Test the Waters

Volume 7 Letter 6

When rolling out significant new products, the “Go Big” approach can have some significant pitfalls. Remember the Motorola Iridium phone that was supposed to take over the cell phone world (see news letter July 2006 “No Connection – Iridium Phones”) Sometimes a stepped approach is more appropriate and can reveal some key lessons before big money is put on the table.

Texas Instruments (TI) launched a strategic initiative to get out of the commodity electronic business and start producing higher end and higher margin products. They found a promising technology in Radio Frequency Identification (RFDI). Marketing wanted a mere $50 million to ramp up and develop the technology for tracking airline cargo. TI’s CEO was a little uncomfortable sinking $50 million into an unproven technology and suggested that the team test the RFID technology in a low risk marketplace first.

Accepting the challenge to test the technology, the TI team decided to place the RFID tags on European farm cattle. (I am NOT making this up). Farmers needed to prove to the European Union that they were in compliance with a new law limiting the number of cattle per hectare. The commercial payback to TI from such a venture was minimal but as part of the product development the information and learning was invaluable.

Based on their farm experience, TI decided to supply only the RFID chips with no specific purpose in mind. They chose to let other resellers develop the applications. So, for example, when GM came calling to request TI’s RFID chips to place in key sets that could be used to immobilize a stolen car, TI was ready to go. In fact the RFID chip is instrumental in the “On Star” system that GM builds into their cars. ExxonMobil’s speed pass is also a product of TI’s RFID chips. Customers simply wave their RFID chip past the gas pump and fill up without having to sign a credit card.

The significance of this story is that if TI had invested $50 million to develop the technology upfront as initially requested to service the airline industry alone we would have likely been writing about an expensive failure. Instead they took a route of learning. The found a market in which to test the technology and applied the learning from that experience to launch the product.

When funding new ventures it is often an all or nothing approach-a “go” or “not go” decision. McGrath and Keil in a recent HBR article suggest a stepped approach like TI used. In their article, which is mostly about new products that have gone off the rails, they say there are some obvious signs that point to a new product train wreck waiting to happen. Here are some of the telltale signs of imminent disaster:

    • Go or no go: the project is all or nothing
    • Gut feel prevails: there is no plan to test the market or the product assumptions.

 

    • No objectives set: there are no set objectives that if not reached would give cause for some sober second thought.

 

    • Annual reviews only: projects are evaluated on an annual basis rather that re-evaluated as milestones are reached or missed.

 

    • Reward success only: Team members are rewarded on launch success meaning that negative findings are often ignored.

 

    • Hail Mary product: The project is under great pressure to deliver big numbers early and to cover shortfalls in the company’s core business.

 

    • No risk management: Team members have little experience managing risk and uncertainty.

 

  • New opportunities squandered: new opportunities brought by the new product are not identified.

When launching breakthrough type products small steps are often the most appropriate as learning takes place along the way. Keep thinking, keep learning, keep planning and success is likely to grace your way.

For the full story see HBR May 2007 Rita Günter McGrath and Thomas Keil “The Value Capture’s Process” PP 128..136

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