In the wake of the financial crisis and the digital disruption of legacy business over the last five years, innovation stands out as a top priority for every company. Driving this disruption of traditional business are two factors: the rise of digital (companies like Google, Facebook and Uber) and aggressive global expansion of Chinese companies (such as Alibaba, Xiaomi and Tencent).

While a lot of companies are increasing their innovation and R&D budgets to defend and expand their business, exactly how budgets get turned into new products, services and business models often remains a black box.  A recent article in strategy+business, ‘Proven Paths to Innovation Success,’ not only sheds some light on the black box of innovation concepts, but also strengthens our own innovation approach at LHBS.

‘Companies that directly capture customer insights
had three times the growth in operating income
and twice the return on assets of industry peers  
that captured customer insights indirectly’

In general, it’s possible to describe the innovation approaches of companies based on three concepts:

Need Seekers,
such as Procter and Gamble, are companies that gain insights through direct customer engagement. They learn from interaction in real world environments using ethnographic research techniques, as well as their extensive use of digital market research opportunities. They aim to identify unstated customer needs of the future and develop new products and services based on those needs. Need Seekers are typically first movers who open new markets and segments, and work in a culture that encourages openness and collaboration.

Market Readers,
like Samsung, are companies that focus on creating value for customers via incremental innovations of already proven market concepts. In order to understand the underlying dynamics of future demand, the core activity for market readers is to generate insights by closely monitoring their markets, customers, and competition. Market readers are usually second movers who put less emphasis on the collection of direct insights. They work in a culture that emphasizes operational excellence in managing resources and capabilities between geographies, suppliers and partners.

Technology Drivers,
such as Google, depend heavily on their internal technological capabilities to develop new products and services. They leverage their innovation budgets to drive both breakthrough innovation and incremental change. Technology Drivers work under the assumption that they will naturally meet the known and unknown needs of their customers and, when needed, adjust their products and services on the go. Their work environment is typically focused around technological knowledge and talent management.

In a recent study, Strategy& identified that Need Seekers usually have a higher alignment between their business and innovation strategy than both Market Readers and Technology Drivers. As shown in the table above, a key outcome of the study is that the percentage of Need Seekers who financially outperform their competitors is the highest among the three types of innovation approaches.

This study also underlines our experience with innovation projects for FT Global 500 clients across industries. Depending on the specific challenge and the project’s context, we provide either new insights into consumers via approaches used by Need Seekers, or incremental innovation opportunities through the close business and technology monitoring of Market Readers. Through the combination of ethnographic research and our Inspiration-Hub, we deliver a more holistic, timely view on emerging business opportunities.