Have you ever tried to book a non-trivial vacation trip with multiple stops, transfers, accommodations, and various activities like a guided city tour, online? Up to now, this proved to be a major hassle with visits to countless booking websites and a tool like a spreadsheet to keep track of all bookings, times, and dates. Nezasa, an online travel spin-off incubated by Acrea, is trying to solve this problem by providing a one-stop shop for complex multi-stop itineraries. First reactions from insiders like Tnooz confirm that Nezasa is introducing a real business innovation to the travel industry.
Innovation can be characterized by two main properties. First and foremost, it is about something original, a new idea that lets a company do something different and not just better like with an improvement. Second and even more important, it is about implementing this idea and bringing it to life. Thus, an idea brought to life results in business innovation.

The newness characteristic also tells us that really innovative things are unproven at least to some extent, otherwise we would not consider it as innovative. The notion of uncertainty plays an important role here. Of course, there is risk involved when driving business innovation and bringing new offerings to the market. In our understanding, this asks for some sort of entrepreneurial approach even in large corporations where managerial behavior dominates.

The Traditional Way

Traditional innovation implementation starts with a business case or even a business plan that sketches the idea and contains information and arguments why the idea should be implemented. This includes forecasts of expected revenues and or savings and serves as a foundation for an initial go decision including budget and resource allocations. Upon approval, a program or at least a project is initiated and launched into multiple phases that often resemble the classical waterfall approach. At the end of this long project pipeline, the fully featured end product or let’s say version 1.0 of the end product will eventually pop out.
In our daily consulting work we have seen such exhaustive business case documents (in a few cases more than 100 pages long) and implementation projects scheduled to run for more than 2 years before a first software version would be released to the market.

In such cases, the project sponsor and the customer wait patiently for the first version of the product to test and to transition into operation. We have experienced that such an approach comes with a high risk of failure and a non-optimal allocation of resources in particular the investment budget. Also, incumbents or newcomers have shown to outpace such approaches with a shorter time to market.

There are two major issues with this traditional approach:

  1. It often takes too long to put the business idea to test on the market and to reduce a significant piece of the inherent risk in such an innovation project.

  2. While working on the delivery to finally pop out of the project pipeline, the organization might be missing out on opportunities because today’s markets change quickly. Thus, the final product might not fit perfectly anymore.

The development of the brand-new BMW i3 took about 5 years and accumulated estimated costs of 3 billion euros. This is a typical traditional long-term project with late delivery of the 1.0 version. On the other hand, Tesla based his first product on the Lotus Elise and spent a lot less on its initial development (sources claim something between 125 and 400 Mio USD). Given the fact that Tesla also had to establish a company and initiate some fundamental car making processes, it took them significantly less time to come to market.
So does this tell us that the BMW i3 will fail on the market? The answer is: we don’t know. But the signs are not very promising for BMW.

Lean Principles

Within Nezasa, we have used a powerful alternative to the traditional project process with very good results. This approach is based on the lean principle, thus trying to reduce waste and to improve the ways of working together all the time. One example of implementing this approach is the Lean Startup as promoted by Eric Ries in his book (1). The mantra of the lean startup is to go to market as quickly possible and to do this with a so-called minimal viable product. Behind this lies the concept of hypotheses about the market and the potential for new offerings. These hypotheses can be described as assumptions or expectations e.g. about a customer’s buying behavior or about the marketing effort for achieving the required customer conversion rate. As the term suggests and since we are talking about innovation, these hypotheses are unproven. Thus, there is uncertainty whether the overall idea, some elements of it, or the implementation of it will work on the market. The longer this uncertainty prevails, the higher the risk of failure and of being overtaken by competition.
The Lean Startup approach addresses these issues by going to market with an alternative mentality. It is about a step-wise alignment of the product to the market (product market fit) and the discovery of the business model. This said, a lean startup comes with a refreshing level of honesty by admitting that its business model is not yet ready for prime time and needs to be developed and tuned along the way.

Launching an initial product version very early provides a head start for beginning to learn from real customers, their initial product reception and the market reaction and to adapt very quickly. This way, the initial hypotheses are either proven right or wrong early on and in the latter case there is more time and budget for change and shifting priorities than in the traditional approach.
Looking back after one year of Nezasa’s incorporation, we have to recognize that the path we have taken does not look like a straight line. It rather resembles a hiking trail in the hills of the Swiss Plateau. Of course this is due to the numerous periods of reiteration, changing some things and adding new elements to the product. However, at every junction of the itinerary, there is a good reason for the shift and the change in priorities. This of course enables traceability and also fosters organizational learning to make better decisions in the future.

PayPal is a good example for such a devious path that is no straight line from the initial idea to the successful product. Their ancestor company was founded to provide a payment reconciliation service for the Palm Pilot platform and they later also provided an email payments feature. However, it was not until somebody came up with the idea to launch their web based testing suite as a web payment service when the PayPal story really took off. We do not know whether the founders did follow the lean principles intentionally but apparently, they made some significant changes of priorities on their way. Eventually, this was the secret to later success and the sale to eBay.
Thus, adhering to lean principles when implementing business innovation increases the potential of success. In addition, such innovation projects provide for a shorter initial development time and an earlier market entry. By employing constant learning and improving on the way, the product market fit can be improved during the journey.

In our next blog, we will look into the implications of lean business innovation on software development.

(1) http://theleanstartup.com