Demand Innovation: Do You Really Know Your Customers?
This week I’m taking a look at Demand Innovation. So, what does that term mean? It is the process of driving the development of new products/services (innovation) by looking inside existing customer value chains to find new, possibly more valuable, problems to tackle (demand).
Slywotzky’s view & my advice
A key author in the space, Adrian Slywotzky, argues that large businesses can get stuck in a ‘no growth zone’. Often, this is because they assume they already know everything they need to about their customers. The problem is that many of their assumptions are likely to have been partly wrong, and the ones that were good still have a shelf-life; they may not age well.
I would argue that it’s not only large business that are in the “no growth zone”. It’s hardly unusual that SMEs or scale-ups looking for growth go on the search for new customers and a broader value proposition, rather than challenging their assumptions and exploring further up into their existing customers value-chains and trying to create demand there.
My advice? Go deep before you go broad. Especially when you take into account that existing customers are those with whom you (hopefully) already have a good relationship with and have built up some level of trust. At the very least you know where to find them! Looking for new problems there has to be easier than starting from scratch, right?
Slywotzky uses the example of a company in the pharmaceutical transport business (i.e. running fleets of trucks to move pallets of, e.g., painkillers from a pharmaceutical company loading dock to a hospital loading dock). Whilst essential, this is a relatively low-value activity in the value-chain of hospital supply.
By not treating the hospital as a ‘black box’ into which drugs get poured and examining the hospital value-chain, the company was able to identify that warehousing, stocking, and dispensing drugs to wards were activities that are (a) not core, (b) complex (c) costly, and (d) potentially risky (e.g. when the wrong drugs end up in patients). When the hospital recognises this problem, it creates new demand.
The company then created a solution for the hospital to specify the drugs required each day, by each individual patient, and to supply a ‘robot’ that could be wheeled directly from the loading dock to the ward where it would correctly dispense each patient’s drugs for that day.
While the hospital would likely maintain an emergency supply, this significantly reduces the need for managing pharmaceutical inventory and potentially eliminates the risk of dispensing errors on its wards. Reducing cost and improving ‘service’ delivery - a massive win for the hospital and the company.
Note that this is still recognisably the value proposition of ‘delivering drugs from pharmaceutical companies to hospital patients’ but re-imagined to solve a deeper problem for their customer.
This solution was possible because this ‘transport’ company was able to:
1. Look past its own identity and, “the way we do things”, to look for new problems and new opportunities to create value.
2. Throw away some of its assumptions about the customer and their real problem, and explore demand further up the value chain
Having successfully done this once, it was able to repeat the exercise. Through finding a related problem in the value-chain and expanding the sphere of the problems they tackle, they were able to create new demand within the customer and new value for themselves.
Questions to think about
Where do you stand on Demand Innovation? Here’s a few questions to think about:
When was the last time you explored your customer value chain for unaddressed pain and problems you could deal with?
Are you occupying a high-value position in their value chain?
Do you assume you know everything you need to about your customers experience and their problems?
Do you need more and better business?
If so, might this be a good time to throw away some of those assumptions and explore their value-chain again?
For more please see, Demand: Creating What People Love Before They Know They Want It. Or anything by Adrian Slywotzky, really. (Can you tell he’s a favourite of mine?!)
Until next time…