In a growing number of new vehicles, an automated parking feature has been installed. The car can park itself more accurately and safely than a human being. This innovative feature seems to be a “god-send” capability that will save many cars from those classic scratches due to too close parking situations. However, there is a secret truth none of the investors of this innovation would like to admit. Most customers do not use it. I mean 95% or more. The innovation works. But it does not work for customers.
This example is one of many innovations that were launched but unutilized by customers. The technology world is full of examples of cool innovative capabilities installed in next generation versions of software that are being ignored and abandoned by customers. These innovations are often designed and developed to create differentiation and added value in the minds of customers—but all too often they end up frustrating customers who feel that they paid for extra features they will not use or are not ready to use. In short, innovation does not always equate to differentiation. So why were they developed in the first place: often because the technology was available, or the R&D team thought it was cool. Let’s face it: 95% of new products do not last on shelfs beyond the first 12 months. That is, most of the innovation does not create customer advantage.
Why do we invest in innovation? To stay relevant and differentiate against the competition. Well, if this is the case, we need to manage differentiation and use innovation as a tool not as an end game. While innovation is the art of exploring innovative technologies, differentiation is developing customer advantage. Innovation oftentimes starts with the availability of new technological capabilities and how to exploit them. Differentiation is addressing the need to create perceived superior customer value. The developers and the company declare innovation. The customers recognize differentiation.
Differentiation comes from multiple sources while it shares technology and business models with the traditional innovation sources, it expands way beyond it. From supply chain and ingredients to competitive landscape and customer engagement, differentiation is creating customer value and advantage in many different ways. Managing differentiation is making sure that we are always at the juncture between our superior value created and the customers’ desires (beyond needs). Considering that this juncture is always a moving target and constantly evolving, the need to manage differentiation becomes clear and apparent.
Some people may equate differentiation management with product management, but that would be a mistake. Many products that were once differentiated and perceived as superior value lost their position (Blackberry, anyone?). The loss of a differentiated position came because of major shifts in customers’ expectations that were ignored by the product managers who were managing their product P&L but not value for customers. To ensure effective differentiation management, we ought to examine not product features but customers utilization and complete customer experience management. We need to own the customer’s total value extraction from the value delivered. Only then a differentiation perception can be created.
An effective differentiation management should consider creating a view that includes several dimensions of differentiation.
• Dimension 1: The customer. Establish the complete customer view and expectations with tracking of ongoing changes. Everything starts and ends with the customer. Even if your innovative technology is disruptive, you need to consider customer readiness.
• Dimension 2: The competition. Develop a view of competitive landscape of both direct and good enough options to better understand the way your customers perceptions are evolving. While customers are the true focus, competitors shape their expectations sometimes.
• Dimension 3: Technology provides new opportunities, some are real and some far-fetched. Make sure you evaluate all in the context of all other dimensions.
• Dimension 4: Utilization. Just because it is available it does not mean customers will use it. Understanding the customer’s persona and journey will help in transforming opportunities into real customer advantage.
• Dimension 5: Ongoing evolution. The management of differentiation over time and evolving the products and experiences so they stay relevant and applicable in the eyes of customers.
To stay differentiated, we need to evolve the traditional innovation functions to differentiation managers. We need to meet customers and anticipate their needs at the ever-moving juncture of expectations and available technology. This is the way to make sure that we continue to inspire them not as a one-time event, but as an ongoing partner. For many practitioners of innovation management, the history of success is pretty abysmal. In a recent discussion with a head of innovation at a large international conglomerate, I asked, “How many successful products started at the innovation department?” His answer: None. We need to evolve from pursuing innovation for the sake of exploring innovative technologies and feeling good about ourselves and start creating relevant applicable customer advantage. That will only happen if customer utilization is at the center of everything we do.