Drawing on over 25 years of work in strategy, process improvement, value chain collaboration and benchmarking, we have uncovered critical keys to innovation. We have always found that a major part of the solution lies with the customer. Incorporating our experience (which has always involved the customer) and relevant research in the areas of new product and service innovation, we have developed a methodology that captures the wants and needs of customers and non-customers, and uses this to discover breakthrough new products and services.

Innovation is the primary engine for real growth—yet the success rate for new product and service innovation is typically less than 10%. Generating creative ideas is relatively easy, but determining which creative ideas can be successfully implemented for customers is extremely difficult to predict and to implement. The customer is the target for innovation, but understanding what customers want and will want is often critically inadequate.

Drawing on over 25 years of work in strategy, process improvement, value chain collaboration and benchmarking, we have uncovered critical keys to innovation. We have always found that a major part of the solution lies with the customer. Incorporating our experience (which has always involved the customer) and relevant research in the areas of new product and service innovation, we have developed a methodology that captures the wants and needs of customers and non-customers, and uses this to discover breakthrough new products and services.

The Problem

The best companies are great innovators, and their growth reflects that. On the other hand, many companies are currently experiencing paltry R&D pipelines. In the Pharmaceutical industry, for example, many companies are resorting to small variations in existing products to extend product lifecycles, while generic manufacturers are taking an ever-larger share (now 50%) of the market. If current trends continue, within this decade some brand drug manufacturers won’t be able to fund the ever-more costly and lengthy R&D process. The results could be catastrophic for consumers and the companies.

Creativity is the generation of new ideas, and innovation is the successful implementation of an idea. Innovation is complete if the customer buys it, or if it leads to something that the customer buys. This only happens when innovation results in new features, functions or benefits the customer wants and will pay for at an adequate return. An idea may be creative, but if customers don’t buy it, the result is not innovative.

Innovation can be a new product or service, as well as a new business concept. New business concepts may lead to many new products. Examples of new business concepts that started new businesses and keep expanding:

• Starbucks (gourmet coffee and related drinks and paraphernalia)
• Amazon.com (Internet sales of books and a variety of other products)
• Wal-Mart (broad general merchandise selection at low prices and grocery products).

But whatever the innovation, it only works if customers want it.

Most companies are quick to point out that they know what customers want, how customers evaluate the company’s offerings in comparison to the competition, and how satisfied customers are with the company. This certainly should be the case, and in the small segment that is truly customer-focused it is (e.g., LL Bean, Wegman’s, Lexus, Charles Schwab). However, over the past 20 years of listening to company insiders at all levels and then talking with their customers, we have been continually amazed at the gap between what people in the company think is important to the customer and what the customer experiences and wants. We invariably find significant differences, surprises from the customers that leadership did not know, and customer knowledge in one part of a company that is not shared with other parts that rely on that information.

Gaining deep understanding of what customers want and will want is key to gaining creative input that leads to innovation, and to evaluating various alternatives. But gaining this understanding is difficult for a variety of reasons:

• Most customers are not good at saying what they think about a company or its products to the company. (But they will say it to outsiders in the right environment.)
• Most customers don’t visualize in advance what is not yet available. (No one asked for a digital camera before they were developed.)
• The parts of the company that interface with customers often don’t get accurate information from customers, and don’t relay information well to the upstream parts of the company.