Avoiding waste within digitization projects 2/2

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experiment validated learningValidated learning instead of inadequate metrics

One of the major advantages of the lean startup method is to make the success of innovation measurable and thus manageable from a very early stage. The crucial factor is to identify the right metrics. Very often metrics are used that are interesting and show a certain process but do not reveal whether a digital solution will be a market success, for example focusing onsocial media posts of the marketing department instead of customer reactions; views, likes and retweets instead of the number of customers willing to buy; newsletter recipients instead of buyers; and, most importantly, customer comments instead of observed behaviour. All these “faulty metrics” can lead to self-deception and lost chances to realize digital innovation fast and steer it.

Another source of misleading metrics was described in the section “Agile development instead of waterfall projects”. By focusing solely on project data, the far more relevant data about value creation for customers and company is neglected.

Sure, it is not easy to define adequate metrics. According to the combination of the business model, customer groups and customer journey they can be very different. In some cases it might be really useful to gain social media followers. In other cases it can be irrelevant or even misleading. It depends on how a customer journey is defined–or even better–preferred by customers: entering into communication, subscribing to a free test account, upgrading to a paid account and so on. All these steps are milestones that should be measured appropriately and optimised as quickly as possible.

Using the right metrics, experimenting and thus creating a fast and validated learning process are key factors in avoiding waste and innovating effectively.

PivotPivot instead of tight project scope

It is never welcome but it happens: the original idea proves to be unrealisable, customers reject the solution or a competitor launches a solution that changes the whole market. Things like this can destroy the entire concept. These situations hold two types of risks that can provoke waste in a huge amount: clinging to the original plans–the easiest way to do that is by using waterfall logic–or complete termination of the project. Of course, the latter can be a reasonable outcome. But it should be chosen only after thorough consideration and experimenting with alternative variations of the solution. This might save valuable insights and know-how gained during the innovation process.

According to many personal experiences and the lean startup concept by Eric Ries this situation is the rule rather than the exception. Almost every start-up, and of course innovation projects in well-established companies as well, has reached the point where the business model has to be reviewed. A pivot might not only be inevitable but can also open new perspectives. A wind power supplier had to pivot when the management realised that the monitoring systems that were their core products were not selling. Customer feedback showed that the company’s knowledge was highly appreciated but the systems were not appropriate. So they adapted their business model, made their knowledge the new core and now they are one of the world's leading wind power consultants. Development and production of monitoring technologies were completely halted.

MVP Minimal Viable ProductMinimal viable products instead of big solutions

Especially in Europe digitization is mostly discussed in connection with huge IT projects like IoT (industry 4.0) platforms, manufacturing execution systems (MES), fully automated factories etc. Some of these solutions might be reasonable for some companies. However, it is not a lean way to digitization but a kind of uncontrollable ballistic procedure. Only in the end can you see whether it was a success or not. If not, a great deal of money and time will be wasted. In contrast, a lean way to digitization is characterised by small, controllable projects and a variety of experiments and optimizations.

In the first instance testing and optimization can take place in-house. But that should only be a short intermediate step. As soon as possible minimal viable products (MVPs) should be tested with real customers. The insights will be much greater than those gained from in-house testing only.

To reduce waste and gain speed it is crucial to take the aspect of minimalism seriously. An often cited witticism of lean startup enthusiasts is: “If you launch a product and you don’t feel embarrassed about it, you launched too late”. Sure, this is the point where brand managers and board members remain shocked, often for good reason: the brand and image of a company may be damaged.

This consideration has a reasonable basis. Well-established companies in particular should focus on the following points when testing MVPs:

Budget

The appropriate budget

Various studies and numerous cases have shown that innovation projects do not necessarily profit from higher budgets. Neither speed nor quality of the solution depends directly on the budget. In contrast, it seems that tight budgets often foster creativity.

It remains a difficult task to assign an appropriate budget. It depends on the type and size of the company as well as on the task itself. In the past, some companies established routines that seemed to be helpful. Google had its "20% rule", whereby every employee could spend 20% of their time on their own projects. HP, some years ago, established the 3x3-rule. Every innovation project was assigned 3 people, $ 300,000 and 3 months to deliver results. Although both were cancelled or modified they were ways to experiment with budget routines and gain useful information on how innovation can be supported by budgets.

What HP and Google did can also be a useful way for other companies to try to find a routine that leads to adequate budgets. It’s experimentation. Yes, lean digitization methods can even be applied to themselves and reduce waste step by step.

 

 

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published: December 10, 2018, © Uwe Weinreich

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