Tight Budgets Breed The Best Innovations

By Dan Coughlin

Innovative thinking means searching for and implementing a better way.

That’s it. Nothing more. Do not overcomplicate this topic. It’s not about pontificating on highly theoretical concepts and wasting a lot of money. Innovation is improvement in motion.

A business innovation is the process of creating additional value for your customers that they will pay for at a greater profit for your business. Your innovations have to do both: increase value to customers and increase the profits that your organizations make. Creating value that erodes profit is not a business innovation. It’s actually a self-induced death blow to your business.

The Process of Innovation

Step One: Focus, don’t spend.

For many years I worked with executives in one of the world’s largest companies. Each quarter we would study the business results of the industry in a wide variety of categories. Every quarter one of my client’s competitors, which was much smaller and had far fewer resources than my client, would win in several key performance categories.

I didn’t understand what was happening. The people at my client organization worked incredibly hard on a large number of projects to create and deliver more value to the customers. They invested enormous resources into these innovative projects. And yet this small competitor kept outperforming them quarter after quarter.

Then one day my client hired one of the key executives from this competitor. On her second week on the job I asked her, “How in the world did your former company keep outperforming your new company?” What she said I will never forget.

She said, “We had very, very limited resources. We couldn’t try a lot of things. We had to succeed with the few projects we could afford to do. We were forced to concentrate on delivering great value on one thing at a time. Here we have tons of resources. And that’s the problem. It allows us not to have to focus in order to survive. So we end up doing too many projects and overwhelming our front-line employees and customers.”

Within a few years my client’s organization was achieving incredible results that were lasting far longer than ever before. What was the difference? In spite of having massive resources to work with my client narrowed their focus to a few key areas. No longer did they allow themselves to go off on three dozen wild tangents. They poured all of their effort and concentration into improving just those few areas. Today they are achieving truly remarkable results quarter after quarter.

Note: recessions are good for innovation. It forces every company to operate within a tight budget and be extremely focused. This tight area of concentration generates far more useful innovations than the conceptual free-for-all that companies often use during good economic times.

In the past six months I have served as a business speaker to the National Automobile Dealers Association, National Association of Home Builders, and a national conference of a major residential real estate company. These were three of the hardest hit industries in the past three years. Yet I didn’t hear talk about gloom and doom at any of the meetings. I saw and heard a lot of ideas about how people were working to create greater practical value for their customers in a few concentrated areas. It was clear that everyone understood that innovative thinking was a requirement to survive through this recession and thrive on the other side of it.

What is the one area that you are going to focus on improving for your customers?

Step Two: Ask.

Of course, one way to find out the best area to focus on for customers is to ask the customers. I suggest a simple question such as, “If there was one thing about your experience with this product (or service) that you would like improved, what would it be?”

Now be patient. Customers don’t have the answer on the tip of their tongues. Allow them to think. If they can’t think of anything, you can follow up with probing questions on specific aspects of the product or service. Another approach is to ask, “What was of value to you with this product, what was not of value to you, and what would have been of greater value to you?”

Before you start to come up with an innovative product or service, identify the statement you are trying to fulfill. Write a one- to three-sentence description of the desired outcome. Say you want to create a new countertop in public bathrooms for the sinks and faucets. Your statement might say, “In the end, we want a countertop that stays dry so people can place a book or small bag on the countertop and the item won’t get all wet.”

Innovations don’t have to be about computers or cell phones or medicine. Innovation is about searching for and implementing a better way. That “better way” can happen in any industry.

Step Three: See.

Remember: insight comes from sight. If you want to understand the customer experience in order to improve it, then go see for yourself what it is that customers go through. Don’t just ask them for ideas on how to improve the experience. Go look for yourself.

A few weeks ago I bought a quarter-sheet cake for a Valentine’s Party at my church. I went to the bakery, and asked the baker if I could see the cake before I paid for it. She opened the box, and it said, “Happy Valentine’s Day, St. Lucas Women in Red”. I looked at the cake, I looked at the baker, and then I said, “Why does it say, ‘St. Lucas Women in Red’?”

She pulled out a sheet of paper, and said, “It says right here, ‘St. Lucas Women in Red’.” I looked at it, and I said, “I meant I wanted the frosting in red, not the words.” She said, “No problem.” She scooped off the red letters and replaced it with vanilla frosting.

At the party that night I told that story. Someone else said, “I had that same experience at that bakery.” If the owner of the bakery had been a customer of the bakery, then he or she may have gained the insight necessary to create a better experience for customers.

Step Four: Stop and start over.

Sometimes you have to start over from scratch. Don’t feel compelled to merely tweak what you’ve always done.

Several years ago McDonald’s sold Salad Shakers. The idea was to put the salad dressing in a cup with the salad ingredients. Then you shook it up and, voila, you had a salad. Only problem was there were a lot of problems. You had to ask for a plate to pour the salad onto after you shook it up, and the salad dressing oftentimes ended up on the customer’s clothing.

So McDonald’s stopped and started over. They gained insights from customers. They went and observed the Salad Shaker in action at restaurants. And then they came out with a completely new salad, their Premium Salad. This new salad has been wildly popular for several years and helped to significantly increase sales of Happy Meals.

Don’t be married to your current way of doing things. Once you’ve identified the statement you are trying to fulfill and have gained insights into what customers really want be willing to take out a blank sheet of paper and start with new ideas on what will deliver the value that you want to deliver.

Step Five: Improve.

A prototype is a model that represents what your idea will look like when it’s put into action. You can create simple prototypes for both products and services. Use cheap, basic materials to assemble your prototype. Use paper, napkins, paper towels, paper clips, cardboard, and Styrofoam. Don’t use expensive materials to make fancy looking models. That’s a waste of money.

When you are explaining your concept you can refer to the prototype and that may very well help the other person understand better what it is you’re trying to get across. My all-time favorite book on innovation is The Art of Innovation by Tom Kelley, who is the general manager of IDEO. My favorite quote from that book is, “If a picture is worth a thousand words, then a prototype is worth a thousand pictures.”

Start with five or six prototypes under the area of focus that you selected earlier. Study the prototypes, capture the best ideas, and then continue to make prototypes as quickly as you can as better ideas evolve.

Notice so far you have not spent very much money. You’ve invested time in talking with customers, observing customers, and developing prototypes. The process of innovation is not expensive. The primary investment is a mental investment, not a financial one.

Keep improving the prototypes until you land on the one that you are ready to actually create and deliver into the marketplace. This is where the costs primarily occur. You will have to spend some money in producing the product, training people on the new service they will be delivering, and on marketing the new product or service. However, notice that if you hold off on the spending until this stage you are able to provide something into the marketplace that has a far better chance of success at a lower overall investment from your business.

Step Six: Sell.

At some point you have to attempt to sell your innovation. You can’t innovate in a vacuum forever. You’ve got to put your idea out in the market and see how people respond to it. Innovation does not end with the first sale. Innovation is an on-going process. Find out what customers like and don’t like in your new product or service. And then keep working to make it better and better.

Step Seven: Find out if the proper connection has occurred

One important question to ask after your product or service has been in the market for awhile is, “Do customers feel they received the value that we intended to deliver to them?”

There is value to you regardless of the answer to that question. If customers feel they are receiving the value you wanted to deliver, then you can tell how much this value is worth to them. If customers believe they are receiving some other value that was unintended, then what is it? Perhaps that unintended value can lead to great profits for your business. If customers feel they are receiving no value from this new product or service, then you can work to determine if you need to scratch the idea or merely modify it.

My point is that I don’t want you to just stop after you’ve sent the new product or service into the marketplace. Allow customers to teach you what you don’t know about this new innovation. It doesn’t matter what value you think you put into the marketplace. What does matter is what value your customers think you put into the marketplace.

Keep searching for and implementing a better way. It is the key to surviving in tough times and thriving in good times.

About Dan Coughlin

Dan Coughlin teaches practical ideas that improve business performance. His purpose is to work with executives and managers so they achieve great performances. He is a business keynote speaker, management consultant, executive coach, and author of three books on management performance, including Accelerate, Corporate Catalysts, and The Management 500. Dan’s new book Find a Way to Win: Management Insights from Terry Michler, America’s All-Time Winningest Soccer Coach, will be published in May 2010.

One thought on “Tight Budgets Breed The Best Innovations

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s