The factors that define value creation

I’ve been blogging recently about  how Behavior Space predicts new product or service success.  This post uses a recent announcement by FORD to drill down into value creation by exposing the role Relationship Space plays.

Ford recently announced an agreement with Microsoft to incorporate its Hohm technology into Ford’s new Electric Vehicle.  As the article in Fast Company explains

“. . .the home energy management service will be integrated into the Ford Focus Electric in 2011, another unnamed hybrid in 2012, and a third, yet unnamed hybrid in 2013.  Hohm will assist drivers in figuring out the best time to juice up their vehicles based on when electricity rates are lowest. The service might indicate, for example, that electricity is cheapest between midnight and 6 a.m. on a certain day–a potentially money-saving piece of data. In addition to saving drivers cash, the feature will also hopefully help utilities reduce consumption during times of heavy stress on the electric grid.”

In previous posts I’ve talked about how new behavior space helps create value.  Specifically this post about the Apple iPad and this post about the Google Nexus.  The concept I introduced in those posts was that a new product or service creates value by allowing new behaviors to emerge.  The product or service is only as good as the new behavior that it enables the user to express.

Well, that’s not entirely true.  New behavior space is simply a stepping stone to where value is actually created.  Let’s look at the Ford example above to understand why.  While the Ford’s New Electric Vehicle has many new capabilities I’m only going to focus on the Hohm system and the fact that it will help users “figure out the best time to juice up their vehicles based on when electricity rates are lowest.”

In this case, the Hohm system enables the user to automatically pre-schedule when to buy energy (electricity) based on reliable forecasts of energy costs.  That sounds neat.  Instead of being at the mercy of daily price swings in gasoline I now have more control over the price I pay for energy by scheduling “fill-ups at home” when energy costs are lower.

So a new behavior emerges – pre-scheduling energy fill-ups.  But, there isn’t really any value in the behavior by itself.  Who cares that I can pre-schedule?  The benefit is lower prices for energy, not the behavior that enables it.

So do all behaviors have to end in lower prices to create value?  Of course not. There’s more going on here.   I’m going to take a moment and introduce the new concept of Relationship Space.  And then, tie them both together.

Life = Relationships

All of us exist in time and space.  As we move through time and space we interact with the things around us.  So at its most fundamental, our lives are comprised of all the many and varied relationships we have with:

• time (when we are)
• space (where we are)
• ourselves (who we are)
• other people (by themselves and in groups)
• objects (inanimate and living)
• ideas (how and why we are)

Of course its very complex and interactive.  But, if we could add up all our relationships, taking into account the good and the bad, we could conceptually measure the size and quality of our lives.   We could compute for ourselves our Relationship Space.

So what creates value?   Value is created when you improve someone’s Relationship Space by making it bigger or improving its quality.

Value = Growth in Relationship Space

Now back to Ford and Hohm.  So, the Hohm system enables a pre-scheduling of fill-ups to emerge (a new behavior).  That changes the users’ relationship with an object (the car), and themselves.  The relationship with the car changes because the price to operate goes down.  The relationship with themselves changes because they feel more in control.  To receive these two relationship benefits all they have to do is adopt a new behavior – pre-schedule fill-ups.

A side note and harbinger of more to come on the topic of value creation:  If Ford is smart they will make the actions to do the pre-scheduling very easy.  (Apple easy mind you, not Microsoft easy)

Summary

1. Our lives are the summation of all our relationships (Our Relationship Space).
2. Value is created when our Relationship Space grows.  (Value = Improvement in quantity or quality of Relationship Space)
3. New behaviors change Relationship Space  (both positively and negatively).
4. New products and services that create value, (versus mimicking existing value), enable new behaviors to emerge that improve Relationship Space.  (iPad, Wii, Hohm system above)
5. The actions a user needs to take to allow the new behaviors plays a role (More on this phenomenon in later posts).
6. So, when thinking of new products or services, work your way through the new behaviors your product will cause to emerge and how will it impact your users’ relationships.

Questions to consider

Test yourself with the following.  Think about a recent purchase that excited you.

1. What were your new behaviors?
2. Which relationships did it improve?
3. How did it improve them?

Oh, and if you’re not convinced about life = relationships, see if you can describe anything in your life that is not a relationship in one form or another.  If you find something, please let me know in the comments.

Thank-you for visiting http://ennova.ca

Is Innovation Risky?

A common perception is that innovation is risky.  The bolder the innovation the greater the risk.  Ask 100 people whether the previous statement is true and most would agree.  But is that really true?  I’m going to argue no.

Behaviour Space

To make that argument I’m going to suggest, that at its core, all innovation is about the creation of behaviour space. Perhaps it’s an internally focused innovation, like the value disruption project I’m currently blogging about where they want a new system to collaborate.  Or it’s an external innovation like the iPad.  But in all cases it’s about creating new behaviour space.  And, if you understand behaviour space you can reduce your risk.

What exactly is Behaviour Space?

Here’s what I mean by behaviour space. Take pens and pencils for example.

Imagine for a moment that pencils had never been invented and all we had to write with was pens.  Everything was written in ink.  Now, imagine introducing pencils to that situation.

Once the pencil becomes available you can perform (behave) new tasks you couldn’t do before.  Tasks such as writing upside down, erasing, writing on surfaces you previously could not because the ink would blot.  You see, the advent of pencils allows you to perform new behaviors.

Note though, that the pencil itself is useless until you use it.  It’s the behaviour that the pencil enables that provides us value, not the pencil.  In reality, the innovation is not the pencil.  The innovation is the new behaviour space.  The pencil is simply the disruptor that enables the behavior to emerge.  It’s role is to disrupt how we normally do things to allow new behaviours to emerge.

Granted the size of the behaviour space is limited, especially if we compare it to something like the iPad.  Which leads us to our second conclusion; the value of an innovation is the size of the new behaviour space it enables times the size of the population that desires that new behavior space.

The same holds true for internal innovation like the collaboration example above.  Why does a company look to acquire new technology (to collaborate)?  Simple.  They are looking for their people to behave differently: to perform new collaborative and communication  tasks that they are not able to do.  Technology, new business models, new services, by themselves are useless.  It’s the behaviour that they enable that creates the value.

Why Understanding Behavior Space Reduces Risk

So, how exactly does understanding behaviour space help us reduce risk?  There are lots of ways.  In this blog post I’m going to talk about just one – Assessing potential innovation success.  In subsequent posts I’ll explore other ways understanding behaviour space reduces risk.

Measuring Innovation Success

One of the challenges in innovation is deciding which idea has the better potential (e.g.  market potential or productivity potential).

Does idea #1 have the best potential or idea #2.  Into which one should we invest scare resources in exploring?

Here’s how understanding behaviour space reduces risk.

Upon grasping the concept of behaviour space you are quickly able to compare the value potential of  one idea to another.

Try this test.

Take a few moments and think about the behaviour space the Kindle provides as a B/W screen to download books and magazines.   Jot down all the times and places you’d want to do that (Use the pencil we talked about).  Okay, finished ?

Now compare that to the potential behaviour space of the colour iPad connected to the iTunes stores and 10s of thousands of app developers.   Jot down all the behaviors the iPad could bring to fruition, along with the times and places you’d want to do that.  Okay, finished?  (BTW You can find additional ideas here.)

After 5 seconds of behaviour space analysis it becomes self-evident that the behavior space potential for the iPad far surpasses that of Kindle.  That’s why I predicted in this post that the iPad will soar where the Kindle did not.  Just in as I’m writing this post; in this article they talk about how Barnes and Noble are adding an app to the iPad to download books.  Already, the size of the iPad behaviour space footprint is growing.

What does this analysis mean to you?

Well, when you compare two ideas competing for resources on their ability to create behavioral space you start to measure which has the greater potential.  In addition, behaviour space analysis allows you to tweak the design of your product or service to enlarge its behavior space footprint.   So your ideas have better value potential before you spend precious resources in implementing them.

Summary of how behaviour space reduces risk

1. Innovation is the creation of new behaviour space.
2. The product or service is simply the disruptor that enables new behaviour space to emerge.
3. The size of the behavior space footprint represents the size of the potential value your are offering.
4. The greater your value potential the greater your monetization potential.
5. Using behaviour space to analyze innovation ideas lets you compare two competing ideas for their value potential.
6. Also, using behaviour space analysis lets you tweak ideas to enlarge their behavior space footprint and hence their value potential.

Thank you for visiting http://ennova.ca