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The Dilemma of Better

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The Dilemma of Better is an excerpt from a series of posts on LinkedIn concerning how to define the word Better in the context of the Front End of Innovation. The paper uses a new cleaning product as …

The Dilemma of Better is an excerpt from a series of posts on LinkedIn concerning how to define the word Better in the context of the Front End of Innovation. The paper uses a new cleaning product as a case to illustrate some tools to help break down value into easy to understand elements. The elements include product functions, brand, quality, performance and price.

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  • 1. A L E E L L C + 1 . 8 4 7 . 2 1 9 . 4 1 6 3 ALE Page 1 Abstract: On October of 2010 Al Lee launched a discussion thread on the FEI group, Front End of Innovation, within LinkedIn.com. The thread was titled, Compellingly Better, Faster or Cheaper: Strategies for Innovation. This title was used as a ploy to pique the interest of potential contributors most of whom are consultants or who are actively involved in the front end of innovation processes. A common response a customer gives when asked what they want is, “What I have now but only Better, Faster and Cheaper.” Then when asked how they would define better the response often is, “I’ll know it when I see it!” The discussion thread was launched to help participants understand different methods and tools that can be used to help them navigate through different methods on how to discover and categorize better. The approach taken in this paper involves putting value into context because all value is relative. Relative to what become the key truths each person must discovery for critical thinking to occur. Key truths are market segment dependent and critical thinking is the precursor to any innovation.
  • 2. A L E E L L C + 1 . 8 4 7 . 2 1 9 . 4 1 6 3 ALE Page 2 Cleaning Product Case Analysis: Extracts from a LinkedIn Discussion on How to Determine Better As part of the discussion thread Peter Balbus put forth a case concerning the efficacy of a new cleaning product with certain attributes. This became the vehicle for illustrating a key tool that can be used to break down the notion of value into four discrete elements which can be further decomposed. This allowed readers to understand where critical thinking could be rapidly applied for innovative outcomes. Also included is a simple application of Bayesian methods to assess probability in potential constraints. At the end of this paper the concept of The Buying Dynamic is introduced to identify the key stakeholders in any purchase decision. All the material in this paper excluding the Conclusion was concatenated from the discussion thread. The value expression on page 2 was also not included as an illustration in the thread as LinkedIn does not support formulas. Input from Peter Balbus So given the proclivity of this FEI group for retail consumer businesses, let’s assume that our hypothetical target customer is the everyday buyer/user/consumer of household cleaning products, and our hypothetical company has just launched an innovative new line of cleaners that they hope markets will recognize as being more “effective.” What might those dimensions of effectiveness be -- as experienced by the consumer? Let’s assume that our hypothetical consumer values ease of use the most. In this case, more effective might mean greater cleaning power to cut through tough grease and grime in one swipe, without needing to be rinsed. This would be more effective than existing products that require multiple swipes, extended scrubbing and rinsing. But our hypothetical consumer is also eco-aware, and insists that the cleaning products they use be eco- friendly and safe for pets and small children. How fortunate that the new innovative cleaner is 100% organic – in both manufacturing and final product chemistry – and naturally biodegradable, with no volatile fumes or toxic residues. Clearly, this is more effective than existing inorganic cleaners with volatile fumes and toxic residues. Finally, with its greater effectiveness in cleaning, the consumer will use less of this product, making its unit volume per cleaning less than existing products – so greater effectiveness also translates into potentially lower costs and conservation of resources. Not just less of the product, but fewer rags and paper towels, less water, and fewer trips to the store to buy more cleaner when it runs out - which it won't do as often: All things that the consumer highly values. Clearly, "more effective" in this case translates into "better" in the consumer's experience. They will prefer this product to traditional competitors'.
  • 3. A L E E L L C + 1 . 8 4 7 . 2 1 9 . 4 1 6 3 ALE Page 3 Al Lee’s response and analysis While I was at Motorola I developed a business modeling method called the Business Systems Architecture Process, BSAP. It won a number of internal invention awards. As part of the method I also developed several tools and algorithms that could be used as part of the client engagement that the client could understand and use. I will be sharing the most effective tool in my kit with you. If you find it is a useful then you are free to use it as long as you give me credit. It is presently being evaluated for copyright protection. If you feel you have a tool that is better, faster and cheaper then you can share that with us after this exercise. I created an expression I called the BSAP Value Dynamic. It looks like an algorithm but it does not capture the precision of work like Greg Yezersky nor is it designed to. It capitalizes on you and your client’s existing intuition and assessment capabilities: Bayesian Lite will come up later. My conjecture, yet to be refuted in well over a hundred engagements which included Fortune 100 clients, is that there are 4 things embodied in a product, aka service, the customer is willing to pay for: Functions, Brand, Quality and Time. My conjecture continues with my belief that the customer’s notion of value is based on how the product enhances their daily life countered by the price of the product relative to competitive alternatives including the cost (price) of doing nothing. A competitive alternative may also include the customer producing the product themselves. The tool looks like this (FBQT)/P. We will be using this extensively. This tool can be understood by 7th graders as well as your clients. F stands for Function, B for Brand, Q stands for the Quality of the Function(s), T stands for Time aspect of the Function(s) which can be performance but it is used for anything that can be measured using time as an index. P stands for Price. Price can be extended to include the Total Cost of Ownership (TCO) which is very relevant in product/systems that cost a lot of money. For this exercise we are only considering the price of the product. If the customer is willing to pay for Functions, Brand, Quality and Time attributes then I can consider these to be strategic product investments if one or more of these are the basis of my brand strategy as well as compelling differentiation against competition. We’ll get to the emotive aspects of brand a little later. At the highest level, Function is ALWAYS the first criteria in the buying decision. The highest level in this case is a product that cleans using a solution. To make this simple I will say it is a general purpose cleaning product. To say anything else will start getting into more market segmentation than what Peter implied. The customer wants to buy a product that facilitates the act of cleaning surfaces. All general purpose cleaning products have the same Function. How they all differ is a combination of (BQT)/P which in this case Peter has introduced some highly desirable attributes in Q and T.
  • 4. A L E E L L C + 1 . 8 4 7 . 2 1 9 . 4 1 6 3 ALE Page 4 The next post will go into detail on how to do a rapid analysis and decide where to make the strategic investments: innovative thinking applied to (BQT)/P. It is not exhaustive but it will help you quickly focus your client’s attention on what they believe is important. We may also see some implication based on input that took me less than an hour to gather. Peter did an excellent job listing customer benefits in terms of outcome as well as product attributes such as eco-friendly. Let’s pick the example of an investment group who wants to jump into the green bandwagon and a brilliant inventor showed up with a super eco -friendly cleaning solution. You may notice in my earlier post when I responded to Peter that I started to categorize his input. FUNCTION: cleaning product. This is the first consumer consideration. Other examples of first level considerations: a car, something to remove hair from my face, a pan for cooking with liquids, etc. The consumer outcome is a cleaner surface that the previous state. There is nothing that is better, faster or cheaper yet. The product is in solution form (a combination of ingredients) used for cleaning. Innovation may have been necessary to create the right mix of ingredients in order to get all the attributes Peter has specified. BRAND: there is product brand which also may contain branded ingredients (think YKK zippers or GORE- TEX), there is the brand of the product producer as well as the brand of the end consumer. In this case the consumer believes they get a halo green effect from associating themselves with a product with eco- sensitive attributes. Brand in this context is their personal belief relative to how they think about themselves and how they want others to perceive them. We don’t have a company yet so the Producer role is only a glint in the eye of the hot shot inventor and venture capitalist. We don’t have a product brand yet but as you will see there is a lot we can work with. In the retail consumer market it is Brand that dominates as the second consideration. In this case we can build an emotive connection; this has the highest value in the retail market, to a particular market segment because of the association with “green”. One can apply innovative thinking to develop a unique message that becomes very personal. Methods of communicating that brand also represent innovation opportunities using social media or other channels. I noted Personal Brand may be a good value component. We’ll come back to the other aspects of Brand shortly. QUALITY: this is a bucket to represent any other end consumer value other than attributes associated with Time. Don’t worry about precision here. This is just a handy place to put anything the workshop participants think their customer or potential customer is willing to pay for other than FBT. That the solution is 100% biodegradable can fall into this Quality bucket because it has nothing to do with making the cleaning faster nor does it add a function to the product. It however is a defining attribute of this product which means it is a non-negotiable feature and must always be present. That this product is green automatically ties into customer emotion. No scent is also a product attribute that does not add Function or impact Time. That it has no scent compared to competitors implies this appeals to a market segment that does not like odors or is sensitive to odors. It may have required innovation to neutralize odors in the finished product because powerful cleaners often have an unpleasant odor without treatment. The lack of scent can be tied to a customer emotion. The use of scent always ties into a customer emotion.
  • 5. A L E E L L C + 1 . 8 4 7 . 2 1 9 . 4 1 6 3 ALE Page 5 TIME: this is anything that can use time as an index. Again don’t worry about precision until we have to get to proof requirements. The reason we treat Time separately is because it is relatively easy to measure and thus prove this type of claim especially against competition. One of the key claims is that it will take less time to clean due to the power of the cleaning solution in addition to the fact that it does not require rinsing: the first step was faster and the second step was no longer required. Both of these directly enhance the end consumer’s outcome. Again innovation may have been required to have the solution meet these attributes. Another Time element is less frequent need for replenishment compared to competition. Innovation may have been required to get the solution to the ideal concentration level. This impacts the customer in replenishment time not for cleaning itself. PRICE: your price is your customer’s cost. In the case of concentrated solutions there are two direct measurements one can use. One is cost per concentrated ounce or cost per diluted ounce. You must normalize in some fashion in order to make an equitable comparison against competition: e.g. dilution ratio for 22 oz of solution when used for cleaning windows. A more creative way may be to calculate the cost to clean 100 windows with one person compared to the competitor’s product. You could calculate the cost of the window washer’s time as well as how much diluted solution was required to clean 100 windows. The difference between the two products in the end is all the customer cares about. We can also indicate there is less cost in achieving the customer's outcome using this product because fewer towels need to be washed as well as the use of paper towels can diminish. In general equitable products have equitable price points where (FBQT) is similar. We are striving for premium pricing in this case so let’s see what chance the hot shot inventor has to achieve their goal. Based on the information we’ve captured the product appears to have a very compelling value proposition. We haven’t really dealt with price yet or product brand and we will do so now. The general rule in pricing is you charge whatever the market will bear. Price premiums are due to some uniqueness in the product or even messaging. You may recall something I call Bayesian Lite where I use the principles of Bayesian methods in a very simple way. Here is the observation I made earlier which Peter agreed with: “the client should be able to charge a premium for this product if the market segment for green is large enough in the geography targeted and if competition does not have a like, not necessarily identical, product and if there is a strong marketing campaign to ensure a successful launch. This product can be targeted to both the commercial and retail consumer market which means packaging differences as well as channel implications.” We certainly want a price premium so the first key probability that must come true is: if the market segment for green is large enough. While there is a lot of promotion concerning the need to go green we need to look at this more critically. I would argue the US market is saturated for cleaning products. This means this becomes a market share battle and this becomes a true test of whether people will pay extra to migrate to green products that serve the same function as existing non-green cleaners. The second probability is a conjunctive AND_IF statement which means the second statement depends on the first statement coming true. If there is no market there can be no competition. This answer shows up with a
  • 6. A L E E L L C + 1 . 8 4 7 . 2 1 9 . 4 1 6 3 ALE Page 6 little data gathering and drawing some inferences you may or may not agree with but that’s all right because they force the discussion where needed. Is there competition for eco-friendly cleaning products? Of course there is and those products have been in the market for over 30 years: Shaklee’s Basic H and Sunshine Maker’s Simple Green. They do sell at a premium and they appear to meet the same specifications as what Peter described. Both products have been certified by Green Seal, a non-profit organization. While I am skeptical of some certification agencies that is besides the point as certification represents a trust token. Consumers for the most part have no clue of the efficacy of Green Seal’s or any other certifying body’s processes. Let us call the new potential product, Eco-Speed Cleaner. Let’s just assume its FQT is the same as the existing eco cleaners. It is obvious there is no product brand equity yet so the existing ones have a major advantage in B because they have been around so long. Simple Green has production facilities in Europe as well as the US. Europe is much greener conscious than the US. So if FQT is the same and Eco-Speed Cleaner has no brand of substance maybe it can just compete on Price. Well, not so fast. Clorox has a separate division called Green Works and if you look at their site you can just make out a tiny Clorox logo in the bottom right corner: http://www.greenworkscleaners.com/ . If on the other hand you look at the Clorox product page the logo is prominent in all their products: http://www.clorox.com/products/ . I believe the consumers associate Clorox brand so much with bleach and disinfectants that Clorox could not afford to make their logo dominant on their green products so they created a separate unit. The Clorox logo is on their green products but it is very small. A big Clorox logo will put the wrong “halo” on their Green Works product line. Did Clorox do this for a price premium for a market segment or were they just trying not to lose market share. Remember, if you agree with me, the US market is already saturated for cleaning products. The market leader has no place to go but down. Well the market talks loud and clear. Staples sells both Green Work’s 32 oz bottle of general purpose cleaner and Clorox’s 32 oz 409 bottle for $5. They received no price premium for green. This implies the first IF statement may be at a higher risk than thought: is the green market big enough? Competition lets you know if it is or not because all product eventually normalize, reach their natural levels, through price adjustments. That leaves the third AND_IF statement that they launch a strong marketing campaign. One that is better or more pervasive than Clorox or even their Green Works product group? Clorox has a much bigger enterprise brand than Shaklee and Sunshine Maker but no brand equity in green products. Even they have to sell at a big discount from Basic H and Simple Green. So where does this leave Eco-Speed Cleaner? They cannot compete on FQT. Investing in more Q capability does not appear to gain more consumer value as competition already has scented and unscented products for general purpose cleaners. Remember green and faster were the primary value attractors. Even a huge investment in Brand leaves Eco-Speed Clean with a Pricing problem. You can invest a lot of money in Brand as long as you have enough profit margins to support it. It is unlikely Eco-Speed Clean can exceed Clorox in brand spend so this may not be a good investment. That leaves low price as a strategy. Bad move because Clorox already rode the cost curve down a long time ago. In order to compete on Price you have to have the lowest COGS, cost of goods sold, than any of your competitors as well as a high performing distribution system. This requires innovation in operational excellence as well as distribution.
  • 7. A L E E L L C + 1 . 8 4 7 . 2 1 9 . 4 1 6 3 ALE Page 7 We now have baseline assessment on Peter’s set of conditions. It is a little bleak but it is factual and the inferences, IMHO, are reasonable. I took long time to get here but we can now start to see if we have other ways to analyze the problem as well as innovate. We can go back to Function and try a new combination. If we add a disinfectant capability the customer would only have to buy one product instead of two. We just added compelling customer value because health associated products like disinfectants are less price sensitive especially if there is little competition. Incidentally this is hard to do for 100% biodegradable products so innovation would certainly be a promising investment. If the hot shot inventor couldn’t take this to market there are still licensing opportunities. You could add a different ingredient like Teflon for toilet cleaning as Joe indicated for a different market segment. We can innovate on packaging also with new combinations. Because people don’t like to mix concentrates a new spray bottle could be developed that provides the proper dilution for the job. There could be a concentrate cavity separate from the water cavity with a dial for dilution ratio. These are all derivations from the baseline. It makes it easier to evaluate new ideas in that a framework exists to discuss aspects of value while keeping the whole picture in context. The known knowns are covered and some unknown knowns are exposed. Serendipity is allowed but focused on how to create value by looking specifically at FBQT categories and then comparing each of those against competition. Only look at the ones relevant to the end consumer. The rest is the cost of doing business. I believe in this example there was customer value but not enough customers perceive green to be worth a price premium. The US market may just not be ready for green products based on the current culture. Competition has been in the market for over 30 years so this also adds to the challenge. Add to this the fact that major players like Clorox have entered the fray. This implies investment must be more than just developing a fast cleaning 100% biodegradable cleaning product. Incidentally we normally do the baseline in less than an hour. A bit of time in this thread was explaining how (FBQT)/P is used. I know this was a very long read. I can assure you it took a long time to write it. Think about applying the BSAP Value Dynamic on another case just to see how far you get with this tool versus the way you do the analysis today. You have to frankly ask yourself if it can used to improve the critical thinking of the group. If the answer is yes then I say what are you waiting for? If not then I'm sorry this was such a long slog as David would say. (FBQT)/P has proven to be very effective for both the business and technical side to engage in discussion because it is a simple way for all people to see the context of value. It includes Gemba because consumer intimacy shows up through the detailing of consumer outcomes. Most new value shows up in new Function combinatorials as well as Quality attributes. Just remember to map to customer outcomes where you can. Did I enhance their outcome or did I make it less expensive for them to achieve their outcome than they could using my competitor's product?
  • 8. A L E E L L C + 1 . 8 4 7 . 2 1 9 . 4 1 6 3 ALE Page 8 Peter Balbus asked about Durability as better. Al Lee’s response Now that we have a common baseline in terms of method and a tool, let's test this in terms of speed in understanding and application. Durable often has quality connotations from the viewpoint of the Specifier and/or Purchaser. I am now going to introduce a new tool. Note I did not state Consumer. We have to put the value of Durable in context. There is another model I use, I have many but all are client friendly except one. The new tool in this context is what I call The Buying Dynamic. (Role-based modeling is the foundation of my method.) I am going to tie in the word Durable with who really cares about that attribute in the end consumer's domain. You may remember this from my presentation on Slideshare as well an earlier post: "Identification of people/departments using specific tools to accomplish their goals." The one key role you always need to find is the Specifier. I'll get back to how to treat Durable in a little later in this post if I am lucky. When I go to a vending machine to buy a Pepsi I am assuming all three roles of Consumer, Specifier and Buyer. When it came time for me to buy a new car I, in the role of end consumer, wanted a Porsche Boxster. As I was the main provider for my family I also assumed the role of Buyer. Want to guess who assumed the role of Specifier? My wife tells our friends how much I enjoy driving a Toyota Matrix. Actually I do, at least that's what my wife hears. The role of specifier dictates the precise requirements that have to be met for the purchase. If the purchase is a systems type product then the specifier must understand all requirements: end consumer, administrator, technical support, operations support etc. The Specifier adds to this any specific ...ilities such as durability, manageability, configurability that address the needs of all users from a systems point of view. These requirements are not negotiable by anyone else in the organization once the business and technical needs are fixed. Incidentally, the end consumer in the commercial consumer market works in a department and cares less about durability although they may care a lot about stability. The Buyer cares about Durability for economic life reasons but Durability cannot trump the other requirements. The Buyer cares about economic life and methods of financing. The Buyer's mission is to pay the least they can for a product that meets the Specifier's requirements. If there is a much cheaper product available but with a loss of FQT the Buyer MUST get permission from the Specifier to relax the requirements. In terms of Durability, you can market the product's durability as a Quality attribute but it has a time component implied. This means you can focus innovating and investing in Durability only if it is important to the Specifier. If it is extremely important you now have to make a strategic investment in T to make your product compellingly more durable, lasts longer, than the leading competition with the same attribute. There is a big caveat here. Investing in ..ilities and T can get very expensive. You must make sure you are getting a price premium for this. To make this clear, Durability is not a Function. It is an attribute of the product which embodies the set of all Functions. I started this post to share techniques and tools that may be useful to others as well as learning from others. I very much value the knowledge of those that contribute to this thread and I would like all of you not just to make an observation or a counterpoint but to contribute in ways that make it easier to arrive at what is Better, Faster and Cheaper. At the end of the thread launched by Wim Soens I admitted that I used Better, Faster and Cheaper as a marketing ploy. Better, Faster and Cheaper is the traditional
  • 9. A L E E L L C + 1 . 8 4 7 . 2 1 9 . 4 1 6 3 ALE Page 9 customer response when you ask them what they want. They don't really know so they say they want the same thing they have now only Better, Faster and Cheaper. If you had the staying power to read through my posts you must, conjecture on my part, have realized I use those words sparingly and my focus is really to help my client enhance an existing customer outcome or reduce the cost of that outcome. I introduced (FBQT)/P as a tool to illustrate it is possible to break down needs into value components and in that same process give you the material that can be used for product branding and collateral. This also included the use of this value expression to help the client make decisions in terms of strategic investments to create compelling differentiated value against competition which in the end is the only path to sustainability. I introduced areas where innovative thinking could apply using Peter's cleaning solution as a case. Bayesian Lite was also introduced as a tool to help the client understand constraints in the form of probabilities. This helped to force critical thinking, again conjecture on my part, when tested against commonly available data. Incidentally, for those of you that want to use this technique the art is in how you build the set as well as in the sequencing. We actually agreed early on that Better is simply the opinion of the customer and by itself does not help us determine How. I have introduced some material that should help with How. I am now looking for other methods, tools or algorithms that you have settled on because they consistently brought you rapid and high quality results when used on customer engagements. Conclusion All methods and tools have the same ultimate goal: solve problems that have economic and/or social consequences. Methods and tools differ not just in achieving greater accuracy and completeness, Q, in discovering customer value but also in lowering the cost of learning, P. The methods and tools in this paper were designed not just to improve on those goals but also to improve the speed, T, in achieving those goals. At the conclusion of this segment of the discussion thread the participants continued to use the same case to share other methods and tools for capturing customer data and problem solving. The immediate discussion following the one in this paper focused on capturing emotion laden messaging for the cleaning product. Messaging with emotional resonance must be part of any retail consumer experience. This falls into the category of perceived differentiated value which when combined with measured differentiated value defines the complete set of value propositions that must resonate with the retail or commercial consumer. I call this set the Essential Truths one must arrive at: That which makes your product compellingly better, faster or cheaper against competition.
  • 10. A L E E L L C + 1 . 8 4 7 . 2 1 9 . 4 1 6 3 ALE Page 10 References The thread often made reference to Lee’s presentation on SlideShare.net. This presentation breaks down the journey from an idea to monetizing it through a commercial product or service. It also identifies opportunities to become innovative along the way. Lee also authored a Motorola whitepaper on the lifecycle of innovation. The whitepaper puts the front end of innovation into context and describes the ideal conditions for success. It does not guarantee success only that it will enhance the likelihood of success. About Al Lee Al Lee is the head of ALEE LLC, an independent consulting firm providing business and technical modeling services. Lee was the inventor of the Business Systems Architecture Process within Motorola and was the principal consultant in Strategic Services for the Motorola Home business unit. Lee provided business and technical consulting across Motorola’s business units as well as to some of their Fortune 100 customers. His prior assignments included director positions in business and systems architecture for the Motorola Global Software Group as well as Motorola’s Worldwide Smartcard Systems Division. His work on modeling and financial analysis has appeared in IEEE publications. Prior to Motorola, Lee was a Vice President in Advanced Technology for Visa International. He holds patents from his work at Motorola as well as Visa International. He also received innovation awards for business modeling within Motorola. Prior to Visa International, Lee was a Vice President in the IT organization at Bank of America. Al Lee can be reached at alee-exed@kellogg.northwestern.edu.