How to create a customer-centric innovation strategy

A customer-centric approach to innovation enabled by dedicated teams and strong leadership support is the key to uncovering new opportunities.

In brief

• Companies must continuously innovate with customers’ needs in mind to meet their demand for better experiences across touch points.
• Multidisciplinary innovation teams and a customer-centric culture that promotes collaboration and creativity are crucial for innovation to succeed.
• An actionable innovation strategy and strong sponsorship from the senior leadership team to promote innovation are critical as well.

The digital, instant gratification epoch and the world’s recovery from the COVID-19 pandemic are making permanent changes to customer behaviors and value systems. With 43% of consumer respondents in the EY Future Consumer Index indicating that they are willing to spend more to receive better experiences, there is a valuable opportunity for businesses to innovate and deliver better customer experiences across touch points.

Some companies are already experimenting with new ways to reach customers by transforming into a digital-only business to engage the always-online customer. Or they do so by shortening the delivery time of goods and services to meet rising demands from customers who are comparing experiences across brands. In today’s competitive environment, there is a clear innovation imperative to win over empowered consumers.

Focus on the customer   

However, despite ample investment to drive innovation and improve customer experience, not all brands succeed. Typically, brands that face challenges in innovation are not necessarily lacking interesting ideas. Rather, they struggle to execute and deliver.

A key reason why organizations fail is a lack of understanding of the customer, resulting in the creation of products and services that do not fit market needs. Therefore, organizations need to ask a fundamental question before embarking on any project: Does it solve customer problems and help deliver an integrated experience, or does it just meet organizational KPIs? To answer this question accurately, organizations need to avoid making assumptions and should obtain feedback directly from customers. 

The specific insights that organizations should gather include the full range of human emotions, motivations and preferences, such as intuition, simplicity, access and emotional connections. Such data would serve as valuable inputs for organizations to create solutions that are desirable, feasible and viable for consumers. Brands that constantly engage their customers and innovate products and services to stay relevant to their needs would gain their trust and loyalty.

Expand the possibilities for innovation

Organizations not only need to critically evaluate their current ideas, but also expand their concept of innovation to discover new ways to serve the customer. Far too often, innovation is limited to just creative concept designs when it is actually a continuous transformation process to achieve the sweet spot of customer desirability, technology feasibility and business viability in any part of the company.

Organizations should broaden their perspectives and consider how they can innovate across eight broad areas: reimagining business models, delivering new customer experiences, developing ecosystems, designing new products and services, creating frictionless and integrated digital experiences, optimizing processes, improving end-to-end supply chains, and “agile working”.

In agile working, innovation teams deliver work in an iterative and incremental manner. They also constantly test ideas with customers to obtain feedback for prompt improvement. This allows the team to adapt quickly to changes and better manage uncertainties in innovation. 

Build the right team

Irrespective of the type of innovation initiative, the team setup to plan and execute the initiative plays a critical role in its success.

There are seven aspects that constitute a successful innovation team:

1. Set up a cross-disciplinary and integrated team from the business, design, engineering and technology.
2. Build a customer-centric culture and mindset for the team to stay focused on developing value propositions that meet customer expectations and fit market needs.
3. Maintain both a short- and long-term view of current and emerging customer needs.
4. Shift toward agile working in the work environment to improve productivity.
5. Carve out dedicated responsibilities for team members so that the team is not distracted from daily operational work. This will also allow the team to focus on innovating and provide a conducive environment that promotes collaboration and sparks creativity.
6. Establish KPIs based on the cultural and behavioral shifts mentioned above.
7. Invest in the appropriate tools and methodology.

To illustrate the value that an innovation-fit team can bring to the table, consider how a large energy retailer prioritized innovation by investing in an innovation hub. The move sought to enable employees from different business functions to collaborate and brainstorm the development of new business models, ideas, product bundles and services. The employees formed multidisciplinary teams to collaborate, develop prototypes, test and iterate based on customer feedback before scaling up and launching prototypes in the market. 

Overcome resource challenges

Even if organizations are able to formulate customer-centric ideas and set up innovative-fit teams, resource challenges could prevent projects from taking off. There is often a lack of funding support as it can be challenging to build a strong business case and translate creative ideas into quantifiable and tangible outcomes for the business. Organizations also need to be more resourceful in creatively reusing currently available resources instead of demanding additional technological investments. Therefore, brands must be prepared to fundamentally change how they deploy resources and operations as well as strengthen their focus on the customer. This transformation process alone is a long journey.

Brands need to be intentional in this transformation process and have an actionable innovation strategy. The strategy needs to be guided by a customer-centric culture, enabled by dedicated innovation teams and supported by strong sponsorship from the senior leadership team to invest in tools and technology that promote innovation.

This article was authored by Sungkyu Chang, EY Asean Customer and Growth Leader, with contributions from Paul Peters, EY Asean Products and Services Innovation Leader, and Jaslyn Loo, EY Asean Commercial Excellence Solution Leader.