Avoid the risks of customer-driven innovation

By Tony Ulwick, Strategyn and Chris Lawer, Strategyn UK

Many firms are developing capabilities to access and harness their customers’ knowledge and competence. They are inviting their customers to participate in their innovation and market-learning process – and they are doing so on a more persistent and formalised basis. Companies such as P&G, Cisco Systems, Lego and Microsoft are achieving product success repeatedly by establishing new processes to engage their customers and capture appropriate and valuable inputs from them.

There are several reasons behind the developing trend for firms to involve customers in their innovation efforts. First, an active, networked and informed customer is able to both challenge and contribute to the traditional company-centric model of value-creation.

Second, higher levels of uncertainty stemming from fast-changing markets and constantly shifting industry boundaries are increasing the need for firms to drill into their customers’ knowledge reserves. Firms that act as inward-looking, closed systems will often fail to sense changing markets and detect shifting sources of value.

Of course, as products become more 'information-rich', there is more opportunity for customers to connect and communicate with firms. For example, most consumer packaged goods are now supported with online information content to help customers understand and use products better.

When managed correctly, open, customer-driven innovating firms enjoy competitive advantage arising from a number of sources. These include; better 'unlearning' of established assumptions, higher innovation potential and faster response to valid and valued customer requirements. Also, customers perceive higher switching costs arising from their own knowledge and emotive investments in the firm which can help with building loyalty.

The risks of customer involvement in innovation

Nevertheless, as firms begin to develop new capabilities for capturing, sharing and applying customer inputs, there are important risks they should be aware of. These include:

1. Companies can easily fall in to the trap of capturing literal expressed customer needs, providing a surfeit of unstructured, unfocused need statements that do little to add predictability to the innovation effort.

2. Companies can get bogged down when using House of Quality methods to translate customer statements into potential solutions. Because of their resource-intensiveness, they will often place unnecessary limits on the total number of customer inputs – thereby reducing chances of success.

3. Innovation and marketing managers may select or ignore certain customer inputs based on their own beliefs and assumptions as to what is or is not important.

5. Lead-user programmes can promote the significance of the technical, specialist needs of the most active, knowledgeable customers at the expense of the requirements of the wider market.

6. Companies can quickly become inundated and overwhelmed with inputs and ideas from customers. They come from a variety of sources – web sites, contact centres, lead user toolkits, customer satisfaction surveys, managers that 'walk the talk', focus groups and so on. What’s more, they arrive in a variety of different formats and technologies, few of which are consistent and actionable. Firms talk about customer needs in terms of solutions, specifications, benefits, expectations and so on; but in most case such statements of value do not allow them to identify precise opportunities for innovation.

Variability in innovation

The one common denominator in all the above-mentioned risks of customer involvement concerns the means by which companies capture, filter, share and apply inputs from the customer. Companies, lacking any knowledge of what appropriate customer inputs are needed may often ask the wrong questions, or worse, they may not know what to do with the information once they receive it.

Customers, though happy to share their 'requirements', do not know what information the company really needs. No wonder then that such mutual confusion and ambiguity often leads to unexpected failure when companies pursue rigorously the customer-driven path to innovation.

The fallacy of 'customers don’t know what they want'

With so many risks, some firms may be tempted to ignore the customer and shut out their inputs. Typically, the case for ignoring direct inputs from the customer rests on one single pillar: customers cannot articulate their latent, unmet needs. Yet this is in fact a major misconception that can severely limit a firm’s innovation potential.

It’s not that customers don’t know what they need; it’s that they don’t know what solution will satisfy their needs. This is natural. Customers are not expected to be able to articulate a technically sound and forward-thinking solution – that is the company’s job.

We believe that many managers conveniently use unarticulated latent needs as a rationale to avoid capturing customer inputs in the innovation process. Often, this may be because customer inputs are at odds with their own personal motivations or beliefs. If they would rather pursue their own ideas, this myth provides just the ammunition that is needed to cast a lingering shadow of doubt on the research. The argument is perfect: “If customers cannot articulate their latent needs, then any research conducted by the company is incomplete. Therefore, we should use our own insight and intuition, not customer inputs, to decide what to build.”

After nearly 20 years of trying, companies remain frustrated in their efforts to figure out how best to use customer inputs to deliver on the promise of customer-driven innovation. Debate continues as to which is the most effective method for capturing the voice of the customer. But argument over which method to use is unnecessary – another mistake frequently made is that the method matters most, but it does not; it’s what customer inputs you are looking for that is fundamental to success.

Fortunately, there is a better way. Instead of relying on the literal voice of the customer or a subjective translation of that voice, companies can seek to capture two distinct types of input that are fundamental to the innovation process and its successful execution. To create a breakthrough product or service or to successfully enter a new market, a company must know the following what jobs the customer is trying to get done and the desired outcomes the customer is trying to achieve when performing these jobs.

1. What jobs the customer is trying to get done
Customers buy products and services when they need help to get a job done. Understanding what job a customer wants to get done with a product or service is critical to a product’s success. Less obvious however are the growth possibilities that may result from knowing what supporting, ancillary or related jobs customers want done with the primary job of interest. For instance, SoBe Beverages, Red Bull Energy Drink and Glaceau Vitamin Water address the related functional jobs customers want their drinks to perform when quenching their thirst. Such products now account for a sizeable percentage of beverage sales in the US and Europe.

Customers also often want a product or service to perform more than one job at a time. Yet companies tend to focus on their offerings on only one job because addressing the ancillary jobs often necessitates developing new or different competencies or crossing organisational boundaries. While developing these capabilities may indeed require new skills and resources, addressing all the jobs customers are trying to get a product or service to do under a given set of circumstances can certainly reap rewards.

2. The outcomes the customer is trying to achieve when performing these jobs in a variety of contexts
In addition to wanting to get more jobs done, customers want to get a specific job done more effectively. By providing them with the means to do so, a company creates value. The first step in this process is capturing from customers the metrics, or measures of value, that define how they want to get the job done and what it means to get the job done perfectly. We call these metrics the customer’s desired outcomes.

By dissecting a job – that is a task for which a product or service is used – into its discrete steps and then asking customers what performance and quality metrics they use to measure success in executing each step, we can obtain a set of customer desired outcomes. When the resulting outcome statements are used as inputs into the innovation process, variability is held in check, and the risks of customer-driven innovation are overcome. Moreover, companies are finally able to reliably boost their efforts at customer-driven innovation.

By Tony Ulwick, CEO and founder, Strategyn and Chris Lawer, MD, Strategyn UK

For more information on outcome-driven innovation, visit www.strategyn.com

Read more features, practical case studies and white papers about voice of the customer.

Visit our jobs page for the latest marketing vacancies.