June 29, 2011

Volume 9, Number 5
Jobs Not Getting Done: Bold Approaches to Innovation

Greetings!

Innovators arent satisfied with the way things arewhich is why we at Innosight are inspired
by people who question why important jobs are not getting done.

In this issue of Strategy & Innovation, we show how new ways of looking at what customers do
can yield fresh approaches to satisfying those overlooked needs.

We start at TEDxBoston, a local offshoot of the annual TED conference, where a remarkable
lineup of innovators presented solutions to a range of ignored and neglected problems.

We continue with a series of piece by Innosight co-founder Mark W. Johnson. In a column

published by the Washington Post, Johnson prescribes a new approach to military innovation,
one that meets the needs of todays soldiers fighting todays wars. In a Bloomberg
BusinessWeek column, he shows how the major phone makers and networks are neglecting a
wide swath of customers. And in a piece from Chief Executive, he follows the innovation
strategy of Dow Corning, a corporation that disrupted its own core market by targeting non-
customers.

Finally, Scott Anthony hits a note of caution, showing how innovators who aim to replace a
technology on a 1-for-1 basis often meet up with marketplace resistance.

If youre dissatisfied with aspects of your business, we hope you find some lessons here to help
you move forward and unlock growth.

Comments and suggestions are always welcome send them to eschwartz@innosight.com

Evan I. Schwartz, Director of Storytelling

Innosight News & Events

On July 26 Mark Johnson will be featured in a Harvard Business Review webinar about
demystifing business model innovation and putting transformative growth within your reach.

Innosight LLC 2011 www.innosight.com Strategy & Innovation

New Harvard Business Review Ideacast video with Scott Anthony outlines P&G's proven model
for new business creation.

Village Laundry Service, an Innosight Ventures portfolio company, announced that it has raised
Series A financing for VLS to continue the rapid expansion of its chain of laundry kiosks.

For HBR Webinar:

http://online.krm.com/iebms/coe/coe_p2_details.aspx?oc=10&cc=0011408&eventid=18075&
m=WEB

For HBR Ideacast Video:

http://blogs.hbr.org/video/2011/06/inside-pgsgrowth-factory.html

For Village Laundry Service Press Release:

http://www.businesswire.com/news/home/20110620006988/en/India%E2%80%99s-Village-
Laundry-Service-Raises-Equity-Capital

At TEDxBoston, Novel Approaches to Disruptive Innovation

*Angelina Gennis, MIT AgeLab Research Associate, suited up as AGNES.

By Evan I. Schwartz

Innosight has long practiced an approach to innovation we call jobs to be done. The idea is to
forget about any existing products and focus on the specific job the consumer needs to
accomplish. While the technique often yields unexpected insights, there are some extreme
cases in which its tricky for innovators to apply it because they cannot quite identify with the
target customers.

This is the problem that the MIT AgeLab set out to solve by creating AGNES, for age gain now
empathy system1, a special suit that enables young people to feel what its like to walk, bend
down, climb stairs, shop, drive and live as the elderly. Joseph Coughlin, the labs director, notes
that the 85-plus set is the nations fastest growing age group, yet hardly any companies are
catering to their real needs.

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Coughlins talk was one of the many high points of TEDxBoston, an independently organized
event that borrows the storytelling format and inspirational ethos of the annual TED
conference in California. As someone who has attended four TEDs in recent years, I can say that
this years Boston event was every bit as good as a day at the main show.

The AgeLab presentation was one of several that hit on the theme of new approaches to
disruptive innovation. Citing the work of Innosight co-founder Clay Christensen, Coughlin called
the elderly a disruptive demographic that should force redesigns of everything from kitchens
to retail spaces to transportation.

Yet since MIT research is typically done by twenty- and thirty-something grad students and
post-docs, none of these new products could come about unless the researchers experienced
the friction, fatigue and frustration of having creaky bones, limited motion, poor eyesight and
faint hearing. Wearing her AGNES suit, a young researcher hobbled down the steps of the
auditorium to join Coughlin on stage. Asked how that felt, she replied, It was difficult and Im
already tired.

Another disruptive approach to innovation was presented by Dr. James Jay Bradner 2, a cancer
researcher at the Dana Farber Cancer Institute and a professor at Harvard Medical School.
Despite the revolution in low-cost genomic sequencing, Bradner said, theres a dearth of
genomic treatments for most forms of the disease. To tackle the problem of creating effective
new molecules, he has developed a new approach based on the idea of open source drug
discovery.

Bradner told the story of how he applied the idea to a rare form of cancer. Frustrated with the
lack of economic incentives to commercialize the treatment, Bradner simply made his molecule
free to the world. We published the finding and told people how to make it, he said.

As it turned out, some 70 other laboratories around the world took on the work of testing and
improving the molecule, setting off a race to market. Now, several version 2.0s of the molecules
could become commercial, patentable products. Included in this race is Bradners own startup,
Tensha, which is backed in part by Eli Lilly & Co.

Yet most of this commercial activity would not have happened unless Version 1.0 was available
through open source. For this radical approach to drug development, Bradner received a
standing ovation from the TEDx audience.

Later in the day, a disruptive way to create medical diagnostic equipment was presented by
researchers at the MIT Media Lab. The problem is well known: While two billion people
worldwide need eyeglasses, about half go without corrective solutions due in part to the lack of
affordable exams needed for prescriptions.

In an effort to replace expensive, bulky laser-based machines, the Media Lab turned to ordinary
smartphones, which now have the screen resolution to get the job done. All that was needed

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was a simple eyepiece that enables the patient to view and align patterns on the screen using a
special graphical app. The new eyepiece, called NETRA (for near-eye tool for refractive
assessment)3, costs less than $2 to make. Its already in use by 29 research teams in 14
countries. Instead of shining lasers into eyes, said Ramesh Raskar, just look into an iPhone.

Due to these and other speakers, TEDxBoston delivered on its promise of serving up
revolutionary ideas. All of these approaches to innovationempathetic design, open source
discovery and radical simplicitydeserve to be key tools for developing disruptive products and
services that transform markets by improving life and serving new consumers.

Source Notes:
1. http://agelab.mit.edu/agnes-age-gain-now-empathy-system
2. http://bradner.dfci.harvard.edu/
3. http://web.media.mit.edu/~pamplona/NETRA/

The Budget Crisis Should Usher In A New Era of Innovation in Defense

Published in the Sunday Edition of the Washington Post, June 12, 2011

By Mark W. Johnson

The Pentagon revealed last month that it would cost taxpayers more than $1 trillion to buy and
maintain a fleet of F-35 joint-strike fighter jets over the long term. Even defense hawk Sen. John
McCain called the number jaw dropping. Building enormously complex and expensive
weapons systems not only busts the budget but requires years, even decades, to complete
the F-35 program is already a decade old. Meanwhile, we increasingly face mobile, adaptable
enemies who are good at attacking our weaknesses with deadly innovation on the cheap.

Outgoing Secretary of Defense Robert Gates acknowledged those realties when he cut 20 big-
ticket weapons last year to save $330 billion in future spending. Leon Panetta, who is expected
to take over next month after confirmation hearings on Thursday, is likely to continue the Gates
budget strategy: Spend less preparing for a theoretical threat against a conventional large
Chinese army and focus instead on the more amorphous threats posed by stateless enemies,
terrorists and unpredictable revolutions in the Middle East and failed states like the Sudan and
Congo.

Innosight LLC 2011 www.innosight.com Strategy & Innovation

For the U.S. military to succeed and prevail, and to equip Americas men and women who risk
their lives fighting unconventional warfare, the Pentagon has no choice no more blank checks
from the American taxpayer. The Department of Defense must innovate.

Read the rest on Washington Post here.

How to Disrupt an Overlooked Market

Published at Bloomberg BusinessWeek, June 3, 2011

By Mark W. Johnson

Mocking the latest smartphones, Jon Stewart recently quipped: "I wonder if there's an app for
making a phone call." He has a point. There's no question that today's smartphones are marvels
of innovation, but not all innovation is about bells and whistles. It's ultimately about value to
the customer. Certainly, smartphones and the business models built around them have been
successful in delivering value to hundreds of millions of customers.

Consider, however, the recent success of TracFone Wireless, which offers basic phones along
with no-contract plans under brands such as Straight Talk. While wars between Androids and
iPhones have dominated the headlines, TracFone has quietly built a U.S. subscriber base of 18
million customers. In one recent quarter, TracFone signed up more customers than Verizon
Wireless. Quarterly revenue clocked in at nearly $800 million, growing at a vibrant 62 percent
rate. It's now a top-five provider that piggybacks as a "virtual carrier" on the major telecom
networks.

TracFone's value stems from simplicity and affordability. The company caters to recent
immigrants, senior citizens, and lower-income families. These customers might be considered
undesirable to big players who are trying to sell app-rich phones for $300, while locking in
consumers to spend $3,000 or more over a two-year subscription period.

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Read the rest on Bloomberg BusinessWeek here.

How Dow Corning Beat Commoditization By Embracing It

Published at Chief Executive, June 21, 2011

By Mark W. Johnson

What do you do when your chief product threatens to become a commodity? You can of course
cede the low end of the market and try to shift your business model to something for which
customers will continue to pay premium prices. Or, maybe more daringly, you can do what Dow
Corning did: beat commoditization through business model innovation that faces the threat
head on.

Business model innovation of either kind isnt easy. You have to find ways of doing things that
are new and sometimes diametrically different than the core business model.

Read the rest on Chief Executive here.

Square, ATMs, and the Pace of Transformation

By Scott D. Anthony

Remember how after Chemical Bank launched the first Automated Teller Machine in the 1960s,
waves of bank branches shut down? And remember when banks went online, how waves of
local bank branches shut down?

Oh wait.

In both cases the new technology ended up augmenting, rather than replacing existing
channels. This isn't unusual. Despite bold proclamations of industry transformation, legacy
technologies often last for a very long time. For example, commercial telephony services
emerged in the 1870s. Western Union, the day's leading telegraphy player, declined to invest in
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the new technology. Eventually telephone ended up being the cornerstone of AT&T*. But
telegraphs were still viable commercial offerings as late as the 1960s. The last telegraph
message was sent in...2005.

Not every transition takes this long. DVDs replaced video cassettes in many markets seemingly
overnight. Sometimes a new solution comes along that is just better than the old solution along
so many dimensions that a true one-for-one switch can occur (although I wonder if DVDs would
have really accelerated as quickly as they did without the concurrent emergence of digital video
recovers that addressed the fact that most DVD players could play, but not record). But
generally old technologies last longer than most people expect.

Why is this? New technologies tend to suffer some performance limitations, making them
unattractive to customers who are sensitive to those limitations. And, of course, ingrained
habits are just hard to break for all sorts of reasons.

So, what then to make of recent pronouncements that hot payment startup Square is on track
to kill credit cards, cash registers, and other traditional payment mechanisms1? Square is
certainly a startup to watch. Co-founder Jack Dorsey was one of the founders of Twitter.
Rumors suggest its next funding round will value the company at more than $1 billion 2 only
two years after formation.

What's Square all about3? The company provides a small device that allows iPhones and iPads
to read credit cards. It recently announced a simple iPhone app that consumers can download
to complete transactions, manage their rewards programs, and so on. Right now Square relies
on a credit card to complete the transaction, but future offerings could remove the credit card
companies from the transaction entirely.

Others are eyeing the same multi-trillion-dollar transactions space. Just the other week Google
announced its Google Wallet solution, which, when combined with Near Field Communication
technology, aims to make it convenient for people to complete transactions with their mobile
phones.

These developments certainly have transformational potential. But don't expect that
transformation to happen overnight. It is likely to start relatively slowly in established markets.
Just imagine a merchant that did drop its cash register. What would they do with customers
who didn't have smartphones? Or didn't trust the new payment mechanism? Would they really
turn away their business?

Transformation usually happens most quickly when its roots lie outside of mainstream markets.
For example, millions of Kenyan consumers use Safaricon's M-PESA service4 to securely transfer
money. The wide diaspora of Filipino consumers uses mobile solutions to remit money to
relatives in their home market. Kenya and the Philippines lack the ubiquitous credit
infrastructures and access to cash that exist in more developed markets. The new transaction
mechanisms compete with not-very-good workarounds. Similarly, PayPal grew by facilitating

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transactions that never happened before person-to-person payments on auction
powerhouse (and PayPal owner) eBay. On the other hand, Square has to compete against super
simple and widely accepted behaviors like, for instance, cash.

I'm always skeptical when a technology's success is predicated on a full replacement of an

existing, effective solution. That transition typically takes longer than people anticipate. Watch
instead for providers that find ways to drive transformation away from the mainstream.

* That second "T" of course originally stood for telegraphy.

Source Notes:
1. http://www.businessinsider.com/square-card-case-2011-5
2. http://techcrunch.com/2011/06/07/square-raising-new-round-joining-billion-dollar-
valuation-club/
3. https://squareup.com/
4. http://www.safaricom.co.ke/index.php?id=745

Strategy & Innovation is published by Innosight, whose consulting and training services help
companies create new growth through innovation. Building on the disruptive innovation
frameworks developed by our founder, Harvard Business School professor Clayton Christensen,
Innosight's approach and proprietary tools facilitate the discovery of new, high-growth markets
and the rapid creation of breakthrough products and services. If you have an issue that you
would like analyzed or if you have a comment, please email editor@strategyandinnovation.com.

Innosight LLC 2011 www.innosight.com Strategy & Innovation