Customer-driven innovation leverages customer insights to guide the development of new products, services, and continuous improvements.
We see that more companies are adopting customer-driven innovation for three reasons:
Customer-driven innovation ensures customers resonate with innovations. Companies launch solutions that customers want and solve real problems. This customer-product alignment prevents the worst-case scenario: companies spend millions on a new product, but nobody buys it.
Customer-driven innovation identifies continuous improvement areas. By touching base with customers about unmet needs, pain points, and product shortcomings, companies can outdevelop their competitors by launching continuous improvements that align with evolving customer expectations.
Customer-driven innovation helps allocate resources more efficiently. Companies avoid blindly pouring resources into insular R&D efforts and instead allocate funding based on the customer data that supports an idea.
Generally speaking, there are five steps in the customer-driven innovation process:
Customer feedback centralization and ideation: Customer-driven innovation starts by collecting customer feedback and giving employees access to it. Employees can share ideas addressing the feedback and co-create with colleagues and customers to develop concepts.
Idea evaluation: Product managers evaluate an idea by reviewing the customer data supporting it and deciding whether to approve it.
Idea prioritization: Companies cannot realistically launch all approved ideas at once. So, they prioritize ideas based on customer demand, impact, feasibility, resource requirements, risk, and other factors.
Idea validation: When ideas are promising, but there are a lot of unknowns, companies run experiments to validate whether there’s enough demand. For example, they may create a landing page for the new product and see how many customers join the waiting list. Based on the results of these experiments, they may or may not send it for implementation.
Impact tracking: For new products, companies monitor metrics post-launch such as sales figures and adoption rates. They then return to step one, collecting more feedback and introducing improvements. For continuous improvements, they track its performance to see if it meets expectations, and if not, will revert back to what they were doing before.
Because we’ve seen many companies struggle to implement effective customer-driven innovation processes, we wrote this article to help you establish one within your company.
Throughout the article, we touch on how our innovation management platform, InnovationCast, enables companies to align on customer pain points and launch solutions that tackle them.
InnovationCast has established customer-driven innovation processes for Visa, DHL, Novo Nordisk, and more. Book a 25-minute demo to learn how we can do the same for you.
Step 1: Source Customer Feedback and Innovative Ideas
Customer-driven innovation requires employees to clearly understand unmet customer needs and pain points so they can brainstorm ideas that address them. These ideas could be used to improve current offerings or launch new ones.
These requirements have two implications for the company’s innovation process:
Companies must centralize all customer insights, whether that’s customer support tickets, interviews, social media polls, or survey results, within a single platform so everyone has a pulse on the most frequent and urgent issues.
Companies must give all employees access to these insights and allow them to partner with their colleagues or even customers to develop solutions. This way, companies crowdsource ideas using the creative energy of all employees, which results in higher-quality ideas than ideation limited to R&D teams and C-suite executives.
Through our experience as innovation consultants, we’ve seen that most corporate structures don’t allow for this level of collaboration. In most companies, different departments collect customer insights through various tools. For example, the product team cannot see the insights marketing is collecting and factor them into their decision-making, and vice-versa.
Because employees cannot access customer feedback and new opportunities collected across the board, they don’t understand customer sentiment well. They may pursue ideas that appear to align with their small dataset but fail to capture overall sentiment, increasing the likelihood of misaligned innovation projects.
Additionally, because there’s no centralized innovation platform where customers can see the solutions being developed to address their feedback and provide further input, co-creation between employees and customers is nearly impossible. This can also lead to innovation projects that don’t resonate with customers.
To tackle these issues, we designed InnovationCast with powerful co-creation features.
InnovationCast Centralizes All Customer Feedback and Encourages Ideation
Companies can pull customer insights collected across all departments into InnovationCast. We set this up during onboarding.
Companies needing help collecting feedback can use our “Always On” feedback collection feature. They can survey customers and customers can respond directly from their email inboxes.
When employees log into InnovationCast, they can visualize these insights through interactive radars, identify the most urgent and frequent feedback, and are encouraged to collaborate with colleagues as well as customers to develop solutions.
Read more: How to Implement an Effective Idea Generation Process in Your Organization
Step 2: Evaluate Ideas Using an Appropriate Evaluation Model
After employees and customers have collaborated to develop concepts, they are reviewed by an idea evaluator, usually a product manager. Evaluators either approve ideas, reject them, or send them back to the idea author for refinement.
The evaluation process begins with evaluators segmenting ideas into two categories:
Continuous improvement ideas: These are small improvements to existing products or services. Over 90% of ideas fall into this category.
New product ideas: These are entirely new offerings to the company’s current innovation portfolio. Only a small percentage of ideas are for new products.
For ideas focused on ongoing improvement, evaluators use simple evaluation models to help them come to a decision. Evaluation models are questions about an idea’s urgency, demand, risk, and resource requirements. Depending on the model, it may ask about:
Customer demand: What evidence supports that customers are requesting this improvement?
Impact: How will this improvement affect the company’s overall performance?
Risk: What are the potential risks (market, regulatory, technological, etc.) involved with implementing this improvement?
Idea evaluators analyze the data behind the idea and score it 1 to 5 for each question, where each numerical value has a specific defined criteria. For example, if the idea author attached customer support tickets showing that several customers asked for a specific change, the idea evaluator may give it a 5 for customer demand, since there’s proof of interest.
Once evaluators have answered all questions in the model, scores are tallied. If the idea meets the minimum number of points, it gets greenlit for prioritization and implementation. If not, it is returned to the authors for refinement or abandoned.
The evaluation process is more intricate for new product innovations because the customer data needed to score them doesn’t exist yet.
In such instances, top management will hold meetings and decide whether to pursue the new product idea. The decision will depend on factors such as the company’s vision, risk appetite, innovation strategy, and budget. If top management approves, the idea must go through a validation phase before implementation.
InnovationCast Supports Evaluators in Their Decision-Making
InnovationCast has structured evaluation workflows to guide evaluators in making informed decisions. Evaluators can:
Get guidance on evaluation methods: InnovationCast guides evaluators on what evaluation models, criteria, scoring systems, scorecards, and customer data to utilize to make good decisions. Evaluators don't have to establish these evaluation systems themselves.
Get guidance on who to bring in: InnovationCast suggests which competencies to involve in the idea evaluation process depending on the type of idea. Companies can assign evaluation to someone, establish a committee, or call on the assistance of outside users.
Make the evaluation process transparent to all employees: Because companies can manage the entire innovation process within one platform, idea authors and co-creators can see how evaluators assess their ideas and ensure they do so fairly. Additionally, this gives the author confidence that someone is actually reviewing their ideas and that it isn't collecting dust.
Step 3: Prioritize Ideas Based on Customer Demand
At this stage, companies have a holistic understanding of customer experience suggestions, unmet needs, and a pipeline of somewhat polished solutions that address them.
However, it's unrealistic to execute all ideas simultaneously. Companies need their most talented employees to validate and launch ideas, but they also need them to continue running day-to-day operations. Therefore, companies must balance customer-centric innovation and employee responsibilities, which is why prioritization is so important.
Prioritization is also relevant because customers who provide feedback may not represent the entire customer base, and companies could end up optimizing for vocal customers. So, even if the implementation seems simplistic, sometimes these customer experience ideas must be validated.
Companies normally prioritize ideas that solve customers' most urgent and frequent problems, in other words, ideas that scored highest in step two.
As mentioned earlier, depending on the company's risk appetite and innovation strategy, they may also prioritize new product development ideas.
Stakeholders Can Vote on the Order to Pursue Ideas with InnovationCast
Companies can use InnovationCast’s voting feature to prioritize ideas.
This voting feature automatically gathers all approved ideas alongside the customer data supporting them and sends them to company stakeholders, other key decision-makers, and perhaps outside experts.
Decision makers can review the customer data inside each idea and the evaluation results and prioritize which they believe should be implemented first.
Once the winning and runners-up ideas have been selected, InnovationCast prompts the project management office to implement the improvement.
For new product ideas with a lot of risk and uncertainty, InnovationCast notifies responsible parties to validate ideas before launching them.
Step 4: Run Experiments to Validate Ideas
Idea validation entails testing an idea’s desirability, demand, and impact with as few resources as possible.
While customer-focused innovation ensures that all ideas start with customers expressing a desire for a solution to a problem, you still have to validate whether enough customers will be willing to pay for the solution. This reduces the likelihood of launching a full-scale product only to learn that customers don’t like it or are not interested enough to make it profitable or worth it.
Idea validation involves top management creating validation teams, usually consisting of the idea author, an engineer, a designer, and a marketer. Top management gives the team a budget and time to validate the idea.
The validation process starts with mapping out assumptions (conditions that the idea must meet to succeed) and running experiments to test those assumptions. Validation teams begin with the highest risk, highest uncertainty assumptions, i.e., assumptions that put the project at risk if incorrect. For example:
Assumption: There is demand from customers for the product.
Experiment: Build a product page with a different brand name, run ads, and track the number of customers who check out.
Assumption: We have the technical expertise to build the product.
Experiment: Build a cost-effective prototype.
Assumption: The product can resolve the problem at hand.
Experiment: Release the prototype to a few customers and conduct interviews to learn how it performed.
As teams pass ideas through each stage gate, they reduce risk and gain confidence. Once all assumptions are validated, the idea is sent to the project management office for implementation.
Use Metered Funding to Ensure Projects with the Most Customer Support Receive the Necessary Funding
An error we see many companies make when validating ideas is pouring money into innovations that don’t align with customer needs or pain points.
This takes away from innovations customers actually want.
We’ve learned the reason behind this misallocation of resources is the funding strategy companies use. Most companies use entitlement funding, where the finance department and stakeholders allocate resources to projects for the upcoming year. They effectively fund validation projects before a single assumption has even been tested.
This approach has two flaws:
Resources get tied up in failing projects. Because stakeholders have funded the entire project, they cannot reallocate funds from failing projects to more promising ones. Projects aligning with customer needs don't always get the most support.
It wastes resources: Because validation teams know they have secured funding for the whole project, they tend to design more elaborate experiments instead of the most cost-effective ones.
To ensure projects that best align with customers get the most funding and support, we recommend Metered Funding.
Metered Funding involves giving teams a smaller budget to test a few assumptions they have about an idea. This is usually related to customer demand and whether the solution effectively solves customer problems.
Once teams have validated the first few assumptions, top management gives more budget to validate the next few. This process continues until all assumptions are validated and the idea is ready for implementation, or a certain assumption is invalidated, and the project is tabled.
This solves the problems with entitlement funding:
Accountability to customer needs: Companies only release the next round of funding when assumptions have been validated. This ensures projects that best align with customer needs naturally receive the most support. If a validation team cannot prove there’s customer demand, they don’t receive the next round of funding.
Fewer wasted resources: Teams know that they haven’t secured funding for the entire project upfront, so they must validate assumptions in the most cost-effective way possible. Top management spends less on validation and can fund more validation projects.
InnovationCast Walks Teams Through the Validation Process
In our experience, teams need guidance on validating ideas. They are marketers, engineers, and designers, not innovation managers, so it’s unlikely they can validate ideas on their own.
With this in mind, we added detailed workflows to InnovationCast that show teams, step-by-step, how to validate an idea. The tasks in these workflows will vary based on the nature of the idea, but typically include:
Resources to involve (technologies, competencies, and partners)
Assumptions to map out (customer demand, technical feasibility, business models, competitive edge, and budget requirements)
Tasks and experiments to complete (financial risk analysis, Wizard of Oz validation, business case, customer interviews, focus groups, etc.)
KPIs to track (click-through rates, cost-per-click, potential returns, sustainability metrics, etc.)
As each responsible party completes tasks in the workflow, the next person is notified via email or the company’s intranet system that they are up next.
Companies can configure these workflows around their development process. They can do this by shuffling the visual steps in the workflow or creating new steps from scratch that follow specific logic rules (e.g., who to notify when the task is due and complete). Users don’t need to code to do this.
Step 5: Track Idea Performance & Implement Improvements
Once the project management office has implemented the innovation, the product team or whoever is responsible for measuring the performance of innovation efforts will track KPIs like:
New customer adoption rate
Customer satisfaction (CSAT)
Net promoter score (NPS)
Revenue growth in real-time
Market share advancements
Return on investment
For new, cutting-edge product ideas, teams will return to step one: gathering customer input and implementing continuous improvements.
For continuous improvements to the user experience, companies will track the performance of the change versus the old initiative and understand whether customers resonate with the new change or if what they were doing before was, in fact, better.
We won’t discuss measuring innovation in too much detail in this article; we have an entirely separate piece on that topic, which you can read here.
Stakeholders Can Track All Innovation Projects Within a Single Dashboard
InnovationCast has a reporting dashboard that enables stakeholders to view the innovation projects the entire company is pursuing (live and ongoing) alongside budgets, revenue, and returns.
For companies with newer customer-centric innovation processes who may not have live projects yet, they can track figures such as idea submissions and votes to visualize the number of front-line employees and customers participating in innovation.
How Delta Cafés Launched a Customer-Focused Innovation Process
Delta Cafés is a Portuguese coffee roasting and packing company that sells pods, beans, espresso machines, and other coffee-related products.
Delta Cafés is a client of InnovationCast, and used our platform (and the methods discussed above) to gain a deeper understanding of customer segments' pain points and launch products to resolve them. We’ll cover two examples in this article:
Go Chill
Croffee
1. Go Chill
When using InnovationCast to centralize customer feedback, Delta Cafés learned that their product lineup didn't cater to a particular customer segment: on-the-go professionals and students who don’t have time to make a morning coffee and instead wanted something to drink on their way to work or class.
So, they ran an Innovation Challenge, informing employees about this market gap and asking for ideas. One employee suggested coffee-flavored yogurt that customers could consume on the go for a caffeine boost. After iteration with colleagues, stakeholders, and customers, this idea turned into Go Chill, a ready-to-drink iced coffee. To date, Go Chill has sold over one million units in Portugal.
Read more: 5 Detailed Innovation Challenge Examples & Best Practices
2. Croffee
In response to the same Innovation Challenge that Delta Cafés ran to uncover the idea for Go Chill, an employee recommended a caffeine-infused energy bar that customers could grab on their way to work or to the gym.
Carrying an energy bar would be more convenient for customers than a cup of coffee, providing them with the same amount of caffeine as a shot of espresso. The idea for this caffeinated energy bar turned into Croffee and gave Delta Cafés another competitive advantage in Portugal.
Implement a Customer-Centric Culture with InnovationCast
You can learn more about how InnovationCast facilitates customer-driven innovation by booking a 25-minute demo.
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