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Patricia Seybold, in her new book Outside Innovation: How Your Customers Will Co-Design Your Company's Future, explains the difference between traditional "inside-out" innovation and "outside in" or customer-focused innovation:
Traditional innovation: "Traditional 'inside-out' approaches to innovation assume that our subject matter experts (within our company) invent and design innovative new products to meet needs customers may not even realized they had. Then our marketing and advertising departments make prospective customers aware of those needs, wrap a brand experience around our innovative products, package and price those offerings... and bring them to market."
Outside-in/customer-focused innovation: "The 'outside-in' approach is to flip the innovation process around and assume that customers have outcomes that they want to achieve, they have deep knowledge about their own circumstances and contexts, and they are not happy about the way they have to do things today. They will innovate - with or without your help - to create better ways to do things or to design products and services that meet their specific needs."
The difference between these two types of innovation is quite stark. In traditional innovation, we don't really know what our customers want - we may think we do, but at best we're shooting in the dark, and hoping we hit something. From a marketing and sales standpoint, our new products are "pushed" through the sales channel to the customer, who often has to be incentivized with discounts, rebates and other creative "carrots" to persuade them to buy. The result? These programs cut into gross margins and profits, and usually aren't very effective.
In contrast, if you really understand not only your customers' needs, but the critical outcomes they want to achieve, you can then work shoulder-to-shoulder with our key customers to "co-create" products that meet those needs. There's no need to "push" them to customers, because they will gladly pay a premium for products and services that make their lives easier and more profitable. The result? Higher margins and profits for the company.
I've just started to read Patricia's new book, but I can already tell I'm going to like it. Open innovation is one of the key trends in the world of business right now, and this book looks like a terrific guide to what it is and how to implement it in your company. Refreshingly, this doesn't seem to be one of those "do these ten things and your company will be unstoppable" books. Wisely, Patricia points out that outside innovation isn't a panacea. Your company still needs to perform R&D to find solutions to tough problems, and to come up with wholly new products and services to meet future customer needs. |
