The Win-Win of Customer-Driven Innovation

Innovation ...You could make a strong argument that innovation has been important to business since before the assembly line, yet it has just recently become one of the hottest buzzwords in the business world.

by Don Peppers & Martha Rogers, Ph.D.

People are paying more attention to innovation these days for two basic reasons. First, today's hottest companies are innovative. There are, of course, the companies known for innovation, such as GE, Cisco, 3M and Intuit. Apple has gained headlines with its highly innovative iPod and iTunes product and service line. And innovation clearly drives Internet successes like Google and eBay. Second, it's now clear that innovation is the only way any company can meet the relentless demand for growth in today's information economy. But it's important to remember that you can no longer depend on growing your firm simply by fueling it with a steady stream of new customers. Customers are limited, and companies must look to innovate based on getting smart about the customers they already have. Only then can they begin to really reap the rewards of the customer asset in the form of higher Return on Customer.

Reality check
However, most companies still approach the task of new-product development from the product perspective rather than from the customer perspective, and this itself results in innovation that is inherently short-term in nature. When a firm focuses its innovation efforts around the problem of outselling its immediate competitors, its innovations are inevitably incremental, not breakthrough. Incremental, short-term product improvements are less costly and pose less risk than larger, more comprehensive ideas. They are easier to conceive, approve and produce, and they generate more immediate financial benefits. But they are also easier for competitors to duplicate, rarely creating any lasting competitive advantage.

Producing genuinely new products and services requires taking a customer perspective, but breakthrough innovations don't usually pay off immediately, even though they are likely to be more closely aligned to genuine customer needs. Interestingly, technology is a key driver of why companies must approach innovation from a customer perspective. Innovations in technology (e-mail, blogs, SMS, Web, etc.) have increased exponentially the number of "touches" that occur between a company and its customers. Along with this increase in touches comes a deluge of new information and data that can be used to gain insight into what valuable customers need. However, customers are well aware of the fact that companies are gathering this data, and they expect the companies to use it wisely and to protect it. The innovative company understands this dynamic. It uses data and insight to deliver ongoing benefits right back to the source: customers.

Getting out of your own way
Innovation doesn't have to be a miracle stumbled onto at an off-site meeting. Don't think of successful innovation as a one-time win at the lottery. Think of it instead as a steady, manageable process that regularly produces good value, and sometimes produces a gold mine. You can make innovation a routine by focusing on the various "process" elements involved – creating new ideas, testing and vetting them, bringing them successfully to market – and embedding them within your organization.

If innovation is a systematic process where customer data and insight play a significant role, then technology's job is to help facilitate and enable that process. Customer insight is tightly wound to data management and analytics capabilities, and it is up to companies to deploy technology and processes that are geared toward producing innovative – and often predictive – insights. These insights not only help a company to develop innovative products; they also lead to innovations in how, when and where companies interact with their customers across touch points.

Don't forget about culture
Even in a more mature firm, a customer-oriented culture is the kind of environment most suited to routine innovation. If your mission is to sell a defined set of products, and only those products, then your employees will have difficulty embracing change that involves other products or services, and the culture will cause them to shun innovative ideas. But if the culture encourages employees to look for ways to increase the value that can be delivered to customers, then employees will embrace innovative ideas designed to achieve that goal. Develop a corporate culture obsessed with taking the customer's perspective, rather than with making this quarter's numbers, and you'll have a business that is comfortable with innovation, and more likely to produce it.