When customers drive innovation

January 30, 2018
Global
German companies understand the importance of customer-led innovation, but many struggle to incorporate the customers’ voice into their innovation initiatives.

With a constant stream of new technologies and emerging business models to choose from, businesses need their innovation initiatives to retain a clear focus. According to Harald Schwager, deputy chairman at chemicals firm Evonik, that focus must be the customer. 

“As long as the customer is not in the picture, we only talk about ideas,” says Dr Schwager. “Only once the customer is in the picture and has started to buy into the product and solution, can we talk about innovation.” 

Most German business leaders agree, a survey by The Economist Intelligence Unit and sponsored by Rackspace reveals. The survey canvassed the views of 200 executives from German businesses with annual revenue over US$1bn, as well as 200 of their counterparts in the UK. 

Over a fifth of German respondents (23%) report that their customers’ perspective is a ”primary” focus of their innovation initiatives, and 58% say it is a ”significant” focus (By comparison, the respective figures for UK respondents are 34% and 48%).

One German company highlighting the importance of customer feedback for innovation is Metro AG, the Düsseldorf-based wholesale and retail giant behind stores such as Makro and Real. Industry digitisation left it with little choice but to pursue customer-driven innovation. 

“We have gone through a significant change in strategy since 2012,” says Olaf Koch, who took over as board chairman in that year. According to Mr Koch, Metro was “so successful for so many decades that we didn’t spend too much time looking at the customer side.” But online competition started to take its toll, in more ways than one.

“People think disruption is in the sales channel,” Mr Koch says. “But the biggest disruption is that the customer is the most powerful party, because information and knowledge is with him. That has changed all the rules of trade. 

“Today you’re either relevant for your customers or you will be marginalised and then disappear.”

German businesses rely on well-established techniques to understand the perspective of their customers, the most common of which are analysing sales data (39%), receiving feedback through the company website (38%) and conducting customer surveys (36%). 

Integrating insights

But their challenge lies in integrating that perspective into their innovation processes. More than one in five German respondents (21%) say they collect and analyse customer feedback but find it difficult to translate that information into product or service innovations. This is more than twice the proportion of UK executives who admit the same (9%). 

For Evonik, which serves markets from automotive and construction to telecommunications and agriculture, the key for turning customer feedback into internal innovation is to find the right customers to listen to. “In every market you have lead customers, which are very innovative themselves. Then also in the B2B area you do have the followers and latecomers,” says Dr Schwager. 

“In order to be at the very front, you need to be able to identify the ones who are willing to be at the frontline of innovation. Once you have identified them, there needs to be a trust-building exercise. The most precious stuff you have is intellectual property these days, so trust-building is very important in the customer relationship.”

Furthermore, the depth of insight required to inform true innovation is difficult to extract from, for example, a customer-satisfaction survey. Evonik therefore augments its survey activities with face-to-face workshops. “This cannot be used as widely as the surveys [but] to solidify what you find out in surveys, you need to do these deep dives,” Dr Schwager explains. 

Many of the challenges German companies face in integrating the customer’s voice into innovation are practical. The most common, as identified by 22% of respondents, is a lack of necessary technology to collect and analyse customer feedback. 

This is in spite of a central position that technology already holds in collating and integrating customer feedback. For example, 91% of respondents say technology plays a crucial or significant role in using customer insight to improve product or service design. And 35% say that technology is the primary engine of collecting and applying customer perspectives.

For Evonik’s Dr Schwager, data analytics provides an unprecedented opportunity to track customer sentiment in real time. “It’s crucial today to stay in touch with the customer,” he says. “In the end, technology will help us to sort, out of the huge information flow which we have, the bits and pieces which are significant and important to us. You might be misled by a few quotes from someone about where the market might go to.” 

Like a growing number of large businesses, Metro has turned to the start-up ecosystem in order to acquire the technology it requires to satisfy its customers’ needs. In 2015 the company launched the METRO Accelerator programme, in partnership with TechStars, through which it provides support and mentorship to tech start-ups that specialise in the hospitality and retail industries. 

When start-ups are accepted into the programme, Metro provides them with mentors from the industries they are going to serve. And then, when the start-ups have matured, it connects them with customers who might be interested in running a pilot.

“After you’ve proven to us that your solution is really valuable, we open the door to those customers so you can get a real-life test,” says Mr Koch. In this way, Metro turns its greatest asset—its customer base—into an engine of innovation. 

Practical applications

The programme has led Metro to support some technologies it wouldn’t have considered in the past. “In one programme, a company said ‘We are the HR management solution for the small restaurateur,’” recalls Mr Koch. “I thought it sounded boring, but it turns out…if you run a small business it takes up to three or four days to do the whole admin [associated with hiring a new employee].” 

The entrepreneur in question was the third-generation of his family to work in the restaurant business, Mr Koch explains. “He said, ‘I see what my dad has to do and we offer this service from the cloud.’”

Looking ahead, German companies expect to employ more techniques such as these in future. Seven out of ten (71%) respondents say that incorporating customer feedback to drive innovation is part of their company’s growth strategy. And 68% expect to change their approach to collecting, interrogating and integrating customer feedback in the next three years, either entirely or substantially. 

That stands to reason: large companies have access to a community of customers who, if handled correctly, can provide invaluable insight with which to direct their innovation initiatives. In the face of technology-driven disruption from small and nimble rivals, they need to make the best use of this asset.

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