MIT Sloan Management Review

Trying to create sales projections in an uncertain economic environment? Some interesting recent findings from researchers at Northwestern University suggest that the sentiments consumers express online may be a leading indicator of future sales.

Lakshman Krishnamurthi, Shyam Gopinath and Jacquelyn Thomas looked at opinions expressed in a large online forum about five brand models of cell phones — and measured aggregate online word-of-mouth opinions of each type of phone. Their “buzz index,” they found, was a leading indicator of sales of the cell phones.

There were lots of thought-provoking ideas offered at the World Innovation Forum conference, which concluded yesterday in New York City. But one particularly stands out for me — and it came from a presentation by disruptive innovation expert Clayton Christensen of Harvard Business School. Christensen took issue with the conventional wisdom that understanding your customer is important to successful innovation.

How could that not be the case? Well, according to Christensen, the customer is the wrong unit of analysis for innovators to focus on. Instead, he said, focus on the job  that customers are trying to get done when they use your product or service.

This may sound like a minor distinction, but Christensen went on to discuss a topic he and several coauthors explored in a 2007 article in MIT Sloan Management Review: Finding the Right Job for Your Product. One example? A fast-food company discovered that a significant portion of its customers were “hiring” its milkshakes for an unexpected use: as a food to consume early in the morning, while driving on a long, boring morning commute.

By focusing not on the customer for the product but, more specifically, on what the customer was trying to do – consume a filling food on a boring daily drive – the fast-food company could customize the product for its early-morning milkshake buyers in ways to make it more effective in that function. It also gave the company a greater understanding of its competition — which, in the case of the morning milkshake, ranged from bananas to doughnuts.

Heard an interesting talk today by Michael Schrage, a research fellow at the MIT Center for Digital Business. Schrage argued that the ability to create and conduct low-cost digital business experiments is a form of “innovation risk management.”

In other words, companies can now, using digital media such as the Web, test new hypotheses about their businesses inexpensively online. It’s now cheaper, Schrage argued, to do inexpensive experiments to test a new idea or concept than to do an extensive analysis of the merits of an idea.

But creating good experiments can be hard for businesspeople and organizations, Schrage observed. “Crafting a ‘good’ hypothesis apparently is hard” for businesspeople, he said.

Schrage has authored or coauthored several articles for MIT Sloan Management Review:  “The Innovation Subsidy,” “The Myth of Commoditization” and, most recently, “How Boards Can Be Better — A Manifesto.”

We all like to think we’re special — and that our personal tastes are unique.  But a variety of companies are using prediction and recommendation techniques and technologies to try to figure out everything from what movies customers will want to rent next to what kinds of songs are likely to be popular.

Thomas H. Davenport and Jeanne G. Harris share their research on this topic in “What People Want (and How to Predict It)” in the Winter 2009 issue of the MIT Sloan Management Review. Their analysis focuses on “cultural products” industries like movies — and includes well-known examples such as Netflix’s recommendation system but also start-ups such as Epagogix, which predicts the success of movies through neural network analysis of their scripts — before production ever starts. (Davenport and Harris also wrote a guide to prediction and recommendation tools such as neural network analysis.)

What’s it all mean? “Creating successful cultural products will always be a mixture of art and science,” Davenport and Harris conclude.  “It appears, however, that the amount of science in the mixture is increasing.”