Welcome back to our course, Quantitative Customer Insight Techniques. I am James Lenz with University of Illinois. And today, we are going to be working on Lecture two and going through Lecture two. In this lecture, we are going to focus on the tools for defining the market of interest. There's many different templates and tools and I'm going to offer them all to you here to look at and use, some you will like to use, some you will find are distracting. Maybe some mean more things but I give you a long ideas and hopefully, as you look at this presentation, you can stop it and look at these tools. I am going to go through them. Some of them relatively quickly some of these templates. So you won't get the chance to read all of them, but you just come back and look at them and see which ones maybe help you the most or more interesting to you. I am going to show you my favorite and be using them as a few examples. We go through this. And again, I think it's an interesting activity as you heard me say that for people to come up with their own ideas and push their ideas. And I think what's even more interesting and more useful to you is the chance to find funding for those ideas. Anything you do, whether you are asking for a grant, maybe you are trying to get a scholarship. I mean, all these principles work. They work for any activity where you are trying to get some funding or get your idea pushed into another place. So you don't have to think about, I also talk about building hardware as you know, devices, because this is what my passion is. But in reality, it's about any type of activity where you are trying to find funding or try to get your ideas out there. These principles are working and you are welcome to use them and you should think about them. And I think it's a good activity to find funding for your own ideas. It's a very worthwhile learning experience. So we are going to expand our discussions as I said for are still building around the stage gate process. What types of tools to help us through these gates, especially these Gate one and Gate two, to develop the new product development. And there's a long list of activities of types that will be going through here. Again, the S curve, as we have said, is sort of a thinking theme around new product development. This is your goal. I like to think of this not so much as units sold but it is effort and you are trying to find the funding to justify this type of effort to launch that product. The stage gate process, again, I will remind you very quickly, this step of scoping, building the business case. Again, our scoping activity here is what this course specifically is working on and specifically this module is working on tools and methodologies to help you define the market and forecast the market in your new product idea. Next course will be on building the business case from those customer insights. One other clarification I wanted to make as I have used the word durable before and this is a theme that I very much like. I think it's a concept that's come into the business school practices, it's kind of come from a total quality management activities of where you want to build a durable product, you want to build it, so it's called a durable process. By the end, there's almost no uncertainty left in the product as you get through it. What's happened is we have become more and more interested in soft technologies, as you know we are surrounded by soft technologies. There's a process called Agile, finding out that the durable process doesn't work so well because there's so much rework and there's so much uncertainty involved in many of these techniques and that's what software is the best that is it can be very quickly changed. Whereas, changing a hardware tooling in a factory is much more complicated or changing the positioning of your supply chain is much more difficult. Whereas, delivering things through the Web is much easier to change. So it's a much more agility in this type of product. So they are looking for more of an agile process. The way I distinguish these two things by the way is if you think about building models. What I show here is a model aircraft and an airplane built from Lego's. And the way to think about the agile process is if I want to build a airplane from Lego's. I mean it's very easy to do. I get the pieces, I can create it, and rework is very easy. You can see the cost of rework is almost nothing. If I don't like the way that wing is, take it apart, put it back together, it goes very, very quickly. So what I end up with, of course, is something that's a Lego airplane. Does it have a lot of quality? I don't know, but it can be easily repaired and modified as I go through this. What I prefer more is a durable process. And you think of that as a model aircraft or a model car, building things from what are called models. Here, the pieces are laid out. Now, as I go through this, there's a vigor, very rigorous set of steps of instructions to follow and you follow them in order. One, two, three, four. If you skip a step, you are going to be in trouble. And we have all built these and know that when we skipped a step, I don't want to do that now, I can do that later. You get in trouble. I mean, the structure has been very much laid out. This is what leads to success. And if you follow this precisely, you will have a very high quality a successful product at the end of this. And of course, the costs of rework, if you do something wrong, is very complicated and very expensive. In fact, sometimes, you might have to start over, start with an entire new thing because you can't recover from that failure that happened as a process. As a result of that, you want to be very careful as you go through this step by step process. And this is why sometimes new product develop takes three years following this durable process, but it does build quality into the program and it's been proven over and over and over. This type of process does build quality into products. So let's go through some of the processes that we have. I think, again, you are probably familiar with Voice of the customer. We have a little list here of what activities are done. You have probably seen this before. Let me just tell you, I was part of this activity when it first arose out of Boston Consulting in the early 1990s. They wrote a book called Voices and Choices. I was working in a company in Minneapolis that adopted this was one of the first companies to adopt this process, and we applied it to developing a new products for a new business what's called Taxiway and Runway Management. So when an airplane lands, all the activities associated with what goes on on the ramp and on the taxiways associate with aircraft travel and baggage carts and so on. We want to look at managing that as if it was an industrial process, ends to the time that the plane takes off again. At that point, it's in the airspace and now it's under FAA control. So we looked at how do we study this. We use this voice for the customer process. And it was quite fast and to go through this to make a list of questions, find the right people. Here, we have to find again people all sorts of people associated with this business, not just pilots, but people who work at the ramp, FAA, ground control people as well, and so we have had a whole family of different jobs. We made these questions. We asked everybody the exact same questions. We translated their work, their interviews into text, and from that, we sat for a week and post the notes and put things together and came up with sort of where we think the unmet needs are associated with this. And from that, then we target our products to support that. I think this process was very interested go through. Maybe the problem we applied where you are trying to do product creation with new technology and new customers is maybe a little more challenging to really get a true unmet need defined very clearly, but at least it was a very interesting process. Another one that I like very much is the value chain form. And here what you do is you start out with your enterprise and you try to list who is your direct customer, and then where does your product go after that. Who is the indirect customers that follow after this device to. Then who is the final customer? I like this theme very much to think about that where Is the value created and what goes on? I want to give you an example here. In Japan, and a group of people came up to me and asked me about helping them with the invention that they had, an idea that they had. In fact, they had had prototype it. It was a device that you could click on the end of your finger, there's an optical sensor. It ran into a computer and by monitoring it for a short amount of time, they gave some prediction whether you are liable to have blocked arteries. So the onset of blocked arteries, of course, which could lead to their health problems. So, they showed it to me and I was fascinated with it and they said OK, how do we get to this as the market? Where's the value? So we did this. I did this with them, this value chain, and I want to show you how this worked out and what the thinking that comes from this. So they put their company up and so where do you sell it at least in the United States, they want to know more about the United States, how they could introduce this. Here, of course, we got HMO, Health Management Organizations, which are the main organizations that we work with our health services with. You write down what is their goal is trying to lower costs of course. They are not very successful at it but they really have a goal of trying to lower costs by being an HMO. And then there's clinics as part of those. The clinics are trying to get people through throughput. From the clinics comes a doctor, of course, and the doctor is patient comfort. This is what their main goal is. And finally, the in-home patient. So you see this value chain. The company is selling something to the HMO, who then is part of the clinic, that gets to the doctor, then it gets to the in-home patient. Let's go through what is the supplier. So, we have this garage, I call it medical device garage, is where they're going to build these devices. They can do devices in the software system so it's a kit they can make up. They're really good about accuracy, and calibration, and setup. They've really worked through these issues about making sure that their device has a lot of accuracy. So, you output this home kit. It's a little kit that they can do. It goes to the HMO technician who is interested in making sure that they get to be trained on it. From that, you put the company there again, their home kit, what's the requirements, reliability. The HMO, what is their output? They approve it. They're going to approve this home kit. That goes to the buyers of the clinics. The people that are buying things so they convince them that this is available and so they need some type of on-call supply. Now, as we go to the clinic, the HMO is the supplier. The home kit with instructions. Now it's available. The HMO has added a little bit of value by putting some uniform instructions where the clinic wants this certainly to be foolproof. There's now an approved home kit. The end-user is the doctor. They're getting this ready for the doctor and now they claim that this health insurance approves. If the doctor offers it to a patient is to make sure the insurance will approve payment for it. Then, the clinic comes up and the approved home kit again. One's requirement is self-learning so the doctor doesn't have to explain this to the patient they want it to be self-evident how it can operate. Then there's again, this approved home kit. The end-user is now the patient and one's requirements is improved health. The patient wants to just to have a better health. From a patient perspective is the doctor, the health exam is the input and requirements is timely and accurate health exams that can be done so this device could be giving you a warning or input that it's time to go get checked up by your doctor. Of course, what they get is the home kit. If you look at this value chain, you can see there's not much value being offered in health organization, this HMO, the clinic to doctor. This is a little bit trouble we have in the United States is we have lots of organizations in the middle, but they don't add much value. They're there because of approval and regulation issues, and as well as about make sure things are done in a legal way so that they can be tracked if there's any faults in the system. As a result of this company trying to sell its device, you can see that there's such a complex value chain. It's going to be very difficult for them to sell an in-home patient care. They're trying to figure out how they could get directly to the patient. We talked about that as well, and there's one way to do it. Now, without these organizations in the middle, there's really no approval from the insurance agency to approve the use of this type of device. Then, what good is it? How can you build this? It was interesting idea and as a result that product is sitting on a shelf right now. It really is trapped. Is a fantastic product, but it's trapped because of the value chain of the health industry of trying to get these devices to the patients themselves. Another type of tool is called the value chain map. Here, a very similar theme, but another just a little bit different way of looking at things. The enterprise, the direct customer, the other customers that come from then, and then the end-user. What's their key activities, what's their priorities, what's their benefits, and then again, like what Jeff Kaiser used, he used this type of maps when he looked at what are the other suppliers. Where are these other suppliers that are fitting into there and what are they doing? What's their key activities? What's their high priority? Maybe I can target that, so this type of chart Jeff used to identify where his company could bring the biggest value in the world of precision agriculture. Another type of theme is what's called refining value proposition. Maybe you've heard this coming up with a statement as you do new product development, what is your value proposition? We're getting that value chain helps you define that, but in another way do identify the customer needs, make this list, correct these needs and capabilities, and come up with this customer value. I want to say also, while you're filling out these charts, there isn't an exact way to do this. Some people use sentences, some people use just keywords as I've shown here for this demonstration is for your use. If you understand it it's enough, there isn't any exact way to fill these in. If you have a bigger group of people maybe you want to start working on sentences, from a smaller group of people maybe a few keywords is enough that people get the idea and get the understanding of that thing. Sometimes wordsmith in sentences takes a long time, but then also sometimes it creates a lot of value for a huge group of people. There's one way to bring understanding together is to get them to agree to one sentence and how it goes. Another form. Again, lots of different forms. This one's again, sort of what information is needed? With whom would you like to talk? It's a little bit built around the voice of the customer type of activity and what's your analysis plan. Again, as I always say, if you're going to take data you have to think about how you're going to analyze it. You should be thinking about that and I like this form for that reason because not only it shows what data you want to collect or what you are going to try to do with that data and how you're going to analyze that data. Another one is the SWOT, strengths, weaknesses, opportunities, and threats. This concept can be applied to lots of different activities. For new product development, I show it here as a way to think of as a box between external activities and internal activities. Internal are strengths and weaknesses. External are opportunities and threats. Think about just answering these four questions. Can you answer these questions with the strength and your opportunity? What product features can be used to maximize the opportunity from weakness or threats activities strengths and threats, is what's the competition got that you don't have. Where are they the strongest? Can you identify that? To support and to identify that and see what's there. I say with the macro on cookies. If they did this, it would be interesting to see what the people are charging the most. What do they think their strengths and their weaknesses are? Maybe it's more than just the taste of the cookie, maybe it's something about the atmosphere or the location or something other that they feel like they're bringing more value to that product, so they can identify that in this type of chart. Another questionnaire form. Again, we use this type of form here for the voice of the customer. Again, what's the purpose of the question, and then what is the question. Thinking about the purpose helps you think about what you're going to do with the analysis that comes with that question. So, again, I'm leaving these forms here. I'm going through them relatively quickly but they are in the book. They're also available here in your presentation. You're welcome to look at them. Spend some time studying them a little bit. Maybe one of them you want to use here as part of this exercise of developing your own product idea. Another one that comes from the total quality management activity, the TQM or Six Sigma is called failure modes effects analysis. This, again, can be applied to new product development where mostly this FMEA is applied to products that are in the field that are failing. We can also apply these concepts to new product development activities and so lest you'll see this business school of concept of taking something that works in supply chain and bringing this type of tool up to the very front end of a new product development activity. Soon go through these again, charts it gives some questions about what to fill in but I like this theme as well because many times when you think about your new product, it's good to think about what it can do, but think about why it would fail and makes a different thinking. When I joined another company here to lead their electronics worldwide, I found out that they developed everything with the idea that's always going to work. I brought this idea of, what happens if it doesn't work? How do you engineer it to anticipate that something might not work, and what can you do about that? It forces a totally different type of thinking about the problem and it helps you bring better ideas to your product idea. You've seen this chart before, our QFD or quality functional deployment. Again, this was for the oilfield printer where I liked this chart again very well to help identify, where is the technology? What's the most valuable part of the technology? Where's the most important part of the technology? It helps you find out where your value proposition is by looking and going through this type of exercise. I want to give you a little example here to finish this lecture with my friend John S. I was invited by a group of investors. He lives down in Texas. I was invited recently by a group of investors to go visit him and they were looking at trying to invest in his idea. He has developed an idea, it's based on P and N type devices. If your familiar with these they're semiconductors. He has developed a technique where he's taken these P and N devices and he could put them into a ring of materials and he can generate electricity from this. By having a temperature difference, a heat on the inside of this ring and cold on the outside of the ring, he can get the ring to produce electricity. It's a semiconductor, very similar to all of the way all electronics works, but he's worked on this for years. He worked in the semiconductor industry for many years and became very successful in the Texas semiconductor industry. He's well-known at that area. As a result of that, he used his chemistry background to build this type of device. He's been working on it for four or five years, and now, he's looking for investors. He's not a businessman, he is absolutely an inventor. He's very good. This is him in front of his place. I took a picture of his device and his drawings. This device you put it basically on top of a camp stove. We all have camp stoves. And from this, he was able to generate enough electricity to power to his entire home. His entire home was powered off this device. He shut off the main power from the power company and used also the television, the lights, the refrigerator, everything was being powered from this type of device. This device is at the size of a camp stove which was quite fascinating to see that you can generate this much electricity from a fire of a camp stove so the technology is quite fascinating, very fascinating of what its potential is. Then we started talking to him and that's what the investors asked me to do is to come down talk to him about what is the market potential. Let's think about where this could be as a market potential. We went through this chart with him. I worked this through of what's the major design features, and again, what's the needs, low noise, and long life. It turns out as we talked and talked more and more, this is the points that distinguish it. This is what gave him the strength of this technology over other types of portable generators. We tried to focus on where would that type of need be the most valuable in the marketplace, where is there unmet need that meets this type of capability of low noise and long life. We went through this chart. So I called that JS, John S Energy company. And, if you're going to sell portable generators the main market is through hardware stores. What are they interested in? It is quality and supply and then you get to the home owner; and what they're interested, of course, is some portable energy. We can go through this chart relatively quickly. Him as a fantastic ceramics capability there at his firm and he's finally got the labor and the materials to do this and he can build the self-contained unit and his output he calls it TE generator. TE stands for thermoelectric, thermoelectric generator. The out user is a buyer from the hardware store and they are interested in trusted supply. They need to make sure these things are available and that they're going to work properly. So, again, if I look at the hardware store perspective, they want this box generator, they want high quality, they're looking at pricing schemes, of course. There are always when you're supplying to these hardware stores, there's a lot of issues about pricing and options, so we can talk about that. They want variability on this and flexibility on this so we have to think about that. Of course, their end-user is the sales clerk that has to understand this, and understand the pricing and reliability. You have a hardware store to the home owner they each want to get a box generator and they're interested in quality. What they really are looking for is power during line failure. These features that we had weren't really fitting this unmet need very well for the normal home owner. There are certainly some that would probably like these features. Then we started thinking about, "Where is their market?" "Well, in the recreational vehicle business," is another way to look at this. We have our company and let's just sell directly to recreation vehicle manufacturers. What if we do that, what is the value chain here? We have our ceramics factory. We have materials and labor. We've got a self-contained unit again. We're going to produce this TE generator. Now, it's going to go to the buyer of the RV manufacturer and what their interest, of course, is low cost supply. I mean, they're an OEM, they build entire vehicles so all the parts are very expensive then, so they're always managing the parts associated with that. The supplier to the RV manufacturer is this. They want crates of these TE generators. They don't want one or two. They going to keep a factory running so they need them to come in a way and they need high volume low cost. There's hundreds of thousands of RVs manufactured every year so they are looking at where can you make sure there's enough volume there that I can offer this as a feature. What it would be is they would offer as a backup power feature as part of the RVs. If you're familiar with RVs, many people get in a place where they like to run their electricity at night, and many places you are they don't allow noise. If you're in a campground, it has to be quiet. Well, these portable generators that run on carbon fuels, they make lots of noise so they need some type of way of having a portable generator but it needs to be quiet. Wuiet turns out to be a very valuable feature. We believe at least for this RV manufacturer. Then, there's the RV owner and what we want them to do is order the feature for quiet power. We saw this is an opportunity and so we built a business case then around this approach to the market as opposed to what John was first thinking about where he wanted just sell these in the millions to home owners. Well, maybe we've catered smaller segment of the market and we think about the market differently to build this up and find out where should we target, where's the features of this product going to fit an unmet need in the marketplace so I find this chart helps to find that, identify that in a very pretty quickly type of methodology. In summary of this lecture, determining the market's unmet need is a complex problem, as I've said before. As I've shown you, there's a variety of tools and I don't think I've shown you all of them, but I try to show a big cross-section of them. I've showed you which two that I like. I like the value chain analysis and the quality function of deployment as a way to identify where the main features of the product are, and where the market needs are and try to identify those activities. In the next lecture, we'll talk about now, taking that information and quantifying, building into numbers, spilling into a revenue forecast. Again, I'm hoping that you're thinking about this information as a way to prepare your own market forecast for your own product idea that you have. We'll be coming back to that at the end of this module. The last thing, again, I want you to remember that inventors have a limited view of the value of their idea so I want you to both play both roles, be the inventor as well as the businessmen. I want you to be able to put your foot in both camps and think about this idea so to become a successful product.
