#347 from Innovative Leader Volume 7, Number 6          June 1998

Discovering Customer NeedsóFour Key Questions
by Bobby M. Phillips, Ph.D.

Dr. Phillips, recently retired from Eastman Chemical, is proprietor of Exponential Solutions in Jonesborough, Tennessee (phone 423-477-7098; email expsoln@preferred.com).

Needs-based innovation is one of the most important approaches to business growth.  Its basic premise is that one starts with an understanding of the customer/consumer problem (opportunity) and then develops a commercially viable solution (opportunity).  In theory, this approach should prevent working on the wrong problem. 

There are six classifications of potential efforts (projects) involving expenditure of resources in innovation.  1)  Projects responding to customer needs that are clearly understood by the customer and if a solution were presented, the customer would purchase.  2) Projects responding to needs that are poorly understood by the customer; but if an eye-opening solution were presented, the customer would purchase.  3)  Projects that respond to needs of which the customer is completely unaware; but if an eye-opening solution were presented, the customer would purchase.  4) Projects that, even if technically successful, the customer wonít purchase and, furthermore, the customer clearly knows that now.  5)  Projects that even if technically successful, the customer ultimately wonít purchase; but, at present, the customer has a very poor understanding of his/her ultimate purchasing decision.  6) Projects that, even if technically successful, the customer ultimately wonít purchase; but, at present, the customer is completely unaware of any information or motivation influencing the ultimate purchasing decision. 

Itís clear that commercially successful projects fall into the first three categories.  Itís also clear that as many as 30% of the projects in large companies fall into the last three categories (see J. Prod. Innov. Manag., 1992:9:3).  This fact, alone, provides sufficient motivation for improving the processes involved in discovering customer needs.

The purpose of this article is to explore the types of information that may be obtained from customers that are necessary in making intelligent project-selection decisions. 

There are four key pieces of information that can be obtained from customers:  1)  What is the problem?  2)  Who has the problem?  3)  How important is the problemís solution to the customer?  4)  How valuable is the problemís solution to the customer?

What is the problem?

Many people take this question for granted.  Yet a poor answer is a major source of preventable failure in most innovation processes.  The answer must be from the perspective of the customer, even though the answer will be used by the potential supplier in its decision-making process. To maximize utility of the answer, the problem definition should contain a clear description to enable a decision about whether or not the expertise (competencies) of the supplier matches the problem.

An experience, several years ago, demonstrates the potential to be led astray.  I was made aware of a potential customer who allegedly had a technical problem with blood filters.  A colleague and I attempted to define the need but remained very uncomfortable with the definition even after a couple of rewritings!  In desperation we called the customer to better define the problem.  In a rather lengthy discussion he said that, in reality, the technical performance of the blood filter was almost perfect (then whatís the problem?) and that the main purpose of the unit was to prevent air from reaching the patient's blood stream (was this a new definition of the problem?). 

We replied that obviously he was having trouble with air getting through the filter unit, to which he replied, "No, these units never fail in this regard!"  At this point we were clearly dumbfounded but we kept stimulating the person to define the problem.  Finally he defined his problem: "Our current filter unit has x % of the market and we want to increase it to y % and we thought a Ďgimmickí in the filter might enable us to do that."  This final description of his problem is amazingly different from our initial understanding, and had immense impact on our decision as to whether or not we tried to help him solve his problem.  Remember Peter Drucker's famous quote "What the people in the business think they know about the customer is more likely to be wrong than right."

Who has the problem?

There are at least three important owners of problems to which industrial innovation responds: The paying (external) customer, the manufacturing (internal) customer, and the business organization or company (internal) customer.  Obviously there needs to be a balance in responding to these problem owners.  However, I strongly suspect that in many companies thereís a significant imbalance toward internal problems.  One good way of determining whether or not a company is customer driven is to look at the balance and make sure itís consistent with being customer driven.  The tendency is to classify more problems as external customer driven than is really the case.  Thus a careful unbiased approach is helpful in answering the who question.  In the final analysis, a significant part of any innovation program must be directed at "making the customer smile green" for all companies run on that external source of green (or whatever color your currency is)!

How important is the problemís solution to the customer?

The answer to this question is key to determining allocation of resources by any potential supplier.  The dominant factor is the extent to which an innovation effort helps solve the customer's most important problems.  Obviously sharing this type information requires high levels of trust and/or secrecy agreements to protect the interest of the customer.  Without guidance provided by the answer to the importance question, much industrial innovation is misdirected and ineffective.  If a customer is unwilling to share importance information there are three hints that can help:  1) How many people does the customer have working on the problem? 2)  How much money is the customer spending to resolve the problem?  3)  How many other suppliers are working on the problem?  Also, timing issues around potential solutions are an important part of the importance question.

How valuable is the problemís solution to the customer?

Information of this type is very useful in estimating selling prices and, when coupled with the costs of potential solutions, can be used to estimate the profitability of any potential solution.  Suppliers tend to make very cursory estimates about value, if they make any estimates at all!  Reasonable estimates of value to the customer can be made about every problem he/she has.  However, itís difficult to instill and maintain the discipline to make these estimates.  Furthermore, few problems are similar.  This means "cookbook" approaches are usually not applicable. 

Competitive advantage can be achieved if shared understanding is reached between the customer and the supplier concerning the answers to these four questions.  An approach I have found useful is to send the information back to the customer in written form for verification.  Shared understanding requires the practice of circular, instead of linear, communication.  Over seven years worth of data, involving six needs discovery projects and more than 20 customers, shows that the customer changes the information sent back for verification over 50% of the time!  As hard as they try, suppliers usually donít get it right the first time.  This lack of shared understanding is a major cause of product failure. 

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Overcoming Our Education

Could it be that our educational systems are grossly biased toward teaching problem solutionóthe problems are defined for you at the end of the chapterórather than problem definition?  Unfortunately, needs discovery in industrial innovation doesnít have a role that corresponds to the teacher who defines the problems absolutely.

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