Saturday, December 19, 2020

Design-led Innovation Can Make a Business Powerful

I believe in design-led innovation for new product development, and enhancing existing products. I have been using the approach of design-led innovation for over a decade in multiple companies to build commercially successful software products. My colleagues and team mates know this. Depending upon their interaction with me, some of them may say that I believe in visiting users, observing them, and listening to their pain points. Some product management colleagues may say that I ask them to tell a story using concept stories. Some may say that I believe in rapid prototyping to understand the user journey. Some may say that, I believe in validating a solution with real users, by walking them through a prototype in person or using tools such as, before engineers start coding the functionality.  My product operations colleagues may say that I ask them to incorporate innovation into quarterly product planning and execution.

However, only a few of my colleagues may realize that this approach is an important business strategy.  In this article, I wanted to share my belief that design-led innovation could be a key business strategy that will lead to inventions that create power.  Such power is necessary for the commercial success of a business. There are several different kinds of business powers. Invention, in my opinion, is the stepping stone to every sustainable business power. The importance of power for a business to be successful is beyond the scope of this article.  A good book on that topic is Seven Powers by Hamilton Helmer. 

To be successful, a business must create something new that produces substantial and sustained economic gain for customers and for themselves. Having access to resources alone may not be enough. Even Qatar, a country that controls 12% of the worlds's natural gas reserves was poor for a long time.  Qatar became wealthy only after investing heavily in inventing the process of liquefaction of natural gas, which made it possible for Qatar to export natural gas to Europe and other parts of Asia. 

Design-led innovation will make practitioners powerful too

I also want to use this article to share my belief that practitioners of design-led innovation, including product managers, designers and executives are more valuable to the industry and hence more powerful themselves. Because they have a framework for creating economic value in a predictable and repeatable manner, they will have better long term personal financial returns as well as job satisfaction. Because the skill of design-led innovation and the resulting invention is hard to be codified and turned into a software algorithm, I believe the skill will always command high compensation.

How is design-led innovation different from other product development approaches?

Most product teams and executives take the approach of analytical thinking or intuitive thinking.

Analytical thinking, where executives and product managers look at market data and determine the potential for a new product or feature, is an essential skill. For example, a product manager for financial advice products may look at a country and determine that there is a market to provide automated advice to people who have about $100,000 invested and are underserved by current financial advisers. They will accurately determine the market size, the potential opportunity and come to a conclusion that if they build a product that serves this market there is money to be made.  They may then proceed to build a product and take it to financial advisors who are their existing customers.  Financial advisors, who are usually compensated based on a percentage of assets under management, may or may not be very interested in the offering because the product essentially replaces them. The product may fail. This is not a hypothetical example. I actually observed this happen. 

Intuitive thinkers, who have prior experience in the domain, may rightly conclude that the process of providing financial advice to people with less money to invest is very cumbersome and we need to simplify the same using technology. Usually, intuitive thinkers are domain experts from clients services, product managers or product designers who have built a prior product, or subject matter experts who spent time in the industry and understand the manual processes and problems involved. Their conclusions will be accurate too. They may decide to reduce the burden of financial advisors with algorithm based financial advice to simplify the process so that financial advisors can serve more clients. Rather than observe and learn from users, they may try to automate existing processes, rather than rethink the processes. Rather than focus on the end user, they may focus on financial advisors, and on themselves, the technology providers. Such an approach is not bad. It might even succeed. For example Wealthfront and Personal Capital did automate the financial advice processes and charged a smaller fee compared to what a human advisor charges. They did become substantial businesses. However, they may not have significant barriers to entry.

A product manager who follows design-led innovation might decide to visit a financial advisor for a co-innovation workshop and talk to her about the challenges her clients face. The financial advisor may talk about how their clients want their adult children to be engaged in the wealth management process. This might uncover the fact that there are 70 Million young people in the US who do not invest outside their retirement plans at all, even though they have some money to invest, simply because they are put off by the process to invest, do not trust current institutions, or do not want to pay the fees involved.  Catering to this market usually involves inventing a product that appeals to them delivered via a channel they are comfortable with. The invention could be a new business model, where there is no fee to the consumer for investing, as Robinhood did, or a transparent fixed low monthly fee for the investor like Acorn did. Such new inventions are most likely to stem out of a design-led innovation process, not just from an analytical or intuitive thinking process. The above companies most likely observed their users, and looked beyond product or features requests from current customers and tried to understand the real pain of their end users and invented new products and services, taking advantage of new technology, to solve their problems. 

What is the design-led innovation process?

The design led innovation process starts with observing users, reaching out and listening to a few of them, coming up with a solution, prototyping it quickly and validating the idea with actual users, and iterating the cycle multiple times. A prototype is not necessarily a piece of clickable software. For example, when Joe Gebbia and Bryan Chesky of AirBnB had an idea for a bed and breakfast, they did not start by building a clickable prototype. They actually rented out a mattress in their San Francisco apartment to designers during a conference to see if the idea will work. When Steve Jobs wanted to build Apple retail stores, he built a full scale retail store prototype inside a warehouse to understand how the store might work, before building real stores. Such product leaders most likely did not start with market analysis or inputs from experts. They most likely called a few potential users, created a tangible experience that users can validate and give meaningful feedback on, and repeated the process multiple times before they reached a product ready for pilot. 

The design led innovation approach does not ignore analytical thinking or intuitive thinking. Instead a product manager adopting the approach will take market research and intuitive inputs into consideration, but observe users directly, understand their journey, recognize their pain points, formulate a solution, prototype it, validate it, repeat the process multiple times until the solution created verifiable value, and then turn that solution into a product and into a strategic advantage for the business.

Figure: Design-led innovation can make a business powerful.

The diagram above is adapted and enhanced by Prashanth based on the book 'The Design of Business' by Roger martin.

Applying design-led innovation to ongoing product development

While I pointed out successful new companies, I have learned from my experience that the same approach of observing, listening, inventing, prototyping and validating before building and scaling a product, applies to product teams that keep improving their product. Not every product team is going to create a Robinhood, Acorn, AirBnB, or Apple retail store every year. It is possible to take a design-led innovation approach to ongoing feature development in existing products. My colleagues and I field tested a framework at Jemstep. It worked well. You can read about how to do it here

Does everyone embrace the approach?

All of  the senior executives who hired me to build products did so because they knew that the design-led innovation approach that I took led to commercially successful products. Some senior executives did not believe in the approach. It is most likely because their incentives were aligned towards extracting value from an existing business in the short term rather than building sustainable business advantage. When the executives that I worked with took such a short term approach, the business failed and they eventually left.

Most product management colleagues agree that the approach is effective. Some colleagues who are experienced in the domain were impatient with the approach because they believed that they already knew what to build, because they have done it before. It took me a while to convince them that while their knowledge is valuable, it may be a few years old and may require a second look. Once they accompanied me for co-innovation sessions with customers and users, they came around and adopted the design-led innovation process. Some product management colleagues with business management degrees wondered why I asked them to draw and tell stories when they were meant to do more important things such as market analysis. They too became converts once they started meeting customers and users and started getting their feedback. Such colleagues did not become experts in the process overnight. They worked with product designers in the beginning and slowly gained the necessary skills. Some of my user experience design colleagues wondered why I ask product managers to think about user journeys, when designers have formally learned such things in college and are better trained in creating such artifacts. Slowly but steadily, almost all of them embraced the process, and delivered products successfully. 

How can a product manager or product designer use this information?

If you are a product manager or product designer, you can first find out the product innovation approach your company is taking at this time. Are they taking a design-led innovation approach or are they building products without listening to potential users first. If they are taking the latter approach, they will likely fail sooner or later. Attempt to introduce design-led innovation in your company. If your colleagues do not believe in the approach, keep your skills polished and keep an eye out for other leaders or companies that believe in the approach. If you are considering joining a new company, ask them if they follow a design-led innovation process. Even if they are not, check if they are willing to invest in the process of design-led innovation. If you have the freedom, the money and the authority, implement the design led innovation process in your company. When you hire people, consider people with such skills or experience. The chances of your company’s success and the chances of your personal success will certainly improve if you do so. If your efforts do not bear fruit in one company, do not give up. Remember what Warren Buffet said. “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” Move on to the next organization with better economics and better leadership and try again. 

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