How Lean Innovation Is Different From What Enterprises Are Doing Today

Large Enterprises Employ Waterfall Development

In our experience and research, approximately 95% of large enterprises use a waterfall approach to developing new products and services. A traditional waterfall approach looks like this:

Waterfall development is all about execution of the requirements document. The unit of progress is how efficiently the team executes the plan. While customers are involved as alpha and beta users, the goal of early customer access is to uncover bugs, but not to provide feedback on features or usability. Only after the final product has shipped does the company hear substantive feedback from customers. All too often, it is only after months or years of development work the product launches and the company learns customers are not buying. In reality, it often takes companies at least three tries to get it right, version 1 without customer feedback, version 2 was work that was already started before customer feedback and version 3 where the customer finally starts to become heard. 

Lack of customer feedback, and therefore customer insight, causes tremendous waste. Waste comes from not only the development costs of a product no one wants, but in all of the wasted marketing, sales and fulfillment costs that didn’t result in a meaningful business outcome. 

Approximately 95% of all product launches fail to meet stated financial objectives.

Examples of waterfall development include the Stage-Gate process, company-designed End-to-End process or any other process that goes through linear stages of development group across functional areas, like research, product development, engineering, marketing, sales, etc. Waterfall processes are pervasive throughout corporate America. They are the industry standard and they are failing miserably to deliver commercial success. 

Agile Development

Best practices in software development started to move to agile development in the early 2000’s. This approach improved on waterfall by building product iteratively and involving the customer. But it lacked a commercialization framework for testing hypotheses outside the building. With agile, you could end up creating every feature a customer asks for and still go out of business. 

Agile is an improvement over waterfall, but it lacks a process and framework for creating commercial success stories. 

Lean Innovation

Lean Innovation comes out of the lean startup movement and is applied to large enterprises innovation efforts. 

With Lean Innovation, you start with a series of business model hypotheses, which are guesses you are making about the business model and all of its components, including the customers you are planning to serve. You acknowledge these are simply guesses, knowing that some of them are likely to be wrong. 

Starting with the most critical and unknown hypotheses, you design experiments to quickly and efficiently validate or invalidate them. Running these experiments generates tremendous insight about your customer and your business model. 

In Lean Innovation, the unit of progress is learning, measured by your ability to uncover meaningful insight that changes customer behavior and drives growth.

The insights generated tell you where you are wrong, and which components of your business model you need to change to improve your odds of success. These insights rapidly accelerate your learning, and your ability to succeed in the marketplace. While there is much discussion about building MVP’s (Minimum Viable Product), it’s not the product that matters in the end. It’s the insight that truly matters. Developing hypotheses, designing experiments with MVP’s and testing them with real customers outside of the building is the only way to generate truly meaningful insights that make a difference in your business. 

The graphic below illustrates the difference in the three types of innovation processes, Waterfall, Agile and Lean Innovation. 

In Waterfall, you receive meaningful customer feedback and measure behavior at the end of the process. This makes it impossible to extract insight and put it back into the business model before launch.

In Agile, you release features more quickly and efficiently, but risk the problem of feature creep and bloated products that are too complicated and have too many unwanted features. 

With Lean Innovation, meaningful customer feedback and behavioral data are incorporated throughout the iterative process of learning what customers value, and what they do not. This insight allows you to find Product-Market fit and a scalable Path-to-Customers more efficiently than other methods.

As with all change, it takes time and effort to adopt a new process in the enterprise. In every case we've been involved in, the pain of managing this change is well worth the effort in growth and business results. 

Benefits of Lean Innovation Versus Other Innovation Processes

  • Higher probability of commercial marketplace success; lower failure rate
  • Better suited for situations with high uncertainty, unknown customers and problems
  • More efficient at generating customer insight
  • Improved capital efficiency
  • Increased customer resonance and passion 
  • Faster revenue growth
  • Higher overall return on investment