How Did We Do?

“The sailor who goes onto a ship without rudder or compass… never can be certain whither he is going” – Leonardo da Vinci

As I develop my second book, I’ve been writing about how Nestlé used a rapid “design-prototype-test cycle” process to try new business model ideas and landed on the sales model for Nespresso capsules, turning them from what had been looking like a product failure for the company into a success – as described by Oliver Gassmann, Karolin Frankenberger and Michaela Csik (2014). What astonished me was the scale of that success. According to Stefan Michel (2014), by selling coffee in capsules Nestlé could sell a kilogram of coffee beans worth just $19 (the commodity price) for $137 – a remarkable piece of value capture. One must hope that Nestlé has been able to identify its “secret sauce” here so that it can apply it to other products in other markets and learn from the trial-and-error business modelling process that brought it the remarkable commercial success of Nespresso.

In the first volume of my book, I wrote about the Airbus A380 and how, in 2019, the world’s only example of a double-deck, wide-body airliner was withdrawn from sale long before the $25 billion investment in its development was recovered. The A380 failed for similar reasons as the Ford Edsel, although, perhaps not in such a spectacular way, because, in Emirates Airlines, Airbus was at least able to find one customer who could make money operating the aircraft. But, just like Ford, Airbus made some key mistaken assumptions about the market (Aviation Week, n.d.). It plumped for a four-engined configuration at a time when sales of large four-engined aircraft like the Boeing 747 were declining and smaller twin-engined aircraft were on the rise. It was blindsided by the creation of new, more efficient engines by General Electric and Rolls-Royce which were much more fuel efficient than those designed into the A380 and allowed the new Boeing 787 and Airbus A350 to operate at a much lower cost. To compound the problem, even as it was designing the monstrously large A380–800, Airbus was already thinking about a stretched version – the A380–900. As a result, and in a misguided attempt to future-proof its new product, the wings and tail section were both made larger and heavier than were needed for the initial version of the aircraft. With the benefit of hindsight, any project like this requires reflection and a thorough evaluation of lessons learned, just as much as Nestlé’s success with Nespresso does.

The most important part of any such review is validating how much value was both created and captured as part of the innovation process. If you have been strongly connected with your customers and/or stakeholders throughout the development of your new offering, you should be handily placed to understand whether it has created value for them and whether it has met their needs. However, this can sometimes be harder than might appear.

About a decade ago I was working for a company in Texas. I was responsible for engineering and manufacturing for the company, and we had diligently prepared for our first ISO 9001 audit. Administered by the International Organisation for Standardization (ISO), ISO 9001 is a globally applicable standard covering quality management systems against which companies can measure themselves. It is possible to be certified to the standard, and certification requires an external audit. In Texas, we had selected the American Petroleum Institute (API) as our auditor. Overall, the audit proceeded well. But then we got to validation, which is a key part of the standard. ISO 9001 requires that an organisation meets the needs of its customers or stakeholders, and, according to the standard, validation requires objective evidence that those needs have been met. It turns out that it can be harder than you might think to prove that your customers’ needs have been met by your product or service. We debated this part of the audit on and off over the course of a full day. My position was that it was clear that customer needs had been met, the auditor’s position was that there was no objective evidence, just internal records of sales, informal conversations between salespeople and customers, and more general customer satisfaction surveys. In the end, we compromised, and agreed that multiple repeat purchases of the same item by the same customer provided evidence (assuming that the customer was rational) that the product was in fact adding value to their operations and thereby meeting their stated needs. Common sense prevailed, but this episode illustrates how hard it can be to understand whether you’ve met those all-important needs.

Elon Musk was quoted by Lance Ulanoff in 2012 on what Musk apparently called his “single best piece of advice”: the importance of what Musk called “a feedback loop, where you’re constantly thinking about what you’ve done and how you could be doing it better.” Validation is where the loop gets closed and it’s essential to the future success of your organisation that it does. You must learn from the projects you execute to fine tune and continually improve your own innovation process. A surprising number of people either forget this, or don’t worry about it, or are too keen to move on to the next project. You must understand whether every new offering successfully created value for your customer, and you haven’t finished your innovation journey until you close this loop.

My question to you: where have you seen companies succeed or fail at validation? Do you have any stories where are you successfully demonstrated that you had added value, where did you find it really hard to do so? I’m looking for one or two more examples for my book and I’d welcome any input.

References and Further Reading

Aviation Week. (n.d.). Why The A380 Did Not Work Out. https://aviationweek.com/why-the-A380-did-not-work-out

Gassmann, O., Karolin Frankenberger, K., & Csik, M. (2014). The Business Model Navigator. Harlow: Pearson.

ISO. (2015, September). ISO 9001:2015 Quality Management Systems — Requirements. https://www.iso.org/standard/62085.html

Michel, S. (2014). Capture More Value. Harvard Business Review, October.

Ulanoff, L. (2012, April 13). Elon Musk: Secrets of a Highly Effective Entrepreneur. https://mashable.com/archive/elon-musk-secrets-of-effectiveness

 

© 2021 J M Clegg Ltd.

Image © Philip Steury– stock.adobe.com

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