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How to Match Innovation With Customer Needs

Matching assets to segments

· THE ASSET MIX

Most organisations have some experience of open innovation and therein lies their problem. Open innovation is time consuming and wasteful. Companies need to learn how to target their ingenuity and know-how more effectively, ideally by matching assets to segments.

In this article though we are going to look just at one side of the equation. How to target innovation better and we'll come back to matching assets to customer needs.

The trend to "open" began with Connect + Develop at Procter and Gamble around 2001. P&G had a big goal. Create new $1 billion businesses and do it by creating a new mix between internal and external resources.

That very bold move paid off. P&G created 12 new uniforms in a few short years. Sadly, few companies have their global reach and will therefore fail to create that kind of scale as quickly.

But many shoot themselves in the foot with their innovation programs anyway. They do open ideation for their open innovation.

Here's why that's an error with a few tips for getting innovation right. In 2010 I worked inside Nokia's Symbian unit where we were open sourcing the mobile phone giant's operating system. Companies like Spigit and Hype had systematised open innovation into new ideation platforms. We used one and received 1500 ideas. That meant spending six months saying NO to 1496 people.

Since that day I have known ideation has to be highly targeted. Some organisations do that through challenges, maybe through a platform like Innocentive or NineSigma.

In my view you score more highly by using a customer segmentation technique and then asset discovery to target your assets better. In particular you need to be thinking how you target long tail customers because those under-served segments are a source of relatively easy revenues and a source of threat if a competitor, particularly a startup, gets there first.

EXAMPLE: The example I usually give for this is the currency exchange startups TransferWise or CurrencyFair. Because banks do poor segmentation (account holders, premium account holders, High Net Worth Individuals) they didn't spot the growing demand for foreign currency and how their own rip off prices were angering customers. They lost reputation and revenue.

But here is another example. Most mainstream car makers rely on after sales service and parts for they profits. The challenge they face is to get people to come into service centres once a car warranty has run out.

I started exploring the social media followers of two groups of car owners with a view to seeing how this situation could be improved. I follow the FLOW philosophy. Small steps lead to big gains. Examining some social media data on car company fans is a small step.

What it showed is that mainstream car companies, the mass market, have a whole variety of fan interests. Many people who drive mass market cars are actually big fans of bikes - all over the world startups are promoting new bike sharing companies and there's not a car company in sight. They are also big fans of motorcycles (only luxury car maker BMW makes motor cycles along with its cars - a very smart move).

You begint to see that car companies ignore their customers if their customers are not exactly in their crosshairs.

The same applies to after sales service. Fans of cars tend to be male. However, females make up a much higher proportion of fans of after sales service.

There is a clue here to some rapid small steps to improve after sales usage but let me summarise some small insights and the steps they imply:

1. Car companies tend not to segment the customer base of their most profitable revenue earner - after sales.

2. They tend not to target their most important segments because they don't know much about them.

3. There is an opening for a very simple program to improve the experience of after sales for female visits to service centres. It isn't difficult to put together. To develop new programs for this fanbase all you have to do is talk with them.

4. If car makers want more revenue, they could do a lot worse than challenging themelves to increase the return-rate of female customers by 10% in the space of a year. It would coin a lot of money.

Customer segmentation is available to every company and it has the bonus of providing a way to target innovation. In a future post we will look at a how to mix segmentation with asset discovery.

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