While the downturn has been bad for some areas of business, one area that has flourished is innovation. Your customers’ needs are changing, and there’s a lot of price pressure in the competitive market, so now is a great time to get out and start developing new services and products.
“Innovation gives you an alternative to the destructive price competition,” says Jim Lane, director of GBQ Redbank Advisors, GBQ Partners LLC. “This is a perfect market to develop something new. Your customers’ needs are changing due to market forces. New products and services you introduce to meet their changing needs face less competition and thus less price pressure. It’s also a good time to introduce new, innovative and less costly products, because people are interested in saving money now.”
Smart Business spoke with Lane about how customer needs can drive innovation and the importance of creating a culture that encourages innovation.
What risks are associated with innovation?
The first is not innovating at all. When your organization doesn’t learn, even if you’re excellent at a single product or service, eventually you will become irrelevant. Your products and services have no purpose but to satisfy your customers, so if your customer base is changing, all products and services will become obsolete. There’s always the risk that somebody else will figure out how to run with a competing product that’s cheaper. You need to be innovating to protect your core customers from competitors.
The other risk is not managing your innovations and over investing in ideas that will fail. About 75 percent of new products fail. You need to spend a little bit of money early to test ideas and be quick to kill the ideas that don’t pass those tests. You will still have the 75 percent failure rate, but the ideas will fail during the early testing stage instead of after you’ve spent lots of money on training, tooling, marketing, etc.
How do you determine your customers’ needs and use them to drive innovation?
You need to listen to them and actually go out and talk to them. Nothing beats talking to the customer. Part of it is traditional listening listening to complaints during the normal course of business and trying to resolve them. You also need to go out and do customer research, but we’re not talking about thousands of interviews and surveys. Because this decision making is such a professional and formalized process, you won’t need vast samples to figure out what people like and don’t like and what they want.
You need to let them do the talking. Instead of coming up with five survey questions that make sense to you, just ask customers open-ended questions and let them talk. You can check across conversations with other customers and see if there are consistent themes.
How can a company encourage innovation among employees?
Encouraging a culture of innovation starts with determining how new ideas and suggestions are handled internally. Are new ideas celebrated and experiments designed to test whether they’ll work or not? Or are ideas shot down for various reasons? Innovative companies are always looking for employees to bring about new and interesting ideas, which are then discussed and debated. It’s a different dialogue than just saying ‘it’s expensive’ or ‘the boss may not like it.’
How can you prepare for the potential costs associated with innovation?
This all depends on what the innovation is, because not all innovations cost money. Some actually save money. It’s best to experiment incrementally for the ideas where a capital investment or expenditure is required. You start with thought experiments where you look at numerous questions. What do you think about this? Do you think customers will like this? You bat ideas around a conference room before any money is invested.
Those that survive this process are then given a small amount of money to take the idea to the next stage, develop a business plan around it, and do any further testing. The business plan can help you figure out any challenges you may run into if you need to scale the product. Instead of giving someone a giant check from the start, you give a small corporate grant to go and explore the idea. This is a better use of resources, especially if you’re not sure if an idea will pan out. It also feeds the person’s ego and sends a powerful message of respect to that person that you want him or her to explore the idea.
How can you properly manage innovation?
You can use a new product attractiveness scorecard, addressing the different aspects of a product. First there is the technical feasibility of a product, that deals with how it works and the experience your company has with this type of product or service.
The second area focuses on commercial concerns, such as the product scale and potential profits. Then there are marketplace aspects of the new product, which deals with competitors and customers.
Each category gets a score between one and 100. This enables you to compare products and services against one another to decide which ones you should continue funding and which ones will not work out. Sometimes you reach a certain investment milestone and find out you have to spend more money on the project, which might not be the best idea now, even though the project is good. So you moth ball it and wait until an enabling factor in the market changes that the economy will get better, or that something new will become available that will increase demand for the product.
You’re able to manage your portfolio of innovation investments, much like you would manage your retirement portfolio. As times and needs change you shift focus and fund projects appropriate to the times.
Jim Lane is the director of GBQ Redbank Advisors with GBQ Partners LLC. Reach him at (614) 947-5257 or firstname.lastname@example.org.