Innovation? It’s the Customer, Stupid!

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Business Relationship Manager - Product Lifecycle Management, Chevron Corporation

“It’s the economy, stupid,” was a phrase in American politics widely used during Bill Clinton’s successful 1992 presidential campaign against George H.W. Bush. It was coined by Democratic Party strategist James Carville in order to keep the campaign on message. Today, just substitute “the customer” for economy, to keep your business innovation strategy on message. Since 2000, innovation has become all the rage in business, and for good reason now that we are competing in a high-change global economy. Executives fear their companies becoming commoditized as a result of total global competition, and they desperately seek new ways of distinguishing their products and services so they can continue to earn healthy margins. Innovation is such a pressing topic these days that over 2,000 books on various aspects of the subject have been published since 2000.

While there are many dimensions to explore in order to fully understand how to succeed at the innovation game, one notion stands above all else. Innovation used to be driven from the inside-out (think R&D labs) but with the informating power of the Internet it’s being driven from the outside-in (think customers). Customer-driven innovation is the only innovation that counts in 21st century business, for the customer is no longer king, the fully-informed customer is now a dictator. Innovation? It’s the customer, stupid!

When you consider that today’s world of innovation is a team sport, and that the most important players are your customers, innovation requires a multidisciplinary approach and new, robust forms of collaboration.  The most important collaboration is with your chief asset, your customer. After all, the value of inventions and other forms of innovation such as product, process and business model innovations, are all in the eyes of the beholder, in the eyes of your customers. And that’s where business intelligence and holding an ongoing conversation with your customers come in.

Chicago Strategy Associates summarizes the importance of the customer in driving innovation, “Great entrepreneurs launch their businesses based on customer insights. In many cases they are frustrated customers. For example, a building contractor takes a family driving trip in the early 1950s and is outraged by the conditions and prices of accommodations in tourist cottages. Thus began Holiday Inn. Two lovers at Stanford grow frustrated with their email systems’ inability to communicate. They seize upon a product developed by a kindred spirit in the Department of Medicine, leading eventually to commercialization of something called a router and a company named Cisco.”  “Inevitably, even great ventures begin to exhibit erosion in their understanding of the customer. Why does that happen? Usually ‘distractions’ are to blame—building the organization, setting up controls, answering to analysts and regulators. Direct exposure to the market is replaced by the routine and institutionalization of marketing research departments and an accumulation of sales field memos, customer satisfaction surveys, and industry reports. Customers are entertained at conventions. All sensible steps, but no substitute for ‘becoming the customer.’ The great irony is that most people love to talk about their business. And yet, we stop listening-especially in a creative way. If we take the time to listen to a cross-section of people from a customer organization talk about their business, their goals, and their frustrations (instead of talking about ourselves, our products/services), there are insights to be gained. If we come to an understanding of their business model, how their world is changing, what is sub-optimal, imperfect, or what needs to be preserved we just might be able to improve our value proposition to them. And, do not expect the customer to give us the ‘answer.’ It is our job to understand them and our capabilities and to develop creatively a superior and profitable value proposition. Perhaps it is time to get back to ‘becoming the customer.'”

What does all this mean in the race for 21st century business success? It means that now is the time to harness new means for giving your customers a voice. Back in the ’90s, the voice of the customer (VOC) was all the rage. It was a process discipline, a way for companies to gather customer insight to drive product and service requirements. Techniques included focus groups, individual interviews, contextual inquiry, ethnographic techniques, etc. Each technique involves a series of structured, in-depth interviews that focus on the customers’ experiences with current products or alternatives within the category under consideration. Needs statements are then extracted, organized into a more usable hierarchy, and then prioritized by the customers. Sounds logical enough.

But VOC got lost amidst the dot-com boom, abundant cheap-labor resources from Asia and beyond, and emerging markets as globalization reached a fever pitch. Somewhere along the way, pulling out all the stops to delight the existing customer base got lost. But today, VOC is again moving to the center of the radar. That’s why BPM companies are now integrating Web 2.0 communications technologies into their offerings. That’s why leading companies are creating blogs and Wikis, and placing their avatars in Second Life and Myspace. But you won’t want to just open up these new Web 2.0 channels of communication and turn up the volume, you’ll want to have business intelligence embedded throughout your process management systems, and forge meaningful collaborations using human interaction management systems (HIMS) to tame the chaos and noise inherent in Web 2.0 technologies.

In my BPM Strategies article, “Innovation as a Business Process,”   I described six dimensions of innovation (Operational innovation, Organizational innovation, Supply-side innovation, Core-competency innovation, Sell-side innovation, and Product and Service innovation). Taken together, these six “innovation threads” must be woven into a tapestry, as any one innovation component likely won’t produce true breakthroughs (think iPod product innovation + iTunes supply-side innovation).

Why bother with an ongoing conversation with customers? It’s because their needs change, and change again, and then change yet again. To keep up with, and to anticipate customers’ ever changing needs, your ongoing conversations with your customers will reveal the tweaks and occasional radical changes you’ll need to make in your innovation tapestry. So, weave your way into the future, using variations and combinations of the six threads of innovation shaped by the ongoing conversation with your customers. There is no short cut; there is no end point; but the starting point is opening meaningful threads of conversations with your customers.

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