When planning new products, companies often start by segmenting their markets and positioning their merchandise accordingly. This segmentation involves either dividing the market into product categories, such as function or price, or dividing the customer base into target demographics, such as age, gender, education, or income level.
Unfortunately, neither way works very well, according to Harvard Business School professor Clayton Christensen, who notes that each year 30,000 new consumer products are launched—and 95 percent of them fail.
"The jobs-to-be-done point of view causes you to crawl into the skin of your customer and go with her as she goes about her day, always asking the question as she does something: Why did she do it that way?"
The problem is that consumers usually don't go about their shopping by conforming to particular segments. Rather, they take life as it comes. And when faced with a job that needs doing, they essentially "hire" a product to do that job. To that end, Christensen suggests that companies start segmenting their markets according to "jobs-to-be-done." It's a concept that he has been honing with several colleagues for more than a decade.
"The fact that you're 18 to 35 years old with a college degree does not cause you to buy a product," Christensen says. "It may be correlated with the decision, but it doesn't cause it. We developed this idea because we wanted to understand what causes us to buy a product, not what's correlated with it. We realized that the causal mechanism behind a purchase is, 'Oh, I've got a job to be done.' And it turns out that it's really effective in allowing a company to build products that people want to buy."
Christensen, who is planning to publish a book on the subject of jobs-to-be-done marketing, explains that there's an important difference between determining a product's function and its job. "Looking at the market from the function of a product really originates from your competitors or your own employees deciding what you need," he says. "Whereas the jobs-to-be-done point of view causes you to crawl into the skin of your customer and go with her as she goes about her day, always asking the question as she does something: Why did she do it that way?"
Hiring a milkshake
In his MBA course, Christensen shares the story of a fast-food restaurant chain that wanted to improve its milkshake sales. The company started by segmenting its market both by product (milkshakes) and by demographics (a marketer's profile of a typical milkshake drinker). Next, the marketing department asked people who fit the demographic to list the characteristics of an ideal milkshake (thick, thin, chunky, smooth, fruity, chocolaty, etc.). The would-be customers answered as honestly as they could, and the company responded to the feedback. But alas, milkshake sales did not improve.
The company then enlisted the help of one of Christensen's fellow researchers, who approached the situation by trying to deduce the "job" that customers were "hiring" a milkshake to do. First, he spent a full day in one of the chain's restaurants, carefully documenting who was buying milkshakes, when they bought them, and whether they drank them on the premises. He discovered that 40 percent of the milkshakes were purchased first thing in the morning, by commuters who ordered them to go.
The next morning, he returned to the restaurant and interviewed customers who left with milkshake in hand, asking them what job they had hired the milkshake to do. Christensen details the findings in a recent teaching note, "Integrating Around the Job to be Done."
"Most of them, it turned out, bought [the milkshake] to do a similar job," he writes. "They faced a long, boring commute and needed something to keep that extra hand busy and to make the commute more interesting. They weren't yet hungry, but knew that they'd be hungry by 10 a.m.; they wanted to consume something now that would stave off hunger until noon. And they faced constraints: They were in a hurry, they were wearing work clothes, and they had (at most) one free hand."
The milkshake was hired in lieu of a bagel or doughnut because it was relatively tidy and appetite-quenching, and because trying to suck a thick liquid through a thin straw gave customers something to do with their boring commute. Understanding the job to be done, the company could then respond by creating a morning milkshake that was even thicker (to last through a long commute) and more interesting (with chunks of fruit) than its predecessor. The chain could also respond to a separate job that customers needed milkshakes to do: serve as a special treat for young children—without making the parents wait a half hour as the children tried to work the milkshake through a straw. In that case, a different, thinner milkshake was in order.
Proven success and purpose branding
Several major companies that have succeeded with a jobs-to-be-done mechanism:
FedEx, for example, fulfills the job of getting a package from here to there as fast as possible. Disney does the job of providing warm, safe, fantasy vacations for families. OnStar provides peace of mind.
Procter & Gamble's product success rate rose dramatically when the company started segmenting its markets according to a product's job, Christensen says. He adds that this marketing paradigm comes with the additional benefit of being difficult to rip off. Nobody, for example, has managed to copy IKEA, which helps its customers do the job of furnishing an apartment right now.
Christensen also cites the importance of "purpose branding"—building an entire brand around a particular job-to-be-done. Quite simply, purpose branding involves naming the product after the purpose it serves.
Kodak, for example, has seen great success with its FunSaver brand of single-use cameras, which performs the job of preserving fun memories. Milwaukee Electric Tool Corp. has cornered the market on reciprocating saws with its trademarked Sawzall, which does the job of helping consumers safely saw through pretty much anything. Its Hole-Hawg drills, which make big holes between studs and joists, are also quite popular. The company's other tools, which rely on the Milwaukee brand, are not nearly as celebrated.
"The word 'Milwaukee' doesn't give you any market whatsoever," Christensen says.
So, if jobs-to-be-done market segmentation is so effective, why aren't more companies designing their products accordingly? For one thing, future product planning usually involves analyzing existing data, and most existing data is organized by customer demographics or product category.
"I've got a list of mistakes that God made in creating the world, and one of them is, dang it, he only made data available about the past!" Christensen says. "All the data is organized by product category or customer category because that's easy to get. To go out and get data about a job is really hard. But there are a lot of people who hire consultants to tell them how big the market is. And because the data is organized in the wrong way, you start to believe that's how the market should be organized."
Furthermore, it's difficult for product developers to break the mold when many of their customers organize their store shelves around traditional marketing metrics. Christensen gives the example of a company that developed a novel tool designed to help carpenters with the daunting task of installing a door in a doorframe, a job that usually took several tools to do. But a major home goods store refused to sell the tool because its shelves were organized by product category—and there was no shelf in the store dedicated to the singular job of hanging a door.
"Most organizations are already organized around product categories or customer categories," Christensen says, "and therefore people only see opportunities within this little frame that they've stuck you in. So you have to think inside of a category as opposed to getting out. You've just got to make the decision to divorce yourself from the constraints that are arbitrarily created by the design of the old org chart." WK
Carmen Nobel is senior editor of HBS Working Knowledge.
Republished with permission of HBS Working Knowlegde
Subject matter: Management and Strategy
Authors: Ulrich Steger, Wolfgang Amann, Martha Maznevski
Publisher: : J. Wiley and Sons, Chichester, 2007
This book delivers new IMD insights on an emerging challenge - how to deal with overwhelming complexity. Global organizations face a complex decision-making environment. On one hand, diversity of cultures, customers, competitors and regulations create complexity. On the other, competitive pressures cause in growing countries to extract more synergies across products and regions. In such a climate, a new way of thinking, acting, and organizing is needed beyond the familiar control mindset. Drawing together insights from across the expert faculty, this book presents IMD's framework on how to understand complexity and its four key drivers (diversity; interdependence; ambiguity and flux), along with solutions on specific issues in a variety of functions, industries and markets. The focus is on providing practical solutions based on real-life examples.
Interview: With Dr Wolfgang Amann, Executive Director Executive Education, Goethe Business School Frankfurt
Short biography: Dr. oec. (HSG) Wolfgang Amann learned his research skills at the Wharton School in Philadelphia and his executive education skills at IMD in Lausanne. After gathering experience in top management consulting, he has been marketing, designing, directing and delivering executive education seminars for a number of years. He directed in the past the Henley Center for Creative Destruction as well as the Henley Center of Excellence in Case Writing. He has also been Vice-Director of the Executive School at the University of St.Gallen where he was the Executive Director of a variety of international programs including all activities along the ‘value’ chain from program innovations, marketing, admission, operations, career services and alumni management.
He has also been a visiting professor in the field of international strategy and sustainability at Hosei University in Tokyo, Tsinghua in Beijing, the Indian Institute of Management in Bangalore, ISP in St.Petersburg, Warwick Business School and Henley Business School in the UK.
He now serves as Executive Director of Executive Education at Goethe Business School of the University of Frankfurt where he also teaches top management seminars on strategy and governance. He has written more than 100 case studies for executive education seminars and won the oikos global sustainability case writing award. He has received several best lecturer awards, such as for two times in a row the most prestigious European teaching award for his course on “Corporate strategy and governance: how to add value”, which was chosen as the top course amongst all CEMS courses offered at top business schools in 17 European countries.
He has written several books on corporate strategy, governance, managing complexity, humanism in business and work-life-balance.
The interview with Dr. Amann focuses on two questions:
•What are the three key aspects in complexity management to create and retain value when one tries to reduce or manage it
•What are strategies to successfully manage a high rate of innovation without being victim of an exploding complexity
As the audio is in German I have written a short summary of the key points Dr. Amann made during the interview.
The first aspect is that one has to accept the turbulent context in which organisations have to operate in today’s world. This affects a company’s strategies and its success with innovative products. Research shows that up to 80% of strategies have to change along the way to adapt to market changes; up to 95% of new product initiatives cannot be classified as successful. This requires high level of flexibility in planning and thinking to operate successfully in dynamic markets.
The second aspect is to shift complexity into areas where it really creates value. Key areas would be using the market and the consumers to find solutions to problems and create new product ideas; hence, tapping into the rich resources of the market through Open Innovation. This requires a shift in the company culture as the creative process happens in the market and the organisation needs to be prepared to use such a diversity offered by the market to filter out those ideas with the highest value to consumers. Although this creates more complexity, yet only in areas where the customer/consumer really values and pays for it.
The third aspect is to be very rigorous in standardizing processes and possibly products to eliminate energy drains in administrative work and to allow managers to focus their energy on core tasks of the business where value is added. A survey showed that only 10% of managers focus their energy consciously on these areas. This requires a more conscious mindset to invest time and energy in areas which are of importance and add value to the organization.
Strategies on how to deal with complexity in organization can be found in the book introduced below. It is written in a sort of ‘buffet style’ covering a wide variety of industries and companies with plenty of examples.
A black hole for cost in innovative organizations?
Although complexity is not really perceived as a sensational subject to write about, billions of Euros are sunk in the industry due to unnecessary complexity. It makes one wonder why this subject does not get more attention in many organizations despite the ongoing pressure on cost.
It has lingered in organizations for decades and a lot of leaders complain about it; however, not many have really done a lot about it. If not managed carefully, a rather simple product portfolio can turn into a mess and suck a lot of energy into the administration of it. Sometimes complexity’s nature seems very close to that of cancer. Initially, it is very hard to detect. However, once it accelerates its growth it takes very drastic measures to reign it in and get control over it. Very often a person suffers very heavily from this chemical and/or radiological ‚warfare‘. Companies‘ viability and economic future could suffer in the same way if previously uncontrolled complexity is massively battled or suffocated all of a sudden. In contrast to cancer -which can only be malignant- complexity can not only destroy but also create value if managed in the right way within appropriate structures. To ignore it completely could be fatal.
Beginning of June, Professor Mailk, a well known Swiss management guru, suggested at the Swiss Economic Forum that the future of any economy in Europe will be influenced by ever increasing complexity. One key driver for R&D will be the continuous growth of personalized products. Yet, how do we know what part of the complexity creates and what part destroys value?
It is a core challenge to separate the one from the other and develop technology strategies in such a way that value creating complexity is managed well without neglecting key customer needs. This is key in portfolio management as the seeds for a lot of complexities are sown in R&D.
How often do you review complexity in a structured way?
How often is it left to chance?
How often do you argue about complexity without having real transparency of the situation?
Some organizations experimented with complexity charges on every new product which seemed to make sense at first glance. However, all it does is create another distortion of reality as it is often an arbitrary construct which is not anchored in real data. Transparency has not been created. In the worst case, these charges kill highly innovative products which could have been the company’s ‚Blockbuster‘.
I consider the following proverb appropriate in this context: Only those who care for their seedlings appropriately and learn how to prune the young trees will have heavily laden grown tress in their garden (unknown source)
A first and important step is to understand the impact of complexity in the organization and product portfolio. As I don’t want to pretend to be an expert I have invited experts from AT Kearney to contribute with an article on the subject of complexity management. You can get this article from my download area.
While geographic co-location has obvious benefits for firm innovation, it can also have serious drawbacks.
HBS professor Juan Alcácer and Ross School of Business professor Minyuan Zhao explore how firms tap into the rich resources of technology clusters while protecting the value of their innovations. To understand R&D dynamics in a cluster, the scholars argue, we must recognize that a firm located in a particular cluster may also be part of an extended network, with its operations strategically integrated across multiple locations and multiple business lines.
Key concepts include:
* When surrounded by direct competitors, the technology leaders in a cluster favor technologies that can be quickly developed internally, and more of their R&D projects involve researchers from other locations, particularly from primary R&D sites.
* Internal linkages across a firm protect firm knowledge from appropriation not only in countries where intellectual property rights protection is weak, but also in risky competitive environments in general.
The full article is avilable via: my dowload site
Repulisched with permission of HBS Working Knowledeg
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