A Turnaround Through "Blue Ocean" Innovation

By: Douglas R. Kelly

The Industrial Research Institute started the innovation journey with open minds and thorough research. That path led to a turnaround when it uncovered and filled member needs that weren’t being met by anyone else in the marketplace. (Titled "Heading for the Open Sea" in the print edition.)

If you ever have been on a large ocean-going vessel when the crew initiated a change of course, you know the feeling. Or, maybe you don't, if the ship was big enough: Even a hard turn to port or starboard can seem to take forever and may, in fact, be imperceptible to most onboard.

Making meaningful change can feel that way in the association world. Responding to changing markets, getting buy-in from various stakeholders, and following through with new initiatives and products all require significant resources. And everything has to be done while keeping the doors open and providing value and service to the existing membership base.

But when conditions deteriorate enough, a fundamental change in direction may be all that keeps an association from closing its doors. "Between 2000 and 2005, we saw an extremely deep decline in our membership," says Ed Bernstein, president of the Industrial Research Institute (IRI). "It had dropped by about one-third during that period, and when I was hired at the end of 2005, one of the first things I was told was, ‘We need to fix why we're losing members.' Well, the reason you lose members is because something's broken. So before you go out and recruit and put effort into growth, you have to figure out what's broken."

Fortunately, Bernstein found his board of directors ready to embrace real change. The board chair, Dick Paul, was at the time vice president for strategic development at Boeing. "I would characterize the board as being pretty open-minded, and we realized that doing what we'd done before was probably not going to work, and the board was open to fresh thinking and new ideas," he says.

Bernstein and his team began by going to their customers. Established in 1938, IRI offers solutions for research and development (R&D) and innovation to its members, which are private-sector companies and federally funded laboratories. IRI approached these members in two key ways. One was to ask them what about IRI provided value to them and what didn't. The other—a methodology used by IRI's own member companies—enabled the organization to break out of established markets and take an innovative approach to growth and meeting customer demand.

Ask the Member

Asking your customers what they want and acting on that information is basic stuff, and successful associations do this in a variety of ways. But IRI wasn't doing it well, according to Martha Malone, the organization's vice president of advanced content development, who joined the IRI team about four months after Bernstein. "This will shock you: When we came on board, there was not a single person on staff in charge of membership," she says. "We had an assistant who tracked membership and sent out invoices but nobody pursuing growth and expansion of membership. There was no focus on it."

Malone and Bernstein both came from association-management backgrounds. That in itself represented a shift in thinking for IRI, which had traditionally employed individuals from within the R&D field.

In approaching members, the IRI team realized that the very tools their members used could help the association in its efforts to reset its strategy for the future. As Bernstein points out, "These are the people that manage corporate innovation. This is what they do in their day jobs. Let's take the tools they use, that they know—the same tools that are used to develop new airplanes or new cars or Post-it notes—and apply that to ourselves, to our members. And one of the very first tools that we used was blue ocean."

In their 2005 book, Blue Ocean Strategy, authors W. Chan Kim and Renée Mauborgne contend that most organizations compete head to head with their competitors, resulting in a "bloody, red ocean" in which potential for success and profits is small and getting smaller.

Their methodology advocates creating "blue oceans" of uncontested market space, in which companies can grow and meet new demand for products and services. They call this approach "value innovation" and claim it can make the competition irrelevant.

At the time, Malone says there was little understanding of the value to members of IRI's products and services. "We had to honestly ask ourselves, do we really understand the value we bring to our member and are we delivering it? Are we communicating it? And are we focused enough on it? This was about understanding value, about what our competitors were doing, what was unique about what we offered, and where we might go to concentrate on those areas."

Value Curves

For the data gathering and analysis necessary to understand its competitive position in the market, IRI partnered with Harold Penton of Innovation Insight LLC and Richard Lee of Value Innovations, Inc. Bernstein says, "They came to us and said, ‘This is what we do for a living. We do it very well. This will work for an association as much as it will work for a company, so we'll do this for you.' [Penton and Lee] went out and the process involved calling people, doing these interviews, then collecting all the data, and then developing what they call 'value curves.'"

The value curves focused on various programs and services that IRI offered, as well as programs and services it might offer in the future. The initial interviews were conducted with the three levels of IRI members within member companies: "C" level individuals, those at the senior-vice-president level, and those at the director level. These interviews provided IRI with data to develop a more in-depth survey, which it then used to conduct interviews with a wider sample of the membership.

This second survey phase also asked members about both existing and potential programs and services, but it asked respondents to rate existing and potential programs on a scale of one to five. From this data, IRI developed the value curves that enabled the team to plot the relative value of their programs and services, and they extended the methodology outward into the marketplace. (The graph below illustrates how these values were plotted.)

"We did this for various groups that we had identified as competitors," says Bernstein. "We took these value curves and looked at things where we had a competitive advantage, where we had a disadvantage, and, finally, where there was nothing at all going on but where there was some interest in that being valuable. That last part is the blue ocean."

In cases where IRI was outpaced by its competition, it needed to decide whether to try to compete in those areas or to put those resources toward other goals. "While everybody uses this to focus on the next new great innovation," says Bernstein, "it's also a good tool to sunset things that really don't provide value."

Following the presentation of the report in August 2007, the IRI board instructed Bernstein to develop a plan that would address the gaps and grow IRI membership by 20 percent the first year. Bernstein says "that number was arbitrary and a huge stretch, but they felt it would help everyone to think in transformational terms."

New Directions

The implementation plan was multifaceted. The first step was aimed at dramatically improving both the member experience and membership growth, according to board chair Paul. "We put a great deal of effort into recruiting new members, but we weren't happy with our statistics in retaining them," he says. "So one of the key things we did was to authorize Ed to hire another staff person whose focus would be on customer service and retention of those members we had already recruited."

IRI also began offering its members two free registrations to meetings to encourage greater participation. But the annual meeting drove perhaps the most innovative change that IRI made, and it involved getting rid of a "sacred cow" that had grown into a widely accepted belief over the years.

"The sacred cow that had to go away was that our annual meeting was for [chief technology officers] only," says Malone. "That's the way it used to be. You were there with your peers and it was an honor to be there. Well, that had really changed. There were now different people coming to the meetings, and the CTOs didn't necessarily have the time. ... This study really pointed out that we needed to focus on that CTO constituency within IRI, but the annual meeting might not be the place for it. We gave up that sacred cow, the belief that those two were linked. It really needed to be something separate. De-linking those two was important to ensure we still provided value to that segment."

That de-linking resulted in the creation of the CTO Forum in 2008, a day-and-a-half event held annually in a centralized location, in which CTOs can fly in on a Thursday afternoon and spend that evening and a part of the next day in focused dialogue with their counterparts at other corporations and labs. "It's fairly condensed," says Malone. "It's small, usually 10 to 12 CTOs, although we had 22 at the last one. There's a topic identified ahead of time, but it's a peer-to-peer sharing of ideas … being able to talk with someone who understands your pain."

Paul says that restricting the event to CTOs has proven to be a smart move. "We thought that if they had a roundtable kind of environment, with their peers, they would really open up and focus and discuss whatever the topic was. I took part in the first one, and it was very successful in that regard. We got a lot of interaction among the CTOs, and more importantly in my mind was that some of them followed up with one another for some follow-on activities. That's exactly what we were looking for."

Going forward, IRI is expanding on the "listening to the customer" part of the blue-ocean project. Malone explains, "What really keeps us on top of what's going on is that we do a regular, annual 'touch' with our members. We call it 'voice of the member' instead of 'voice of the customer.' We do a random pull of 20 members, and we interview them and ask them, 'What keeps you awake at night? What do you need us to be talking about?' From that, we develop a survey that goes out with member renewals asking, 'What are the top-three things you think IRI should be doing next year?' We also look at three-to-five-year horizons, and we ask them how they want to receive information—in person, virtual, at meetings, et cetera."

The innovative part of this dialogue with members is simple but effective and represents a tool other associations can use with their members. "We actually have members do the interviews," says Malone. "You'd be amazed how many more [members] will respond to an interview with a peer versus with a staff person."

To use the blue-ocean approach successfully, Bernstein says it's important to explain the goal of the program to members. "The real important part of all of this is for the members to understand that, by participating in the process, they're increasing the value of their own membership," he says. "You have to tie into something—'This is what we've learned and this is what we're doing.'"

Results

The market responded positively to IRI's efforts to innovate: In 2008, following adoption of these initiatives, IRI began to experience growth in its membership. Soon after, the recession hit IRI hard, as it did most associations. But growth has returned, and IRI's membership has increased by 20 percent since 2009.

"This was just the beginning of a lot of things, but it had to be done first," says Malone. "It was a turning point for us. Our membership and its needs had changed, but IRI had not changed with it. You need to refresh regularly so you can continue to be relevant."

Value Curves Reveal Opportunities

The Industrial Research Institute surveyed its members and asked them to rate the value of existing and potential programs and services offered by both IRI and its competitors. The graph above is a sample of the "value curves" that IRI used to measure its performance—and potential opportunities—in its marketplace. "Desired Value" represents the members' rating of a program's value to them. For some programs, IRI's value curve met the member need and exceeded the competition (Programs A, B, and C). For other programs, IRI's value curve was matched by strong competition (Programs D and E) or fell below the competition (Programs F and G). In yet other cases, neither IRI nor its competitors were fulfilling an important need in the marketplace (Program H). (In total, IRI plotted value curves across more than a dozen programs and services; this is just a sampling.) Says IRI President Ed Bernstein: "We took these value curves and looked at things where we had a competitive advantage, where we had a disadvantage, and, finally, where there was nothing at all going on but where there was some interest in that being valuable. That last part is the blue ocean."

Douglas R. Kelly is editor of the Society of Naval Architects and Marine Engineers' Marine Technology magazine. Email: [email protected]