Innovating New Value for Customers

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Innovation, according to George S. Day and Christine Moorman, is a complex process because it explores the unknown and involves trial-and-error processes and risks. It seeks opportunities in widespread domains to identify the best option for competitive advantage. Hence, without a clear focus, one can easily fail in innovation.

One major challenge among organizations is the failure to focus on a single project that can differentiate them. Consequently, some innovative ideas may cause delays, frustrations, and disappointment.

The case of a leading firm in hydraulic elevator systems shows how innovation is elusive even among firms with resources and capabilities. Consequently, the company could not launch complete products in new markets and expand its product lines. There were issues with training, documentation, and support.

Customer value innovators understand innovation processes. Hence, they can overcome inherent challenges and maximize their returns on innovative investments. They emphasize growth from existing ventures rather than through acquisition. Some critical processes among innovative companies like Xerox, P&G, 3M, and Philips include the following:

Ambitious growth targets supported with adequate resources and senior management commitment
An organized approach to innovative ideas and opportunities
A focus on high yielding, risky ventures
They take calculated risks with minimal exposure
A focus on unmet customer needs

Stages in Managing Value Innovation as an Outside-in Process

Stage 1: Select a growth strategy

The stage focuses on resources needed, the search for opportunities, and mobilization of the organization. The growth objective focuses on the preferred rate of revenues and profit growth. It originates from management strategies, financial capabilities of the firm, and expected growths in the capital market. Overall, it must account for customers’ unmet needs and if the company can meet such needs.

The scope must define areas of opportunities to close the growth gap.

An organization must consider acquisition or partnership with other firms, but the choice must reflect a calculated move that would enhance revenue and profit growth.

Stage 2: Diagnose the opportunity portfolio

The second stage involves evaluating the growth potential for the company. A company can evaluate its growth portfolio by using different methods. First, it can forecast revenue growth for all its preferred opportunities for a given period (three to five years).

Second, a firm can assess the portfolio by positioning its growth strategies on the risk matrix by using several factors, such as customer behaviors in the future against current behaviors, brand relevance in the targeted market, and the effectiveness of the company’s technology on the new product.

The case of McDonald’s pizza experience shows the need to understand customers’ future behaviors, brand identity, and internal processes of an organization. A company must understand product risks in a new market.

Senior executives and senior managers must participate in the portfolio review and positioning and use subjective reviews if necessary. The review team must assess the budget allocation, technology capabilities, and revenues.

There is also a need to understand project objectives and settle for trade-offs if necessary. That is, a company may be able to achieve the target revenues but not profits. Hence, the company should focus on better opportunities.

Stage 3: Expand the search for opportunities

A company must evaluate all possible growth initiatives to identify the best alternatives. However, the process must not be reactive. Although it is imperative to gather information from different departments (customer care, R&D, employees, and customers), it is advisable to compare all possible ideas from different sources through proactive and systematic processes.

Penetrating the served market

This stage aims to protect the market share from competitors and acquire new customers. However, an attempt to capture competitors’ market share could be costly and challenging. It may involve increased spending on marketing, matching competing product features, or lowering prices.

“Innovative imitation” of rivals’ products and introduction of new products could help in capturing competitors’ market shares as SoBe Inc. learned from Snapple, Mistic Brands, and Arizona Beverage Co.

Expanding into Adjacencies

Customer needs should provide insights into growth opportunities. First, a company should anticipate both expected and hidden or unknown needs of customers. Hence, a firm should concentrate on supportive trends when seeking growth opportunities.

Second, a firm should compete against nonconsumption. That is, a focus should be on potential customers who lack alternative at all.

Third, a company should leverage and increase its value-creating systems. For instance, when a firm sets prices in the market, it should also define and expand into new services with the aim of creating value to customers.

Fourth, a firm should challenge its current business model to identify new opportunities through value chain modification to serve current and potential customers.

Exploration beyond adjacencies

A new product line may take a firm into a new market. However, a company may lack internal expertise for such new growth initiatives. In case there are uncertainties, two categories may offer possible growth initiatives, which are disruptive technology category and value creation through outside-in thinking rather than technology breakthroughs, i.e., look at the market in a new way.

Stage 4: Identify and contain risks

Risks are inevitable in a business, but a firm can delay them, share losses and profits with partners, and use early risk warnings for corrective interventions.

It can screen for opportunities to reduce cases of errors by looking at real market options, possibilities of success, and expected returns.

Firms may also invest in real options and proceed with opportunities if they present better outcomes early enough.

Sharing of losses and profits is the best method through which a firm can use against some losses. The strategic partnership could be a good approach.

Stage 5: Organize and realize

This stage will allow a firm to identify viable projects and eliminate unrealistic ones, and focus on its best products ahead of competitors. Customer value strategy and product customization for the market are critical components of innovation.

An inside-out perspective should reflect innovation inputs, innovation process measures, and innovation performance outcomes. Hence, the dashboard must provide holistic approaches to innovation. However, the dashboard must avoid emphasizing results at the expense of underlying challenges and encouraging innovation in small phases because they may be too many to handle.

Unbounded Innovation

Both internal and external factors may subject a firm too small innovations, but a clear process for managing internal growth could provide consistently high rates of growth. The process of big innovation requires a realistic evaluation of the growth gap, opportunities, and challenges. An inside-out strategy for new opportunities, screening opportunities for potential, and controlling risks can result in innovation.

The process of customer value innovation must involve senior executives and managers to set organic growth targets, explore innovative opportunities, and manage the growth process. Executives must understand market dynamics to identify potential opportunities and involve the entire organization in innovation.

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