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Eliminating Commercial Risk in New Product Development

Dan Adams |
Eliminating Commercial Risk in New Product Development

Cuyahoga Falls, OH (October 5, 2015) – for immediate release

Most companies are concerned with two types of new product development risk—technical and commercial. According to The AIM Institute’s Dan Adams, author of the white paper, “Timing is Everything: Exposing Deep Flaws in B2B Innovation Today”, commercial risk in product development can be virtually eliminated. But, this is only true for B2B product development. This white paper explores how near-commercial certainty can be reached before the B2B development stage has even begun.

Supplier-centric vs. Customer-centric Innovation

Adams explains three key “timing tests” to help determine whether B2B new product development innovation is supplier-centric or customer- centric.

  1. Do you start with your ideas or your customers’ ideas?
  2. When do you resolve a project’s commercial risk?
  3. Whose timing triggers a new-product project… yours or the markets? This third timing test is the most advanced… and is best addressed after you understand the first two timing tests.

Adopting a customer-centric innovation process will enable B2B companies to become an organic growth machine. Eventually, all B2B companies will need to employ customer-centric innovation in order to thrive, or perhaps even survive.

Why Customer-Centric Innovation is Critical

Customer-centric innovation is an unrelenting drive to understand and meet customer outcomes (the end-results that customers desire). Customer-centric innovation is B2B’s best path to profitable, sustainable, organic growth.

There are six foundations to customer-centric innovation:

  1. Make profitable, sustainable growth the main objective. Your company’s value will soar if future profits are expected to grow rapidly and reliably.
  2. Don’t rely on acquisitions instead of organic growth. Growth is imperative even after acquiring businesses.
  3. Strong organic growth without new product/service innovation isn’t possible.Unless you’re consistently creating new value for customers, you’re in a race to the bottom.
  4. Exploring B2B customer outcomes is more rewarding because of the nature of B2B customers. B2B customers tend to have greater knowledge, interest, objectivity and foresight.
  5. Superior customer insight to both meet and understand customer needs is imperative. Real competitive advantage lies in investing in improved customer insight over improved R&D.
  6. You must do this better than your competitors. Customers pay a premium price when your product outperforms other alternatives.

TIMING TEST #1: Do you start with your idea or your customers’ idea?

Even when using a Stage-Gate® or similar process for new-product development, many companies start with their own solutions to problems they think or hope customers have. Confirmation bias (tendency to interpret new information that confirms existing beliefs) is then introduced when they validate their ideas by asking customers, “Do you like my solution?”

“At the AIM Institute”, says Adams, “we call this the ‘catapult method’, where the average supplier launches products into the market and waits to see if it sells. Years from now, the B2B ‘catapult method’ will be high on the list of today’s awkward realities of innovation.”

A much better approach is to start with market needs, and end with supplier solutions.

Be alert for these signs of supplier-centric innovation:

  1. Using ideation sessions to start projects without first targeting market segments to pursue.
  1. Concocting value proposition statements internally and not using real customer data.
  2. “Leading the witness” interviews that focus on your ideas, not customer needs.
  3. Using questionnaires as interviews instead of letting customers guide you to what interests them.
  4. Entering the development stage without a complete understanding of market needs.

TIMING TEST #2: When does a project’s commercial risk get resolved?

You launch your product with great fanfare and the market reacts with crickets. Your product is technically designed well, but sells poorly.

“What if you could eliminate most commercial risk before entering the development stage?” asks Adams. “We call this building a ‘Certainty Time Machine’. This enables you to move the commercial certainty curve from the Launch stage to the Front-End stage.”

The benefits to B2B companies are valuable:

  • Eliminate the anxiety and uncertainty that comes from launching products blindly.
  • New-product success rate would be much higher than the average rate of 25%.
  • R&D resources would be employed efficiently, reducing wasted time and money.

A customer-centric perspective enables a company to move commercial certainty to the front-end stage, and delivers certainty earlier and on more information. With front-end stage certainty, all customer needs are discovered, opening many more potential product solutions to pursue.

The Science of B2B Customer Insight (New Product Blueprinting) creates reliability within the front-end stage, and relies on understanding customers’ needs while focusing intently on outcomes. For each relevant outcome, the supplier must know how the customer measures performance, how good the performance must be, how well the next-best alternative performs, and how much value could be created. A full description of this science is covered in The AIM Institute’s white paper, Catch the Innovation Wave.

The key to understanding B2B customers’ outcomes (in order to predict their response to any new product design) is in how interview questions are asked.

There are two steps in conducting customer outcome interviews:

  1. How to Minimize B2B Commercial Risk with Discovery and Preference Interviews illustrationThe first step uses divergent thinking in qualitative Discovery interviews. During these interviews, customers volunteer every outcome they can think of while the interviewer takes notes that are projected for all to see.
  2. The second step uses convergent thinking in quantitative Preference interviews. Asking customers to rate the importance and current satisfaction of each outcome yields a Market Satisfaction Gap: the more important and less satisfied an outcome is rated, the higher the Gap. This allows you to know precisely which outcomes customers want you to work on. Customers will pay a premium for products if it improves an important outcome with which they are currently dissatisfied.

With the Science of B2B Customer Insight implemented, the supplier has negligible commercial risk and superb product-design clarity before entering the Development stage.

TIMING TEST #3: Whose timing ‘triggers’ a new-product project?

The first two timing tests require you to 1) start with the market’s desired outcomes (not your ideas), and 2) minimize commercial risk before development.

What triggers innovation to begin? A supplier-centric trigger comes from an internal event such as strategic planning, leadership change, etc. A customer-centric trigger is dependent on the “intensity of customer need” in the market.

Customer interest rises and falls for specific outcomes over time in all markets. There is an “intensity of customer need” at certain points of time, and understanding this at a meaningful level generates allows for earlier solutions to be identified.

Higher Market Satisfaction Gaps (MSG) indicate greater customer eagerness for improvement and is the result of rating both ‘Importance’ and ‘Current Dissatisfaction’ with certain outcomes.

Most suppliers don’t monitor evolving customer needs over time.  Conducting “market scouting” is the vital step in gaining a significant competitive edge, allowing companies to “aim” their resources earlier and better. Consistently monitoring a broad range of market segments to detect outcomes with rising MSG’s allows you to specifically target and begin working in “the sweet spot,” well ahead of competitors.

The key practices to enable “market scouting” in order to detect market signals well ahead of the major waves of innovation are:

  1. The Science of B2B Customer Insight is standard practice; no major product development work begins without Market Satisfaction Gaps.
  2. “Market scouts” conduct secondary research (economic, technological, demographic, etc.) to detect trends and discontinuities in target markets.
  3. Sales professionals are trained and rewarded not just to “sell,” but also to “learn” by listening, probing and understanding customer needs in great depth.
  4. Divergent and convergent interviews, surveys and call reports are data-mined across all target markets to identify changing needs.

There are four levels of Innovation Maturity, and B2B companies will reap huge rewards by simply reaching Level 3 ahead of competitors.

Level 1: Solution Push starts with its own ideas and launches solutions they think their customers will want. This is the most primitive form of innovation; supplier-centric and is still popular today.

Level 2: Solution Validation still begins with its own ideas of what they think customers want, but they meet with customers to “validate” their solutions. This is supplier-centric, but has an advantage over Level 1: If their idea is isn’t received well, they’ll likely learn this before entering the costly development stage.

Level 3: Market Insight is customer-centric innovation in that the company begins with divergent and convergent interviews to explore desired market outcomes. This has two enormous competitive advantages: 1) a much larger set of outcomes to consider, and 2) clear direction on which outcomes need to be improved.

Level 4: Market Scouting is the highest level of customer-centric innovation. It doesn’t yield deeper insights than Level 3; it delivers these insights earlier. As a result, the company can explore and refine possible internal and external solutions well ahead of competitors.

The customer-centric innovation process The AIM Institute recommends for B2B new product development is: a) begin with the markets’ desired outcomes b) understand these outcomes using the Science of B2B Customer Insight, and c) begin considering conducting market scouting.

Customer-centric innovation is the best and most reliable path to profitable, sustainable organic growth. B2B companies who do this before their competitors will be years ahead in their innovation process and growth.

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