How Customer-Driven Innovation Helps Beat the Recession

How Customer-Driven Innovation Helps Beat the Recession
By Graham Hill, Customers & More
Nov. 18, 2008

As we enter further into the recession, companies are making ever deeper cuts in their spending. Nothing is sacred. Head count is being decimated, marketing budgets are being slashed and innovation is being curtailed. This might seem to be a logical consequence of the recession, but is it?

A McKinsey Quarterly article on Learning to Love Recessions looked at how successful 1,000 US companies were over an 18 year period, including the 1990/1 recession. It highlights the fact that companies that successfully weathered the recession significantly increased their spending on sales, on innovation and on marketing in comparison to their less succesful peers. In innovation’s case, they increased their spending to 22% more than their less successful peers. The payoff from these and related investments was a 25% greater market-to-book ratio for the successful companies in the post-recession period.

It seems reasonable to conclude that increased innovation drives success during
a recession. Increased innovation may be a must during a recession, but not just
any old innovation. A paper by Lehmann et al looked at the origin of almost 200
new products and how successful they were. The least successful origins for new
products were ‘trend spotting’ and ‘mental innovations’ (often by marketing) with three failures for every success. This isn’t far from the 80% failure rate often quoted for new products. Better was ‘need spotting’ with twice as many successes as failures and ‘market research’ with four times as many. These are similar to the traditional needs-based approaches to innovation. Best of all were ‘solutions spotting’ with seven times as many success as failures and ‘taking advantage of events’ with a whopping thirteen times as many. These are similar to the customer-driven approache to innovation used by successful entrpreneurial organisations. Customer-driven innovation look much deeper at what customers are trying to do and how to help them achieve their goals. And helps organisations have a much higher success rate with their innovations too.

It also seems reasonable to conclude that customer-driven innovation greatly increases the success rate of innovation. No mean feat in an activity that has always been fraught with uncertainty.

The cutting-edge of customer-driven innovation is understanding the actual jobs that customers are trying to do and the outcomes that they are looking to achieve. This helps go beyond the age-old problem of customers not really knowing what they need, until they have seen it. Just think of the DIY challenge of hanging a picture on a wall. The needs-based approach typically focuses on making beter types of drill to make a hole in the wall. In contrast, the jobs & outcomes-driven approach focusses on hanging the picture and the hole in the wall instead. This might include improving the drill, but it might just as well include new tools like a laser instead. And there is nothing to stop it identifying radical innovations like pre-holed walls or hole-free hangable pictures as a completely different alternative. This is often how the disruptive innovations described by Clayton Christensen originate. Approaches based upon customer jobs & outcomes such as Strategyn’s Outcome-driven Innovation, that provide a robust methodology to understand what customers really want, have proved that the success rate in innovation can be significantly increased over traditional approaches.

The key learning from all this is that outcome-driven innovation provides a blueprint for the successful innovation companies need to beat the recession.

Increasing innovation is a must if companies are to beat the recession. But customer-driven innovation, not just any old innovation. Outcome-driven inovation that gets to the heart of the jobs customers are trying to do and the outcomes they are trying to achieve is the best way of letting customers drive innovation. And of disrupting those companies who cut back on innovation during the recession and hope for the best.

What do you think? Are you focussing on customer jobs and outcomes to drive innovation and beat the recession? Or have you cancelled innovation for the forseeable future?

Post a comment or email me at graham(dot)hill(at)web(dot)de to get the conversation going.

Graham Hill
Independent CRM Consultant
Interim CRM Manager

Further Reading:

McKinsey Quarterly, Learning to Love Recessions

McKinsey Quarterly, Preparing for the Next Downturn

Lehmann et al, The Idea Itself and the Circumstances of its Emergence as Predictors of New Product Success

Clayton Christensen et al, Finding the Right Job For Your Product

Strategyn Founder, Tony Ulwick on YouTube, What is outcome-driven innovation?

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