Incremental Innovation: Unsung Heroes of Product Development.

Mission Impossible: We hear Superman(ager!) stories ” A product manager conceptualizes a great product idea (when an apple falls on his head!!). There is clear gap in available offerings & segment of customers are waiting for it since years! Big market size, large value creation with sustainable competitive advantage! Engineering team takes up seemingly impossible task & puts in superhuman efforts. Product is developed, tested & later released to site in record time. Revenue bells starts ringing etc.etc….!!”

Such heroic projects make good news stories, often heard in start-ups. Neither such success stories repeatable (if at all!) nor do they mostly make money. They can fail very expensively.

Traditionally products have been developed by this mega project approach – Like talking to all possible users, evaluating all possible competitors, making complete business cases, estimate market size, value proposition, use cases & scenarios, profiling etc. The process is extraordinarily long with various stage gate reviews & go no-go decisions. The financial & management stakes are very high. Companies have to wait 3-5 years before they actually see a dollar of earned profit. Product managers should get specifications 100% right & predict what customers want when product gets launched. Getting insight into what customer would need rather than what they asked for is important. Changing requirements put undue pressure on project schedule, as mega projects lack inherent flexibility to adapt to changing needs.

Mega projects with big budgets & large number of stage-gate-reviews fail to respond to changing technology & market conditions, user preferences or demanding venture capitalists. Companies need to be agile in responding to changing needs, manage risks & be able to show intermediate results.

Incremental Innovation: There is a saying ” easiest way to shorten development cycles is to minimize the work required to develop the product!!”  In incremental innovation approach, a development cycle goes through several, small & end to end cycles. And each cycle is executed at rapid phase with minimum budgets & managed with minimum risks. The teams are empowered to run through cycle without much intervention. There is almost no management stage gate reviews within each cycle.

Financial Advantages:

• Relative investments in each phase is lower.
• Revenue & profits show up much faster. Cash flows are better as there is no need to wait for say 5 years to see a dollar of profit.
• Much less financial risks as strong feedback from market help in adapting or changing investment needs. Surprises appear much earlier in life cycle.

Marketing Advantages:

• It is much easier to forecast customer needs over shorter time horizons, thereby helps to create more accurate products.
• Even if there is a mistake in assessing user needs, it is far easier to correct it.
• In fast moving markets, it gives crucial flexibility & mistakes are not costly.
• Each product introductions has the potential to lock in the customer with switching costs & network externality effects.
• Product gets refined with each introduction as it helps in getting crucial insight into customer needs than what customers explicitly asked for.

Engineering Advantages:

• As requirements are added during execution phase, complexity increases exponentially, putting lot of stress on development.
• Cost of adding new feature is significant as most complexity is due to interfaces & interactions with rest of the system.
• Field problems can not easily be modeled. Hence systems are best tested in actual working conditions.
• As technology changes, it is easier to incorporate at each cycle, rather than making technology commitments for longer time horizon.
• They are very effective in motivating people as they can see results faster.

In summery, incremental innovation enables rapid organizational learning & makes them effective in responding to changing needs & keeping risks manageable.

Perennial Productivity Problem : Increase Effectiveness from Effeciency

Productivity, a misnomer : The motivation for productivity improvement is different for different companies. The term is broadly defined as “to produce same output (whatever is desired)” with increasingly lesser & lesser input (resources). It is the definition of so called “output” & “input” that creates different motivations for different people. For some, lesser development cost is productivity improvement whereas for others, it is lesser development time. Companies are investing in millions of dollars in various systems & tools, in order to gain an order higher productivity, but often overall benefits remain only incremental.

Align Productivity with Business goals: Assuming the goal of productivity improvement is to generate maximum possible value to customers & share holders, it is important to align productivity with overall business goals of organization. There is lot of cue to take from old manufacturing technologies who have benefited immensely.

Operational managers in these industries continuously monitor & identify potential bottlenecks – Places where system is subjected to greater demand than it can handle & alleviate them by balancing people & equipments. There is only marginal benefit in improving individual throughputs, without considering how their actions are going to affect the performances of upstream & downstream stages.

Organizations focus on improving productivity at every level, from department level to project, team & ultimately at individual level. It is natural to think that the more productive the employee is, is any day better than less productive ones. However, larger organizational business goals are over sighted by this. Individual productivity improvements shall only increase local efficiency, without increasing business effectiveness. Reducing development cost need not be universal mantra, nor reducing development times. What is important is to know if these individual improvements ultimately help in winning in market place profitably.

Base productivity decisions on business effectiveness.

1. Increased Revenue:   What is the impact of  faster development time on revenue? Does it increase useful sales life of the product? It might be surprise in the market & creates a time lag for competition to catch up. The benefits are much larger if there is a switching cost for a customer. For example, it is much difficult to gain a telephone customer from competition than retaining one. Companies can be first in the market & thereby retain customer loyalty due to switching costs. It helps create network externality effect, which companies like Microsoft has so effectively used. White space products shall of 100% market share for some times, with peak sales & profitability. Trade-off cost & time productivity decisions based on hard economic numbers & sound business logic.
2. Increased Profit: Similarly, what is the impact of development cost reduction? It reduces the fixed cost component from total costs, thereby reducing the risk of investment. As lesser fixed cost is amortized over lifecycle, total cost would be less (for same variable cost) & makes product more competitive. However, which lever to operate (cost lever or revenue lever) depends on market competitive conditions.
3. Adapt & Sustain the competitive advantage: Ability to move quickly provides greater flexibility. Most technologies mature over time by being used in field. Early companies shall have data from field conditions & user preferences. It helps in coming with superior solutions than competition & also provide flexibility to changing market needs.

In summery, business goals drive productivity strategies. Traditional bottom up productivity improvement efforts (i.e. from individual contributor to teams to projects to businesses) fail to satisfy the needs of businesses. Improve productivity effectiveness by basing & driving strategies from business to further down.