-creation is more practically useful as it illuminates the power of the co-creation concept as a new form of market and competitive strategy.

 I would stop short of saying that “all value is co-created” because whilst true in the sense that all products are value propositions to get a job done, which is done to a greater or lesser degree by the customer, such a holistic perspective may blind us to the opportunistic and pragmatic aspects of co-creation as a new form of market strategy. Instead, I prefer to think of co-creation as a distinctive form of competition that requires new dynamic capabilities and deliberate firm investments in new resources to achieve greater value for customers and superior returns for the firm.  In other words, we should focus on the distinctive aspects of co-creation that embody its practical usefulness now in an age of hyper-competition and diminishing returns from product-centred propositions.

My final point is to ask “do customers always intentionally enter into a co-creation relationship with firms”? I would suggest not. The long and short of it is that customers just want to get a job done. They (we) always have. The only reason firms have stopped short of delivering superior value-in-use (getting a job done) is because in the past they fixated on the efficiencies of a product – make – sell – buy – consume – break economic system. Now, by stepping into a co-creation frame of mind, which at long last is aligned with how customers actually perceive and seek value, firms can move closer to supporting the customer to achieve their ultimate goals. Co-Creation is therefore just a natural way for organisations to help their customers meet their goals in the lifetime of use of their products. But they can only do so if they embrace a different view of value and start building back from the customer’s view of value, not the firm’s.

A knowledge - learning-based perspective of co-creation with example

My perspective of co-creation is rooted in the knowledge-based view of the firm. Firms exist because they can integrate and coordinate specialized knowledge held by individuals into collective, organisational knowledge. In turn, that leads to advantage because with all things being equal, knowledge is difficult to copy, is causally ambiguous and typically, beyond the grasp of rivals. When knowledge is valuable and used appropriately, firms can enjoy sustained competitive advantage. In short, firms are better than markets at integrating and applying valuable knowledge to business activity.

As customers also have knowledge, firms that harness their knowledge through new learning / interaction mechanisms (or "Service") gain advantage. Customers become knowledge-creating actors in the value-creation process for firms and therefore for other customers. Firms that develop and refine Service using their and their customer's knowledge or learning derived from interactions with customers are co-creating value with customers. It is the knowledge / learning mechanisms embodied in the Service between the firm and the customer that defines co-creation. These learning mechanisms give birth to new dynamic capabilities (both for the firm and the customer in that they can create, modify or renew existing resources held by firm/customer) which lead to the evolution of firms and the evolution of value-in-use - or innovation for customers.

Using John Deere, here is an example of knowledge- or learning-based co-creation between firms and customers.

John Deere makes big heavy products. Take the STS Series High Octane Combine (http://www.deere.com/servlet/ProdCatProduct?tM=FR&pNbr=9570SH). Farmers "hire" this product to get the job done of "Harvest a Crop". There are a number of functional outcomes that farmers need to get done when harvesting a crop using this Product and by which they "measure" or judge its value-in-use. These outcomes or activities encompass crop collection, separation, yield management, safety, monitoring, equipment cleaning, residue disposal, grain handling etc. etc. However, the functional job / outcomes the product delivers is only one part of the value-in-use derived by farmers when using a Product. The value-in-use is also derived from the abiility of the farmer to learn how to become more productive, knowledgable and informed when using the product. In other words, to become a better farmer. How? from the Service that John Deere integrates or builds on the Product.

Here's how.... John Deere provides the GreenStar™ Harvest Doc™ system within the Combine. Harvest Doc is a yield mapping system which gathers the yield and moisture information as the farmer uses the combine. The system allows the operator to record yields, moisture, and productivity on the go then store information and download data into their personal computer to create comprehensive yield and moisture maps, along with productivity reports of their fields and operations to better manage inputs and make better management decisions. This is the mechanism that provides knowledge about the farmer's operations to John Deere and also learning for the farmer to improve his/her capability to get the job done better - to derive superior value-in-use. John Deere also offer the Agris agricultural management suite, a system which helps farmers streamline their processes in key functional areas including commodity management, agronomy management, grain processing, accounting & financials, retail sales, and petroleum management. 

The Agris and GreenStar Service facilitates novel interactions across a learning network consisting of the Firm (John Deere), a User (Farmer) and other Users (Farmers) with the Product (combine) acting as the platform for the Service to be delivered. Such network interactions require knowledge, attention, cash and capabilities to perform. They contain the mechanisms of co-created value for both John Deere and its customers. Deere needs learning from customers to innovate successfully (customer knowledge); farmers need knowledge from Deere (and from the collective wisdom of other farmers) to derive superior value-in-use.

Finally, what is an Experience? I define it as the sum of the functional and emotional value-in-use derived from the Product and the Service by the customer. This may include improved know-what, know-how, emotions, feelings, judgments, relationships as well as functional performance.

Developing a concise definition of co-creation as a foundation for innovation and competitive advantage

 

A perspective of the firm as an autonomous knowledge creator that learns about customers and creates value for them is increasingly redundant. Now, firms are exploring alternative modes and building capabilities to co-create new knowledge and innovate superior and mutual value with their customers.  Such a shift in assumptions about the value of customer-held knowledge has profound repercussions for how companies innovate as well as the nature of value itself. Some even argue that the very locus of innovation is slowly migrating from within to outside corporate boundaries and that this movement demands a new consideration of questions relating to how firms actively access and deploy the knowledge held by customers.

 

In the following twelve statements, I develop a logic that concludes in a concise definition of “co-creation” and how firms may derive competitive advantage by facilitating co-created value.

 

1.    Traditionally, customer value has been defined and differentiated by product quality (Features, Attributes and Benefits - the old Kotlerist FAB of 1950-1990s marketing textbooks).

2.    Open source product innovation (or “co-production” not co-creation) emphasises the technical co-production of new and improved products, their features and attributes with customer's direct involvement in the idea-generation, concept development stages of the innovation process; it is limited to the design, development and testing of enhanced functional “things”, “objects” or “technologies” with individuals or in communities of users.

3.    Increasingly though, value is migrating from products to experiences as customers seek out personalised value to satisfy their situational needs. (Drivers: demand for better experiences, technology enablers, enhanced cognition, new sources of knowledge, increased socialisation, product functional similarity, etc.)

4.    Customers are therefore placing increased value on the quality of the experiences they have when they interact with firms and their products (and services).

5.    The quality of an experience is determined by how relevant or personalised the experience is for an individual customer; Experience quality is a combination of the functional and emotional elements specific to the situational and temporal context of each customer or context.

6.    The locus of value-creation therefore shifts from product quality and design innovation to experience design and quality innovation, or service design.

7.    As value-creation is “innovation”, traditional firm-centric innovation processes are becoming distributed in order to provide the means to deliver ongoing, adaptable, personalised, unique experiences for individual customers in unique space – time – event contexts (or “experience environments”).

8.    Therefore, the locus of innovation is shifting towards the individual in distributed experience environments.

9.    In distributed experience environments, the firm and customers come together to create value; value in the form of personalised unique experiences for customers; knowledge, capability for both and revenues and profits for the firm; the by-product of which is know-what and know-how to continue to deliver and shape that value.

10.   Therefore, co-creation defines the processes of distributed value-creation between firms and customers or between customers directly, to create personalised experience value and knowledge, or enhanced cognition defined in the broadest sense and goes beyond “rational inference, know-what and know-how, to include perception, interpretation, value judgments, morality, emotions and feelings” (after Nooteboom’s Cognitive Theory of the Firm, 2009).

11.   Markets are therefore forums for the co-creation of personalised experiences; value is differentiated according to the quality and relevance of personalised experiences for customers (as in Prahalad and Ramaswamy, The Future of Competition, 2004).

12.   To facilitate co-creation, firms must therefore develop platforms that bear capabilities for the creation and release of heterogeneous, personalised customer experiences or distinctive, unique value. These platforms provide the foundation for deriving competitive advantage arising from enhanced service and experience quality, knowledge capability, and novel learning mechanisms for developing dynamic capabilities for ongoing innovation performance.