Newspaper Next- Bluprint for Transformation

8/7/2019 Newspaper Next- Bluprint for Transformation

1/96

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2/96

A owerl wave o

disrtion is sweeingthe newsaer indstry,

bt it doesnt have to be

a disaster. There are at

least as many growth

oortnities as threats,

and comanies that

learn to think and act

like disrtors can not

only srvive bt roser.

The Newsaer Next

aroach gives them

the tools they need.

Dr.ClaytonChristensen,HarvardBusinessSchoolAuthor,The InnovatorsDilemma and The InnovatorsSoltion

Contents:

Whats happening and Why?.......................................................................1

introduCtion...................................................................................................... 2

seCtion i: situational analysis...................................................................... 5

A.Upheavalinthemedialandscape....................................................................... 6

B.Understandingthepat ternsodisruption....................................... .................... 9

C.Theimplicationsornewspapercompanies...................................................... 12

seCtion ii: the neWspaper next (n2) innovation Method........................ 18

Introduction:Apracticalinnovationprocess......................................................... 19Step1:Spotopportunities............ ................................................ ......................... 20

Step2:Developpotentialsolut ions.............................................. ......................... 23

Step3:Assessideas............................................ ............................................... .. 26

Step4:Test,learnandadjust.............................. ............................................... .. 29

Appendix................................................................................................................31

seCtion iii: the neWspaper next gaMe plan.............................................. 34

Introduction:Astrategicramework..................................................................... 35

Area1:Maximizethecore ............................................ ......................................... 36

Area2:Buildaudiencesbyulllingjobsbeyondnews..........................................41

Area3:Usenewmodelstoullljobsocurrentandnewadvertisers................... 47

Area4:Createinnovationstructuresandenablers............................................... 55

Measuringprogress:theN 2Dashboard..................................................................61

seCtion iv: neWspaper next deMonstration projeCts...........................63

Introduction:TheDisruptiveInnovationAdvisoryProgram.................................... 64

1.The Boston Globe:Smalladvert isers...................................................... .......... 65

2.The Dallas Morning News:MasterMom.............................................................67

3.EnterpriseNewsMedia:WickedLocal.com....................................................... .. 69

4.Gannett/The Desert Sn:Structuresorinnovation...........................................71

5.MediaGeneral/Richmond Times-Disatch:Non-advertisers................................74

6.NorthJerseyMediaGroup:Rethinkingtheonlinestrategy................................ 76

7.The Oregonian:Targetingyoungcreatives............................. .......................... 78

seCtion v: industry Collaboration: What does it take?.......................80

TheN2collaborationsurvey....................................................................................81

Keysuccessactorsorcollaborations........................................ .......................... 85

Appendix...............................................................................................................88

about the neWspaper next teaM.................................................................90

TheNewspaperNextprojectandthisreportwereacollaborativeeortbytheAmericanPressInstituteandInnosightLLC.



3/96

F a, wa a l tbl t z.Few thought its arrival would be so dramatic.

Newspaper circulation and readership keep sinking, and Internet gains are notenough to oset them. Print advertising revenues are weakening, and Internetsales, though growing, are still too small to have much impact. Margins are be-ing squeezed, and investor pressure now has caused the all but unthinkable: thesale o Knight Ridder, one o the industrys most respected companies. Othercompanies, public and private, are also under heavy stress.

Many believe this is the beginning o a long-term decline. Or worse.

But outside this industrys perceived boundaries, huge opportunities are open-ing all around. Customer behaviors are changing ast as individuals and busi-nesses nd new solutions or their news, inormation and advertising needs.

Successul new business models are emerging, providing new ways to get andgive inormation, buy and sell, create and maintain relationships, and convenecommunities. Many o these oerings supplant traditional newspaper unctions,adding new dimensions o value, convenience and interactivity. Consumers andadvertisers are eagerly adopting these new solutions to get key jobs done intheir lives.

The innovators creating these solutions are seeing dizzying growth rates.Why cant newspaper companies do the same?

Newspaper Nexts conclusion: They can but not without dramatic changesin the way they think, the strategies they adopt and the innovation processesthey use.

Like a devoted parent with a child heading o to college, the industry hasreached a moment o sel-examination. The public is migrating away rom us,happily discovering new reedoms, opportunities and choices in a new worldo innite inormation. Will we cling to our old perceived roles and sink into ir-relevance? Or will we commit to nding new roles that the public will welcome

in their lives, even i these are unamiliar and challenging to us?

Newspaper companies that make this commitment will discover broad new ho-rizons o civic service and business opportunity. They will succeed in engaginglarge new segments o customers, both among the public and among business-es, and they will discover ways to serve them more e ectively than ever beore.

The purpose o Newspaper Next is to provide newspaper companies withthe strategic ramework, tools and processes they need to move into thesenew roles.

A Time oF ThreAT or opporTuniTy?

Newsaer Next hasheled me to see that

we do have a tre ...

and that it is more in o

control than the ol

wisdom wold have s

believe.

PeterBhatia,ExecutiveEditor,The Oregonian,

Portland,Ore.



4/96 NewsPAPer NexT: BluePrINT or TrANsormATIoN 2006 AmerIcAN Press INsTITuTe

WhAT is neWspAper nexT?

The eort, christened Newspaper Next:The Transormation Project, was launched inSeptember, 2005, and charged to deliver itsndings in September, 2006.

The Newspaper Next (N2) challenge: Find a

way to help newspaper companies migraterom a xed and monolithic business modelto a diverse and growing port olio o businessmodels, products and services that engagethrongs o new consumers and advertisers.

A portolio solution is necessary because anewspaper alone, or a newspaper and a newsWeb site, are no longer enough. These aresolutions or a mass audience, but the massaudience is dispersing in many directions,never to return.

In this ast-changing environment, how can

an industry built on a centuries-old model betransormed? There is no silver bullet. Op-

portunities abound, butthey are hard to see andeven harder to capitalizeon when you are wearingthe blinders imposed by100 years o success.

Much o the industrywould agree with themanager who said in aNewspaper Next survey,

I dont know what to do,but I am ready to do it.

Transormation in thenewspaper industrydemands an ambitiousagenda:

A better understanding o the orces re-shaping the entire media environment anddisrupting the newspaper industry.

A better way to see where new opportuni-ties are emerging.

A clear, practical process to shape theproducts that will unlock these opportuni-ties while minimizing cost and risk.

A strategic game plan outlining what news-paper companies should strive to becomeand some o the most promising opportu-nities they should pursue.

These are major elements o the NewspaperNext innovation method and strategies, andthey are detailed in this report.

Much o the Newspaper Next innovation

method is adapted rom the work o HarvardBusiness School Proessor Clayton Chris-tensen. His consulting rm, Innosight LLC,was an integral participant at every stage othis year-long project.

Dr. Christensens seminal studies reveal thatsuccessul companies across more than 60industries have repeated the same patternso ailure when hit with waves o disruptiveinnovation. These patterns are prooundly ap-parent in the newspaper industry today.

However, Dr. Christensens work also identi-

es certain counter-intuitive strategies andtactics that can break these patterns o ailure.These have enabled ar-sighted companiesto develop breakthrough innovations andachieve new growth.

The Newspaper Next project set out to adaptand modiy the Christensen approach speci-cally or use in the newspaper industry.

The N2 team spent a year researching the pat-terns o disruption in the industry, developing

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N2 moves yor thinking rom

the doom and gloom o the

collase o the newsaer

indstry to an oortnity

o a bright new tre i yo

make the right choices. N2

lets yo know there is lie

ater newsaer only.

LonniePeppler,Publisher,The Monroe Evening News,Mich.

C c &

Buildaudiencesbyulllingjobsbeyondnews

Mmzc

m

Usenewmodelstoullljobsocurrent/new

advertisers

Figure 1: the neWspaper next gaMe plan(seCtion iii)



5/96

NewsPAPer NexT: BluePrINT or TrANsormATIoN 2006 AmerIcAN Press INsTITuTe

a practical innovation process and strategicgame plan or newspaper companies, andeld-testing these approaches. The teamalso recruited a task orce o 26 individuals inkey roles at newspaper or online companieswhose input helped to shape the projectwork and the ndings in this report.

In the last our months o the project, theNewspaper Next innovation process wasapplied in seven demonstration projects atU.S. newspaper companies. In each case, theN2 Method showed its ability to stimulateinnovative thinking, reveal new opportunities,drive development o new products and busi-ness models, and reshape organizations ormore consistent innovation. (See Section IV)

A nal phase o the project explored the pos-sibilities o collaboration among newspapercompanies to achieve new growth on theInternet. The results revealed a strong con-sensus among leading newspaper executiveson the high potential o collaborative eortsto sell national advertising across newspaperWeb sites. (See Section V)

To help newspaper companies learn andapply this unique innovation method, TheNewspaper Next Method and Game Plan willbecome integral components o the Ameri-can Press Institutes programs and servicesor the industry.

And noT or

Newspaper Nexts primary ocus expand-ing and diversiying the newspaper busi-ness model is just one o many challengesacing newspaper companies. Meanwhile,

other organizations, including the Reader-ship Institute, Newspaper Association oAmerica, World Association o Newspapers,Poynter Institute, Learning Newsroom, MediaCenter and others too numerous to name, areaddressing other tough newspaper issues.These range rom how to increase print andonline news readership to how to assure theuture o journalism and a healthy society.

Newspaper Next does not duplicate theseeorts; it aims to complement and support

them. Indeed, the uture o journalism and thecivic mission o newspaper companies will bemuch easier to maintain i newspaper com-panies can develop protable new businessmodels to support them.

However, this report does give attention tothe important question o how to sustain andmaintain the newspaper industrys core prod-ucts: print newspapers and news Web sites.These will continue to be the oundation onwhich newspaper companies build or yearsto come, and the Newspaper Next innova-tion process provides tools to improve theireectiveness.

WhAT ABouT Thecivic mission?

Many people in the newspaper industry seegrave danger ahead or newspapers in ulll-ing their traditional civic mission as maintainer

o an inormed citizenry, acilitator o civicdialogue and watchdog on institutions.

Under the triple whammy o shrinking news-paper readership, declining prot marginsand reductions in stang, the signs are alarm-ing. With less than hal o the public regularlyusing newspapers, a large question looms:How will society unction i the quality, quan-tity and public impact o meaningul journal-ism are not sustained?

SPOTopportunities

DEVELOPpotentialsolutions

ASSESSrisks

TEST,learnandadjust

PhaseI:Initialproductdevelopment

PhaseII:Evaluationandimprovementcycle

LAUNCH

Figure 2: the neWspaper next innovation Method (seCtion ii)



6/96

WhAT is neWspAper nexT?

Newspaper Next takes a pragmatic view. Fornewspaper companies to keep ullling theirimportant civic roles, we see two pre-requisites:

The regular attention o a large majority othe public

A strong and sustainable nancial base

Both are endangered under the traditionalnewspaper business model. For both, News-paper Next aims to provide the necessaryinnovation process, tools and strategies toachieve new growth.

Companies adopting the N2

approach willquickly discover new rontiers o opportunity,both in audiences and in advertising. Throughthe new products and services they launch,they will nd themselves serving broader con-stituencies through a larger and more diverseportolio o products and services.

At the same time, through these new channels,they will discover new dimensions or ulllingtheir civic mission. They will discover they canassist and enable a broader spectrum o indi-viduals, communities and businesses in a wider

range o ways than ever beore.

encourAging signsoF TrAnsFormATion

The Newspaper Next team has crisscrossedthe country in the last six months, using themethods described in this report to help news-paper companies nd new paths to innova-tion. Everywhere we have been, we have seenthe very real challenges they ace, includinginstitutional structures and mindsets and majorconstraints o money, workorce and time.

And yet we have seen dramatic shits withinthese companies as they use the N2 approach.We have seen them rerame their markets anddiscover major opportunities or growth. Wehave seen them race ahead in developing andtesting new products and business modelswhile reducing the risks and costs o innova-tion. We have seen them discover importantimprovements to be made in their existingproducts. Some have made dramatic prog-ress in reshaping their companies to makeinnovation a continuous process.

The complex challenge o transormingnewspaper companies has no simple answer,but we see great cause or encouragement inthese and dozens o other experiments takingplace in the industry. Most importantly, wehave seen the recognition dawning that thereare many new opportunities and many waysto go orward.

There is much to do, and there is no time tolose. We believe that the right actions takentoday can drive the transormation that thisindustry so sorely needs.

ABouT This reporT

The major sections o the Newspaper Nextreport provide:

st i: stat Aal

How undamental changes are reshapingthe entire media environment; how thesechanges are sending waves o disruptionthrough the newspaper industry; the implica-tions or newspaper companies.

st ii: T nwa ntmt

Strategies, tools and processes to spot op-portunities, shape new products and iterateto success.

st iii : T nwa ntga pla

Overall strategies and objectives or news-paper companies, plus some o the mostpromising avenues or growth.

st iv: L t t

How the Newspaper Next concepts, toolsand methods energized and reshaped theinnovation process at seven newspapercompanies.

st v: cllabat tnwa it

What are the most promising opportunitiesor joint action by newspaper companies?What are the most promising structures orcollaboration?




7/96

secTion i

siTuATion AnALysis

Wat a a w?A. Upheaval in the media landscape

B. Understanding the patterns o disruption

C. The implications or newspaper companies




A FundAmenTAL chAngein humAn LiFe

In a search or answers, the Newspaper Next(N2) project team spent a year studying themedia landscape and the orces reshaping it.In one segment o the project, we conductedscores o interviews, studied bushels oreports and scanned thousands o stories inthe media.

We nd the evidence overwhelming: This ischange on the grand scale, driven by a un-damental transormation in the connectionbetween humans and inormation. The socialimpact is likely to rival the advent o movabletype and mass literacy.

The change is advancing quickly toward a newreality in which people can get any inorma-tion, any time and any place, and publish theirown content at will.

In this century, vast reserves o human intel-

ligence, creativity and productivity will beunlocked as billions o individuals around theglobe use this new access to knowledge tomaximize their potential. The impact on hu-man reedoms and quality o lie is sure to beimmense.

The trigger is technological, but the impact isbehavioral. As individuals respond to the in-nite range o choices available to them, thiswill reshape the media landscape and, overtime, society itsel.

People will want many things that do not existyet new kinds o inormation, new tools andservices, new experiences, new ways to getthings done. The Internet is alive with experi-mentation as innovators try to guess at thesenew solutions. But these have only scratchedthe surace o the possibilities, and the paceo change will only quicken.

While the implications and possibilities or

both society and business are immense,among the rst to eel the impact as boththreat and opportunity have been thetraditional media. For them, this long-termrevolution in human behavior creates anintense near-term crisis.

seeing The FuTure ThroughoLd-mediA BLinders

As custodians o the old, limited inormationpipelines, newspapers, magazines, radio andtelevision are seeing their dominance erode

as consumers and advertisers slip away tonew sources o news, inormation andentertainment.

For these companies, comprehending thescope o this change is both crucial anddicult.

For newspaper companies, the very newspa-per itsel its orm, unction, history, rolein society and demanding production pro-cesses creates blinders that make it hard

A. upheAvAL in ThemediA LAndscApe

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9/96


to comprehend the undamental changes

happening around them.

Less than a lietime ago, the newspaper was

the state-o-the-art inormation pipeline, the

only comprehensive inormation eed to tide

people over rom yesterday to tomorrow.

There was no substitute.

This near-monopoly ended decades ago, but

a sense o indispensability still colors the

industrys consciousness.

In most households today, however, newspa-

pers are just one option among millions. Going

rom limited to infnite choices, consumers are

eagerly substituting aster, cheaper, resher,

simpler (or more exhaustive) solutions to do

inormation jobs once flled through newspa-

pers and other traditional media.

This has ueled massive increases in time spent

with media, now reaching an average o about

7 hours a day1 or U.S. adults. As channels

prolierate print, broadcast TV, radio, cable

TV, satellite radio, Internet, cell phones, DVDs,

music players, gaming boxes, and more tocome media use saturates more and more

o our waking hours.

With more sources and channels, the domi-

nance o any one source tends to dissipate.

As a result, many observers have opined that

we are now witnessing the end o the mass

audience.

Meanwhile, the Internet has also drastically

reduced the barriers to publishing. Withouta press or years o training, even a gram-

The entire student body of the Havekost School, picturedin the Monroe (Mich.) Evening News in the early 1930s.The reason: It was one of 24 local 100-percent schoolsin which every family subscribed to the newspaper. Howmany 100-percent schools exist today?

MONROEEVENINGNEWSPHOTO

mar-school student can create a Web site. Nolonger do relatively ew owners control thefow o inormation.

The result is a dazzling prolieration o sourcesand voices available to any Internet user, and ahistory-making democratization o media.

What will the changes rom a tiny pipe to aninnite pipe mean or individuals and their be-haviors? The answer holds tremendous importor content providers.

To nd their way amid these bewilderingchanges, media companies must shit theirocus rom products and services to the liveso customers. As the landscape keeps shi ting,the central question is, What indispensableroles can we play in the lives o consumers andbusinesses?

To see the vast array o new opportunities, it isimperative to look through their eyes and un-derstand the jobs they are trying to get done.This undamental shit o perspective is one othe central principles o the Newspaper NextInnovation Method and Game Plan.

neW TooLs AndneW soLuTions

The unolding revolution introduces a growingnumber o technologies that superchargetraditional behaviors and enable new ones.

High-speed Internet access makes technolo-gies such as search, databases, mapping,e-commerce, audio and video streaming, userauthoring, blogging, discussion orums andinstant messaging easy and powerul, and in-creases the amount o time people are willing

to spend using them. These and other onlinetechnologies are giving rise to new onlinebehaviors and business models.

The Internet is ast becoming a preerredchannel or individuals to get and give inor-mation, create and sustain relationships, bepart o a community, buy and sell things, ndand compare choices, and be entertained. Inmany situations, it is now the best possibletool or getting key inormation-based jobsdone, displacing solutions and business mod-els with long and successul histories.

sm mc :

Everythingisavailableallthetime

Freecontentbecomesallbutuniversal

Individualschoicesbecomevirtuallyinnite

Usersexpectinormationondemand

Searchbecomesabasic

behaviorandskill Usersnotjusteditorsor

expertsmakechoices

Userscreatecontentatwill

Whatmatterstomedrivesmostuserchoices

Personallyrelevantcontenteclipsesgenericcontent

Audiencessplinterinmanydirections

Virtualcommunitiesormwitoutlimitsotimeordistance

Breakingworldandnationalnewsarecommoditized

Userstime-shitallmediaatwill

Formsandusesocontentbecomeungible

Linesbetweenmediablur




upheAvALs in AdverTisingThe innite pipe and its related technologiesalso are driving revolutionary changes in theadvertising landscape.

The splintering audience makes it increasinglydicult and costly or advertisers to reachbroad swaths o the population. The increas-ing media clutter makes it dicult to be seen,so advertisers are embedding themselves inmovies, games, online video and other newchannels.

At the same time, new interactive technolo-gies such as search and behaviorally targetedadvertising make it possible to reach precisetarget groups as never beore. The two-wayand multi-media capabilities o new mediaare enabling advertisers to engage their tar-get customers in entirely new ways.

Old media both print and electronic cannot match the targeting and engagementcapabilities o the Internet and other interac-tive media. Nor can they deliver the directevidence o eectiveness ROI, or returnon investment that advertisers want andinteractive advertising can provide.

The traditional advertising media still com-mand massive market shares, but virtuallyevery day brings reports o major advertisersswitching dollars rom traditional to interac-tive advertising, usually at the expense oprint or broadcast.

Traditional advertising agencies, like tra-ditional media, are swamped in prooundchange. Anthony J. Hopp, chairman o theAssociation o American Advertising Agen-

cies, said recently, The agencies that willsucceed are the ones that can nd the newways to engage and connect with consumers.I youre not doing that, youre not going to bein business.2

The agencies are not alone. The traditionalmedia ace exactly the same mandate, asindividuals and advertisers stampede towardnew solutions or inormation, entertainmentand news.

pATTerns in The WhirLWindThe disruptive orces bu eting traditionalmedia are massive and ar-reaching, but theyare not random. They track exactly with clas-sic patterns in other industries.

These patterns emerge when new technolo-gies undermine existing companies, and Dr.Clayton Christensen has identied them inmore than 60 industries. His work, publishedin the best-sellers The Innovators Dilemma3and The Innovators Solution4, reveals howdisruption happens, why established compa-

nies almost always lose when it does, and howthey can break the patterns o ailure.

The critical rst step is to understand howdisruptive innovation works.



11/96


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The ollowing graphs rom Dr. Christensenswork illustrate how this process happens.

Fig. 1 shows how the perormance o a hypo-

thetical product changes over time.

The dotted red line refects the pace at whichthe average customer can absorb improve-ments in the product. Typically, the wants ocustomers change only gradually. But customerdesires actually span a wide-perormancerange, as indicated by the red bracket on theright rom those using only a ew o theproducts benets to those who will never besatised no matter how good the product gets.

Managers are trained to respond to thewants o their most demanding (and usually

most protable) customers. So, in industryater industry, the pace o product improve-ment ollows the blue line, rising aster thanthe average customers wants or needs.

The microprocessor chips powering PCs area good example. At rst, perormance was soslow that speedy typists could outrun them.Many iterations later, they are so ast thatmost users never tax them. Most customersno longer care about more speed gains, buthigh-end users like gamers and video editorsstill cannot wait or aster chips.

Improvements on the blue line are knownas sustaining innovations. Large or small,they typically appeal to customers alreadyusing the product. Newspaper examplesinclude adding special sections, redesigningthe newspaper, building a new press to meetadvertisers color demands and adding videoor audio to a news Web site.

When it comes to sustaining improvements,established companies usually win. They

B. undersTAnding ThepATTerns oF disrupTion

Time

Performance

Incumbents nearly always win

Sustain

ing

innovatio

ns

Paceof

product

improve

ment

Performancethat

customerscan

use

Entrants nearly always win

beat back outside competition based on theirresources, established customer relationshipsand technological skills.

A drAmATicALLy diFFerenTkind oF innovATion

Every so oten, however, a very dierenttype o innovation occurs what Dr. Chris-tensen calls a disruptive innovation. Otentriggered by a new technology, it does notoer just another incremental improvement.Instead, it undamentally changes the game.The new product provides lower perormancealong some traditional dimensions, but itosets those actors with new benets such assimplicity, convenience, ease o use, ease o

access or low price.As Fig. 2 shows, a disruptive innovationdoesnt extend the blue line. Instead, it cre-ates a new line below the perormance levelo the established product. And it appealsto dierent customers typically those whocannot aord the existing product, or lackthe skills, access, time or knowledge to use it.It takes root among these nonconsumers othe existing product, who are overshotby itsperormance, complexity or price.

Figure 1: sustaining innovations

Source: Clayton Christensen, The Innovators Solution




Blue-line managers oten ail to see the threatbecause the new product alls short o theirquality standards, does not appeal to theircustomers and oten operates on dierentbusiness models with lower margins. So they

ignore it or respond ineectively.

Meanwhile, on the green line, managers acethe same product-improvement pressures asmanagers on the blue line. Their best cus-tomers demand better perormance, so theyimprove the product over time. The green linekeeps moving upward.

Over time, perormance oten becomes goodenough to attract customers o the estab-lished product. This is disruption in earnest.

Performance

Incumbents nearly always win

Sustainin

g

innovati

ons

Performancethat

customerscanuse

New competitors nearly always winDisruptive

Innovations

Paceof

product

improve

ment

Suddenly the blue-line managers realize thisnewer, simpler product is draining away busi-ness. Oten they are unwilling or unable tocompete, so they sharpen their ocus on high-end customers, only to see the disruptiveproduct rise into that space, too. Their salesand prots erode or, in some cases, collapse.

Disruptive innovation can happen in everytype o industry. Examples, past and present,abound in manuacturing, retailing, services,distribution, telecommunications and else-where. Dr. Christensens books are rich withvivid case studies, but a ew brie exampleswill suce here:

Henry Ford realizing the middle class want-ed motor-driven travel, too, and inventinga simpler car and a new manuacturingmodel to provide it.

PCs beginning as toys or hobbyists, butimproving until they swept the businessworld and largely displaced the minicom-puter industry.

Japanese automakers winning the low-endo the U.S. auto market with small, cheap

cars, then improving quality and gainingpower in every market segment.

Southwest Airlines creating a businessmodel to make air travel aordable or bustravelers, and then eating into the main-stream markets o the major carriers.

Wal-Mart and other discounters creatinglow-price models or low-end consumersand driving department stores into nan-cial trouble and consolidation.

d i

startwithgoodenoughperormancealongtraditionaldimensions

oernewbenetssuchassimplicity,convenienceorlowprices

appealtoovershotcustomersornonconsumers

otenutilizelowcostorstartsmallbusinessmodels

takeadvantageocompetitiveweaknessesandblindspots

Figure 2: disruptive innovation

sd

BetterDierent

PremiumpriceLowprice

New&improvedGoodenough

LeaporwardLeapdown

ComplicatedSimple

Figure 3: hoW disruptive produCts are diFFerent

Source: Clayton Christensen, The Innovators Solution



13/96


even greAT compAniesFAiL To respond

Dr. Christensen was intrigued by the pattern.Why, in industry ater industry, do the estab-lished companies even respected rmswith brilliant leaders ail to see disruptionsuntil too late?

His research revealed that it wasnt stupidityor stubbornness. Rather, they were the vic-tims o the very habits and behaviors that hadmade them successul. The r ight strategiesand behaviors or sustaining innovation are

the wrong ones or responding to disruptiveinnovation.

In mature industries, the blinders createdby the resources, processes and values (orpriorities) required or their existing productscaused them to make two common mistakes:1) ailing to allocate resources to explore thenew possibilities, or 2) orce-tting thoseresources into products too much like theirestablished models.

In a classic example, AT&T source o mosttelecom advances or decades spottedcell phones early on as a possible new busi-ness opportunity. In the early 1980s, it hiredMcKinsey & Co. one o the worlds leadingconsulting rms to predict the uture sizeo the cell-phone market.

Using the best available methods, the con-sultants concluded that total cell-phone salesby 2000 would be about 900,000 units. Thatwas too small or AT&T, so it pulled out o themarket.

In hindsight, this looks absurd. But looking

at the best cell phones o the early 1980s,any reasonable person might have done thesame. They were the size o a small suitcase,weighed many pounds, and had miserablebattery lie, bad call quality and almost nosignal coverage.

Figure 4: the blinders oF suCCess

R

rc

People

Technology

Products

Equipment

Inormation

Cash

BrandDistribution

P

pc

Production

Hiring&training

Productdevelopment

Manuacturing

Planning&budgeting

Marketresearch

Resourceallocation

V

v ()

Thecriteriabywhichpriortizationdecisionsaremade

Coststructure/businessmodel

Sizeoopportunity

Customerdemands

Culture

Theresources,processesandvaluesthatmakeanorganizationsuccessularethesameonesthatcaninhibitresponsetodisruptiveinnovation.

Source: Innosight LLC

But a ew people, such as doctors and stocktraders, needed to be in touch at all times, so

the early phones did sell. And, inevitably, thetechnology improved. Today, it takes onlyabout 10 hours to sell 900,000 cell phones.5

Again and again, disruptive innovations t thispattern. The early version o the product isinerior to the accepted product in importantways, but it also appeals to a certain slice o thepublic that values the tradeos. Establishedcompanies turn away, repelled by the qualitylevels, small market sizes, low prot margins orother actors. But the innovators keep goinguntil, gradually, the product eats into the center

o the market.

The challenges pummeling the newspaperindustry show all the classic signs o disruptiveinnovation.




Trends Among reAders

Today, however, most households are con-nected 24/7 to vastly greater inormationpipes broadcast media, cable TV and theInternet. One by one, the newspapers inor-mation jobs are leaking away through thesechannels to new providers.

In classic disruptive ashion, these new solu-tions oten provide lower quality in someways (depth and comprehensiveness), but o-er attractive tradeos such as lower cost (or

no cost), resher inormation, and anytime-ac-cess with a ew keystrokes. They can ocus onniche subjects to depths that general-interestnewspapers cannot match.

Free dailies, growing in the U.S. and abroad,are a good example. They oer much lessdepth and scope than their paid competitors.They are designed, in ormat and content, oran easy, entertaining read in a short snippeto time, to appeal to people who are not likelyto buy a daily anyway.

c. The impLicATions ForneWspAper compAnies

hw a wa a b t? T t ttll t t.

Npap atd t f a gat va, pviding th d ftga inatin pipin t h and individa. T ahiv thi, thy hadt b anatd and divd in th pa a h. Thy had t badab and ptab. Thy had t p a id ang gnt ina-tin int iitd pa. Thy had t n th had intt th ntippatin ba vyn dank th a pip.

Th npap a th inatin qivant a si ay kni a ihva ppitin that hpd ad in any dinin thi iv.

Npap pp ad it th daiy ia, and givn th thngi,thy ight. It a a gat a nay 100% adhip, agv advtiing and ipiv pft agin.

print/broadCast era online era

lc w Unclear

W, us Aggregators,cable,espn.com,cnn.com

o Blogs,discussionsites,aggregators

r Retail&comparisonsites,craigslist,ebay

a AutoWebsites,craigslist,ebay

r AgencyWebsites,MLSsites,craigslist

C Jobsites,craigslist,recruitmentagencies

Fullservicedailynewspaper

Radio

Broadca

stTV

Cab

leTV

[Dr. Christensens work]

exlains how shoers and

trader blications were

able to blindside s a

generation ago. It oints to

resh oortnities among

or least loyal and least

attractive cstomers today.

O.ReidAshe,ExecutiveVicePresident&COO,MediaGeneralInc.Richmond,Va. Figure 5: disrupters eroding the neWspaper value proposition

DM

Shoppers,

traders



15/96


Craigslist.com does not oer sophisticateddesign and there is no sta to help peoplecreate their classied ads. But it is incrediblyeasy to place an ad anytime day or night andto add photos. You can say whatever youwant and it is ree to most users. Consequent-ly, people use it to sell things they wouldnever bother to advertise in a paid daily.

Other actors are conspiring to depressnewspaper readership as well. Americans areworking more hours, spending more time onentertainment and less time engaged withtheir communities, as documented in RobertPutmans Bowling Alone.6

A strong trend away rom newspapers andnews consumption among younger genera-tions has been documented in numerousstudies.

When hal o the adult population no longeruses newspapers and shows high resistanceto our best marketing eorts, it is apparentthat newspaper companies must look beyondtheir traditional boundaries to nd audiencegrowth.

Trends Among AdverTisers

On the advertising ront, disruption is takingseveral orms, and the aggregate eect is afattening o newspaper ad revenues.

Much o the sotness in traditional ad spend-ing comes rom disruption in advertisersown industries rather than disruption amongmedia. These include department storesdisrupted by discounters, U.S. auto manuac-turers disrupted by Asian manuacturers andreal estate brokers disrupted by discount andonline players.

Meanwhile, Internet disruption o newspa-pers is beginning, but it appears to be in avery early phase. Internet use by advertisersand agencies is accelerating, but it is lag-ging well behind the pace o online audiencegrowth.

Most newspapers have little national adver-tising to lose, and local advertisers have beenmoving only slowly to the Internet. But local

Figure 6: the neWspaper habit in deCline

1990 1995 2000 2005

80%

60%

40%

20%

0%

Forapersonborn:Beore1932

1932-1941

1942-19511952-1961

1962-19711972-1981

Source: Pew Research Center Biennial News Consumption Survey

businesses are gradually recognizing onlineadvertisings ability to target qualied pros-pects, build new orms o customer participa-tion and engagement, and deliver precise

metrics to show eectiveness.So ar, most newspapers have elt thepressure o online competition only in a ewcategories most notably classied andemployment and metro papers have beenmore aected than smaller markets.

Small daily newspaper markets may have seenless disruption than large ones so ar, but evenin small towns, high-speed Internet access ischanging customer behaviors. At best, it ap-pears small newspapers may have a little moretime than large ones to discover the new prod-

ucts and services their communities will use.

In markets o all sizes, Internet advertising willgrow strongly in the coming months and years.With online audiences growing ast, Webadvertising tools and strategies maturing, andlocal businesses becoming more Web savvy,the pull on advertisers will increase dramati-cally. Traditional newspaper revenues will beimpacted much more strongly than they aretoday.

nw Percentorespondentswhoreadapaperyesterday




neWspAper WeB siTes good neWs, BuT

To their credit, newspapers saw the disruptivepotential o the Internet early and moved toestablish news Web sites. Many have beensuccessul in winning both readers and adver-tisers, and recent revenue growth has beenstrong.

However, the online strategy chosen bymost newspapers essentially reproducingthe newspaper online alls into a com-mon disruption trap. Dr. Christensen calls it

cramming: attempting to reproduce the oldproduct in the new technology, and therebymissing many o the best new opportunities.

Others have done it many times beore.Kodak saw digital imaging coming in the1970s and responded at a huge researchand development cost by developing aproessional-grade digital camera with a$30,000 price tag. Needless to say, it ailed inthe marketplace. When digital imaging tooko, it happened at the opposite end o themarket, with simple point-and-shoot cameras

that traded image resolution or new kindso convenience. Seeing the market direction,Kodak then introduced its successul line o

EasyShare products.

By reproducing their print business modelonline, newspaper companies have producedsome gains. But they have been slow tospot and adopt new revenue models suchas lead generation, targeting and directmarketing major revenue sources or pure-play Web sites. And they have been slow tosee the huge user and advertiser potential

o new online oerings such as local search,hyper-local content, niche audience develop-ment, blogs, community orums and user-generated content.

At the same time, their ocus on news contenthas mostly ignored hal o the public audi-ence the people who dont regularly pur-sue news. And most newspaper companieshave not yet acted on the realization that theInternet through tools like search, databas-es, community orums and user-publishing

applications now gives them the power tounlock huge amounts o inormation peoplewant and will use.

neW FronTier oFopporTuniTy: LocALinFormATion

For most people, news is a problem solvedlong ago. There is plenty o it, and they knowhow to get what they want. Most peoplearent looking or new ways to get news.

But local inormation is a dierent s tory. Peo-ple need many kinds o inormation besidesnews every day, depending on their interests,their needs, and whats going on in their lives.A large share o the inormation they need islocal, and its oten dicult to get.

The Internet and its capabilities, such as search,databases, community orums, user authoringand mapping, provide the tools to unlock thislocal inormation as never beore, ullling newneeds and creating new channels.

For newspaper companies, this is a huge

well o new opportunities. They are betterpositioned than any other players to gatherthis local inormation and make it usable orlocal residents and businesses. I they movequickly, they can establish themselves as thepre-eminent sources o many highly valuedtypes o local inormation.

Opportunities abound. For example, data-bases such as parks, medical acilities andrestaurant menus; hyperlocal inormation likeyouth league news or local school happen-ings; customer knowledge about mechan-ics, contractors and restaurants; commu-nity discussion groups on niche topics romparenting to recreation to entertainment;and shopping tools to show what stores sell adesired item at what price.

But others are moving in on these opportuni-ties. Some competitors like craigslist.comand angieslist.com have a head start insome categories and some cities. Even in smalltowns, big players are jockeying or advantage.A local.yahoo.com search or pizza in Colum-bus, (Ind.) (pop. 40,000 ), yields 19 restaurants



17/96


within ve miles, a map, some user reviews andcontact inormation or each one.

The land rush to meet local inormationneeds has barely begun. I newspapers seethe opportunities and commit the necessaryresources, they can become the preerredproviders o a wide range o community, con-sumer, civic, recreation, entertainment andother inormation. This will enable them toserve their communities in new ways, attract-ing new audiences and serving new businesscustomers a natural t with their time-hon-ored civic mission o helping communitieslead better lives through inormation.

coLLABorATionopporTuniTies

On another ront national advertising the shiting media landscape could be ahuge benet to newspapers, but only ithey can overcome steep internal barriersto collaboration.

As national advertisers go online, they seekhigh-quality environments and audiences or

their advertising. Newspaper Web sites oerboth and, in the aggregate, could competewith the major portals now winning most othe business.

But making a national advertising buy acrossmultiple newspapers has always been notori-ously dicult. In print, newspapers neversucceeded in standardizing ormats, ratesand policies to create a one-order, one-billsolution. Consequently, they continue to bebypassed or millions o dollars in nationaladvertising spending in avor o broadcast,

cable and magazines.

Today, a national buy on newspaper Web sitesis no easier than in print. But some onlineexecutives say the Web should be an easierproblem to solve because printing pressesare not an issue. Creating a joint one-order,one-bill solution would be dicult, but somesay it would enable newspaper companies tocompete or a large new stream o nationalonline advertising dollars.

A new Newspaper Next survey shows strongagreement on this point among the Top 25newspaper companies and Top 25 newspa-pers. (Section V)

Across the entire advertising ront, newspa-per companies ace a strong advertising chal-lenge in the emerging media landscape. Theycan drive aggressively to become the provid-ers o high-perormance Internet advertis-ing solutions or local, regional and nationaladvertisers, or they can watch as competitorswin these huge opportunities.

r For neWspApercompAnies: TheporTFoLio soLuTion

As disruptions erode the traditional news-paper business model, many in the industryare recognizing that a newspaper alone, ora newspaper and a news Web site, are notenough. The public and advertisers are splin-tering in too many directions.

In the search or new models, terms like port-olio, audience aggregation and plat-

orm-agnostic are coming into the industrylexicon. The realization is dawning that itsimperative to provide a broader range oinormation to a broader range o audiences.

The portolio solution, as visualized bymany, consists o creating a suite o productsand services in addition to the newspaper,intersecting the population on a variety oplanes. The goal is to create new audiences oindividuals who are not necessarily interestedin the newspapers contents, and to attractadvertisers or whom the newspaper isnt

necessarily a suitable way to reach their targetaudiences.

These new products may be print or online,daily or nondaily, paid or ree or mobile, oremail, or virtually any other orm dependingon the target user and his or her circumstances.Some companies are vaulting ahead in thesedirections, while others have barely begun.




A mATTer oF survivALAter deep study o the media landscape orthe past year, the N2 project concludes thatthe portolio strategy or newspaper compa-nies is not merely an option or newspapercompanies. It is THE option a necessity orsurvival.

Most signs indicate that the newspaper itselis likely to shrink into a boutique product,serving an ever-smaller audience and adver-tiser base. How long a newspaper will remaina viable product is unknown, but the pace o

shrinkage appears to be accelerating.

Already, a growing majority o the local popu-lation is looking elsewhere or local inorma-tion they want and need. Newspaper compa-nies can either become disruptive innovatorsthemselves by creating new solutions to meetthese needs, or they can watch competitorsdo it and see their local inormation ran-chise ebb away.

Some ear that the portolio solution meansabandoning news or deserting the civic mis-

sion that newspapers view as central. On thecontrary, i companies succeed in engagingever-larger shares o the local audience, theycreate the opportunity to incorporate newsin orms these audiences will use and value. Ithey do not succeed, they will reach ever-smaller minorities o the population, making itharder and harder to achieve civic impact.

Turning a traditional newspaper company intoa portolio company is a tall order. The port-olio concept alone will not do it, nor will theindustrys traditional approaches to innova-tion, because sustaining improvements andold business models will not be enough.

Caught in a massive wave o disruption, news-paper companies must learn to think andbehave like disruptors themselves. They needto see and understand customers lives andbusiness needs in completely new ways, andthey must create products that get these jobsdone better than any other solutions. Theyneed an approach that can move ast, reducerisk and maximize the likelihood o success.

Figure 7: hoW ready For innovation are neWspaper CoMpanies?(ratings by n2 task ForCe in january 2006)

Recognizetheneedtochange A-

Allocateresourcestonewgrowth C

Designsolutionsusersconsidergreatbecausetheygettheirjobsdonebetterthananyalternative C

Expandthemarketbyndingnonconsumersandnonconsumingoccasions C-

Unlockmaximumrevenuepotentialbylookingbeyondthetraditionalrevenuemodel D+

Minimizecostsbyavoidingneedlessoverheadandwasteulinvestmentinovershotdimensions B-

Assemblethenecessarycapabilitiestodeliverinnovativesolutions C

Possessthenecessarycapabilitiesorrepeatedinnovationandgrowth C

Communicatethechangeagendainternally C+

Communicatethegrowthstoryexternally C

r C: n2 ce : t nw i

W m?Asdisruptionsbuetthenewspa-perindustry,itshistoricallyhighprotmarginsarebeingsqueezed.

Highmarginsresultedromtheproductsnear-monopolystatusinthepastandpersisteddespitecompetitionrombroadcastandcablemedia.ManypeoplebelievetheInternetisastructuralchangethatwillkeepdrivingthemdownward.

Underheavyinvestorpressure,publiccompanies(andmanypri-vateones)areghtingtomaintainprotsbycost-cuttingandothermeans.

Newspapercompaniesaceadi-cultdualimperative:tomaintainthevalueandviabilityodecliningcoreproducts,whilealsoinvestinginnewinitiativesthatcandrive

uturegrowth.

Otherdisruptedindustriesteachanimportantlesson:Newwinners

otenstartsmall.Dontrejectnewideasjustbecausetheycantmatchtraditionalmarginsintheshortterm.Rather,ndventuresthatcanbeprotableintheshortrun,evenimarginsaremodest,andgivethemthechancetogrow.

Inthemidstodisruption,therearenomagicormulas,butitiscrucialtobalanceanewspapercompanysinvestmentportoliobetweenthecoreandnewventures,consis-tentlyundingenoughsmartnew

experimentstodiscoverthenewwinnersthecompanywillneed.

Inthemidstostructuralchange,thatsthebestplanorsurvival,andanimportantstrategyorinvestorstounderstand.



19/96


The neWspAper nexTsoLuTion

That is what Newspaper Next is intended toprovide. It gives newspaper companies thestrategies, processes and tools they needto innovate in new directions, developinggrowth-oriented portolios o productsand services or their communities and theirmarkets. These are outlined in the next twosections o this report.

The Newspaper Next Innovation Method (Sec.II) sets out a clear process or identiying high-

growth opportunities, conceiving productsto capitalize on them, and shaping them orsuccess while minimizing cost and risk.

The Newspaper Next Game Plan (Sec. III)sets out a practical strategic ramework orbecoming a port olio company by identiyingthe our key components o success and out-lining the most promising kinds o opportuni-ties in each o the our.

These are learnable, practical solutions ornewspaper companies committed to creatinga new uture or themselves, their customersand their communities.

summATion: As mAnyopporTuniTies As ThreATs

The situation analysis or newspaper compa-nies can be summarized in just a ew words:Huge threats and huge opportunities.

In brainstorming sessions with groups onewspaper people around the industry, theNewspaper Next team ound a ascinatingpattern. Challenged to identiy the industrys

threats and opportunities, these groupsrepeatedly discovered that virtually everythreat they named could also be a growthopportunity or their companies.

The deciding actors, it turns out, are theindustrys own willingness and ability toinnovate.

The Newspaper Next team emerges rom itsyear o study with high hopes or the industry.We have seen the N2 concepts and processesenergize teams o newspaper people as theyrealized vast realms o new opportunities, andwe have seen them successully adopt dra-matically dierent approaches to innovation.We believe the industry can break out o theold molds and rise to the challenge.

Time is short. The landscape is changing ast,and new products take time to grow. It is im-perative or newspaper companies to committhemselves to action, and to do it now.

1 Veronis Suhler Stevenson: Investment Consider-ations or the Communications Industry

2 Winterberry Group survey, 2006

3 Clayton M. Christensen, The Innovators Dilemma:When New Technologies Cause Great Firms to Fail(Boston: Harvard Business School Press, 1997).

4 Clayton M. Christensen and Michael E. Raynor,The Innovators Solution: Using Good Theory toSolve the Dilemmas of Growth (Boston: HarvardBusiness School Press, 2003).

5

IDC report, January 26, 20066 Simon & Schuster, 2001



20/96

secTion ii

The neWspAper nexTinnovATion meThod

itt: A atalat Step 1: Spot opportunities

Step 2: Develop potential solutions

Step 3: Assess ideas

Step 4: Test, learn and adapt



21/96

The N2 Method described in the ollowingpages is a practical approach to innovation,designed to help project teams create boom-

ing new growth oerings. It can help innova-tors quickly move an idea rom the sketchpadto the market in a way that increases its long-term chances o success.

The N2 Game Plan, described in Section III,shows where to apply the N2 Method in astrategic ramework or growth.

More than just a how-to guide or productdevelopment, the N2 Method introducesseveral prooundly dierent concepts andprocesses. Teams using this method nd thatit changes the way they think, opening their

eyes to broad realms o new opportunity. Andthey discover that these same concepts andprocesses help them see how to make theirexisting products and services more eectiveor readers and advertisers.

Although specic steps are outlined below,the N2 Method is more o a guide than a

rulebook. It is rare that the exact steps or anygiven project will be the same. Indeed, eacho the seven newspaper companies in the N2

demonstration projects (see Section IV)applied the method in dierent ways,depending on their goals and companycircumstances.

Underlying the N2 Methods our steps is animportant concept called emergent strat-egy. The concept, described in Chapter 8oThe Innovators Solution,1 suggests thatinnovators in highly uncertain circumstancesusually start with the wrong strategy. The goalis to discover quickly howthe strategyis wrong and nd the right path.

Thereore, the process is an iterative ap-proach designed to quickly identiy criticalassumptions, run low-cost experiments andre-vector towards success.

The ollowing discusses each step o theprocess in more depth.


inTroducTion:A prAcTicAL innovATion process

Npap pani nd a patia appah t gid thi divifatint. witht th ight appah, pani ik qanding pi n -ptntia tin hi iing btt pptniti.

Thi tin intd th Npap Nt (N2) Innvatin mthd. Th N2mthd i bad n th aadi ah caytn chitnn andcak Gibt and appid k by Innight at dzn pating pani,agntd by th N2 ta npap-pif fd k v th pat ya.

I yo want to know that

yore on the right track; i

yo want to really test theassmtions that are drivi

yor decisions; i yo wan

to take the gesswork ot

yor strategic develomen

se the N2 rocess.

BobKemp,VP/InteractiveGateHouseMediaNewEngland

SPOTopportunities

DEVELOPpotentialsolutions

ASSESSapproach

TEST,learnandadjust

LAUNCH

Figure 1: the n2 innovation Method

Nonconsumers

Jobstobedone

Goodenough

Businessmodelinnovation

Dowhatotherswont

Investalittle,learnalot

Failast,ailcheap




Th ft tag th p i pt-ting pptniti in a akt tanh a n gth bin. Thky i t k pptniti thp a gp t2 v apb that int adqaty ad-dd by iting tin.

Looking or nonconsumers and zeroing inon jobs that customers cannot adequatelyget done points the way to high-potentialopportunities.

spoTTing nonconsumers

It might seem strange that the rst placeto start when you think about creating newgrowth is with nonconsumers, or peoplewho dont consume your product. Across thesweep o history, however, many great growthbusinesses resulted rom making it possibleor people to do things that historically weredicult or them to do.

Start the quest or growth by asking, What

keeps people rom consuming?

Sometimes it is skills (people who lack theability to do it themselves). Sometimes it ismoney (existing solutions are too expensive).Sometimes it is access (solutions may be di-cult to use or obtain when people want them).And sometimes it is time.

Almost always, when a company begins tothink about nonconsumers, the total potentialmarket begins to look signicantly larger, andthe companys market share looks signicantly

smaller.Consider how thinking about nonconsump-tion led Reid Ashe, executive vice presidentand COO o Media General, to rethink theRichmond, Va. market. That market has about16,000 public-acing businesses that mightwant to advertise in one o Media Generalsproducts. However, Media General servesonly about 3,500 o those businesses, leaving12,500 as nonconsumers.

These nonconsumers may not advertisebecause Media Generals products are tooexpensive, reach too large an area or do notreach their target customers, or they may eeladvertising is too complicated or dicult.Finding ways to serve those nonconsumerscould open large opportunities or growth.

Similarly, Richmond (Va.) Times-Dispatchreaches about 370,000 readers each day,leaving about 435,000 nonconsumersan-other large pool or potential growth. Theymight not consume because the newspapercontains more inormation than they want,takes more time than they have, costs morethan they want to pay or does not adequatelyaddress the topics that interest them most.

Z tat,at b

The next critical step in spotting opportuni-ties is discovering where there are key jobs3that customers cannot adequately addresswith current solutions.

The concept o jobs to be done3 is describedeloquently in Chapter 3 oThe InnovatorsSolution.4 The concept is surprisingly simple.It holds that customers do not really buyproducts, they hire them to get jobs done.

For example, Intuits QuickBooks so twaremade it easy or small business owners toaccomplish an important job: Make suremy business doesnt run out o cash. Somealternatives, such as pen and paper andExcel spreadsheets, were not good enough.Proessional accounting sotware packageswere too good conusing and lled withunnecessary eatures. QuickBooks did thejob better than any alternative and quicklytook over the category.

SPOT DEVELOP ASSESS TEST LAUNCH

Output:Identiedhigh-potentialopportunities

sTep : spoT opporTuniTies

em cmcm

Time-starvedworkingmothers

Busyproessionals

Recentimmigrants

Youngadults

em cmcm cc

Commute

Waitingtimes

Ontheroad

em cm

Ultra-localbusinesses

Servicebusinesses

Nationaladvertisers



23/96


Think about the job an advertiser is tryingto get done. Most o the time, the job is notreally to advertise. Rather, he wants to letcustomers know about a special promotion.Or she is attempting to build her brand soshe can drive repeat purchases. As one o theNewspaper Next Task Force members put it,

Advertising is a compensating behavior.

Using the jobs to be done concept requiresrst understanding the problems a customeraces in lie or business. The most promisingproblems are those that people do oten andconsider important and where current solu-tions leave them rustrated.

Next, it is important to understand theprecise hiring criteria a customer appliesin choosing the solution to get the job done.For example, a teenager trying to engagewith other teens might want a solution that isree, uses the latest technology, and is highlyinteractive.

Then look at the candidates who are ap-plying or the job. The teenager could useher cell phone to send a text message to her

riends or read a teen magazine but increas-ingly, she logs on to MySpace or anothersocial networking site.

Once you know a customer job and the hiringcriteria, you can use this knowledge to spotthe help wanted signs, or gaps betweenwhat the customer is trying to get done and

the perormance provided by existing solu-tions. These help wanted signs are clear op-portunities or new-product innovations.

The concept o jobs to be done is straightor-ward, but it can dramatically change the wayyou think about new opportunities. It orcesyou to see the world rom the customersperspective, and to understand not just whatthey are doing, but whythey are doing it.

hw t t t b

Identiying unmet jobs to be done is not a

trivial task. It requires acting like an investiga-tive reporter, using a variety o techniques tounearth and synthesize clues.

For example:

ital bat. Many managersand ront-line workers have deep insightsinto the needs o the people they serve.Arming them with the nonconsumer andjobs-to-be-done concepts can unleashstrong creative orces. It is particularly help-ul to bring together people rom dierentparts o the organization that might ap-

proach problems dierently.

i-t t tw. Discussingthe things customers try to get done in theirlives, how they do them today, and wherethey are rustrated can uncover importantjobs to be done (this sections Appendixcontains suggested interview questions).

Jobs to be done is simlein statement bt transor-

mational in concet. It tak

a newsaer rom looking

straight ahead at its reade

(or non-readers) and walk

arond behind and looks

throgh the eyes o the

reader.

PeterBhatia,ExecutiveEditor,The Oregonian, (Portland

Cm j

e m: Helpmestayinormedonissuesthatarerelevanttome

ec m: Helpmemakebetterdecisionstoincreasemyvalueasaparent,employee,studentetc.

ec m: Givemeinormationthatwillgivemeamate-rialbenet,i.e.,make/savemoneyortime

e m: Givemeenjoyment,amusement,orkeepmeromboredom

e m: Connectmewithpeoplewhosharemyinterestsorviews

emw m: Helpmegetactiononthingsthatmattertome

a j

Getacustomertovisitmystoretomorrow

Provideinormationontheproducts,prices,andpromotionsIoer

Helpmebuildadeeperconnectionwithmycustomerbase

Makemyphoneringwithahigh-potentialcustomer

HelpmedothethingsIdontliketodosoIcandothethingsIdoliketodo

Helpmendtherightpeoplee.g.,employees,suppliers,partners

Makemymarketingprogrammoreeective

Figure 2: saMple ConsuMer and advertiser jobs




ct bat. Sometimescustomers cannot properly articulate theproblems they ace in their lives. Observingcustomers in natural environments, ollowedby probing questions about why the custom-er did this and not that, can lead to surprisingndings.

These approaches can create a long list opotential jobs and usually are sucient totease out promising opportunity spaces.Quantitative research, o course, can providedeeper insight into rank ordering o jobs andsegmenting or clustering o customer groups.

The techniques described above are notnew. But the jobs-to-be-done approachchanges the questions you ask, ocusing onthe customers problem instead o her viewo existing solutions. Applying this approachwith nonconsumers rather than current read-ers or advertisers will yield previously invisibleopportunities.

At the end o Step 1, you should have iden-tied a high-potential opportunity space,characterized by an important problem that a

target customer cannot adequately addresswith todays solutions.

T a t Ted Levitt, the guru o marketing at the

Harvard Business School a generation ago,was amous or reminding his students thatcustomers do not really want quarter-inchdrills. They want quarter-inch holes. Focuson the holes, not the drills.

It is oten helpul to ocus jobs research on apredened customer segment (e.g., workingmoms). However, there also are many high-potential jobs that cut across demographicboundaries.

Start simply: Gather a group o peopleand try brainstorming to identiy desirablegroups o nonconsumers and some impor-tant and rustrating jobs to be done in yourmarket. Then try some external interviews.Consider activities like inviting nonconsum-ing advertisers or a lunchtime discussion.

Train customer-acing employees in the jobsconcepts and set up mechanisms to gathertheir eedback and ideas.

When looking or nonconsumers, remember

to look or nonconsuming occasions aswell.



25/96


mt anag biv atinggth thgh innvatin i ikyand and. A g t hidhigh-ptntia pptniti andak iv.

Yt a k h that - innvatin n t a pattn.Th bt ay t ak a n akti t th pinip dip-tiv innvatin.

Ater pinpointing important, unsatised jobsto be done, the second step is to conceptual-ize potential solutions that would get the jobdone better than existing alternatives. Es-sentially, this step involves creating a rst-cutbusiness plan to seize the identied marketopportunity.

This does not require a 30-page document,detailed exhibits and complicated nancialanalysis. Rather, the rst version should pro-vide basic answers to the ollowing questions:

What is our idea? Who is our rst target customer?

What job do those customers need to getdone?

How do customers currently get the job done?

What will customers give up compared toother oerings by choosing the solution?

What advantages will they get?

How will we make money?

How will we keep costs low?

With whom will we need to partner?

How will we beat competitors?

Embedded in these straightorward ques-tions (summarized in a simple tool calledthe Newspaper Next Idea Resume in thissections Appendix) are three importantprinciples to keep in mind when attemptingto crat a winning solution.


Output:IdeaResumeonnewopportunity The good enogh conce

gave s reedom to do new

things and to do dierent

things ... the real test is no

what or standards are b

what are the standards o

consmers ... What do the

want? What do they think i

good enogh?

SteveSilberman,ExecutiveEditor,The Desert Sn,PalmSprings,Cali.

pl : pt t

Quality is truly in the eyes o the beholder.Sometimes good enough can be great. Theessence o disruption is about making trade-os. The customer gives up perormancealong some traditional dimensions and getsimproved perormance along some much-ap-preciated new dimensions.

This does not mean dumbing down existingproducts. Nor are new, disruptive productsbadproducts; or any product to succeed, custom-ers must consider it better than any alternatives.A disruptive product is adierentproduct that

does a particular job better than any competitor.

Free daily papers are a good example. TheBoston Metro cannot compete with the depthand breadth oThe Boston Globe. When areader has a solid chunk o time and wantsto dig into the days events, theMetro is aninerior product. But when that same customerwants to kill 15 minutes on a train, and the onlyalternative is boredom, the Metro is a near-per-ect solution.

Newspaper companies show strong perec-tionist tendencies, but there are importantreasons to ght this urge. First, it can resultin products that are overly complicated orexpensive. The customer may preer a simpler,cheaper solution with less perormance.

Second, perection is costly to achieve. Be-cause so many initial product strategies arewrong, the worst thing to do is spend a lot omoney early. The heavy investment makesit dicult to adapt when you learn what youneed to do instead.

sTep : deveLop poTenTiAL soLuTions




dm p mc mc

ContentWholesaleuseowire/otherexistingcontent

Minorrepackagingoexist-ingcontent,e.g.rewriting,shortening,addingbries

Lookingorlow-costsourcesooriginalcontent,e.g.,blogs,reelancers

Hiringaproessionaltocreatenewcontent

AdSalesLaunchingasel-serviceadvertisingmodel

Hiringsomelow-costgoodenoughsalessta,e.g.,in-terns,telemarketers,temps

Hiringaull-timeproessionalsalesorce

DistributionRelyonpick-upsthroughcentrally-locateddrop-oboxes

Hirehawkerstopushtheproductatkeylocations Oerhomedelivery

ProductionQuality

Newsprinttab,minimalcolor Broadsheet,heavycolor,multiplesections Fullcolor,heatset,bound

Thekeytodisruptiveinnovationisdialingupperormanceonlyalongdimensionswherenecessary.Thisexampleshowsthechoicesacingacompanylaunchinganiche/reepublication.Thesimplestchoicescreatethelowest-costmodel.Dependingonthecompeti-tion,thecompanymayneedtoincreaseperormanceinsomedimensions.

Rather, think about what would be a goodenough rst solution that gets the mostimportant job done better than anything else.Think about how to minimize xed costs in therst version, creating a fexible base that makesadaptation easy.

To keep xed costs low, consider such thingsas using interns, temps or consultants to llout sta in early days, using user-contributedcontent instead o relying on proprietarycontent and leveraging o-the-shel solutionsinstead o building proprietary solutions; doonly what is necessary or Version 1.0. As wewill explain later, the goal is to invest a little,learn a lot.

pl : T atl abt tb l

An innovation lever that companies otenoverlook is the business model. Oten truedisruption stems rom a new business modelthat makes money in new ways.

Consider Google. While Googles searchalgorithms are unquestionably innovative, thekey to its growth are its AdSense and AdWordsoerings that make it simple, aordable and

a m

CPMdisplayadvertising

Classiedads

Subscriptions

Do-it-yourseladvertising/upsells

Costperaction(perclick/lead/call)

Licensingees

Sponsorship

E-mailmarketing

Paidsearch

Leadcapture

Video/audioadvertising

a f m

CPMdisplayadvertising

Classiedads

Subscriptions

Singlecopysales

Costperaction(phonecall)

Licensingees

Sponsorship

Directmailmarketing

Fee-or-service(e.g.,marketresearch)

Inserts/wraparounds

Eventproduction/promotions

Figure 3: exaMples oF revenue streaMs



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protable or small businesses to place adswithout costly human assistance a very di-erent model rom newspaper advertising.

Historically, the newspaper industry has re-lied on three basic revenue streams displayadvertising, classied advertising and sub-scription revenues. There are other revenuestreams worth considering or any innovation,some o which are discussed in more detail inSection III.

pl : d wat t ttwt at

Disruptive innovation is all about changingthe game. I you ollow a strategy that looksattractive to market leaders, you can bet theywill respond. Incumbents oten have advan-tages that are dicult to overcome.

The way entrants win battles o disruptiveinnovation is by turning an incumbentsstrength into a weakness.

Consider ree classied provider craigslist.Classied advertisements are an importantdriver o industry protability, constituting

a large share o company prots. Craigslistallows consumers to post classied ads orree (it charges or some job listings in somemarkets). How excited would most publishersbe about giving away classied ads? Not very.

Generally, disruptors ollow an approach thatestablished market leaders consider unat-tractive or uninteresting.

The goal is to think critically about how tomaximize the time beore a competitor ismotivated to respond and to minimize acompetitors response options.

At the end o Step 2, you should have com-pleted an N2 Idea Resume (or several IdeaResumes) describing your proposed solutionto seize an identied opportunity.

W m cm Targetanonconsumer.Iyoureachatruenonconsumer,

noincumbenteelspain.

Targetacustomerthecompetitorconsidersundesirable.Findingprotablewaystoserveseeminglyunattractivecustomerscanbeakeytodisruptivegrowth.

Useadierentdistributionchannel.Companiesotenhesitatetoangercriticalchannelpartners.Forexample,computerretailerCompaqhadtoshutdownitsdirect-to-consumerInternetarmbecauseownersothestoresthatsolditscomputersprotested.

Createabusinessmodelthatsucceedswithotarevenuestreamthatisvitaltoincumbents.Bynot

charginglateees,NetfixmadeitsbusinessseemlessstructurallyattractivetoBlockbuster,whosebusinessmodelhistoricallyreliedonlateees.

T a T

Approach the solution rom the perspectiveo an entrepreneur. I you had none o thebaggage or habits o a newspaper company,what strategy would you use to create andcapture this space?

Use simple templates like the N2 Idea Re-sume to help rame out a strategy.

Do not obsessively ocus on gross marginpercentages. You can create very protablebusinesses with dierent margins rom thoseo your core business.

Consider strategies that other newspapercompanies, media companies, competitorsor companies outside the industry have usedon a similar problem. These might give youideas that can be adapted to target youridentied opportunity.




Th nt t tp in th N2

mthda y atd and ay bpatd qnty in dvpinga n pdt vi.

Step 3 involves assessing the concept de-scribed in the N2 Idea Resume. The goal is tomake a comprehensive list o the strategysstrengths, weaknesses and unknowns, and toidentiy those areas that need to be tested inmore depth in Step 4.

More broadly, Steps 3 and 4 orce innovatorsto rethink how they approach strategy. Oten,when managers create strategies, their pro-cess involves developing assumptions, usingthose assumptions to build a detailed busi-ness plan with extensive nancial projectionsand acting to implement that plan. However,because your rst strategy is likely to bewrong, that approach is likely to lead you inthe wrong direction.

Steps 3 and 4 fip that approach on its head. InStep 3, you begin by assessing what your ideawould need to look like to be successul, both

in qualitative characteristics and quantitativemetrics. Then you work backwards, askingyoursel what assumptions would have tocome true and what risks would need to beovercome to reach that level o success.

This approach teases out the most criticalassumptions and risks that need to be ad-dressed in Step 4.

Qaltat at: d t t tatt ?

Successul innovations conorm to a pattern.The disruptive pattern5 in particular has sixkey elements:

1. Customer: Target an important job thatcustomers (consumers/advertisers) cannotadequately get done

2. Solution: Oers a disruptive solution thatgets the job done better than existingalternatives

3. Business model: Features an attractivebusiness model that starts with low xedcosts and creative revenue streams

4. Competition: Creates or includes a com-petitive advantage that will make competi-tive response dicult

5. Strategic Fit: Addresses a growth area thatis strategically important to the company

6. Execution: Uses capabilities that the com-pany has, or can build or buy

Using those six categories, the N2 team cre-ated a tool providing 21 qualitative successactors (see the Newspaper Next Oppor-

tunity Assessment System in this sectionsAppendix). The rst stage o Step 3 is to usethese 21 actors to assess the strategy. Foreach actor, consider the degree to whichyour approach conorms to the identied ac-tor, and the amount o evidence or certaintyyou have backing up your answer.


Output:Prioritizedlistoassumptionsandrisks

tc pc s pc

Assume Project

Focus Project Assume

Act Test

Figure 4: Flipping strategy on its head

sTep : Assess ideAs

Source: Innosight LLC



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In the early stages o innovation, there will bemany areas where your assessment is nothingmore than an educated guess. Thats okay.What is critical is separating the things youknowto be true rom the things you assumeto be true.

It is also unlikely that your strategy willperectly t the pattern. Thats okay, too.The goal o the assessment is to isolate corestrengths o the idea, known risks that needto be addressed, and uncertain areas thatneed to be explored in more depth.

While assessing 21 distinct actors mightseem daunting, the comprehensive list is auseul way to smoke out assumptions youmay not realize you are making. In act, theassessment process itsel is o ten more valu-able than the answer. The discussions anddebates provoked by the assessment inevita-bly point out ideas or improving the strategyin meaningul ways, and they ensure that theright assumptions and risks get addressed atthe right time.

Qattat at: r- aal

Many seasoned innovators might be askingthemselves, Why didnt you start with thenumbers? Numbers are a critical part o theinnovation process, but we suggest approach-ing the quantitative part o the assessmentprocess in a very dierent way.

Experience shows that most companies orceteams to develop detailed nancial estimates(e.g., 10-year prot & loss statements) waytoo early, when their accuracy will necessarily

be low. When you have low certainty aboutalmost all o the inputs into a nancial model,the output is likely to be wrong.

Consider Intuit ounder Scott Cooks com-ment about some o the duds launched by hiscompany: For every one o our ailures, wehad spreadsheets that looked awesome.

Furthermore, companies that prioritize proj-ects using metrics like net present value (NPV)or return on investment (ROI) will not end upselecting ones aimed at the seemingly small,dicult-to-measure markets that are so oten

the ootholds or powerul growth strategies.

Discoverableact

15,000 m

m

Marketresearchtovalidate 10%

1,500 cm

Marketresearch/analogies $5,000 / cm

$7.5 m m

bc m z

RED=CALCULATION GREEN = ASSuMpTION

NecessaryProtMargin: 20% ImpliedRevenues: $7.5M AllowableCosts: $6M

rCstomers 1,500

Chrn: 30% Users/Year: 2,150 Penetrat iono TgtMkt: 14%

Rev. / cstomer / year $5,000 Rev/customer/month $416.67

C

COGS / cstomer / month: $213.33 TotalCosts: $3.75M

G&A: $0.5M A llowableMarketing: $1.75M

t-w m: rq p $1.5 M

Feasible?

50%margins

Figure 5: reverse-engineering FinanCial Figures




Instead, they will likely pursue projects inlarge, measurable markets the ones thatare usually hardest to enter. Or they will ocuson low-risk opportunities that have littlechance o driving meaningul growth.

Instead o building up to an NPV or ROI gure,determine what the key elements o theanswer must be. What kind o revenues mustan opportunity generate on an ongoing basisto be attractive? What kind o prots should itproduce? How soon must it produce positivecash fows?

Then calculate backward rom those guresto determine what has to come true to reachthose projections, as in Fig. 5. We call this

reverse-engineering the nancial gures,working backward to determine what wouldhave to be true to reach critical nancialmilestones.

One key sanity check is to make sure thereis a plausible story that leads you to the de-sired revenue gure. What must you assumeabout the total number o customers, thepenetration rate and the revenue per cus-

tomer to reach the gure? I that back o theenvelope calculation has assumptions thatseem ar-etched, it might be time to rethinkthe approach.

ptz at

The assessment work described above shouldhave generated a long list o assumptions(what must go right) and risks (what couldgo wrong). The nal step in the assessmentphase is to prioritize that list to identiy thegreatest risks and most crucial assumptions.These will be addressed in Step 4.

These tend to t one o three categories:

1) Deal killers. A deal killer occurs when be-ing wrong about an assumption or rightabout a risk means the strategy will ail. Forexample, technology (will it work) and part-nerships (will they work with us) can otenbe deal killers.

2) Areas ohigh uncertainty. A customerswillingness to pay, repeat purchase andacceptance o a new product are all oteneducated guesses in the early stages oproduct development.

3) Areas that heavily infuence other partso the strategy. The cost o producing aproduct, or example, impacts price, whichimpacts the target customer, the channel,and viable promotion strategies. Thesepath-dependentitems should be testedearly and tested oten.

When you complete Step 3, you should havea prioritized list o assumptions and risks thatyou will address in Step 4.

T a t

Have a small team do the assessment. Thediscussion and debate almost always leadsto an improved strategy.

Be conservative when assessing your levelo certainty about an assumption. Ask howmuch o your salary a day, a week, a year?

you would be willing to give up i you are

wrong.

Keep ocusing on assumptions. Keep a run-ning list o the critical assumptions you aremaking. Do not stop until you have at least 25.

Look or opportunities during the assess-ment process to reshape the strategy tomaximize its chances o success.

Do not use numbers as the sole arbiter in adecision-making process. They can provideuseul input in prioritizing opportunities, butintuition and judgment are also critically

important. Do not get bogged down on developing

nancial estimates too early. Remember,markets that do not yet exist cannot be mea-sured and analyzed.



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Documents

Newspaper Next- Bluprint for Transformation