Not only are there numerous decisions, but each decision is related to many others, typically as a trade-off. There is no way to make a product, say an SUV, that has high fuel efficiency, lots of cargo room, three rows of seats, premium features, high performance, tight craftsmanship, and individualized feature choices, all at a low cost. Choices are made, and aspects are sacrificed. Some vehicles are exciting to drive and have all the comforts of your living room and cost more than many homes, while others are barely tolerable to sit in but can carry a load and are affordable to a large market. The former vehicle likely has a high price and high margins with low volumes, while the latter has a lower price and lower margins but high sales volume.
There are different approaches to managing the trade-offs. The commodity or cost-focused company sees the decision process as one to design a product for mass consumption at minimal cost, so financial considerations serve as arbiters of ideas. As the product’s unique and most beneficial aspects are compromised for cost considerations, eventual margins also narrow. The narrow margins lead again to the need for additional cost cutting. The resulting product tends to sit in a competitive space with low price and low margins.
The high value-differentiation lifestyle-oriented company sees differentiation as the ultimate goal, to achieve a new level of experience for the customer. The lifestyle-driven approach promotes aesthetics and usability as the driver, with technical superiority fulfilling performance expectations. The result may be lower levels of production but at much higher margins.
The pragmatic innovation company balances these two extremes with a product that supports its brand, stands out in the crowd, and is priced to reach an appropriate market. its customer-focused approach understands cost limitations based on an expectation of performance and features in consideration of the context of use of the product. in other words, the customer-focused approach delivers a high value differentiation within the purchaser’s financial means.
if cost were the ultimate arbiter of trade-offs, decisions would be fairly straightforward. Whichever option would be cheapest overall would win out. But because virtually no company uses costs as the only criterion, at least successfully, how do innovative companies manage the host of decisions?
The StageGate model of product development is one good baseline for companies to use and many do. stageGate defines deliverables across the product development process that must be met to move through one “gate” to the next stage in the process. The five stages are major project activities run sequentially from scoping out a market to launching a product, while the gates are checklists to make sure each stage was sufficiently explored. Although the foundation is appropriate, the problem is that all the models companies generate in using this and similar approaches are ideals. These ideal models are often generated by committee, appointed by management, and given to teams without their understanding why the model was developed and adopted, or even the motivation behind the steps. The teams never interpret the model for their application. No product program actually runs like the ideal model. When a team reaches a roadblock or has to deal with input that was not anticipated, it often falls behind and may never figure out how to adapt to the change. The models don’t tell the team how to meet the gate requirements, especially the early ones critical for innovation, just what they are.
Managing product development using a pragmatic, innovative approach is a challenge. It requires balancing equal and opposite forces. The best managers seem to find a way to keep the big picture and goal in mind and also feel free to vary the program as it develops. instead of hoping the program will go according to the ideal, these managers realize from the beginning that the ideal is there as reference for support, not a process carved in stone. They can shift and interpret the process as needed and address new issues that arise as the inevitable variation happens, adjusting accordingly. instead of feeling threatened and trying to make the ideal process model fit the unanticipated issue, they enjoy the sport of meeting challenges.
We use the concept of rock climbing to help you understand this approach. You can plan a climb and set your path, but even if you have climbed a mountain before, every climb is a new experience. Weather can vary and change the conditions. Your approach will vary no matter how much you may want to keep it the same. The mountain itself can change, making terrain more or less easy to navigate. Aron Ralston became famous for his incredible, almost superhuman ability to overcome defeat when he was stranded while rock climbing in the wilderness alone. A large boulder fell and pinned his arm. He had to make a life-altering decision. Ralston calmly realized that the only thing to do was to cut off his arm; otherwise, he would surely die. Not only did he effectively do that (we will let you read the details elsewhere on your own), recognizing that he had to apply a tourniquet or he would bleed to death, he then had to climb down the mountain face, lowering himself down a sheer cliff with only one arm, and walk an extensive distance to find help. His actions are a testament to what a person can do to survive. He sees himself as a stronger person for the experience and has turned a disaster into a personal triumph. He is the epitome of grace under pressure. He found the resources internally to survive the unpredictable obstacle. Because he was a good planner, he knew how to adjust the plan rather than sit there helplessly and starve to death. He has written a book, Between a Rock and a Hard Place, and has appeared on numerous TV shows. Just when you think you are at the brink of disaster, it is always possible to find the opportunity to turn impending doom into an unprecedented success if you can just step back and see the big picture. You need a process that gives you structure, and you need to adapt to the unpredictable. This is the foundation of innovation.