The next practices of innovation must shift the focus away from products and services and onto experience environments — supported by a network of companies and consumer communities — to co-create unique value for individual customers.
Let’s start with the good news: Advances in digitization, biotechnology and smart materials — each representing the convergence of multiple discrete technologies — are increasing opportunities in a wide variety of industries. Major discontinuities in the competitive landscape — deregulation, ubiquitous connectivity and globalization — are further accelerating this trend. As the competitive environment rapidly transforms, the potential for innovation is greater than ever. And now the bad news: Managers are under overwhelming pressure to create value. Competition is intense, and profit margins are shrinking. Traditional prescriptions such as cost reduction, reengineering and outsourcing, while critically important, cannot solve the problems of margin pressure. The need to innovate is greater than ever. In this new world, value creation through profitable growth can come only from innovation. But the convergence of industries and the active role of consumers in an increasingly networked society have called into question our basic conception of value and the processes that lead to its creation, including the alchemy of innovation. Managers are discovering that neither value nor innovation can any longer be successfully and sustainably generated through a company-centric, product-and-service-focused prism. A new point of view is required, one that allows individual customers to actively co-construct their own consumption experiences through personalized interaction, thereby co-creating unique value for themselves. There are no best practices to illustrate this perspective because, indeed, no single company can yet be held up as an exemplar of it. Rather we seek to explore next practices, to pick up the early, weak signals of a fundamentally changing paradigm and amplify them into a clearer picture. (See “About the Research.”)
About the Research
This article is not about best practices or current practices. It is about next practices. Therefore, we constructed a research methodology that is appropriate to amplify weak signals, to “connect the dots” as it were. Our goal was to develop a new midlevel theory of value creation and innovation. Our approach was based on synthesis of the early experimentation in a wide variety of industries and companies as well as societal trends. In this article, we use company and industry examples as thinking props to encourage the reader to think differently about value creation and innovation.