Posts Tagged ‘Business Strategy’

21. Predicting

21. Predicting

An idea is innovative when it is what the customer wants and it is profitably delivered. Profitable is not just financial for the person selling it. It must better satisfy one or more Outcomes while satisfying all other Outcomes at least as well as existing products. Giving up satisfaction is a cost that makes a product non-profitable to users. This is often a problem with new technology.

Even if a product would otherwise be desired it can fail to innovate because it is too soon or too late.

Too Soon

Too Late

What is
  • Required Components not available
  • Cost too much
  • Existing products satisfy current desires
  • Other options available
How to
make it
  • Technology not advanced
  • Poor quality
  • Profit margin too low

Timing is difficult since it depends on actions of human beings. Predictive Innovation does not claim to predict dates. Predictive Innovation predicts sequences of innovations. The invention of the wheel, fire, and steel must happen before the automobile. Additionally, if customers are not using the existing products to the full potential they will not see value in something that is better. People who live on a small self-sufficient island don't need automobiles. The advantage of speed is not worth the investment or costs. If there isn't a source of fuel an automobile would be worthless.

So there is a sequence of innovations. These sequences can be predicted and the signs recognized. Since all innovations are moving towards the ideal there is a natural progression. This progression can be seen in the 15-Alternatives.

Alternatives Progression

Innovations tend to start as Single Direct Alternatives then move towards a Continuous Stable Alternative. Innovations can progress towards any of the 3-Stable Alternatives to become ideal.

The ideal product always has the desired State. This would suggest the natural progression is from Return to Stable, to Make Stable, and finally Keep Stable. At the very last step in the ideal progression this is likely to be true but during the many steps towards the ideal the progression of Stable Alternatives may follow a different order. Different technological advancements at the point when a Stable Alternative is the next step can change which type of Stable is next on the path but the tendency is towards one of the Stable Alternatives and always towards a Continuous Alternative.

Predicting Process

The process for predicting innovations has four steps

  1. Diagram the Outcomes
  2. List the Ideal State for each Outcome
  3. Divide the range of improvements into Functional Distinctions
  4. Map the steps covering the idea space

Predicting ProcessDrawing 6: Predicting Process

1. Diagram Outcomes

The first step is to diagram the Outcomes. Start with the user core Outcomes then diagram the Functions and breakdown each Function into its Outcomes. Since innovations may change the steps required to achieve the Outcomes you may need to make several versions of the Function diagrams to cover the entire range from the current product to the ideal.

2. Ideal States

The second step is to list the Ideal State for each Outcome. Each Outcome has an Ideal State and each Function for achieving the Outcome has a set of Outcomes, each with Ideal States for performing the Function. These are the goals to guide all the innovations.

Using the 5 directions of the Alternatives we find the different ways to achieve an Ideal State.








Minimize amount of difference

Minimize frequency of difference


Maximize difference of amount

Maximize frequency of difference

Maximizing a State increases it to the most possible or the most with a Functional Distinction.

Minimizing a State makes it as close to zero or not happening as possible. Under some situations a negative amount might be possible. For example: instead of just reducing waste to zero you sell the waste for a profit. If you have used the indirect to turn a negative into a positive it is best to redraw the Outcome diagram so that the negative-indirect is the positive-direct and maximize that State. This will also reveal a new set of stable options.

Matching is a form of stable. Matching minimizes the difference from the ideal either in frequency or amount.

Avoiding is the indirect form of stable. Avoiding maximizes the difference from the ideal either in frequency or amount.

Each step on each of the innovation paths is a Functional Distinction of what and how. Since these branch from an existing product they have similarities and in this way considered adjacent in a multidimensional idea space.

3. Functionally Distinct Steps

The third step is to break the range of improvements into Functional Distinctions. Its usually not possible to jump to the end Ideal State so you must break down the path between what is available now and the ideal into steps of what can be delivered and will be accepted. Each functionally distinct desired step is an innovation closer to the ideal.

Example: Wagon wheel

A wagon wheel starts as a simple wooden circle with an axle. The solid wooden wheel is uncomfortable, heavy, and tends to fling mud on a passenger. This limits how fast the wagon can travel.

Adding a fender to the wagon prevents mud from being flung onto the passengers. This allows the wagon to travel a little faster but it is too uncomfortable and hard to control to meaningfully increase the speed.

The wheel can be made lighter by using spokes instead of the solid wooden circle. The spokes would tend to fling more mud but the fender prevents the mud from hitting the passenger so at this point the change is an innovation where it would not be before the fender. The lighter wheels make the wagon easier to control allowing it to move faster. This also would tend to fling more mud but the fender prevents it from hitting the passenger. A faster moving wagon is more uncomfortable so the speed is still limited.

The next innovation is springs but this requires a new technology of steel to make the springs. Adding springs would make the wagon heavier and harder to control but the spoked wheels are lighter and make up for the difference and springs make it more comfortable at faster speeds. Since the driver is not shaken as much the wagon is also more controllable. Steel is much stronger than wood so stronger wheels that weigh less can be made improving control and speed.

Finally tires are added increasing control, speed, and comfort. Tires are not possible until vulcanized rubber is developed.

The tire could have been added to the solid wooden wheel but the slow speed and general rough ride would not make the benefit of the tire noticeable.

The spring is a separate Component from the wheel and the fender. The spring would improve comfort but add weight making the wagon harder to control. It would allow the wagon to move faster but that would fling more mud on the passenger. The benefits of the spring are not appreciated without the improvements of the fender and spoked wheel.

The changes improved three different Outcomes by changing one Component twice and adding two new Components. Two enabling technologies were required to make the improvements.

Wheel Stages of InnovationDrawing 7: Wheel stages of innovation

All of these incremental improvements lead to the conditions needed for the “what” and “how” of an automobile.

4. Map Steps Covering the Idea Space

The fourth step is to map the steps covering the idea space. There isn't just one path to the ideal product. There are many profitable innovations covering the idea space. Your goal as an innovator is to deliver as many of those innovations as you can while progressing toward the ideal.

Future Map

Future MapThe combination of all the steps towards the ideal forms a map of a family of products and services. The region extending out from the existing products are covered by the emerging expectations. A product will fail to innovate if it is attempted too soon so you should focus on a range of 5-6 product generations. These will be connected like the example of the wagon wheel. Each improvement makes other improvements possible. This becomes like bowling pins. The first pin knocks down those behind it, which in turn knock down more causing a cascade knocking all of them down. When you properly arrange the sequence of connections between innovations your profits increase and the effort decreases.

Creating future maps is covered in detail in Strategist training.

Under-served Outcomes

Innovations satisfy the currently under-served Outcomes. Each new innovation increases the level of satisfaction for one or more Outcomes. Customers become accustomed to this new level and begin to expect the new level as the minimum. New innovations must do more or better for the same users in the same scenario.

Outcome Satisfaction LevelsSatisfaction levels for Outcomes can be measured by surveying users with a 5-point scale. This is not the typical marketing measurement. The survey is measuring the level the Outcome is satisfied and not how much they like a feature. It is also important to whenever possible use objective units to measure satisfaction such as meters, dollars, or numbers of occurrence of an event.

How satisfied are you with your ability to...?






Outcome XYZ

An example of objective 5-point scale could be applied to price. Free is the ideal price for a product that is not purchased solely for status. If the current price is $100 you could break down the range between $0 and $100 into a 5-point scale.

Which price are you willing to pay to be able to …?

$76 - $100

$51 - $75

$26 - $50

$1 - $25


Outcome XYZ

Measuring Satisfaction Levels is not enough. Even though the satisfaction level for an Outcome might be far from the ideal the customer might not consider it important at this time. Additionally, people might rank one Outcome more important than another. The combination or satisfaction and importance determine what customers will want next. It is possible to over-satisfy an Outcome. This creates the potential for disruptive innovation. A lesser but lower cost option would be acceptable to potential customers.

You must also measure Importance Level. This can be done with a 5-point scale. When combined with the Satisfaction Level you can assess the amount and urgency for improving an Outcome.

How important is it for you to be able to...?






Outcome XYZ

Plotting Satisfaction Level and Importance Level on a graph makes an Opportunity Landscape. This is a concise graphical representation of the innovation potential of a product or market. Opportunity Landscape

Illustration 56: Opportunity Landscape

There are four regions of the Opportunity Landscape. You can determine how to focus your innovation activities based on the region the majority of Outcomes appear.

New Market

Opportunity Landscape: New MarketThe lower right hand section of the chart show Outcomes that currently satisfied less than desired and customers view as important. These under-served Outcomes represent opportunities for improvement. New markets have many Outcomes in the under-served region.

Disruption Risk

Opportunity Landscape: Disruption RiskThe upper left hand region is Outcomes that current products exceed the level customers view as needed. If a product has many Outcomes in this region it is at risk for disruption. There are likely many potential customers who have been priced out of the market or who would gladly accept a lesser product if it satisfied a different Outcome or cost less.

Limited Potential

Opportunity Landscape: Limited PotentialThe upper right hand corner is the Limited Potential region. Outcomes in the Limited Potential region are currently satisfied but are extremely important. You can't increase the satisfaction but if you reduce the level of satisfaction customers will be upset. As markets mature Outcomes tend towards this region. Products with the majority of Outcomes in this region tend to suffer from commodity pricing since there is little potential for improvement in other ways. You need to find other markets before your products end up in the Limited Potential region.

Find Other Markets

Opportunity Landscape: Find Other MarketsThe center band extending from the lower left to the upper right is the Properly Served region. Your goal as an innovator is to keep all the Outcomes in the Properly Served region. When you have all the Outcomes in this region you should explore new markets.

To maximize profits you should keep the Outcomes in the Properly Served and have another market developed before the Outcomes move into the Limited Potential region.

The difference between the Satisfaction Level and the Importance for an Outcome is the Opportunity Score.

 Opportunity Score FormulaFormula 1: Opportunity Score

The greater the difference the more opportunity for innovation. This can either be done by increasing the Satisfaction Level for under-served Outcomes or delivering a trimmed down version for products with over-served Outcomes. Opportunity Score GraphIllustration 57: Opportunity Score

When comparing different markets or products, sum the Opportunity Scores for all the Outcomes to find an Overall Opportunity Score. Markets or products with a higher Overall Opportunity Score offer great potential for innovation. Overall Opportunity Score Formula

Formula 2: Overall Opportunity Score

The Opportunities Score shows you how far the Outcomes are from the Properly Served region.

Breakthrough vs. Incremental Innovation

Many people put a great deal of emphasis on trying to create breakthrough innovations. This stems from the misplaced belief that innovations are difficult to find. Predictive Innovation reveals the entire idea space so you can reliably find collections of highly profitable innovations when needed.

You can profit from either breakthrough or incremental innovations. Neither is inherently better. The proper strategy is to ideally time the innovations to maximize profit margins.

There is a time for harvesting incremental innovations and a time for sowing a new field with a breakthrough.

Incremental Innovations

Breakthrough Innovations

  • Better or cheaper
  • More of the same
  • Do something previously not possible
  • Functionally different

Remember that the definition of innovation is:

Profitably satisfy unmet desires

As long as you are better satisfying desires you are innovating. Financial profits and customer satisfaction profits can be achieved either way.

Since breakthroughs are functionally different that means they use a different Alternative or satisfy a previously ignored Outcome.

Chapter 20 Chapter 22

2. Why you need Predictive Innovation

2.Why you need Predictive Innovation®


  • 100 miles-per-gallon
  • 5-star crash test equivalency
  • $25,000 sales price
  • 0 – 60 in less than 5 seconds
  • 149 miles-per-hour top speed
  • Cargo room fits 20 bags of groceries

Designed and built by
an international team
of volunteers
in just 3 months

Your competition is global, constantly improving, and can always undercut your price. You must innovate to survive.

Cheap foreign labor is not your biggest threat. Automation and user collaboration are dropping prices below cheap all the way to free. Can you compete with free?

If you use old methods you will fail. Even if you copy their methods you will never catch up. The only way to get ahead and stay ahead is to think and act predictively.

Thomas Edison's trial and error approach died 100 years ago with the horse drawn wagon. Fail-fast, fail often only leads to failure. You have limited time and budget but infinite competition. You need to know what customers will want before they start demanding it. You also need to know the most profitable way to deliver it before you start. Plus, you need to see future challenges and have solutions ready when challenges pop up.

Return on investment is the point of innovation. Regardless of how creative or fashionable a product is, if everyone involved doesn't receive a significant benefit it will fail. That means investors, workers, and customers all must receive enough benefit to get them to be happy with their investment of time and money.

Maximize profits and minimize investment. That means providing the most benefit to the most people while using the least time and materials to do it. You need to know both what to make and how to make it. You also must see the entire market so you don't miss valuable opportunities. Random approaches can't guarantee you collect all the value in the most efficient order. Only a structured system like Predictive Innovation can minimize investment, reduce risk, and maximize reward.

Old Way

Staged Gate has 40% Failure Rate at Launch

Staged Gate has 40% Failure Rate at Launch

The most common approach to innovation is:

  1. Brainstorm a lot of creative ideas
  2. Filter out bad ideas
  3. Launch the product
  4. Pray

That process is called Staged Gate. It's used by companies worldwide. Despite over 50 years of improvement, 40% of products launched, fail. Nearly random!

The average Staged Gate process requires 300 ideas to get 1 success. (Stevens & Burley 1997)  All of that filtering costs a lot of time and money. It costs 9 times more than just launching a single project. That extra expense means that only ideas expected to have huge profits are even considered. The smaller less risky projects are ignored because they won't make up for all of that time and money wasted on filtering.

It also means you need a huge up front investment to start. For small companies that just isn't possible. The smaller company can't risk the failure of trying to innovate so it is guaranteed the failure of competition.

Before you blame Staged Gate, that 40% rate doesn't happen to everyone who uses it.

Study at Fortune 500 Companies shows Predictive Innovation approach 95 Times More Profitable

Study at Fortune 500 Companies shows Predictive Innovation approach 95 Times More Profitable

A study of 576 projects at 360 Fortune 500 companies revealed a dramatic difference in results. (Stevens & Burley 2003) 2

All of the projects use similar Staged Gate processes but the Top 1/3 had a 96% success rate and were 95 times as profitable.

What did the top performers do differently?

There are two types of innovation systems: Thinking Systems and Doing Systems. Staged Gate is a Doing System. It manages risk.

Common Innovation SystemsCreativity is:

  • Unpredictable
  • Unreliable
  • Unfocused
  • Inefficient
  • Emotional
  • Person Specific

The creativity brainstorming approach to generating ideas causes all of the risk that Staged Gate tries to manage. Replace the Thinking System and all that risk goes away. You can get 96% success and 95 times more profits.

New Approach: Predictive Innovation®

Using Predictive Innovation for your Thinking System turns everything upside down. Instead of starting with a bunch of random ideas, it starts with objective criteria organized into a structure so nothing is overlooked.

Build Up a Family of Products & ServicesInstead of filtering down, you build up. You start with a stable foundation that supports growth of a family of interrelated products.

You multiply profits while reducing risk. All of your work and investment supports future innovation. Profit margins increase over time instead of decrease. And instead of struggling for new ideas it gets easier and easier as you build on your strategy.

Seeing the entire idea space makes the difference.

Studying patents and product literature of thousands of products shows that most products cover less than 1% of their innovation potential and most industries only cover 13%. That leaves over 80% of the idea space unexplored.

Risk Caused by Unexplored Ideas Space

That unexplored idea space is missed opportunity. It's also increased risk from competition or that the easier higher profit idea was never tried. Notice that the ratios of the idea space are nearly identical to the profits of the projects in the Staged Gate study. The Top performers explored more of the idea space resulting in 96% success and 95 times more profits.


Increase profits

  • See all the ideas customers will want, and ideas they won't
  • Start development and launch at the right time
  • Make a family of products & services to multiply value
  • Build on a core you control

Reduces Risk

  • Start earlier while avoiding rushing
  • Reduce time to market
  • See all the alternatives so you choose the best for you
  • Quickly find solutions to technical challenges

Maximizes ROI

  • Higher profit margins with the right product at the right time
  • Higher success rate
  • Find hidden value
  • Lower costs by avoiding building costly infrastructure
  • Quicker break-even
  • More projects by seeing connections between projects

Secures Long Term Value

  • Stay ahead of competition
  • Use competitors to your advantage
  • Block threats with advanced knowledge and having strategies in place to deal with change
  • Develop markets you can own
  • Quickly respond to events

Ways to use Predictive Innovation

New product development

Finding and developing new products and services is one way to use Predictive Innovation.

Traditional new product development (NPD) and even Agile/Lean approaches tend to require:

  • Different design for each product generation.
  • Different manufacturing processes for each product generation.
  • Expensive and time-consuming launches for each new product generation.
  • Difficulty standardizing components & supplies.

Using Predictive Innovation for new product development (NPD) turns all of that around, it enables:

  • one design for multiple products & multiple generations of a product thus multiplying return on investment
  • one manufacturing process for multiple products and generations, with easy switching from one to another thus multiplying productivity
  • efficient standardization of components and supplies thus simplifying processes and reducing overhead & startup costs.

Process improvement

Improving your processes helps you gain an advantage even if you are selling a commodity product. Internal innovations are one of the most valuable ways to use Predictive Innovation.

Business strategy

Strategy turns a good idea into a successful business. The full spectrum view only available with Predictive Innovation gives you the advantage of the most successful strategies.


Knowing how to communicate with customers is just as important as having what they want. Predictive Innovation gives you a structured approach to understand and translate fuzzy desires into objective results you can measure.

Intellectual Property

Smart people recognize that intangible assets have become more valuable than tangible assets. Protecting their intellectual property is often a major concern to inventors & business people. However, that isn't your goal. Your real goal is to maximize the value you receive from all available intellectual property. Only Predictive Innovation can do that.

Patents & copyrights are frequently associated with innovation but that is a very incomplete view of the total value. Only a portion of all intellectual property can be patented or copyrighted.


Not Patented


Your patents

Unclaimed idea space


Other people's patents

Public domain

As much as 75% of the idea space can't be patented or copyrighted but you still can profit if you know how.

Predictive Innovation increases the value of intellectual property more in ways traditional approaches can't because Predictive Innovation can efficiently describe the entire idea space. Seeing the entire idea space helps you maximize the value of intellectual property, minimize the risk, and neutralize threats.

When you describe the entire idea space you can:

  • Build Patent Fences to protect the entire idea space
  • Find alternatives to litigation
  • Increase the overall value
  • Limit damage from infringement
  • Discourage litigation from patent trolls
  • Avoid conflicts in the market place

This is just a sampling of the ways Predictive Innovation helps with intellectual property.

Investment decision making

Predictive Innovation is the only way to measure the true value of ideas before spending time or money on development.

Calculate the full value and the real risk. See the amount of the entire idea space your investment will buy, not just a share of a market.

Core Skills

Core Skills: Who, What, How, When, Where, Why

The goal of this book is to provide you with the core skills needed to start using Predictive Innovation. You will learn the basics that apply to everything else you will do with Predictive Innovation.

There are six key pieces of knowledge provided by Predictive Innovation: What customers want; How to make it; When to make and release it; Why customers want it; Who uses, buys and makes it; and Where to focus on.


The most important part of innovation is knowing what customers want. Predictive Innovation shows you in advance what customers will want so that you are always two steps ahead. What isn't just the basic idea but the precise requirements needed to satisfy both customers and providers of innovations. Knowing what to make in advance also makes it possible to create business strategies that neutralize competition. You are in control.


A good idea isn't good if you can't profitably deliver it. Predictive Innovation shows you how to solve technical challenges. You eliminate barriers to develop and deliver products, services and strategies.

You are prepared with inexpensive easy-to-do responses to even unexpected changes. That keeps you focused on profitably satisfying customers' unmet desires.


Predicting the right time to start developing and the right time to release a new product is a key value of Predictive Innovation®. Starting too soon will lead to wasted effort and money and starting too late increases risk of competition and reduced profit margins. Predictive Innovation will help you create a step-by-step strategy to deliver exactly the right product at exactly the right time to maximize profits and minimize risk.


Where is more than a geographic location. Where is about relationships. Where in your organization or process to focus efforts to improve? Where are your products in the progression of innovation towards the ideal? Where helps you measure your success, how far yet to achieve, and pinpoint the best use of your resources.


Who are your potential customers? Who will make it? Who will invest? Innovations satisfy desires of people. Understanding Who is crucial to successful innovation.

Finding new customers for existing products is the highest profit, lowest risk way of innovating. Predictive Innovation® will guide you in finding all the potential markets for your existing and new products. This helps you achieve your goals faster and easier.

Who will make the product or deliver the service? Doing everything under one roof is not the only way to deliver a product. Finding the best combination of in-house, outsourced, open-sourced, and un-sourced can be the difference between success and failure. Predictive Innovation® shows you all of the options and how to quickly identify the best combination for you.

Investors want assurance of low risk and large profits. Again there are more investors than the traditional sources. Seeing all sources of investment gets your idea off the drawing board and into customers' hands.


Understanding Why customers want a product is essential for creating the most effective communication. Also you need to know Why you are making it, Why investors will support it. To communicate most effectively you need to speak using the words and feelings they associate with getting What they want.

Get Started

Learn the core skills and start thinking predictively.

Acknowledgments Chapter 3

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