505: What you don’t know about product innovation limits your influence – with Chad McAllister, PhD

Product Mastery Now for Product Managers, Leaders, and Innovators

Questions product managers ask me about how to improve innovation

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TLDR

Product managers are pivotal in driving innovation within organizations. Today I’m answering common questions I get asked about product innovation and management, including:

• Supply-side vs. demand-side innovation
• The Business Model Canvas
• Strategic planning
• Portfolio management
• Project selection criteria

I also discuss the importance of ongoing learning and professional growth for product managers. By mastering these areas, product managers can improve their skills, boost their influence, and contribute more effectively to their organization’s success.

Introduction: The Role of Product Managers in Innovation

As product managers, we’re at the forefront of innovation in our companies. We spot important ideas, uncover customer needs, turn concepts into products or features, and work to increase market share. But there’s more to innovation than just creating new products.

Innovation is the economic engine for organizations and a key source of new value. It’s about creating an innovation culture that drives growth and keeps companies competitive. In this article, we’ll explore key ideas and strategies to help you become a better product innovator and manager.

Supply-Side vs. Demand-Side Innovation: Finding the Right Mix

One of the basic concepts in product innovation is understanding the difference between supply-side and demand-side innovation. Let’s break down these approaches and look at their pros and cons.

Supply-Side Innovation:

• Creates new products or technologies based on the company’s expertise
• Often results in “new-to-world” products
• Usually needs a lot of R&D investment
• Can lead to big breakthroughs but carries higher risk

Demand-Side Innovation:

• Starts with customer needs and market research
• Aims to solve existing customer problems
• Generally carries lower risk as it addresses known market demands
• Can lead to improvements or new products that better serve customers

While both approaches have their good points, demand-side innovation often has less risk and can lead to quicker success. However, a balanced approach that includes elements of both can be ideal for many companies.

Examples of Supply-Side Innovation:

Product	Company	Outcome
Post-it Notes	3M	Accidental discovery of weak glue led to a widely used product
Humulin	Eli Lilly	Synthetic insulin development that initially overshot market needs
Electric Actuator	Caterpillar	Solution developed before a problem was identified, later found use in smaller excavators

These examples show that while supply-side innovation can lead to revolutionary products, it often takes time to find the right market fit.

The Business Model Canvas: A Tool for Product Innovation

The Business Model Canvas is a valuable tool for product managers involved in innovation. It gives a complete view of how a product or business creates, delivers, and captures value. Let’s explore the nine key elements of the Business Model Canvas:

1. Customer Segments: Define the specific groups of customers you aim to serve
2. Channels: Identify how you’ll reach and communicate with your customers
3. Customer Relationships: Determine the type of relationship you want to have with each customer segment
4. Value Proposition: Explain the unique value your product offers to solve customer problems
5. Key Partners: List the external partners crucial to your success
6. Key Activities: Outline the most important actions your company must take to operate successfully
7. Key Resources: Identify the most important assets required to make your business model work
8. Cost Structure: Describe all costs incurred to operate your business model
9. Revenue Streams: Detail how your company will make money from each customer segment

Using the Business Model Canvas in product management can help you:

• Align your product strategy with overall business goals
• Spot potential gaps or inconsistencies in your product plan
• Improve cross-functional teamwork and communication
• Refine your product concept based on a complete view of the business

Strategy in Product Innovation: Aligning with Company Goals

To be effective product innovators, we need to understand how our work fits into the broader company strategy. Let’s look at the strategy hierarchy and how it relates to product innovation:

1. Mission, Vision, and Values: The basic elements that define the company’s purpose and direction
2. Corporate Strategy: The overall plan for achieving competitive advantage and meeting company goals
3. Business Strategy: Specific strategies for individual business units or product lines
4. Innovation Strategy: The approach to creating new products, services, or processes that align with corporate and business strategies

As product managers, we mainly work at the innovation strategy level. However, it’s important to understand how our work supports and aligns with higher-level strategies.

The Miles and Snow Strategy Model offers another view on company approaches to innovation:

Strategy Type	Description	Innovation Approach
Prospector	First-to-market with new products or technologies	High investment in R&D, focus on breakthrough innovations
Analyzer (Fast Follower)	Quickly adopts and improves upon successful innovations	Strong market research, focus on customer insights and incremental improvements
Defender	Maintains market share in stable niches	Focuses on efficiency and incremental improvements to existing products
Reactor	Responds only when forced by competitive pressures	Limited proactive innovation, reactive improvements to maintain relevance

Understanding your company’s strategic approach can help you align your product innovation efforts more effectively.

Case Study: Apple as an Analyzer (Fast Follower)

While Apple is often seen as a highly innovative company, its success comes more from its role as an analyzer or fast follower. Apple excels at taking existing concepts and greatly improving them:

• Macintosh: Improved upon existing personal computer concepts with a user-friendly graphical interface
• iPod: Enhanced the MP3 player experience with sleek design and seamless music management (iTunes)
• iPhone: Revolutionized the smartphone market by refining and integrating existing technologies

This approach allows Apple to learn from others’ mistakes, focus on user experience, and bring highly polished products to market.

Portfolio Management: Balancing Innovation Investments

Effective portfolio management is crucial for companies to allocate resources efficiently and maximize the value of their innovation efforts. Here are some methods for structuring innovation portfolios:

1. Strategic Buckets: Allocate resources to different categories of projects
2. Three Horizons Approach: Balance investments across core, adjacent, and transformative innovations
3. Business Unit Organization: Align innovation efforts with specific business unit objectives

Example of Strategic Buckets Allocation:

Project Type	Resource Allocation
Breakthrough Projects	10%
Platform Development	10%
Derivative Products	20%
Support and Incremental Improvement	60%

This allocation ensures a balance between maintaining current products and investing in future growth opportunities.

Project Selection Criteria for Innovation

Choosing the right projects for your innovation portfolio is critical. Here are key criteria to consider:

• Strategic fit with company objectives
• Sales potential and market size
• Competitive landscape
• User experience and customer value
• Technical feasibility and complexity
• Financial metrics (e.g., ROI, NPV)
• Resource requirements
• Risk assessment

Various methods can help in project selection, such as the Analytical Hierarchy Approach or the Selenese Factors model, which considers:

1. Strategic fit
2. Strategic leverage
3. Technical feasibility
4. Market desirability
5. Reward to the company

By using a structured approach to project selection, you can ensure that your innovation efforts align with company goals and have the highest potential for success.

Continuous Learning and Professional Development for Product Managers

To stay at the forefront of product innovation and management, it’s essential to engage in ongoing learning and professional development. The Product Development and Management Association (PDMA) offers valuable resources and certification programs for product managers.

The Rapid Product Master Experience (RPM) is a comprehensive training program that covers seven research-backed knowledge areas for product mastery:

1. Strategy and portfolio management
2. Market research and customer insights
3. Innovation and new product development processes
4. Product lifecycle management
5. Product design and development tools
6. Launch and commercialization
7. Product management and leadership

By investing in your professional development and staying current with industry best practices, you can enhance your skills, increase your influence within your organization, and drive more successful product innovations.

Developing an Innovation Culture

Creating a culture of innovation within your organization is crucial for long-term success. Here are some strategies to foster innovation:

• Encourage risk-taking and learning from failures
• Promote cross-functional collaboration
• Provide time and resources for experimentation
• Recognize and reward innovative ideas and efforts
• Create channels for employees to share and discuss new ideas

By cultivating an environment that values and supports innovation, you can tap into the creative potential of your entire organization.

Measuring Innovation Success

To ensure your innovation efforts are on track, it’s important to establish and track key performance indicators (KPIs). Some relevant metrics for product innovation include:

• Percentage of revenue from new products
• Time to market for new products
• Customer adoption and satisfaction rates
• Return on investment (ROI) for innovation projects
• Number of patents filed or granted
• Employee engagement in innovation activities

Regularly reviewing these metrics can help you adjust your innovation strategy and improve outcomes over time.

Conclusion

As product managers, we play a vital role in driving innovation and creating value for our companies and customers. By understanding key concepts like supply-side vs. demand-side innovation, using tools like the Business Model Canvas, aligning with company strategy, and implementing effective portfolio management, we can significantly improve our product innovation outcomes.

Remember, the path to successful product innovation is not always straightforward. As the Cheshire Cat in Alice in Wonderland said, “If you don’t know where you’re going, any road will take you there.” By continually improving our skills, staying informed about industry trends, and applying best practices in product management, we can chart a clear course towards creating products that truly resonate with customers and drive company success.

Innovation Quote

“If you don’t know where you’re going, any road will take you there.” – the Cheshire Cat, from Alice’s Adventures in Wonderland by Lewis Carroll

Application Questions

1. How does your company currently balance supply-side and demand-side innovation? Are there opportunities to adjust this balance to improve innovation outcomes?
2. In what ways can you use the Business Model Canvas to enhance your current product development process? Are there any elements of the canvas that you typically overlook?
3. How well does your product innovation strategy align with your company’s overall strategy? What steps can you take to improve this alignment?
4. Evaluate your company’s approach to portfolio management. Are you effectively balancing investments across different types of innovation projects? How might you improve resource allocation?
5. What criteria does your company use for project selection in innovation? Are there any important factors missing from your current evaluation process?

Bio

Chad McAllister, PhD, is a product management professor, practitioner, trainer, and host of the Product Mastery Now podcast. He has 30+ years of professional experience in product and leadership roles across large and small organizations and dynamic startups, and now devotes his time to teaching and helping others improve. He co-authored “Product Development and Management Body of Knowledge: A Guide Book for Product Innovation Training and Certification.” The book distills five decades of industry research and current practice into actionable wisdom, empowering product professionals to innovate and excel. Chad also teaches the next generation of product leaders through advanced graduate courses at institutions including Boston University and Colorado State University and notably re-engineered the Innovation MBA program at the University of Fredericton, significantly broadening its impact. Further, he provides online training for product managers and leaders to prepare for their next career step — see https://productmasterynow.com/.

Thanks!

Thank you for taking the journey to product mastery and learning with me from the successes and failures of product innovators, managers, and developers. If you enjoyed the discussion, help out a fellow product manager by sharing it using the social media buttons you see below.