The 2 Worst Sources of Product Innovation Ideas

 
If you're looking for ideas for new products or services, you should ask your sales people or your customers, right? Another bit of conventional wisdom that rarely works. If your sources of innovation are customers or sales people, you're probably not putting out very innovative products.

A Chief Executive Boards International member who makes OEM parts for large consumer goods posed the question in a recent meeting, "Why is it that my sales people call on customers all the time and never come back with ideas to improve our products, yet I can go walk a customer's assembly line where they're using our parts and see half a dozen ways to make our products easier for them to mount or install?" There are several reasons:

1. You're doing the looking, rather than asking the customer to look for you 
2. You know what's possible -- what materials, technologies, manufacturing processes, etc. might be employed in an improved product
3. You're looking for problems, not solutions. Solutions take longer, and many times come in a form that doesn't even resemble the current product. 
4. You're looking at where the product's used, not why it's bought

So, why does this member's process work so much better? Because most people (including sales reps) are usually asking customers the wrong questions. Here are some of those typical wrong questions asked of customers:

• What else could we be doing for you? 
• What features would you like to see in our products? 
• How could we improve this (product or service)?

The problem with these questions is that they presume a huge amount of knowledge (what's possible) and a lot of imagination (not native to most people, customers included). So you don't get very many, or very good answers. And you may be asking the wrong people -- the buyers, rather than the end users. In this member's case, the right person is likely the guy on the line who's having trouble lining up the mounting holes on the part.  Or the engineer who's working around an inconveniently-located connection.

Sales people, of course, come in the door with a litany of product deficiencies -- features they say are essential. What are those? Their excuses for losing the last order to a competitor -- the "killer feature" that a customer gave as an excuse for giving the order to someone else.  If you design in these features over 1 product generation, you'll find yourself designing your competitor's last-generation product while he's working on something completely new and different. Not a good plan.

What we're talking about here is Product Management -- part science and part art form. The success principles of Product Management? Listen to customers, but listen for their pain. Where's their pain surrounding either your product or your business model? What pain are they hearing from their customers? Engage your customers' customers in the same conversation.

And, we're talking about Product Managers -- people who have a broad set of skills and who are (by nature and personality style) innovators, rather than problem solvers. They're looking at the horizon, not the rear view mirror, looking for the next product, largely unconcerned with the "how" of getting it built. They're usually a different breed of people than your sales people or application engineers.

The most successful product innovations I've seen have taken the form of a storyboard, mockup, physical model or "vaporware" product datasheet. You cook up 3 or 4 different innovative product ideas, usually using different technologies, materials, manufacturing processes or packaging than what your industry is used to. You present some sort of physical or graphic embodiment of the "new product". Sometimes these are presented to a focus group of key customers and end users, preferably "lead users" or "early adopters" -- customers (or customers' customers) who always seem to be interested in new things. You know from experience who those are. Or go to those same people individually.

What happens in focus groups is amazing -- people will "cherry pick" things they like about one mockup or the other. They'll add their own ideas, saying things like, "Well, if you could make it do that, could you.....?" The key is to get them thinking and talking, rather than just asking them, "How can we make it better?" They'll also tell you things like, "I'm not interested in that" or, "Makes no sense to me -- why would you do it like that?"   They do sometimes rain on what seem like good ideas to you. 

I was once upon a time in the commercial building controls business, and watched Product Management done both well and poorly. The difference? The questions the Product Managers asked. For example, one asked, "How can we make a digital controller easier to tune for the devices and processes it's controlling?" Tuning digital controllers used to take a lot of both time and skill. Another asked, "How can we make a digital controller with enough "smarts" -- an internal, real-time self-tuning algorithm that doesn't ever require tuning at all?" That was a game-changer for an industry, resulting in US Patent #5355305.  In fact, it was better than that -- the controller continuously retuned itself as conditions changed, like when outside air temperature was 80 or -20. A brochure-writer's dream come true.

No soccer mom ever called Detroit and said, "I want a completely new kind of vehicle -- call it a minivan."  Chrysler (read: Lee Iacocca) needed a game-changing vehicle -- a completely different idea for how to transport the active family of more than 4 people who also needed to take along a lot of stuff. A game-changer that probably saved a company, and spawned several more generations of innovation, both by Chrysler and others. They weren't the best cars ever made, and they didn't have to be. They were the only minivans available for several years.

There's nothing wrong with product improvements, but they're not the same. Product improvements are incremental, yet they can be tested on customers the same ways. Just ask, "What if we changed the product like this? How would that help you? How would that reduce your costs, improve your productivity or better serve your customers?" Try them on one at a time, or give them a list of 3-4 improvement ideas and ask them to rank them in order of interest, and then tell you why they ranked them that way.

Take a look at your Product Management and product innovation process. Are you happy with the results? Perhaps a different approach, asking completely different questions will be more successful.
 
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Terry Weaver


CEO
Chief Executive Boards International

http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com


 

You Can't Make Enough Rules -- Try Values Instead

 
It's inevitable -- just as you've finished the Employee Manual or a work process documentation project, somebody figures out a way to misbehave in a way you never imagined. Many of us are inclined to reach for the manual and pencil in that "don't", awaiting the next revision.  

"Futile", said a Chief Executive Boards International member at a recent meeting. Then he explained that he's built a management team that has rallied around a set of core values that keeps them all on track. One of those values is performance to key metrics -- managing the business by the numbers.   Another is accountability to each other. 

He recounted a recent operations review meeting where a site manager was trying to explain away his P&L problems for the past couple of months. As he bobbed and weaved he eventually figured out there was no place to hide. Unless he could figure out how to improve the results, the rest of the organization wasn't going to let it slide. He quit the following Monday.

"Bad money drives out good" has been a macroeconomic axiom for years. The organizational corollaries are "Bad people drive out good" or "Good people drive out bad." Organizations, including businesses, are a self-selecting population. If you own a culture of mediocrity, you'll attract and retain mediocre performers. This member has built a culture of accountability (including accountability to each other), which attracts and retains those who can deliver and drives out those who can't. Isn't that an easier way to manage than rulemaking?

So, consider Nordstrom's legendary success, guided by a culture of "Do what's right for the customer." It's worked for them, and a values-based management philosophy will likely work for you, too.

Politically incorrect editorial:  This is at the core of what's wrong with our public institutions today -- Congress, Public Schools, the Legal System and Securities Regulations, to name a few.   We've attempted (perhaps by necessity) to make rules where values once upon a time sufficed.  You can't make enough rules. 
 
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Terry Weaver


CEO
Chief Executive Boards International

http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com


 

Incentive Compensation Aligned With Your Company's Goals? Most Aren't

 
Most incentive compensation plans don't work because they're badly-designed.  It's a perennial topic among members of Chief Executive Boards International.  Occasionally I hear of a plan that's actually working.  This is one of those stories. 

I had a fascinating conversation with my son Scott last week. He's an outlier. He sells big-ticket contracts for a web technology company, and does it really well. The "outlier" part came about as he made a small fortune during high school and college -- enough to finance an 18-month world tour after college -- selling knives for Cutco (full commission). That propelled him substantially up his 10,000 hour experience curve in sales (Haven't read Outliers? Here's a Video Book Review), separating him from the rest of the sales rep pack in two multi-billion dollar companies. Needless to say, we're really proud of both Scott and his career progress.

Scott was talking about his sales manager, a person he admires and who, he says, "Analyzes the annual incentive comp plan and helps us focus our efforts on the products and services that maximize our bonuses." What a concept! A sales manager who actually helps his sales guys do well. And a sales manager who realizes that perhaps the comp plan mirrors the company's strategic objectives. If that's not the case, it's the fault of the guy to designed the comp plan. So he helps his sales guys focus on finding and closing the kind of business the company apparently wants.

I mentioned a longtime friend of mine, Bob Heller, who told me this story in the 1980s -- just after the earth cooled and before the Internet was invented. Bob was talking about his first day on the job as a telecommunications (read: phone systems) sales rep. The first day on the job his boss said, "Bob, here are some manuals for you to get familiar with our products. After lunch, I'll go over the company's objectives and explain the incentive compensation plan." Bob replied, "Tell you what -- give me the comp plan to read over before lunch, and after lunch I'll explain to you the company's goals and objectives."

I've carried that lesson around for 25 years. If your incentive comp plan is properly designed, your employees can reverse-engineer the company's objectives and strategies. Would your incentive plan meet that litmus test?

So, what if your employees on incentive compensation plans did exactly what they had to do to maximize their incomes? Would it, in fact, be exactly what you want them doing? In my experience in most companies, the answer is, "No". Have a look at yours -- if they did everything you're paying for, is it what you want? Is there anything else? Does the plan also cause them to do things you don't want?

Designing incentive compensation plans that actually work (most don't, in my experience) is both tough analytical work and a bit of an art form.  Here are 15 more articles on the topic.  And, as always, we invite your comments on your own experiences. 
 
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Terry Weaver


CEO
Chief Executive Boards International

http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com


 

Tax-Free Investing for Life (and Beyond)

 

Would you like to put away, say, $100,000+, to grow tax-free for life and even, potentially, the lives of your heirs? The investment vehicle is the little-used Roth IRA. "Wait", you say, "Like many business owners, my joint personal income exceeds the Roth IRA phaseout threshold, and I can't make a Roth contribution." Technically true, but there's a little-known route by which you can fund a Roth, now that conversions from a conventional IRA to a Roth are allowed (not subject to any phaseouts).

Let’s step back. The Roth hasn't gotten a lot of traction, because most people who qualify are just saving enough to grab their employer 401(k) match. Roths are most useful to higher-income earners, but Congress has other plans for your income, and decided you're not eligible. Unless you're clever.

Caveat: If you already have a large conventional IRA or Rollover IRA, this strategy doesn't work for you. It may, however, work for your spouse (whether employed or not) if he or she has no IRA, or just a small one. If either is the case, read on.

It turns out that anyone, even if they're eligible for an employer plan, like a 401(k), can make after-tax contributions to an IRA. True of non-earning spouses, as well. Regardless of income. Now, after-tax IRA's are rare, because they're generally a bad idea. They have a way of making all dividends and capital gains over the years into ordinary income, and require taxable distributions at ordinary income tax rates beginning at age 70 1/2. Not pretty.

What if, however, you already had an after-tax IRA? Couldn't you convert it to a Roth? Of course, you would have to pay taxes on the value at conversion above the original cost basis (whatever you contributed after-tax). The cost basis (total after-tax contributions) is excluded because you already paid taxes on that once before.

What, then, would keep you from opening an after-tax IRA for yourself, your spouse, or both and funding it to the $5,000 maximum ($6,000 for those over 50)? Nothing. And then what would keep you from immediately converting that to a Roth? Nothing. So, if you don't have any other IRA in place, you can do this every year. In fact, you can still do it for 2010 -- right up until your tax-filing deadline. And for 2011, as well. Just get the after-tax IRA funded first, then open a Roth Conversion IRA and order the custodian to transfer the after-tax IRA assets over to the Roth Conversion IRA.

What if you do have another IRA or even multiple IRAs? If any of them are especially big, that's a problem. You can selectively convert, account by account, although you must proportionally blend pre-tax and after-tax accounts. For example, consider converting the smaller IRA(s) and leaving large IRAs alone. Under this scenario, your tax preparer will blend all your IRA assets (not your spouse’s), whether converted or not, when figuring the conversion taxes. Thus, if you have a larger IRA, say $250,000 or $1 million+, you will incur a large tax bill. Not practical.

So, if this doesn't work for you, perhaps your spouse has no IRA or a very small one, say $10,000 or so. In that case, you could make the after-tax contributions to that account and then convert the whole thing. Your cost basis on the conversion would be the after-tax contributions, leaving you paying income taxes on just the pre-tax funds. You could do that right now, by contributing $6,000 after tax for 2010 and $6,000 after tax for 2011, making the total conversion $22,000, only $10,000 of which is taxable in 2011.

In the case of 2 eligible spouses, the combined account values could easily top $100,000 in 8 years or so. Tax free for your lifetimes and the lifetimes of your beneficiaries, if they so choose. Remember, no RMD's on a Roth.

As always, everyone's situation is different. Before embarking on this or any other financial strategy, check with your tax professional to be sure it's the right thing for you.

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Terry Weaver


CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com