Launching a new company, or a new product or service within your current company, can seem like a daunting process rife with risk. But in today’s globalized economy, ignoring innovation is even more dangerous to the future of your business.
The key is to embrace creativity and change instead, but in a smarter way—by utilizing an approach that minimizes risk while increasing customer value. That approach is called “lean innovation,” and can improve your company’s bottom line by enabling you to bring products to market sooner and with fewer resources.
What Is Lean Innovation?
Lean innovation is focused on increasing efficiency by capturing customer feedback early and often and minimizing waste in the product development cycle. The process prioritizes experimentation over elaborate planning, and celebrates continuous, incremental improvement.
Tucker Marion, an associate professor in Northeastern University’s D’Amore-McKim School of Business, defines lean innovation as a combination of three main methodologies:
- The ability to identify new opportunities through the use of design thinking
- The ability to quickly, and with fewer resources, develop, prototype, learn, validate, and improve business solutions
- The ability to apply lean processes, which enable teams to reduce waste, make incremental improvements, and eliminate the bureaucracy that often hinders innovation
“Where companies have trouble is seeing the funnel of what ideas they should be working on,” Marion says. “With lean innovation, you’re developing concepts and testing them in a very rapid way.”
Lean innovation has a long history. In 1913, Henry Ford introduced the first moving assembly line, a manufacturing process that dropped assembly time for a single vehicle from 12 hours to 90 minutes. By reducing the time, money, and human capital required to build a car, Ford was able to lower the cost of the company’s popular Model T from $850 to less than $300, making automobiles more accessible to the masses. The increased efficiencies in the system helped eliminate “waste,” all while improving the customer experience—core principles to lean innovation. Toyota later replicated Henry Ford’s original principles at the Rouge assembly plant, using Ford’s approach as a basis for developing the Toyota Production System.
Design Thinking’s Role in Lean Innovation
If your goal is to break similar ground at your current company, a good place to start is with design thinking—the first methodology in Marion’s definition of lean innovation. Design thinking is a customer-centric approach to brainstorming new ideas and solving problems.
The process, popularized by global design firm IDEO, puts the emphasis on the customer. What pain points have users experienced? How are they currently solving their problem? By observing end users in their natural environment, companies can better understand their customers’ needs and, in turn, uncover unique insights that could lead to new business opportunities.
“Where you have a gap right now is to do the upfront better,” Marion says, noting that more companies have started to apply design thinking, including Apple, General Electric, and IBM, to solve this problem. “That entails giving employees the skills to better understand opportunities, to apply different methods of getting information from potential customers, and to achieve better brainstorming.”
The Hasso Plattner Institute of Design at Stanford University—where IDEO founder David Kelley, a Stanford professor, helped conduct research on design thinking—breaks design thinking down into five phases:
- Empathize: Observe and engage with users to discover their actual needs
- Define: Determine the problem; what stood out as you were talking to customers?
- Ideate: Brainstorm potential solutions to the problem; there’s no wrong answer at this phase of the process
- Prototype: Work as a team to select the top idea based on pre-determined voting criteria and start building, even if it’s just using paper and pen
- Test: Put the prototype in users’ hands and iterate based on their feedback
By employing design thinking, companies are able to gain a deeper understanding of their customers, generate new ideas, and build products smarter and faster with minimal prototyping costs.
The Benefits of the Lean Startup Method
The Lean Startup method, popularized by Silicon Valley entrepreneur Steve Blank, builds off concepts introduced in design thinking and enables companies to “quickly, and with fewer resources, develop, prototype, learn, validate, and improve business solutions”—the second methodology Marion describes in his definition of lean innovation.
The Lean Startup approach is centered on a “build, measure, learn” feedback loop. The goal is for companies to build a minimum viable product (MVP), or the most stripped down version of a product or website that early adopters can test. An MVP should have the core features that make the product work, but serve as more of a guide for future development. By placing an MVP in users’ hands, companies can quickly discover what’s working and what’s not and iterate based off that feedback. They then eliminate waste and build a product they know customers actually want.
“You have a lot of companies adopting agile methods of shorter development and more iteration during the product development process,” Marion says. “You’re getting functioning prototypes out to market sooner, and developing and testing concepts in a very rapid way for a very low cost.”
File hosting service Dropbox started as an MVP. The company created a simple four-minute demo video of its beta product, in which Dropbox founder and CEO Drew Houston narrates how the product works. In the video are inside jokes Houston knew his early adopters would appreciate, driving further engagement. He posted the video to a news aggregator site popular with the community and, overnight, the waiting list for the beta product soared from 5,000 to 75,000 people.
In this case, the video was the minimum viable product. The MVP validated Drew’s leap-of-faith assumption that customers wanted the product he was developing not because they said so in a focus group or because of a hopeful analogy to another business, but because they actually signed up.
Success won’t always be that immediate, but it is always worth testing.
Applying Lean Processes
The third methodology powering lean innovation is “lean processes,” which Marion describes in a post on the D’Amore-McKim School of Business’s thought leadership blog as “the reduction of waste and continuous improvement, [which] allow innovation teams to tear down some of the bureaucracies and processes that inhibit innovation.”
This could include minimizing the number of meetings employees are in, to simplifying the steps projects need to go through for approval, to employing lean methods such as Six Sigma.
Six Sigma is a method focused on improving business processes and performance by eliminating the causes of errors that lead to defects in a product or service. Motorola first adopted the methodology in the mid-1980s as a way of standardizing defect measurement to drive improvements in manufacturing. Additional brands started leveraging Six Sigma—General Electric serving as a well-known example. Former CEO Jack Welch made the methodology central to the company’s business strategy and culture.
But applying lean processes can be simpler than that. In research Marion conducted on product development at new ventures, he discovered that:
The best firms, those that made it to market and were successful, despite overwhelming odds, embraced a few common sense principles. Less paperwork, targeted and effective meetings, fewer decision points and gates, and an embracing of milestone management were common traits regardless of industry vertical.
Why Use Lean Innovation
Lean innovation enables employees to test their hypotheses and build better products faster with fewer resources. What’s more, it challenges companies to continuously test assumptions and iterate on their product offerings, helping them avoid the all-too-common pitfall most executives experience: Becoming too comfortable with their company’s current success.
“Companies need to be fast-moving,” Marion says, “and their employees and managers need to be comfortable with assessing the global landscape and enabling their organization to change and take risks. Lean innovation allows firms to pursue more opportunities up-front, mature them a little at low cost, and test them to see if they are worth the investment.”
Lean innovation can actually reduce overall R&D risk while improving a company’s competitive advantage. What’s the downside of that?