Recently, both inflation and labor reports have indicated that the likelihood of a recession is declining. An improved economy means business leaders can take one eye off economic risk and increase their focus on growth (total revenue and earnings before interest, taxes, and amortization, abbreviated as EBITA).
Growth requires departing from the status quo. This means modernizing or transforming things. This is a time for innovation.
Innovation
According to Jeroen Kraaijenbrink, a strategy and leadership consultant, there are four types of innovation:
- Process Innovation is inward-focused and operational, frequently concentrating on efficiency or quality improvements.
- Management Innovation is inward-focused and strategic, often dealing with business organizations.
- Business Model Innovation is outward-focused and strategic, frequently dealing with how the organization creates and captures value.
- Product Innovation is outward-focused and operational and generally focuses on modifying existing products and services or creating new ones to generate more customer value.
Individuals working in the manufacturing sector are experts at process management and manufacturing innovation. They are good at identifying opportunities to save money and quantifying and implementing internal changes. They are also top-notch problem-solvers who can analyze data to identify a problem, determine alternative solutions, assess the risks, and eventually recommend and implement a solution to achieve the desired outcome.
While business model innovation and product innovation have a much higher potential outcome than the two internally focused types, they do not exist on every leader’s resume. These innovations are defined as problem-finding.
The activities to create innovative products and services start with developing knowledge about a gap in the existing solution set from a customer’s perspective. The skills necessary for this usually reside in marketing, engineering, and sometimes sales and service. As an example, in this short video, economist Bartley J. Madden talks about how the software company Intuit decided what would be its first product.
Change
Outward-facing changes have a more extensive and longer-lasting impact on customers than inward-focused innovations. Here are three points adapted from Eli Goldratt, author of The Goal and creator of the Theory of Constraints:
- If you change your price or promotion, you will get around two days of an advantage.
- You may get two months of an advantage if you change the product or service feature, even by some significant amount.
- But identify and change a major constraint or limitation in the market, and you can get up to two years of an edge.
Change results from all four types of innovation. The changes from outward-focused innovations generally impact a large part of the business. Meanwhile, inward-focused innovation typically affects a subset of all the employees and is usually focused on one or two departments.
Either way, there will be people who are impacted and will complain. This fact is both unfortunate and predictable. Nevertheless, change is essential.
Fortune shared that when Andrew Liveris became CEO of Dow Chemical about 20 years ago, he interviewed many long-serving CEOs and took copious notes about how they performed their work. When he recently looked at the notes, he realized they were “mostly obsolete.”
“This isn’t to say that many business and leadership lessons or skills from the twentieth century aren’t relevant. They are,” Liveris said. “But the business landscape today is so foreign from that of two decades ago that figuring out how to deploy those lessons and skills needs to be reimagined and retaught.”
Why Aren’t Businesses Constantly Innovating?
Capital equipment with a long life characterizes the industrial equipment market. When end-of-life is on the horizon, many owners return their products to be remanufactured and reset the clock. It is not unusual to see manufacturing companies using 20+-year-old machines to create state-of-the-art products.
However, as software becomes embedded in products, their useful life quickly declines. Even if the software can be updated, they don’t have the computing, sensing, and communicating power to perform as well as new products. Although new products are available, the market is constrained by depreciation and the lifelong training of equipment owners and users using what they have. Creating innovative new products or add-ons that customers “must-have” will boost your sales.
How to Identify Missing Features to Create Innovative Products and Services
Step 1: Identify as many unique applications for your products as possible. Then place each customer into one of the segments.
Step 2: Identify a few employees with excellent communication, empathy, and attention-to-detail skills.
Step 3: Communicate with as many customers as necessary to get 10 customers in each segment to agree to let your team perform a Gemba Walk for the process where your equipment is used. A Gemba Walk is a walk through a place of business to observe workers, ask about their responsibilities, and identify productivity returns.
Step 4: Send the people identified in step two to visit the customers identified in step three. Somebody should record each conversation, and the interviewer should take pictures of anything that will make the internal follow-up discussion more useful. Note: The interviewer should not discuss potential solutions with the customers. They should focus on activities that create dirty, dangerous, unsafe, or low-efficiency steps.
Step 5: Debrief the interviewers on a segment-by-segment basis. In addition to the interviewers, include creative people from marketing, engineering, sales, and service. All discussions must be limited to clarifying what was seen and heard until all the interview results have been shared and understood. Then the brainstorming fun can start.
Step 6: While brainstorming, everyone must keep an open mind. The participants are not allowed to say “yes, but….” They can only say “yes, and….”
Step 7: The outcome of each brainstorming session is a list of possible product changes that will address each unique opportunity identified in step five.
Step 8: After a list of possible product changes has been created, move to the traditional steps of sketching the change, estimating the cost to implement, and determining the commercial value of each suggestion.
Step 9: Let the marketing team suggest the order of changes for each project, create bundles if it makes sense, and develop pricing.
You are ready to launch your first significant upgrade or a new product or service. In any case, good selling!
“Innovation is progress in the face of tradition,” according to David Sanders.
Related article: Jobs-to-Be-Done Theory: The Key to Long-Term Business Growth
About Middlesex Consulting
Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients by focusing on Services, Manufacturing, Customer Experience, and Engineering. If you want to learn more about how we can help your organization enter the world of true innovation, please contact us or check out some free articles and white papers here.
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