"People don't want to buy a quarter-inch drill. They want a quarter-inch hole!" Theodore Levitt
Outcome Driven Innovation or ODI is based on the needs based approach to innovation. This is in contrast on the ideas based innovation that is promoted by Tom Peters in Thriving on Chaos and Thomas Watson the founder of IBM.
To summarise both methods:
An ideas based approach to innovation is based on the premise that the key to successful innovation is to generate a large number of ideas, from which the most likely to fail will be filtered out. Through this process of filtration the relevant department will be left with a shortlist of 'good' ideas that it will begin to test and experiment with. However, this approach is inherently flawed according to Anothony Ulwick of Strategyn Inc, as the mathematical probability of someone coming up with an idea that satisfactorily addresses all the customers unmet needs is close to zero.
A needs based approach however first attempts to understand the customers needs, and then figure out which are unmet and devise a concept that addresses those unmet needs. Using methods such as interviews, customer visits, focus groups and other research methods, firms attempt to understand the needs of the customer. Despite all the talk most people do not still understand how to measure unmet needs, or indeed what can be classified as an unmet need. Therefore some academics have gone on to state despite these efforts that innovation can only truly arise when companies address a firms latent or unarticulated needs.
However, the flaws with the needs based approach are more to do with its structural underpinning rather than possessing any inherent flaws, unlike the ideas based approach.
ODI is a method developed by practitioners to help overcome the structural flaws in the needs based approach to innovation and helps to define with clarity all the needs of the customer. Strategyn Inc has developed ODI over the course of 18 years and made eight important discoveries that address the structural flaws in needs based innovation:
When it comes to innovation, the job, not the product, must be the unit of analysis.
The proper definition of “customer need” becomes clear when the job is the unit of analysis.
A job map provides the structure needed to ensure all customer needs are captured.
Concept innovation and design innovation are two different things, but can be addressed similarly.
The opportunity algorithm makes it possible to prioritize unmet needs.
Opportunities (which needs are unmet) dictate which market growth paths to pursue.
Scattershot brainstorming doesn’t work; sequenced and focused idea generation does.
Ideas can be evaluated with precision when all the needs are known.
By applying the learning from these discoveries, one can take a holistic view of innovation and together create a powerful approach to innovation.
ODI is "the job, not the customer, is the fundamental unit of analysis for a marketer who hopes to develop products that customers will buy". As Theodore Levitt's quote at the start of this section denotes, the customer is not looking for any particular tool in his purchase decision, instead he is instead looking to satisfy his need to achieve a certain objective or complete a job.
The Milk Shake Example (Taken from HBS)
To see why, consider one fast-food restaurant's effort to improve sales of its milk shakes. (In this example, both the company and the product have been disguised.) Its marketers first defined the market segment by product—milk shakes—and then segmented it further by profiling the demographic and personality characteristics of those customers who frequently bought milk shakes. Next, they invited people who fit this profile to evaluate whether making the shakes thicker, more chocolaty, cheaper, or chunkier would satisfy them better. The panelists gave clear feedback, but the consequent improvements to the product had no impact on sales.
A new researcher then spent a long day in a restaurant seeking to understand the jobs that customers were trying to get done when they hired a milk shake. He chronicled when each milk shake was bought, what other products the customers purchased, whether these consumers were alone or with a group, whether they consumed the shake on the premises or drove off with it, and so on. He was surprised to find that 40 percent of all milk shakes were purchased in the early morning. Most often, these early-morning customers were alone; they did not buy anything else; and they consumed their shakes in their cars.
The researcher then returned to interview the morning customers as they left the restaurant, shake in hand, in an effort to understand what caused them to hire a milk shake. Most bought it to do a similar job: They faced a long, boring commute and needed something to make the drive more interesting. They weren't yet hungry but knew that they would be by 10 a.m.; they wanted to consume something now that would stave off hunger until noon. And they faced constraints: They were in a hurry, they were wearing work clothes, and they had (at most) one free hand.
The researcher inquired further: "Tell me about a time when you were in the same situation but you didn't buy a milk shake. What did you buy instead?" Sometimes, he learned, they bought a bagel. But bagels were too dry. Bagels with cream cheese or jam resulted in sticky fingers and gooey steering wheels. Sometimes these commuters bought a banana, but it didn't last long enough to solve the boring-commute problem. Doughnuts didn't carry people past the 10 a.m. hunger attack. The milk shake, it turned out, did the job better than any of these competitors. It took people twenty minutes to suck the viscous milk shake through the thin straw, addressing the boring-commute problem. They could consume it cleanly with one hand. By 10:00, they felt less hungry than when they tried the alternatives. It didn't matter much that it wasn't a healthy food, because becoming healthy wasn't essential to the job they were hiring the milk shake to do.
Once they understood the jobs the customers were trying to do, however, it became very clear which improvements to the milk shake would get those jobs done even better and which were irrelevant. How could they tackle the boring-commute job? Make the milk shake even thicker, so it would last longer. And swirl in tiny chunks of fruit, adding a dimension of unpredictability and anticipation to the monotonous morning routine. Just as important, the restaurant chain could deliver the product more effectively by moving the dispensing machine in front of the counter and selling customers a prepaid swipe card so they could dash in, "gas up," and go without getting stuck in the drive-through lane. Addressing the midday and evening job to be done would entail a very different product, of course.
By understanding the job and improving the product's social, functional, and emotional dimensions so that it did the job better, the company's milk shakes would gain share against the real competition—not just competing chains' milk shakes but bananas, boredom, and bagels. This would grow the category, which brings us to an important point: Job-defined markets are generally much larger than product category-defined markets. Marketers who are stuck in the mental trap that equates market size with product categories don't understand whom they are competing against from the customer's point of view.