Why change an existing process when it requires an investment of time, effort and probably cash? Especially since research tells us that 75% of innovations fail? Put simply, because we have to. We operate in a dynamic environment where customers, suppliers, and external force like the economy are constantly in flux.
The real question is not so much “why?”, but “how?” We MUST adapt to respond to the changes or risk falling behind. So the operative question I delve into here is; “how to do it.” The correct approach involves starting with the customer, measuring success properly, free and cheap experimentation, pace the investment of time and money so failures occur early when they are cheap and prioritizing a portfolio of initiatives so that something is always in the pipeline.
Research shows that organizations successful at satisfying their customers grow at a pace 3.5x the pace of companies providing industry norm experiences. A natural place to start is with the customer, whether internal or external. Listening to what they value in your offering and what could be improved or even dropped to improve the quality of their experience. We believe that objective, independent feedback about what is important to them is critical. It gets beyond our tendency to listen with biased ears and provides an unvarnished view of what’s important to them.
The customer value proposition is invaluable in measuring and tracking progress toward satisfying customers. It is developed directly out of the customer feedback process and presents a prioritized look at what is important to the customer in their terms. It may include financial, convenience, information, timeliness and other dimensions as long as they are prioritized according to the customer’s priorities and not ours.
Organizations get the most bang for the buck if their customer value proposition measures are integrated into the management system they use to run the business. Using a variant of the balanced scorecard, these metrics can be carried forward into every function and every level of the business to provide the customer’s feedback on the effectiveness of the organization.
Immediately upon beginning in earnest to measure customer satisfaction, most organizations find they have room for improvement. This is where free and/or cheap experimentation comes in. Simply committing to changing the processes we use to serve our customers and then keeping the changes that work and abandoning the changes that don’t, will, over time, dramatically improve the customer’s perception of our overall effectiveness in serving them. It is critically important that we measure the results of these experiments in their terms, rather than our own. Certainly, they must meet our business needs for cost etc., but as to effectiveness, that should be measured by the customer.
Some experiments are so impactful that we are willing to make them even though they might not be free or even cheap. For these larger investments in innovation, there is more at stake hence, more risk. In order to avoid having expensive failures in these investments, a phase gate approach can be used to eliminate project early in their development rather than allowing them to get fully developed (invested) and then to fail.
The phase gate process paces project investments with assessments of project risk. Early on, as a project is just being developed and the number of unknowns is high, so is the risk. As a project develops and more of the unknowns are resolved, the risk is reduced. Prior to each investment, the potential project is assessed for risk and reward. If the risk is found to be too high, or the reward too low, the project is either cancelled or deferred. If the reward is in line with the risk, the project is funded for the next phase. At the end of that phase, the project will be re-evaluated again. In this way, projects that early on are showing signs of underachievement or low value to risk ratios, are eliminated from consideration or deferred until conditions change. This avoids investment in projects that are too risky or whose nature has changed since they were chartered.
Portfolio management refers to the approach of treating investments in innovative processes and products like an investment portfolio. By managing projects in a portfolio of initiatives, one can control the overall risk in the portfolio as well as adjusting the mix to ensure that more valuable projects are prioritized for funding over others. Combining the phase gate approach with portfolio management can help to ensure that new projects are emerging from the innovation pipeline all the time. And whether these are process innovations to improve the way the organization manages its business or new product ideas designed to appeal to customers, the flow of improved processes and products that appeal to our internal and external customers is maintained and their experience is continually improved.
This post is based upon a speech I recently had the honor of presenting to the Ohio Association of College and University Business Officers (OACUBO) on the subject of process innovation at their annual conference.