Mastering Disruption and Innovation in Product Management PDF

This book is an essential guide or foundational toolkit for anyone who is involved in the process of developing, offering or selling any type of product or service. Based on how to surf on the waves of innovation and the principle of “form follows function” (System Architecture), it introduces and connects concepts like Market Understanding, Design Thinking, Design to Value, Modularization and Agility. It introduces readers to the essence of these main frameworks and provides a toolkit that explains both theoretically and practically when and how to utilize which one. The methods and processes described in this book have all been successfully tested in many industries. They apply in today’s market context of high uncertainty, complexity and turbulence, where innovation and disruption are essential. Readers will find answers to two fundamental questions: How can we implement an innovation process and environment that are conducive to successful product design? And, if our products fail to appeal to customers, how can we achieve a major turn-around with regard to product development?A wealth of examples and case studies help readers to benefit from the authors’ broad professional experience. Further, lessons learned and conceptual summaries provide valuable shortcuts to the methods and tools discussed.For today’s CEOs, enabling innovation is one of THE most complex leadership tasks.But innovation is not about theory and nice buzzwords. It’s about succeeding in the real world. This ‘hands-on’ book connects the dots and introduces the reader to some of the most relevant ideas and pragmatic concepts fitting today’s business reality.Dr. Robert Neuhauser, Executive VP and Global Head People andLeadership Development, SiemensAt the most fundamental level this book brings order to chaos. It sets different and highly relevant design approaches into a complementary picture, rather than presenting them as competing ways of solving the same problem. Product designers, managers, consultants, scholars and students will surely have this valuable book within reach on a daily basis.Olivier L. de Weck, Ph.D – MIT Professor of Aeronautics and Astronautics andEngineering Systems, Editor-in-Chief Systems Engineering

123 downloads 3K Views 8MB Size

Report

Download pdf

Recommend Stories

Empty story

Idea Transcript

Management for Professionals

Christoph Fuchs Franziska J. Golenhofen

Mastering Disruption and Innovation in Product Management Connecting the Dots

Management for Professionals

More information about this series at http://www.springer.com/series/10101

Christoph Fuchs • Franziska J. Golenhofen

Mastering Disruption and Innovation in Product Management Connecting the Dots

Christoph Fuchs Corporate Development Consulting Siemens AG Munich, Germany

Franziska J. Golenhofen Corporate Development Consulting Siemens AG Munich, Germany

This work was supported by Siemens AG and reﬂects personal learnings gained throughout 20 years of working experience in the ﬁelds of innovation and product management in many business areas at Siemens. Any opinions, ﬁndings, conclusions or recommendations are those of the authors, and do not necessarily reﬂect the views of Siemens. ISSN 2192-8096 ISSN 2192-810X (electronic) Management for Professionals ISBN 978-3-319-93511-9 ISBN 978-3-319-93512-6 (eBook) https://doi.org/10.1007/978-3-319-93512-6 Library of Congress Control Number: 2018948190 # Springer International Publishing AG, part of Springer Nature 2019 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, speciﬁcally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microﬁlms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a speciﬁc statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional afﬁliations. Printed on acid-free paper This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Foreword

The ﬁrst two decades of the twenty-ﬁrst century have seen an unprecedented rate of change in our lives, in our economies and in our societies around the world. We are continuously connected to each other via the Internet whose total trafﬁc has increased exponentially from 84 Petabytes per month in 2000 to 96,000 Petabytes per month in 2016, an increase of more than three orders of magnitude. China has become a dominant market and producer at the global scale. A new middle class has risen in Asia and the Middle East, while an ageing population poses major challenges and opportunities in North America, Europe and Japan. Of the top 20 US companies in 1999 in terms of annual revenues, only six of them are still left in the top 20. We truly live in a VUCA (volatile, uncertain, complex and ambiguous) time. Given this context how can products and services still be successfully developed and sustained? This question is particularly relevant for situations that go beyond pure software solutions and that require complex hardware and physical infrastructure to bring to life. Reﬁning prior notions of innovation as being either purely disruptive or purely incremental, the authors develop a deeper and more nuanced view of innovation. In particular, the distinction between disruption with or without the same “DNA” is critical in order to understand why many industry leaders have come under great pressure from new entrants in well-established markets. This book takes a refreshing and holistic approach to this question and explains the challenges of product development in today’s world by “connecting the dots”. There are two particularly unique aspects of the book that stand out: First, rather than promoting yet another new framework for designing products and services, the authors convincingly link a number of well-known and successful paradigms, many of which only cover a particular aspect of product development when taken in isolation. However, when connecting the dots between them, a clearer and more practical picture emerges. These approaches include “form follows function” (System Architecture), Design Thinking, Design to Value, Modularization and Agile, amongst others. The authors weave these approaches into a profoundly relevant tapestry for those who want and need to understand how to master disruption and innovation in increasingly turbulent markets. v

vi

Foreword

The second part of the book contains very practical tools and methods for implementing state-of-the-art product development in practice. This part of the book can be read seamlessly or used in an “à la carte” mode where key principles, methods and tools can be recalled as needed while engaged in a new design or redesign project. True to their philosophy of modular and agile thinking, the authors structure the book itself in a way that it is easy to combine different elements together quickly and with an appropriate level of detail. Second, the authors, Christoph Fuchs and Franziska Golenhofen, have deep experience as functional experts in the ﬁeld of product innovation and development. Through their work as in-house consultants at Siemens, they have applied these frameworks very successfully in many industries. Through simpliﬁed but highly illustrative examples from telecommunication, rail, energy, automotive and medical devices, we learn how dominant players can be severely challenged, almost overnight, in terms of market share and proﬁtability. Rather than sitting back and waiting to be disrupted, this book tells an optimistic story of how Design Thinking and a real and deep focus on understanding customers allow both incumbents and newcomers to be successful by embracing rather than rejecting disruptive innovation. The reader will ﬁnd familiar but also many new ideas in this book such as the superposition of long-term disruptive trends with shorter innovation cycles, thereby combining classical models such as the technology S-curve with Christensen’s disruptive innovation concept. Overlapping waves of innovation at different timescales may even be used to predict when major innovations may occur in speciﬁc markets. At the most fundamental level, this book brings order to chaos. It sets different and highly relevant design approaches into a complementary picture, rather than presenting them as competing ways of solving the same problem. Product designers, managers, consultants, scholars and students will surely have this valuable book within reach on a daily basis. Professor of Aeronautics and Astronautics and Engineering Systems Editor-in-Chief Systems Engineering Massachusetts Institute of Technology Cambridge, MA, USA

Olivier L. de Weck Ph. D.

Acknowledgement

Appreciate good people. They are hard to come by.

Our deep gratitude, appreciation, recognition and thanks go to all who have helped to shape this book. The whole is truly more than the sum of its parts. This book would not be the same if it were not for the countless inspirational individuals who opened doors, discussed and shared their insights with us. We can say that writing this book was a demanding and driven project that, also through the passion exuded by others for their respective topics, enriched us with moments where all of a sudden crazy ideas emerged and started shooting off in all directions (see Fig. 1). Our own growth has evolved due to those who have taken the time and thought to provide critical, constructive feedback and thoughts for discussion to various iterations of this book. It is through their input that we were able to reﬁne, clarify and improve concepts in terms of methodology, structure, content, clarity and ease of

Fig. 1 When passionate individuals start linking topics, things can get wild

vii

viii

Acknowledgement

understanding. Here we would like to name and thank Torsten Betz, Christian Bub, Thomas Dehler, Florian Golenhofen, Tobias Lamm, Frank Ibach, Mona Karl, Morten Lange, Sabine Mittrach, Filomena Oliviero, Dirk Petershagen, Christian Schlütter, Alfred Schmidbauer, Georg Scholz, Ralf Spateneder, Burkhard Tolks, Marion Wittman and Peter Zimmer. For some of the brilliant and loving illustrations (which thankfully don’t look anything like the one above), we are in gratitude to the aspiring designer Marie Kollarczyk. There have also been a handful of special individuals who truly supported us through the entire journey of writing. A special thank you goes to Dr. Marko Brammer, for his incredibly detailed and valuable suggested improvements and content edits. Tobias Wedig has, next to valuable brainstorming sessions, been instrumental in shaping the tutorial for the market segmentation chapter and his contribution towards explaining concepts behind the jobs to be done theory. We heartily extend our thanks to Dr. Klaus P. Galuschki, Dr. Bahram Hamraz and Dr. Michael Schneider for their impactful suggestions especially during the early conceptual phase. The Design Thinking chapter owes sparkling little additions and thought-provoking snippets to Dr. Bettina Maisch and Silke Sasano. With a smirk and twinkle in the eye, we also thank Clemens Dachs for cross-disciplinary integration and systemic thinking on pretty much anything. Dr. Robert Neuhauser has been inspirational for some ideas in the disruptive innovation chapter and provided valuable feedback. And last but not least, our gratitude goes to our department head Jürgen Kirsch, for his support and inspiration especially during the ﬁnal strides of this project. Here we also thank our senior management. A profound personal thank you from Franziska goes to the wise teachers and mentors throughout my life. They have helped me grow, provided guidance and invited reﬂection for my own development. They have taught me to have courage and belief and shaped my way of thinking—thank you, you know who you are. A profound personal thank you from Christoph goes to three people who had a large inﬂuence on my way of thinking. It was Albert Krupp who shaped my “form follows function” philosophy at the very beginning of my consulting career. Christian Stanek was my teacher for modern platform and modularization methodology. Rudolf Schwarz was my constant sparring partner through many years of my journey. There have been moments that made us smile and also critical open feedback that pushed us to roll up our sleeves and make this book evolve to its current form. We hope that this book and project is a reﬂection of the growth inducing conversations and collective intelligence we experienced from all of you. April 2018

Munich, Germany April 2018

Dr. Christoph Fuchs Franziska J. Golenhofen

Contents

1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part I 2

3

1

Imperative and Fundamental Concepts

Disruptive Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Deﬁning Relevant Terminology . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Complementary Thoughts on Christensen’s Theory of Disruptive Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 The DNA of Disruptive Change . . . . . . . . . . . . . . . . . . . . . . . . 2.5 Disruptive Innovation with Different DNA . . . . . . . . . . . . . . . . 2.6 Disruptive Innovation with Same DNA . . . . . . . . . . . . . . . . . . 2.7 Theory of Disruption Waves or the Modulation of Disruption . . . 2.8 Beneﬁt of a Uniﬁed View on Disruption . . . . . . . . . . . . . . . . . . 2.9 Relativity of Disruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.10 Typical Warning Signals for Disruptive Threats . . . . . . . . . . . . 2.11 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11 11 15 16 21 23 24 27 30 32 34 36 37

Form Follows Function: Systems Engineering . . . . . . . . . . . . . . . . . 3.1 Form Follows Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Function Often Follows Form . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Deﬁning Concept and Architecture . . . . . . . . . . . . . . . . . . . . . . 3.4 Realizing the Product’s Architecture . . . . . . . . . . . . . . . . . . . . . 3.4.1 Architectural Process . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.2 The System/Product Architect . . . . . . . . . . . . . . . . . . . 3.4.3 Two Architecture Types: Integral or Modular . . . . . . . . 3.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39 39 41 44 47 48 49 52 53 55

ix

x

Contents

Part II 4

Frameworks

Market Understanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 We Know Our Customers! ... Really? . . . . . . . . . . . . . . . . . . . . 4.2 Understanding Your Market . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 Market Segmentation for Multiple Business Questions . . . 4.2.2 Market Segmentation for Multiple Segmentation Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.3 Identifying a Customers’ “Job to Be Done” . . . . . . . . . 4.3 Differentiating Market Segmentation from Design Thinking . . . . 4.4 How to Do a Market Segmentation . . . . . . . . . . . . . . . . . . . . . 4.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59 59 63 66 67 70 73 75 75 76

5

Creating Customer Value Through Design Thinking . . . . . . . . . . . 77 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 5.2 What is Design Thinking? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 5.2.1 Thinking Like a Designer . . . . . . . . . . . . . . . . . . . . . . 79 5.3 When to Use Design Thinking? . . . . . . . . . . . . . . . . . . . . . . . . 81 5.4 What is Comprehensive Understanding? . . . . . . . . . . . . . . . . . . 83 5.4.1 Deﬁning Understanding . . . . . . . . . . . . . . . . . . . . . . . 83 5.4.2 The Different Levels of Understanding . . . . . . . . . . . . 86 5.5 Phases of Design Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 5.5.1 Empathy for Individuals . . . . . . . . . . . . . . . . . . . . . . . 88 5.5.2 Empathy in the B2B Context . . . . . . . . . . . . . . . . . . . 93 5.5.3 Deﬁne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 5.5.4 Ideation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 5.5.5 Prototyping and Testing . . . . . . . . . . . . . . . . . . . . . . . 98 5.5.6 Scaling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 5.6 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

6

Design to Value (DTV) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Is Value Different from Price? . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Deﬁning Value in Product Development . . . . . . . . . . . . . . . . . . 6.3 Lifecycle Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 The Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4.1 Essential Toolbox . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4.2 Measuring Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4.3 Design to Value Versus Value Proposition Design . . . . 6.4.4 When to Apply the Framework . . . . . . . . . . . . . . . . . . 6.5 How to Apply the Framework . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

103 103 105 107 109 111 112 116 117 120 121 122

Contents

7

8

Modular Design and Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 What is Modularization? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.1 What Type of Products May be Modularized? . . . . . . . 7.3 Modularization: A Strategic Lever for Innovation . . . . . . . . . . . 7.3.1 Why and How Modular Architectures Enable Disruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3.2 Why Do Integral Architectures Emerge? . . . . . . . . . . . 7.3.3 When Do Products Become Commodities? . . . . . . . . . 7.3.4 How to Avoid the Commoditization Trap? . . . . . . . . . . 7.4 Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4.1 Core Platform Versus Inclusive Platform . . . . . . . . . . . 7.4.2 Three Common Misunderstandings About Platform Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4.3 The Way to Go: Modular Platforms . . . . . . . . . . . . . . . 7.5 Terms and Deﬁnitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 Implementing a Modular Platorm . . . . . . . . . . . . . . . . . . . . . . . 7.6.1 Organizational Aspects . . . . . . . . . . . . . . . . . . . . . . . . 7.6.2 Strategic Aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 How to Apply the Framework . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

123 123 125 125 126

Agile for Mechatronics and Hardware . . . . . . . . . . . . . . . . . . . . . . 8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 What Is Agile? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 Agile Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3.1 Connecting the Dots to Other Frameworks . . . . . . . . . . 8.4 Agile Manifesto for Mechatronics and Hardware . . . . . . . . . . . . 8.4.1 Differences Between Hardware and Software . . . . . . . . 8.4.2 Agile Manifesto Adapted to Mechatronics and Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

147 147 148 150 151 152 153

Part III 9

xi

128 129 130 131 132 132 133 136 136 139 139 142 144 145 145

156 162 162

Framework Tutorials

Framework Tutorials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Market Segmentation: Deep Dive . . . . . . . . . . . . . . . . . . . . . . 9.2 Empathy: Skills and Techniques . . . . . . . . . . . . . . . . . . . . . . 9.2.1 Perspective Taking . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.2 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.3 Deep Dive Empathic Listening . . . . . . . . . . . . . . . . . 9.2.4 Interviews and Deeper Conversations . . . . . . . . . . . . 9.2.5 Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . .

165 165 174 174 176 177 179 180

xii

Contents

9.3

Design to Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.1 Main Steps of the Framework . . . . . . . . . . . . . . . . . 9.3.2 Deep Dive and Case Study . . . . . . . . . . . . . . . . . . . 9.4 Modularization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4.1 Main Steps of the Framework . . . . . . . . . . . . . . . . . 9.4.2 Deep Dive and Case Study . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . .

182 182 190 200 200 205 212

10

Power Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 QFD: Quality Function Deployment . . . . . . . . . . . . . . . . . . . . . 10.1.1 What Is QFD? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1.2 Why Use QFD? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1.3 How to Do QFD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1.4 Practical Tips and Success Factors . . . . . . . . . . . . . . . . 10.2 DSE: Design Space Exploration, Set-Based Design . . . . . . . . . . 10.2.1 What Is DSE? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2.2 Why Use DSE? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2.3 How to Do DSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2.4 Practical Tips and Success Factors . . . . . . . . . . . . . . . . 10.3 DSM: Design Structure Matrix . . . . . . . . . . . . . . . . . . . . . . . . . 10.3.1 What is a DSM? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3.2 Why Use a DSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3.3 How to Develop a DSM . . . . . . . . . . . . . . . . . . . . . . . 10.3.4 Practical Tips and Success Factors . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

215 215 215 217 218 221 222 222 223 224 227 227 227 228 228 234 234

11

Essential Tool Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Requirement Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1.1 Kano Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1.2 Pair-wise Comparison . . . . . . . . . . . . . . . . . . . . . . . . . 11.1.3 Requirements Management . . . . . . . . . . . . . . . . . . . . . 11.1.4 Tree Diagram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1.5 Empathy Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Concept Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2.1 Functional Modeling . . . . . . . . . . . . . . . . . . . . . . . . . 11.2.2 Morphological Matrix/Morphological Box . . . . . . . . . . 11.2.3 Modular Function Deployment . . . . . . . . . . . . . . . . . . 11.2.4 Onion Peel Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2.5 Design for Variety . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2.6 Customer Focus Group . . . . . . . . . . . . . . . . . . . . . . . . 11.2.7 Osborne Checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 Cost Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3.1 Target Costing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3.2 Measurement Sheet . . . . . . . . . . . . . . . . . . . . . . . . . .

237 237 237 241 244 248 251 253 253 256 258 263 265 268 272 272 272 277

Part IV

. . . . . . .

Tools

Contents

11.3.3 11.3.4 11.3.5 References . .

xiii

Lifecycle Cost model . . . . . . . . . . . . . . . . . . . . . . . . Complexity Cost Calculation for Product Families . . . Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........................................

. . . .

279 283 287 290

Authors and Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291

1

Introduction

The ﬁrst idea for writing this book was born around 4 years ago, as it repeatedly turned out that storytelling helped many people to better understand the big picture of the “why, what and how” in projects. Working in the ﬁeld of innovation for more than 20 years in a high tech company has been a long road and a great journey. Rather than writing a book from an expert to experts, we envisioned sharing the accumulated experience with all those people who want to understand how to “connect the dots”. With a kind of travel guide through the journey of innovation and disruption, we aimed to combine fostering deep understanding about the “dots” with the ability for practical application. So we jointly started off this undertaking in order to lay out a vivid and illustrative travel story that speaks to a wide audience: Learnings can be applied to all kinds of businesses, ranging from startups to big corporations. Whilst reading, we hope that you will see our travel motto of: Simplify complexity to let form follow function.

What Is This Book About? This book aims to answer two overarching questions: How can we enable an innovation process and environment that is conducive to successful product design? And if our products fundamentally fail to delight customers, how can we create a major, necessary turn-around with regard to product development? In order to live long and ﬂourish, individuals and companies alike strive to make progress. Progress means growth through continuous learning and development. Optimal processes and environments are key, as growth comes through evolving. True magic comes with acquiring the skill, experience, mindset, understanding and above all intuition to connect the right dots in the right place at the right time according to the unique circumstances of a business challenge. At its fundament, the most essential and basic # Springer International Publishing AG, part of Springer Nature 2019 C. Fuchs, F. J. Golenhofen, Mastering Disruption and Innovation in Product Management, Management for Professionals, https://doi.org/10.1007/978-3-319-93512-6_1

1

2

1 Introduction

groundwork is thus to gain a thorough, systematic understanding of what is needed and helps when and why. This book is set up to successfully navigate through each unique product development journey, from initial idea to product launch. We refer to mostly physical products because they are easy to visualize. Of course a product can also be more intangible such as a service, complex system, business concept or even designing your own life. Our objective is thus to equip and empower readers with the necessary understanding to get to a set destination in whatever way is the most suitable and applicable to their situation at hand, whilst providing enough guidance to actually get there. Luckily we all have a similar goal in mind, for the fundament of business success derives from the ability to understand what customers truly need and how a product or service is strategically designed to continuously delight customers in both the long- and short-term. This means we are all “sailing” in the same direction. However, every business situation is unique. As needs and circumstances vary, there is not a single silver bullet to a competitive end-product. How to know when it is smarter to take a path less traveled by, as it might surprisingly be the fastest route after all? Wouldn’t it be great to have a navigation tool that would tell you in advance, “turn around now and rethink your decision, this is not a good idea down the road”? The good news is, this person exists: You! Taking a pro-active stance to form the future rather than reacting when forced to and necessary carries many advantages. As equipment for dealing with an uncertain future, we dive into the topics that matter signiﬁcantly for product development; namely the phenomena of disruptive change, “form follows function” (Systems Engineering), and the main frameworks of Market Understanding, Design Thinking, Design to Value, Modularization and Agile Development. In combination these provide many tools, methods, skills and mindsets that help to solve special questions during the conceptual phase of product development. To explain the structure of this book, we start off with exploring two fundamental, imperative theories and concepts. The ﬁrst is that “change happens”. Exploring disruptive change hinges on the groundbreaking ideas developed by Clayton Christensen, which we aim to explore and reﬁne. We add some complementary and new ideas to his concept, namely through the distinction between disruption by same and different DNA, as well as the superposition of long- and short-term waves of disruption. The second is that “form follows function”. This principle is at the heart of this book and pretty much everything that works incredibly efﬁcient and effective. We ﬁnd it everywhere in nature for example, where harmonious solutions emerge to create ease and ﬂow whilst managing incredibly complex systems with incredibly complex interdependencies. It naturally follows that this principle is a core philosophy for the ﬁeld of innovation because also here we care about constantly evolving and creating the new. Systems Engineering/product architecting thereby is like the vehicle that helps us move to and enable the transformation of innovative ideas and ﬁrst concepts to tangible, real products.

1

Introduction

Vision and goals

3

Status analysis

Ideas, creativity

Product Strategic figures

Customer requirements

Evaluation and decision

Concept, architecture

Design Thinking

Design to Value

Modularization

Market Segmentation

Business

Portfolio

Product

Kano/KBF

Variant drivers

Architecture

Fig. 1.1 Overview of frameworks discussed in this book

Building on these two fundamental theories and concepts, we then dive into exploring the main core frameworks. Similar to individual travel, it also varies what frameworks help us to best get a speciﬁc job done during each phase of the product development journey. The handover and interaction between these frameworks builds up a solid base for successfully mastering all relevant steps in the early phase of product development. The journey of product development starts off with an idea and moves from an initial concept to its tangible manifestation. In simplistic terms, the ladder in Fig. 1.1 illustrates the basic, well-known foundational steps for the conception phase in a product development process. The conceptual phase—starting from ﬁrst ideas, to deﬁning the product proﬁle and ﬁnally designing the product architecture—sets the fundament for whether the product or service will succeed or fail in a turbulent market. Below the ladder the main core frameworks and their interaction are illustrated. The line thickness on the different phases of the frameworks indicates their respective focus and main area of application. Zooming in on the main frameworks, Design Thinking and an initial market segmentation are about understanding what the customer needs, or more speciﬁc their “jobs to be done” even are. These early steps require adapting the innovative mind of an explorer and creative individual, who constantly seeks out ideas and solutions to faced challenges. Later during the journey we then need the contributions of those that are strong in connecting the dots between the ideation phase and the requirements and realities that reign in the technical world. Here we need to translate concepts in a way that is understandable and realizable by the engineer. The frameworks of Design to Value and Modularization are predominantly about this translation and implementation phase. Overall, the ﬁrst stages are about understanding what the “right it” would be, the latter about how to build the “right it” right. Spanning over all frameworks, the processes shown in Figure 1 are not linear and sequential at all; we consider this today as outdated and instead emphasize a more dynamic, iterative and rapid approach which is depicted by the circular cycles marked on each of the different steps. While agile approaches are well-known for software, there is little written on applying agile for hardware and mechatronics.

4

1 Introduction

With our chapter on Agile Development for mechatronics and hardware, we aim to close this gap. What Makes This Book Special? While there are extensive descriptions for each of the mentioned frameworks, there is no description on how they are actually interlinked parts of a much grander, holistic whole that shape the entire product development process. It also matters what consequences seemingly small decisions have in the long-run: Thus, the most important skill one can master if one is interested in creating impactful products or services is to learn how to connect the right dots in the right moment at the right time. It’s not rocket science. The systematic behind it is what this book tries to share with you. Of course experience matters, but it is only useful if the foundational groundwork sets your sails in the right direction. Thus this book serves like both a map and compass in helping readers navigate through the product development process. It answers the “where am I?” and “how do we best move forward from here?”, helping you see both the forest and the trees. In the end, inquiry and understanding need to translate and manifest into tangible, concrete action. Another unique aspect of this book is also its structure: ﬁrst focus on growing understanding, then skills on how to apply new levels of understanding, and lastly provide a practical toolkit for experienced readers. The second half of the book focuses on the “how to” aspect of the material explored previously, with a practical toolkit containing the most essential and useful tools, built on (also painful) learnings from the business setting. How to Read This Book? On this journey you can rely on us, but we do need you to be a driver that pays attention to the road. Efﬁciency and effectiveness will naturally emerge from informed choices when you know how to travel best. Some might be faster and more ﬂexible than others—when traveling by plane all you simply need is to book a ticket to the ﬁnal destination. Those that choose to travel by car or walk mindfully require a more detailed road map. If you are ﬁxed to always use one travel type, your level of ﬂexibility and ability to adapt to sudden changes is drastically limited. Sometimes you also need to smartly combine multiple travel types to reach a destination or deal with work-arounds. When moving from A to B, sometimes it is not even clear what B is or B keeps on changing as the rules of the game change. Only you as the informed driver or captain at the steering wheel can know what is the best thing to do, but we can equip you with all the know-how, know-what, knowwhen and know-why that could make an informed decision much easier. You can only act to changes appropriately and accordingly if you pay direct attention to what is being said by the one reading the map, yet still have an awareness for the outer, external environment: You have to be able to see both the big and small picture. It is also critical to understand the interactions and interfaces that you need to be aware of, as they could fundamentally change everything. This book invites you to embrace interdisciplinarity and resolve complexity by learning how multiple approaches can be helpful for solving a problem. The more you know, the more you can switch between different ways of thinking and different

1

Introduction

5

lenses or approaches. By having multiple problem-solving approaches at hand, you can not only choose the best one for a unique circumstance, but are also more likely to understand the larger system and bigger picture in which we are operating. Growing your knowledge means that you have increasingly more connection points to understand a system: Wherever you dive into a lifecycle, you can become more aware of the unique challenges and important points to consider. Who Is This Book for? Who Do We Hope Will Travel With Us? This book is an essential guide or foundational toolkit for anyone who is involved in the process of developing, offering or selling any type of product or service. For consultants, entrepreneurs and experts for example, the linkages between topics can be extended by using the tools explained in each chapter, or can be used to emphasize the beneﬁts of for example Modularization in combination with Design Thinking to a client. For managers of all types of organizations and students, it provides a critical overview of the product development process and anecdotes on how a conglomerate tackles innovation and product management. It aims to empower and enable anyone willing to put in the effort to skillfully turn roadblocks into opportunities to discover new, even more exciting paths. Overall, at the heart of all approaches are a few common principles, which serve as a guideline throughout the book and which we aim to highlight: • The customer and his jobs to be done are at the center of attention—not the objectives and goals of departments or company metrics that need to be fullﬁlled. • Interdisciplinarity is key: Creating a common ground for understanding between different departments, people and methods, is fundamental in having a holistic oversight to a problem. Without being able to pull inspiration and understanding from multiple sources, one inevitably (a) will always think and approach a problem in the same manner, (b) lack the ability to mix and match tools according to the unique build of a speciﬁc problem, and (c) not be utmost efﬁcient in ﬁnding an answer as one is not aware of all the things that are “out there”. • A holistic approach that accounts for interdependencies and feedback loops within systems allows us to manage complexity more effectively. It also invites us to stay humble, protecting us from arrogance or a narrow point of view. In the worst case, a wrong problem deﬁnition can lead individuals to easily fall prey to the danger of solving the wrong problem, resulting in an unnecessary loss of resources, time and effort. • There is no silver bullet for success. Rather, it is the unique combination and mastery of many tools, skillsets and mindsets, and knowing when to apply them best, that will help spur disruptive innovation successfully. Secretly we hope to inspire readers to become System Architects: Specialists that thrive on simplifying complexity, resolving ambiguity and focusing creativity in order to develop products, services, experiences, etc. that their users love. We encourage readers to share their experiences with us and to provide suggestions for improving the material. We are looking forward to hearing from you via our email at [email protected].

Part I Imperative and Fundamental Concepts

Change Happens Change happens. It is just a part of life, if we want it or not. Given that change is natural, we can become better at understanding how to learn from and adapt to disruptive change. Sometimes a story manages to convey central messages so well, that it is not only a pleasure but actually the most effective to just re-tell it. To this end, Who Moved My Cheese? is a New York Times business best-seller that has helped millions of people understand and reﬂect on how to deal with change, both at work and in their private lives. Its central theme is how to overcome fear of the unknown (which often accompanies radical change). The central message that it promotes and illustrates is that constantly learning, adapting and courageously moving on to look for new opportunities can help us to actively shape the future in ways that make us happy. By stepping outside of one’s comfort zone when the time is right. This business fable is both a call for optimism and for refusing to give in to the natural tendency of settling in a false sense of comfort and security. It encourages us to ﬁnd stability in learning how to evolve with, rather than ﬁght against, necessary and potentially growth inducing change. Storyline Two mice (Sniff and Scrurry) and two little people (Hem and Haw) live in a maze and search for cheese. The cheese is a metaphor for whatever makes them happy or they want in life, such as health, a certain job, organizational success, a loving relationship, material things etc. The maze is the place where they look for that cheese. To paint a vivid picture, we accompany these four creatures on how they deal with a drastic, life-changing situation. With their cheese suddenly gone, how will they go about adapting to new circumstances? In order to ﬁnd cheese, the mice have developed slightly different tactics than the little people. The mice only have little brains but very good instincts for ﬁnding cheese. Sniff has become adept in snifﬁng out cheese very quickly, whilst scurry is better at always being ready to race about if it leads him to new cheese. On the other

8

I

Imperative and Fundamental Concepts

hand, the little people have very complex brains. Rather than trusting their gut instinct, they like to ﬁnd their way through the maze by using their brain power and make use of guide books or maps. When the cheese is suddenly gone, the little people react with anger, frustration, helplessness and despair: “Who moved my cheese?!” they say. For them, adapting to change with speed and ﬂexibility is not as easy. However, the moment Haw is willing to let go of the illusion of getting his old cheese back, overcomes his initial fear and starts looking for new cheese, he starts to believe in the possibility of a better future and feels free. No longer locked down by his fear, he begins to look for new cheese in the outside of his current world, the maze. After a turbulent search for new cheese, the story ends with Sniff, Scurry and Haw joyfully ﬁnding even more new cheese than they ever had before. Whilst Haw is able to learn and adapt like the mice already did much earlier, Hem is not. This short business fable contains a plethora of profound, wise insights. It fully acknowledges that leaving one’s comfort zone naturally requires a lot of courage, as in facing one’s own fears and sometimes quite harsh realities. Sometimes we need that nudge from our surroundings to again and again question our own beliefs, remember what we have forgotten, or just ﬁnd courage to move and take things step by step. Thus this story encourages us to reﬂect and ask, “what would you do if you weren’t afraid?”, and then to actively create the change you want to see. The way to do this is by taking responsibility for one’s own fate and having the courage to shape it (as in ﬁnd new delicious cheese), by overcoming own fears and limiting beliefs. As Haw realizes in the story, when you change what you believe, you can change what you do. When you believe in what you do and do what you believe in, you are less scared. When you are less scared to look for new cheese and get going, you are more likely to actually ﬁnd new cheese and be happy. With good intentions and a warm heart for his friend Hem, in the story Haw also writes down some quintessential insights on the wall, hoping that they will help his friend ﬁnd his way through the maze. These are as follows: “Change happens. They keep moving the cheese”. This means that change is a constant in life. A nurturing and energizing ecosystem keeps on changing. Strong leaders see change as an inevitable human experience and get ready for it. “Anticipate Change – Get ready for the cheese to move”. Realizing and noticing small changes early helps to adapt to large changes that are to come. “Monitor change—smell the cheese often so you know when its getting old”. Radical change can happen over night, but often there are warning signs which we can spot if we monitor our environments and the systems of which we are part of closely. Of course, we do need to know what to monitor in the ﬁrst place. “Adapt to change quickly—the quicker you let go of old cheese, the sooner you can enjoy new cheese”. Let go of the past to adapt to the present and ﬁght for the future. When we live in the past, emotions and limiting beliefs can stop us from moving forward. When we live too far in the future, fear might freeze and inhibit our actions. Thus when we live in the present and choose to see reality as it is, we are open to realizing that new cheese is just waiting for us to be found, but also

Imperative and Fundamental Concepts

9

that ﬁnding it requires actively taking the next steps towards enabling luck and ﬁnding new cheese. “Enjoy change—savor the adventure and enjoy the taste of new cheese”. Change can be an enjoyable adventure of sensing and ﬁnding exciting new growth opportunities. By focusing on our values and what gives us meaning rather than our fears, we can use them as our fuel to rise above immediate circumstances and dream of mesmerizing new types of cheese. “Be ready to quickly change and enjoy it again—they keep moving the cheese”. Living and moving with change is easier than denying it and staying stagnant in the process. “Change and win! Move with the cheese”. The quintessence is that in order to ﬁnd new cheese, you need to adapt with the change. If you stick with what you know, fear of failure and settling might hinder from ﬁnding that nurturing courage to start into the new and unknown. There is a lot of new cheese, but we can only win if we open our hearts and minds to it! As a consequence, trusting in the process of ﬁnding new cheese and actively moving with the change is smarter than passively waiting in a false sense of safety, stability or reality. The longer you wait to adapt, the higher your inertia and the lower your agility and willingness will be to reinvent your current approaches. Reference Johnson, S. (1988). Who moved my cheese. New York: G. P. Putnam’s Sons.

2

Disruptive Innovation

The reason why it is so difﬁcult for existing ﬁrms to capitalize on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption. Clayton M. Christensen

2.1

Introduction

Why Do Great Companies Fail? Imagine the following: your customers love the products, services and performance you deliver, and your competitors are years behind you in terms of performance. You seem invincible, which sales numbers only seem to conﬁrm because your company is breaking one growth record after the other. It truly seems that you are riding on a wave of continuous luck and success, with your teams over-performing and customers valuing your offering. There just truly are no signs anywhere that something could go wrong! Or at least you think so. This assured mindset of thinking you are the best can have fatal consequences. The problem is that things can change unexpectedly—disruptively, almost over night. Imagine you are now replaced in your core market and there is nothing you can do but watch the “ship sink”. Hit by gigantic disruptive waves, it is too late to change course or do anything that could restore your business to original heights of glory. Before truly being prepared, you are replaced or “killed” by someone who has never been taken seriously as potential competition, but now they are a true threat because they simply changed the rules of the game within the industry! Although so much weaker and less experienced than your established business, the newcomer managed to make you obsolete by bringing in a game-changing technology or a radically different, more effective way of meeting customer needs. Frustrated, all you can do seems to be to try and catch up with the new competition, re-learn and adapt # Springer International Publishing AG, part of Springer Nature 2019 C. Fuchs, F. J. Golenhofen, Mastering Disruption and Innovation in Product Management, Management for Professionals, https://doi.org/10.1007/978-3-319-93512-6_2

11

12

2

Disruptive Innovation

to the new circumstances. You begin to ponder and ask yourself, how could all of this happen? Behaviors and mindsets linked to knowing better or pure hubris manifest in actions and organizational forms that precisely allow for the phenomena of “David conquering Goliath” to occur. In modern usage, this ancient story is used to describe how an underdog (i.e. weaker, smaller opponent) can succeed in the face adversity; against all odds, the newcomer conquers over an “invincible”, old and quite arrogant giant. Unusual and surprising with ingenuity, the new approach taken by the entrant leads the new way forward by taking a route no one even expected to be a smart tactic. In the natural ﬁght for survival, the competition never sleeps nor stops to adapt and evolve. The consequences of the competition coming up with radically different ways to better meet basic customer requirements can be so drastic that they lead to the downfall of your carefully created business “empire”. Thus executives whose companies are currently highly proﬁtable should not think about whether the power of their companies earning attractive proﬁts will shift, but when (Christensen, Raynor, & Verlinden, 2001). Example: Siemens Misses a Dramatic Paradigm Shift

A story even used by CEO of Siemens J. Kaeser exempliﬁes how important it is to constantly adapt to technological innovations (2016). Deriving also from personal experience, the quintessence of “David and Goliath” is shown in this famous incident, which forever changed the face of global telecommunication. The setting is the mid 1990s to early 2000s and the storyline goes as follows: Siemens was founded in 1847, and the telecommunication business was one of the most innovative and successful units of Siemens for the last 150 years. In the ﬁeld of voice telephony, circuit-switched networks had been an established, well-functioning technology. As a quick reminder on how it works, circuit switched networks reserve a dedicated line or channel for the entire communication of a connection between two users. The approach is similar to a string telephone where sound vibrations travel along a ﬁxed pathway in an uncompressed manner, from one end to the other. The incumbents in this highly attractive market were the telecom giants Siemens, Nortel, Lucent, Alcatel, and Ericsson. At that time, Siemens had several ten-thousands employees working in the entire telecom business: the telecommunication business was among the most proﬁtable business segment of the conglomerate. The Siemens switch, called EWSD (Ger: Elektronisches Wählsystem Digital, Eng: Electronic Digital Switching System) became the best-selling switching system in the world. By the late 1990s, the company was delivering EWSD systems for more than 250 million connected units to customers in more than 100 countries. At that time, Siemens communication (continued)

2.1 Introduction

13

technology was riding the wave of success and everything seemed to be under control. What a fatal illusion! In no connection to voice transmission came the phenomenal growth of the Internet in the mid-to-late 1990s. The technology behind the internet was originally driven by data transmission and not intended to transmit voice. However, the rapid speed of internet technology development quickly changed also the landscape of telecommunication. Cisco was the company driving this innovation, founded as a start-up in 1984. Imagine that by late 1990, Cisco had a de facto monopoly in this fast growing market segment by connecting the dots between internet and telecommunications in the right way. With this, Siemens and the other large giants could do almost nothing but watch as they were disrupted by Cisco. How was a radical take-over of market share possible? What Cisco did fundamentally different is that they combined voice with the internet-based technology of data transmission. They helped customers get the same job done yet took a very different approach, by making use of the internet. Thus, Cisco used a fundamentally different technology as its basis for radical innovation. How? The internet is based on packet switching. Packet switching networks transport data in small chunks, meaning packets. First the original message from a sender is decomposed into small packets. Each packet has a destination address that transports the packet to the ﬁnal receiver. Each packet seeks out the most efﬁcient route through the network, which means that each packet can go a different route. When received, the packets are reassembled in the proper sequence to build up the original message. For voice transmission, the decomposition of the original voice signal into small packets has a slight disadvantage (no real-time transmission is possible compared to circuit switching), as transporting “voice chunks” through different paths via the internet and ﬁnally reassembling those packets at the receiver causes a certain latency/time delay. It also means that the quality of Voice over Internet Protocol (VoIP) is less than in circuit switched networks where voice is transmitted via an established channel. Siemens thought that customers valued voice quality so much that they would never choose VoIP because the connection could never be as good as circuit switched technology. How wrong they turned out to be. The most tragic reality about this true story is that by the mid 1980s, three young men from California actually came to Siemens in Munich with the cool idea of voice calling via the internet. “Would you be interested to join in?” they asked, but they were met with disbelief, arrogance and rejection. “How should that work? If VoIP was possible, we would have already invented it on our own” Siemens representatives answered (Kaeser, 2016). Siemens could just not believe that this invention was possible and missed an opportunity that (continued)

14

2

Disruptive Innovation

would later lead to its own downfall in the telecommunication business. So the three young men pursued and accomplished their vision without Siemens and changed our world. These three young men from California were the future co-founders of Cisco. So what was the problem for the market leading companies such as Siemens? Believing that this new approach would not work, Siemens held on to its ingrained beliefs, just not believing in the crazy, radically new. It continued to follow its set philosophy that for voice calls, there is nothing more important than quality for voice transmission. Very skilled and experienced engineers even thought that VoIP will never really work due to quality and security reasons. So they continued and incrementally made innovations for circuit switched technology. In the meantime, new technologies like ISDN and later ATM (Asynchronous Transfer Mode) had emerged that allowed voice and data transmission at the same time but still were based on circuit switched network (ISDN), or virtual circuit switched networks (ATM). ISDN was very successful for Siemens for some time and there was a coexistence of VoIP and ISDN in the early-to-mid 2000s. ATM was driven by the philosophy to maintain the Quality of Service (QoS) such as voice quality, and it was considered to be the future for the internet by many telecommunication experts. But the situation changed rapidly as soon as VoIP had a voice quality that was considered to be good enough for most users. VoIP meant higher efﬁciency, dynamic bandwidth, less complexity, signiﬁcant cost reduction and tremendous increase in data rate. Most importantly, with the rise of the internet data trafﬁc exploded exponentially and the new performance feature that users were requesting and valued was data rate, not voice quality. The ﬁnal verdict for “Goliath’s” such as Siemens and the other incumbents in the era of circuit switched voice telephony was ﬁnalized. VoIP ﬁnally became a fundamental stepping stone in enabling digitalization, displacing circuit switched technology and enabling today’s massive internet “surﬁng” that seems so normal to us today. It should be noted that this story is quite exceptional, because Siemens was one of the few companies that was able to recover and reinvent themselves after such a massive disruption. Today this bitter own failure is still deeply ingrained in the corporate memory of the company, and the entire management takes it as a imminent reminder and warning to not let a similar catastrophe happen again. Potentially this is one reason for its current success. Today, one could say that Siemens is one of the leading companies in realizing digitalization in the B2B sphere.

2.2 Defining Relevant Terminology

2.2

15

Defining Relevant Terminology

Disruptive innovation, as introduced by Professor Clayton M. Christensen, has become a powerful way of thinking about innovation-driven growth. Disruptive innovation and technology are now part of almost any business lexicon, experiencing an exponential growth in use since its incarnation in 1997. From the world of multinational conglomerates to small, entrepreneurial companies—disruptive innovations have extreme consequences for any business and its interconnected systems. Linked to the Siemens–Cisco example, disruption means that there are always winners and losers, and usually the large, established companies are the ones that have to give way to newly emerging competition. For the moment we refer to innovation as being about doing the same things but better, and disruption being about making new things that make the old obsolete. We will have a more reﬁned, nuanced view of different types of innovation later in this chapter, including incremental and disruptive types. But why is disruptive innovation so hard to grasp, and why do we tend to fall into the same traps over time? If we know that maintaining a competitive advantage is important, how can one miss the signals that something dangerous is coming? Why do great companies that seem to do everything right, fail? Questions as the following naturally lead to others such as what are the warning signals that a disruption is on the way? What different types of disruption are there? And ﬁnally: in an increasingly complex world, how does one know what is going to become a disruption and what is just a trend? This chapter explores the mechanisms and theoretical models that explain disruptive innovation, and how to recognize and safe-guard oneself against being disrupted. So what different kinds of disruptive change are there? Businesses face many kinds of threats and risks. Figure 2.1 shows different kinds of “deaths” that can be fatal to a business, from slow to fast. Some types of deaths are similar to smoking.

Mean

Disruptive change Different DNA The meanest of all fast business killers

Really fast and really mean

Brand erosion

Kind of death

Honest

Top management mismatch Alliance mistake Bad operational management Slow death

M&A failure

Disruptive change Same DNA Really fast

Speed of death

Fig. 2.1 Different types of death for a business (illustrative)

Fast death

Technology breakthrough by competition

16

2

Disruptive Innovation

Arguably, they are quite honest yet possibly with fatal consequences that are incurred over a long time period. On the other hand are those threats which lead to disruptive change. There are two types of disruptive change, of which both can lead to a fast business death. Those with the same DNA refer to problems inferred because the competition has made signiﬁcant technological breakthroughs, which make your offering obsolete. Comparable to a black widow, disruptive innovations of different DNA are those which are the fastest and “meanest” of all because they can kill you with incredible speed and disastrous consequences. Seemingly being hit out of the blue often means that one is not prepared for drastic changes, such as altered circumstances and market demands. If unaware of new disruptions, these innovations often seem to hit businesses from the back, rather than from the front. Or they seem to hit from all sides at once—front, back, left and right. We will focus on exploring these types of business problems that are of disruptive nature. To do so we will start with exploring some of the most inﬂuential and foundational ideas that help us understand why great companies can fail to foresee drastic changes in the ﬁrst place.

2.3

Complementary Thoughts on Christensen’s Theory of Disruptive Innovation

The different types of innovation we deﬁne and use in this book hinge on the groundbreaking ideas developed Clayton M. Christensen. In the latest edition of his book the The Innovator’s Dilemma (2016), he illustrated how radical technological innovations can lead to the downfall of even the most successful companies. He coined the terms disruptive innovation, and his ideas around sustaining and disruptive technologies serve as a fundament for understanding the re-occurring emergence of this phenomena. The complementary ideas that we develop in the next pages, and have found very useful in explaining disruption in the daily work and ﬁeld of product innovation and development, hinge on an understanding of Christensen’s insights. Thus, let us shortly look at how he deﬁnes two types of innovation—sustaining and disruptive technologies. Most new technologies foster improved product performance. I call these sustaining technologies. Some sustaining technologies can be discontinuous or radical in character, while others are of an incremental nature. What all sustaining technologies have in common is that they improve the performance of established products along the dimension of performance that mainstream customers in major markets have historically valued. Most technology advances in a given industry are sustaining in character. An important ﬁnding revealed in this book is that rarely have even the most radically difﬁcult sustaining technologies precipitated the failure of leading ﬁrms. Occasionally, however, disruptive technologies emerge: innovations that result in worse product performance, at least in the near term. Ironically in each of the instances studied in this book it was disruptive technology that precipitated the leading ﬁrms’ failure. Disruptive technologies bring to a market a very different value proposition than had been available previously. Generally, disruptive technologies underperform established products in

2.3 Complementary Thoughts on Christensen’s Theory of Disruptive Innovation

17

mainstream markets. But they have other features that a few fringe (and generally new) customers value. Products based on disruptive technologies are typically cheaper, simpler, smaller and, frequently, more convenient to use.

Disruptive technologies therefore change the rules of the game by creating customer value via new technologies that ﬁrst target low-end customer segments or completely new footholds. In the long run, they enable unexpected yet highly efﬁcient new ways of meeting customer needs. The story about VoIP and the rise of Cisco poignantly illustrate Christensen’s deﬁnition of sustaining and disruptive innovation. In this case, Circuit switched technology would be classiﬁed as the sustaining technology, whilst Cisco’s invention of voice over IP would be classiﬁed as the game changing, disruptive technology. It is not that uncommon to ﬁnd situations where managers and those involved in the product development process do not fully grasp and face the dramatic situation that they are currently in, namely that they are in the process of being disrupted. It seems that in practice and in our daily business, the nuances of Christensen’s deﬁnitions and thus their implications are not always well understood. With a missing understanding for how severe and dangerous the current situation is, igniting radical change and successfully leading a business turn-around becomes almost impossible. The unclarity around what disruptive innovation is and what it is not has led to the need to clarify it (Christensen, Raynor, & McDonald, 2015). The issue is that if you miss the urgency and severity of what it means to be disrupted, taking appropriate action to steer against it becomes increasingly difﬁcult! Deriving from own experiences we saw an additional need to reﬁne our vocabulary to better be able to explain different types of disruption to those afﬂicted by it. To explore what exactly leads to misunderstanding or misinterpretation in practice, let us consider two examples. These are illustrative examples that are symptomatic for many industries, highlighting the fundamental challenges that we are often faced with. Example 1 Imagine the following product, a train consisting of six wagons, see Fig. 2.2. The company producing the train has successfully sold it for many consecutive years, yet “all of a sudden” the product has a cost gap of about 30% in comparison to its main competitor. The need to regain price competitiveness usually invites for standard problemsolving approaches. A typical go-to solution is thinking of initiating radical cost reduction programs. However, thinking that cost reduction alone could sustainably ﬁx the core problem faced here is often an illusion: to accurately depict the depth and severity of the faced challenge, we have to acknowledge the real trouble that this

Fig. 2.2 Six wagon train

18

2

Disruptive Innovation

company is in. What does a 30% cost gap reduction imply? A 30% cost reduction of the product entails maintaining customer satisfaction by producing and delivering a six wagon train, yet having to save the production costs of two complete wagons, see Fig. 2.3! Imagine that in this case we are talking about a mature, lean product. This product has already gone through many cost optimization cycles, including multiple cost reduction programs. We can say with highest certainty, that starting a classical Design to Cost effort could not effectively solve this type of problem, because the problem needs to be addressed on the systemic level. Recognizing that the competition has done something fundamentally better requires awareness for the fact that the current product offering will no longer have a future. Taken that actions should translate into core ﬁxes and lasting business impact, partially solving the problem would just not be the best choice. In the struggle to stay market relevant, what other options are there? If incremental is not enough, then the answer is radical innovation. The competition somehow managed to create a starkly better value proposition with their products. In order to stay market relevant, a radical product redesign or even a complete new product design with a focus on cost innovation is therefore the only way forward. Now the question might arise what does this example have to do with sustaining or disruptive innovation? There are obviously two facts: • The product in trouble has been disrupted by competitors’ products which have a signiﬁcantly better cost positioning, and therefore can be offered cheaper yet offer an equivalent value proposition to the market. • The competitors’ products do not introduce any new performance features nor do they create or transform any new market segments; rather, they are disrupting the business within the same industry. What the competitors’ products are doing is that they offer more perceived value to their customer by offering a product with same or even less performance, but at a signiﬁcantly lower price. The disruption is thus due to a signiﬁcantly lower price point and not better product performance per se. It is important to point out that performance decrease is only viable until hitting the point of minimum customer requirements. As with the train example here, competitor products do not improve on any performance features. Rather, these products have obviously made cost innovations which often result from better product architectures. By fundamentally

~30% cost

Fig. 2.3 Illustration of what cutting 30% of overall production costs would entail

2.3 Complementary Thoughts on Christensen’s Theory of Disruptive Innovation

19

building the product in a radically different way, the competition therefore became more efﬁcient in satisfying customer needs and expectations towards the products to be fulﬁlled job. How could we classify this type of product disruption and displacement from the market? Would it be deﬁned and seen as a sustaining, incremental, radical, breakthrough or maybe even disruptive innovation? According to Christensen’s deﬁnition of sustaining and disruptive technologies given previously, this example would not perfectly ﬁt into any of these categories. Christensen however introduces a new type of disruptive change, calling it “low end disruption” (Christensen & Raynor, 2003). This term would come closest to accurately describing the nature of this kind of business problem. His deﬁnition applies to products targeting customers who do not need the full performance valued by the high-end market. However, the difference is that the disruption we describe here is happening within the same industry. We will resolve the mystery a bit later on what name would therefore be even more clarifying. Example 2 Imagine that two companies are battling for market dominance in terms of product innovation. Until 2009, their speed of innovation was parallel, see Fig. 2.4. Their respective market share was about equal. In 2009, company A suddenly doubled its innovation speed. At that point in time, the market share almost exponentially increased for company A, while the market share of company B dropped dramatically. Company B was basically disrupted by company A. The competitor literally shot off by doubling its speed of innovation. The upper diagram illustrates the drastic increase in speed of innovation by company A, as measured by the number of new Innovation Speed

A

B

2000

Market Share

Fig 2.4 Increasing innovation speed coincides with market share increase

2009

2015

Time A

B

20

2

Disruptive Innovation

products introduced in the different market segments. The lower diagram shows the respective market share of both company A and B. What could enable such game-changing speed of innovation? One major enabler for doubling the speed of innovation in this case was that company A introduced modular architectures. This allowed company A to fundamentally re-align its product portfolio to customize yet also drastically reduce the time to market of its products. It also allowed company A to introduce new product variations faster, whilst also delivering orders to customers at a signiﬁcantly reduced time to market. The crux is that instead of competing through superior performance, modular products compete through speed, ﬂexibility, customization and price. The customer value in this example varies on the newly introduced products, so it might be better performance, better customization, better price or even a combination of those factors. As seen here, as soon as performance is not the only criteria for creating customer value, modular architectures typically disrupt products that have ﬁxed, integral architectures. (If terms such as modular and integral are new to you, don’t worry we will elaborate on them in detail in both the modularization and systems engineering chapters.) The modular approach allowed company A to meet diverse needs more effectively than company B could, and thus fundamentally carve out and take on a competitive market advantage. This effect of modular architectures is also described by Christensen and Verlinden in their paper “Disruption, Disintegration, and the Dissipation of Differentiability” (2002). The point we aim to make is that modularization is so much more than just a methodology that can be used to manage internal production and external market complexity. As we can see here, it should be associated with innovation and disruption, because it can actually be a way to innovate and disrupt entire markets, especially those that are already quite mature! So the question again arises if the introduction of a modular architecture with its incremental innovations in different independent modules can already be considered an innovation. If so, would it then be considered a sustaining, incremental, radical, breakthrough or disruptive type of innovation? Both examples show how Christensen’s original deﬁnitions in regards to disruptive innovation would not really apply to the two different categories and types of business problems explored here. In recent years Christensen however offers new terms and theories to explain and solve this mismatch: his theory of modularization helps us to understand the second example, and the idea of low cost disruption helps to explain the train example and its respective drivers of innovation and disruption. In order make the classiﬁcation of the different types of innovation more intuitive and crisp, we propose a new deﬁnition and classiﬁcation of disruptive change. In recent years there have already been debates on expanding the term disruptive innovation (see Chase, 2016) so there truly seems to also be a need on an international level to rethink what this term actually means to us. Stemming from this need we decided that if people struggle with understanding the difference and uniﬁed big picture between sustaining, disruptive technologies, low cost disruption and his

2.4 The DNA of Disruptive Change

21

theory on modularization, then there must be a more intuitive way in which we can explain these fundamental concepts. In this process, we then found a way to not only explain and classify different innovation types with more (as we ﬁnd) intuitive and comprehensive clarity, but also unify Christensen’s theory on disruptive innovation and technology s-curves into one overarching model.

2.4

The DNA of Disruptive Change

At this point one might ask, why bother so much with theories, terms and deﬁnitions? Knowing what a disruptive innovation is and what it is not, is important because we cannot effectively manage innovation without understanding its true nature (Christensen et al., 2015). From working more than 20 years in industry projects that were very similar to the two previous examples, it became clear that most people do not realize and understand the dramatic situation that they are facing when they are in the process of being disrupted. Often, such individuals refuse to face the stark reality for their real problems, ﬁnally leading to the demise and downfall of their own businesses. With a missing understanding for foundational theoretical frameworks, it is unnecessarily harder to explain what is currently happening to them, and why their businesses are failing. The bottom line is that Christensen’s theory of disruptive innovation and the unambiguous use of terms and deﬁnitions is of such fundamental signiﬁcance because it enables an understanding of what causes what and why. Clarity in terms of relevant concept deﬁnitions help managers and all those involved in the product development process to explain, understand, judge and predict different situations in their real business. A theory at its best therefore helps deduce meaning from re-occurring patterns, and helps to recognize both opportunities for growth, and also dangerous circumstances. Understanding of theory thus leads to better and more informed decision-making in practice, providing the stepping stones for your business to prosper. To come closer to distinguishing between what disruptive change is and what it is not, from what point onward do we consider something a disruptive innovation? Disruptive innovation is about coming up with something that makes the old obsolete. It is truly game changing and focused on creating the new. At Google, co-founder Larry Page engrained the mindset of “10 better rather than 10% better” into the DNA of the organization, with the aim of spurring radical innovation (Schulz, 2017). As one of the leading tech-companies of the twenty ﬁrst century, Google’s deﬁnition is aimed at producing concepts that are 10 better than the original product—anything less is not radical enough. Engrained into the tech giants philosophy, this core belief requires a reason for urgency in order to be lived and implemented by employees; to not only affect company vision and values, it has to be realized in practice. Page argues that urgency derives from the fact that aiming for

22

2

Disruptive Innovation

anything less (i.e. incremental innovation) is not enough because from the outset, it will not have the potential to solve the large challenges of our time fast enough (ibid). Incremental innovation will also not truly revolutionize the market in the way that Google sets out to do with its products and services. Changing the world radically often requires radical innovation. In regards to generating business impact, we are intrigued about discovering the nature and severity of an innovation and disruption. So what can we say about the nature of disruptive innovation? Just as there is a difference between the paw of a cat and a tiger cub from the moment they are born, can we spot different disruptive innovation types early on? The answer is yes. For disruptive innovation, we have developed terms to distinguish between two subtypes. 1. Disruptive innovation with the same DNA: These are innovations that are radically better than the “original” product (i.e. around 10 better). We consider such innovations worthy of being considered of having a breakthrough nature because they fundamentally re-deﬁne our boundaries of what is believed to be possible and what is not, yet with the term “same DNA” wish to acknowledge that such innovations still remain and disrupt within the same product category or market segment as the original concept. For car combustion engines for example (see Fig. 2.5), reducing fuel consumption from 8 l/100 km to 0.5 l/100 km would be a disruptive innovation with same DNA because it would be radically better than the original offering, yet still deals with the same technology (traditional fuel combustion engines implemented in a car concept). Note that the two previous examples with the train and industry case would also belong to this category. They pull their disruptive nature from being a low cost disruption/innovation or from increased speed of innovation via modular architectures. They are disruptive, yet act in the same product category and market segment.

Combustion motor for cars: Fuel consumption

7–8 l/100km

Fuel consumption

Innovation

Incremental

Disruptive

4-5 l/100km

Fuel consumption

0.5-1 l/100km

Electrical traction system Same DNA

Different DNA

Fig. 2.5 Technological developments enable different types of innovation

1000 km range

2.5 Disruptive Innovation with Different DNA

23

2. Disruptive innovation with different DNA: Products, services, experiences or concepts with a completely different DNA are radical new innovations that have architectural building blocks which are completely different to those products that are already established in current markets. Their nature is completely different because they build on a different and new technology. Disruptive innovations with different DNA would match to Christensen’s deﬁnition of disruptive innovation. The story of Cisco’s invention of VoIP is a poignant example of this kind of innovation. A new technology that would enable electric car engines to have a 1000 km range, require no maintenance, or address the underlying customers’ job to be done of getting from A to B in a fundamentally different way would also belong to this sub-type. As with VoIP, as long as the new technology is not good enough yet, the majority of customers will stick with the established technology. When the range reached with the new type of innovation is good enough, consumers will switch to this new type of technology. What hinders ﬁrms from innovating radically, and rather foster incremental innovation? As we will explore later, disruptive innovations with different DNA are not proﬁtable enough at ﬁrst for those that look at short-term proﬁt gains. The risk-averse business environment of market leaders usually does not allow them to pursue disruptive innovations with different DNA when they ﬁrst arise. Incumbents are also faced with the constant dilemma of resource allocation. The development of crazy new concepts can take away scarce resources from incremental or disruptive innovations with same DNA. Especially in large, established ﬁrms, most individual decision makers ﬁnd it very difﬁcult to risk backing a project that might fail because the market for it is not there yet, or well enough understood to put their name on the line for the new idea. In consequence, it is often the most entrepreneurial minds that not only come up with radically new solution approaches, but have the grit and nerves to test them through. Out-of-the-box solutions with different DNA mostly ﬁnd ground in dynamic environments and innovation hubs that actively foster the development of crazy ideas, test and develop them quickly in order to let them fail fast, and see if they carry any market potential. Complacency is another problem. Many companies have the knowledge and technologies to lead the way forward yet only radically rethink their approaches when they are already being disrupted, by same or different DNA. Disruptive innovation requires courageous action and leadership, not fear-based decision making. If for example a drastic cost reduction of 30% is the only way to achieve a turn-around, a fundamental re-design of concept might require innovating new products.

2.5

Disruptive Innovation with Different DNA

Why do great ﬁrms fail? How can we explain disruptive innovation with different DNA by using the model created by Christensen? As disruptive innovation with different DNA is identical to Christensen’s deﬁnition of disruptive innovation, we can apply his model to explain this type of innovation.

24

2

Disruptive Innovation

Performance

High Med

Customer needs and expectations

Low

Customers switch to “low” end segment

Time

Fig. 2.6 Explaining disruptive innovation. Source: adapted from Christensen (2016)

According to Christensen (2016), disruptive innovations originate in low-end or new-market footholds, and innovations do not catch on with mainstream customers until performance catches up to their standards. Figure 2.6 contrasts incumbents and entrants product performance trajectories (the lines show how products or services improve over time) with customer demand trajectories (the dashed lines showing customers’ willingness to pay for performance). Incumbent companies introduce higher-quality products or services (upper line) to satisfy the high end of the market (where proﬁtability is highest). By doing so, they overshoot the needs of low-end customers and many mainstream customers. This leaves an opening for entrants to ﬁnd footholds in the less-proﬁtable segments that incumbents are neglecting. Entrants on a disruptive trajectory (lower line) improve the performance of their concepts and move up-market (where proﬁtability is highest for them as well) and challenge the current dominance of incumbents. The tipping point occurs when the performance of the entrant’s product is good enough to satisfy minimum customer requirements. At that point, customers are rapidly switching from the incumbents product to the entrant’s product, which ﬁnally leads to the downfall of the incumbent (see Siemens–Cisco example). Entrants nearly always win (Christensen, 2003). Coming from the low end, the entrants are typically neglected, underestimated or just overlooked because their offering seems too crazy or different to actually become a threat to the incumbents. Since entrants focus on minimum customer requirements, they usually have a cost advantage compared to higher performing incumbents.

2.6

Disruptive Innovation with Same DNA

Through Christensen’s theory of disruptive innovation we can understand disruption with different DNA. The question arises of what theory then explains “disruptive innovation with same DNA”. To explain this idea of disruptive innovation with same DNA, we can turn to the theory of S-curves.

2.6 Disruptive Innovation with Same DNA

25

The concept of S-curves explains the maturity level of technologies or products in a certain business ecosystem. A single S-curve explains the common evolution of a successful technology or product, from early adoption to market saturation. Figure 2.7 shows multiple S-curves, with performance on the vertical axes, and the progression of time along the horizontal axis. So what do successful companies do to maintain a competitive advantage over longer periods of time? High performance is deﬁned by companies that execute repeated jumps and climbs between S-curves (Nunes & Breene, 2010). At the very beginning of each single S-curve, technology or product performance tends to develop slowly, and not at rapid scale. At this stage, there is still a lot of resources spent on development and research on how to improve the new technology. In the next phase, technology development has overcome most major obstacles and hurdles and the ﬁrst customers—the early adopters—help the technology or product to “take off”. The market in this phase is characterized by rapid growth and together with this growth, the performance of technology or products improves fast. Having reached the last phase of a single S-curve, the products’ performance achieves a mature state. As customer tastes and preferences continue to change over time, customers at some point no longer perceive any signiﬁcant value increase for the current products’ performance. The current products might also have become over-engineered or too complex, no longer following the lean, agile form follows function mantra. Typically, it is in this last phase that the product is disrupted by another. This is why there are multiple S-curves, where jumping from one S-curve to the next technology/product S-curve starts the life of a new product/technology innovation cycle. From the companies development point of view, the performance described in this S-curve shows the perspective of a dedicated business that is embedded in a certain market environment. Performance is usually not a single parameter, but a set of criteria that are key buying factors in this business. Imagine now that this business has customers on the one end and suppliers on the other end. Customers of this business can be B2B (business-to-business) or B2C (business-to-customer). Within this customer–supplier chain, the business of course centers and focuses its activities

Customer value or performance

Incremental innovation

3rd Technology

2nd Technology

1st Technology

Disruptive innovation same DNA Time

Fig. 2.7 S-curve model to describe innovation trends

26

2

Disruptive Innovation

on a dedicated business model. From this view it becomes evident that “performance” as described in the S-curve model has to address customers’ buying criteria and their true needs, because the business aims to increase perceived customer value (and thus sales) via their technology applications and products. Products, experiences and services should exist because they make the lives of their customers better and more enjoyable, as by adding value to them. In order to address the aspect of value more explicitly, we propose—in difference to the original S-curve model to use customer value on the vertical axis, instead of performance. Value here refers to the maximum amount of money a speciﬁc person/company is willing to pay for the satisfaction of his/her needs delivered by a product or service. With this slight change it should be evident that the successive S-curves and thus innovations always develop towards increasing customer value. They place the customer at the center of attention. Another aspect that we cherish by using value on the vertical axis is that it acknowledges that performance increase not alone will lead to better customer value, but also cost decreases. Innovations on costs (i.e. low-cost disruptions) can thus be seen equally as disruptive innovations if they signiﬁcantly increase customer value. What do people truly care about, and how does it change over time and with situational circumstances? Naturally, functionality is much more than performance or technical functionalities. Functionality is linked to a product’s perceived value in how it meets the customers’ deep needs, also their emotional needs. In comparison, the modern world is marked by increasingly afﬂuent societies that no longer only care about survival and security. Increasingly, there is a shift towards valuing experiences that add meaning to our lives, enrich them by manifesting purpose, and are clearly useful and needed. We will explore value more in the chapter on Design to Value, so this is just to quickly mention why we see it as useful to see the y-axis in terms of external customer value rather than product performance. So when is something an incremental innovation and from what point onward do we consider it a disruptive innovation with same DNA? Small improvements on customer value, performance or cost take place on single S-curves. These are incremental innovations. Big steps in technology improvements, radical improvements or technology breakthroughs on performance, cost or on how customer value is delivered result in a jump from one S-curve to the next S-curve. We deﬁne these jumps on the S-curves as disruptive innovation with same DNA, since the roots of the technology are still based on the very ﬁrst S-curve within this S-curve chain. In opposition to disruptive innovation with different DNA, disruptive innovation with same DNA can kill or disrupt products, product lines or even single companies but it will not disrupt an entire market segment and kill all business providers (like it was shown in the VoIP story). Regardless if incremental or disruptive with same DNA, the chain of single S-curves takes place in a business ecosystem where the customers, technologies, products, suppliers, competitors etc. interact in a dedicated market environment. Innovations remain in the same product category or market segment. Using these deﬁnitions of disruption with same or different DNA, we can easily categorize the examples given earlier. “Low end”, or “low cost” disruption would ﬁt

2.7 Theory of Disruption Waves or the Modulation of Disruption

27

in the category of disruption with same DNA. This type of innovation usually does not improve on performance within the DNA of a technology but due to a better cost position, allows companies to offer their customers better price points and with that offer more value to their customers. It goes upwards on the S-curves, either incrementally or disruptively by jumping to the next S-curve. Being in technologies with the same DNA, we consider low cost disruption much more aggressive than disruption based only on performance increase. Incumbents are good at innovating on performance, but for low cost solutions their internal cost structures and complex processes often hinder them to compete with low cost solutions entering their market realm. The most dangerous mindset is that those low cost products often are not considered to be a disruptive change or even a disruptive innovation. But reality shows exactly the opposite—they are very much able to disrupt incumbents. As mentioned, innovation based on market driven modular architectures often also falls into the category of disruptive change by same DNA. Modular architectures compete through increased speed, ﬂexibility and customization, and have the power to disrupt mature, integral architectures. But modular architectures can even combine both types of disruptive change. Typically, major parts in such modular architectures are driven by innovations based on same DNA (incremental or disruptive) while they can simultaneously integrate modules that are driven by innovations with different DNA. With this in mind it becomes obvious that modular architectures are much more than just an answer to market complexity. Modular architectures become a key success factor in dealing with turbulent markets, increasing speed of innovation cycles and the demands of the modern VUCA world.

2.7

Theory of Disruption Waves or the Modulation of Disruption

Creative destruction is a process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one—Joseph Schumpeter

The S-curve theory can be used to describe incremental innovation and disruptive innovation with same DNA. Christensen’s theory of disruptive innovation describes the concept of disruptive innovation with different DNA. As Christensen describes in The Innovator’s Dilemma (2016), it is not possible to plot disruptive innovation with different DNA in the S-curve ﬁgure of an existing business ecosystem (p. 41). The reason for this is that disruptive innovation with different DNA originates in a totally different business ecosystem where other criteria on how to maximize customer value apply. Only when minimum customer value criteria for an established business ecosystem are achieved and reach a tipping point, does the disruptive innovation with different DNA penetrate into this existing system, thereby disrupting it and cutting the existing S-curve chain. In the following we propose a new view on the different types of innovation which actually allows us to combine the two previously explored theories. This

28

2

Disruptive Innovation

uniﬁed theory might be helpful to understand the overarching phenomena of disruption with more clarity, making it more adaptable to the real business environment. The idea of this model is that we do not plot value or performance in regards to time like it is done in the S-curve and Christensen’s theory. Instead, we use sales volume over time. Sales volume typically refers to technical products, systems, or services, and we use this as a reference because it later lets us compare concepts that derive from different business ecosystems, to see how they interact in a uniﬁed model over time to (re)shape the future. Figure 2.8 shows sales volume (in %) for different products over their lifecycle in a certain market. Each single half sine wave is the lifecycle of a dedicated product. The maximum peak is always at 100% for a dedicated product. There are multiple products expressed by P1, P2, P3 . . . Pn. Every product starts with a sales volume of 0% and rises up to its maximum sales volume of 100%. The overlap between a declining product Pn and a rising product Pn + 1 is not depicted in Fig. 2.8. As innovation is about improvement and progress, products overall develop towards delivering better customer value. As better innovations appear, products reach their peak in terms of sales volume, and respective sales volumes again decline, until the product is ﬁnally completely phased out and replaced by the next innovative product. What drives product sales? It is important to note that situational circumstances, space and time and respective technological developments in that era considerably determine what products will be highly successful in the market, and which will slowly phase out or be considered as outdated. Think of fundamental shifts as from oil and gas to renewable energy, or the switch from analog to digital. Within these time periods, there are many types of products, yet when for example renewable energy becomes the status quo, products that are built on the old, now out-dated technology wave can no longer truly compete in the market. It is because of this type of disruption that some articles propagate that true disruptive innovation is “surprisingly rare” (Hutt, 2016), because such radical disruptions and technological developments do not happen often.

Sales

P1

P3 P2

…

Pn

100%

Time

Fig. 2.8 Product lifecycles along a time continuum

2.7 Theory of Disruption Waves or the Modulation of Disruption

29

All products are based on special technologies or dedicated business models. For the technologies that are the underlying base (DNA) for above mentioned products, the same concept of representing their development over time and in form of waves can be applied, see Fig. 2.9. Technologies and business models also have their own lifecycle, yet their lifecycle is different and longer than the product lifecycle. If we now overlap product lifecycles with technology lifecycles, we get a modulation for the different innovation waves. We can now also derive at a uniﬁed model that shows different eras (waves) of technologies and their respective products in one! For simplicity, let us shortly dissect the issue into smaller understandable chunks. We will describe each set of curves one by one, and then overlap them to produce one comprehensive curve set that includes all information. In order to simplify the illustration in Fig. 2.10, the period (or frequency) of the waves is kept constant. Of course it is not realistic to say that it always takes the same amount of time for a new disruption to appear; this assumption of a constant period for technology era’s is only a rough estimate, especially for the disruption waves by different DNA. With the overall increasing speed of innovation cycles, it seems as if radical technological advancements appear faster over time. Nevertheless, the basic idea and the conclusions behind this visual depiction hold true because although the moment of disruption is still unknown and might vary, it is a given that change and disruptive innovation will occur again and again over the evolution of time. The ﬁrst curve-set shows the disruption waves based on different DNA. In the Cisco example given at the beginning of this chapter the ﬁrst, left wave would illustrate the circuit switched era, the second wave would stand for the IP-based era. The second curve-set shows disruption waves by same DNA, as explained by the S-curve model. Each smaller wave depicts a jump in the S-curve from one technology to the next. Taking again circuit switched technology as an example, in the circuit switch era there were different evolutions of technology, as from analog switches, digital switches, ISDN to ATM. These would each be represented as

Usage

T1

100%

Fig. 2.9 Technology lifecycles along a time continuum

T2

30

2

Disruptive Innovation

1

Disruption waves: Different DNA

2

Disruption waves: Same DNA

3

Incremental Innovation waves

Disruption by different DNA Disruption by same DNA

Incremental innovation

Fig. 2.10 Uniﬁed model for all types of disruption waves

disruptions within the overarching DNA group of those based on circuit switch technology. The third curve shows incremental innovation curves. Each new half-sinus wave stands for a new product. These are not of disruptive nature yet critical for creating progress by incrementally driving innovation forward. Each new innovation aims to increase customer value. When a product enters the market, sales volume increases (starting from 0 to a 100% sales volume as a maximum). Each curve falls again as the product is phased out, and pushed from the market by a different, more innovative product. The last curve-set is a superposition (i.e. modulation) of all the previously described curves. It illustrates the real products that are sold to customers (B2B or B2C). Each peak depicts a single product. These products develop incrementally within their own window of technology. For every product, the respective disruption by same DNA and different DNA inﬂuences what kind of product is most in demand by the market. All together, this last curve-set therefore combines all the previous knowledge and curves illustrated in Fig. 2.10.

2.8

Benefit of a Unified View on Disruption

The value of this disruption wave theory is that it provides a much better understanding about what type of innovation causes what and why. Its unique value is that it helps us understand, explain and start to make predictions about what is going on

2.8 Benefit of a Unified View on Disruption

31

in regards to innovation and disruption within a companies’ own business. It allows us to understand how societal mega-trends and technological breakthroughs inﬂuence individual product demand, but also helps us to predict when a new disruption would be most likely to be expected and thus encourages us to start looking out for warning signs in the market, as they naturally re-occur over time. What conclusions can we draw? Disruption by same DNA pushes products in certain market segments towards maximum customer value for a given market model. Each single wave of disruption is like a freak wave (imagine a huge killer Jaws wave) that can kill entire product lines within this market segment of the same DNA. But it will not completely change the rules of the game. This means that the basic business models within this market segments remain and the incumbents compete against each other. The good news is that if part of the disruptive change early enough, harm to your business will be minimal to non-existent because you are actively shaping the change itself. If a company does not actively shape the future nor is not able to jump to the next wave and overcome little bumps in the current wave with incremental innovations and adjustments, this type of wave however does have the power to kill companies. In order to know what mindset we need to successfully deal with disruption by same DNA, think of what good surfers do: they constantly watch the development of waves, have a deep awareness for their surroundings and know their own strengths and limits. They know what wave to catch when and where to enter the wave. They are determined and courageous in how they catch a wave, and then aim to safely ride on that dangerous wave in a way that does not stretch their capabilities too far. They are able to stay calm and relaxed in face of surprising challenges, adapt and react quickly to ensure survival. If slightly hit they illustrate fearless resilience through their ability to bounce back to normal strength levels quickly. Most importantly, they know when and how to jump off or onto the next wave before being destroyed. Disruption waves with different DNA can be compared to being like a Tsunami; they are waves that re-deﬁne what we believe possible and endanger much more people. They have tremendous energy and power that prolongs over a longer duration than a normal wave. They also span across a broad area, taking with them everything that comes within their reach. Such a wave builds a new era or “species” of products and technologies. Once present, it transforms existing market segments and has the power to kill the players in the former market segment (as it happened with Siemens) if they are not fast enough in riding on this wave of destruction themselves. For those who created the wave, it is a wave of opportunity and possible dominance. For those having to surrender to its natural force, it is a source of mass destruction. Of course this type of disruption is much more rare, so companies cannot just wait around until these gigantic waves of disruption occur; they also need to invest in Christensen’s “sustaining innovations” (Hutt, 2016) in order get close enough to the point where such technological breakthroughs can even occur or its technology be invented. The ﬁtting nature of Christensen’s term “The Innovators Dilemma” becomes clear when looking at this wave model. The incumbents have to be able to ride on the waves of same DNA by making incremental innovations. In order to stay in the game

32

2

Disruptive Innovation

they also however have to be able to jump from one wave to the next wave of the same DNA. In order to ride those waves, they must invest in technologies with same DNA to innovate both incrementally and if possible disruptively. These huge investments (R&D, marketing, manufacturing, service etc.) in technologies of same DNA hinder companies to put scarce resources on technologies with different DNA. Thus, companies are truly placed into a conundrum: rather invest into more secure and same DNA innovations, or invest more into the radically unknown? How to ensure that the radically uncertain and new will not be missed in terms of those ideas that truly take off, and thus disrupt incumbent players? As discussed, when technologies with a different DNA ﬁrst emerge, they do not seem lucrative for the incumbents since they serve tiny niche markets. In addition, due to the long wave period those technologies with different DNA are often not taken seriously. The fatal illusion is that the technology breakthrough is far ahead or that the technology with different DNA is not even possible, thus not able to endanger the own business. Connecting this to the story of Who Moved My Cheese in the introduction of this book, companies try to stay in their well known environment and are looking for new cheese to come. Their experience based on looking in the past makes them falsely believe that new cheese will reappear soon when the market recovers. Alas, imagine when they really wake up and realize that the cheese has gone—this time, forever! Innovation is about change. Change requires both adaptation and evolution, by constantly learning in order to progress with, and not against the disruptive change. Table 2.1 summarizes the two types of disruptive innovation we have intensively discussed.

2.9

Relativity of Disruption

Looking at this uniﬁed theory of disruption it becomes obvious that disruption is relative, see also Christensen (2016). A technological innovation can be incremental for a certain company in its’ own business model, while the same technology can be disruptive (consisting of the same or different DNA) for another company. In the business context, perspectives vary depending on for example different business models that determine your companies’ actions and perspectives. As mindsets drive behavior, reality is also subjective for each manager, leader or individual within a ﬁrm; how you perceive change truly depends on your point of reference, programmed mindset and guiding past experiences. Let us take the example of an electric motor in the car industry. The electrical motor and battery can be disruptive for a traditional manufacturer focused only on producing traditional combustion fuel engines. For another company that manufactures electrical motors, the electric engine and battery is an innovation within the same DNA. This is because their own products are very similar or even spurring the new technological innovation forward, so they would not perceive it as fundamentally threatening to their core business. For the car manufacturer who has a modular architecture for his engines and product families, this new product might be

Disruptive innovation different DNA Innovation jump is based on different root technology (DNA) Starts in a different market and invades the existing business ecosystem Typically changes customer value model Christensen’s theory Longer lifecycles Can kill all business providers and transforms markets Fast speed of “death” Recovery usually not possible, re-invent yourself

Metaphor: “Tsunami”

Disruptive innovation same DNA Innovation jump is based on a common root technology (DNA) Takes place in a business ecosystem Builds on existing customer value model S-curve theory Shorter lifecycles Can kill products and single competitors Fast speed of “death” Recovery possible, but needs fast and determined reaction

Metaphor: “Jaws wave” (dangerous, huge wave)

Table 2.1 Different types of DNA for disruptive innovation

2.9 Relativity of Disruption 33

34

2

Disruptive Innovation

seen as a mixed type of innovation. The new electrical traction system could be something truly revolutionary for them, meaning it would be disruptive with different DNA in comparison to the former, currently used combustion module. But this module can be integrated into the overall product architecture of their larger product, thus becoming only a sub-element of a grander product. If our product of reference would not only be an electric motor combustion engine but we would consider the entire car as the product and the engine as one of its modules, this type of innovation to the motor or battery alone would be a disruptive innovation with same DNA. Since the car manufacturer still develops and produces cars, it is of the same DNA as his own business model. Note that interestingly, a surfer or boat that would be far out from a harbor and experience a Tsunami on high and open waters would not see the Tsunami as dangerous; this is similar to the relativity of disruption. Once you are however hit by its full force and forced to ﬁght against it, its immanent power will relentlessly try to destroy everything in its reach. Tsunami’s are also so gigantic that “diving through” the wave as a tactic to protect yourself from its destructive nature, or waiting until it has past, is not possible.

2.10

Typical Warning Signals for Disruptive Threats

An explicit model as presented in the previous section is a very powerful way to help leaders and managers make better choices and decisions in regards to managing product portfolio’s. Knowing that such waves of innovation exist and overlap, companies can search for patterns of disruption waves. By doing so, they can answer the question of whether a certain technology trend is within a wave determined by disruption of same DNA, or if the trend is determined by the overarching disruption by different DNA. Having identiﬁed the underlying wave, the next question is to analyze at which point the own company and the other competitors are currently in. If currently successful, on what part of the wave are you currently riding it? Just as we aim to plan and adapt our own lives according to when we have the most energy and in older age are usually better off with managing incremental rather than fundamentally disruptive changes, portfolio decisions depend on where we are on a certain wave. If riding a wave of same DNA, do you need to focus more on innovating incrementally, or prepare and adapt for a disruptive trend? Answering this question well will determine if you stay market competitive or not. In case of riding at the end of a large wave of the disruption by different DNA nature, it is important to face reality. We consider it not possible to withstand such a disruption, similar to it being impossible to stand on a beach and believe that a Tsunami will pass without hurting you. If in a situation where such disruptive waves unexpectedly hit your business without giving enough time to get out of the danger zone, the only thing is to develop a phase out strategy for the old technology, and invest in the technologies and business models of the new DNA.

2.10

Typical Warning Signals for Disruptive Threats

35

From this you might be asking yourself, how can we see the warning signals of potential disruptive threats that could affect my own business? Figure 2.11 shows the warning signals and the danger area for potential disruptive threats. There are three important points to consider. First, disruptors think of completely new ways to delight customers. This means that a predominant success factor (e.g. performance) might be completely replaced by another (e.g. mobility, portability, price). As the factors that are important in terms of performance and experienced customer value change over time, new innovations can all of a sudden radically re-deﬁne what form best meets a customer’s need and minimum product expectation. Second, minimum customer requirements are unclear or even misunderstood. As seen in the Siemens and Cisco example in the beginning of this chapter, Siemens did not realize that voice quality could actually become so unimportant. The importance of the previous minimum customer requirement (quality) decreased so signiﬁcantly that it gave way to a newly deﬁned minimum customer requirement; to surf in and call via the internet, because customers began to care more about data transmission volume and lower overall price than perfect voice quality. Third, a competitor focused on a secondary success factor, but is trailing signiﬁcantly concerning the primary success factor. In the Siemens–Cisco example, the secondary success factor was data rate, and voice transmission was the disruptive factor which reached the minimum customer requirement. Disruptors of different DNA often build business models that are very different from those of incumbents. This implies that their ﬂow of value is signiﬁcantly different than to the company serving a more high-end market and is in the process of being disrupted. A switch in what constitutes a success factor can rapidly change as technology advances. Imagine for example replacing a linear value stream by a platform ecosystem, which is lately one of the most successful approaches for disruption (Parker, Alstyne, & Choudary, 2017; Moazed & Johnson, 2016). This trend has been widely facilitated by new digital means, which are able to replace solutions formerly realized by hardware.

Performance

1

A single, predominant success factor, that has been key to success for a long time

2

A (potentially not clearly articulated) minimum customer requirement

3

A competitor that has focused on a secondary success factor, but is trailing significantly concerning the primary success factor

Danger area

Time

Fig. 2.11 Three warning signals for potentially disruptive threats

36

2

Disruptive Innovation

Disruption can actually take time and does not happen over night. The problem rather is that incumbents frequently overlook early warning signs and future disruptors. Sometimes disruptors start out serving a seemingly unimportant or “not dangerous” niche customer segment, thus leading incumbents to falsely believe that a vigorous counterattack is not necessary. It is not a single event but often the lack of responding to the process, the trajectory a company is on, that leads another to its collapse. As minimum customer requirements change, tipping points are reached and rapid changes can occur. Thus, the missed identiﬁcation of minimum customer requirements drives the most rapid changes.

2.11

Summary

Products need to meet basic customer requirements in order to be attractive. Focus on what customers truly need and value. Let the product be the answer to these needs, adding not more and not less than needed. A common mistake is to put too much effort and resources (such as money) into standard features where additional investments do not lead to higher perceived customer value, but rather unecessarily add product complexity and costs. There is a danger in overshooting minimum customer requirements and only serving high-end customers, because it enables a market gap where new entrants can enter and target mainstream and low-end customers. Constant innovation, as by riding the waves and S-curves of innovation are necessary as features which were once new and exciting, as for example the touchscreen of a phone, are at some point normal expectations for any phone; they become minimum customer requirements themselves. When minimum customer requirements are understood, it becomes easier to design solutions to meet them, decide which features are less important, and discover which market segments are possibly still underserved and unadressed. In this chapter we introduced a more nuanced way to think about innovation. We explored different types of innovation, namely those with same and different DNA. These different types allow us to not only understand with more clarity different classical models such as the S-curve and Christensen’s theory of disruptive innovation, but also combine them into one uniﬁed concept. The unique aspect we explored in regards to Disruption Waves helps us understand the superposition of long-term and short-term disruptive trends, and might be used to predict innovative trends in the future. Overall we can say that products should be designed to create value for customers. In the attempt to design such products, meeting minimum customer requirements and delighting them in the most effective and efﬁcient way possible is key. What does this mean in practice? The following fundamental principle of “form follows function” that we will now explore guides us on how to successfully design such products that are of this nature: simplifying complexity to create no more and no less than customer value.

References

37

References Chase, R. (2016). We need to expand the deﬁnition of disruptive innovation. Boston: Harvard Business Review Publishing Retrieved from https://hbr.org/2016/01/we-need-to-expand-thedeﬁnition-of-disruptive-innovation. Christensen, C.M. (2003). Disruptive innovation and creating new market growth: Capturing the upside while avoiding the downside. [PDF Slides]. Retrieved from https://sdm.mit.edu/conf04/ Presentations/cchristensen.pdf Christensen, C. M. (2016). The innovators dilemma: When new technologies cause great ﬁrms to fail. Boston, MA: Harvard Business Review Press. Christensen, C. M., & Raynor, M. E. (2003). The innovators solution: Creating and sustaining successful growth. Boston: Harvard Business Review Press. Christensen, C. M., Raynor, M. E., & McDonald, R. (2015). What is disruptive innovation? Boston: Harvard Business School Publishing Retrieved from https://hbr.org/2015/12/what-is-disruptiveinnovation. Christensen, C. M., Raynor, M., & Verlinden, M. (2001). Skate to where the money will be. Boston: Harvard Business Review Publishing. Christensen, C. M., Verlinden, M., & Westerman, G. (2002). Disruption, disintegration and the dissipation of differentiability. Industrial and Corporate Change, 11(5), 955–993. Hutt, R. (2016). What is disruptive innovation? World Economic Forum. Retrieved from https:// www.weforum.org/agenda/2016/06/what-is-disruptive-innovation/ Kaeser J. in Handelsblatt. (2016). Siemens hat in 80er Jahren Idee für VoIP abgelehnt. Retrieved from https://www.golem.de/news/startups-siemens-hat-in-80er-jahren-idee-fuer-voipabgelehnt-1605-120754.html Moazed, A., & Johnson, N. L. (2016). Modern monopolies. Spokane, WA: Grifﬁn Publishing. Nunes, P., & Breene, T. (2010). Jumping the S-Curve: How to beat the growth cycle, get on top, and stay there. Accenture. Retrieved from https://www.accenture.com/_acnmedia/Accenture/Con version-Assets/DotCom/Documents/Global/PDF/Dualpub_23/Accenture-Jumping-S-CurvePOV.pdf Parker, G., Alstyne, M. V., & Choudary, S. P. (2017). Platform revolution: How networked markets are transforming the economy and how to make them work for you. New York: W. W. Norton & Company. Schulz, T. (2017). Was Google wirklich will Wie der einﬂussreichste Konzern der Welt unsere Zukunft verändert – Ein SPIEGEL-Buch. München: Penguin.

3

Form Follows Function: Systems Engineering

It is the pervading law of all things organic and inorganic, of all things physical and metaphysical, of all things human and all things super-human, of all true manifestations of the head, of the heart, of the soul, that the life is recognizable in its expression, that form ever follows function. This is the law. Louis Sullivan, considered father of modern architecture

3.1

Form Follows Function

When we look into all systems that work incredibly efﬁcient, we can discover a fascinating pattern: their form (shape, conﬁguration, size, used materials) always derives from a speciﬁc function (to protect, move, store, inspire). In these instances, form naturally derives from trying to best fulﬁl a core purpose, and not vice versa! This law of “form follows function” seems to be a natural strategy for success. Functions do not only have to be practical; a water boiler might have the technical function to heat water, yet a very artistic water boiler which is intentioned to inspire an audience would still follow the form follows function mantra, if onlookers ﬁnd it valuable and inspirational due to its design. In this case, the water boiler’s form fulﬁls its set function and thus abides this law. For living organisms, the same laws apply. Imagine the ongoing struggle and survival of the ﬁttest. Maintaining a competitive advantage requires more than smart survival tactics—it requires high efﬁciency and use of all available resources. Animal species have naturally evolved to continuously adapt form to function. When resources are scarce, abiding to the form follows function principle helps to decide where to invest resources. For example, the required ﬂexibility and speed of a panther is facilitated by a body type that has evolved to be evermore lean and muscular. The overall design of its body supports certain functions, and the many required functions result in the body form that most likely sets this interconnected # Springer International Publishing AG, part of Springer Nature 2019 C. Fuchs, F. J. Golenhofen, Mastering Disruption and Innovation in Product Management, Management for Professionals, https://doi.org/10.1007/978-3-319-93512-6_3

39

40

3

Form Follows Function: Systems Engineering

system up for success. The law of form following function naturally surrounds and lives within us. Once we choose to see it, it literally unfolds everywhere. Just like a large organism, every company optimally strives to create the conditions that will enable it to live long and prosper. When form and function are aligned, their immanent harmony leads to higher levels of adaptability, resilience and long-term success. Ease and effortless manifestations of problem-solving effectiveness seem to emerge naturally over time. When purpose however is no longer at the core of the matter, maintaining this effectiveness and succeeding to a set of external demands becomes unnecessarily more challenging. Note that aesthetic beauty can arise out of an immanent harmony between function and form. An opera hall’s architectural form is optimally designed to allow the listener to succumb in the music’s beauty, by facilitating an astounding, pure sound quality. The hall is not just designed to be a meeting place for many people such as a football stadium, and also not just designed as a product only built to look pretty. Given the opera hall’s main purpose and supporting functions, both other designs would yield a sub-optimal form and not be as harmonious. Is it possible to copy efﬁcient ways of dealing with form through function into the workplace? Yes! Copying relevant patterns from natural evolution will also make our business ecosystems perform, adapt and evolve better. Systemic product architecting (systems engineering) is then like setting the DNA and skeleton of a product right; it is the essence and heart of creating products that customer’s value. We can say that the principle of form follows function is therefore a fundament underlying the development of great concepts. Another principle interwoven with the form follows function mindset is propagated by System Thinking. System Thinking proposes a paradigm shift in thinking which accounts for interdependencies and feedback loops between different elements. It invites us to for example move from thinking in silo’s and isolation to reap the beneﬁts of cross-functional collaboration and connectedness, because it makes us more effective. As we can see in Fig. 3.1, a system has webs of interdependence where things are not in isolation from one another but rather relate and interact. Complexity of interactions can of course produce unwanted outcomes that need to be corrected and accounted for. Thinking this way helps us to gain a perspective and understanding on how the most vexing, intransigent problems that we all deal with come about. It is not about thinking that A causes B, but realizing that the system in which the reaction, interaction and exchange that is taking place, signiﬁcantly affects what is going on. Take for example the famous butterﬂy effect, where one small butterﬂy can have an impact so large that it changes a seemingly unrelated factor such as the weather. System Thinking is about moving from short-term thinking to long-term big picture thinking. Rather than taking simplistic approaches, it requires us to look at when and how to (re-)design a product architecture to balance short-term with also more long-term goals. It is about harnessing the collective intelligence and perspectives of many. Taking into account different perspectives from people who see different parts of the system is what enables us to get a comprehensive view on what

3.2 Function Often Follows Form

41

Fig. 3.1 Six fundamental concepts of System Thinking. Source: Acaroglu, L. (2017) Disrupt Design, Illustration by Segal, E

is going on in a system. By openly learning from failures and feedback, we can then constantly evolve to become better.

3.2

Function Often Follows Form

The principle of form follows function seems so logical that it is almost viable to ask why it could ever be otherwise: customer needs should drive product requirements and functions, which then should determine the design and form of products. Note that although we use the word product because it is easy to visualize, it can also be a service or other concept. Returning to the world as it is pushes us to become more realistic. This is because unfortunately, practice shows that the form follows function principle is frequently violated. Too often we ﬁnd companies and individuals thinking they know what their customers want, and directly want to focus on form. They do not want to spend time exploring the core purpose and need behind the concept. However, form will not follow function if companies do not aim to ﬁrst ﬁnd out what the true problem that begs to be solved even is, because customer- and market understanding is what should help us determine what the functions and later form of a product or process should be in the ﬁrst place. A ﬁtting example is the current afﬁnity for using technology and creating apps. With the mindset of “let’s build an app! I will go and ﬁnd out what they need and the rest of you start coding!” (see Fig. 3.2), form is determined before its function. Creating an app is often seen as the business case, go-to solution because it allows for solutions to be scaled fast, both in terms of simple production and broad customer reach. However, the purpose of all this activity is undeﬁned, meaning this entrepreneur is aiming to solve a problem that is not even deﬁned yet. Who knows if customer needs are truly best served via an app, maybe another format would be more

42

3

Form Follows Function: Systems Engineering

Fig. 3.2 “Let’s build an app!” An example of violating the form follows function

I‘ll go out and find what they need… The rest of you start coding!

meaningful and effective for them? By placing form ﬁrst, efﬁciently solving customer pain points is no longer the driving purpose behind a mission, and also not set as top priority. When function follows after form, companies often end up designing inefﬁcient, too expensive, useless, or over-engineered products. The danger is that customer requirements are not met and the ﬁnal product fails in the competitive marketplace. In practice, we thus so many times are faced with questions such as: – Why did the project fail? – Why did we not consider crucial architectural decisions at the forefront? – Is building successful products a complicated art that only rocket scientists or gurus can master? – How do we know what matters? – What to focus on, when complexity is high? Product designers can create great products, but we do aim to advocate that getting the products foundational skeleton and DNA right is so important that it is worth writing an entire book about it. Every type of mismanagement will be blueprinted and reﬂected in the products architecture, be it mismanaging complexity, not listening to customers, thinking you know what they want, or just not caring about what would create meaningful, long-lasting impact. In relation to the analogy of the survival of the ﬁttest, creating products that violate the form follows function principle therefore in the best case leaves you with a declining competitive edge. In the worst case, it means your quick and imminent death in the market. The following famous quote by Brian Foote and Joseph Yoder contains a handful of wisdom and painful learnings about the importance of building good product architectures: If you think good architecture is expensive, try bad architecture.

3.2 Function Often Follows Form

43

Build the right “it” and get “it” right when you build it! Depending on the products nature, it of course depends if it is smarter to invest a bit more time, energy, thought, material and money into the beginning of a project. Not being thoughtful about the products architecture at the outset can lead to higher associated lifecycle costs, fundamentally wrong design decisions, and the product having a ﬂawed, dysfunctional DNA to start off with. The degree to which decisions cannot be reversed also matters in regards to if the product is intentioned as hardware, software, small, large, simple or complex. Limiting creativity too early in the process is thus dangerous. What comes after co-creating solution concepts with customers and understanding true user needs? It should come as no surprise that it is the products architecture that strongly determines the success or demise of a products future in an uncertain, turbulent market place. In essence, all approaches such as Design Thinking or market understanding are concerned with helping us to just take the time to gain the necessary insights that will set the products DNA right. Creating great products or igniting turn-arounds usually requires people to work together. The form follows function mantra is so fundamental that it does not only apply to the technical side of product development, but to the entire ecosystem. Thus, managing the people side of change should also focus on letting whatever creates highest functionality determine organizational culture and form. If form follows function, everything is aligned to grow the overall vision and mission of creating purpose driven impact. Sadly, this is often not yet reality. Just imagine mechanistic organizations where for example the “written” top priority might be to design the best product or use the best team members, yet the unwritten reality is that solutions are actually aimed at satisfying political agendas or individual egos. When authentic intentions and purpose-driven leadership is missing, having to manage the consequential resistance to follow and unwillingness to change will cost a lot of unnecessary resources. This phenomenon is not limited to large mechanistic organizations, but happens to small companies and individual entrepreneurs alike. Of course product architectures need to be designed and managed along their entire lifecycle, yet setting the right tone in the early design phase is so important. So how can we do this best? Re-creating stellar products requires subtle nudges by those who are aware of the fact that form is not following function, and then having the necessary mindset, skills and tools to change the situation. Next to technical aspects, it invites for constantly reﬂecting on question such as why are you doing what you are doing? What beliefs and fears make you do things this way and not otherwise? What is hindering you from being the best you can be, and your company from succeeding in designing the best possible products? Innovation is like evolution; it is about becoming better to live long and ﬂourish. No one wants to be disrupted or die, which means we are challenged to constantly learn, adapt and re-create. We have understood the know-why of form follows function: creating an agile, alert state of being “in the ﬂow” naturally leads to greater ﬂexibility and efﬁciency. This book and also this chapter now focuses on equipping readers with the knowhow on how to holistically translate and realize the form follows function mantra in the real product development process.

44

3.3

3

Form Follows Function: Systems Engineering

Defining Concept and Architecture

“Function” is what a product needs to do, usually a verb (protect, move, store, transport, inspire). “Form” is the resolving answer to the set function, realizing the function via a concept and or architecture. In order to realize the principle of form follows function in product design, it is important to also introduce the terms “concept” and “architecture”. After having an idea, the next step is usually to conceptualize it. After all, nothing will become reality if you cannot make an actionable plan of how to realize it, and ﬁnally design what the product architecture should speciﬁcally look like. Deﬁning these terms is so important to us because they are widely used yet depending on situational context, people associate different things with what for example a concept should consist of. It is not uncommon that products are realized completely wrong due to unclear communication. Ensuring that product ideas are communicated effectively at the outset safeguards from having larger problems in later development stages. Concept A concept is a short description of a proposed solution that shows how a product will satisfy the customers’ “job to be done”. It is an approximate description of the form of the product, outlining basic working principles and main technologies. It can consist of short, simple sentences or sketches that convey the main ideas behind a project or idea, and focuses on the solution/technical aspects of how to realize it (De Weck, Simpson, & Cameron, 2013). You can develop a concept for pretty much anything—a product, business or service etc. The crux is that a good concept can be poorly implemented in later stages of the development phases, but poor concepts usually cannot be made successful (Ulrich & Eppinger, 2012). Architecture After designing an initial concept, an important step in the concept development phase is the deﬁnition of its architecture. Focussing on the products architecture is similar to zooming in on one determining aspect of the concept. The architecture is an abstract model of the tangible product, and a means of gaining understanding about the realization of concepts, alternatives and decision rationales behind why a products form should be exactly as it is. The main task here is to map functions to a respective tangible form. A products architecture is not a detailed design but rather deals with the essential constituents and its mutual interfaces. It has a focus on the fundamental and critical factors that cannot be missed in moving from function to its resolving answer, its speciﬁc, tangible form. Together such physical forms become the building blocks for the product or family of products. Thus, setting the products architecture right is a true art, and will signiﬁcantly determine whether the product delights customers or not. Note that a concept does not have to be an architecture; however, an architecture is always a concept or a part of an overarching concept, because it is a more detailed description of how to realize a product. For example, in hardware products (in comparison to software or service products), functions are mapped to be realized by a physical form.

3.3 Defining Concept and Architecture

45

Can we make these rather vague deﬁnitions come alive? We hope that the consequent examples help to clarify the deﬁnition of both concept and product architecture. Example 1 Imagine your original idea is to create a light-weight train. The posed challenge is to reduce the trains weight to a minimum. Concept The basic concept that you could pitch for realizing this idea could be a simple sentence such as: the train is built with light-weight bogies (wheels) and a light weight aluminium car body. Architecture Figure 3.3 shows two different train architectures and how they would go about creating a light weight train concept in the future. We can clearly deduce that the main difference between both trains would be in terms of the number of wheels and number of car bodies. Instead of thinking about what truly matters at the very basic concept level, many projects immediately jump into the detailed design phase. They take the ﬁrst and believed best idea they have and develop it without matching true needs to architectural form. Thus practice shows that many projects do not deal with product architecting, meaning they do not effectively open up the early design space wide enough to come up with the best solution. The problem is that ﬁrst ideas are often not actually the best solution to a faced problem, so it is critical to give room to multiple solutions, scenario’s and options for a products architecture. For example, it is a critical architectural decision to decide how many costly bogies the train concept will have, as it could be the reason why this new train concept achieves a better overall cost position! Therefore, taking time to think about the preliminary concept and architecture is of fundamental importance to its overall success. Example 2 Imagine a trailer that transports objects from A to B. The job that the product needs to fulﬁl, i.e. its function is therefore to transport objects. Function will be realized through its physical form, meaning the trailer.

Single Car

Articulated

Fig. 3.3 Two different train concepts and a visualisation of their respective product architectures

46

3

Form Follows Function: Systems Engineering

Concept The concept for the trailer would be a short, approximate description of how to realize it in the future, such as it will have two wheels to enable movement, a spacious cargo area, and a covered roof for protection. Architecture If the architecture is a model of the ﬁnal physical product, then two possible architectures for the trailer could be the following. Here we can see in Fig. 3.4 two different types of architectures for realizing the trailer. The one to the left is a modular architecture because each function is fulﬁlled by exactly one physical part (module). The one to the right is integral because physical parts are allocated to multiple functions. In other words, in case of changing a part it would impact multiple functions. As we can see here, combining various physical parts (forms) in different ways determines the DNA for the product or a family of products. Of course it is important to remember that systemic interconnections between modules are realized by both architectural types, although these simple drawings might make it easier to spot interconnections in the integral architecture. Meaning, all elements need to work together in order to produce a functioning whole; just because there are more interconnections/lines for integral architectures does not mean that the entire system does not have to be in harmony in order to function properly and utmost efﬁciently. Example 3 The context of product a architecture is not limited to mechanical products but can also applied to software, services or even a book. In writing this book, the purpose was to foster understanding by connecting the dots in product development as between the different frameworks of Design Thinking, Design to Value, Modularization etc. We also wanted the book to serve as a practical toolkit which enables and empowers readers to apply relevant skills and methods in their own business setting. Concept The concept focuses on the content aspect (chapters can be interpreted as the technical parts that make up a book, sticking to the deﬁnition given earlier) and the process of describing how to make it come alive. To conceptualize our ﬁrst ideas Functional elements

Components

Functional elements

Components

Protect cargo

Box

Protect cargo

Upper half

Connect to vehicle

Hitch

Connect to vehicle

Lower half

Minimize air drag

Fairing

Minimize air drag

Nose piece

Support cargo loads

Bed

Support cargo loads

Cargo straps

Suspend structure

Springs

Suspend structure

Slot covers

Transfer loads to road

Wheels

Transfer loads to road

Wheels

Fig. 3.4 Modular versus an integral architecture. Source: Ulrich, 1995

3.4 Realizing the Product’s Architecture

47

on how to structure the book or each chapter, we used diagrams, drawings and scribbles. We also created preliminary notes on the main chapters and core principles that we found important to cover. Architecture The architecture here is related to the question of how to describe each aspect in the most effective manner, thus making more reﬁned decisions about the structure of chapters and topics. One decision was for example to create a more modular rather than integral book architecture. What does this mean in the context of a book? A modular architecture for a book means that tool descriptions are kept in a separate chapter to descriptions and overarching (i.e. platform) frameworks. For this book, this means that for example the tool “Kano” is not coherently interwoven into each framework chapter (i.e. Market Segmentation, Design Thinking, Design to Value, Modularization), but rather kept as a separate chapter that can then be referenced to and applied by users in combination with the other chapters. This modularity allows us as writers more ﬂexibility in that we do not have to write entire chapters anew if we have a new idea, but can rather add ﬁtting topics, ideas and tools as we go. For the reader, we hope the modular approach also makes the reading experience easier by ﬁrst understanding common underlying “core platform” frameworks that are of foundational importance, and then diving into speciﬁc, “modular” add-ons and tools. For later application, this approach also makes it easier to ﬁnd the exact tool that is most relevant to the unique situation one is trying to push forwards in ones unique position of a product development cycle. In summary, the product architecture is the most important outcome of the conceptual phase. It drives the overall design very early, and has the highest impact on the entire life cycle of a product. The architecture is also the decisive factor in giving products the most efﬁcient form in respect to their speciﬁc function(s).

3.4

Realizing the Product’s Architecture

If form is to follow function, the architectural process needs to consider the most important questions that matter throughout the product design process. Imagine you have acquired deep market understanding, have a product solution in mind and have built ﬁrst rapid prototypes; what then will actually make your idea become into a tangible, technically feasible solution? This is what determining a product’s architecture is about. It requires dealing with realities as satisfying both internal production requirements and external stakeholder and market requirements. We will here explore two fundamental factors that are also critical for designing every concept right: an understanding of the role of a system architect, and the knowledge necessary to set the right fundament and product DNA by making the right architectural (i.e. modular or integral) decisions. After looking at the architectural process, both aspects are thus elaborated in detail.

48

3.4.1

3

Form Follows Function: Systems Engineering

Architectural Process

How can we develop great product architectures from the start? The answer is by focusing on the questions that should be asked and considered along the entire product development process. Table 3.1 gives a clear overview of the important points that need to be considered in the lengthy process of product lifecycle management. Working through each mentioned bullet point in a systematic manner will help to develop the necessary red thread and structure, and ensure that practitioners do not miss important aspects which are determinant for the product’s design throughout the product’s lifecycle. In theory, system architectures make all dreams come true. The goal of considering all the bullet points in Table 3.1 is a product form so harmoniously designed that it fulﬁlls its functions with almost natural perfection. Such a product architecture would get the job done and automatically provide ﬂexibility, scalability, reliability, high performance, low cost, . In essence, all the frameworks and efforts in this book are just levers and tools that aim to enable us to create stellar products, meaning stellar product architectures! As costs also signiﬁcantly matter, we can say that the product architecture is the DNA of the entire product life cycle and determines the product’s lifecycle cost. We explore this element in more detail in the tool chapter of Design to Value and lifecycle costing. Table 3.1 Questions to think about in order to ensure a smooth delivery of the form follows function mantra During product development

During production system design

During manufacturing and assembly

During use

After use

• How functions are realized • How product costs are determined • How much development effort is needed • How reuse and standardization are accomplished • How development work is divided up (organization structure and teams) • Where subassembly and module boundaries are • How much risk is associated within the design • Determine time to market • Affected assembly sequences • Reuse of facilities and knowledge • Planning for ﬂexibility • Sharing of facilities to match capacity to demand • How customer orders are fulﬁlled, e.g. interdependencies, location • Where production happens • How unpredictable demand patterns are met (e.g. late differentiation) • How service is delivered • How life cycle costs are realized (e.g. energy consumption, maintenance) • How the product is updated • How the product is refurbished/recycled/disposed

3.4 Realizing the Product’s Architecture

49

What should the team answering these architecturally relevant questions look like? As will be mentioned in other chapters, the team developing answers to the following questions should be a lean, cross-functional, interdisciplinary (product management, marketing, engineering, manufacturing, sales etc.) team that has all the relevant knowledge about underlying principles to provide a holistic perspective on the issues that need to be considered. We believe that know-why, skills and knowledge can enable and empower all to design better product architectures. There is not always the rocket scientist around, but rather great teams with complementary skills can become incredibly capable of tackling the toughest questions themselves. If the team is however skewed in terms of interests and power to start with, outcomes will not satisfy all relevant stakeholders and especially those involved in the development process. The utmost goal should always be that various functions (of the product and its consisting modules) lead to the most efﬁcient form for getting a speciﬁc job done. If form is to follow function, form has to vary and adapt according to external market requirements and internal development constraints. The team needs to always account for these realities. In practice the missing system architect often has to be substituted by working in cross-disciplinary teams. A fundamental problem is that many organizations do not know of the roles and responsibilities of a system architect, nor ensure implementation of such a role. When present, it is someone who engages in system thinking and ensures among others that the questions listed in Table 3.1 are thought through, and aligns the different perspectives such that the needs of the different stakeholders along the lifecycle are met most effectively.

3.4.2

The System/Product Architect

3.4.2.1 Simplifying Complexity These terms are easily brought into connection with external circumstances as turbulent, volatile markets and an ever-changing modern world. Managing complexity, resolving ambiguity and focusing creativity is however equally important in relationship to internal requirements and systemic product architecting. A system architect is someone who ensures that the topic of product architectures is constantly on the agenda’s where it should be. By the deﬁnition of MIT’s System Architecture Framework, the system architect is “not a generalist but a specialist in simplifying complexity, resolving ambiguity and focusing creativity” (Crawley, Cameron, & Selva, 2015; De Weck, Simpson, & Cameron, 2013) The system architect is the driving force in the conceptual phase as she or he is the one who makes the crucial connections and integrates knowledge between the technical and market realm. A system architect is successful when giving a clear direction and vision that helps to focus product design on the core elements that matter, keeping things as simple as possible and as complex as useful.

50

3

Form Follows Function: Systems Engineering

How does this relate to the phases of the product development cycle? Early on in the design process, the levels of ambiguity are very high. This high level of ambiguity has to be resolved effectively not only by reducing it via problem-solving and making decisions to limit choice, but also by ensuring that the right questions are asked early on in the product architecting process. This early phase and the need for ambiguity management goes hand in hand with focusing on reaping the beneﬁts that come with high levels of freedom: creative problem-solving, idea generation and designing products to contain as many value-adding features as useful to the customer. Many possibilities and opportunities still exist in this early phase, and can signiﬁcantly enhance the outcome of the next innovative concept and product architecture. In later implementation stages, the level of required creativity and present ambiguity drops signiﬁcantly. In later stages, managing the rising level of product complexity is what then becomes more predominant on the mind of the system architect. Of course a certain level of complexity is required for every product, but the general principle is that robust functionality drives essential complexity. Here essential complexity is whatever is necessary to deliver the set functionality of a product, and nothing more. If form is to follow function then the necessary complexity of products is derived from the determined functionalities. If an invention is more complex than the problem requires it to be, then a product is no longer only held by essential complexity, see Fig. 3.5! Therefore, managing complexity is another task of the system architect, which will hopefully not stop her/him from developing a great concept and product architecture. As this role is so critical to ensuring the right product’s form, we will therefore ﬁrst place the architect’s role in context through the MIT System Architecture Framework, and then summarize the architect’s speciﬁc roles, responsibilities and expected deliverables (ibid).

Fig. 3.5 Unnecessary product complexity: when cracking a nut becomes a complex challenge. Source: Adapted from European Patent Ofﬁce “The seven deadly sins of inventors”

3.4 Realizing the Product’s Architecture

51

3.4.2.2 Role of the System Architect The attention of a system architect is focused on the systemic architecture of products. As different locations and stakeholders are involved, be it manufacturing, operations, engineering or sales, the system architect is fundamentally involved in answering the “where” (including basic requirements) and the “how” questions in this process. Attention lies on the realization of the form follows function principle. In order to do so, the system architect still needs an awareness for especially the “why” (market’s needs) and overall company goals “what” (market strategy)! Notice the difference between attention and awareness. Similar to an experienced driver, a system architect can thus focus her/his attention on the road and react accurately, yet still maintain an awareness for everything else happening in the direct and more distant environment. She/he might even be able to hold a conversation next to all this. Note that the diagram in Fig. 3.6 would seem to imply a linear, sequential process; in reality they are part of a holistic whole, highly interconnected, and hopefully interactive via constant feedback loops between each phase. With a helicopter view, the system architect is not only concerned about the ﬁnal architecture but also responsible for drafting crucial concepts. Ensuring that form follows function, the architect performs the most abstract, high level function in the development phase by creating the relevant concept(s). If concepts later manifest into architectures that have a clear form-function and structural complexity component, then it is the responsibility of the system architect to ensure that the right decisions are made early on in the development process. Thus, the system architect also plays a crucial strategic role in ensuring the long-term success of a product portfolio and a company, by co-designing the platform and commonality strategy for a product family. The system architect does so speciﬁcally by ensuring that interfaces are designed in a way that will allow for easy adaptations/mutations in the long-term. The role of the system architect can be summarized to the following: Deﬁne system requirements, boundaries and functions (answer the how) Create the concept and make decisive questions about form (answer the where) Allocate functionality and deﬁne interfaces and abstractions

Why? -needspurpose

What? -goalsPerformance requirements

How?

Where?

When?

Who?

-functionsBehavior

-FormStructure

-timingAction

-operatorUsers

System Architecture

Fig. 3.6 System architects allocate function to form. Source: Adapted from De Weck et al. (2013)

52

3

Form Follows Function: Systems Engineering

Simplify complexity, resolve ambiguity and channel creativity Integrate knowledge between functional silo’s by aligning relevant teams in a way to perform the most impactful trouble shooting sessions, diagnosis, cost analysis etc. The deliverables of a system architect can be summarized as creating the following: A clear, consistent and complete and achievable set of requirements (emphasis on functional goals) A functional description of the system, as in dissecting a product into all its functional sub-elements A concept and architecture for the product or system, outlining how to realize and maintain the product on a high level over the whole product lifecycle A design of the form of the product (at least two layers of composition) Ensures that functional decomposition is followed throughout the product development process, and also controls the form of interfaces to allow for easy modularization afterwards, in case of using a modular architecture To deliver meaningful impact, the system architect should carry deep expertise not only in subjects related to business, management and methodology, but also in the unique technical and related engineering questions (i.e. necessary content) required for the speciﬁc product. Therefore a system architect is more than a consultant, manager or facilitator; she/he has the technical expertise and holistic overview of what matters when and can lead groups to answer even technical questions as deﬁning where speciﬁc interfaces and product system architectural relevant modules should be. It is someone who both knows the methodology and tools as propagated in this book. Meaning, it is someone who additionally has a system thinker’s mindset, enabling her/him to see the big picture, necessary feedback loops and long-term implications of all interconnected actions.

3.4.3

Two Architecture Types: Integral or Modular

Once deciding on a speciﬁc concept, technical aspects as the products architecture need to be determined. Basically there are two types of architectures, integral and modular. A key decision that has to be made by the system architect at the very outset is the question of whether the new product should have an integral or modular architecture as its skeleton. How does one decide if a product should be built in a modular way or not? Let us ﬁrst distinguish between integral and modular architectures. Being highly simplistic, integral architectures are as if made out of one piece, modular architectures are more adaptable as consisting of multiple adjustable pieces. When is it better to use an integral or modular architecture? The answer is given in the consequent table, and depends on factors such as the need for product variety or product change. In respect to the product lifecycle, integral architectures evolve in

3.5 Summary

53

eras of new product and technology development. In these new technology ﬁelds, engineers are ﬁghting for stretching new technologies to their limits to reach the performance needed to satisfy minimum customer requirements. As shown by Ulrich (1995), modular architectures usually force engineers to make compromises in terms of performance. In eras of new technology development, compromises are usually not feasible and this is why integral architectures will still exist and evolve. When products overshoot mainstream customers’ performance requirements, project lead times, product/portfolio ﬂexibility, convenience and price become key buying factors for customers, rather than pure performance. Addressing these factors is facilitated by modular architectures. So modular architecture become key success factors for products placed in turbulent markets that are highly volatile, uncertain and complex (we will elaborate on this in Chap 7). Taken that there is not a one-size-ﬁts all approach, what type of architecture works best when? Imagine you are currently on a consulting project or managing your own enterprise that has to/can make a decision about product architectures. So what are the fundamental questions that we can ask ourselves for developing a new architecture? These usually are focused around questions such as: should it be an integral or modular architecture? How to assign functions to elements? If choosing a modular approach, how to assign elements to teams that can produce them independently? And which elements should be outsourced? With knowledge about the product, Table 3.2 can be used to deﬁne, identify and check which type of architecture would be most suited for the further development process! We can live and experience success by letting form naturally follow function, and taking the time to explore what functions products truly need in order to address customer needs. By creating customer-driven products, we can design creative solutions that add meaning to the lives of our users. Overall, complex systems often emerge in combination with exponential advances in technology and globalisation. The high level of interconnectedness of systems and networks requires solutions which go back to simplicity and reducing complexity.

3.5

Summary

To summarize the key messages of this chapter, the process of deciding on a product architecture is to ﬁrst truly understand the market and derive customer pain points, deep needs and wishes. From this, we derive the functions that a product has to fulﬁll, and can then develop a concept and architecture to explore how to make these functions come alive through a speciﬁc form. To set the products DNA right, we then decide on an architecture, be it modular or integral, that will help us make the product become reality. Note that large, radical change can create resistance, so soothing the change process starts by eliminating fear of change.

54

3

Form Follows Function: Systems Engineering

Table 3.2 Key differences between integral and modular architectures Performance Product deﬁnition

Product change

Integral architectures Can be trimmed for higher/highest performance (e.g. size, weight) Complex mapping from functional elements to physical elements And/or interfaces between elements are coupled Interfaces poorly deﬁned Any change in functionality impacts several elements Hard to change

Lifecycle

Integral architecture are typically in eras of a completely new technology development Organization, Tightly coupled development teams teams Product Effective for singular products and not variety effective for product families Example D

Modular architectures Typically compromises on performance (e.g. over-sizing) Each physical elements implements one or a few functional elements in their entirety Interfaces between elements are not coupled Requires clear deﬁnition of interfaces Any change in functionality impacts only the element that carries the function High ﬂexibility Modular architectures are typically superior if technologies overshoot mainstream customer requirements Decoupled, independent development teams that work in parallel Effective for product families and not effective for singular products M1

B

C

E

M2

A

B

A

D

H

E

M4

F B H

F M3

D

G D

Integral architecture: highly coupled elements, change in one element impacts entire system

C

B G

Modular architecture: physical elements build independent modules and clear interfaces

We aim to create solutions that account for the interconnectivity of problems, creating core ﬁxes to real needs. As this holistic and comprehensive product development process is what our book is all about, it therefore makes more sense to dissect every relevant aspect in all its pieces, study them, and then integrate them back into one in order to not only be able to explain and understand, but apply and exponentially create scalable impact with the gained knowledge. With holistic understanding, we can create systemic solutions to systemic problems. This is comparable to a doctor’s education. They ﬁrst learn about the general human physiology and acquire very detailed understanding of how the body works. With

References

55

this knowledge, the complex human body no longer remains a cloudy mystery (yet the fascination for it does not fade, quite the contrary!) and healing it later on is no longer a task of trial and error. Knowledgeable application and deep understanding then enable higher chances of success.

References Acaroglu, L. (2017). Disrupt design, Illustration by Segal, E. Crawley, E., Cameron, B., & Selva, D. (2015). System architecture: Strategy and product development for complex systems. Boston: Pearson. De Weck, O., Simpson T. W., & Cameron, B. (2013, July 22–25). Product platform and product family design: From strategy to implementation. [Course]. See at http://professional.mit.edu/ programs/short-programs/product-platform-product-family-design Ulrich, K. T. (1995). The role of product architecture in the manufacturing ﬁrm. Research Policy, 24, 419–440. Ulrich, K. T., & Eppinger, S. D. (2012). Product design and development (5th ed.). New York: McGraw-Hill Higher Education.

Part II Frameworks

4

Market Understanding

Customers buy for their reasons, not yours. Orvel Ray Wilson

4.1

We Know Our Customers! ... Really?

According to Clayton Christensen, 95% of new products fail. The reason is a lacking understanding of the market, as by using an ineffective market segmentation mechanism (in Nobel 2011). The root problem is not even a missing understanding about customers per se, but about the “job” that the customer is trying to get done by “hiring” a product (Christensen, Hall, Dillon, & Duncan, 2016). When unaware or oblivious to also more hidden customer needs, we run danger of designing products that do not help customers effortlessly get their “job done” at all, because we just don’t address what they care about. We consequentially run into non-harmonious states when missing the overall purpose of product design, being to build solutions that customers love. Of course it is in our human nature to falsely believe that we belong to the 5% that do most things right, intuitively sense and know what customers really need. . . but what a surprise, reality often teaches us otherwise! Reality is that often we actually do not know what jobs customers are hiring a product for. We misunderstand or miss entirely what their foundational needs are, measure them along the wrong dimensions, or mix them up with more delighting “nice to haves”. This chapter aims to show the multi-faceted ways in which a market segmentation can be used along all phases of product development, from strategic to architecturally relevant decisions. Using a structured approach to unearth customers’ jobs to be done, the used methodology has been developed from rich experience gathered by our consulting teams whilst working in various industries. Of course the concepts explored here perfectly complement the focus of Design Thinking on With contributions by Tobias Wedig # Springer International Publishing AG, part of Springer Nature 2019 C. Fuchs, F. J. Golenhofen, Mastering Disruption and Innovation in Product Management, Management for Professionals, https://doi.org/10.1007/978-3-319-93512-6_4

59

60

4

Market Understanding

empathically understanding customers, in order to create a comprehensive picture of what is going on in a dedicated market as a whole. A market segmentation can poignantly illustrate and visualize speciﬁcs about why a company is struggling to be market relevant, and what to do about it. The following example illustrates how lacking market understanding can take a cynical turn. Why does a company’s innovation effort drastically fail? Can we know what criteria pre-determine a product’s possible demise in the market? Yes we can, and the following example illustrates how. This example is hypothetic, but sympto Imagine the following. A company producing furniture for campervans develops a new product family for interior cabinets. The unique selling point (USP) to their customers is the very large number of extraordinary designs variants, such as offered choice regarding special materials and colors. To offer ﬂexibility in terms of the varying interior lengths of the different caravans’ cabins, the cabinets have been developed to be modular along the criteria of length. Each cabinet module has a standardized length of 1.5 m. Thus if placing two modules in a row, their combined length would be 3 m. After the product’s go-to-market, it turns out that sales are much lower than originally predicted. Even with radical sales tactics, customers clearly favor the solutions offered by competitors. After some time, it becomes clear that this product is failing to attract customers. With frustration growing and the need to understand what had gone wrong, consultants analyze the situation, starting off by conducting a root cause analysis. What to do next? In similar situations, consultants often jump directly to thinking about the product and start performing detailed, very time-consuming technical and commercial benchmarks with competitor products. Others might want to directly start optimizing the product in terms of costs, speed to market, performance or any other criteria. Yet how to know if we are on the right track in the ﬁrst place? To make informed decisions, do we not have to place the set problem in context of the larger system in which it actively operates? Do we not ﬁrst need to take a step back and quickly scan over the bigger picture of what is happening in the ever-changing market itself? In hindsight, the fundamental problem had been that the development team completely ignored critical market circumstances. The market had certain hotspots in terms of length that had become standard in this market. So the question becomes how might we ﬁnd out such simple truths that are the fundamental problem to a faced dilemma? Conducting a market segmentation as seen in Fig. 4.1 reveals a lot in a simple way. What can we see? This plot immediately and easily reveals the core problem of the new product, and why it failed so dramatically in its (continued)

4.1 We Know Our Customers! ... Really?

61

competitive market environment. Each bubble represents the sales volume achieved by competitors, with differentiation due to the length of offered solutions. We can see how competitors sold their products successfully at market hot spots for lengths around 2 and 2.5 m. On the contrary, the newly developed cabinets of the company with a length of 1.5 m were not able to address these market hot spots, potentially because their length was just not compatible with most dimensions of standard campervans. The new product architecture only addressed the segments of customers looking for a cabinet of lengths of 1.5 and 3 m. Therefore the company missed the simplest yet most crucial point of all. They had failed to deeply understand basic market requirements, and with that built a modular concept that utterly failed in the market. What a disaster! An important note at this point is that innovation does not mean we always have to serve the current hot spots of the market. However, there is a critical difference between missing basic customer requirements in comparison to identifying a customer pain point and developing a radically new technological way to satisfy the customers underlying job to be done. There is one important exception where it is justiﬁed to place a new product in the “no man’s land” of a market. It is the situation when a disruptive product or solution (same or different DNA) is ﬁrstly introduced in the market, and brings a real added value to customers (see also chapters on disruptive innovation and Design to Value) by meeting basic customer requirements in a better and simpler way. Such a product hits the customers’ sweet spot and delights by helping them get their job done with more ease and satisfaction. In case of market success, this product will attract many new customers and competitors will follow. So it will be the genesis of new market clusters. New markets can crystallize out and bring in totally new customer value to the market segment. The difference is that in one case your vision addresses a key customer job to be done and creates true customer value. In the other, as was the case in this cabinet example, activities are just based on lacking market understanding, with success being more comparable to shooting around blindly and by chance, at some point, hitting or ﬁnding something valuable. As we prefer making innovation and its success predictable, let’s explore how we can do that via a structured market understanding and identifying customers’ job to be done. One simple graph as in Fig. 4.1 is able to show why this new product entirely failed. If so simple to illustrate, how could missing such basic market requirements happen? There are probably countless possible explanations. If those responsible for product design had known the existing length raster of the market, they could have re-thought their innovation approach and made the right fundamental, architecturally

62

4

1m

1.5 m

2m

2.5 m

1-Module

Market Understanding

3m

Length

2-Modules

Fig. 4.1 Market segmentation for cabinet modules with variation in length

decisive questions in regards to length at the outset of the project. So we need to identify the right key criteria for segmenting a market. But how? In this case, it seems as if someone simply missed out to ask a fundamental question at the beginning of the development of this product: WHY do customers consider to buy such a product at all?

In the beginning phase of product development, this question does not aim at describing special technical solutions or a detailed product concept. This automatically would lead to a discussion about unique selling propositions (USPs) and how to differentiate products against the competition. In the example above, these kind of questions were debated extensively at the very beginning of the product development process. Focussing on complexity, a basic requirement as determined by the market was however missed. So this question of why customers consider to buy your product at all goes much deeper, and is simultaneously of more fundamental, yes simplistic nature. The question invites us to reﬂect upon customers’ general motivation for a purchase, as in what needs (emotional, social, functional etc.) exactly motivate them to consider a purchase. So it’s about understanding the customer and not about analyzing and benchmarking your product. It is about avoiding technical discussions at early stages of the product development process, and opening up the solution space to consider what customers value about your offering. Of course in later stages and when the market is deeply understood, the technical concept needs to address fundamental purchase decisions, USPs and take into account how to differentiate the concept against those offered by competitors. Yet these factors should not be at the forefront of our often sales and business triggered minds when we do not yet even know what dimensions matter to what job a customer is trying to get done with our product, service or offered experience. As such the example impressively illustrates how in today’s complex world, it is easy to brilliantly solve the wrong problem. It is even easier to develop a product that no one wants, or truly needs. One of the most frequent ﬂaws and reasons why most product launches fail is that someone simply glossed over the question of who would

4.2 Understanding Your Market

63

buy this product and at what price; you have built a “revolutionary” product, but there is no market for it (Schneider & Hall, 2011). To ﬁx such a tricky problem requires gaining valuable feedback during the product design process itself. Hearing opposing opinions can be a painful experience. Yet in the end really understanding the criteria that guide customers to purchase a product is one of the fundamental jobs of product design and development. We are going to use this box when referring back to the introductory cabinet example from now on, hoping that it makes the reading experience easier for you. So back to the point—it seems so obvious and logical to analyze the market in regards to the criteria length. It might seem surprising in hindsight yet no one within the entire product development phase really made this kind of detailed analysis along this important criteria. Many other criteria were thought to be important for customers and therefore implemented in the product. But here a basic requirement that customers just expected to be fulﬁlled was just missed (see Kano, Sect. 11.1 on how to determine basic requirements). The cabinet example is symptomatic for many similar, tragic design failures that span across industries. Taking other industry branches, we could draw similar plots by exchanging length by other criteria such as voltage, current, data rate, efﬁciency, power, resolution etc. Maybe you can ﬁnd a similar case where an entire product failed because of misunderstanding market requirements, and in hindsight see how it was the misinterpretation of basic customer requirements that turned out to be the simple answer to a gigantic product design problem. So how can we ensure that we get the market segmentation and understanding part right before it is too late? This is what we will explore now.

4.2

Understanding Your Market

Why are we advocating for impactful market segmentations, what are the beneﬁts? Detailed market understanding via implementation of an effective market segmentation approach enables informed, pro-active decision making, rather than having to take reactive ﬁxes when things have gone wrong. This means that it is a proactive approach that we use in the beginning of every new product design process, and not just when stumbling with failed products at the end of their development in order to analyze “what has gone wrong” and ﬁnally concluding “the market has changed”. In order to aquire a deep understanding of your markets, a market segmentation can provide many answers to your questions, even when they are all of seemingly very different nature. It is like a multi-facetted tool that can address business strategic, product speciﬁc or architecturally related questions. It can help think

64

4

Market Understanding

about questions that matter to top management, as well as those that truly matter for engineers and everyone involved in the everyday business process of designing or building the product. If applied correctly, a market segmentation can be seen as an all-round pocketknife for the entire concept phase of product development, from initial concept idea to market release. It is for this reason that you will ﬁnd it throughout the different chapters of this book, so it is fundamental to understand what it really is and how it is best conducted in practice. Before discussing how to segment markets, let’s have a short recap of what a “market” is. In general, a market is a place where buyers and sellers trade products, systems, services and contracts. Agreed deﬁnitions on value, cost and prices determine demand and supply in a market. Your product might be placed in an established market, or you are acting more like an entrepreneur who identiﬁes potential markets and potential customers based on similar problems or needs. When exploring new market opportunities, you have to win users for your offering by delighting them in some new way because you help them get a speciﬁc job that they want to get done better than an existing product does. In this case you have a better value offering in comparison to competitors. Notice here that the mindset is more that potential markets are omnipresent and the world is ﬁlled with challenges that are waiting to be resolved via effective business concepts. It is not about saying “I want to build something and target the Asian market. Whilst I don’t really know the criteria that they care about or what they need, let’s still build a product and sell it to them. I am sure they will like it then”. The point is that markets determine what concepts are successful or not. This requires that we constantly remind ourselves that if the customer is king, then as impactful designers and leaders we are more like humble servant leaders. We are happy when what we do and believe in is aligned with what they love and are looking for. Technically speaking, a market is a medium through which two or more parties can engage in an economic transaction. Transactions are not limited to goods but also information and services etc. What limitations you set to your prospective market (capabilities, regulations or a focus on B2B for example) will inﬂuence the market share that you actually capture with your concept. We need a common set of terms for identifying market potentials for a dedicated product, a business idea or a business model. Although other terms and deﬁnitions are also valid and used in practice, the following terms as in Fig. 4.2 are commonly used in literature (Berry, 2015). • TAM: Total Available Market is the total market demand for a product, service or good in general. Technically this refers to all people in the world that have a speciﬁc and similar job to be done which your concept could hypothetically address. • SAM: Served Available Market is the part of the Total Available Market that is reachable by a company’s product, technology/services, business model and/or the company’s sales channels. It is a segment or number of segments from the TAM.

4.2 Understanding Your Market Fig. 4.2 Actual market share (SOM) can expand and grow as through new innovations

65

TAM SAM

SOM

• SOM: Share of Market is the market share that a company can realistically capture with its current product, business model and sales channels. What market you can actually serve depends on your own potential and capabilities, and might be limited due to regulations or other restrictions due to countries, competition, trends or own distribution/sales channels. It is the goal and actual market share that you can realistically target. There is always the danger of missing larger developments that redeﬁne what market is addressable and that a company can capture; competitors might disrupt you by expanding their current market share(SOM) into yours, as by developing new technologies or innovations. If we attentively listen and observe how market needs are evolving and changing, the likelihood of being the innovator and not the one disrupted are higher. In line with these three acronyms for deﬁning a market, what is then a market analysis? A market analysis typically is about the question of how to address potential customers, not existing customers. As shown with the cabinet example in Fig. 4.1, it is about looking at where you could sell a product, not about where you are currently selling it. Thus, looking at unmet needs and jobs to be done, and not about deﬁning upfront if you want to be active on a global or local level. A mistake made in practice by some consultants is to not focus on customers but rather perform analyses by segmenting served regions by different internal product offerings. This is not very useful because then you only get a view on your own products and your served market. Our aim is to gain a deeper understanding about the market as a whole, and thus the segmentation criteria that matter overall. What is a market segment? It makes sense to target market segments where customers have similar deﬁnitions of what a great product could do for them in order to feel satisﬁed. Within a considered market, customers therefore typically have the same or similar buying characteristics. Such customer groups can be clustered for common marketing purposes, common product developments (i.e. modularizing products according to differentiated needs of to be targeted market segment) or business models. These clusters with similar needs are called market segments. The process of dividing a broad market into different market segments is called market segmentation, and an identiﬁed market segment describes a group of customers:

66

4

Market Understanding

• Who have common needs, interests, and priorities. • Who are different to other segments by at least one criteria. Market segments are most useful when they are measurable, substantial in size, clearly differentiable from one another, and accessible as well as actionable. Each identiﬁed and addressed market segment needs a different marketing approach and/or solution. In regards to product architecting or platform development for example, the architectural form of the ﬁnal product should meet customer needs in the best possible way. It should also be built in line with considerations on how to simplify complexity and standardize overlapping commonalities or modules between different segments.

4.2.1

Market Segmentation for Multiple Business Questions

Market segmentation is typically an approach to divide the Served Available Market (SAM) into homogeneous subgroups that are heterogeneous from each other—so called market segments. Conducting a market segmentation addresses two essential questions. 1. What are the “right” criteria for determining a cluster or segment of a market? In regards to the example illustrated in Fig. 4.1, the right criteria is length. 2. What market segments (i.e. customer clusters) can be identiﬁed according to the selected criteria? In Fig. 4.1, the bubbles show the distribution and volume of customer groups, which allow us to identify relevant clusters and market segments. Unfortunately, most engineers consider a market segmentation as a “marketing tool” only, and are not aware of the importance and power this technique has for also solving their own technical problems. They do not consider to include a market segmentation in their tool box. This might be because such a market analysis is traditionally associated with segmenting along geographic, demographic, behavioral, and psychographic factors. However, as with many things, once we learn more and realize all dimensions of its applicability, we see how a simple tool can be applied in multiple ways to serve our own, multi-varied purposes and challenges. As a true lever for achieving impactful change and tangibly visualizing what has to change, we therefore urgently advocate the use of this tool to everybody involved in the early phase of product development! If skilfully applied, a market segmentation is not only a decision-guide for questions relevant for business strategy or marketing, but rather can give relevant insights into various questions regarding architectural design—beyond which criteria will boost overall perception of customer value. As a multifaceted tool, Fig. 4.3 shows different types of business areas and hypothetical application cases. The chosen business areas concern business strategy,

ugly

medium attractive

Design

>10% 5-10%

Profit margin

20’’ 10-20’’ 50% of initial redesign cost) Requires partial redesign of components (

Mastering Disruption and Innovation in Product Management

Recommend Stories

Idea Transcript

Helpful Links

Smile Life

Get in touch