MIT Sloan Management Review

Customer-oriented companies pride themselves on understanding the marketplace and integrating the best ideas into future products. But what would it be like if you found that you had hundreds, if not thousands, of knowledgeable users ready and eager to spend nights and weekends acting as extensions of your research and development department? For the Lego Group, the Danish maker of children’s creative construction toys, this close bond with the user community is not a pipe dream but a reality.

Services comprise more than 70% of aggregate gross domestic product and employment in the Organization for Economic Cooperation and Development countries. As a result, both individual companies and entire economies face the challenge of how to innovate in services. One suggestion: Companies should both organize their innovation processes to be more open to external knowledge and ideas and also let more of their ideas and knowledge flow to the outside when not being used internally.

As managers revamp their organizations for closer alignment with customers, one of the biggest challenges is determining how far and fast to go.

Customers frequently play key roles in the delivery of services. But if customers fail in those roles, their experiences may be unsatisfactory for them — and for the companies with which they do business.

To avoid costly product failures, companies can integrate customers into the innovation process and ask for their commitment to purchase early on.

The textbook approach to satisfying customers is simply to give the people what they want — and a little bit more. The trick, then, is to know what it is that customers want.

Too much familiarity with customers can backfire, but engaging them in multisided conversations, or “polylogues,” can manage the risks and get better results.

With increased competition and globally maturing markets, relationship marketing has emerged as the new mantra. Although companies are successfully using customer satisfaction to create closer and more profitable relationships with customers, the myopic pursuit of such relationships often backfires. Consider a U.S.-

While relationship marketing assumes that companiesrelate to customers, collaborative marketing requires that companieswork with customers to define, design and deliver value.

Customer-focused transformation is producing long-term, sustainable growth through a systemic, tested process. The approach gets all employees collaborating to identify the outcomes that customers need — and to help them get there.

Many companies have learned to use the Internet as a powerful platform for collaborating with customers on innovation. They have created customer advisory panels to solicit ideas for new products, fostered online communities to encourage dialogue among customers, and built toolkits that enable customers and engineers to codesign products.