Thursday, March 4, 2010

Accelerating Innovation with the Product Innovation Quadrant

One of the hardest things to do in today's uber-competitive environment is to innovate fast enough to stay ahead in the marketplace. Every business wants to succeed by having some type of advantage over the competition. But when it comes to competitive advantage, you need to be clear as to which one you want - there are actually two types. The first type is an advantage occurring with valuable resources in limited supply. The De Beers Family of companies is an excellent example of this type of competitive advantage. Though diamonds themselves are not necessarily a rare resource, the supply of them on the open market is tightly controlled by this corporate entity. The other type of competitive advantage is the one that most of us know about and it refers to an advantage that exists during the period of time between the introduction of an innovation and its subsequent imitation and commoditization. The key to successful business strategy is to have a culture and a process that accelerates product innovation.

There is never a shortage of innovative ideas. The separation between market leaders, followers, and stragglers is not always about who can come up with the best ideas. Rather, the separation is based upon who can execute the best both in terms of time to market and customer appeal. At one of the companies where I worked, I lead the creation of the Product Innovation Quadrant, a new product management framework for accelerating product innovation that was quite successful in helping us to get our arms around the literally hundreds of new product ideas and assign appropriate priorities to them. I'd like to share this framework with you.

When planning out your product roadmap, its good to look at each of your product enhancement candidates along three dimensions: (1) time to market, (2) revenue potential, and (3) customer appeal. This latter point is something that our company president liked to talk about in terms of "Steak vs. Sizzle". "Steak" refers to the roll-up-your-sleeves, in-the-weeds, non-glamorous capabilities that comprise the lifeblood of the product. Without the "steak", there is no product, or the product is so anemic that it doesn't help the buyer achieve any advantage using it. "Sizzle" is what gets our attention. It's the sound of the steak searing on the barbecue and the its aroma that gets us excited in the first place. Sometimes a product feature needs to be implemented purely for the purposes of sizzle - getting people's attention, capturing the imagination, and building excitement about it. Products lacking sizzle are perceived as boring in the marketplace - regardless of how capable the product is. A healthy product roadmap needs to include a balance between steak and sizzle.

So here's how the Product Innovation Quadrant works: as you plan out your product roadmap, create quadrants in two dimensions with time horizon and customer appeal as the two axis. Then, draw a circle for each of your innovative ideas, placing it in whichever quadrant best describes the interplay between the two measurements. Make the size of your circle based upon your estimated revenue potential. Just to keep things simple, I recommend three sizes: small, medium, and large. As you map out each of your enhancement candidates, you will begin to get a good idea how they all fall out. Then you can decide which enhancements to accept for your roadmap, which ones to defer, and which ones to reject.

If a product manager at a typical company were to plot its existing product roadmap on the Product Innovation Quadrant he might be surprised (or not surprised) to see that almost all of the roadmap is clustered in the upper right hand quadrant.

Companies - typically technology-driven companies - tend to focus their attention on swinging for the home run each and every time at bat. While this tends to be the most common approach, this practice is risky because it places all of the company's fortunes in long-term projects leaving themselves vulnerable to competitors who can innovate faster than they can - not to mention the risk of finding out too late after all the time and money that they've given birth to a total dud.

In the example below, feature candidates A and B should absolutely be accepted for the product roadmap. Feature candidate C should also be accepted for the product roadmap because without it, the company does not have any long-term development projects and may be at risk of mortgaging the future for the sake of the present. I would also recommend that feature candidate A be prioritized ahead of feature candidate C even though it represents a lesser revenue potential. Why? Because it represents an earlier recognition of revenue. Feature candidate D should not be accepted to the product roadmap because its small revenue potential does not justify the long-term commitment of resources to implement a feature that is just there for sizzle and doesn't make that much of a difference in terms of the overall product's capabilities.

Now if you're working at a software company that implements the Agile software development methodology, then you have a distinct advantage over those that don't. You have the unique ability to accelerate the introduction of long-term product features by slicing it up into smaller iterations that Agile facilitates.

In the diagram above, we have feature candidate C that is accepted for our product roadmap because it represents a good revenue potential and it's a good balance of long-term and "steak" for our product mix. We then break up the implementation of this feature into a series of three iterations as shown below.
The first iteration is purely a short-term, sizzle implementation of the feature. The purpose is to minimize our risk by getting the product into the marketplace as quick as possible. Real market feedback trumps focus groups, market research, and "gut feelings" every time. You then have a second iteration scheduled which works on more of the "steak" features and incorporates the market feedback you've gotten from that first iteration. The third iteration is intended to be The Full Monty. This is the one where the fullness of the product is realized. In real life, it could actually be more than three. I've introduced product features to the marketplace that took ten iterations.

Remember: we're dealing with product innovation here. So this means that you have a little bit of a head start over your competitors when you introduce your first iteration. They key is that you have already scheduled the subsequent iterations so that you maintain your lead over your competitors.

The Product Innovation Quadrant I've introduced here is a suggested framework for evaluating all candidates for product enhancements. It's value is that it doesn't take weeks of analysis. It's a quick tool to get a sense of how things stack up. I hope it helps you as it has helped me. Do you have other frameworks that you've successfully followed? I'd like to hear from you.