In the third way to innovation, a great product is just the start — a company needs to know its customers

David Robertson teaches at MIT’s Sloan School of Management. Speaking to Srijana Mitra Das, he discusses a new approach to business innovation — and why companies should get curious about their customers:

What is the core of your research?
I call it the third way to innovate. We’re often told there are only two ways to innovate, the first being making our current products better. But we’re also told that if this is all we do, our competitors will catch up — we need more revolutionary innovation. We need to disrupt ourselves before someone else does. We’re often given examples like Apple, Uber, Airbnb and Tesla.

However, I work on a third way to innovation — this starts with realising you may have a great product but that might not be enough. I’ve researched Lego — they had an excellent product but their patents ran out and anyone could make bricks like Lego. Their growth stopped. In the early 2000s, they started creating new, disruptive play experiences. A bad situation became worse — innovating out of the box almost put them out of business. But then, they came back to their core product, the brick. They started surrounding it with complimentary innovations. Lego began events at their stores, commissioned books telling their story, made hit games like Ninjago and movies like the Lego Batman film — all these innovations began to draw kids back into the world of Lego.

In the third way to innovation, a company realises a great product is just the start — there is a lot more you can do for your customers to get more value from the product. This is important if you have customers who depend on what you make. Then, you can’t only focus on disruptive innovation because that can leave those customers behind. You’ve got to think of how to innovate around the product.

This often leads to thought beyond the product itself, like what financing programs you offer, the services you give on top of the product, the marketing channels you use, etc. There are many ways to innovate around a product without changing it and I research these.

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Are there other business examples of the third way to innovation?
My book ‘The Power of Little Ideas’ has many. I’ll quote Sherwin-Williams in the US. They make a very good paint but it’s not much better than the competitors’. Yet, they charge more. They can do this because they’ve taken the time to understand the small business painting contractor. I was getting my house painted. The contractor gave me a proposal, using Sherwin-Williams paint. I asked why I shouldn’t switch — he said, if you do that, your cost will increase since only 15% of the project cost is the paint. Most of it is labour, equipment, etc., and his Sherwin-Williams partner ensured he had everything to be most productive.

By empowering the small painting businessperson, Sherwin-Williams grew its market share. They realised it isn’t people like me who pick up paint, it’s the people I hire. By focusing on the person who’d recommend the paint to the purchaser, they could expand their market. Their innovations, like creating proposal software, colour matching services and equipment rentals, made the contractor more productive. And it made the company more successful.

The global economy faces great transitions now. What should firms undertaking innovations be aware of?
Uncertainty — we simply cannot predict innovation success. How you take an idea, push it forward and see if there are flaws or opportunities therein is something companies need to learn. This becomes even more important with the third way to innovation where you get into areas you may not be very familiar with — if you’re a mature company that makes an industrial product which has loyal customers, you may not be comfortable with getting AIbased services on top of your product. You don’t know how to develop this, whether your customers will want it or whether it makes financial sense. You need to be aware of such uncertainty and you need to manage around it.

Why do you say firms should focus on customers instead of competitors?
The third way of innovation is all about understanding what customers care deeply about — a company should fight the competition but it should also get to know the customer. Metaphorically, this is like when you meet a special person in your life and you want to understand who they really are, what they care about, their hopes, dreams, fears and hobbies. That’s what companies should do — understand their customers’ life around their product. That will help them become a bigger part of their customers’ life.

Views expressed are personal