Mastering the science of lean innovation

Origins of lean innovation

In the mid-1980s, the Massachusetts Institute of Technology initiated the International Motor Vehicle Program to uncover how much of a significant departure were Japanese car manufacturing techniques from their Western mass-production counterparts at the time, given their increasing competitiveness in the industry.

Their discoveries were detailed in the book “The Machine that Changed the World”, espousing the concepts of “Lean Production” and “Just-in-Time” manufacturing.

Fast forward a couple of decades, the world has since seen a shift in software adoption and consumption with the advent of the Internet and mobile technology – pushing for the need to innovate constantly in an increasingly crowded market.

Borrowing selectively from the Lean Production methodology and introducing his own thoughts from personal experience, Eric Reis introduced the concept of the “Lean Startup” – applicable to both entrepreneurial and intrapreneurial ventures – which demystifies innovation and makes the bold claim that it is more a science than an art.

Build-Measure-Learn feedback loop

Lean innovation is a focused process with a purpose – to give end users what they want or need.

It is not about whether a product can be built, but instead about whether the product should be built, and whether a sustainable business can be built around such sets of products and services.

With this in mind, lean innovation focuses on creating hypotheses about what the final product needed by customers would look like, and how it would create value for those customers.

These hypotheses are than tested separately, either concurrently or one after the other, to assess whether they are valid – under a process called “validated learning”.

This is then repeated, at speed, with each subsequent cycle learning from the prior cycle’s experimenting – forming a “Build-Measure-Learn” feedback loop:

Source: The Lean Startup

Innovation accounting and actionable metrics

To enable the effectiveness of validated learning, the lean innovation process introduces the concept of “innovation accounting” which is carried out in three key steps:

1. Use a minimum viable product (MVP) to establish real data on how the product or business line is performing

2. Attempt to tune the product from the “baseline” version to the hypothesised ideal version, which may take several cycles and iterations

3. Having reached the ideal version of the product, based on customer feedback and uptake the business then needs to decide whether to “pivot” from or “persevere” with the product proposition and target market

Innovation accounting will not work if what is being measured are “vanity metrics” (eg. registered users, downloads, page views) rather than “actionable metrics” (eg. active users, engagement, cost of customer acquisition, recurring revenue – all measured on a regular interval or a “cohort” basis).

Actionable metrics will be able to show whether new builds in a particular cycle has actually improved the products value in the eyes of the customer. They must also be accessible by all relevant stakeholders and auditable, so that the results data produced can be trusted. Otherwise, there may be arguments on whether the data is correct and unbiased.

Innovating lean for a greater purpose

Through mastering the science of lean innovation, FNZ has continued to develop state-of-the-art propositions for our financial institution clients and their end customers made up of millions of retail investors.

This has helped lower the cost of financial advice and asset management, and improve access to digitised personalised investment solutions, with FNZ continuing to fulfil our ultimate raison d’etre – “Helping people achieve their financial goals”.