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Published: 1/12/05
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How Companies Turn Customers' Big Ideas into Innovations

The most effective product development and commercialization processes encourage dynamic communication and idea sharing among engineers, marketers, and customers.

From Thomas Edison to Steve Jobs, the conventional view of product development has always portrayed the inventor as the hero. In fact, the inventor is only part of the process. Edison himself hinted as much when he described the inventor as being a “specialist in high-pressure stimulation of the public imagination.”

“Strongly engineering-driven companies don't always appreciate the emotional attachment people have to products,” says Wharton’s George Day.
The truth is, most successful product innovation requires imaginative insights and incisive action from heroes in the lab and in marketing. Indeed, whether it was wizards in Menlo Park or Xerox PARC who came up with the concepts, the most effective product development and commercialization processes have always been based on a dynamic and complex exchange of ideas and interests among engineers, marketing experts, and, most importantly, the end-consumer.

Yet few companies are good at managing this exchange, particularly when it comes to capturing and incorporating customer insights into product design, according to product innovation experts at Booz Allen Hamilton and the Wharton School of the University of Pennsylvania. While it’s difficult to measure the cost of such missed opportunities, these experts say that this failure to incorporate the customer’s perspective often seriously limits the potential financial and competitive value of corporate innovation.

The Doom Loop
Many executives are aware that their companies need to improve how they manage innovation: In a Booz Allen survey of European senior executives (mostly CEOs, chief technology officers, and vice presidents of engineering and product development) completed in October 2004, nearly half of all respondents said they were dissatisfied with their company’s innovation performance. Specifically, 48 percent were unhappy with their company’s ratio of innovation hits to misses, and 51 percent were dissatisfied with how their company identifies new service and product categories. And they weren’t unclear about how to solve the problem: Out of a list of 12 potential steps their companies could take to improve their innovation practices, executives ranked understanding their customers better as the most important step to increase the value of innovation created in the product development process.

So why haven’t they done it already? Institutional barriers are perhaps the biggest reason. Often, engineers are tucked away so far within a company that they don’t see firsthand what customers really need. Kevin Dehoff, a vice president at Booz Allen based in New York, whose work includes providing advice about product development, says engineers often become so focused on solving technical problems that they overlook the ways in which the customer actually defines value.

“Companies may lose their innovative edge because, after many years at the helm, senior executives lose interest in the products they’re selling.”
George Day, a professor of marketing at Wharton, also sees this overconcentration on technology as one of the most common sources of trouble. “I think the biggest problems occur when you get strongly engineering-driven companies that don’t really appreciate the emotional attachment people have to products or their emotional reactions to them, and think it’s all about very specific product attributes,” he says.

The risk such companies face is getting caught in a development dynamic where innovation is driven not by a focus on what the customer values and is willing to pay for, but on solving an engineering problem. This dynamic leads to an internally focused development cycle Dehoff has nicknamed “the doom loop.” In this iterative process, satisfying the customer becomes a secondary concern. Dehoff says genuinely valuable innovation is generated through a different dynamic: “understanding, engagement, and participation of direct customers coming together with some kind of a technology improvement.”

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