1

2
Table of Contents
1. Preface
2. Module 3 Strategic Innovation: Building and Sustaining Innovative Organizations
1. Module 3 Information
1. Introduction of Module 3
2. Lesson 3-1 Crossing Over From Niche Markets to Mass-Market Dominance
1. Lesson 3-1.1 Crossing Over From Niche Markets to Mass-Market Dominance
3. Lesson 3-2 Customer Journey Maps: Identifying Moments of Truth
1. Lesson 3-2.1 Customer Journey Maps: Identifying Moments of Truth
4. Lesson 3-3 General Philosophy About Building Great Products
1. Lesson 3-3.1 General Philosophy About Building Great Products
5. Lesson 3-4 Product Configuration Maps: How to Develop Winning Products
1. Lesson 3-4.1 Product Configuration Maps: How to Develop Winning Products
6. Module 3 Wrap Up
1. Module 3 Summary
7. Application Corner
1. The Case of Wikipedia

3
Preface
Thank you for choosing a Gies eBook.

This Gies eBook is based on an extended video lecture transcript made from Module 3 of
Professor Geoff Love and Professor Raj Echambadi's Strategic Innovation: Building and
Sustaining Innovative Organizations on Coursera. The Gies eBook provides a reading
experience that covers all of the information in the MOOC videos in a fully accessible format. The
Gies eBook can be used with any standards-based e-reading software supporting the ePUB 3.0
format.

Each Gies eBook is broken down by lessons that are navigable using our e-reader’s table of
contents feature. Within each lesson the following sequence of content will always occur:

Lesson title
A link to the web-based videos for each lesson (You must be online to view.)

Within the lesson, every time there is a slide change or a switch to the next informative video
scene, you will be presented with:

Thumbnail image of the current slide or video scene

Any text present on the slide in the video is recreated below the thumbnail in a searchable,
screen reader-ready format.
Extended text description of the important visuals such as graphs and charts presented in
the slides.
Any tabular data from the video is recreated and properly labeled for screen reader
navigation and reading.
All math equations are presented in MathML that provides both content and presentation if
on screen.
Transcript that captures all of the original speech in the video labeled by the person
speaking.

All Gies eBooks are designed with accessibility and usability as a priority. This design is intended
to serve all readers in a flexible manner regardless of their choice of digital reading tools.

If you have any questions or suggestions for improvement for this Gies eBook, please contact
Giesbooks@illinois.edu

4
Copyright © 2019 by Geoff Love & Raj Echambadi

All rights reserved.

Published by the Gies College of Business at the University of Illinois at Urbana-Champaign, and
the Board of Trustees of the University of Illinois

5
Module 3 Strategic Innovation: Building and
Sustaining Innovative Organizations

6
 Module 3 Information

Introduction of Module 3
Media Player for Video

Bell Curve Indicating Chasm - Slide 1

The slide contains a bell shaped curve divided into 5 stages with the concept of 'Chasm' as break
point in it. The stages are: Innovation, Early Adopters, Early Majority, Late Majority, and
Laggards. The chasm is located between Early Adopters and Early Majority.

Transcript

Welcome back. Module three now. Now the thing to keep in mind with this module is that it's a
deeper dive into some of the challenges we've already touched on. It's a more specific how-to for
successful product innovation.

So lesson one is about how do you actually cross the chasm that separates niche markets from
mass-market ones? Ninety percent of products fall into that chasm so avoiding that fate is
valuable indeed.

7
Module 3 Question 1 - Slide 2

What is key to crossing the chasm?

Transcript

So to get ready, what do you think is key to crossing the chasm? Make a note of a couple of key
things before you go ahead and view that video.

Now the remaining lessons are about how you convert an idea that you have into a specific
innovation that matters to consumers. These are not about stages anymore. They can be about a
new idea or innovating around an existing product in a mature marketplace. The aim here is for
you to be more analytic and more savvy in working with innovation ideas. And these lessons help
by working through very practical frameworks and core guidelines.

8
Journey Map - Sequence of Consumption Activities -
Slide 3

The slide contains a journey map of sequence of consumption activities lined up on an arrow
head in the order mentioned below.

Need: Make the case

Research: Stand out
Consider: Provide unique value
Choice: Right product at the right place at the right time at the right price and right support
Complements: opportunities for cross-selling
Maintenance and Disposal: Maintain, service and upgrade opportunities
Re-purchase

Source: https://www.bigdoor.com/blog/2013/11/01/a-quick-guide-to-a-customer-journey-mapping/

Transcript

So by now it wouldn't surprise you if I told you that one lesson focuses on the customer side,
lesson two, one lesson on the product side, that's lesson four, and the other is different but in part
is the bridge between them. So lesson two is about the customer's journey as it relates to your
product.

So there's a tool here: the customer journey map that helps with both intuition and analysis. It
helps it zero in on possible points to innovate and add value. There are also a couple of critical
ideas that drive these insights developing customer personas and identifying moments of truth.
Now it's an intuitive idea, the customer journey map. It's just steps from awareness to purchase
to disposal but prep for yourself.

9
Module 3 Question 2 - Slide 4

1. What is key to crossing the chasm?

2. What are a couple of things you could to do to make the customer journey useful for
innovation?

Transcript

What are a couple things you could do to make such a map useful for innovation? And keep that
in mind as you watch the video. Now lesson three is kind of a connector.

Philosophy of Great Products - Slide 5

"Philosophy of Great Products"

10
Transcript

Raj calls it a philosophy of great products. And that sounds abstract, but he explains this is a
series of very practical, down-to-earth guidelines to inspire product innovation. So realizing that, I
urge you to have a pen in hand while you listen to this short, seven minute video.

Write down the several guidelines he offers. It'll help you remember and organize them because
they come rapid fire. Watch particularly for when he emphasizes connecting product features and
functions to customer benefits. This lesson, in part, then is a bridge. It connects the customer
side and the product side and sets up lesson four which moves over to the product side.

Product Configuration Map: Finding The Innovation

Sweet Spot - Slide 6

The slide contains a diagram with Balance at the center, with the symbols of the following
mathematical operations listed clockwise: Addition, Subtraction, Division, and Equals-to.

Transcript

So here the centerpiece is the product configuration map. It's a product side analog to the
customer journey map. The product configuration map breaks a product down into specific
features and functions. Here, it's all about the moves you can make, the actions you can take
regarding specific features to create winning innovative products.

11
Module 3 Question 3 - Slide 7

1. What is key to crossing the chasm?

2. What are a couple of things you could to do to make the customer journey useful for
innovation?
3. What are the basic moves that you can do to innovate with product features?

Transcript

So here, take a moment and think. What are the basic moves that you can do to innovate with
product features? And write some down to prep yourself for this lesson. We finish with the
example of Wikipedia. It showcases the power of the product side, the configuration map, and the
customer side, the journey map, in the rise of one iconic product, Wikipedia, and decline of
another, the Encyclopedia Britannica. I'll see you on the other side.

12
 Lesson 3-1 Crossing Over From Niche Markets to
Mass-Market Dominance

Lesson 3-1.1 Crossing Over From Niche Markets to

Mass-Market Dominance
Media Player for Video

Innovation Adoption Life Cycle - Slide 8

The slide contains a bell-shaped graph showing the life cycle as five stages and the types of
people in each stage as given below.

Innovators (2.5%)-Technologists: Willing to take chances!

Early Adopters (13.5%)-Idealists: Imperfection is OK!

Early Majority (34%)-Pragmatics: Product-market fit is correct!

Late Majority (34%)-Conservatives: Late to adopt!

Laggards (16%)-Skeptics: unwilling to adopt!

13
Transcript

In this lesson, we are going to talk about how companies can actually cross the chasm, or
transition the chasm, into developing a successful mass market. What are the strategies that they
need to employ? And how should they go about their strategies in order to create a winning
product? Let's recap the Innovation Adoption Life Cycle. It fundamentally talks about the
readiness of the various segments to accept the market innovation. The innovators and early
adopters are what we call as the early market, constitutes about 16% of the market. And the later
market has three different segments: early majority at 34%, late majority at 34%, and laggards at
16%. So, the innovation takes root among the innovators and early adopters, and once it fits this
early market, it then diffuses to the later market.

Early Market Is Full Of Technology-Curious Explorers

- Slide 9

There may be no pain point. Minimum Viable Product is OK

The slide contains a starting part of a bell curve with two stages given below.

Innovators (2.5%)-Technologists: Willing to take chances!

Early Adopters (13.5%)-Idealists: Imperfection is OK!

14
Transcript

The early market, or the first 16%, is full of technology-curious explorers. So, they have no pain
points. And as a result, they are experiencing the technology for the sake of technology. For
these two segments, the innovators and early adopters, it is okay to have a minimum viable
product, where we introduce the product, and get feedback from the consumers, and using the
validated learning, we improve the product. Sometimes, these are also known as the alpha and
beta products. Alpha products are products with substantial flaws, with perhaps unfinished
documentation. You release it in a very small market, figure out the feedback, accommodate the
feedback, and then release it as a better product or a beta release. But by no means are beta
products perfect products. But these products are okay for the early market, which can actually
take unrefined technology or flawed technology and use it for their own purposes.

Most Innovations Do Not Survive! They Fall In The

Chasm - Slide 10

The slide contains the same information as in Slide 1 - Bell Curve Indicating Chasm.

Transcript

All innovations go through the early market, but statistics reveal that 90% of the new innovations
do not transition to the mass market, and they actually fall into the chasm. The chasm is the gap
between the early adopters and the early majority. And so, if a product does not diffuse from the
early market to the later market, we say it has fallen into the chasm

15
Follow The Bowling Alley Strategy - Slide 11

Remember the way to a mass market is always through a niche market

The slide contains the same graph presented in Slide 10 - Most Innovations Do Not Survive!
They Fall In The Chasm zoomed-in to show that "beachhead" segment that works for the product
and is located between Early Adopters and Early Majority.

Transcript

You already know about the consumer adoption life cycle. You have the five segments:
innovators, early adopters, early majority, late majority, and laggards. The innovators and the
early adopters, which comprise of 16% of the market, is what we call as the early market.
Technology curious explorers, for whom there are no pain points, they love technology for the
sake of technology. So, for this segment, an imperfect product is okay. A minimum viable product
is okay. Minimum features, that is viable for them, that enables us to have some sort of validated
learning so that we can provide feedback on the product and improve the product. In software
terms, this is what we call as the alpha releases and the beta releases. Alpha releases are
substantially [inaudible] product, with perhaps no documentation, but beta product is a
substantially better product than the alpha product because we have taken the feedback from the
alpha users and incorporated it into the beta prototype.

And once we refine the beta prototype, the product is ready. But the critical thing that you need to
understand is this imperfect product that is applicable for the early market, usually doesn't
transfer over well to the mass market. And if you go with this particular product, you will not cross
the chasm. How do you cross the chasm? While the imperfect product is perfectly okay for the
early market, for the later market that involves the early majority, you need a perfect product. For
that, first you need to identify a beachhead segment, a segment for whom your product is going
to be perfectly okay. Think of the product as a total product, core product, with augmented
features that is totally aligned to the ecosystem. While you're developing the product, you need to
look at the pain points for this beachhead segment and alleviate these pain points. And as a
company, you need to focus all your resources on this particular segment and not dilute your
resources. You can't be all things to all people. At the end of the day, you need to understand,

16
that the way to the mass market is through this niche market, through proper implementation,
using a perfect product.

Bowling Ball as a Product - Slide 12

Emergence of dominant design; scale for volume

Efficiencies become important

The slide contains a structure made up of numbers from one to ten connected to each other with
arrows in reverse pyramid. The complexity increases for the structure created as it moves from
lower level to higher level in the pyramid.

Transcript

Think of this bowling ball as a product. I'm not a good bowler, but I can play one on TV. Now, if I
have to hit a strike, there are ten pins there. Think of them as your ten segments. But you don't
want to focus on all ten segments. You want to focus on one segment, on one pin. Hopefully if
you hit that pin correctly, the velocity and momentum of the first pin, will actually cause a chain
reaction, and cause all of the pins to fall. This is the same logic in this bowling alley strategy.
Develop a perfect product, for that beachhead segment, hopefully that beachhead segment will
be so satisfied that they will provide the word of mouth, and the references for the other
segments.

17
Follow The Bowling Alley Strategy To The Mass
Market (1 of 2) - Slide 13

At the end of the early majority, 50% of the market has adopted

The slide contains the same graph presented in Slide 11 - Follow The Bowling Alley Strategy
zoomed-in to show that Hyper-growth, which is increasing volumes and moving up the
experience curve is shown by an upward arrow on the Early Majority portion of the graph.

Transcript

And once all of the segments come in, you can develop products for them by adding features,
subtracting features, dividing features, whatever the case may be, and at the end of the day, once
you do that, you're actually scaled up to the mass market. Facebook created a perfect product for
the college segment. And using the college segment as their references, they were able to add
subsequent features and exploded into the mass market. And right now, is a very beloved brand,
all around the world. A very similar example is from Barefoot Wines. Barefoot Wines was
launched in 1986 by a couple of people who were not involved with the wine industry. Therefore,
they had an outsider perspective, which was very valuable.

At that point in time, wine was a very serious category, complicated category, where consumers
worried about the vintage, the tannins, the sourness, the fruitiness of the wine, etcetera. But
Barefoot Wines found a segment, 35-year old moms with 2.5 kids on average that were looking
for an inexpensive Tuesday night wine. And they were also looking for a wine that was casual,
that was not complicated, and easy to drink. And Barefoot created that core product. In fact, their
slogan was, "Get Barefoot and Have a Good Time. " Barefoot Wines created a casual, wine core
product, coupled with the worthy causes from charities. They created a cohesive product. And
the result is history. They exploded on the scene. They were able to become a mass market
product. Twenty years later, they were actually sold to E & J Gallo, and today they are an iconic
brand, one of the largest wine brands in the world.

18
Follow The Bowling Alley Strategy To The Mass
Market (2 of 2) - Slide 14

The slide contains Three boxes given below, connected with arrows from top left to bottom right
in counter-clockwise direction.

The early market is forgiving of "buggy" products. Experiment

Find a niche. Develop a polished error-free total product for this segment
Generate volumes and harness cost advantages so as to develop reliable products

Transcript

In summary, when we cater to the early market, they are usually okay of buggy products. The
goal for any company is to experiment, [inaudible], accommodate that feedback into the learning
of the products, and then move into the early majority. To successfully transition to the early
majority, we need to find a niche market, develop a polished, error free product that is a total
product that includes the core product, the augmented product, and is aligned with the ecosystem
for this particular segment. Once you target the segment with a perfect product market fit, you
can actually start generating volumes and harness cost advantages so that you become a very
successful mainstream market product, that provides reliable products.

19
 Lesson 3-2 Customer Journey Maps: Identifying
Moments of Truth

Lesson 3-2.1 Customer Journey Maps: Identifying

Moments of Truth
Media Player for Video

Creating Personas - Slide 15

The slide contains a diagram with Creating Personas at the center, with the following listed in
clockwise direction: Site analytics, Social media listening, VOC Research, and Talk to your
company personnel.

Transcript

How do you convert an idea that you have into a specific innovation that matters to the
consumers? First and foremost, you need to do a customer journey map. With a customer
journey map, what you're trying to do, is take a group of consumers through your product,
through the various stages of using your product, identifying the pain points, the positive
emotions, and also how — what are the channels they are using to engage with you? Journey
maps are typically useful when you want to prioritize features in a product, or to create a brand-
new innovative product. But the critical thing that I want you to understand is, when you're doing
the journey map, you need to arrive at moments of truth. Points where the consumers are
exhilarated or delighted about using your product, which can be used to your advantage as a
company. Last but not the least, journey maps have to be dynamic documents not static
documents.

20
If you're an airline company, that wants to get into a specific new market, you do a competitive
scan first, and you figure out, "What are the various segments out there in that marketplace?"
Let's, for the sake of illustration, say that there are three segments in the marketplace. One, a
business segment that values schedule and convenience, in flight perks, perhaps loyalty
programs, lounges in the airport, but really doesn't care about the price of a ticket. Then there is
the second segment of family travelers, with small children, who worry about the ease of check-
in, ease of security check, and in-flight entertainment that is catered towards the kids. And let's
say there is a last segment, that is an older travelers, who worry about physical access to the
airport, and may require wheelchair access.

These are what we call as personas, and airline companies will do well to cater to a product with
specific features for each of these segments. But in the case of this low-budget airline, if they
figure out that they have certain capabilities to offer a low-cost product for budget conscious
travelers, who are interested in — who love travel, who are interested in traveling, but do not
have the resources to buy tickets at the regular fares. So, if you are a low-cost airline and tries to
have a low-cost offering, then that might be a perfect product market fit.

Oops. Forgot my smartphone. One last thing, if you are that low-cost airline, catering to that
budget-conscious traveler, you need to make sure that your low-cost airline offering actually fits
the profile of that particular segment. If that happens, that is what we call as the Perfect Product
Market Fit

There are multiple ways of creating new personas. You can actually look at their website, and
clock the analytics to figure out who are the right customers for you. You can engage in social
media listening. You can monitor your Facebook, Twitter, and other social media websites, in
order to figure out who the personas are. You can also do voice of the customer research, and
figure out what exactly are the right personas for you. And last but not the least, you can talk to
your company personnel, especially the front line personnel, boundary spanning personnel that
talk to customers. But a critical thing that you need to ask yourself is, "What is it that this persona
or these personas are looking for? How do they experience the product opportunities?" This was
me two years ago. Every time I got thirsty, I felt like I needed a bottle of water, I would come to
this vending machine, buy a bottle. I was talking to my sister one day, and to put it politely, she
was very mad at me.

She said, "How many bottles of water do you think you consume?" And I did a back of the
envelope calculation and I found it was about 500. Actually, it was 750, but I told her 500. And it
made me realize that I needed to do my part to be environmentally sustainable. And hence, I —
my sister obviously acted as the trigger, and hence, came my need to buy a stainless-steel bottle,
without having to rely on bottled water. I did some quick search, I identified two or three bottles,
which became my consideration set, I compared the alternatives, the various criteria, and then I
chose a particular bottle. And I've had this for about a year now, and I'm extraordinarily happy
because it satisfies my need to be environmentally sustainable. But the more important part, ever
since I've been using it for a year, I've become extraordinarily happy with this particular product,
so much so, I have repurchased this product and given it away as gifts, which kind of talks to you
about the power of the journey map. As you put your consumer in the center of your equation and
take them through, from the need state to the final repurchase, you can actually start thinking
about potential innovation and [inaudible] opportunities.

21
Journey Map - Sequence Of Consumption Activities -
Slide 16

The slide contains the same information as in Slide 3 - Journey Map - Sequence of Consumption
Activities.

Transcript

Journey map is a sequence of consumption activities. As the company, you need to be able to
make the case to the consumers stand out, provide unique value, so that the consumers actually
considered you, and then, when they choose you, you need to make sure that you have the right
product, at the right place, at the right time, at the right price, with the right support. But more
critically, it is not just a solitary product that you must be thinking about selling, but it's also
sometimes complementary products. It is also augmented products. It is also total products that
may involve maintenance and disposal. So, that you get the consumer committed to you, and if
they have repurchase opportunities, they come back to you.

22
Journey Map - Emotions Involved - Slide 17

The slide contains the same information as in Slide 3 - Journey Map - Sequence of Consumption
Activities

Pain Points
Gains
Touchpoints (channels)

Transcript

Once you understand the sequence, you need to interview the customers. And when you
interview the customers, you need to ask them, "What their pinpoints are in each stage? What
are the gains? What are the channels that they engage with, in order to reach you as a
company?" Let me give you an example. Let's talk about a toothbrush, Oral-B. This is an
anecdote from Rita Gunther McGrath, where she talks about Oral-B's problem. People loved
Oral-B, but they did not know when to dispose of their old toothbrush. And so, what Oral-B did,
was they developed a certain kind of blue bristles on their toothbrush. So, when the blue bristles
became discolored, it was time for the consumers to throw away their brush and buy a new
brush. So, this actually catered to the need state of the consumer. Let me give you another
example. This is from Hauser, who is a professor at MIT.

He talks about Buick, which is a U.S. auto manufacturer, where they found out in 2005 that about
half of the U.S. consumers will not consider Buick. Of course, Buick invested heavily in quality,
reliability, interior design. And by 2007, Buick was absolutely top-rated, both by consumer reports
and by the J.D. Power, but that did not help, as people did not even consider them. So, in the
journey map, despite the fact that it was a great product, people would not consider this product.
If people did not consider this product, they did not choose the product. Therefore, the choice for
Buick was to first get into the consideration set of the consumers, which gave them a reasonable
probability of getting into choice. So, Buick did multiple experiments. They brought people to a
test track where people could you know, go ahead and choose among multiple alternatives. They
redesigned their websites, all aimed at reducing the consideration and search costs and raised
the benefits, if you will. In the long run, these multi million-dollar programs, actually reduce costs
and enabled Buick to become fairly successful in their chosen segments.

23
Again, tells you how, when you use the journey map appropriately, you can actually start devising
appropriate strategies that help you in the long run. One more example to illustrate the journey
map would be that of a printer cartridge company. Let's say this company does the journey map
for its customers, and finds out that one of the pain points for this particular segment, happens to
be the disposal of the old printer cartridges. If this company devises and innovative way, wherein
they say, "You can buy our cartridges, and we'll help you dispose of your old cartridges, " then of
course, they can open up this particular market by alleviating the pain point. This is what a
journey map does. A journey map enables you to understand the pain points of the consumers,
so that you can alleviate them. You can understand the gain points of consumers so that you can
build up on them. And also, identify the channels that are more appropriate for your customer
segments.

References - Slide 18

A Quick Guide to Customer Journey Mapping. (n.d.). Retrieved March 03,2017, from
http://bigdoor.com/blog/2013/11/01/a-quick-guide- to-customer-journey-mapping/

Oral B. (n.d.). Retrieved March 03,2017, from http://www.dentaler.de/Oral-B-1-2-3-Indicator-35-

mittel-Zahnbuerste

Artificial Blood, N.N. (2010,September 27). Retrieved March 03,2017, from

https://www.chemistryworld.com/feature/artificialblood/1012415.article

24
Transcript

So far, we have studied the theoretical aspects of consumer journey maps. Now, let's practically
apply it to artificial blood, which is innovative product. A lot of companies have started investing in
artificial blood because despite the prevalence, wide accessibility, and reasonable safety of
regular blood, also known as red blood cells blood, the paucity or the scarcity of this human
blood, is making people invest in artificial blood. With respect to the human blood, human beings
have four blood types: A, B, AB, and O, which effectively means every human being has to be
tested for the right blood type to be transfused. Otherwise, it can lead to cross-matching
complications. Regular blood also has to be tested for diseases and infections, and the shelf life
of human blood is fairly low at 42 days, which means, you know, the blood has to be thrown out.
But one good thing is, because of its wide availability, regular blood is available at $300 per unit.
Now, let's look at artificial blood and compare it to regular blood. With respect to artificial blood,
given that the [inaudible] it can be transfused to any patient, across any blood type. There is no
cross-matching. More importantly, because of the synthetic nature, you do not have to check for
diseases and infections, but given the fact it is a new product and a [inaudible] product, it is
expensive at about $1500 per unit.

Let's do a journey map for Sarah. Sarah has some basketball injury. She goes to the local
hospital, and the hospital says, she has to have a surgery, and the surgery is scheduled three
weeks from now. So, it's a planned surgery. When you go through the consumer journey map, the
hospital has determined that there is a need for Sarah to have surgery and blood transfusion.
And when it considers the set of options, the hospital has a choice between $1500 artificial blood,
and $300 regular blood. Now, put yourself in the shoes of the insurance company. Give the fact
that regular blood is reasonably safe and widely accessible, and acquirable given that you have a
three-week window, the insurance company is not likely toe sign off on artificial blood. And they
are [inaudible] insist that the hospital transfuse Sarah with regular blood. So, when you go
through this journey map, it is obvious that for artificial blood, which is an innovative product, the
planned surgery segment, epitomized by the Sarah persona, is not appropriate.

Let's do a consumer journey map, for Thomas. Thomas unfortunately, has been involved in an
accident. Has lost some blood at the site of the accident. A passerby calls the local hospital
which sends an ambulance. So, the paramedics have two choices. Either they can transfuse
Thomas with the $1500 artificial blood immediately, or they can wait till Thomas is taken back to
the hospital, where he can be transfused with human regular blood. But transporting Thomas to
the hospital would entail time, and can lead to calamitous consequences. So, no one would fault
the paramedics for transfusing Thomas with a higher priced product because the other choice
could be drastic. So, in this particular case, when you do the consumer journey map, it is obvious
that artificial blood is appropriate for the accident segments, even at that higher price. And that is
what journey maps do in terms of real-life business situations. Helps you identify the sweet spot
of which segment you can cater to. Journey maps can help companies create great customer
value propositions that deliver exceptional utility and unique value for the consumers.

25
 Lesson 3-3 General Philosophy About Building
Great Products

Lesson 3-3.1 General Philosophy About Building

Great Products
Media Player for Video

Feature, Function, and Benefits of Product - Slide 19

Feature (What is it?)

New type of braking system for cars

Digital shower- one that can be controlled remotely

Function (What does it do?)

The computer on-board the car will automatically pump the brakes, if the distance is too
short, to avoid collision
(a) Thermostatically blends cold and hot water at desired temperatures and (b) delivers
water at the right pressures

Benefits (What primary need does it satisfy? Pain point(s) alleviated?)

Safety for the driver and the passengers

(a) Safe and (b) satisfactory showering experiences. No accidental scalding

26
Transcript

How do we build great innovative products? Here is a guiding philosophy on how to build great
products. First and foremost, your product should do the core function really, really well. Also,
develop mechanisms where you can talk to the consumers and incorporate their feedback onto
your products. We call this the voice of the customer. Don't fall into the Swiss army knife
syndrome. Don't develop all sorts of products and all sorts of features for, for all customers, if you
will. And usually, when you talk about product developers, they have a mindset; build it and they
will come. Nothing can be farther from the truth. And once you start building products, simplicity
is okay.

Follow the [inaudible]. Complexity is not always good. So, therefore, practice tough love when it
comes to building products. At the end of the day, the core mantra is one of customer benefits. A
lot of times, as a company, people focus on the features of the product and what those functions
are. But I want to ask you to take one step further and as you're developing the features of the
function, move on to the benefits of the products, as well. So, derive the pathway from the
features to the function to the benefits. Because at the end of the day, it's all about customer
benefits

Let's derive the pathway between the features, functions, and the benefits. Let's take a car that
has a new innovative product which is a braking system. The function of the product is actually
the, the computer on board the car will automatically pump the brakes. And if the distance is too
short, actually take over the car. But the important thing as a developer and a technologist that
you need to understand is not to stop with the feature and the function, but to connect it back to
the benefit. What are the benefits of this new type of braking system? Well, in this particular case,
it is obvious that it is safety for the driver and the passengers. because it alleviates certain pain
points and it satisfies certain needs. Let's take another example; digital shower. It is an
equipment that you can have either inside your bathroom or outside that can be controlled
remotely and which actually controls the temperature of water. That's the feature. What is the
function? Well, it does two functions. It can thermostatically blend hot and cold water at desired
temperature. And more importantly, it can deliver water at the right pressures. So, now let's
theoretically derive the connection between function and benefits.

The benefits are it provides safe and satisfactory showering experiences. But more importantly,
there is no accidental scalding. Now, you can use this digital shower and target it toward
segments such as households with small children who can start actually using the shower on
their own without fear of accidental scalding. The more important point here is that you should not
stop with the features and functions alone of any innovative product. But to connect it back to
benefits. Because without benefits, the product runs the risk of being fool's gold. This is what we
call as developer's curse. You fall in love with your product, you provide the features and
functions without consideration of the accompanying customer benefits. Without customer
benefits that are apparent to the customers the product is ever going to diffuse and take off and
succeed. When it comes to building great products, first and foremost, you need to ask yourself
what are the table stakes? Once you develop the table stake features, you will need to ask
yourself what if? Question the status quo. Question conventional wisdom in order to create
innovative features.

27
Question the status quo! - Slide 20

When you challenge the assumptions, there are potential innovative features that will come in.

Transcript

Let's take the example of IDEO developing a toothbrush for Oral-B that was targeted towards
children. At that point in time, adult toothbrushes were bigger, children's toothbrushes were
thinner and smaller. And when IDEO went in and studied children brushing their teeth, they
realized that children did not have the dexterity. And therefore, they were using their entire fist
and their tooth brushing experience was not okay. This is why IDEO developed the Squish
Gripper which actually was much bigger, a much bigger brush than adult toothbrushes so that
children could use their fists and they had satisfactory brushing experiences.

Counter intuitive, but it came up because IDEO asked what if. Think of Rolls Royce. Instead of
selling their engine to airlines, they captured revenue from the airlines by charging them for every
hour of the use of the engine. Again, very innovative. Another example is that of Metro
Newspapers which asked the question what if we give away our print newspapers for free, but
make money off advertising? Again, the question is when you challenge the assumptions and ask
what if, there are potential innovative features that are going to come in.

28
Steps To Thinking About Building Great Innovations -
Slide 21

The slide contains an image of three major components about building great innovations
enclosed in circular arrow loops. The three components are: What is?, What if?, and What
wows?

"Table stakes" features

Question the status quo to create "innovative" features
"Delight" features

Transcript

The last part about building great products is to ask the question what wows? How can we
provide features that delight the customers? Think about Warby Parker, the online store that
actually sells eyeglasses. So, you can go to their website and you can buy stylish glasses that
are very convenient that are delivered to your home. But more importantly, they are affordable.
This unique combination of stylish plus convenient plus affordable makes Warby Parker a
delightful experience for customers. Once you derive the pathway from the features to the
function to the benefits, one of the things you may come across is that the benefits are common
across multiple features. It is good. That usually becomes a primary attribute on the basis of
competition. But a critical thing you need to ascertain is does it matter to the consumer? Is it,
does it matter to the specific persona that you want to cater to? That, to me, is the acid test as
you develop the basis of competition. That congruence between your company and your persona
is going to dictate whether you're going to have a winning innovative product.

29
 Lesson 3-4 Product Configuration Maps: How to
Develop Winning Products

Lesson 3-4.1 Product Configuration Maps: How to

Develop Winning Products
Media Player for Video

Product Configuration Map: Finding The Innovation

Sweet Spot - Slide 22

The slide contains the same information as in Slide 6 - Product Configuration Map: Finding The
Innovation Sweet Spot

Transcript

So how do we design very specific features? We can use a product configuration map, which I've
adapted from the four-action framework by Professors Chan Kim and Renee Malborgne of
INSEAD, and from the sweet spot of innovation that was developed by Goldenberg et al.

30
Four Action Framework - Slide 23

The slide contains an image of Four Action Framework with four labeled boxes given below in
clockwise direction with arrows pointing towards the center.

Raise: Factors to be raised from those found in the industry

Create: New factors to be created that are not currently observed in the industry

Reduce: Factors to be reduced below the industry standard

Eliminate: Factors to be eliminated from the current industry context

Transcript

The four-action framework basically says that there are four actions available for product
developers. You can eliminate certain features. You can reduce certain features. You can raise
certain features beyond the industry standard, or you can actually create new value. So think of a
Nintendo Wii, for example. Nintendo Wii added the magic wand, the remote control if you will,
that was creation of new value.

31
Strategy Canvas For Nintendo Wii - Slide 24

Affordable, fun product for the entire family

The slide contains a line chart with two lines to show that Nintendo Wii is an affordable, fun
product for the entire family compared to Sony PlayStation 3. The Y axis represents the offering
level from low to high and the X axis stands for the several aspects of the product: Price, Movie
Library, Graphics, Game Library, Excitement, Magic Wand. Sony PlayStation 3 dominates in
price, movie library, graphics and game library while the differences for the last one is relatively
small. For Excitement and Magic wand, the Nintendo Wii has a higher offering level, but there’s
no information for Sony PlayStation 3 in Magic wand.

Source: Renee Mauborgne and W Chan Kim (2005) Blue Ocean Strategy, Business School
Press.

Transcript

I want to illustrate the strategy canvas, a concept that was pioneered by Professors Chan Kim
and Renee Malborgne. This is naturally the outcome of the product configuration map that we
discussed, or the four-action framework that Professors Kim and Malborgne talked about. To go
and illustrate the strategy canvas, I need to talk a little bit about the video gaming industry a few
years ago. It was dominated by Microsoft and Sony, which targeted the avid gamers, and their
strategy was fairly simple. They focused on very high-quality performance consoles, which
effectively meant they had very high game quality. The graphics were superb. The movie library
was stupendous, and this entailed higher processor speeds. And they started targeting these
gamers, and they got better and better and better.

And because these were high-performance products, they were able to capture high premium
prices. But this led to an arms race, where consistently people were bettering each other on the
console game quality, on the — were consistently getting better on the console quality. Now
enters Nintendo. Instead of targeting the avid gamers, Nintendo focused on the casual gamers,
and also focused on family that was not consumers of this product at all. So they broadened the
market to include non-consumption as well. But what they did, from a four-action framework, was
they were able to focus on creating fun by creating a new magic wand, which basically meant —

32
it was like a remote control that you could use and control the game using physical gestures. But
in the meantime, they also reduced the movie library.

They reduced the impact of game library. They reduced the graphic quality on their games, and
consequently, because this was a much lower-performance console than Microsoft and Sony,
they were able to charge lower price. The result was, because of this innovative strategy, they
were able to create an affordable product that was actually fun for the entire family. And by going
away from the avid gamers, and coming up with a product that mattered by adding certain
features, by subtracting certain features, Nintendo Wii was able to dominate this gaming market.
The same result can be obtained using our product configuration map as well. So what Nintendo
Wii did was they subtracted the price, subtracted the movie library, subtracted the graphic quality,
subtracted the game library, but at the end of the day , added excitement, and added a new
magic wand in order to create extraordinary value for their consumers.

Maintain (=) - Slide 25

These are the table stakes

These features are highly relevant to the customers and sometimes to the category

Transcript

The first aspect of the product configuration map is what we call maintain. There are certain
features that are highly relevant to the consumers, sometimes to the entire category itself. These
are the table stakes. So we use it. Sometimes, we may actually use the maintain feature in order
to minimize resistance to innovative products. Let me give you an example. Think of Toyota when
it came up with the Prius. The Prius was a hybrid electric vehicle that had both the internal
combustion engine and the electric engine. So that if you think through it very carefully, by mixing
the old internal combustion engine, which consumers had experiences with, with the new electric
engine, Toyota actually minimized resistance to this innovative product. This is what sometimes
we can use the maintain feature for. Apart from using the table stakes feature, we can use it to
minimize the resistance to consumer adoption.

33
Subtract (−) (1 of 2) - Slide 26

The slide contains an image of bottom side of two iPhones - one with headphone jack slot and
other without the headphone jack slot.

Transcript

The second aspect of the product configuration map is what we call a subtract. Subtract features
or reduce intensity. Think of the iPhone 7, which does not have the 3.5 millimeter headphone jack
that previous iPhones had, or take the case of the iPhone, the original iPhone that was launched
in 2007 that subtracted the embedded keyboard that was a staple feature in the Blackberry at
that point in time. Apple decided to eliminate it, subtract it, and the result is history.

Subtract (−) (2 of 2) - Slide 27

34
The slide contains images of two cars: Tata Nano (Wikimedia Commons/arulnathan, 2009) and
Maruti 800 (Wikimedia Commons/Corvettec6r, 2010).

Transcript

Or take the case of Tata Nano, that launched the world's cheapest car. At that point in time, it was
in the same consideration set as Maruti Suzuki, which was a low-end car. What Tata Nano did
was subtract features from other low-end cars. So they had one windshield wiper. They had no
power steering. Instead of four nuts on the wheel, they had only three lug nuts. They did not have
external fuel filler cap. You had to actually open the hood. They did not have air conditioning, but
more importantly, you could only access the trunk inside the car. So you can see how they
subtracted features from other low-end cars to actually develop the world's most inexpensive car
at $2500.

Photograph of Electrocardiograph - Slide 28

The slide contains a black-and-white photograph with the caption "Photograph of a complete
Electrocardiograph, showing the manner in which the electrodes are attached to the patient, in
this case the hands and one foot being immersed in jars of salt solution"

35
Transcript

Another example is that of GE Healthcare's ECG solution called MAC 800. It's FDA cleared, and
MAC 800 should be compared with the original full-featured ECG machine that GE had, which
was weighing at about 65 pounds. MAC 800 was engineered to about seven pounds. It can be
carried in a suitcase. It uses cell phone technology, and it has a battery that runs for two hours,
that can be immediately charged per use. But more importantly, because of the subtraction from
the original full-featured 65-pound machine, MAC 800 can be used in ambulatory situations,
mobile situations, and rural hospitals, and therefore democratized access to huge swathes of the
population. Cirque du Soleil actually modeled itself after a circus. This example actually comes
from Professors Chan Kim and Renee Malborgne. While circuses relied on stars, marquee stars
and animal acts, Cirque du Soleil subtracted both of them out. So there are no marquee stars in
Cirque du Soleil. It's an assembly of talent, and more importantly, they subtracted animal acts.
But what is interesting about Cirque du Soleil is that they have, by latest count, 22 Olympians,
two of them medalists in Olympics, that actually perform in Cirque du Soleil. Despite their
individual accomplishments, they are not marketed as marquee stars. So at the end of the day,
Cirque du Soleil developed a very innovative product by subtracting two features that made
circuses very successful — subtracted the impact of stars, subtracted the animal acts.

Add (+) (1 of 2) - Slide 29

1. Do the added features fit in with the larger priorities?

2. Do the cost of these added features compensate for the benefits?

Transcript

The next element is that you can add features or add intensity. But the larger question you need
to ask yourself is. Do you believe that the new added features fit in with the larger priorities? Do
the costs of these added features compensate for the benefits that are going to accrue for the
customers? These are two important questions that you need to answer. Before embarking on an
adding features decision.

36
Add (+) (2 of 2) - Slide 30

Just adding features does not always add consumer value

Transcript

Because remember, just adding features does not always add consumer value. Sometimes it
leads to feature bloat, and may have diminishing marginal utility for the consumers. At a very
simplistic level, add implies adding more features. For instance, I have a shaving cartridge here
with three blades. I can actually add two more blades, and actually make this into a five-blade
cartridge. This is an example of adding. Or I can be a smartphone, and I have certain features on
my smartphone. And if the smartphone manufacturer adds a couple of more features, that's, at a
simplistic level, add. But add can also be more complex. When you add certain features, you can
actually change the business of competition. You can actually create an innovative product. Let
me give you an example. About 30 years ago, you may have had patients — diabetes patients in
your home, and the way it happened was they used to have a vial of insulin. They used to have a
syringe with a needle. They would inject the syringe, take the required quantity, and inject into
themselves if they were injecting insulin into their bloodstream.

37
Simplistic: Adding more features adds cost - Slide 31

Adding a new attribute that changes

The slide contains an image of a syringe and a medicine bottle.

Transcript

But about 15, 20 years ago, they had an insulin pen which basically had a syringe and a vial all
combined into an integrated unit. All you had to do was take off the cap, inject yourself. So at a
very broad level, while they subtracted two — you know, they integrated it, and by virtue,
subtracted certain entities, and added it to an integrated whole. What they actually did was, they
changed the basis of competition from one of functionality that focused on the purity of insulin to
the convenience of administering insulin. This is an example of add.

38
Balance - Slide 32

Task unification: Defrosting filament in an auto windshield does both defrosting and serves radio
reception

Miniaturizing a PC and adding convenience and making it into a laptop

Transcript

While I talk about adding and subtracting as discrete categories, in real life, it's usually a balance.
Let me give you an example. We all have defrost elements in our car. The defrost element
actually automatically defrosts your car, but in modern cars, the defrost element actually serves
as a radio antenna as well. So the same filament actually serves two purposes. At one level, they
have subtracted, and added a level of convenience. So at a broader level, it is always about
balance. Think about a PC. When they miniaturized the PC, they obviously reduced certain
aspects of it, or subtracted the intensity, if you will, but by virtue of moving — miniaturizing a PC,
and make it locationally convenient so that people can actually take it across, and be mobile,
then they added the basis of competition which is convenience.

39
Divide (÷) - Slide 33

Subdividing a system into smaller independent building blocks (called modules) that can be then
separated or combined to be standardized and create interchangeable products

Transcript

The next element of the product and configuration map is what we call as divide. Divide is
basically taking a system, an integrated system and chunking it into smaller independent building
blocks also known as modules. These modules can be separated or combined to be
standardized. But more importantly, these modules help us create interchangeable products.
Take the case of a speaker in a stereo system. The speaker determines the sound quality. But
the speaker can be attached to receivers and amplifiers and you could have an integrated
system. But on the other hand, you could have the speakers separately, receivers separately and
amplifier separately, then these become interchangeable and the product that it actually explores.
This is basic notion of Divide.

Another example of divide is to think of a personal computer. A personal computer has a monitor,
a keyboard, a CPU, a mouse. These are all separate components that Modular. On the other
hand, all of it could be integrated into one system as is the case with the laptop. But at broader
level this what the difference between integrated product and modular products are. When you
divide the integrated products and have interchangeable components Then innovative
opportunities can arise. When you divide or employ modular design there's several advantages.
One advantage is product variety. For instance, if you use the same frame for a Sedan and an
SUV you can actually, he amount of products in your product line actually multiplies.

40
Balance Supply-Side And Demand-Side Factors -
Slide 34

Company-side

What are our capabilities?

What do competitors do well? What are they missing?
Are there things that we can borrow from other categories that can do the job better?
What about the suppliers? Ecosystem?

Customer-side

What is it customers like / love about the product?

What is it customers not like / hate about the product?
What is in their wish-list?

Transcript

So at the end of the day, it's about balancing both customer-side and supply-side factors. From
the customer side or the demand side, we need to ask ourselves — what does the customers like
or love about our product? What is it that they don't like? What are their pain points? What is in
their wish list? What would delight them? What would wow them? On the company side, we need
to ask ourselves — what are our capabilities? What are our resources? What are the processes
that we do well? What do competitors do well? What are they missing? Are there things that we
can borrow from other categories that can do the job better? What about the suppliers? What
about the ecosystem? So when you think about it holistically from the supply side, you arrive at
certain factors.

41
Right Innovation that Fits Customer Needs - Slide 35

At the end of the day, balance supply-side and demand-side factors to develop RIGHT
innovation that best FITS customer needs

Transcript

At the end of the day, you need to balance supply-side and demand-side factors to develop the
right innovation that best fits customer needs. It is not the best innovation that succeeds in the
marketplace. It is the right innovation that best fits customer needs. Balance customer-side
factors and supply-side factors, and create a product that best fits your customer needs.

42
 Module 3 Wrap Up

Module 3 Summary
Media Player for Video

Lesson 1 Summary (1 of 2) - Slide 36

The slide contains the same graph as described in Slide 10 - Most Innovations Do Not Survive!
They Fall In The Chasm.

Transcript

So now you've finished the module. You've seen it was all about the how-to, the practical advice
on addressing big questions and innovation. So let's walk through the key things to remember
from each lesson.

Lesson 1 was about how you actually cross that chasm; the chasm that so many new products
fall into. So the first thing here was to recognize and remember the chasm is really about a
difference in customer needs, and you really need to focus on addressing just that. It's much
more difficult than it sounds because it's about more than just improving the product itself, No. 1

43
Lesson 1 Summary (2 of 2) - Slide 37

The slide contains the same graph as described in Slide 11 - Follow The Bowling Alley Strategy.

Transcript

Second, and maybe the less obvious thing to remember and do is this; don't attack the mass
market all at once. Instead, find a beachhead segment in that market. Choose a beachhead that
aligns with the sweet spot of your capabilities and focus everything on it. Then use the
momentum you gain to tackle the mass market segment by segment. Raj called this "bowling
ball" strategy. Now, the remaining lessons changed gear, as you saw. Raj talks about that
question; how do you go from an idea that you have to a specific innovation that matters to the
consumers? And now the insight for in about one stage that can be used nation's markets a
mature ones. And, again, we have the customers' side and the product feature side. So Lesson 2
was the customer; how to convert an idea into an innovation that will matter to customers,
consumers? The core tool is deceptively simple, that customer journey map.

44
Lesson 2 Summary - Slide 38

The slide contains the same information as in Slide 15 - Creating Personas.

Transcript

To give it power though, there were two things you needed to do; this is what's to remember.
First, you identify personas so you can link the rather generic idea of a journey to specific needs
of a target segment. Visualize the people that are in that segment. Second, push through to
moments of truth, places that are pain points that you can alleviate or gain points that you can
strengthen for that persona. This is the creative part, and it's the pay-off. Without this, the journey
map goes nowhere. Lesson 3, Philosophy of Great innovative Products. But remember, there are
a number of practical guidelines to keep you on track.

45
Guidelines For A Great Product - Slide 39

Customer Focus

1. Focus on customer benefits rather than product features

2. Hear the voice of the customer (don't think "Build it and they will come")

Product Focus

3. Make sure to perform the core function really well

4. De-emphasize needed features that don't differentiate (table stakes)
5. Avoid features that add complexity rather than value (no Swiss army knife)

Connecting Customer And Product

6. Find the pathway from features and function to customer benefits.

7. But then ask what if, what wows to generate ideas
8. Aim for the sweet spot that aligns a specific persona's (segment's) needs and your
company's unique capabilities

Transcript

Here's eight, eight that struck me. But while there are eight, we can see three core themes here
that will help you remember them. First theme; customer focus must be ahead of product focus.
Hear customers' voice clearly. Focus on benefits to them rather than product features. Second,
product focus is never less critical. The key, make sure to do the primary function really well.
Don't get distracted by table stakes features. And don't fall into the trap of adding neat features
that add complexity, but little customer value. Third theme, bring the customer and product focus
together. Understand how features and functions actually lead to customer benefits. Then you're
in a position to be creative, to aim for the wow product that also leverages your own capabilities.
Do these things right, and it will lead to a great innovative product, that's the message here?

46
Lesson 4 Summary - Slide 40

The slide contains the same information as in Slide 22 - Product Configuration Map: Finding The
Innovation Sweet Spot.

Transcript

Lesson 4 brought us to the product side with the product configuration map and the four-action
framework. We didn't lose the customer side here by any means, did we? But we got a practical
tool that links product features and functions to that customer. Remember, I asked, "What are the
specific things you can do with product features?" And you saw the answer, maintain, subtract,
add, divide. Did you see it that way at first? I know I didn't the first time I saw it. The powerful
implication here is that each of these, particularly subtract, add, and divide; they seem linear. You
subtract, you add. But really, you use them to outflank your competition. You subtract some
things, but add something new to reach a segment that others couldn't. You add somethings, not
to push straight ahead, but to change directions; change the basis of competition.

You divide to access different business models or gain product variety. Within these deceptively
basic moves then, are new avenues for innovation that change the rules of the game. Finally, we
saw Wikipedia and the Encyclopedia Britannica, that they really illuminated how these ideas
work. So to finish, I just want to highlight how much here is about that customer. The message is
very clear; you win not just through the technology and the product, but even more, through the
customer, knowing who they are, what are their needs, what are their losses, gains, right. Like we
have a whole arsenal on this side now, and a lot of people don't. Often they focus on the product
or the feature. They're keeping that product view. And that's a big reason why 90 percent fail, and
that's why you can do better. So okay then, until next time.

47
 Application Corner

The Case of Wikipedia

Media Player for Video

Wikipedia - Slide 41

The forerunner was Nupedia whose articles were written by volunteer contributors with
appropriate subject matter expertise and then peer-reviewed by expert editors before publication
of content as free

Very high quality of articles; comparable to that of professional encyclopedias

Very slow process. Less than one hundred articles were published

In 2001, Wikipedia was formed as a free encyclopedia on the Wiki platform as a side project to
Nupedia

Evolved to a bottom-up approach with the central philosophy that no central organization should
control editing

48
Transcript

The first encyclopedia was "Naturalis Historica," which was created by Pliny the Elder in 77 A.D.,
and then the modern print encyclopedia became popular in the 17th century. The most famous
general knowledge encyclopedia is "The Encyclopedia Britannica." Encyclopedia Britannica was
started somewhere between 1768 and 1771 in Scotland, and for the next 220-odd years,
Encyclopedia Britannica was a dominant player in the general knowledge encyclopedia market.
Encyclopedia Britannica's value proposition was simple — the quality of the material inside the
book. The articles were actually written by experts, some of whom were Nobel Prize winners,
including Madame Curie and Albert Einstein. Carl Sagan wrote an article.

So you can see the quality of the articles, and they were professionally copy-edited by editors
such that the quality of the references became their calling card. And over the next 200 years,
Encyclopedia Britannica did a lot of renewal of their own capabilities. Initially, they were using
manual tools to update themselves, but later on, in the '60s and '70s, they started using
mainframe computers in order to update their reference materials. Encyclopedia Britannica was a
very dominant player, used their own sales force to sell their products, and by 1990, they reached
their peak sales — 100,000 units. But then, after 1990, they had a precipitous decline in sales —
about 50,000 units in 1994, and about 3000 units in 1996. This was actually highly correlated with
the evolution of the PC industry. The personal computers became very famous, very popular, and
people could have CD-ROMs along with the PCs. Microsoft Encarta was launched in 1993 for a
very small fee.

In response, Encyclopedia Britannica actually came up with its own version of a CD-ROM. The
print media at that point in print encyclopedia was about $1200 or so in the mid-1990s, so the
CD-ROM was priced at $1200, which was expensive compared to the encyclopedias offered by
— offered on CD-ROMs. Encyclopedia Britannica also came up with their own online version,
called Encyclopedia Britannica online, but the bottom line is, they could never capture their glory.
Because think about it. When you look at an Encyclopedia Britannica, and you had it in your
home, the spine — the cachet of the Encyclopedia Britannica was this spine in your living room,
and that could never be captured in the CD-ROM. Encyclopedia Britannica did a lot of
experiments in order to reclaim its market leadership in the encyclopedia business, but
unfortunately, it could not. While Encyclopedia Britannica had its own problems with its print
products, there were newer digital encyclopedias that came into the market. The forerunner was
Nupedia, where they followed a two-step process.

The first step involved volunteer contributors, who wrote the initial articles, and then they were
peer-reviewed by expert editors before publication of the content as free. While the quality of the
articles were very high, comparable to that of professional encyclopedias, it was actually a very
slow process. Less than 100 articles were actually published. So therefore, in an interesting
experiment, in 2001, Wikipedia was formed as a free encyclopedia on the Wiki platform, actually
as a side project to Nupedia, and the logic was very simple. They wanted to produce articles by
the crowd. Anybody in the world could produce articles, and that they would take these articles,
go to Nupedia, and have the professional editors actually edit these articles. That was
fundamentally the original idea, but then it evolved to a bottom-up approach with the central
philosophy that no central authority should control the editing.

49
Competing Value Chains of Britannica versus
Wikipedia - Slide 42

Encyclopedia Britannica (print) was a product in the mature stage. Wikipedia was a nascent
online product that needed to cross the chasm

EB created an online product that was a replica of its print product. If Wikipedia had chosen to
imitate EB, it would have not succeeded. So it had to be innovative

Journey map for EB: High quality product. But some pain points: expensive, not timely, limited
academic topics, restrictive access

Transcript

Now, let's compare the value chain — the emerging value chain of Wikipedia, and compare it to
the entrenched value chain of Encyclopedia Britannica. We know that the print product of
Encyclopedia Britannica was in the mature stage. Wikipedia was a nascent product in the online
space, and they had to cross the chasm. The Encyclopedia Britannica created an online product
that was a replica of its print product. Now, let's think about Wikipedia. It's an emerging value
chain. If it had replicated Encyclopedia Britannica, if it had chosen to imitate Encyclopedia
Britannica, it would have a problem, because it did not have the army of editors and army of
writers that Encyclopedia Britannica had. But more importantly, the structures, resources, and
processes, and cultures for Encyclopedia Britannica — they were very hard to emulate by
Wikipedia.

So Wikipedia had to be innovative in order to cross the chasm and compete with Encyclopedia
Britannica. So in these kinds of situations, especially when you are comparing an emerging value
chain with an entrenched value chain, it is far easier for us to do a journey map for the
entrenched value chain — in this case, Encyclopedia Britannica. They had a high-quality product,
an aspirational product for the majority of the segment, but they had very distinct pain points as
well. They were very expensive, and they were not timely. In other words, we had to wait for
yearly updates to get the information updated. More importantly, they had limited academic
topics. They did not have popular culture topics, and last but not the least, given the fact that it

50
was controlled by a set of writers and editors, they offered very restrictive access for a majority of
the segment.

Product Configuration Map: Wikipedia - Slide 43

The slide contains an image of the symbols of the following mathematical operations listed in
clockwise direction. The symbols are: Add, Subtract, Divide, Equals.

ADD

Wisdom of crowds
Pop culture topics
Length of entries
Real-time updating

SUBTRACT

Authority of experts
Sales expenses
Free product
Iterative quality

DIVIDE

Division of labor
Ownership

MAINTAIN

Academic topics
Global

51
Transcript

Now, let's do a product configuration map for Wikipedia. First and foremost, what Wikipedia did
was to maintain certain table stakes features that was popular in Encyclopedia Britannica. They
maintained academic topics, and there were global topics. So that was the maintenance of table
stakes which mattered to consumers. One very interesting thing about the add part, as far as
Wikipedia is concerned, was they added the wisdom of crowds, and by virtue of that, they
democratized access. They added pop culture topics in addition to the academic topics. They
increased the length of the entries, and more importantly, it was actually real-time updation [sic].
A very interesting point about adding crowds was that they subtracted the authority of experts.

So anyone with knowledge of a particular topic could write, and the evaluation was actually done
by the crowds. And by virtue of reaching consumers directly, and by virtue of it being a free
product, they subtracted the sales expenses, the sales infrastructure that Encyclopedia
Britannica needed. But most importantly — and this is a very important point to figure out —
Wikipedia never let perfect be the enemy of the very good. So what they did was, they did not
have perfect quality in the first take. They had a good-enough quality, and over time, they iterated
this quality to make sure that the quality became better and better and better, and some point in
time, the quality of the entries were comparable to that of Encyclopedia.

The last element is that of divide. What Wikipedia did was, they divided the labor. Instead of a
few people at the top of the pyramid controlling the quality and the access, they opened it up to
the crowds, and by opening up to the crowds, they divided the labor, and they diffused the
ownership across people. And therefore, the output was prodigious, and more importantly,
because it was democratized — the writing was democratized. The editing was democratized,
and the access was democratized. There was an immense sense of commitment from the
crowds towards this product that actually made this product sustainable and worthwhile in the
long run.

Wikipedia Statistics and Products - Slide 44

The slide contains a picture of Wikipedia homepage which comprises of ten different languages
written around a globe structure made up of various puzzle blocks. It also shows that Wikipedia is
ranked fifth globally and sixth in the United States.

52
Transcript

In addition to pop culture topics, Wikipedia did something that was not done by other
encyclopedias. Wikipedia was actually published in multiple languages, including English,
Spanish, French, Portuguese, Italian, and many, many, many other languages. As a result, the
Wikipedia site was the fifth-most-visited site in the world. Apart from publishing in multiple global
languages, Wikipedia also expanded the economies of scope by offering multiple products. You
have WikiVoyage, which is the free travel guide, WikiNews, which is a free news source. You
have WikiSource, which is a free library, WikiBooks, which is free textbooks. You have freely-
usable photos from WikiCommons. These are all examples of adding attributes to an existing
product.

References - Slide 45

Wikimedia Foundation. (n.d). Retrieved from https://www.wikipedia.org/

Transcript

But the story has a happy ending. Encyclopedia Britannica is doing very well. They did a lot of
experimentation in the '90s and early 2000. They created a learning portal for K-12 market. They
created an ad-supported encyclopedia. Unfortunately, they failed, but they understood the power
of the web. Today, Encyclopedia Britannica is in a different market. They compete in the digital
education services market, where 85% of their revenues come from, and 15% of their revenues
actually come from being a qualified reference source.

But more importantly, learning from Wikipedia, their content is now updated in a matter of minutes
and hours, rather than weeks and months that they used to have. But Encyclopedia Britannica is
much, much, much stronger than ever, which tells you the power of strategic renewal. You
understand your strengths. You understand your capabilities. You understand what the market
wants. At the end of the day, it's a product market fit. As long as you understand where your
capabilities are dovetailed with the market relevance, you are going to be fine as an innovator.

53