How product leaders continuously drive innovation when customer demands and markets are changing rapidly

Being brought up above my dad’s pharmacy in London, I learned at a young age about the importance of responding to customers’ changing preferences and demands. Back then, it determined whether or not we had food on the table, so I developed something of a sixth sense. As soon as someone walked into the shop, I carefully noted their behavior and mood, and could rather accurately anticipate what remedy they needed. In a pharmacy, that was the equivalent of delivering excellent and competitive customer service.

But that was the Margaret Thatcher era (interestingly, she too was brought up above her father’s grocery shop), and a lot has changed since then. Multi-national conglomerates took on the ‘corner store’ by building larger and larger formats stocked with virtually anything the customer could ever wish for or imagine. That model was eventually disrupted by supply chains and logistics that enabled organizations to deliver products directly from warehouses to the customer’s porch. The cycle continues and we’re all living it. There is no industry, company, or process that is free from disruption. Customer demands are blind to your status quo.

So how do we as business leaders, product managers, management consultants, and innovators not just understand, but act on rapid and ever-changing markets and customer preferences?

Today, customer preferences are changing too quickly for organizations to depend on extensive strategic planning and traditional methods of product development and innovation. By the time new products and features see the light of day, assumptions that were relied upon prove to be outdated, irrelevant, or misguided to begin with. The outcomes of product development and innovation initiatives are no longer even remotely predictable, which means that leaders must embrace a new reality. The world’s forward-thinking organizations are adapting their product development methodologies accordingly to operate iteratively around constantly evolving customer needs.

To understand the shift that needs to take place, first consider the status quo. Historically, the greatest risk assumed by companies building physical products had to do with manufacturing costs. New technologies emerged relatively slowly and customer preferences weren’t frequently fluctuating. Customer experience certainly mattered, but it was far easier to determine what products to build and forecast demand. On the other hand, factories were tremendously expensive to build, and any mistake in planning could have drastic consequences. Organizations therefore focused their efforts on upfront market research, planning, and optimization.

When consumers moved online, most companies merely transferred their analog processes and products to the digital world without thinking twice (see Fig 1). Just as it always had, product planning kicked off a linear set of procedures that culminated with a go-to-market strategy and product release. But at some point, things became different: the customers stopped showing up at the end.

Sensing and responding to unpredictability

In the mid-to-late 1990s, it became clear that the internet wasn’t just a digital extension of the previous era. It enabled entirely new capabilities that could never have been imagined. A physical asset such as Encyclopedia Britannica couldn’t just be copied and pasted over via HTML and served to customers. Indeed, for perhaps the first time, unpredictable customer preferences posed a greater risk to businesses than inefficient manufacturing. Realizing this, leaders from IBM announced:

Flexibility and responsiveness now rule the marketplace. Rather than follow the make-and-sell strategy of industrial-age giants, today’s successful companies focus on sensing and responding to rapidly changing customer needs. Information technology has driven much of this dramatic shift by vastly reducing the constraints imposed by time and space in acquiring, interpreting, and acting on information.

As product leaders learned that the digital manifestation of an analog product is not so straightforward, ‘sensing and responding’ became the modus operandi over the next decade. The mantra encouraged managers to break new product development into smaller phases, and to seek customer feedback at each interval in order to keep development aligned with actual customer demand (not estimated demand).

Given the shift to iterations and customer interaction, product developers adapted methodologies accordingly, from a traditional ‘waterfall’ methodology to an ‘agile’ methodology. The former involves outlining a project at the beginning and then rapidly building it to specification, while the latter breaks projects into functional iterations that are developed and evaluated at each step.

There is overwhelming evidence to show that by merely breaking large projects into smaller chunks that can be tested with customers, product developers are 90% less likely to fail. But even that is no longer enough.

“Hit refresh”

With organizations embracing agile methodologies en masse, speed has become a competitive advantage in and of itself. Recalling one of his early ventures, David Cancel, renowned product leader, illustrates the benefits of moving quickly:

We still have old customers from back then who, to this day, say their favorite thing was that any time they would chat with us or call us, our answer to everything was, “Hit refresh,” and their issue was fixed.

An emphasis on speed has fundamentally shifted the risk profiles of virtually every activity. The cost and time of developing digital products and information technologies continues to drop and approach zero, with two resulting effects. First, without a barrier to entry, an avalanche of new products and offerings hit the market on a daily basis. Second, customer preferences have fragmented and evolved quickly in response to the vast permutations of offerings. Both of these factors have essentially made the ‘cost’ of extensive up-front planning futile and uneconomic when compared to the benefits.

To compete, managers must find ways to get customer feedback and align offerings on an ongoing basis. Many organizations today have explicit mantras to become ‘customer centric’, relying on a number of strategies to realize that aspiration.

Of course, this new paradigm expectedly causes friction with other internal processes and stakeholders. As one example, the field of generating actionable customer feedback, now known as ‘user research,’ is currently allocated across traditional budget categories as a cost component rather than as a value-added activity. On the surface, user research seems to add cost to the product development process without guaranteeing anything in return (after all, it is impossible to predict how customers will respond, which is the point of talking to them in the first place). To alleviate these matters and others, managers must tactfully influence stakeholders and align objectives around customer centricity.

You can quantify the gains of shorter iteration cycles and taking smaller iterative bets versus big upfront bets, as the area between the envelopes of the investment cycles (See Fig. 4). More frequent customer feedback enables teams to re-align around customer needs, thereby limiting wasteful development efforts.

The longer the interval between iteration cycles, the more you risk deviating from your customer needs. Shorter iterations therefore deliver strategic benefits and greater return on invested capital, driven by:

• shorter times to market launch via accelerated product development process
• stronger likelihoods of product success via constant feedback and insights
• reduced risks to brand reputations from product flops via validated innovation investments

The future isn’t getting any easier

The days of transitioning existing analog products to digital are over. Product leaders must now begin, not end, with a digital perspective. That’s not just semantics — there are meaningful ramifications to being in a digital world.

While there are certainly interdependencies in the physical world (think pants and belts), the digital world is far more complicatedly intertwined. Every website must render in another company’s browser which itself must execute in another company’s operating system. Simply imagine that you’re building a mobile app. If development will take you more than a few months, the entire mobile operating system will be different by the time you launch!

There are no constants in the digital world (See Fig. 5). The very platforms and ecosystems on top of which products are built are fluid and influencing customer demand in unpredictable ways.

The future will be won by organizations that have the data to make informed decisions at any given moment. To enable that, leaders must invest in capabilities to prototype and test hypotheses rapidly against target audiences. In other words, they must figure out how to deploy user research methodologies on demand and at scale.

These capabilities include:

• Expeditiously and economically defining and accessing target population segments
• Rapidly designing of interactive prototypes and stimuli to test value propositions
• Developing and executing appropriate survey and analytics tools
• Collecting data, analyzing, and summarizing results
• Responding back to agile teams with customer insights in a matter of hours and days versus traditional approaches that take months

It’s a formidable challenge, but one which is being solved by the robust capabilities of new entrants and disruptors such as Alpha, a company that I am currently advising. While there are countless point solutions that address individual aspects of the user research process (such as survey tools and interactive design studios), Alpha is focused on unifying and facilitating the methodology from end-to-end.

In just two years, Alpha has combined on-demand prototyping, audience sourcing, and experimentation into one integrated platform, powered by experts that are trained in a rigorous and consistent approach to user research. They are already working with more than 30 global Fortune 100 organizations to translate plain-English questions into actionable user feedback for product, research, and marketing teams in hours rather than weeks and months.

Product leaders must think seriously about what capabilities their managers and teams need to continuously innovate in a world where markets change so rapidly. If you’d like to learn more about Alpha and how they can help your organization move quickly, no matter what the obstacles, reach out to them at www.alphahq.com.