Many industrial companies manage an innovation pipeline that is filled with projects that are too heavily weighted towards customer requests. A large percentage of these are good projects if they are evaluated for profitability, resource demands and revenue potential. However, if a company wants to stay truly innovative and drive business returns over the long term, their innovation pipeline should also have projects that address unmet needs and market gaps. They have to look at market-facing innovation rather than just customer-facing innovation.
Understanding Market-Facing vs. Customer-Facing Innovation
Market-facing innovation is the proactive identification and satisfaction of market gaps and unmet needs in targeted markets or product categories.
Customer-facing innovation is more reactionary in nature, allowing customer requests and sales requests to drive the innovation pipeline with short term wins.
Each innovation type has its place and use as demonstrated in the chart below. Customer-facing innovation can drive quick results and is typically focused on the short-term. Market-facing innovation typically requires higher investment but is also more long-term focused in terms of products and markets.
A healthy innovation portfolio approach typically requires a blend of both types of projects in an appropriate balance that supports the company’s innovation strategy. Short-term, customer-driven innovations can show results that buy the time necessary for market-facing investments to payoff.
Products or Offerings
Mix of current products/offerings as-is, minor modifications, or new to the world products/offerings
Primarily seen as a modification of a current products/offerings
Varied volume potential in existing markets, higher volume potential in new markets
Focuses on current markets and channels
Focuses on new customers
Focuses on current customers
R&D & Resource Investment
Tends to be higher due to length of R&D time required
Tends to be lower since products are modifications
Revenue Growth & Market Share
High revenue growth and incremental market share growth
Smaller revenue growth and change in market share
Addresses new markets, new customers, potential new business revenue
Increases customer base diversification, potential higher profit products
Quick turnaround results
Higher R&D and resource costs
Lower profit products
Customer drives reactionary innovation process
Customer-facing innovation is fairly easy to facilitate. Companies simply respond to needs brought by the commercial team from the current customer base. However, market-facing innovation requires knowledge and understanding of current technology and offering needs and the gaps that are unaddressed for both existing and new customers. To accurately capture this, companies need unbiased market analysis and voice of customer research. When companies rely only on R&D and commercial teams to provide intelligence about market needs, they may miss some large new opportunities.
Balancing the Innovation Portfolio
Ensuring a balanced innovation pipeline with both market-facing innovation and rapid customer-facing innovation projects is critical for long-term success. In order to fully understand new opportunities, industrial companies need to conduct proactive, market-facing research which may include interviews of new customers and potential new customers in completely new markets. Assign someone to focus on transformational innovation and the initiatives that support long-term value. This enables the move toward market-facing innovation and ensures that a methodology and process exist to routinely answer the following questions.
How many companies/competitors offer a certain product or service?
Has anyone stopped producing a product that was desirable? Is the replacement satisfactory in performance and price?
Has anyone recently gone out of business that made products for this market? What is the source for those now?
Are there any products that generally seem to have higher customer return rates or quality issues? Why is that?
What are some upcoming regulatory, legislative, or environmental changes that affect the products currently bought? What are potential alternative products that can address these changes? What new products and performance parameters need to exist to meet these changes?
What are the current unmet needs? What are current suppliers not providing to the market that is needed or desired?
If a new product could be envisioned to meet the future and current needs of the market, what would it look like? How valuable would that be, and what problem would it solve?
If your innovation pipeline is too weighted towards customer-facing innovation, consider a more balanced approach with market-facing innovation. A blended approach allows short-term, customer-driven innovations to provide quicker payback, while long-term, market-facing innovations create higher-profit products, diversify your client base and address new market opportunities.
Michael Glessner is a director with Kalypso and has worked extensively in the areas of smart connected operations, business strategy, product development, and large-scale organizational change leadership. His industry experience includes automotive, industrial, high technology and medical device companies. He is a frequent speaker and writer on innovation effectiveness, disruptive innovation and time-to-market reduction.