As a passionate customer insight strategist, I tend to prefer an outside-in business strategy, meaning one that looks at customers’ latent or hidden needs and translates them into solutions that will serve them. In other words, a strategy that focuses on co-creating value together with your customers.
That said, I’m also intrigued by companies that do what they believe in and stay close to what they know best by simply creating value for their customers without any outside collaboration.
Let’s take a closer look at both strategies to help assess which approach would work best for your business.
An inside-out innovation strategy is guided by the belief that an organization’s inner strengths and capabilities will produce a sustainable future. All new ideas are born inside the organization, typically generated by management or the innovation and R&D departments.
Schorem is a great example of a successful inside-out strategy. The company started as an old-school, men-only barbershop in the heart of Rotterdam, and it still specializes in the classic cuts that have proven themselves over the decades and are famous in and outside of The Netherlands. However, it has expanded to become an international barber school and now also organizes events related to the Schorem belief system, lifestyle, and brand.
It’s the people (they call themselves “scumbags” but don’t worry, they are very polite!) that work there. They are passionate and professional, living the culture of the “olden days” and offering this experience to their customers. When you enter, it feels like you have been taken back to the past.
An inside-out approach starts with what an organization already possesses before looking at anything else. It assesses as an organization’s core competencies, talent, resources, customer relationships, and networks and how these could be leveraged.
Research has shown that very few organizations know why they do what they do. Why does the organization exist? Why should the CEO get out of bed in the morning?
But until an organization identifies its central belief and message, it will most likely continue to communicate in a mediocre way.
If I asked you to name one of the most innovative and ingenious technology companies of the last 10 years, the chances are that Apple would be one of the first to come to mind. No one can argue with the power that Apple has to get millions of people standing in line for hours in the bitter cold just to buy a phone.
Apple uses the (inside-out) “Golden Circle” marketing method.
Traditional marketing methods start with the “what” followed by the “how” and ending with the “why”. The Golden Circle marketing process used by Apple starts with “why”, meaning the central belief of why the organization or movement exists.
The development of such a powerful core belief system is what makes successful companies like Apple so attractive to its customers. Once Apple was able to establish its powerful central message, it was able to sell more than just computers.
Although inside-out companies like Apple say they don’t ask their customers what they want, successful companies have a very good sense of what we call customer instinct. I believe that’s part of these companies’ success because they combine their inside-out strategy with a strong understanding of their customers’ needs, challenges, and lifestyles.
Inside-out companies that don’t have a good sense of customer instinct tend to follow the competition.
After years of impressive success, Toyota's focus shifted away from meeting customer needs toward the internal goal of beating General Motors and maximizing growth. This caused Toyota to lose sight of its customers and consequently, the quality of its products suffered.
At its worst, inside-out thinking can distract companies from their true purpose of driving customer value.
The key question is how do you develop customer instinct without questioning or surveying them? And remember that discovering what customers want and asking what they want isn’t the same thing.
Some people, Steve Jobs is a great example, are just born with a great sense of what people want and are able to observe people’s “jobs-to-be-done” in such a way that they can be translated into innovative solutions like the iPad. But people like Steve Jobs are rare gems indeed!
Henry Ford is another excellent example.
If I would ask people what they want they would come back to me with a faster horse.
- Henry Ford
The horse is people’s reference point, which makes the answer very logical and therefore not very innovative.
Does this mean that you can’t get good insights by talking to customers?
Instead of traditional (time-consuming and expensive) market research explore new methods and tools of gaining insights that enable you to observe, learn, and get inspired… faster, better, and cheaper.
Using new methodologies such as ethnographic research and private online (insight and co-creation) communities can give you insights into your customers’ journeys and hidden needs without you asking them questions about improvements and innovations.
Just asking customers directly what they want won’t give you the insights you need because most people don’t know what they want until you show it to them. So you need to do things differently and more creatively, for example, through observation and projective techniques.
The outside-in approach is guided by the belief that value co-creation with the customers is the key to success.
Innovation processes involving customers, especially lead users, are more likely to succeed in the marketplace since customers have better and more creative ideas than internal product developers.
In the outside-in approach, the key word is "need", not product. Outside-in companies think expansively. They're totally immersed in the minds of their customers, looking for ways to expand demand.
Their business plans and value propositions derive from the marketplace, based on the knowledge gathered at ground level. Often, the needs they define haven't yet been identified by the customers themselves!
For an outside-in company, a sustainable growth strategy starts with understanding the difference between what you make and what people need, which often turn out not to be the same thing. Tapping customers’ energy and imagination, outside-in companies explore the perspective of their previous, current, and future customers, exploring what's going on in the real world.
Having stepped outside of their business, outside-in companies work backwards to ask questions about the business to find out how they can pursue the identified market opportunities.
Typically, an outside-in organization asks itself:
With its focus on the external world, outside-in companies are typically less mindful of their limitations than inside-out companies.
Tesco’s outside-in approach transformed the UK grocery chain from a mediocre performer that was losing market share each year to the leading grocery retailer in the country, known for its strong customer focus. Now, however, they are losing market share to Waitrose, Aldi, and Lidl, who are doing a better job at the consumer level.
Dell built its initial marketplace success with a strong outside-in perspective. Conventional wisdom says that big, powerful customers provide lower profit margins precisely because they are so big and powerful. But Dell earned higher margins from its large "relationship" customers because it used an outside-in perspective so well.
Dell later ran into trouble because it didn’t adapt well as customers and technologies change, and it failed to anticipate those changes.
Maintaining an outside-in perspective can be difficult when companies use too many conventional and traditional consumer research methodologies like surveys and interviews because these methods deliver conventional information without enough rigor and context. So companies can miss out on the “wow” insights around trends and hidden/latent customer needs.
The easiest and most scalable way to generate insights from your customers is to use dedicated platforms, software, and tools, such as HYPE Ideation. Everything starts with an open innovation challenge campaign, and you can control who you invite to participate and gather insights from.
Download our white paper here to learn more about shared value creation with your customers or other stakeholders.
Insight activation is just as important as insight generation and if a company doesn’t spend enough time on activating insights (sharing and acting on customer/market understanding gained from research in marketing, R&D, and innovation platforms), it will fail to respond to market opportunities and threats.
While outward-facing functions like marketing, sales, business development, and customer experience management need to adopt outside-in thinking, management roles like HR, finance, planning, and operations need to consider both inside-out and outside-in strategies.
The best organizations skillfully employ both approaches. They are mindful of where their strengths and weaknesses are, and they use their organizational “radars” to detect opportunities and threats.
Such organizations know that the most effective business strategies need to consider both internal practicalities and external shifts.