Intuit: Innovation and The Bottom Line

| About: Intuit Inc. (INTU)
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Web companies like Google make a big deal about innovation. But boxed software vendor Intuit (NASDAQ:INTU) shares many of the characteristics of more glamorous companies.

Intuit is organized into three business units: The Consumer Tax Group [CTG] makes TurboTax tax preparation software for individuals; the Small Business Division produces the QuickBooks business accounting packages; and Quicken Solutions Group offers financial management software for consumers.

These groups have released 11 new products, services and updates in 2006; there will be a new version of TurboTax by the end of the year.

Intuit manages innovation: There are executives charged with not only inspiring but also with actually producing innovation. At the same time, the company has instituted procedures, such as training sessions, to further its goal of mustering rank-and-file innovators. But most innovation is focused directly on the core products, which are expected to account for revenue of $2.310 billion to $2.330 billion in 2006, representing annual growth of 13 to 14 percent.

Founder Scott Cooke has worked to create a culture of innovation that eschews rockstar-engineer syndrome. Collaboration is encouraged and rewarded. Says Anthony Creed, leader of one of Intuit’s designated innovation teams, “We try to have everybody galvanize everybody else, so the bar is raised for everyone, not just for a few. If someone becomes expert in their field, we try to ensure they’re able to maintain that expertise within a great place to work.”

At the same time, innovation is carefully tied to Intuit’s core products, and, because people pay for those products, the company’s leaders must ensure that products are complete and work well. The goal for products, Creed says, is to “provide a nicely polished package to begin with. Our emphasis is, here’s a solution you can use without really trying to try too hard.”

Intuit doesn’t have a research lab per se, but it does have four teams charged with leading innovation. Three of the teams are associated with business units: iTeam is attached to the Consumer Tax Group; Creative Solutions is tied to the Small Business Division, maker of QuickBooks business accounting packages; and the New Ventures group is part of the Quicken Solutions Group, which produces financial management software for consumers. The fourth, the Innovation Lab (iLab), is a corporate-level team that acts as a resource for the various Intuit business units.

The innovation teams are considered a “federated group,” meaning they collaborate and work together, but there is no reporting structure between or across the labs themselves. Pairing an innovation team with a business unit ties research directly to the product development cycle.

The iLab is led by Janna Eggers, a former researcher at Los Alamos. Eggers says she left pure research for the business world because she prefers projects that are not only technically interesting but have a business case, as well.

“I wanted to translate high-end geek stuff into real-world business,” she says. “[In business,] … you have to show direct impact on the bottom line. Not only did I do something cool and scientific, but I paid peoples’ salaries and created value for shareholders, and I had to do it in a short timeframe.”

intuitNeither did Eggers like the “skunkworks” aspect of some companies’ R&D labs, which she describes as, “Lets hide a few engineers over here and prove we can do this and then throw it over the wall into the business. I learned that while skunk works is great for getting technology figured out, it doesn’t give you a stable garden for planting those seedlings.”

Despite her focus on tying innovation directly to the product line, Intuit’s Eggers says she doesn’t worry about sizing the market or projecting revenue for a new product or feature. Sounding much like Google, she says, “[We talk] about figuring out what jobs you’re solving for and how painful they are. People get too caught up in, ‘What’s the market size for this?’ rather than saying, ‘Forget market sizes and product categories, and let’s look around for pains.’”

For example, Eggers ran an Intuit project called QuickBase, designed as an online database for small businesses. The revenue projections for the product were excellent, but it was an utter failure: Small businesses didn’t have much structured data and they didn’t need processes automated.

But QuickBase was being used by some large enterprises, so the product was repositioned as a tool for work groups.

“This is not a defined market,” Eggers says. “It goes from the enterprise down to three-person companies. If you go out and try to search for the market size of work groups, you won’t find it. So any business plan I build will be based on gut instincts and experience.” The small business spreadsheet was awesome on how well we would do.”

Intuit still doesn’t know whether QuickBase will be a $2 billion or a $30 billion market, but, Eggers says, “The market will be there.”

Chris Trimble, adjunct associate professor of business administration at Dartmouth’s Tuck School of Business says that at companies like Intuit, where innovation doesn’t require a change in the business model, “an organization that leaves innovate initiatives tightly integrated with the existing business is appropriate.”

Around 80 percent of iLab projects are sponsored by a business unit; 20 percent are more speculative, initiated by iLab without necessarily having a clear idea of what business unit might benefit.

The teams may trade off projects among themselves; they also may take learning from one unit and translate it for other units' use.

One major goal of the innovation teams is to get innovation out of the lab and into the rank and file. The iLab holds training exercises for staff. It teaches product managers how to conduct "follow me homes," where they visit customers who are using Intuit products to discover how they use them, what they like and what they don't like. (These follow-me-homes help the company prioritize features and also create new products.) The lab also teaches brainstorming techniques and now to run an internal innovation project.

Business unit sponsors actively engage in iLab projects. Eggers requests two people from the sponsoring unit, typically an engineer and a product marketer or product manager. Ideally, they're hands-on enough that they can go on customer visits and review the work done by the iLab; at the same time, they should be senior enough to have the clout necessary to get the recommendations adopted.

Eggers points out that the goal of innovation is to come up with new ideas that might be hard for the company to accept. She says, "Surprises aren’t natural for an organization, so you need senior people who have the influence to say, 'I know this doesn’t seem like conventional wisdom, but if it was, it wouldn't be innovative.'"

The CTG iTeam offers three-hour rapid prototyping workshops that explain how to develop and test an idea before creating a full-blown project. The emphasis is on finding the fastest cheapest way to get results.

"The workshops help people understand the process of going from nothing to something -- and the fastest and cheapest way to get results," says Creed, a psychologist and the iTeam leader. "A lot of consultants would have you believe innovation is a big secret, but actually it isn't."

The innovation teams are charged with helping everyone be more creative. Says Creed, "If the receptionist sees we're doing something stupid, he's encouraged to point it out. One of the objectives of my small team is to promote and encourage that mindset for everybody in the organization."

Because Intuit products are used to manage personal and business financials -- and because customers pay for them -- the company won’t release software until it’s been thoroughly vetted. There are no beta releases here.

The CTG publishes a federal version and 50 state versions every year; approximately 50 percent of the federal TurboTax product is sold shrink-wrapped. This product group has an advantage when it comes to the iterative development process: Because customers must purchase a new version each year, there's a continual development cycle built in.

This cycle allows Intuit to iterate installed software in much the same way that companies offering web-based apps or SaaS do. Because customers who buy the software CD still must go online to get final updates and their state tax prep software, Intuit has a bit mire flexibility in that product cycle.

Tying packaged software to the web for updates could be a key strategy for innovation, according to Dartmouth's Trimble.

He says, "One of the questions in the software industry that interests me deeply is how companies like Intuit can make the transition from shrinkwrap to software-as-a-service. My instincts tell me that the approach of setting up a distinct but linked business model -- one that can operate with a different set of organizational policies without being strictly isolated -- is pretty close to what’s going to be needed to make that transition. Maybe it is easier for Intuit to go to online tax prep than it is for an Oracle to create something like a"

Intuit also takes advantage of outsourced innovation with its Intuit Developer Network and QuickBooks Enterprise Solution Provider Program. The developer program has more than 600 custom applications produced by independent software vendors that attach to QuickBooks Enterprise Edition through an API. More than 350,000 visitors come to Intuit's application marketplace.

The Intuit discipline extends to the developer network. Says Shannon Adkins, senior manager of developer engagement, "There's a huge diff between our developer program and others'. Our developers are not doing development or engineering for the sake of engineering or technology. They're solving a customer pain. Many started out as small business owners themselves." For example, an application to manage a convenience store/gas station that connects with QuickBooks was developed by a former store manager. The company tries to draw that outside creativity back into its four walls with monthly brown bag lunches at which QuickBooks staff hear from a developer who's doing something particularly different or innovative. In some cases, these meetings lead to a joint development product or marketing support from QuickBooks. "Also, more informally, if a product manager is interested in learning about an area that's a customer pain point, we invite developers in to share their expertise, so we know them and feel more comfortable about recommending them to customers," Adkins says. The QuickBooks Enterprise Solution Provider Program, opened in May 2006, invites experienced QuickBooks consultants and resellers to offer both horizontal and vertical extensions to the software.

Jim Gregg, channel director for QuickBooks Enterprise, says the Solution Provider Program will help QuickBooks in its move up-market from small businesses to bigger companies.

A team of five to nine people typically will explore a new application. For example, the recently released TurboTax Pro, an extension of the existing tax prep software, was entirely developed by five or six people; the team had grown to 15 by the time it went into production.

Intuit will "divide and conquer" a large project, splitting it into sections. While hundreds of people comprise the full TurboTax development staff, any given team within it will be from five to 15 strong.

Teams are cross-functional and follow the traditional software development model: a product manager, designers and engineers; they work together cross-functionally, as well. The product manager is responsible for defining the customer experience as a concept, and then the design team is responsible for figuring out how to make that a reality.

According to an Intuit spokesperson, the company defines the product manager role as the bridge between the customer and product development. The product manager interfaces with customers to identify their business needs and then defines the requirements to design and develop the product. An engineering background is sometimes preferred, but not always required.

The development process for existing products is well-defined; development of experimental applications is more informal and relies more on the work of individual contributors.

The development proves includes rigorous qualitative testing to make sure the product doesn’t incorporate any errors. Says iTeam leader Anthony Creed, "You can't put betas out there and expect people to pay for them."

The company has adopted the "lean programming" strategy, which seeks to speed development by reducing or eliminating wasted and unnecessary steps, such as writing detailed documentation. At the same time, lean programming uses an iterative development proves in which the product grows by small but complete portions delivered throughout the cycle. Each iteration results in working software. Core features are user-tested and feedback is gathered during the development process, and the product may change in response to that feedback. Says Creed, "It boils down to, you figure out what are the most important things that have to be done. Decide which are the biggest or riskiest and tackle those first; and avoid doing anything that doesn't add value to the customer."

The ultimate exit criteria are objective: Do the calculations work? Are they accurate? Is all content covered that needs to be covered? Both quantitative and qualitative testing continues after a product is released. The company does market surveys and also has a 6,000-member user panel called the Inner Circle. Intuit uses the Net Promoter strategy of "one simple question," that question being, "Would you recommend us to a friend or colleague?"