How To Innovate

Ignore the word innovation – it's meaningless. Just focus on the customer.   

Across my 20+ years as an innovation consultant, I've often felt like talking to executives about the importance of innovation is akin to talking to my teenage son about taking his vitamins. Like vitamins, no one ever argues that innovation is useless; everyone thinks they could benefit from it in some way. While it's possible to measure where innovation is lacking, it's much harder to figure out the exact "dose" needed to keep a company in good health.

Adding to the confusion is the broad and varied definition of innovation itself. When asked, Perplexity AI provided seventeen definitions so different that the composite word cloud reveals the term's complexity.

The result of not having a clear definition of innovation means that most efforts don’t turn into clear strategies that execute to their full potential. Many companies find themselves languishing between their innovation goals and actual outcomes – stuck in an innovation execution gap.  52% of recently surveyed corporate executives cited an unclear or overly broad strategy as one of their top three innovation challenges. Three-quarters of business leaders feel they can’t keep up with the big megatrends like technology, workforce, weather, and trade. 

To get out of this inertia, I believe executives can simplify the definition of innovation – and then set it aside. 

The word "innovation" comes from the Latin noun innovatio, derived from the verb innovare, to introduce something new or renewed.  In this definition, innovation is simply the act of doing something differently. 

This simplified definition makes every new activity – big or small, business as usual or new product launch – potentially innovative and immediately shifts focus to the more important and tangible question: how to cultivate motivation in an organization to innovate while also ensuring the “new” adds the maximum value? 

The answer distills all innovation down to one focal point – customers. Without customers, a corporation has no reason to exist so there’s no need to innovate. Likewise, when all innovative activities center on creating new customer value, they all have a potential reason to exist, and organizations have a more luxurious problem of prioritizing.

In other words, customer-centricity naturally makes organizations innovative. This focal point gives an organization a reason to create, iterate, implement and embrace change because that change has a central purpose. 

Customer-Centricity can transform organizations’ performance across multiple metrics

Customer-centricity yields clear and tangible results when implemented as the guiding principle organization-wide:

• Better financial performance: 1.6xs higher customer lifetime values, 42% increase in lifetime customer retention, and greater profits

• Less likely to be disrupted: The laser-sharp focus on providing value-creating customer experiences reduces costly bad experiences, ensures customer loyalty, and maintains competitiveness

• Higher employee satisfaction: Customer-centricity aligns employees around one goal, streamlines politics, increases meritocracy, and provides individuals with a clear understanding of the purpose of their jobs.

Embracing customer-centricity means embracing a new POV on why companies exist

Despite these advantages, customer-centricity in companies remains rare because it requires a fundamental shift in perspective – from making to serving. 

Companies typically "make" money, departments "make" profits, and boards "make" decisions. 

Imagine instead if we said companies serve customers to generate value, departments serve employees to perform well, and boards serve companies with guidance. 

Intuitively, this language feels automatically warmer, more authentic and closer to how we all wish the world operated. It also extends the corporate responsibility to the full act of delivering value versus just creating it, and directly connects what a company does with the person for whom it does it. 

But this language also feels unlikely to be adopted – and in its improbability, we can see more clearly why customer-centricity is hard.  By believing an organization “makes” rather than “serves,” companies can intuitively focus on themselves, which is easier. 

However, this inside-out focus automatically disables the cultivation and use of the core skill that is required for customer-centricity to thrive – empathy for the customer. 

Cultivating empathy to build customer-centricity is the most effective path to innovation

Unlike innovation, empathy is a much simpler word to define because we all crave it. It is the ability or practice of trying to understand another person’s feelings, emotions, and experiences to build connections. Receiving it is a passive experience while giving it is an active and sometimes tricky effort.

For companies, a customer-centric organization actively practices empathy towards its customers, employees, and other people it serves through a combination of asking questions, listening, understanding, responding, asking questions, listening, understanding, responding, and repeating the cycle over and over again. 

This process is so proven to generate new solutions that it has a name in the context of innovation: design thinking. The five-step flywheel guides creators through the act of empathizing, ideating, creating, testing, and empathizing again to keep refining new products and services. 

Its core energetic spirit of empathy, compassion, creative problem-solving, and returning to empathy is the key unlocking innovation – as demonstrated by its widespread decades-long embrace around the world. 

Customer-centricity makes all innovation pathways clear

Embracing customer-centricity can be achieved by taking a few simple but fundamental mindshift steps:

• Accepting that "innovation" alone is too broad to be meaningful and abandoning it

• Focusing on building an organizational culture that encourages continuously refreshing its market value

• Defining value through customer needs and experiences

• Empowering employees to listen and respond empathetically to the people they serve so to maintain and increase the value they provide

• Prioritizing customer-centric activities and deprioritizing ones that don’t connect to customer value

By maintaining this disciplined, consistent, organization-wide customer focus, companies can naturally respond to market changes, create valuable new solutions, and outperform competitors .41% of customer-obsessed companies achieved at least 10 percent revenue growth in their last fiscal year, compared to just 10 percent of less mature companies, and the top 7% of the most high-performing companies are decidedly more focused on empathy than the average. 

Most importantly, through customer-centricity, innovation becomes unnecessary as a distinct activity. Instead, it is the natural outcome of a company's day-to-day business operations.

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