Michael Schrage argues that designing new products or services and asking customers to invest their time and effort in your innovation simply doesn’t go far enough anymore. Serious innovators ask their customers to “become” something different; they invest in their customers’ capabilities, competencies and creativity. Making customers better, he says, makes better customers.
Michael has written six books and published dozens of articles in leading business journals. He is a columnist for Harvard Business Review, Fortune, CIO Magazine and MIT’s Technology Review.
You propose that businesses must transform their innovation mindsets and approach innovation as an investment in the customer. What do you mean by that?
Schrage: With the advent of technological advances and new platforms, it is now easier – and cheaper – for businesses to ask strategic questions of their customers and get answers. We can now collaboratively communicate with customers, and, jointly, we can envision their best end-states and outcomes. We can empower customers and prospects alike to identify, critique and contribute value to our innovation programs. That better marries marketing, strategy and innovation.
Transformation comes from innovatively investing in who you want your customers to become.
When I look at what historically works as a strategic innovation investment mindset, a single question dominates: “Who do our customers want to become?” I call this question the “innovation ask.”
This turns traditional notions of innovation value inside out. Innovation is not just an investment in product or customer experience; innovation is an investment in your customer’s future.
What are the business benefits of the innovation ask?
Schrage: The better we know and understand who customers want to become – their expectations, values and aspirations – the better we can develop the innovations to transform them. It’s about shifting the focus from extracting value from customers to investing in their capabilities and competencies to raise their skill levels and teach them new skills to help them become better and more valuable customers. That’s the key.
When I look at the innovations that have had the biggest impact, they didn’t just transform a product or a service or category, they transformed customers. That’s huge. Successful innovators reinvent their customers as well as their businesses. Their innovations make customers better and make better customers.
How can the innovation ask translate in the banking industry?
Schrage: Some customers want their banks to do more than simply process their payments. In retail banking, you have customers who want to become more confident and gain greater control of their finances. In commercial banking, you have customers who want to become better at managing cash flow and the economics of their businesses.
We need to have more of a customer-in rather than a product- and service-out design and user experience sensibility.
How can you transform customers by raising their skill levels and teaching them new skills so they become better at running their businesses or their household finances? How does improving the financial management perceptions and processes make them better clients for you? Do you want to further transform the best of these customers into evangelists and references for the bank? These transformations require you to invest in customers differently. Your customers, not just your own people, are the assets here.
Rather than launch expensive, top-down initiatives, these types of opportunities cry out for intelligent experimentation to see which kinds of customers respond best to various forms of service or follow-up. Create a community, a counterpart of crowdsourcing, where customers share best practices and discuss how they would improve products or services. If you get suggestions that fit your investment model, then you can build on these recommendations and expand or better focus your offerings. I’d much rather have these types of experiments playing out on digital media platforms. Why? Because experiments with bits are faster and cheaper and more scalable than experiments with atoms and molecules. Digital is more flexible than physical. All banks are becoming more digital.
What one customer wants to become may be different from what another customer wants. How does segmentation come into play?
Schrage: Yes, customers will want different things and have different goals. Who do your best customers want to become? Who do your typical customers want to become? What about potential customers?
We live in a digital era. We can know more.
If you believe, as I do, in the Pareto Principle – that 20 percent of your customers generate 80 percent of your revenues or profits or 80 percent of your insights – it means that you probably want to serve that 20 percent a little differently than your typical customer. You have to manage the obvious to succeed. But that analytic capability is now a commodity and simply gets you into the game. I’m looking for analytics that give us the opportunity to transform our customers. We live in a digital era where the cost of gathering, storing and processing all manner of data has been transformed. What should your “customer transformation road map” look like?
I think there’s an opportunity to engage in innovation introspection. We need to use this data and computationally rich environments to get a better Pareto sense of how value is really created with and for our customers. You better have your innovation, strategic planning and brand people in the room having that conversation.
What type of new data and analytics provide these types of insights?
Schrage: Social media, obviously. Organizations must take the opportunity to create the analytics to identity and analyze the influencer community, those whom other organizations and individuals follow. What 20 percent of customers are the best references and what 20 percent generate the most useable insights for possible innovation opportunities? You should understand the common patterns in these groups.
What steps should a business take to shift to this new way of thinking about innovation?
Schrage: There are several, but better coordination and different organizing principles are key priorities. What do large, incumbent firms typically do to manage risk and complexity? They departmentalize and divisionalize. They end up with strategic planning departments, innovation departments and marketing and brand functions. The challenge that emerges is coordinating those silos. If you’re taking the notion of being customer-centric seriously, it is important to have organizing principles that allow you to better align your strategic plans, how you want to innovate and what your brand is, to best support your customer. In other words, you organize yourself to give a great answer to the question, “Who do we want our customers to become?”
This is a much better conversation to have in the year 2015 than in the year 2005, because digital media, digital technologies and digital platforms reduce the costs and complexity of facilitating this coordination.
The core thing is having the courage to have a vision for the customer as much as you have a vision for your organization and optimizing products. Henry Ford did not build a car. He created a driver. What I’m trying to offer here is a framework that improves economies and efficiencies of scale and scope. The platform for doing this is digital media, digital analytics and digital technologies.