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Here's a simple equation that leads to new thinking and novel products. But it's a formula that too few companies have grasped
Over the next few weeks, colleges across the country will open their doors to welcome a new batch of freshmen. Some will find their way into an introductory economics class, where they'll begin to grapple with the fundamental concepts that underpin that discipline: namely, supply and demand. Most disciplines rely on a handful of basic precepts that serve as the building blocks of larger theories and more complex arguments.
What, then, are the fundamental concepts of innovation? Do equivalent building blocks exist that can help provide clarity to practitioners of this somewhat opaque art? Obviously, we've yet to apply the same rigor to the study and practice of innovation that we have to other disciplines. Innovation as it's currently understood seems more akin to medieval alchemy than it does to modern science. Still, some basic principles are emerging.
One fundamental concept is the difference between needs and solutions. The basic concept is simple enough. Let's say you're looking for ways to improve store efficiency, and you observe that the clerk is having trouble getting boxes from a high shelf. You conclude that the clerk needs a ladder. A ladder certainly works, but what if you frame it this way, asking, What does the clerk need to get boxes from a high shelf? A ladder is but one of several possible solutions. Lowering the shelves and rearranging the boxes is another. You may find many more. Reaching a box is a need. Getting a ladder is a solution.
Understanding this distinction can affect how you listen to your customers, how you conceptualize new products and services, even how you analyze existing markets to create new strategic platforms. Nike (NKE) has long understood the benefit of distinguishing between needs and solutions. It has continued to improve its footwear, working relentlessly to ensure that the latest pair of Shox is as appealing as the original Air Jordans.
At the same time, Nike has explored the needs of its customers, providing an expanding pallet of products for them. Today, Nike's portfolio includes watches, sunglasses, and even MP3 players. Every new offering is designed to enhance the experience of playing a particular sport. Nike is still a shoe company at its core. But it recognizes that a two-prong strategy of recognizing new needs and providing new solutions is necessary if it's to continue growing long after we all own a pair of Nike sneakers.
Without an attention to both needs and solutions, a company can find itself optimizing products for a set of needs that no longer exist. Take Ampex (AMPX). A Silicon Valley company long before the valley got its name, Ampex was a pioneer of magnetic-tape technology, the stuff that would eventually end up in everything from floppy disks to videocassettes.
Still, Ampex spent much of the 1970s developing high-end analog equipment, including turntables that could play vinyl records better than the competition. So married was Ampex to existing solutions, that it was completely blindsided by the advent of compact disks. Indeed, Ampex's primary reaction to CDs was to trumpet the relative superiority of its analog solutions. It derided the needs of casual listeners.
Ampex still exists today, but it's hardly a giant. Like many past leaders in technology, it paid far more attention to the solution side of the equation and ignored the changing needs that underpinned its business.
Separating needs from solutions can make it possible to better gauge a market's receptivity to innovations, as well. In the 1970s several Japanese electronics manufacturers began to experiment with fax machines. Facsimile technology had existed for decades, and companies such as Xerox (XRX) had tried using faxes for everything from photography to sending newspapers directly to people's homes.
HOW BIG A MARKET?
Japanese manufacturers saw it as an ideal way for businesses to send time-dated documents back and forth. Japanese Kanji script didn't lend itself to transcription by Teletype, and the Web was still a few years away. But these companies ran into trouble when they tried to gauge the size of the potential market for fax machines. After all, no such market existed yet.
To solve that problem, the manufacturers measured the need of possible customers for fax machines by measuring the volume of business done by same-day couriers in Japan. They believed that their new facsimile solution solved the same need as couriers -- the need to send documents quickly.
The huge size of the courier market surprised them, and they reasoned that even a small piece of that business would generate profits. While the solution itself, the fax machine, was difficult to evaluate, the need for it, was much more easily quantifiable.
BRIDGE VS. CANYON.
As simple as the concept may be, needs and solutions are a framework that too many companies confuse. More often than not, they mix the two together. Consumer packaged-goods companies, for instance, have spent millions of dollars over the last decade conducting "need state research" -- the use of complex math to analyze and aggregate statements customers make about why they purchase the products they do.
Invariably, those statements amount to a list of feature attributes of products that already exist. In effect, they're a list of solutions. This research fails to inform companies of possible customer needs and the opportunities they might have in supplying them.
As companies spend more time focusing on innovation, the demand is increasing to think beyond existing solutions. In the words of one designer at Ford Motor (F), "I keep begging the marketing guys: Don't tell me you want a bridge. Show me the canyon you want to cross."
Understanding the difference between a bridge and a canyon is as close as it comes to an innovation fundamental. Like supply and demand, needs and solutions are the basics on which further concepts are built. And like any fundamental, mastering it early won't guarantee success. But it sure can help avoid a lot of pain along the way.
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