Saturday, May 28, 2022

Book Notes: What Customers Want: Using Outcome-Driven Innovation to Create Breakthrough Products and Services

The next book on the cards was What Customers Want: Using Outcome-Driven Innovation to Create Breakthrough Products and Services by Anthony Ulwick. This book tries to emphasise outcome-driven thinking to bring discipline and predictability to the often random process of innovation. It's another foundational book towards learning how to build innovative products. 

Who is this book for?

This book will help everyone involved with product development i.e. product leaders, product managers, product designers as well as product developers. In addition to that it will also help marketing and sales leaders.

Usual Disclaimer

This post is by no means a summary of the book, the notes mentioned here are extracts from the book. If you find these interesting, please pickup a copy of the book and give it a go.

Book Notes

Introduction - Moving Beyond the Customer-Driven Paradigm

To figure out what customers what and to successfully innovate, companies must think about customer requirements very differently. Companies must be able to know, well in advance, what criteria customers are going to use to judge a product's value and dutifully design a product that ensures those criteria are met. These criteria must be predictive of success and not lagging indicators. 

The outcome-driven method is a new way to think about innovation process. Three key tenets define this approach. 

  • Customers buy products and service to help them get jobs done. Customers have "jobs" with functional dimensions to them that arise regularly and need to get done. In the outcome-driven paradigm the focus is not on the customer, it is on the job: the job is the unit of analysis. When companies focus on helping the customer get a job done faster, more conveniently, and less expensively than before, they are more likely to create products and services that the customer wants. 
  • Customers use a set of metrics to judge how well a job is getting done and how a product performs. Customers have these metrics in their minds, but they seldom articulate them, and companies rarely understand the. We call these metrics the customers' desired outcomes. 
  • These customer metrics make possible the systematic and predictable creation of breakthrough products and services. In the outcome-driven paradigm, companies do not brainstorm hundreds of ideas and then struggle to figure out which, if any have value. Instead they figure out which of the 50 to 150 outcomes for a given job are important and unsatisfied and then systematically devise a few ideas that will better satisfy those underserved outcomes. 
Innovation is the process of creating a product or service solution that delivers significant new customer value. The process begins with the selection of the customer and market, includes the identification and prioritisation of opportunities, and ends with the creation of an innovative product concept that delivers the new and significant value. 

Formulating the Innovation Strategy - Who Is The Target of Value Creation and How Should It Be Achieved?

Companies need to figure out what type of innovation initiative they're going to pursue; what growth options are best' and who in the value chain should be targeted to maximise value creation in the market. 

There are four types of innovation that companies should consider for pursuit.

  • Product innovation or service innovation: This is the most common type of innovation, results from improvements that are made to existing products and services. 
  • New Market Innovation: This occurs when a company discovers that people are struggling to get a job done on their own because no products exists and devises a creative product or service that enables customers to get that job done faster and cheaper than ever before. 
  • Operational innovation: This happens when a company discovers inefficiencies in a business operation and works to address those inefficiencies through creative solutions. 
  • Disruptive innovation: This results when a company uses a new technology to disrupt the prevailing business model in an existing market that is filled with overserved customers. 
Once a company decides which innovation path and growth strategy to follow, it must then decide where in the value chain to look to maximise value creation. When making these decisions, companies commonly make the following three mistakes, any one of which can derail the innovation process:

  • The company does not consider the end user directly. Companies commonly fail to consider the end user as a target customer, particularly when the end user is not necessarily the primary purchaser of a product or service. 
  • The company doesn't consider all relevant customers for innovation. Companies that are far back in the value chain and those that sell directly to the end user often don't take the time to consider all relevant customers for innovation and therefore fail to capture or consider their inputs. 
  • The company lets one customer speak for another. Often, companies take shortcuts and let their immediate customers, such as an OEM or a channel partner collect, interpret, and provide them with the requirements of others in the value chain. 

Capturing Customer Inputs - Silence the "Voice of the Customer" - Let's Talk Jobs, Outcomes, and Constraints

The second step in the outcome-driven innovation process is to obtain from customers the information that is needed to discover opportunities and to create valued product or service solutions. 

In outcome-driven paradigm, companies capture the necessary customer information and use it to guide them in the creation of valuable products or services. They do not brainstorm a range of ideas and test the with customers to see which ones consumers like best. While the latter practice is common, it is often the cause of product failures. 

A requirement is something that customers want or need, so, arguably, solutions, specifications, and benefits could all be considered requirements. But certain types of information about customer requirements are more valuable than others to companies. To help bring clarity and objectivity to the innovation process, we need to first create a common language around the different types of information about customer requirements. 

Sometimes companies delude themselves into thinking they are obtaining the data they need from customers - but they are not. Customers tend to state four types of information during the requirements gathering process: solutions, design specifications, customer needs, and customer benefit statements. None of them will help a company successfully create new products and services. 

Companies spend considerable time debating the methods used to capture customer information rather than focusing on collecting the right kind of information. 

Many customers offer their requirements in form of a solution to a problem. Customers do not always have the best solutions, which means their suggestions may lead to products and services that ultimately disappoint them. Customers do not know how the features they are requesting will affect other, possibly more important, dimensions of the product. 

Customers often focus on product specifications, giving interviewers detailed instructions on particular design characteristics: size, weight, colour, shape, look or feel. Accepting specifications as customer inputs inherently prevents engineers and designers from using their creative skills to devise breakthrough products and services. 

Customers' needs are usually expressed as high-level descriptions of the overall quality of a product or service. They are typically stated as adjectives and inherently do not amply a specific benefit to the customer. For instance, customers commonly say they want a product to be "reliable", "effective", "robust", "dependable" or "resilient". Although these simple statements provide some indication as to what customers are looking for, they have one major drawback. They are imprecise statements open to interpretation and present designers, developers, and engineers with the impossible task of figuring out just what customers really mean by "dependable" and "resilient". 

Customers often use benefits statements to describe what value they would like a new product or service feature to deliver. They often use words like "easy to use", "faster" or "better". These statements may be useful for marketing-communication purposes, but again, they present designers and engineers with ambiguous information that can't be measured or acted upon. 

To execute their innovation processes successfully, companies must obtain three distinct types of data. They must know which jobs their customers are trying to get done (that is, the tasks or activities customers are trying to carry out); the outcomes customers are trying to achieve (that is, the metrics customers use to define the successful execution of a job); and the constraints that may prevent customers from adopting or using a new product or service. 

There are three different types of jobs that customers are often trying to get done:
  • Functional Jobs: They define the tasks people seek to accomplish. 
  • Personal Jobs: These explain the way people want to feel in a given circumstance. 
  • Social Jobs: Clarify how people want to be perceived by others. 
Customers want to get more jobs done, but they also want to be able to do specific tasks faster, better, or cheaper than they can currently. To define just what "faster" or "better" means, companies must be able to capture from customers the set of metrics that define how they want to get the job done and what it means to get the job done perfectly. These metrics are the customers desired outcomes

Before we start capturing outcomes from customers we often begin to dissect the job into its process steps so we know where to look to capture customer information. This results in a clear understanding of the customer's value model. To fill in customer value model, managers must capture the customers' desired outcomes in a precise format for each stage of the job so development and marketing staffers can use the information throughout the subsequent stages of innovation process. Desired outcomes typically state a direction of improvement (minimise or increase); contain a unity of measure (number, time, frequency, likelihood); and state what outcome is desired. 

Desired outcomes are fundamental measures of performance that are inherent to the execution of a specific job. They will be valid metrics for as long as customers are trying to get the job done. 

Besides getting more jobs done, or a specific job done better, customers also need help overcoming the constraints that prevent them from getting a job done altogether or under certain circumstances. These constraints are often physical, regulatory, or environmental in nature. Companies that can find new ways to overcome these constraints can also uncover excellent growth opportunities. 

Identifying Opportunities - Discovering Where the Market Is Underserved and Overserved

The third step in the outcome-driven innovation process is to determine what jobs, outcomes, and constraints represent the best opportunities for growth and innovation. 

In the outcome-driven paradigm, an opportunity for growth is defined as an outcome, job, or constraint that is underserved. An underserved outcome, in turn, can be defined as something customers want to achieve but are unable to achieve satisfactorily, given the tools currently available to them. 

Underserved jobs signal potential opportunities for new markets. They are jobs that customers cannot perform satisfactorily with the tools that are currently available to them. Job-related opportunities for growth can be discovered by determining what ancillary or related jobs are underserved when a customer is using an existing product or service and by determining what jobs people are trying to get done in general. 

Underserved constraints also represent opportunities for growth as they point out under what conditions or circumstances a customer is unable to perform a job of interest. 

Companies often spend years developing a competency or strength in a market and then continue to improve the products that showcase that competency. Companies have a tendency to keep making improvements in their areas of strength even though the associated outcome may already be well satisfied, even overserved. 

When companies focus on what can be done rather than what should be done, they often focus on an outcome that is just not that important to customers. This takes resources away from the underserved outcomes that would result in the creation of value, adding an opportunity cost to the equation as well. 

Companies rarely know all the outcomes customers are trying to achieve, and often the improvements they make in one area end up having a negative effect on other important outcomes. The best opportunities spring from those desired outcomes that are important to a customer but are not satisfied by existing products. 

The opportunity algorithm, is a simple mathematical formula that makes it possible to discover the most promising areas for improvement. The formula states that opportunity equals importance plus the difference between importance and satisfaction, where that difference is not allowed to go below zero. 

Opportunity = Importance + max(Importance - Satisfaction, 0)

An opportunity for improvement exists when an important outcome is underserved - that is, when it has a high opportunity score. Such outcomes merit the allocation of time, talent, and resources, as customers will recognise solutions that successfully serve these outcomes to be inventive and valuable. 

  • Opportunity scores greater than 15 represent extreme areas of opportunity that should not be ignored. Outcomes with scores in this range are rare in mature markets, but common in newer markets. 
  • Opportunity scores between 12 and 15 can be defined as "low-hanging fruit" ripe for improvement. 
  • Opportunity scores between 10 and 12 are worthy of consideration especially when discovered in the broad market. 
  • Opportunity scores below 10 are viewed as unattractive in most market and offer diminishing returns. 

To define and deliver new solutions that evolve each measure of value along its continuum, better satisfying the collective set of outcomes. Every time a new product or technology is introduced, the opportunity for value creation migrates somewhere else. To understand how this dynamic is playing out at any given time, companies must know three things: what all the customer outcomes are, which of those outcomes are important and which are unsatisfied. With this information in hand, it is possible to see where value is migrating and to be the first to address the new opportunities with winning products. 

The information gained from competitive analysis can be used to help position existing products, to understand why one competitor's product is selling better than another's, and to target the weaknesses of key competitors. It can also be used to direct the organisation's communication and sales strategy to highlight the high-opportunity areas that are well served. 

In the face of uncertainty, companies simply copy their competitors because they feel they must meet or beat them on a spec-by-spec basis or be left behind. A company that is thinking in terms of customer outcomes has been freed from the spec-by-spec mentality, however, and will not necessarily try to match the competition. 

Segmenting the Market - Using Outcome-Driven Segmentation to Discover Segments of Opportunity

The fourth step in the outcome-driven innovation process is market segmentation. Traditional segmentation schemes often lead companies to focus on phantom targets - that is groups of customers who are neither homogeneous nor non-overlapping, and why may not value a unique set of desired outcomes. Segmentation must create a population that:
  • Has a unique set of underserved or overserved outcomes. 
  • Represents a sizeable portion of population
  • Is homogeneous - meaning that the population agrees on which outcomes are undeserved or overserved and responds in the same manner to appropriately targeted products and services. 
  • Makes an attractive strategic target - one that fits with the philosophy and competencies of the firm
  • Can be reached through marketing and sales efforts. 
Using the opportunity score as the segmentation variable forces the creation of segments that represent unique opportunities. From a development and marketing perspective this is nirvana, as this market insight is just what is needed to make effective targeting, positioning, messaging and other product and marketing decisions. 

In most markets there exists a group of customers who are more demanding than the rest. They are underserved along many dimensions of value; they want more and are willing to pay for it. In most markets there also exists a group of customers that is unattractive to utilise more function, or they may require excessive service while demanding lower prices. 

A technology can successfully disrupt a market only if a sizeable segment of market population is overserved and willing to accept a product or service that is functionally inferior to those currently available. 

As a new entrant into an existing market, a company must be able to pick out a small segment of customers, address their unique outcomes, and then leverage its position to make gains in other market segments. 

Outcome-based segmentation is used to discover segments of opportunity in a specific market of interest. Job-based segmentation is used to discover entirely new markets - a job or a group of jobs that are underserved. 

Targeting Opportunities for Growth - Deciding Where to Focus the Value Creation Effort

Once a company knows all the opportunities that exist in a market, it can devise a very effective targeting strategy; one that will ultimately place it in a unique and valued competitive position - a position that addresses the underserved outcomes in a market while reducing costs in those areas that are overserved. 

Targeting is the process of selecting for pursuit those underserved and overserved outcomes that represent the best opportunities for growth and innovation. An effective targeting strategy will enable a company to add function and performance in areas that are underserved and to reduce cost and function in areas that are overserved. 

It is best to target a big opportunity in the broad market first because an innovation that has broad-market appeal will have a big impact on revenue growth. Once the opportunities in the broad market are addressed or exhausted, the segment-specific opportunities should be explored and considered given their size, business implications and potential impact on revenue growth. 

On occasion we find a market in which a number of underserved outcomes represent some sort of theme. In such a case a company is advised to message, position and compete around this theme, as it offers a strong competitive position. 

Even when there are not a large number of opportunities in the broad market, there may be one big opportunity that has not yet been addressed. When a big opportunity is discovered, evaluate whether or not the outcome can be addressed by creating a new product that fits well within the existing system and makes great improvements in getting the job done. 

Some underserved outcomes will require new technology, cost-reduced technology, or a reshaped technology before the outcomes are effectively pursued. When a broad-market opportunity does not exist, companies often look for opportunities that multiple segments share. 

When company is able to find opportunities that are shared by multiple segments, it may be able to define a feature set that addresses those shared opportunities and use that feature set as a platform on which to build solutions for the multiple segments, thereby reducing the overall number of product platforms that it needs. 

We typically find a segment of the population that is highly underserved - meaning many of their outcomes have high opportunity scores. This type of segment is typically underserved along so many dimensions that it would be impossible to address all or even most of its underserved outcomes in the next release of the product, and, consequently, it would be impossible to achieve total customer satisfaction with that release. Therefore it's wiser not to target such a segment until all the other attractive segments have been pursued. 

Occasionally we fine a segment that has no or only a small number of underserved outcomes while the remaining segments demand more performance and have greater number of underserved outcomes. In such a situation we may plot the segments with price point along one axis and performance along the other. Such an exercise enables a firm to determine which segment is most likely to be satisfied at a low price point and which will only be satisfied with more features at a higher price point. 

Positioning Current Products - Connecting Opportunities with Valued Product Features

Once a company has targeted the underserved outcomes that represent the best opportunities for growth and innovation, it is able to exploit those opportunities and gain revenue in three distinct ways:
  • By better communicating and exploiting any advantages its current products have in satisfying the targeted underserved outcomes, leading to increased sales. 
  • By quickly bringing to market those products and services in development that do the best job of addressing the targeted opportunities. 
  • By developing longer-term product and service ideas that target the remaining unexploited opportunities. 
A company can have a great product, but if it fails to communicate the product's value, it will not optimise it's sales revenue. Although marketing managers know this, we have found that positioning and messaging strategies often fail to communicate a product's true value because companies are unaware of the opportunities that exist in a market, use vague messaging that fails to hit the mark.

Companies often feel the need to appeal to their customers emotions, but depending on the functional and emotional complexity of the product or service being delivered, doing so can bring unexpected and unwanted results. 

Certain products - especially those in cosmetic and perfume industries - are relatively simple, functionally speaking and are often purchased to help customers get emotional jobs done. As the markets for these types of products mature, the products simplicity makes it difficult for companies to continue to differentiate one product from another along functional dimensions. This in effect forces manufacturers to differentiate their products along an emotional dimension in order to build and maintain brand loyalty. 

At the other end of the spectrum we find companies in industries that product highly functional items such as medical devices, financial services, and computer and software tools can be differentiated along many functional dimensions, and customers who buy and use such products rarely use them to get emotional jobs done. 

We can categorise the possible scenarios into four quadrants based on their combination f functional and emotional characteristics.

  • In quadrant 1 (low function, low emotion) we find industries involved in production of raw materials and chemicals. Companies in this quadrant are better off positioning and differentiating their products along another dimension, such as service or cost. 
  • In quadrant 2 (low function, high emotion) we find the cosmetics, food and beverage and packaged-goods industries. These industries spend considerable time differentiating along emotional dimensions, since many of these products have limited function. Much is to be gained, however, by trying to make these products more functional. It not only adds a new avenue for differentiation, but it also makes the product more valuable to the user. 
  • In quadrant 3 (high function, high emotion) we find the apparel and automative industries. Although products in these industries are highly functional, they are also very important in defining the customer's persona. Because of this, the emotional component is an important dimension of differentiation. 
  • In quadrant 4 (high function, low emotion) we find electronics, software, services and medical-device industries. The focus here needs to be on function, as these products have little emotional appeal. 
If the sales team begins with a solid knowledge of the customer's outcomes and ascertains which are underserved, it can then create a sales pitch and solution that will connect with the customer front and centre.

A cleverly conceived brand name that connects the product to the job can make customers think of the product whenever they think about getting the job done - so much so that the product and the job may come to be thought of simultaneously. This can only happen when companies take an outcome-based approach to branding and sales. 

Prioritising Projects in the Development Pipeline - Separating the Winners from the Losers

With increasingly competitive pressures and tightened budgets, companies cannot afford to continue to bet on dozens of initiatives in the hopes that at least a few will succeed. A new method for prioritising development initiatives is needed: one that can identify the initiatives that will create the most customer value and company profit. 

Products and services that satisfactorily address targeted market opportunities are given high priority and the resources to get to market quickly. Those that fail to address targeted opportunities are reconsidered and often abandoned. 

Most companies do not know their customers desired outcomes or which of those outcomes are most underserved. They try to make educated guesses, often giving most credence to inputs from the sales team. They may react to competitors new launches, diverting resources from their own potentially breakthrough initiatives. Because companies don't know where opportunities exist in a market, they often feel compelled to invest in an excessive number of initiatives in the hope that at least some of these bets will succeed. 

The excitement and exuberance associated with a project typically originate with the project champion, a person whose unyielding conviction that the project will succeed is often based on a hunch rather than on strong evidence. The champion's exuberance spreads because others also want to believe. It is this dynamic that makes it hard to kill a project, even when there are signs that it will likely fail. 

Because companies tend to fund far more projects than they should, they are forced to spread limited resources across many projects. In the end, few projects receive the resources and attention they need to move forward quickly. 

When several competing initiatives are found to address many of the underserved outcomes, each initiative may also be evaluated for factors such as effort and risk. When all of a company's competitors satisfy an important outcome better than the company itself, then the company should give high priority to an initiative that helps overcome that competitive weakness even if the outcome was not one that the company has originally targeted. 

Devising Breakthrough Concepts - Using Focused Brainstorming and the Customer Scorecard to Create Customer Value

Most brainstorming and idea generation efforts yield poor and un-actionable results for three key reasons. 
  • Managers rarely know how or where to direct employees' creative energy. The result is much wasted energy, hundreds of useless ideas, and unfortunately, few ideas that are truly worth of pursuit. 
  • Companies often measure the success of an ideation session by the number of ideas that are generated, not the quality of those ideas. 
  • The third problem arises because so many ideas exist and most companies lack a useful way to evaluate them. 

Instead of thinking up ideas and then trying to figure out which ideas merit value, companies should only generate ideas around the underserved outcomes. Knowing where to focus creativity is the key to successful and accountable innovation. To successfully generate breakthrough solutions, companies must identify and address their customers' most underserved outcomes and do so in a way that does not diminish performance along other important dimensions. 

The first rule is to keep the ideation team focused on generating ideas that specifically address the high-opportunity outcomes. Do not let them wander off course and push ideas that are focused on satisfying other, less important outcomes. 

When brainstorming, employees are instructed to devise ideas that make significant improvements in customer satisfaction, not just incremental improvement. 

While some experts suggest that applying constraints is confining and many stifle creativity, we argue that on the contrary, constraints focus creativity in a way that generates valuable, usable, and practical ideas. 

There are plenty of bad ideas. These are ideas that are impractical and costly and that fail to address underserved outcomes. Outcome-driven companies eliminate these bad ideas quickly as they are evaluated immediately after they are generated. 


This book talks about how outcome-driven companies do things differently and why it is important to know what jobs, outcomes customers are trying to achieve and what are the constraints governing them.    I would recommend reading this book for anyone working towards building a product!
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