Although history recognizes James Watt as the mechanical genius of his steam engines that launched the Industrial Revolution, Watt’s greatest lasting innovation reflected a larger penchant for marketing. He invented the horse power—the value and measure that defined efficiency in his industry. Most importantly, Watt’s new word outlived every engine he designed or built. The word horse power represented a clever rhetorical technique by Watt and his partner Matthew Boulton, whose business flourished by charging mine owners only one-third the cost of the savings achieved by substituting their own engines for the inefficient Newcomen steam engines.
The pursuit of market expansion led the collaborators to think of brewers as the place to find value in this new production technology. In the 18th century, breweries had only known how to use horses—not steam—to power their mills.
So it became the task for Boulton and Watt to recalculate the parameters for their steam engine accordingly. After observing horses for a while, Watt determined that the typical coal-pulling pony pulled 22,000 foot-pounds per minute. Extrapolating this to larger horses, Watt increased the test results to 50% – that is, 33,000 foot-pounds per minute of work – and called it horsepower.
Some historians believe that Watt exaggerated the total weight that a horse could pull for such a sustained period of time. However, his comparison of the power of a steam engine to a team of horses working together proved to be of particularly compelling marketing value to potential buyers, whether they were brewers, millers or mine owners. Horsepower became a global standard that helped establish the Boulton & Watt brand and their business.
The idea of using innovation metrics—measures of the unique value inherent in an innovation as a means of marketing it—works better than the traditional method of adding new “features” and “performance features” to attract consumers to products and services. By creating a new language that allows people to identify the value and effectiveness of a particular idea, innovation metrics have the potential to become so compelling—or at least so creatively marketed—that they, like horsepower, become the preferred standard for a product or brand. This means, in turn, that these metrics should be crafted with the same sensitivity as the innovations themselves.
Although this may seem difficult to achieve, introducing innovative values can be a significant effort from old technology. For example, in the 1880s, Harley Procter, son of the co-founder of Procter & Gamble, was simply testing an experimental analysis of the addition of ingredients to Ivory Soap—a product that was not classified as pure soap; he found that these ingredients, mixed together in the ratio 56/100, yielded 1% Ivory. He subtracted the number from 100 and wrote the slogan “99-44/100% Pure.” And this value—derived, like horsepower, from a purely empirical calculation—became an integral part of the soap’s brand equity and in many ways was responsible for Procter & Gamble’s later success.
In contrast, Willis Carrier—the entrepreneur most responsible for the commercialization of air conditioning—took a much more subtle route to innovation. He conducted elaborate studies examining the complex relationship between humidity in the air and ambient temperature and studied the effectiveness of various cooling technologies on them. With large charts and countless formulas, Carrier presented his work on the implementation of air conditioning methods in a 1911 paper titled “Rational Psychrometric Formulae,” which solidified air conditioning as a new technical discipline. Carrier’s technologies were truly eye-opening because they not only controlled humidity levels but also precisely regulated temperatures. Based on Carrier's calculations and the new equipment that resulted from this research, consumers were convinced enough to spend large sums of money not only to cool down their hot factories but also, for the first time, to "condition" the stale air in factories in the hope of improving product quality - by removing unwanted moisture from the air.
The creative challenge posed by establishing innovative values should not be confused with “unique selling propositions” that proclaim the great features of a product to persuade customers to buy into the brand. The purpose of innovative values is not simply to “sell” the innovation but rather to empower customers to judge for themselves whether the innovation represents good value—in the dimensions the innovator has just defined. Ideally, these dimensions reflect the innovator’s unique capabilities.
Sometimes, the innovation value is a fungible concept that can evolve as quickly as the technology it is pursuing to market. For example, in the early 1970s, semiconductor pioneer Intel announced MIPS—millions of instructions per second—as a high-performance standard. Over the course of a decade, Intel has steadily updated and embraced a new, faster innovation value: “clock speed”—the speeds, usually measured in megahertz and gigahertz, at which processors execute instructions.
Intel’s emphasis on clock speed, however, led to a problem that the company was slow to recognize: chips that ran hot when they processed too quickly and consumed a significant amount of power. Eventually, in response to customer complaints—and after losing some customers to competitors who had more energy-efficient chips—Intel soon changed the innovation value again, this time to “performance per unit of energy.” And on that basis, Intel positioned its “multicore” architecture, which essentially stacked two or more processors onto a single integrated circuit, as providing the best balance of computing power and energy use. In other words, chips that had previously been defined by speed and performance were now measured by performance and power—and, crucially, by energy efficiency.
When proven unreliable, innovative metrics can end up stymieing the very innovations they seek to promote. Indeed, that may be the situation that financial services firms find themselves in today. Many lenders have adopted innovative metrics such as “value at risk” or “extreme value theory”—ostensibly to better manage their multibillion-dollar portfolios of innovative financial products such as mortgages and subprime mortgages. These metrics would also provide institutional investors and traders with a variety of ways to assess their risk exposure. Yet even the subprime mortgage crisis confirmed that these models create more risk than value. With huge losses occurring repeatedly by so many “innovative” lenders, investors seem to be thinking more carefully before believing in the values that some financial services firms put forward to sell their novel products and services.
And often, it is the emerging trends that invent the innovation values. For example, a large number of global companies are currently pursuing innovation values that allow them to assess – or communicate – the environmental impact of new products or services they launch. Thus, innovation values related to reuse and re-cycling seem destined to become modern counterparts, such as the late 19th-century Procter & Gamble innovation of the slogan “99-44/100% Pure.”
A compelling example of a potential “green innovation” value is the shift from “miles per gallon” to “gallons per 100 miles.” Duke University researchers Richard Larrick and Jack Soll both argue that “miles per gallon” values make it too easy for consumers to miscalculate comparisons between cars’ overall mileage performance because they found that most people surveyed rated an improvement of 34 to 50 mpg as using less fuel over 10,000 miles than an improvement of 18 to 28 mpg over 10,000 miles—even though the latter saves twice as much fuel. (Going from 34 to 50 mpg saves 94 gallons, while going from 18 to 28 mpg saves 198 gallons.) These mistaken impressions are corrected when fuel efficiency is expressed more directly in gallons used per 100 miles. And stated this way, 18 mpg becomes 5.5 gallons per 100 miles, and 28 mpg becomes 3.6 gallons.
Even the late mathematician Richard Hamming observed, “The purpose of computing is insight, not numbers.” That is the purpose of innovative metrics. The measure of the success of innovative metrics is how clearly they communicate the value—and the risks—of the innovation. Watt’s steam engine, P&G’s soap, Intel’s microprocessors, and many others all dominated their markets without novel metrics. Yet for these and many other businesses, innovative metrics make selling their products to the masses less of a prospect. And in fact, it is the innovators who learn best how to create the right metrics for the right markets by understanding the metrics of the market.
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