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Developing a winning product offering
Our innovation business model framework comprises five primary components: markets, products, processes, people and economics (see Innovation business model). In this paper, we explore the second component of this framework – products. For an introduction to how the model was developed and how it compares to others, see What is a business model? A new approach. For an overview of the first component, see Selecting and understanding markets for technology innovation.
“Products” as we use it in the model means much more than the product itself. We use it as short-hand for the product offering – the total offer to the customer. In addition, we focus on technology-based products – specifically on products and product offerings developed around new, innovative technologies.
The goal of the products component is to develop a product offering that creates extraordinary value for customers, by meeting their urgent needs better than all their other options; partners, by enabling them to participate with you in providing an exceptional “whole solution” to the market; and your company, by generating long term growth and profitability. This paper presents a framework and guidelines to translate exciting new technologies into winning product offerings in the market.
A typical product development story
For many, perhaps most, technology companies, product definition and development is largely an engineering and technology driven effort. Here’s the typical story: scientists and researchers make an exciting discovery, or perhaps an inventor or entrepreneur has a sudden insight – a flash of genius. This discovery or insight is usually a new way to combine or leverage existing technologies; sometimes, it is a whole new technology. Either way, it seems that if only certain technical hurdles can be overcome, the possibilities and applications for this new technology are endless. The passion of the inventor is infectious, the vision is compelling, and huge efforts are made to address the technical challenges and develop a product based on the new technology. Everyone is amazed at the technical prowess of the engineering team. There is growing confidence that they will be able to overcome all the technical issues, following which no doubt the market will clamor for the product.
After months or years of effort and substantial investments of time and energy, the new product is ready (well, almost ready – invariably the first release of any new technology product has a number of bugs and technical problems still being ironed out). It is launched with great fanfare. Management and investors are by now at a fever pitch of anxiety and expectation. Weeks and months go by. Customers are interested, but they don’t seem to “get it”. Sales don’t take off as hoped. The company concludes that it’s a communication problem, they’re obviously not being clear about how great the product is, so money is poured into more sales and marketing. But the needle on the sales dial hardly moves. By now the salespeople have concluded that the technology is cool but for some reason customers are never going to buy it, while the technologists have begun to suspect its actually the salespeople who don’t “get it”. Everyone starts getting a sinking feeling.
What happened?
While it takes a complete business model to have a happy ending to this story, once an attractive market is identified it is the product offering that is of pivotal importance. If you offer something that people really need and want, at least some of them will find you and buy your product almost regardless of the quality of your sales and marketing. On the other hand, if your product is a “nice to have”, it doesn’t fully meet their needs, or its not obvious why its better than other options, you will struggle to generate sales, no matter how much you spend on sales and marketing. Defining the right product offering, then, is as vital as each of the other components of the business model to economic success.
So what does a successful product offering look like? A product offering comprises five primary elements: product definition, customer experience, pricing, collaboration and differentiation. To design a successful offering, you need to optimize each of these elements, individually and in a seamless blend, to deliver true value for customers, partners and your own company.
Product definition
The core of the product offering is the definition of the product itself.
Product definition is the critical first step of the product development
lifecycle, which begins with product definition, then moves through
development, testing, and launch, and then transitions to long-term
product modifications and evolution. Good definition is the foundation
for success, and is frequently the core problem with technology products.
It is a widespread practice amongst both large and small companies
to move from basic concept or idea directly into development, with
only cursory attention paid to clear product definition.
Good product definition is a five step process: understanding customer and other stakeholder needs, summarizing those needs in a set of requirements for the product, developing a solution vision to meet those requirements, translating that vision into a set of detailed user and producer specifications, and then designing the product to meet those specifications. The output from product design, which then becomes the roadmap for development, may be regarded as the definitive final definition of the product.
Understanding customer and other stakeholder needs
The starting point is understanding in depth what we call the core needs of a clearly defined customer. These are the customer’s fundamental problems, desires or “jobs to be done”. You also need to understand the existing solutions available to the customer, and the extent to which they are meeting their core needs. This research is central to the markets component of the business model, and you should not proceed with product definition until you have a deep understanding of your selected market. This critical first step is often the first hurdle technology innovations fail to overcome.
In addition to understanding your target customer’s core needs, you also need to understand the needs of the key stakeholders who will develop, market and deliver the solution – both in your company and your partners. These include the need to realize the full power of your technology innovation in the product, the need to generate and capture value from the product, the need to leverage existing resources and investments in developing, marketing and delivering the product, and the need to maintain maximum flexibility for future product evolution.
Summarizing product requirements
Once you developed a deep understanding of customer, partner and company needs, you should summarize them in a set of written product requirements. Correctly capturing and prioritizing requirements is critical – vast sums have been wasted by companies developing features and products that customers don’t need or want.
What makes this difficult is that in many cases, particularly with technology innovation, customers don’t know what the product should comprise. Your job is to turn an understanding of what the customer is trying to do into a market requirement for a product. You also need to include a prioritized set of company and partner requirements for the product.
It is both an art and a science to develop a correctly articulated and prioritized set of customer, company and partner requirements, but it is a crucially important activity – these requirements become the foundation for your solution vision.
Developing a solution vision
The next step is to develop a vision for a solution that will effectively meet these requirements. You should focus on developing a vision of a “whole solution” for the customer –one that includes everything necessary to meet their needs as completely as possible, and nothing that they don’t need or want.
For technology products, the whole solution can be complex, and often comprises core technologies, system components, an integrated system or platform, end user application modules, and integrated end user solutions. Your solution vision needs to determine which of these elements of the whole solution are missing from existing solutions, and how your technology innovation can help provide a better whole solution for the customer. In the best-case scenario, the whole solution will not be possible without your innovation. Your vision also needs to determine which elements of the whole solution your company will provide, and which will be provided by partners or other players in the market ecosystem.
Solution visions for different types of innovation. How your innovation can improve the whole solution, and therefore the value potential of your innovation, will vary depending on what type of innovation it is. In this context, Clayton Christensen’s concepts of sustaining, radical and disruptive innovation provide a useful framework for thinking about what type of innovation you have, how your innovation can contribute to the whole solution, and what role you and partners should play in providing the whole solution1.
Sustaining innovation is about providing additional features to existing solutions for existing customers. Most innovation is sustaining, as markets evolve and competitors continually build out their solutions towards the goal of the whole solution. If you have a sustaining innovation, you contribute to the whole solution by complementing and extending existing solutions to better meet customer needs. To do so, you can focus just on providing your innovative element, leaving other players to provide the rest of the whole solution.
Radical innovation is about offering fundamentally new and better performance
based on new core technologies to existing customers. Other than the
dramatic performance improvement, the whole solution is similar in many
ways to the previous whole solution as you are serving the same customer
with the same needs. However, your radical innovation is likely to be
core to the whole solution, and may require you to find different partners
or offer more of the whole solution because of the different nature of
the core technologies.
Disruptive innovation is about offering new solutions based on new core technologies to a new class of customer – people who are either not currently customers or who are peripheral customers. Here, the whole solution is fundamentally different to the previous whole solution – simpler, cheaper or more complete – because it is targeted at a different type of customer with a different set of needs. Given that both the core technologies and the whole solution are so different, it is likely that the disruptive innovator will, at least initially, need to provide more or all of the whole solution.
Solution visions for different stages of market maturity. Similarly, the whole solution, how it is provided and what role your innovation should play is heavily influenced by the market’s stage of evolution and future trajectory. For a very early stage market (typical of both “new to the world” innovations and disruptive innovations), you may need to provide the whole solution yourself, as there may be few or no other players yet in the space, and skepticism is likely to be high.
Once the early market shows some evidence of life, it normally fragments
into horizontal component, system and application providers, with system
integrators creating whole solutions for customers. Here you will need
to decide whether your innovation is best suited to providing components,
platforms, applications or integration services. You will also need to
build the right partnerships to be able to deliver the whole solution
to customers.
Over time, the market evolves into a far more complex ecosystem, as some component suppliers specialize further and others evolve into integrated subsystem vendors, specialist platforms appear with an increasing array of core technologies and functionality, and companies begin to provide a wide range of applications and integrated solutions for specific vertical niches. As it does so, your solution vision must evolve accordingly.
Another element of your solution vision with respect to market maturity is the role your solution will play in setting industry standards and guiding the evolution of the industry value chain and ecosystem. With early stage markets, the opportunity may exist to become the industry standard and at the heart of the industry value chain – an extremely powerful and valuable position to hold in a rapidly evolving market. If this is your situation, you may wish to consider a solution vision that encompasses becoming the industry standard.
If you are in a more mature market, there are likely to be two or three vendors vying to be the industry standard. If you are not one of them, your solution vision needs to encompass to what extent you will tie your products to one or more of the emerging industry standards contenders. There may still be an opportunity to influence the industry value chain in some respects, and this too should be a key part of your solution vision thinking.
Understanding these market dynamics is essential to defining your solution vision. Being too far in advance of, or too far behind, the market’s stage of evolution will mean your solution will not properly meet needs and will not get traction. Getting it just right will translate into Geoffrey Moore’s “tornado”2- the dream of every innovator and entrepreneur.
More generally, your solution vision is the foundation of your product offering. Far too many innovators and product teams gloss over this incredibly important step in their rush to begin detailed feature definition and product development. Creating a true solution vision in a deeply thoughtful way, that takes full account of customer, company and partner needs and requirements, that addresses the key shortcomings of existing solutions, and that is built on true insight into the market’s evolution, is the heart and soul of the products component of a successful business model.
Defining product specifications
Once you have a robust solution vision, the next step is to translate that vision into a set of detailed user and producer specifications that can be turned over to the engineering team.
User specifications reflect the feature requirements of the product users. It is important to think about two categories of user features – functionality and usability. Functionality features are the primary product elements that allow the user to do the job they’re trying to do. Usability features are about making the product fun and easy to learn and use. In early stage markets, functionality tends to dominate, but over time as functionality becomes homogenized, usability grows in importance.
Producer specifications reflect your company’s and your partners’ requirements. They determine the core technologies to be used, what the product must include to make it feasible and economic to produce, market and deliver, what it must integrate with to deliver the whole solution, and how the product will meet regulatory or industry standards requirements.
The key is ensuring the specifications are comprehensive and correct at the right level of detail. Leaving key specifications out is as problematic as having too many specifications. Incorrect specifications will result in a failed product. Specifications that are too detailed delay the process and limit design creativity; specifications that are not detailed enough either cause delays as they are clarified, or lead the design engineers to fill in the blanks with guesswork.
Creating the product design
The final step in product definition is product design, which effects the transition from concept to development. The goal is to come up with a product design that properly meets both user and producer specifications. While a detailed discussion of design is beyond the purview of the business model and this paper, there are two points about design that are very important, and frequently neglected by technology companies.
The first is to actually do design. It never ceases to amaze us, when working with companies, how many do little or no professional product design. Much of both the technical architecture and the product’s aesthetics and usability are designed by the development engineers. The result, all too often, is products that are inelegant both technically and from the customer perspective. Thankfully, in recent years awareness of the importance of product design has grown amongst technology-based companies, as a result of the success of icons such as Apple.
Secondly, it is important to understand the difference between the two types of design skills, and to employ both in a seamlessly integrated way. One is “internal” to the product, focused on technical design or architecture to deliver user functionality and meet company and partner operational needs. The other is “external”, focused on usability, aesthetics and branding, to meet both customer usability needs and company sales and marketing needs. While they share some principles, these are fundamentally different disciplines, and different professionals are needed for each. It is impossible to design products that truly meet both user and producer needs unless they are professionally designed by both disciplines working in close coordination and harmony.
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