I recently re-connected with Steve Wunker, managing director of New Market Advisors, about innovation. Steve and I have collaborated many times over the years, starting in 2007 when APQC, IBM, and Innosight developed innovation archetypes (like personality types) highlighted in our published paper, Innovating on Your Own Terms. We found that because there is no single model of innovation that works for all firms, companies get into trouble by trying to imitate a company that is very much unlike them.
The good news is that our findings are still relevant. We found that large and small, established and entrepreneurial, organizations can accelerate innovation as long as the approach takes focused and relevant steps that are consistent with the existing archetype of its business.
I now wanted to get Steve's take on innovating to purposely offer less to satisfy more--something I've been hearing as a need from many of APQC's members with constrained budgets on the road to recovery.
Is there an inevitable trade-off between achieving low cost and high customer satisfaction?
Many industry leaders manage to create both low cost and high satisfaction. Look at Planet Fitness – the fastest-growing major gym chain in America, the one with the highest customer satisfaction scores, and average dues of just $10 a month. Or Target in retail, or Southwest in airlines. When a company can attain both competitive advantage in cost and a loyal customer following, it becomes exceedingly hard to knock it off its perch.
We’re not talking here about incremental improvements to shave costs here-and-there, although of course that’s always important to pursue as well. The secrets to these industry leaders is that they have a fundamentally low cost base, beyond what any Lean initiative could create, while also having a clear consumer proposition that they deliver on consistently.
This is what we call Costovation, having an innovative strategy that focuses on being both low cost and delightful to target customers. That’s also the title of our 2018 book on this subject.
What are the secrets to creating big innovations that also lower costs?
Many of the most critical drivers of company costs aren’t line items in a budget. They come in the form of complex operations, or serving over-diverse sets of customers, or pushing a business to address “corner cases” of extreme customer needs. To address these issues, you have to zoom out and really think about who your target customers should be, what’s truly important to them, how you can serve them in the simplest way possible, and how to maintain discipline in your business model.
Step-changes in costs occur not through shaving budgets, but through strategic focus and rigorous analysis of how distinct positionings would echo through to costs – in both obvious and non-obvious ways. Incidentally, companies don’t need to be born with low costs in their DNA in order to make this work; few people, for instance, remember that Target was created by a department store chain, Dayton-Hudson.
In the pandemic, having both low costs and devoted customers will be critical for business success, and companies that can achieve these twin goals can push their slower-footed competitors to the wall. Moreover, customers are likely to be more receptive to firms changing business practices, because so many are doing so in such major ways. This is the perfect time to make Costovation happen.
Where should companies begin?
First, understand how important low cost and customer focus are for your business. What targets would make a real difference? What time frame are you looking at to create noticeable change?
Then step back and figure out who your target customers should be, what they value most, and what options you have to serve them differently – often in a simpler fashion. Concurrently, do a quick assessment of what your hidden cost drivers might be and their relative importance. Hint: they often lie in complexity. How big are the impacts of these cost drivers? How would changing your customer focus, your value proposition, or your customer experience impact these cost drivers?
Next, figure out what changes to prioritize and how to sequence them. Consider the ways that customers might adapt to changes in your operations, potential competitive responses, and proof points that will enable you to execute rapidly without over-planning things in these highly fluid pandemic circumstances.
This does not have to be a massive exercise consuming months and months, or huge numbers of people. Scrappy, radical step-changes in costs seldom result from huge efforts, but rather fast and focused efforts of people able to think big and analyze narrow.
Hear more from Steve Wunker as the guest speaker on APQC's upcoming webinar “How COVID-19 Has Created the Right Time for Radical Innovation that Cuts Costs” on June 16 at 1 pm Central/2 pm Eastern time. Click here to register.
For more innovation ideas and examples, here are two classic APQC reports written in collaboration with Steve:
- New Product and Service Innovation: Improving Front-End Effectiveness (Best Practices Report)
- Innovation: Putting Ideas into Action 2009 (Best Practices Report)
The second report above was also written in conjunction with Scott Anthony of Innosight, who shared his thinking about innovation with APQC last month in this May 2020 webinar that is now available on-demand: Big Events, Innovation, and Growth: A Leadership Playbook for Today’s Uncertain Times. The presentation slides are also available.