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  • What is Outside Innovation?
    It’s when customers lead the design of your business processes, products, services, and business models. It’s when customers roll up their sleeves to co-design their products and your business. It’s when customers attract other customers to build a vital customer-centric ecosystem around your products and services. The good news is that customer-led innovation is one of the most predictably successful innovation processes. The bad news is that many managers and executives don’t yet believe in it. Today, that’s their loss. Ultimately, it may be their downfall.

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    • LEAD USERS
      Eric von Hippel coined the term "lead users" to describe a group of both customers and non-customers who are passionate about getting certain things accomplished. They may not know or care about the products or services you offer. But they do care about their project or need. Lead users have already explored innovative ways to get things done. They're usually willing to share their approaches with others.
    • LEAD CUSTOMERS
      I use the term "lead customers" to describe the small percentage of your current customers who are truly innovative. These may not be your most vocal customers, your most profitable customers, or your largest customers. But they are the customers who care deeply about the way in which your products or services could help them achieve something they care about.
    • LEAD CUSTOMERS AND LEAD USERS
      We’ve spent the last 25 years identifying, interviewing, selecting, and grouping customers together to participate in our Customer Scenario® Mapping sessions. Over the years, we’ve learned how to identify the people who will contribute the most to a customer co-design session. These are the same kinds of people you should be recruiting when you set out to harness customer-led innovation.
    • HOW DO YOU WIN IN INNOVATION?
      You no longer win by having the smartest engineers and scientists; you win by having the smartest customers!
    • CUSTOMER CO-DESIGN
      In more than 25 years of business strategy consulting, we’ve found that customer co-design is a woefully under-used capability.
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    « CAN IBM'S SOFTWARE STRATEGY SAVE THE DAY? | Main | THE OUTSIDE INNOVATION IMPERATIVE »

    September 01, 2006

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    Comments

    Patty Seybold

    Jonathan--Another great and thoughful post! Kudos!

    Among the numerous great suggestions you make, my favorite is this one:

    • Innovations in product, service, or capabilities should ultimately focus on helping customers meet their goals. I believe businesses focus too much on how a product or service will help them succeed and not enough on how they can make their customers succeed in their markets or financially.

    HEAR HEAR!!!

    Patty

    Jonathan Narducci

    Patty,

    The following are some observations on the subjects – collaboration, innovation, and customers.

    My first observation is that I worry when tools are the answer to problems, whatever they might be. SFA and CRM were the answer to the sales problem but time has shown that sales execs needed to first understand their people’s skills and the processes they used to execute sales activities. The software would then enable an efficient and effective way to implement them.

    In other words, skills, processes, and tools go hand-in-hand and changes to each can initiate changes to the others.

    The same is true with collaboration tools/software, be it Google’s, IM, Groove, or even the telephone (e.g. must plan out the call’s content, have the skills to get the message across without face-to-face contact, and a process that includes follow up activity).

    My second observation is whoever runs collaboration projects to produce innovative results must be extremely careful selecting customers. For example, customers may have “hidden agendas” (I’m not talking about “stealing” intellectual property – a security issue) that may steer the innovation project to a customized need when the goal was to produce a broader market solution. Or, chosen customers may not have the “knowledge” required to participate, adding information that may be in error or out of context. In essence, I worry about producing “flawed innovations” due to “flawed information.”

    Both statements being said, it’s always a good idea for vendors to get closer to the customer. Also, I believe I’m telling you something you’ve already thought about. But your “Outside Innovation” concept is saying something more profound: that collaboration with customers is in itself an innovation. And I believe that to be true. Here’s why.

    Business will innovate its strategies – in this case, adding collaboration as a strategic element to its management and individual contributor execution abilities – in the quest to find solutions to their big problems as well as creating unique products and services. Today, those big problems are (related to this subject):

    • Commodization of products and related services. When strategies converge so that price is the only difference, businesses have to find new value to add to their propositions – in the form of benefits – and execution abilities. If done, then the business can charge a better price since differences can be priced exponentially, not linearly.

    The problem of proper pricing is related to another of business’ big problems; growth and profits.

    • Customer loyalty. Getting and keeping customers to buy more and become, what I call, “most valued customers” - repeat buyers, ambassadors for their vendors, conscious of vendor support costs, etc.

    • Time, theirs and their customers. Neither have enough of it so innovation activities better not add time to either’s day.

    But solutions to these problems tend to get defined by conventional beliefs such as:

    • Companies believe they know what the customer needs. (I worked for hi-tech firms a large part of my career and this belief is borne out by my experience.)

    • It costs too much in time and effort to learn about customers, inside out.

    • Customers will tell their suppliers what they want.

    These beliefs drive the principles that management develop to operate by today, driving their activities that define their business’ strategies and business models and the execution thereof.

    So, what management needs are new beliefs, like adopting the opposite of those above. From these reversed beliefs, I developed the following principles:

    • Customers successfully using your products and services doesn’t mean they’re successful. This should drive businesses to look beyond how they presently help clients and inquire about how customers operate, their competitors, market pressures, what they do successfully and unsuccessfully, and the causes of any existing problems (just to name a few areas).

    • Customers are the real source of market “ideas.” Know them better than “product and price.” Even if businesses don’t care about the unrelated problems their customers may have they still should look to them for ideas to find new products and related services and improve existing ones.

    Innovative customer value is usually hidden in their total problem set and is hard to discover without working differently, asking different kinds of questions, and involving as many company and customer people as possible.

    Also, if customers buy solutions with either missing or “fail to perform” common market features, I believe they will not tell the vendor, just look for those who will provide them. Time is valuable.

    Both of the last two comments imply that companies rely too much on information customers bring to them. I believe they have to proactively ask customers what they want, what they need and what problems they face that goes beyond the solutions their products and related services provide. I believe when asked, and there is sincerity in the reasons for asking, then customers will answer. It’s developing trust.

    • Innovations in product, service, or capabilities should ultimately focus on helping customers meet their goals. I believe businesses focus too much on how a product or service will help them succeed and not enough on how they can make their customers succeed in their markets or financially.

    • The focus on competition should be on how they find “value” not the “value” itself. Following the competition is an age old problem. This principle continues with “keep an eye on the competition” but differently. If the competition is “winning,” how, operationally, did they get into that position? The value they are now selling is moot. The business can copy it but that still leaves them behind.

    In other words, If the competition is eating your lunch it’s because they find what the customer wants better and faster than you do.

    • “Ideas” can come from anybody in the value chain. Involve them! Customer centricity means the business’ partners, suppliers, and affiliates have knowledge about the customers. Use all internal people, as well as others in the value chain, to generate ideas for improving and adding value (to the proposition and execution abilities).

    • Business success and growth comes with customer success and growth! Enough said.

    • When Businesses set expectations about value performance, customer experiences have to match! The perceptions businesses have about how their solutions should work are just that, perceptions. They have to be tested against expectations customers have about the solution’s performance and then tracked to make sure the expectations are experienced. Keep in mind, the best experience a customer can have is getting the results they expect and – the experience of a non-experience – not experiencing results they don’t expect.

    If these principles are accepted, it should drive management to develop a set of activities to put into practice that will help ensure their organizations work as expected. We are all familiar with the “normal” management interdependent activities, such as:

    • Developing strategies and tactics (at each level in the organization).

    • Managing budgets and other financial responsibilities.

    • Hiring and managing people and all that goes with ensuring they can work effectively.

    • Making decisions.

    • Developing appropriate measures, implementing them and using the results to feedback any changes to operations or people.

    • Communicating strategies and tactics to all appropriate enterprise entities – customers, suppliers, etc.

    • Participating in and overseeing initiative planning activities.

    These management components require skills, processes and tools and none work by themselves. I’m only listing them to make two points:

    1. Each of them needs to include any new or modified activities that reflect the principles mentioned above. For example, when developing strategies and tactics, include the results that customers can expect from successfully completing the associated initiatives. Or, when designing jobs, make sure the activity starts with customer needs.

    2. There are five more major components that have to be added to and integrated into the mix: managing collaboration, change, customer centricity, business processes, and empowerment. Although there are some overlapping skills among (all) the components, each requires some additional ones not to mention properly integrating each one’s “process” into management’s overall process map.

    For example, change management is usually thought of as something that can be done once a project is complete. One of my colleagues was hired as a change manager for an SAP implementation. Only problem was that the project was, basically, over except for getting the business’ personnel to use the system. I can’t begin to add up the amount of time it will take to just take care of the “rework” that will take place, which would be minimized if “change” was integrated into the project from the start. That’s managements’ job.

    The same is true for collaboration. Can collaboration work without managing change or empowering participants? I think not.

    Business innovation will be created by mixing and integrating all the mentioned management components to create a system that proactively involves the entire customer “picture” in determining future products and services as stated in the principles outlined earlier.

    Change isn’t easy. But by asking a few questions, one can (hope to) get management to think about how they need to change their present environment. For example:

    • I’ve done some reading about “The Long Tail.” I took something different than the technological aspect away from the concept (even tough I do see its importance), which I believe to be more profound: Let’s say the concept that lots of buyers want “unpopular” products and services is true. That means, to me, there’s a large market for a large number of unique product characteristics. Shouldn’t this be a signal to business that uniqueness is in? How do they find the unique characteristics that matter? They must change the way they find out.

    • Can businesses save time by knowing more about customers? Which customers are “good?” How is the business “cultivating” good customers? Which ones are risky and why? Are the most profitable customers the most loyal (or most valued)? Customers want things on their terms. What are they? How does paying too much attention to the competition “blind” the business to the advantages customer knowledge brings to the table?

    • Strategy is usually thought of as “How do we beat the competition?” Isn’t it more important to say “How do we create customer loyalty?” Loyalty makes the competition (somewhat) moot.

    • What costs more, knowing what a customer wants or losing the customer to a competitor? How much does it cost to figure out why they left? Isn’t it less costly to understand their issues in advance, keeping them from becoming “unsolvable?”

    More questions can be developed, I’m sure. But these questions along with the mass of data about “customer switching” numbers, cost of switching, poor service impact, and much more I’m sure you know better than I, should be, at least, more than a starting point for initiating change.

    I know there are lots of issues that I haven’t addressed, like customers are wary of sharing information for fear of compromising their competitive advantages. But I have been thinking for some time about how management has to change in order to embrace customers more fully and to make improving their value propositions and execution abilities (execution directly affects customer experiences) a priority and this is some of the results.

    Looking forward to reading some comments on what was written.

    Jonathan Narducci

    CornerStone Cubed

    Patty Seybold

    Ahh! Good catch and question, Joe. I made that assumption, because when I applied and asked for 20 users for my small consulting biz, I was offered 25.. Maybe Google adds x% to what you ask for!

    There is one BIG Gotcha, which I kind of suspected, but now know to be true. If you want to use Google Apps for Your Domain and you have another form of email connected to that domain (e.g., in our case, Lotus Notes), you have to pick one or the other. You can't have both.. that doesn't work for any business that already has another form of email coming to its domain name and wants to try a gradual migration....

    Joe Pastry

    Are you sure Google's capping apps for domain at 25?

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