Create Value

Updated: Apr 20

Create Value: TTP’s to classify the type of product you are developing (disruptive or sustaining) and how to position it for competitive advantage.


Overview


The overall rule for product development requires the manager to create value by prioritizing and developing products that solve the customer’s job to be done with no cost of delay involves a tactic for ”creating value” by making two critical choices:


1. Classifying the type of product you are developing, specifically, is this product on a sustaining or disruptive path;


2. Determining how you will position the product for competitive advantage, which fundamentally requires answering the question about how you will be different than your competitors.


Classifying the Product (Innovation Path)



Consumers have many jobs they are trying to get done as they progress through their lives and these jobs are always changing. As these jobs change (or new jobs surface) the products they hire to help them complete these jobs must also change. This requires companies to innovate in order to be competitive with rivals and win markets.


As depicted in Image 2, there are two fundamental innovation paths your product can follow, an innovation path shows the performance of a product over time. It is the choice between these two paths you will need to make. Are you delivering a better product into the established marketplace (sustaining)? or Are you delivering a product that will eventually disrupt the current marketplace. (disruptive)?


Sustaining: Sustaining innovation Involves developing products that demonstrate an improvement on the current products in the industry. It is usually meant to serve the customers at the higher end of the market with higher profitability. "Innovations that drive companies up the trajectory of performance improvement, with success measured along dimensions historically valued by their customers are said to be sustaining innovations." (Christensen)


Most new products are classified as sustaining, even if the innovation feels like it is "disruptive" if it fundamentally "sustains the functioning of the current system" it is classified as sustaining.


Disruptive: Disruptive innovation Involves being on a different path than the current products in the industry. The path starts below the dominant products. This occurs because the current products are delivering more than what many current customers need and/or it is priced so high that there are consumers that are priced out of the market. The product on the disruptive innovation path that starts below the current products in the market captures the over served customers or non-consumers and then begins an improvement path that eventually takes over the market. Disruptive innovation is a process that occurs over time (can be as long as 40 years) until the actual disruption occurs.


Positioning the Product




The second set of choices you will need to make involves how you will position your product in the market to create a sustainable competitive advantage. The key decision is how your product will be different than your competitors. You can either perform different activities than your rivals or perform the same activities differently.


"The starting point in the creation of any successful business model is its value proposition - a product or service that can help targeted customers do more effectively, conveniently or affordably a job that they've been trying to do." (Christensen)


Michael Porter expresses the value proposition as providing the answer to three fundamental questions:


1. Which customers are you going to serve?

2. Which needs are you going to meet? (the job to be done).

3. What relative price will provide acceptable value for customers and acceptable profitability for the company. (Magretta)


If you have chosen a disruptive path for your product, you will also need to innovate your business model. "A business model innovation is the creation of a new set of boxes (see image at the top of the page) established to deliver a new value proposition." (Christensen)

References:


Christensen, Clayton M. The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business, Harper Business Essentials, New York, NY. 1997.


Christensen, Clayton M., Raynor, Michael E., and McDonald, Rory. What is Disruptive Innovation? Harvard Business Review. 2015.


Christensen, Clayton M., Grossman, Jerome H, & Hwang, Jason. The Innovator's Prescription: A Disruptive Solution for Health Care. McGraw-Hill. New York, NY. 2009.


Porter, Michael E. What is Strategy. Harvard Business Review. Nov/Dec 1996.


Magretta, Joan. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business Review Press. Boston, MA. 2012.


Osterwalder, Alexander & Pigneur, Yves. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. John Wiley & Sons. Hoboken, NJ. 2010.


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