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Using Innovation to Address Unmet Customer Needs

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By Thomas Bertels

Executives in nearly every industry are pushing their organizations to embrace innovation as a critical enabler for achieving their growth targets. While most of these efforts result in new products and services, many companies underestimate the value of rethinking their entire approach to understanding and meeting customer needs. This article is aimed at executives interested in applying innovation to the customer interface.

Customers Want to Buy Solutions

Marketing professor Theodore Levitt used to tell students that "people don't want to buy a quarter-inch drill – they want a quarter-inch hole." In reality, few companies ever step back, review their products and services and assess how well their offerings meet the customer's requirements. Instead of staying focused on finding solutions to actual customer problems, they aim at rounding out their product portfolio. This issue is especially prevalent in engineering organizations.

But We Have Survey Data…

Most surveys are designed to measure the customer's satisfaction with the existing service offering. But surveys are largely ineffective when it comes to identifying unmet needs. The challenge with unmet needs is that although they are prime opportunities to differentiate customers are almost always unaware of these needs. They may not be satisfied with how cumbersome the process of converting their CD collection into MP3 files is, but would not be able to articulate the value of an interface such as Apple's iTunes. They may rub their aching backs after a transatlantic flight but none would have thought about suggesting to their airline to offer a complimentary massage service (as Virgin Atlantic has done). This issue is not limited to consumers: GE Aircraft Engines' pioneered the use of contracts wherein airlines pay a flat fee for every hour their engines are in the air.

What these examples have in common is that they solve a customer problem that in many instances even the customers themselves probably would not have defined as one. Also, none of these solutions seemed to require substantial investments.

  • iTunes offered similar functionalities as competing products, but the integration of an online music store with a broad offering of downloadable songs from the major record labels was a crucial differentiator.
  • Virgin Atlantic's massage offering, while requiring an additional employee on board the plane for the duration of the flight, was more than offset by the positive impact on the brand image.
  • Offering a novel form of contract, which in essence transferred the risk of servicing onto GE, was acceptable because of the company's ability to improve their service performance using Six Sigma techniques.

 

Limiting Organizational Vision: The Power of Industry Dogmas

There are many reasons why many companies fail to take advantage of similar opportunities in their own industry: inward-looking cultures, complex bureaucracies that stifle creativity, functional silos that are out of synch with what the customer ultimately wants, etc. Many of those issues cannot be tackled overnight – it takes years to change a culture. However, in addition to the specific issues of an organization there is a common myopia that impacts the ability of an entire industry to identify these opportunities – the dominant logic or dogma. Examples for industry dogmas – fundamental beliefs that are no longer being challenged – are:

  • Banks organize themselves by lines of business and products instead of customer segments and needs.
  • Pharmaceutical companies use separate sales forces to promote the same product, counting on the power of repetition
  • Lawyers bill by the hour instead of deliverables

In every instance, there are good reasons why these dogmas are so rarely challenged – they have worked so well in the past that they have become conventional wisdom and challenging them would be viewed as lack of understanding.

However, the strength of these beliefs also suggests that there are opportunities – if one can find a way to deliver greater value to the customer than those adhering to the conventional wisdom. Gary Hamel, in his book Leading the Revolution, cites the example of Virgin Mortgage, which has achieved what almost every large retail bank is struggling with: providing the customer with a single view of all his accounts and products.

Identifying Opportunities by Adopting the Customer's Point of View

The first step in identifying opportunities is to understand the world from the customer's perspective:

  • What is the problem the customer is trying to solve?
  • Does our product solve the problem completely? What does the customer have to do to make the product work for him/her?
  • What steps does the customer have to go through to acquire the product and to solve the problem?
  • How could the process be made easier?

Using a team of industry experts and outsiders, this research – which in many cases literally starts with the experience of being a customer – can reveal substantial opportunities if one is able to avoid the instant pushback due to “but everybody does it this way.” That is exactly the point: if everybody does it this way but the customer is still not happy, maybe there is an opportunity to try something else. Apple did not invent MP3 players or the software for converting CDs into MP3 files – but Apple simplified the process of downloading music onto a portable player so much that buying a CD and converting it yourself is seen as too much effort. That is what makes the iTunes music store such a popular destination.

With regards to the tools that can be used, the following graphic outlines a number of tools an organization can use to obtain new insights:

Understanding the unmet needs requires a diverse team seeded with those that are comfortable in asking the tough questions and challenging the dogma. It also requires an outside-in view of the organization and a good understanding of how things could be improved. The underlying question of such an effort is trying to find out how somebody with no stake in the status quo might try to destroy your business. Such a team can only be sponsored by a senior executive who is comfortable with provocative questions about what customers really want and how one might be able to address their needs using a fundamentally different model.

About the Author:

Thomas Bertels is a partner of Valeocon Management Consulting, where he is working with clients on implementing large scale change efforts. He is based in New York. Contact Thomas Bertels at thomas.bertels (at) valeocon.com or visit http://www.valeocon.com.

 
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