How to create useful measures for different classes of innovation.

Over the past few years, Jump Associates has had the opportunity to work with a host of companies grappling with how to effectively and reliably create innovative products and services. Whether the category was cars or cookies or computers, these firms have all had to grapple with implementing new approaches to their product development process. Often, they discovered that the greatest challenges didn’t exist in coming up with great ideas but in the organizational and management issues that these new ideas presented. For instance, many development organizations have found it useful to create a mix of both incremental and blue-sky projects. They soon discover that these two activities required substantially different approaches and metrics. Furthermore, problems occurred when these processes were not defined in advance of the actual development work.

Sustaining or Incremental products and services are the kinds of sustaining innovations that companies often need to develop just to stay in the game. Incremental innovations can be thought of as variations on a theme. For example, in the category of household cleansers, an incremental innovation may include how to make the cleaner twenty percent stronger, or give it an altogether new scent.

Breakout products and services are those that significantly up the level of play within an existing category. You’ll notice in the table below that we’ve listed the Aeron chair in the breakout category. While the mesh-backed chair is quite innovative, and has proved extremely successful for Herman Miller, it is still a chair, built, sold and used in much the same way as any office chair.

Disruptive or breakthrough innovations are the sort of big idea products and services that many of us have in mind when we think about an innovation. They are called disruptive because they disrupt the current market behavior, rendering existing solutions obsolete, transforming value propositions, and bringing previously marginal customers companies into the center of attention.

Existing Product and Service Examples

One way to better understand such a model is to look at a few real world examples:

It’s useful to note that disruptive innovations often come first, and are then followed on by incremental innovations, starting the cycle anew. For instance, the original Palm Pilot was a disruptive innovation. The Palm III and then the Palm V eventually succeeded the Palm Pilots, adding memory, aesthetic upgrades and a few other technical improvements. However, it was the Handspring Treo, with its integrated cell phone and pager capabilities that challenged the otherwise stagnant value proposition and feature sets of prior models.

How Big Is Your Innovation?

People often have different assumptions about what constitutes a breakout or disruptive innovation. Without a rigorous filter for distinguishing between the two, making these distinctions can be challenging. The following heuristic provides a quick filter for determining whether an innovation is sustaining, breakout, or disruptive.

Does It Require a Behavior Change?

Do People Understand the Need?

Do People Understand the Solution?

Market Performance

Because disruptive innovations have the potential to yield the greatest benefit to a company, firms can often make the mistake of thinking that disruptive products should lead to immediate market success. Even worse, some firms unwittingly begin to classify their products purely on the basis of their immediate market forecast, calling likely big hits disruptives. In fact, the opposite is true. Sustaining innovations are far more likely to perform well under traditional testing conditions, and therefore seem the most promising. Given the following behavior curves, one should actually be suspicious of so-called disruptive innovations that show immediate widespread success.

Sustaining Innovations typically generate moderate revenues immediately and are therefore easier to predict. However, because they leverage the potential of established markets, such products inevitably see their erode steadily over time.

Breakout Innovations tend to display a strong market performance, quickly gaining market share and attention. However, some of this performance can be the result of novelty value, a phenomenon that can go away as quickly as it came. After that, breakout innovations start to look more like sustaining innovations.

Disruptive Innovations take some time to develop, as people begin to understand their nature, and as technology and channel capabilities develop. However, under the right conditions, these fragile offerings can than develop into unparalleled successes.

Dealing with Different Innovations
Too often, a project team that’s working on a so-called disruptive innovation finds itself caught within a product management system that seems optimized for the creation of more incremental or sustaining innovations. When that happens, the team can be forced to negotiate some sort of exemption from the “standard procedure.” This, of course, places an added burden on an already taxed development team. More importantly, the internal success of the project comes to depend less on the quality of the innovation and more on the quality of the deal that the team can cut. Such projects demonstrate the importance of establishing different metrics and procedures in advance of any specific project, so that development teams can know the goalposts their aiming for, and tailor their approach accordingly.

Different Development Processes
A major area that often needs this kind of differentiation is the development process itself. Companies sometimes spend years developing and refining their Stage Gate process to best suit their business. That process tends to get optimized around what best suits the majority of development projects, which tend to be sustaining innovations. For instance, Jump once helped to develop a new furniture system. We were starting with a blank piece of paper, and the system had the potential to encompass hundreds of new component pieces. We soon found ourselves in the middle of the company’s third stage-gate, which, for this company, included an extensive QFD exercise. This made sense for most projects, as they tended to be additional component pieces for existing systems. However, this requirement provided little insight for our system that, at the time, might have included everything from furniture to digital elements. Because the team was unable to get an exemption from the QFD process, we completed the activity as written, wondering if an alternate approach might have better served our needs.

Different Approval Mechanisms
Funding decisions are a similarly important area for rethinking in advance. Project teams can sometimes invest significant resources in creating a proof of concept, only to realize that the product is something that lies a little beyond what the business wants to be doing. At that point, project champions who are passionate about their idea will scramble to find a home for their project somewhere else in the organization. This is the sort of thing that can be done in advance. For instance, TRW Corporation had a long-standing agreement with a venture capital firm that the VCs could get a look at any product idea that TRW declined to develop. The two firms had worked out issues like intellectual property and ownership in advance, so product development teams could focus on their projects, not on figuring out a deal that would work.

Different Performance Expectations
The third biggest area to define in advance is market reception and performance. The very notion of disruptive innovations is that they confound the conventional parameters of competition and value proposition in a category. That often means that it takes a while for folks to figure the product out. This makes such ideas resistant to conventional market evaluation, such as volumetric testing. Put another way, customers have a hard time evaluating the merits of stuff that’s really out there. Companies often try to sidestep this issue by saying that they’ll ignore or downplay early negative feedback if the product just seems to be good for other reasons. This can leave a development team crossing their fingers and hoping that their project sponsor sees the light. An alternative approach is to clearly define an alternative set of testing methods that are more suited to disruptive innovations – and such methods do exist. Often, these take the form of small qualitative studies with lead users or comparison to products in other categories that provide analogous benefits. For instance, manufacturers of the first commercial fax machines looked to the size of the overnight courier industry to gauge the size of their potential market. Few people, it seems, were able to come out and say they wanted a fax machine having never seen one before. Such methods can then be coupled with a different set of expectations for how the product should perform in the market to be called a success. A firm may, for instance, expect sustaining innovations to perform well in a relatively short period of time, while giving disruptive innovations a longer time to gestate.

Implications for a Project
By tailoring a product development process to different types of innovations, a firm can give itself the opportunity to generate immediate new product revenues while still nurturing future opportunities. To support that goal, Jump classifies each of its new product concepts and ideas within the three-type framework. To do this, we evaluated each concept using the same criteria described above. (i.e. familiarity of concept, change in behavior, market performance…) This allows a company to manage risk and reward within the structure of a portfolio management process. For instance, we’ve had some clients who were able to focus their innovation efforts by clearly stating in advance that they would only be able to launch breakout products, and couldn’t afford the resources to explore disruptive opportunities. In other cases, companies specifically sought to develop a healthy balance of all three, so that they were meeting the needs of today and tomorrow. Categorizing innovations in this manner is an effective way to help ensure that target outcomes are in line with early expectations, and that any firm seeking to innovate has an effective system for doing so.

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