Customer co-innovation sounds like the kind of high-minded concept that certain well known business schools are fond of publishing articles about. However, co-innovation takes place in the trenches with customer and supplier working side by side towards a common goal. Ultimately, it is about putting smart people together and removing the barriers to innovation.

The purpose of this document is to capture and share the essence of the discussion from CATAAlliance’s “My Customer, My Co-innovator” roundtable forum in an effort to provide a more stable take-off point and safer trajectory for co-innovating adventurers within the IT industry in Canada.

Where possible, credit has been given to individual participants in the discussion, but the conference organizers and the writers of this white paper acknowledge the contribution of a great many of the attendees to the discussion.

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My Customer, My Co-innovator: CEO Roundtable Forum

Some words are inherently perceived in a positive way – motherhood, peace, prosperity, growth, for example. Innovation also conjures up positive images as it is typically linked with creativity, discovery, progress, advancement, a better world.

The term co-innovate has been applied in the context of the relationship between a supplier/ provider and a customer. It refers to suppliers and customers working together to use the product or service in a manner that is new or different and, ideally, provides greater value to the customer.

The phrase “Co-innovating with a customer” sounds like a business world nirvana. It would seem to hold the promise of a higher, more enlightened state of business. But, as is all too often true, the devil is in the details. Finding the right balance to create value for the customer, while driving growth in revenues and profits for the supplier, is very challenging. It raises some tough questions:

• “At CATAAlliance, we have changed our model for interacting with our members. In the past, our members got value from being part of a community. But now we are adding value by working one-on-one with new members in a collaborative partnership, determining how to create value and setting goals together.” — Kevin Wennekes, CATAAlliance

  How do you co-innovate with customers?
• How do you foster innovation internally?
• Is innovation always a good thing?
• How do you harness innovation?
• What are the risks and rewards?
• Is it mandatory or optional?

On Nov 30, 2006, a group of 35 Canadian technology industry executives gathered to participate in a roundtable to review the why and the how of co-innovating with your customers. The panelists were:

• Andy Aicklen, Regional Vice President, Mercury
• Adrian Davis, President & CEO, Whetstone Inc.
• Dave MacKay, Chief Operating Officer, Ceridian
• Gale Moore, Director, Knowledge Media Design Institute, University of Toronto
• David C. Thomas, Executive Director, Software Division, Software & Information Industry Association
• John D. Tully, Vice President, Retail and National Accounts, Teradata, a division of NCR Corporation

The panel discussion was moderated by Rick Wolfe of PostStone Corporation. The event was sponsored by CATAAlliance, The Access Group, The Knowledge Media Design Institute – University of Toronto, Whetstone Inc., The Pearson Group of Companies, The Result Source and the Technology Marketing Resource Centre.

This white paper was compiled from that morning’s discussion, including the introduction by Kevin Wennekes of CATAAlliance, the keynote presentation by Adrian Davis of Whetstone Inc, the panel discussion and the breakout sessions.

The New Frontier: Discovering the new centre of the universe

The world has changed dramatically in the last 15 years. It has changed politically, socially and economically. Changes have been so dramatic that going back to the way things were seems unimaginable.

The business environment has changed. Globalization is opening up new markets that offer opportunities undreamt of 15 years ago. Meanwhile, global competitors are changing the face of competition at home.

Technology has changed. The Internet has gone from a curiosity to a fundamental component of our day-to-day lives at home and at work. It has enabled new business models, such as Google and eBay, that are reshaping the way we use technology in our lives.

The technology market has changed. We are no longer in the boom days of the 90’s. There are no mega drivers for technology spend and no Y2K looming, no next big thing, no ERP/CRM mania. IT spending has been essentially flat for the last five years.

Decisions are made differently in this market. They tend to be more of an emotional decision, particularly one of trust, than a purely rational one. The traditional decision-makers – the CIOs – find themselves in a very unstable environment, often with a short life expectancy.

For technology companies, there has been a Copernican revolution. The “product” is no longer the centre of the universe, the source of value—the customer is. More specifically, the highest value a supplier can provide for a customer comes not from the technical wizardry of the product, but from how the supplier can apply their knowledge and assets to improve a customer’s business.

As a result, the offering has changed. The product is the start of the relationship, while services become the basis for the long term partnership. Whereas the software-product centric model was the dominant model in the ‘90s, in this decade it is the software-as-a service or software-enabled services model that is the most successful. In this environment, the service masks the software, in effect, taking the spotlight off the software provider. This creates a need for suppliers to prove their value through services or risk losing the customer altogether. In this environment, it is time spent with the customer, rather than money, that is the most valuable currency. The evolution to a services-based offering is a life-or-death transformation for many companies.

The evolution to a services-based offering demands a much higher level of customization to the customer’s specific situation. As a result, we need to change the relationship with our customers from one of content to that of context, in order to understand their needs and provide what will create high value specifically for them.

In the past, innovation was centered on the product. Today, innovation is all about the customer need and customer experience.

Technology companies have to come out of the lab, meet customers where they live, see how they use products and continually fine tune their products as customer needs evolve. Customers expect elegant usability, and don’t want the baggage of technological complexity.

If we seek our innovation from or with our customers, we as companies need to be more adaptive. We need to focus on the business process to improve the customer experience and in so doing, create more value in the customer’s mind.

Exploring the new world order

The tech market has historically had a hypercompetitive dynamic which has driven the nature of the relationship with the customer. The goal has been to maximize your market penetration before your competitor does – or before the next big tech leap makes your product obsolete.

The rewards for success have been huge in terms of revenues and profits, bonuses and stock options. But also massive has been the cost of failure and being beaten out of existence by the competition.

Such an environment inspired an aggressive military approach to sales where the attitude was one of conquest, not taking “no” for an answer and crushing your customer into submission. Products may have been feature rich – although most weren’t – but they were not tailored to meet individual customer needs. The value was in the product, rather than the relationship or the context.

Along with the changed environment, especially with the “softer” technology market of the last five years, we have a change in customer buying behaviour. Customers are purchasing rather than being sold to. In many cases, they are more educated than the sales people selling to them! Customers are taking their time to make long-term decisions, and megapurchases are few. They are buying services versus products and this changes their spend from fixed to variable, with more onus on the vendor to innovate and come up with solutions to meet their specific business needs. Customers are also looking for help to solve business problems, not create more technology problems.

This new world requires a change in attitude towards the customer – one that honours the customer. Now, terms like prospects versus customers matter because it affects one’s perspective. We need to change the sales model and, in doing so, the relationship model.

The rise of software as a service makes it much more important to put your offering in the customer’s context. To do this, you have to:

• Understand the customer’s goals – what do they want to achieve to be successful?
• Understand the customer’s journey – how do they want to get there?
• Understand the customer’s day to day business practices – what is their environment, and what are their barriers to getting where they want to be?

You gain that understanding only by listening, observing and seeing through their eyes. It requires you to make an emotional commitment to earn the right to be their collaborative partner and to help them solve their business challenges. That commitment will involve being willing to open your mind and share your intellectual property with your customer.

Succeeding as a co-adventurer

Listening and understanding is not enough to create co-innovation. In fact, taking customer input can be dangerous and is no guarantee of meeting customer needs. For example, a well known cell phone manufacturer created a line of cell phones meant to be flexible enough to meet any customer’s needs. However, too many options resulted, meeting no one’s needs., as reflected in disappointing sales.

Further, the software industry is the poster child for handling customer input poorly. Function creep, intended to make the product satisfy customer needs better, has instead been one of the most common reasons for failure in software implementations.

In the book The Paradox of Choice, Barry Schwarz maintains that too much choice is a bad thing. It adds complexity, raises expectations, leads to decision-making paralysis and can be a set-up for failure. The software-enabled service answer to this situation is to reduce, rather than increase, the functionality in the offering. Simplify. Increase the ease of use.

This leads to the realization that whereas previously, innovation was centered around the product, increasingly today, the most significant innovations are in the business model. Consider the Google business model of free (advertising funded) access to software-enabled services. This is potentially the innovation with the greatest ramifications since the Internet itself.

So how do you co-innovate?

You analyze customer behaviour and patterns to fine tune your business model. For example, Google evolves its services by collecting data from its customers. This has led, to the chagrin of competitors such as Microsoft, to expanding into new services areas well beyond its search engine origins – such as web-based word processing and spreadsheet services.

Similarly, Tesco, the leading retailer in the UK, collects masses of information on its customers’ preferences and has used data mining to guide its entry into new areas, such as selling petrol (gasoline) at its retail outlets. Petrol now accounts for the single largest share of Tesco revenue.

You must understand your customers’ goals, journey and business practices. By understanding the customer situation, you can find effective ways to co-innovate to the right solution.

Wherever there are people, there will be innovation. But, many organizations squash innovation. To truly enable co-innovation with a customer, you will need to turn the organization upside down. Break down organizational barriers. Create a culture of co-innovation. Establish the right conditions for co-innovation. Create incentives to innovate. Put groups of diverse, smart people together and then get out of the way. Your global competitors will.

Consider compensation carefully. It can be a major barrier to innovation because it generally rewards the status quo. For any innovation, there will be someone who loses. Vested interests prompt people to oppose innovation. If they can stop it, they likely will.

Sales compensation and approaches can be one of the biggest barriers. To create the kind of relationships and approaches required for co-innovation, the old “entitlement” approach needs to be replaced. If there’s a crucial link in the chain that is weak or broken, the innovation is dead.

Millenials: guides to the new frontier

Innovation is about people and passion and there is a new – and sometimes passionate – demographic group that may have a disproportionate role to play in future innovations.

In their book, Millennials Rising, Neil Howe and William Strauss coined the term Millennials for the generation born in the 1980s and 1990s. This is the online generation, the digital natives. They use technology not as complex computer systems but as appliances, the way their parents used coffee makers.

They have a greater comfort and understanding of the digital world than the generations before them. They expect it to be online all the time, 24 x 7 x 365. They have played a pivotal role in the rise of new age behemoths like Google and eBay. And, they play a pivotal role in the co-innovation between technology companies and their customers. Here’s why: They are both the consumers of the services and the partners in co-innovation. They ‘get’ the new service/technology paradigm, and are extremely valuable in simplifying products or solutions.

Would-be co-innovators must recognize what this demographic has to bring. But, be aware that they neither look at the world the same way or are motivated the same way as management in established companies.

The Sextant: Summary and conclusions

The world has changed around us in the last 15 years and it will change again in the years ahead. As the saying goes, the only constant is change. And change creates both an imperative and an opportunity for innovation.

Customer co-innovation sounds like the kind of high-minded concept that certain well known business schools are fond of publishing articles about.

However, co-innovation takes place in the trenches with customer and supplier working side by side towards a common goal. Ultimately, it is about putting smart people together and removing the barriers to innovation.

In fact, removing the barriers may be the hardest part, as these are rooted deeply in the customer/ supplier dynamic of earlier ages, such as sales compensation and the product centric view of the universe.

Companies like Google are demonstrating that the innovations with greatest impact are taking place in the business model, not the product.

It’s not that technology isn’t important, but technology-enabled services are having a greater impact than increasing the complexity of already complex software solutions.

However, lots of questions remain. Is customer co-innovation important? Mandatory? Possibly not for all – at least, not yet. But, a number of companies have proven the benefits of customer co-innovation and too many companies have demonstrated the risk of not exploring this customer-centric world.

Acknowledgements

The sponsors of this event would like to thank the panelists and audience for contributing their knowledge and expertise to this Roundtable discussion.

Author John Foreman is president of Technology Marketing Resource Centre (TMRC) which specializes in developing highly effective marketing strategies for technology industry companies. www.tmrc.ca.

Event Sponsors

CATAAlliance, Access Group, Knowledge Media Design Institute—University of Toronto, Whetstone Inc., Pearson Group of Companies, The Result Source, Technology Marketing Resource Centre