Point: Use friction to your advantage

Story: McGuckin Hardware is a family-owned store in Boulder, Colorado, long known to any do-it-yourselfer as the place to go for supplies. The store has knowledgeable, friendly staff, many of whom have worked at the store for years over its 54-year history.

A few years ago, Home Depot opened a store in Boulder, with twice the space, offering lower prices. Can McGuckin’s survive against giant Home Depot? Or will it become another mom-&-pop store shuttered by behemoth retailers with economies of scale in supply chain and large marketing budgets?

According to recent research by Wharton’s Olivier Chatain INSEAD’s Peter Zemsky, McGuckins has a good shot at success due to a concept that Chatain and Zemsky call “friction.” As they define it, a friction is any force that makes it difficult for buyers and sellers to connect. For example, a poor location is a friction if it makes it harder for customers to get to the store. A complex website or a confusing store layout is a friction if it’s hard for customers to find the products they want to buy.

Smaller companies can out-compete giants by exploiting frictions. For example, McGuckin’s can use its loyal, knowledgeable staff to help customers quickly find what they need or give them sound advice if they’re embarking on a new project or product purchase. Long-time loyal employees are more likely to go the extra mile to help a customer. McGuckin’s loyal staff also know the local area, so they know which paints withstand Colorado’s intense sun and which garden plants thrive in the local climate. McGuckin’s local knowledge reduces its distance to its customers, which reduces friction.

Action:

• Document the time, costs, knowledge, hassles that customers face in finding your business, buying from you, or using your products
• Compare the frictions in your business or products with those of your competitors
• Adjust or redesign your business to minimize your friction
• Emphasize your low friction in your marketing and advertising

For more information:

Olivier Chatain and Peter Zemsky, Value Creation and Value Capture with Frictions

How a Little ‘Friction’ Can Change a Competitive Landscape

McGuckin Hardware

Point: Innovation doesn’t have to be expensive

Story:
Current surveys indicate that more companies are reducing innovation budgets this year, but the good news is that innovation doesn’t have to be expensive. Here two stories that show how to innovate inexpensively:

J.B. Hunt was just a truck driver in the 1940s when he saw that rice mills in Arkansas were disposing of rice hulls by burning them. Rice hulls are the fluffy tough fibrous shells removed to create white rice. The waste hulls gave Hunt an idea: he contracted with the mills to haul away their rice hulls, and then he sold the hulls to poultry farmers as chicken-house litter. After Hunt’s revelation of the potential value of rice hulls, others found additional innovative uses for the material: pillow stuffing, high-fiber additives for pet food, natural building insulation, filler for injection-molded plastics, and using rice hulls to improve apple juice extraction.

Similarly, old rubber tires are being ground up and made into roads and shoes. And clothing & outdoor gear maker Patagonia asks customers to bring in their worn-out Capiline clothing (a polyester fabric) rather than throwing it away. Patagonia has devised a way to break down the discarded fabric into plastic chips and then respin them into new synthetic yarn. Given the increasing concerns about proper waste disposal, waste products provide attractive opportunities as no-cost or low-cost sources of innovative raw materials.

In addition to innovating with waste products, companies can leverage fallow innovations. During the early 1980s, IBM Corp was spending at least a hundred times more on R&D than Apple Inc. But upstart Apple found a way to leverage some new underutilized technologies (the computer mouse, high-resolution display monitors, the power of the 32-bit microprocessor and the graphical user interface) to create the Lisa and then the Macintosh. What existing technologies could you put to use in new ways?

Action

• Survey existing supplies of materials and streams of byproducts
• Look for materials that are underutilized or are discarded
• Consider how those materials might be recombined, repurposed, or refurbished for other, valuable applications

For More Information:

Patagonia’s Common Threads Garment Recycling Program

Innovation to the Core by Peter Skarzynski and Rowan Gibson

Follow along on all other 24 Hours of Innovation events at http://www.boardofinnovation.com/events/the-24-hours-of-innovation/

Point: When innovating, look at the “job” the customer hires a product to do

Story: At the World Innovation Forum, Clayton Christensen cautioned companies against focusing only on customers when they create incremental innovations. Instead, he recommended understanding the job that the product is hired to do by those customers.

To illustrate the “product’s job” concept, Christensen described a fast food chain’s milkshake sales. At the demographic level, many milkshake buyers are working-age people. But the demographic similarity is not what drives people to buy milkshakes. (When the company researched demographically similar people, the results did not improve sales.) In fact, a focus on age and gender missed the job that milkshakes perform — why do people “hire” (buy) the milkshake? What job do they want the milkshake to perform?

Through further research, the fast food chain found that about half of milkshake sales occurred in the morning. These buyers came into the restaurant by themselves, bought a milkshake and nothing else, and drove away with the milkshake rather than consuming it at the restaurant. Looking deeper, researchers learned that the buyers were commuters, and the job of the milkshake was to provide distraction on a long commute and to tide them over until lunch. For this job, the milkshake competed with bananas, donuts, breakfast bars, and coffee. Commuters hired milkshakes over the competition because milkshakes take a long time to eat, don’t slosh or leave crumbs, and can be held in one hand or be put into a cupholder during the drive.

A very different group of milkshake buyers came in the afternoon and evening. These buyers were predominately dads with little kids. The dads were buying milkshakes for an entirely different job: that of assuaging guilt over not having enough time with their kids. Kids liked the milkshakes, and the dads could finally say “yes” to something and feel good about themselves.

Understanding the jobs people hire milkshakes to do is important when it comes to incremental product improvements. The two jobs for milkshakes call for diametrically different innovations. Thicker milkshakes would delight the bored commuter, but they would frustrate time-pressed dads because kids take too long to finish thicker shakes.

Simply put, innovations that would boost sales in one group would displease the other group. Commuters might want improvements like increased thickness, small added fruit chunks, and a grab-and-go purchase system that lets customers buy a milkshake without standing in the regular food line. In contrast, dads might want a smaller, thinner milkshake that provides fun but quick treat for the kids. The strategy for innovation in this case may be to have two different shake formulations: one for the morning and one for the afternoon/evening.

The point is to understand WHY someone buys the product, not WHO buys the product. The demographics of milkshake buyers are less important than the fact that one segment buys the product as a distraction and protracted meal while the other buys it as a sweet attraction and quick desert.

Action

• Delve into the job(s) of the product, not the consumer(s) of the product.
• Segment by purpose, not person.
• Identify and innovate around job performance dimensions rather than product performance dimensions