Why Entrepreneurs and Companies Struggle with Innovation

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Entrepreneurs and companies do not have trouble generating ideas for new products and services. The problem is that a vast majority of those ideas never result in viable products and services. In his book Winning at New Products, Robert Cooper points out that for every seven new innovation ideas, about four of those ideas enter the development process with only one making it to market.

All the innovation projects abandoned along the way still cost companies plenty of time and resources (Cooper, 2017). But that’s not the worst of it. Out of the new products that do launch, about 40% of those do not meet revenue and profit targets—they disappoint!

The number of innovation failures have been consistent for the last 50 years according to several studies conducted by the Product Development Management Association (PDMA) (Lee & Markham, 2016). Not surprisingly, many studies have confirmed that the root cause of innovation failure is ambiguity around defining customer needs and customer value (Bayus, 2008; Cormican & O’Sullivan, 2004; Woodruff, 1997).

According to Harvard Business School professor David Garvin, “Studies comparing successful and unsuccessful innovation have found that the primary discriminator was the degree to which user needs were fully understood.” (Garvin, 2002).

Confusion About Customer Needs

So, what exactly are customer needs? If you’re not sure, then you’re not alone. This is a question that academics and practitioners alike have been wrestling with for the last 70 years. Defining customer needs has been an elusive thing indeed. Here are some of the most cited definitions from the academic and practitioner literature—

Customer needs are problems to be solved. These needs, either expressed or yet-to-be articulated, provide new product development opportunities for the firm. (Anderson, 2017)
A customer need is an opportunity to deliver a benefit to a customer. This definition contains three components: a benefit that has value (the what), a customer who values the benefit (the who), and a context that creates the opportunity to deliver the benefit (the when or where). (Mitchell, 2016)
A customer need is the lack of something requisite and is independent from any particular solution developed to address it…Thus needs are of essential and logical property and are bound in the problem context. (Ulrich & Eppinger, 2007)
A customer need is expressed as a statement that describes how a customer measures success and value when getting a job done. We call these statements “desired outcomes”. A desired outcome statement is uniquely structured to detail how customers define value and how a company can help create it. (Ulwick, 2005)
Customers have needs related to getting a job done – they are the reasons people hire a product or service. These needs include both the jobs that customers are trying to get done by hiring a service – both functional and emotional jobs – and the outcomes that customers use to evaluate success in getting a job done. (Bettencourt, 2010)
A sentence that describes from the customer’s vantage point the need, issue, problem that needs to be solved or solved more effectively. (Brodie, 2005)
Customer needs are the problems that a product or service solves and the function it performs. They describe what products let you do, not how they let you do it … In general, needs and problems are fairly stable, they change only slowly, if at all, over time…Customers have general problems for which they need a solution and that relate to the overall product function…Customers also have very specific needs or aspects of the overall function that a successful product must also meet. (Griffin, 2005)
A requirement is a statement of a problem as opposed to describing what the product must do… What outcome do customers desire that they cannot now achieve? (Mello, 2002)
A customer need is a description, in the customer’s own words, of the benefit to be fulfilled by the product or service. (Griffin & Hauser, 1993)
A customer need is a state of dissatisfaction or frustration that occurs when an individual’s desires outweigh the individual’s actualities. (Rogers, 1962)

Customer needs are defined as wants, benefits, motivations, requirements, state of dissatisfactions, desire sets, preferences, desired outcomes, product attributes, functional goals, functional tasks, critical-to-quality characteristics, and attitudes, to mention a few.

For the purpose of innovation, however, a clear operational definition of a customer need is required. To be useful, a customer need must be defined in a way that makes it clearly distinguishable, measurable, and understandable in terms of empirical observations.

From the aforementioned list, we can see that a customer need is generally defined in a solution context because needs are generally thought of as the features and benefits that customers want to help them solve problems and/or achieve results. The issue with defining customer needs around the attributes of solutions is that solutions themselves evolve over time due to the emergence of new technologies, design methods and business models.

But for the purpose of innovation, we want to define the value that customers want based on something more stable than solutions. If solutions change, so do the customer needs that are defined relative to these solutions. Successful innovation aims to satisfy customer needs via the best combination of technology, design and business models. This means combining and/or integrating existing and untapped resources into the best solutions that maximize customer value at the lowest cost.

If customer needs are defined within a solution context, then innovation efforts will be constrained around that context. The focus will be optimizing current solutions. This leads to situations where companies incrementally innovate based on today’s solution paradigm with no clue that the entire paradigm is about to change (i.e., from a Sony Walkman to an MP3 player).

When you ask individuals what they need, they’ll tell you things like, “I need to get a different hair style” or “I need to get a degree” or “I need to find a better way to save money” or “I need to improve my credit” or “I need to faster way to get to work” or “I need to avoid getting the flu” or “I need to feel safe in my house.” Individuals and organizations are generally focused on obtaining or achieving wanted results and avoiding results they don’t want. Further, they want to obtain or achieve those results better, faster and cheaper.

But seasoned marketing professionals will tell you that asking customers directly what they need is not an effective approach to innovation. Rather, they advise eliciting customer needs indirectly by interviewing customers to understand the context around which needs develop. This means understanding the problems that customers are having or potentially could have and the kind of solution benefits that might help them resolve or avoid these problems.

So, while it seems that customers themselves are focused on specific results and the efficiency with which they can achieve those results, marketing professionals are focused on the underlying context that creates the problems that drive customers to want those results. 

Clayton Christensen and others suggest that there’s an almost invisible substrate that connects these perspectives, namely jobs to be done (JTBD). That the working aspects of the JTBD is what marketing professionals are trying to infer from customer interviews and customer data.

They suggest that Jobs to be Done is the key concept that explains why customers want the results they do and why they seek the most efficient means possible to achieve those results. As Christensen defines it, “customers have jobs they want to get done and they hire products and services to help them get these jobs done.”

Specifically, a “job” is defined as the progress that a person is trying to make under a particular set of circumstances, where progress represents movement toward a goal or aspiration (Christensen, Hall, Dillon, & Duncan, 2016). However, this definition does not adequately operationalize Jobs to be Done for the purpose of practice. We need to understand the JTBD as a working construct involving multiple aspects of operation. In an attempt to shed light on this, we explore another elusive concept called “customer value.”

Confusion About Customer Value

What exactly is customer value? This yet another concept that has eluded academics and practitioners for years. As critical as the concept of customer value is to innovation, it’s surprising that there’s still so much ambiguity around this concept. Customer value has developed concurrently with the concept of customer needs, but seldom are the two concepts discussed together.

That is, there are those practitioners who are oriented around customer needs and those who are oriented around customer value. But seldom do the two perspectives meet! As you can imagine, customer value is defined in many different ways. Here are some well cited definitions of customer value from the academic and practitioner literature—

Customer value is what customers get (benefits, quality, worth, utility) from the purchase and use of a product versus what they pay (price, costs, sacrifices) (Gale, 2014)
Customer value is 1) interactive; 2) relativistic: a) comparison of objects; b) differs between persons; c) situation dependent; 3) embodies preferences; 4) is attached not to the object itself but rather to the relevant consumption experience. (Holbrook, 2005)
Six principles provide a definition of customer value – 1) solve my problem completely, 2) don’t waste my time (minimize my total cost of consumption, which is the price I pay plus my time and hassle), 3) provide exactly what I want, 4) deliver value where I want it, 5) supply value when I want it, 6) reduce the number of decision I must make to solve my problems. (Womack & Jones, 2005)
Customer value is defined as a consumer’s perception of net benefits gained in exchange for the costs incurred in obtaining the desired benefits.” (Chen & Dubinsky, 2003)
Customer value is a customer perceived preference for and evaluation of those products attributes, attribute performances, and consequences arising from use that facilitate (or block) achieving the customer’s goals and purposes in use situations”. (Woodruff, 1997)
Customer value refers to a preference judgment while the customer’s values refers to the criteria by which such judgments are made. (Holbrook, 1994)
The five values influencing market choice behavior are functional value, social value, emotional value, epistemic value and conditional value (Sheth, Newman, & Gross, 1991)
Perceived value is the consumer’s overall assessment of the utility of a product based on perceptions of what is received and what is given. (Zeithaml, 1988)
A truly marketing-minded firm tries to create value-satisfying goods and services that consumers will want to buy; management must think of itself not as producing products but as providing customer-creating value satisfactions. (Levitt, 1960)

The following attest to the fact that an operationalized definition of customer value is still unsettled.

In the field of business and management, conceptual confusion in customer value research has occurred primarily due to the dynamic nature of customer value; the customer value definition is highly debated and, surprisingly, often studied without an explicit definition of the concept. (Paananen & Seppänen, 2013)
Without value, there is little likelihood of any market development of sustainability. Yet research into consumer value is still underdeveloped. (Sparks, Butcher, & Bradley, 2008)
Although perceived value has received growing attention, no clear and widely accepted definition of the concept yet exists. (Lee, Yoon, & Lee, 2007)
Customer perceived value is an imperative that firms must pay attention to and has become a major focus of interest in marketing. Despite the interest, empirical operationalization of perceived value remains unsettled. (Chien-Hsin, Sher, & Hsin-Yu, 2005)
Although the significance of customer value is widely recognized, the growing body of research about customer value is quite fragmented and the definition of customer value is divergent. (Wang, Lo, & Yang, 2004)
Current efforts to measure perceived value have shown it is difficult to quantify value; The construct of perceived value has been identified as one of the most important measure for gaining competitive edge and has been argued to be the most important indicator of repurchase intention. (Petrick & Backman, 2002)
Although a core concept in marketing, surprisingly little is known about what value is, what its characteristics are, or how customers determine it. (Day & Crask, 2000)
Only by understanding how value is achieved can goods and services be designed in such a way as to attract customers. What is less clear and of central importance, is why consumers desire the goods and services on offer and what is the nature of the value that they place on or receive from them. (Gabbott & Hogg, 1998)

The Answer To Why

Entrepreneurs and companies struggle with innovation for three reasons. First—they do not define needs in the context of the jobs customers are trying to get done. Second—if they don’t understand customer jobs, then they can’t precisely define ALL the needs associated with getting those jobs done (in the customers’ mind). Third—if they can’t define customer needs, then they can’t define the value that customers want from solutions to get those jobs done better.

Without value targets, innovators are flying blind. It’s like a pilot trying to fly a plane with faulty instrumentation. That plane will likely fly off course many times before reaching the destination. Worse yet, the plane may never reach the intended destination at all.

Ambiguity around customer needs obscures the aim of innovation efforts, which is why we see so many of those efforts disappoint. It becomes very difficult to create products and services that are more valuable in the customers’ mind than competing solutions.

The fact is that entrepreneurs and companies produce valuable solutions all the time, but most of those solutions are not valuable enough to pull customers away from the competing solutions they’re already using. If your solution is not “better” than solutions-in-use in the customers’ mind, then they will not switch to your solution.

The Theory of Jobs To Be Done is a practical approach that makes explicit the relationship between customer needs and customer value. What’s interesting is that many aspects of Jobs Theory pre-dates many innovation methods in use today for identifying customer needs, so it’s not a “new thing.” Without a way to precisely define customer needs independent of solutions and customer attributes, your innovation efforts are likely to get derailed along the way.

If you want your solutions to win in the marketplace, you need value targets that steer you in the right direction. Otherwise, as the title of Clayton Christensen’ book is aptly named, you’re really competing against luck!

References

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