The way companies build successful products has fundamentally changed. New technologies like smartphones, social network or cloud computing have enabled tech-giants like Apple, Google or Amazon to become the most valuable companies in about 20 years.
This is the first article of my series “Lean Innovation — How to develop successful products today”. It’s about the shift of innovation and product development methodologies over the years.
All these changes happened due to the way how people consume their products. To deal with the change of people’s behavior and product expectations, companies had to shift towards more flexible, agile and especially customer-centered practices — from staged Waterfall to Agile to Design and Lean methods.
Although still, about 95% of large organizations use a Waterfall approach for developing new products, leading companies apply lean and design methods to develop new products.
The Waterfall method is a sequential development process. The progress flows steadily towards the goals (like a waterfall). It requires fully planning of projects deliverables and development activities in advance.
Changes are expensive especially in later stages, as most of the time and effort is spend during the design and analysis phases. Every phase has clear goals that need to be achieved in order to move over to the next phase. This prevents customers to review and feedback on projects before the final release. Even if suggestions were solicited, projects are less flexible about accepting feedback. Although Waterfall is a less flexible approach, it is more beneficial for teams that need to execute “the plan” — on time and within budget.
With the rise of the internet, the long development cycles of Waterfall were no longer capable to plan ahead what people need. With the globalization and the new economy of online businesses competition has led to a lot more competition than before. A more flexible product development process was required, as companies were forced to react to market trends in the middle of their development cycles.
Agile refers to a manifesto, which was published in February 2001 by 17 software developers, who have to discuss lightweight development methods. It is based on an iterative approach, instead of in-depth planning at the beginning of a project like Waterfall. Teams will always adjust the scope of work to ensure that the most important items are completed first.
The goal of each iteration is to produce a deliverable of a working product. As constant feedback from end users is encouraged, Agile enables to react to changing requirements, as they are expected over time. Therefore, this methodology is the right choice for projects when it comes to manage and reduce the risk of changing requirements.
Design Thinking (2000s)
Also known as human-centered design, Design Thinking as a concept has been around for a while under different names (e.g. user-centered design, service design). Design thinking has come into vogue because of its beneficial problem-solving technique and its scientific method. The popularization of the Design Thinking process and methodology is related to the approach by IDEO in 2001.
“Design thinking is a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Tim Brown, Founder IDEO
This “designer’s toolkit“ is the application of methods and processes which are conventionally associated with designers — think creativity, the flexibility of ideas with a clear understanding of people’s behaviors and needs. Design Thinking is a structured process, consisting of 4 fundamental phases.
Beginning with the discovery phase of a target group, the identified needs and problems will be synthesized to a few main insights. The insights are the foundation for the concept phase, where it is the goal to create many ideas, while the most promising ideas are going to be developed as prototypes. Prototype tests are the last phase and ensure that the solutions meet the needs of the analyzed target group.
Design thinking is created because big corporations lack the ability to be creative and able to create innovative products that meet the needs and problems of their customers. Today, the majority of corporations operate with analytical thinking. This thinking prevents from creative “out-of-the-box” thinking, which is required for disruptive innovation.
This creative and especially “wide” thinking (some call it “crazy-thinking”) is related to the term design. To innovate, businesses must have the capability to design. To design, an organization needs to fuse design internally to create a culture that fosters creative thinking.
The significant difference in Design Thinking is the placement of the customer at the center of every activity. Additionally, human-centered design emphasizes experience over efficiency, as good experience is the motivator for people to interact with products.
Lean Startup (2010-Today)
With the publishment of the book “The Lean Startup” by Eric Ries in 2011, innovation and product development practices have become “Lean”. The goal of Lean Startup is to avoid developing products or service that nobody needs. The Lean process incorporates user feedback and early experimentation.
The methodology is known for the philosophy “fail early to succeed sooner”. Failures are accepted because they enable learnings, which are often required for breakthrough success.
Lean methods are also often called “customer development”. The goal is to find out what customer want before actually building the final product. The principle of Lean is to build assumptions and hypothesis, which you’re trying to test, while you make progress from the learning of your experiments.
Technology has enabled global competition
Digitization and the enormous speed of change do no longer allow companies to simply build products without incorporating customer needs. In the past, delivering the wrong product to customers had led to failed projects. Today, continuously failing to deliver what customers need, leads to total business model failure. Nokia or Kodak are just the 2 most famous examples to be mentioned here.
Technologies like smartphones, cloud computing, and open source have enabled to build products much faster and cheaper. The barriers for creating products or entering into markets is lower than ever before. That means there is a lot more global competition today. Companies need to be obsessed with understanding customers and what they want. A customer can easily switch to other products. The impact of brand loyalty to consumer decision is declining with every year.
Focus on business models, not only on products
Lean and design thinking are both customer-focused and based on an iterative approach. Customer engagement and feedback is the engine for making progress. The key difference of Lean Innovation is to go one step further as it considers the whole business model around a product.
One of the reasons why Amazon has become the leader in e-commerce was their strong commitment to customer service. It helped them to gain trust and loyalty, although they didn’t earn a single dollar with it. Today, successful companies differentiate with their business model, not their product offering.
Why you should start now!
In fact, around 60–80% of all products fail within 1–2 years — mostly because there is no customer need for it. While customer research binds resources in the early stage of a product lifecycle, it costs of product changes is exponentially much higher in the later stage of the development process! Often the whole product team is working on product changes to meet the requirements of customers. These painful product changes cost companies today millions in R&D.
Additionally, these product changes are often the reason why startups disrupt industries because they are much faster in understanding customer needs and quicker in developing the right products for it! The time-to-market is one of the most important criteria for the success of products because the customers are just switching to an alternative from a competitor.
Always be validating (ABV-Method)
Lean and Design Thinking are both customer-focused and an iterative approach. Customer engagement and feedback is the engine for making progress. Lean Product management uses the benefits of customer-centric innovation and combines it with agile processes. It helps to achieve optimal product-market fit in a much shorter time while it reduces product failures and expensive changes.
Lean Product Management is about to combine the principles of Design Thinking while always be validating ideas and products to get products to market rapidly.
In the new world, successful companies will have one thing in common: an exceptional understanding of customer behaviors and needs. As behaviors and needs are changing fast, the only way to ensure to build what customers need is to engage them continuously. True customer understanding is the foundation for long-term business model success.
Combine Design Thinking, Lean and Agile
While Design Thinking, Lean and Agile can be applied alone, the best results come from a combination of those approaches. While Design Thinking helps to gain insights into customer needs and behaviors, agile helps to efficiently develop and deliver solutions in an efficient way. Use Lean practices and gain insights during customer or assumption testings. While you continue this build-measure-learn cycle you will get steadily closer to a successful product and a working business model.
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About the Author
Stefan is a passionate Design Thinker. He is the founder of Pyoneer, a SaaS solution for Design Thinking, which helps teams to do understand customer needs and to track insights from customer research and testing.
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