Legend has it that Henry Ford once said that if he had listened to what customers want, they would have asked for faster horses. It neatly encapsulates the innovation conundrum faced by myriad companies: do you "go big” by seeking to radically transform a market, or do you seek to refine, improve and upgrade what you already sell?
The answer often lies in finding a healthy blend between the two, which is easier said than done. Alison Bennett, Relationship Manager at Criticaleye, notes how there is a real push among senior leadership teams to deliver products or services that are right for today, while also planning for tomorrow.
“Innovation requires experimentation and a healthy appetite for risk-taking, which doesn’t always sit well within the corporate mindset,” she comments. “Over the past couple of years, there has been a definite shift as senior executives recognise they must rediscover the art of innovation to ensure the long-term success of the business.
“In many cases, this entails an entirely fresh approach, such as forming partnerships, joint ventures, and making acquisitions in new markets.”
According to Scot Gardner, CEO for UK&I at Cisco, communicating with customers is an essential element within the innovation journey. “It is very easy to get locked into your own long-held beliefs, but listening to customers can help a business see when a change of direction is required,” he says.
The company’s M&A strategy is frequently driven by suggestions made by customers, says Scot. “For example, we bought a business on customer advice that took Cisco from being a router company to being a network switching company, and today switching is our biggest single product line globally.
“We embed ourselves with our customers. We literally put coders alongside them so they build products together.”
This approach is relatively established among technology companies, but it is spreading to other sectors. Barry Jennings, Legal Director UK at Bird & Bird, comments: “The drive to innovate is everywhere, it is the 'hot' buzzword right now – it is what the Internet of Things was a year ago and it’s what the Cloud was a couple of years before that.
At the start of 2014, financial company Legal & General’s (L&G) biggest business was the selling of annuities. In the Budget of that year, former Chancellor of the Exchequer, George Osborne, announced a plan to enable retirees to access their pensions. For L&G, this proved to be the catalyst for a dramatic rethink of its offering.
Kerrigan Procter, CEO at Legal & General Capital, says: “We estimated that the individual annuities market would fall by 75 percent and individual annuities was one of L&G’s largest businesses at that time."
In response to this, Kerrigan explains that technology firms and consultants recommended implementing new “process journeys” and a better website that encouraged customer engagement. “Instead, we had a radical idea, we decided to actually talk to our customers,” he states.
Listening to their clientele helped L&G realise that they needed to move their focus from annuities to lifetime mortgages. The market was, back in 2014, relatively small and marked by high prices.
“The overwhelming theme we found is that people considered their house to be their pension. This led to L&G entering the lifetime mortgage market, where people in retirement can draw down cash against the equity in their house. This has been L&G’s fastest growing business since entering the market in 2015,” he says.
The lifetime mortgage market, since L&G entered it, has grown from £1.4 billion in 2015 to being worth £3.2 billion at the end of 2017. L&G’s own market share has increased from zero to 35 percent.
Whether it’s disruptive innovation or expanding and scaling a product set, the customer has to be at the heart of what you are trying to achieve. As Barry of Bird & Bird says, “Innovation does not stop at the edge of your organisation: co-creation and collaboration with customers and partners is key, as companies themselves do not always have all the answers.”
Robert Leeming, Editor, Criticaleye
These comments were made at a recent Criticaleye CEO Breakfast, Why Customer Centricity Drives Innovation