Book Excerpt — The Innovator’s Solution – What Customers Really Want Is for You to Do Their Jobs

Clayton M. Christensen, who framed the problem The Innovator’s Dilemma in 1997, is back again, with coauthor Michael E. Raynor, to offer answers in The Innovator’s Solution. And with companies waiting expectantly for an economic upsurge and a return to aggressive innovation, the timing of this book may be perfect. In Dilemma, Christensen, a Harvard Business School professor, demonstrated that companies tend to reject disruptive ideas?those that don’t appeal to established customers or markets?in favor of sure bets with predictable outcomes. In Solution, written with Raynor, a director at Deloitte Research, the authors explain what companies should focus on in order to innovate and grow a business. This excerpt from Chapter 3 looks at how conventional customer and market segmentation typically dooms new products to fail. And CIOs should note that IT-derived market data is one of the big culprits. Instead of focusing on product attributes and on market size data, companies must learn what jobs customers want to perform with potential products, and use this as their marketing guidepost.

EXCERPT

All companies face the continual challenge of defining and developing products that customers will scramble to buy. But despite the best efforts of remarkably talented people, most attempts to create successful new products fail. More than 60 percent of all new-product development efforts are scuttled before they ever reach the market. Of the 40 percent that do see the light of day, 40 percent fail to become profitable and are withdrawn from the market. By the time you add it all up, three-quarters of the money spent in product development investments results in products that do not succeed commercially. These development efforts are all launched with the expectation of success, but they seem to flourish or flop in unexpected ways. We argue that the failures are really not random at all: They are predictable?and avoidable?if managers get the market segmentation right.

Only if managers define market segments that correspond to the circumstances in which customers find themselves when making purchasing decisions can they accurately theorize which products will connect with their customers. We believe that customer segmentation (or categorization) should be based on the notion that customers “hire” products to do specific “jobs.” Doing so will help managers segment their markets to mirror the way their customers experience life. This approach can also uncover opportunities for disruptive innovation.

Predictable marketing requires an understanding of the circumstances in which customers buy or use things. Specifically, customers?people and companies?have “jobs” that arise regularly and need to get done. When customers become aware of a job that they need to get done in their lives, they look around for a product or service that they can “hire” to get the job done. This is how customers experience life. Their thought processes originate with an awareness of needing to get something done, and then they set out to hire something or someone to do the job as effectively, conveniently and inexpensively as possible. The functional, emotional and social dimensions of the jobs that customers need to get done constitute the circumstances in which they buy. In other words, the jobs that customers are trying to get done or the outcomes that they are trying to achieve constitute a circumstance-based categorization of markets. Companies that target their products at the circumstances in which customers find themselves, rather than at the customers themselves, are those that can launch predictably successful products. Put another way, the critical unit of analysis is the circumstance and not the customer.

How I.T. Undermines the Success of Innovation

The IT systems in most companies collect, aggregate and summarize data in various ways to help managers make better decisions. The reports are undoubtedly helpful, but they also lead companies to develop new products and services destined to fail in the marketplace. Almost all corporate IT reports are structured around one of three constructs: products, customers and organizational units. The data shows managers how much of each product is being sold, how profitable each is, which customers are buying which products, and what costs and revenues are associated with servicing each customer. IT systems also report revenues and costs by business units so that managers can measure the success of the organizations for which they have responsibility. The odds of developing successful new products begin to tumble when managers collectively begin to assume that the customer’s world is structured in the same way that the data is aggregated. When managers define market segments along the lines for which data is available rather than the jobs that customers need to get done, it becomes impossible to predict whether a product idea will connect with an important customer job. Using this data to define market segments causes managers to aim innovation at phantom targets. When they frame the customer’s world in terms of products, innovators start racing against competitors by proliferating features, functions and flavors of products that mean little to customers. Framing markets in terms of customer demographics, they average across several different jobs that arise in customers’ lives and develop one-size-fits-all products that rarely leave most customers fully satisfied. And framing markets in terms of an organization’s boundaries further restricts innovators’ abilities to develop products that will truly help their customers get the job done perfectly.

Like it or not, although market researchers often develop a solid understanding of the jobs that customers are trying to do, the primary language through which the nature of the opportunity must be described in the resource allocation process is the language of market size. Asking marketers to understand this concept is not the solution to the problem?because whether it is called “marketing myopia” or “jobs to be done,” this concept has been taught before. It is a process problem. Because senior managers typically hire market research to quantify the size of opportunities rather than to understand the customer, the resource allocation process systematically and predictably perverts companies’ concept of the structure of their market so that it ultimately conforms to the lines along which data is available.

As a result, corporate IT systems and the CIOs who administer them figure among the most important contributors to failure in innovation. Data purchased from external sources has the same impact, because it is structured by product attributes, not by job. The readily available data actually obfuscates the paths to growth.

The solution is not to use data that is collected for historical performance measurement purposes in the processes of new-product development. Keep such data quarantined: It is the wrong data for the job. The size and nature of job-based or circumstance-based market categories actually can be quantified, but this entails a different research process and statistical methodology than is typically employed in most market quantification efforts.

Using Circumstance-Based Segmentation to Gain a Disruptive Foothold

The first time that builders of a new-growth business need to assess what the target customers really are trying to get done is when they are searching for the disruptive foothold?the initial product or service that is the point of entry for a new-market disruption. When managers position a disruptive product squarely on a job that a lot of people are trying to get done, and which has been poorly addressed in the past, they create a launchpad for subsequent growth through sustaining innovations that build on the initial platform.

How can managers identify these foothold opportunities? It may never be possible to get every dimension of a product introduction in a new-market disruption right at the outset. We believe, however, that a jobs-to-be-done lens can help innovators come to market with an initial product that is much closer to what customers ultimately will discover that they value. The way to get as close as possible to this target is to develop hypotheses by carefully observing what people seem to be trying to achieve for themselves, and then to ask them about it.

Akio Morita, one of Sony’s founders, was a master at watching what consumers were trying to get done and at marrying those insights with solutions that helped them do the job better. Between 1950 and 1982, Sony successfully built twelve different new-market disruptive growth businesses. These included the original battery-powered pocket transistor radio, launched in 1955, and the first portable, solid-state black-and-white television, in 1959. They also included videocassette players; portable video recorders; the now-ubiquitous Walkman, introduced in 1979; and 3.5-inch floppy disk drives, launched in 1981. How did Sony find these foothold applications that yielded such tremendous upside fruit?

Every new-product launch decision during this era was made personally by Morita and a trusted group of about five associates. They searched for disruptive footholds by observing and questioning what people really were trying to get done. They looked for ways that miniaturized, solid-state electronics technology might help a larger population of less-skilled and less-affluent people to accomplish?more conveniently and at less expense?the jobs they were already trying to get done through awkward, unsatisfactory means. Morita and his team had an extraordinary track record in finding these footholds for disruption.

Interestingly, 1981 signaled the end of Sony’s disruptive odyssey, and for the next 18 years the company did not launch a single new disruptive growth business. The company continued to be innovative, but its innovations were sustaining in character?they were better products targeted at existing markets. Sony’s PlayStation, for example, is a great product, but it was a late entrant into a well-established market. Likewise, its Vaio notebook computers are great products, but they too were late entrants into a well-established market.

What caused this abrupt shift in Sony’s innovation strategy? In the early 1980s, Morita began to withdraw from active management of the company in order to involve himself in Japanese politics. To take his place, Sony began to employ marketers with MBAs to help identify new-growth opportunities. The MBAs brought with them sophisticated, quantitative, attribute-based techniques for segmenting markets and assessing market potential. Although these methods uncovered some underserved opportunities on trajectories of sustaining improvement in established markets, they were weak at synthesizing insights from intuitive observation. In searching for an initial product foothold in new-market disruption, observation and questioning to determine what customers are trying to do, coupled with strategies of rapid development and fast feedback, can greatly improve the probability that a company’s products will converge quickly upon a job that people are trying to get done.

Innovations That Will Sustain the Disruption

Gaining a foothold is just the first battle in the war. The exciting growth happens when an innovation improves in ways that allow it to displace incumbent offerings. These are sustaining improvements, relative to the initial innovation: improvements that stretch to meet the needs of more and more profitable customers. Choosing the right improvements is critical to the disruptive march up-market. Here again, job-based segmentation logic can help.

Let’s examine one of the hottest markets of the past decade?handheld wireless electronic devices. The BlackBerry, a handheld wireless e-mail device made by the Canadian company Research in Motion (RIM), is an important competitor in this field. RIM found the BlackBerry’s disruptive foothold at a new spot on the third axis in the disruption diagram, competing against nonconsumption by bringing the ability to receive and send e-mail to new contexts such as waiting lines, public transit and conference rooms. So what’s next? How does RIM sustain the product improvement and growth trajectory for its BlackBerry? Surely, dozens of new ideas are pouring into RIM executives’ offices every month for improvements that might be introduced in the next-generation BlackBerry. Which of these ideas should RIM invest in, and which should it ignore? These are crucial decisions, with hundreds of millions of dollars in profits at stake in a rapidly growing market.

RIM’s executives could believe that their market is structured by product categories characterized by some moniker such as “We compete in handheld wireless devices.” If so, they will see the BlackBerry as competing against products such as the PalmPilot, Handspring’s Treo, Sony’s CliŽ, mobile telephone handsets made by Nokia, Motorola and Samsung, and Microsoft Pocket-PC-based devices such as Compaq’s iPaq and Hewlett-Packard’s Jornada. In order to get ahead of these competitors, RIM would need to develop better products faster than the competition. Sony’s CliŽ, for example, has a digital camera. Nokia’s phones offer not just live conversation and voice messages, but short text messaging as well. The PalmPilot’s consummately convenient calendaring, rolodexing and note-keeping features have almost become industry standards. And does the fact that Compaq and Hewlett-Packard offer stripped-down versions of Word and Excel software mean that RIM will be left behind if it does not follow suit?

Defining the market by the characteristics of the product causes managers to think that in order to beat the competition, Research in Motion would need to build some number of these features into its next-generation BlackBerry device. RIM’s competitors, of course, would be thinking the same thing?all trying to cram their competitors’ superior features into their products in a race to get ahead of the pack. Our worry is that defining market segments in a product-based way actually causes a headlong, arms race-like rush toward undifferentiated, one-size-fits-all products that perform poorly any specific jobs that customers might hire them to do.

Alternatively, RIM’s executives might segment their market in demographic terms?targeting the business traveler, for example?and then add to the BlackBerry those product improvements that would meet those customers’ needs. This framing would lead RIM to consider a very different set of innovations. Stripped-down customer relationship management software might be considered essential, because it would allow salespeople to review account histories and order status quickly before contacting customers. Downloadable electronic books and magazines would obviate customers’ having to carry bulky reading material in their briefcases. Wireless Internet access, with the attendant capabilities to alter travel reservations, trade stocks and find restaurants via global positioning satellites, could be very appealing. Expense-reporting software coupled with the ability to transmit reports to headquarters wirelessly might be a must.

Every executive who has participated in decisions to define and fund innovation projects will empathize with the tortured difficulty of answering questions such as these. No wonder that many have come to regard innovation as a random crap shoot?or worse, a game of Russian roulette.

But what if RIM structured the segments of this market according to the jobs that people are trying to get done? We’ve not conducted serious research on this, but just from watching people who pull out their BlackBerrys, it seems to us that most of them are hiring it to help them be productive in small snippets of time that otherwise would be wasted. You see BlackBerry owners reading e-mails while waiting in line at airports. When an executive puts an always-on BlackBerry on the table in a meeting, what is she trying to do? Just in case the meeting gets a little slow or boring, she wants to be able to glance through a few messages unobtrusively, just to be a bit more productive. When the pace of the meeting picks up, she can slide the BlackBerry aside and pay attention again.

What is the BlackBerry competing against? What gets hired when people need to be productive in small snippets of time and they don’t pick up a BlackBerry? They often pick up a wireless phone. Sometimes they pick up The Wall Street Journal. Sometimes they make notes to themselves. Sometimes they stare mindlessly at the CNN Airport Network, or sit with glazed eyes in a boring meeting. From the customer’s point of view, these are the BlackBerry’s most direct competitors.

What improvements on the basic BlackBerry wireless e-mail platform does this framing of the market imply? Word, Excel and CRM software are probably out?it’s just really hard to boot up, shift mental gears, be productive and gear down these activities within a five-minute snippet of time. Snap-on digital cameras likewise aren’t likely to be hired to get this job done.

However, wireless telephony is a no-brainer for RIM, because leaving and returning voice messages is another way to be productive in small snippets of time. Financial news headlines and stock quotes would help the BlackBerry compete more effectively against The Wall Street Journal. And mindless, single-player games or automatically downloaded David Letterman-like lists of 10 might help the BlackBerry gain share against boredom. Viewing the market in terms of the jobs that its customers are trying to get done would define for RIM an innovation agenda that is grounded in the way its customers live their lives. The good news for RIM shareholders is that this appears to be the trajectory that the BlackBerry is on.

Doing this make-me-productive-in-small-snippets-of-time job perfectly is not trivial, of course. Adding voice telephony to the BlackBerry would increase power consumption. This, however, is the type of challenge classically associated with sustaining innovation. RIM’s biggest issue is probably not a lack of engineering talent; it is deciding which problems it should deploy that talent against.

Who Needs a Camera in a Mobile Phone?

What should Palm do? In the context of the job that the BlackBerry is hired to do, a camera makes no sense. But might it make sense on a product like the PalmPilot that is used to keep track of people? In addition to just displaying a name card, a camera would enable users to store the person’s image as well?helping PalmPilot users be better organized by remembering not just people’s names but their faces too.

In the Japanese mobile phone market, the strategies of mobile telephony providers J-Phone and NTT DoCoMo to add a camera and photo viewer to the mobile phone and to provide the data services required to send and receive low-quality digital photos met with instant success in the early 2000s. Why? A few years earlier these firms had created a booming new-market disruption selling wireless Internet access through services like DoCoMo’s I-Mode. Their customers were primarily teenagers, who had hired mobile access to the Internet in order to have fun with their friends downloading wallpaper and ring tones. The popularity of limited-functionality cameras and photo viewers on these teenagers’ phones makes sense when viewed through the lens of jobs to be done: Mobile phones that send and receive photos offer these young people more and newer kinds of fun.

Should European and North American service and handset providers attempt to emulate this success by incorporating this functionality in their phones? At this writing, we expect camera-equipped phones to take off much more slowly in these markets because many mobile phone users in these markets are adults who seem to have hired mobile phones to get work done or exchange important information in small snippets of time. Cameras and viewers rarely help get these jobs done better. If these companies were to market phones and these services to teenagers and children as a new way to have fun by taking and transmitting images, this product feature could create substantial growth. But if they follow their demonstrated propensity to deploy the functionality as a high-priced feature on phones that serious multitasking adults have hired to get down to business rather than play, our bet is that little growth will result.

If RIM evolved the BlackBerry to help people be evermore productive in small snippets of time, if Palm evolved its Pilot to help people be ever better organized, and if J-Phone’s handsets were optimized to help teenagers have fun, the products would become quite differentiated in consumers’ minds?and each could grow to own a large market share of its respective job. And because these different jobs arise at different points in time and space in consumers’ lives, we’d bet that for a very long time most consumers would opt to own each product individually rather than having a single, Swiss Army knife-like device?that is, until a one-size-fits-all device can do all these jobs without compromising functionality, simplicity and convenience.

Unfortunately, it appears that many manufacturers in this space are now on a collision course. Each seems bent on packing every other competitor’s functionality into a single, all-purpose device. Unchecked, this will lead to commoditized, undifferentiated products that don’t do really well any of the jobs that they once got hired to do. This need not be so. The suicidal trajectory results from framing the market in terms of the attributes of products and the attributes of customers, rather than in terms of jobs to be done.

Summing Up

Identifying disruptive footholds for products means connecting with specific jobs that people?your future customers?are trying to get done in their lives. The problem is that in an attempt to build convincing business cases for new products, managers are compelled to quantify the opportunities they perceive, and the data available to do this is typically cast in terms of product attributes or the demographic and psychographic profiles of a given population of potential consumers. This mismatch between the true needs of consumers and the data that shapes most product development efforts leads most companies to aim their innovations at nonexistent targets. The importance of identifying these jobs to be done goes beyond simply finding a foothold for a new product. Only by staying connected with a given job as improvements are made, and by creating a purpose for your brand so that customers know what to hire, can a disruptive product stay on its growth trajectory.