Build an innovation strategy that wins every time

Key takeaways

• An innovation strategy identifies which unmet customer outcomes to target for growth, and it should be derived from measured customer data rather than chosen from ambition.
• There are five innovation strategies: differentiated, dominant, disruptive, discrete, and sustaining. Each wins under one specific, measurable market condition.
• The composition of the market determines which strategy applies. If a market contains no over-served segment, a disruptive strategy is not available regardless of intent.
• Under-served does not mean willing to pay more. That single distinction separates a differentiated strategy from a dominant one.
• Market leaders typically run several strategies at once across different segments.
• Outcome-Driven Innovation® produces an 86% success rate, against an industry average near 17%.

What is an innovation strategy?

An innovation strategy is the systematic identification of unmet customer outcomes in a defined market, and the selection of which unmet outcomes to target for growth. Most innovation strategies fail because they rest on assumptions about what customers need rather than measurements of it. 

Our Outcome-Driven Innovation® (ODI) approach builds the strategy around quantified customer data, which is why it produces an 86% success rate against an industry average near 17%.

Jobs-to-be-Done is the right lens for this work because it surfaces every unmet need in a market, not the handful your team already suspected. The theory was brought into commercial practice through Tony Ulwick’s work in Harvard Business Review, beginning with “Turn Customer Input Into Innovation” in 2002. 

“Customers don’t buy products. They hire them to get a Job done. If you can define that Job with precision, the rest of the innovation process stops being a guess and starts being a calculation.”
Tony Ulwick, founder of Strategyn and author of Jobs to be Done: Theory to Practice

See the innovation strategy process in action

Why does innovation strategy matter?

The Innovation Assessment

Find out where your innovation strategy is leaving growth on the table

Most organizations have a gap between the innovation strategy they think they have and the one their customers actually need. The Innovation Assessment shows you exactly where that gap is, in 10 minutes.

10 minutes. No pitch. A clear read on where your current approach is underperforming.

Take the free Assessment

Why do most innovation strategies fail?

The innovation industry fails roughly 83% of the time. That is not a creativity problem or a budget problem. It’s an information problem.

Most innovation processes start with ideas. Teams generate and debate before anyone has precisely defined the customer problem being solved. By the time the product ships, it turns out customers didn’t value the solution as highly as the team assumed, or a competing solution already met the need well enough.

After studying innovation outcomes across hundreds of companies over 30 years, Strategyn founder Tony Ulwick found the same root cause every time: companies cannot agree on what their customers’ needs are. Without a precise, stable, solution-independent definition of customer needs, every decision downstream is built on sand.

ODI fixes this at the source. Before the strategy is set and before a single idea is generated, the process defines and quantifies customer needs, so the strategy targets verified opportunities instead of untested assumptions.

“Tony Ulwick brought predictability to innovation.”

Clayton Christensen, Kim B. Clark Professor of Business Administration, Harvard Business School

You’ve probably encountered the four traditional categories: routine, disruptive, radical, and architectural innovation. The trouble with these labels is that they describe what a product is without telling you how to create value or when to use one. 

They come from different classification systems, which is why product teams argue about them.

In our webinar audiences, roughly 75% of innovation leaders say their own team has no agreement on how to define the strategy options available to them.

Viewed through Jobs-to-be-Done, the picture resolves. Customers buy a product when it gets the Job done better, more cheaply, or both. 

Two variables produce five strategies that cover every situation.

Each strategy wins under one specific, measurable market condition. Complete the first four steps of the process and it’s clear which condition you’re in.

You don’t choose it. You read it from the market.

Teams commonly select a strategy from ambition, then look for data to support it. The composition of the market has already decided the answer.

Once outcomes are quantified and the market is segmented by unmet need, every market produces a footprint: how much of it is under-served, how much is over-served, and how much is already appropriately served. That footprint is the instruction.

Three actual market footprints show how different the answers get.

Surgeons removing an anatomical structure. Three segments. 19% of the market over-served, made up of cases with younger patients, no obesity, no comorbidities, and no adhesions from previous surgery. 57% appropriately served. 24% highly under-served, with 50 to 60 unmet outcomes rather than one or two, which signals the need for a new platform rather than another feature.

Ophthalmologists detecting glaucoma. 21% of the market highly over-served, and the rest highly under-served. Two strategies in one market, pointed in opposite directions. The company working in this market had been aiming at the over-served segment and kept adding features to serve it better. The footprint showed them the mistake in a single view.

Drivers navigating off-road terrain. Two segments already appropriately served. One segment under-served along several dimensions but unwilling to pay more, because what they wanted was raw capability without the features that normally travel with it. That segment turned out to be a $160 million opportunity.

The constraint runs both ways, and it’s absolute. If a market contains no over-served segment, a disruptive strategy is not available to you. No amount of conviction changes that. This is the practical reason segmentation by unmet need has to happen before strategy formulation rather than after.

1. What is a differentiated strategy?

A differentiated strategy gets the customer’s Job done significantly better at a higher price.

Pursue it when the data shows a population of under-served customers who are willing to pay more for a product that gets their Job done better along many dimensions. It’s rarely a market-share play. 

You can also stage it. Version one addresses the top unmet outcomes, version two the next set, version three the set after that. Competitors struggle to catch a company that always knows which outcome matters next.

Under-served segments are usually smaller than appropriately served ones, so the return shows up in profit share instead. Dyson holds roughly 24% of its category’s market share and 59% of category profit. Nest took about 10% share and 25% of profit. 

The condition most teams skip: willingness to pay.

Under-served does not mean willing to pay more, and treating the two as the same thing is one of the most expensive mistakes in innovation planning. We ask the question directly in the survey, along with how much more.

When a market is under-served but won’t pay a premium, the differentiated strategy is off the table and a dominant strategy is what’s left. The off-road vehicle segment above is the clean illustration. Badly under-served on capability, flatly unwilling to pay more, because the extra capability normally arrived bundled with features they didn’t want and didn’t want to maintain.

Examples of differentiated products: Nest thermostat, Nespresso machines, Whole Foods organic grocery, Emirates international service, BMW sports cars, and Dyson vacuum cleaners. Learn more about how to build a differentiated strategy.

2. What is a dominant strategy?

A dominant strategy gets the Job done significantly better and costs less. A better product at a lower price appeals to everyone in the market, under-served and over-served alike, which is why it always wins where it’s achievable.

The catch is in the word “achievable.” Getting the Job done better while holding or reducing price means the innovation has to be cost-contained by design. That constraint is severe, and it’s exactly what makes the resulting position so hard to attack. The only counter is to be even better and even cheaper, which is the path the incumbent is already on.

Examples: Google Search, UberX, Netflix, Progressive non-standard auto insurance, Vanguard personal investment services, and Kroll Ontrack electronic discovery, a market we helped them enter.

3. What is a disruptive strategy?

You’re pursuing a disruptive strategy when you target over-served customers or non-consumers with an offering that gets the Job done more cheaply but not as well as competing solutions.

The prerequisite is a genuinely over-served segment, one where the features already on the market exceed what the customer needs and where price, not performance, is the live constraint. Without that segment in the data, this strategy has nowhere to land.

The concept traces to Clayton Christensen’s work on low-end disruption, set out in The Innovator’s Dilemma (1997). What ODI adds is the measurement: a way to confirm the over-served segment exists before committing to the strategy.

Examples: Google Docs relative to desktop office suites, TurboTax relative to traditional tax preparation, Dollar Shave Club relative to premium razor brands, Coursera relative to traditional universities, and Crest Whitestrips relative to in-office dental whitening, which brought in non-consumers who couldn’t previously afford the Job at all.

4. What is a discrete strategy?

A discrete strategy targets restricted customers with a product that gets the Job done worse and costs more. That combination only appeals to customers who have limited alternatives or none at all.

It works where customers are legally, physically, geographically, or contextually constrained. Consumer packaged goods companies run it constantly, alongside differentiated and dominant products in the same category. Every travel-size bottle of shampoo priced several times higher per ounce is a discrete play.

A word of caution, since this is the strategy most easily abused. Run it where the constraint on the customer is real, and price it in a way you’d be comfortable explaining. Done badly, it costs more reputation than it earns revenue.

Examples: drinks and Wi-Fi sold past airport security, stadium concessions, check-cashing and payday lending, ATMs in remote locations, and surge pricing during demand spikes.

5. What is a sustaining strategy?

A sustaining strategy introduces an offering that gets the Job done slightly better, slightly more cheaply, or both. It rarely attracts new customers. It’s a weak strategy for a new entrant and a sound one for an incumbent protecting an installed base.

It’s the correct read when the data shows a market that is already appropriately served: important outcomes largely satisfied, no meaningful under-served segment, no over-served segment, and what remains is table stakes. Two of the three off-road vehicle segments above sat exactly here.

Concluding that a market has no large opportunity is a legitimate, evidence-based result. It isn’t a failure of the analysis. It’s the analysis saving you a product cycle and redirecting the investment somewhere the data supports.

Examples of sustaining innovation: annual processor and camera improvements in mature smartphone lines, model-year refreshes in established vehicle categories, formula and packaging updates to long-standing consumer packaged goods, and incremental feature releases in mature enterprise software suites.

Yes, and market leadership usually depends on it.
Real markets contain a mixture of under-served, over-served, and appropriately served segments. A single strategy addresses one of them and leaves the rest to competitors.

 Once you can see the whole footprint, you can decide how much of it to cover, and the answer depends on your capabilities, your current position, and your growth objectives.

Uber is the clearest illustration of full coverage:

Consumer packaged goods companies do the same across brands. A premium line, a mainstream value line, a budget line, and travel sizes are four strategies operating simultaneously, usually under different brand names.

The question worth asking about your own market is not “which of the five are we?” It’s whether your portfolio covers the segments your data says exist, and whether the brands you already run are pointed at under-served and over-served customers deliberately or by accident.

No. Three distinct things hide inside the word “disruptive,” and separating them is what turns disruption from an aspiration into a plan.

The test produces surprising answers.

A company can never be a disruptive innovation. Only a product can. Uber Pool was Uber’s only product designed to get the Job done worse for less, so it’s the only candidate. It employed a disruptive strategy, but it wasn’t built on a technology that could be driven up-market. There’s no mechanism for Uber Pool to eventually get the Job done better and cheaper for the rest of the market. It used a disruptive strategy and is not a disruptive innovation.

Zoom passes both tests. The initial product employed a disruptive strategy, and it was built on a platform that could carry more and more of the Job over time. The mechanism for moving up-market existed, the improvements followed, and the disruption is still in progress.

The value of the distinction is practical. It tells you whether a competitor’s low-end entry can reach you, and whether your own low-end play has anywhere to go.

1. Define your market

People buy products and services to get a Job done. The first step is defining your market around that Job-to-be-Done.

Products and technologies eventually become obsolete. The Job doesn’t. It gives your company a stable focal point to organize value creation around.

Through this lens: a market = a group of people + the Job they’re trying to get done

Learn more: Define your market

2. Uncover your customers’ desired outcomes

Customers want to get their Jobs done perfectly. We’ve found that customers weigh between 50 and 150 metrics when judging how well a product helps them complete a given Job. Those metrics are the Desired Outcomes. They define what perfection means, and they instruct your company on how to deliver value.

You surface them through structured customer interviews, then organize them into a job map. The method is set out in “The Customer-Centered Innovation Map” (Harvard Business Review, 2008). 

3. Quantify your customers’ outcomes

Customers have under-served and over-served outcomes. Knowing with statistical certainty which ones deserve investment, and which are already satisfied, is what makes resource allocation efficient instead of political.

This step surveys customers on two things:

• How important each outcome is
• How well each outcome is currently satisfied

The gap between those two numbers is the Opportunity Score.

4. Discover hidden segments of opportunity

Most companies segment by demographics, psychographics, behavior, or attitude, and end up aiming products at phantom targets. These are segment classifications imposed on customers that don’t reflect how customers actually differ.

The better way to segment customer groups is around unmet needs. Different people struggle differently when executing the same Job. Most markets contain at least one under-served segment and at least one over-served segment. Knowing the size of each, which outcomes are unmet inside each, and how much each will pay to get the Job done better is what makes the next step possible.

Learn more: Market segmentation process

5. Formulate the innovation strategy

At this point the strategy stops being a debate and becomes a reading. The data shows which of the five strategies the market will reward.

Dive deeper: Outcome-Driven Innovation

They’re related but distinct disciplines, and conflating them is one of the most common reasons innovation programs produce incremental results.

Without a sound innovation strategy upstream, product teams build solutions in search of problems.

There’s a clear link between innovation and value, for customers and for the business, and BCG’s annual Most Innovative Companies research has tracked that correlation strengthening over two decades. A reliable strategy is what converts the link into results.

Align teams around value creation

Misalignment is built into how product organizations are structured. Sales, marketing, product development, and R&D each have different goals, different inputs, and their own language for describing customer value.

When teams can’t agree on what creates value for the customer, agreeing on a path forward is nearly impossible.

The fix is to define value creation through the customer’s eyes and establish one shared understanding of customer needs across functions. When every team agrees on what a customer need is, what the customers’ needs are, and which are unmet, the effect on the organization is hard to overstate.

Dive deeper: Align your product teams around value creation

Identify gaps in your product portfolio

Are your customers assembling their own solutions from several products to get the full Job done? Usually, yes. And the offerings that help customers get more of the Job done are the ones that win.

An innovation strategy that maps and prioritizes every customer need makes portfolio gaps visible. You can fill them by building, partnering, or acquiring. Cox Automotive used its ODI insights to guide M&A activity for years after the original research was finished.

Prioritize new features

Without a prioritization method anchored to a defined set of customer needs, feature creep is close to inevitable. Then nobody is surprised when the product ships late, costs more than planned, and includes capabilities customers don’t value.

ODI gives feature prioritization a single version of the truth. The team knows it’s solving the right problems, everyone is working the same list, and nobody is off arguing for a different one, because the priorities are quantified rather than asserted.

Learn more: Product feature prioritization

Position existing products better

Innovation doesn’t always mean changing the product. Sometimes it means changing how you describe it.

A strategy grounded in Jobs-to-be-Done sharpens positioning in three ways: it focuses on the benefits customers actually measure, it surfaces unmet needs competitors have ignored, and it reveals new ways to combine existing point solutions into a more complete offering.

Arm & Hammer Animal Nutrition grew 30% year over year by identifying the correct Job Executor and adjusting the message to match, with no change to product or price. Microsoft doubled year-over-year revenue after repackaging existing solutions into an offering that covered more of the customer’s Job.

Learn more: How marketing teams align around enviable messaging

Prevent disruption

Plenty of companies now find themselves threatened by entrants innovating around the broader customer experience. Focusing on the underlying reason customers use your product, rather than on the product itself, is what builds durable defense.

When resources are organized around getting the Job done better, every possible solution becomes a natural part of your portfolio. Over time you’re continuously covering more of the customer’s Job, which widens the competitive landscape you can see. A company organized around its technology instead tends to miss the opportunity and meet the entrant late.

The strategy-versus-innovation test above is the sharper version of this. It tells you whether a low-end competitor has a mechanism to move up-market and reach you, or whether they’re stuck where they started.

Dive deeper: Your market is bigger than your product

Innovation strategy examples usually feature Apple, Amazon, Google, and Starbucks. Here are three lesser-known ones that are considerably easier to replicate.

Kroll Ontrack enters a new market and grows revenue $200M

In the early 2000s, Kroll Ontrack had technology that could digitize legal document discovery for the first time. Two attempts at market entry had already failed.

They applied the five-step process to work out what was going wrong, and found they were aimed at the wrong customer. Kroll was selling to IT and positioning the technology as a way to retrieve data efficiently from a hard drive.

But it’s the legal team that needs document discovery, and the legal team isn’t trying to retrieve data from a hard drive. They’re trying to find information that supports or refutes a case. Those lawyers had several important unmet needs.

Two changes followed. They added search capability to the retrieval technology, and they marketed to legal teams instead of IT departments.

The third launch worked. Kroll’s electronic discovery product went from $0 to $200 million in about three years, and led the market for roughly 12.

Read the full Kroll Ontrack case study.

Cox Automotive increases product install base 20×

Cox Automotive’s vAuto division sells inventory management software to auto dealers. The business had been successful, but growth in market share had stalled.

The team had already found the obvious opportunities. What they needed were the non-obvious ones.

“We would spend time launching new features in the software, and they just weren’t adopted. And they didn’t make a measurable improvement in the performance of the business.”

Randy Kobat, Senior Vice President, Cox Automotive

They stopped guessing and ran the five-step process. Among the outcomes that rose to the top:

• Minimize the time it takes to determine what promotional content to create for each vehicle
• Minimize the time it takes to create that content
• Minimize the time it takes to make potential buyers aware that a vehicle meeting their specifications is available

Those statements worked as direct instructions for the product team, and the features built against them produced a 20× increase in product installs. The same insights went on to inform M&A activity.
Read the full Cox Automotive case study.

Arm & Hammer Animal Nutrition grows revenue 30% year over year

Double-digit revenue growth without changing the product or the price is an unusual result. Arm & Hammer’s animal nutrition division got there by correcting who they thought the customer was.

The company believed its customer was the herd nutritionist. It sold to the nutritionist, gathered input from the nutritionist, and optimized products and messaging accordingly. The products genuinely delivered on the animals’ nutritional needs.

The problem was the market definition. They had framed the market around their nutritional products, and made an assumption about the Job Executor. The customer was the herd producer, and the producer’s Job is increasing herd productivity, not improving nutrition.

They studied the producer, uncovered the outcomes, identified which were unmet, and rebuilt the messaging around them. With no change to product or pricing, the division achieved 30% year-over-year growth.

Read the full Arm & Hammer case study.

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