The organizations we’ve studied that are successful in fostering and harvesting the results of customer innovation all have one thing in common: a large percentage of their employees at every level of the organization are deeply curious about what problems and issues their customers are trying to solve and what those customers’ aspirations are. The people in these organizations aren’t just focused on developing, producing, and delivering great products and great service. What they really love is to get into their customers’ shoes, to view the world from their customers’ perspectives, and to appreciate what it is that each group of customers ideally wants to accomplish.

When you visit one of these companies, you can feel the energy and passion. People are having fun. They tell stories about customers’ accomplishments and about customers’ dilemmas. Meetings are focused. There are few organizational politics. Resources are allocated in ways that make sense to everyone. What’s the difference between these companies--the ones we’ve described in these pages--and many other firms? It’s this: everyone in the organization genuinely wants to learn more about what their customers are trying to do and how their firm’s current and future products and solutions could help those customers accomplish their goals.

Customer-led innovation happens almost organically in organizations with this kind of culture. If everyone is focused on what your customers are trying to accomplish--your customers’ scenarios--rather than on your own internal business processes, it becomes natural to empower customers to invent new ways of achieving their outcomes. It’s a classic win/win. Customers win by achieving their goals. Your firm wins by harvesting the knowledge, the processes, and the inventions that are created by and for customers.

Not all of us are lucky enough to work in or run organizations in which everyone is quite this curious about understanding and enabling customers’ critical scenarios. As I describe the blueprint for success in fostering and harnessing outside innovation, the most important caveat is that while you may begin these efforts in one corner of your organization, with a particular target audience, your goal should be to reinvent your organizational culture around customer-led innovation, not to cloister these activities in a skunkworks or a lab.

Five Steps to Outside Innovation

1. Identify and Study Lead Customers

The fastest path to true innovation is to harness the creativity and inventiveness of your smartest customers--the ones that are the most knowledgeable and passionate about your field. These may be the sharpest dressers (Karmaloop), the most advanced gamers (Spore), the most adventurous engineers (National Instruments) or the most passionate freeformers (Zopa). Get into their heads. Learn what they care about.

Remember that lead customers fit these characteristics:

• Their self image is deeply connected to the problem domain at hand.
• They are passionate (positively or negatively) about the outcomes they want and frustrated about the issues that get in the way of achieving those outcomes.
• They are influential in their organizations and/or in their circle of family and friends.
• They have thought deeply about their problem space/domain of expertise
• They are insightful about their own context and they can easily articulate their conditions of satisfaction (what works for them; what won’t work).
• They are imaginative and visionary.
• They are pragmatic and realistic about the need for viable business models and win/win solutions.

If they are true “lead users,” they may have already invented their own innovative solutions and approaches. Study these lead customers and consider commercializing the solutions these customers have already invented, as LEGO ^® and National Instruments did. Recruit them and sponsor their efforts to modify or reframe your offerings in order to achieve their desired outcomes.

Engage in ethnographic research. Watch these customers in their normal contexts--in their homes, in their offices, in their classrooms, where it is they do what they’re trying to do. Remember that Staples’ usability designers went to customers’ offices and watched them order office supplies. Koko’s founders watched customers exercise and, in each case, they interviewed them deeply about what frustrated them, what they cared about, and what they were trying to accomplish. Unilever, Hallmark, and others engaged in a different, but equally valid form of ethnography. They engaged customers to bring their lives online--to share photos of their lives, to talk to their peers about the things they enjoyed and the things they needed.

2. Provide Customers with Tools to Use to Co-Design Their Ideal Scenarios

Give customers tools they can use to achieve their desired outcomes. These may be interactive feedback tools like the personalized strength training routines on Koko’s Smartrainer ^TM , or they may be tools for exploration and design, like SEI Wealth’s Life and Wealth Priorities game board. They may be open-ended design tools, like National Instruments’ LabVIEW ^TM or Lego’s MINDSTORMS ^TM . Or they may be tools that leverage and unlock your firm’s deep domain expertise, like GE Plastics’ ColorXpress(SM) design tools or National Semiconductor’s WEBENCH ^® . Or, use our Customer Scenario ^® Mapping technique to co-design customers’ ideal scenarios and brainstorm innovative solutions with them.

The co-design part is important. You want to be part of the customer’s creative process. Ideally you want to be able to watch how customers use, customize, improvise, modify, and extend the tools you provide. Capture all of these improvisations, modifications, and extensions. They’ll give you patterns you can learn from. What works, what doesn’t work? What are customers trying to do? What capabilities have they added? Where are they getting stuck? These patterns give you important insights about what it is customers are trying to accomplish and where you may want to take your business.

3. Nurture Customer Communities

Become part of the customer communities that your customers are part of. Ensure that executives and employees at all levels of your organization are hanging out with customers in these communities--both in face-to-face communities and in online communities. Build and nurture your own communities, specifically for the purpose of “hiring” customers as consultants to help you shape your business strategy, brainstorm new solutions, co-design new products, and debug and test new offerings thoroughly. Don’t rely only on online communities or only on customer advisory boards. Develop a strong set of focused online communities punctuated by physical get-togethers. Use these face-to-face meetings as an opportunity to co-design customers’ ideal scenarios, then validate your findings with the broader community online. Leverage your online customer communities to provide you with continuous feedback and to help you with trade-offs and prioritization decisions.

We recommend that, in addition to the many customer communities that you nurture in and around your business, you dedicate a focused effort to building, maintaining, and harnessing the inventiveness of a solid community of your lead customers. Make this a special “in crowd,” one that customers belong to not because they spend the most money or make the most noise, but because they have the most to offer in helping you co-design the future of your business. Make sure that your most thoughtful and influential executives are engaging with these customers on an ongoing basis.

Recruit these lead customers to help you shape your business and to rethink your solution domain. Monitor the results of this collaboration carefully. Keep track of how well you’re doing in helping these customers achieve their outcomes and how you’re doing in delivering on their metrics. (Remember the way Phil Gibson at National Semiconductor tracks the hours saved by the design engineers who use his co-design tools as well as their design wins and time-to-market?) Also track the new business breakthroughs that come from this design collaboration. What customer-impacting business processes have you streamlined? What new markets have you penetrated? What new solutions do you now have that you didn’t have before? And what’s the value of those solutions to your business?

4. Empower Customers to Strut Their Stuff

Encourage your customers to contribute their ideas, their designs, their creations, their inventions, their ideas to their peers. Acknowledge and reward customers for contributing content, for submitting their applications and tools, for providing tips and techniques, for spotting great new products or trends and sharing them with others, for answering other customers’ questions, for solving ...