George S. Day and Christine Moorman

Outside-In Thinking About Growing the Top Line

Monday Nov 29, 2010

Most firms follow a narrow spectrum of the possible innovation pathways in their search for a higher rate of top-line growth. Their menu of pathways is limited by inside-out thinking as a consequence of (1) inertia (this is how we’ve always grown), (2) path dependency (this is what we know and can do), and (3) the necessity to match rivals (they did it, so we should follow). The full spectrum could span as many as fifteen innovation pathways.

In industries in which the competitors move in lockstep, there is a conventional wisdom about what customers value and how to innovate. Software companies tend to focus on developing code. Bioscience companies concentrate on curing cancer or cardiovascular disease. Advanced materials companies devote most of their innovation efforts to customer applications. These are important avenues for innovation, but they should not preclude other pathways.

Pursuing an innovation pathway that others are not following can be a game changer because it takes competitors a long time to understand the move, and it requires new capabilities that these rivals cannot develop quickly. These are the ingredients of a first-mover advantage.

Outside-in innovation thinking begins by asking, “How can we create new value for customers – that they will pay for?” The answer comes from stretching, pushing, and reimaging each dimension of the strategy—the customer value proposition (the target segment, the offering, and the competitive profile) and the business model (the value-creating and value-capture systems). This yields a full spectrum of fifteen possible pathways ranging from meeting the needs of non-consumers, to creating integrated solutions, to finding new ways to capture economic value such as renting rather than selling.

To apply outside-in thinking to your firm we find it best to review the innovation pathways on page 100, and then asking the management team the following questions:

1. Pick a successful customer value innovation that you or a competitor brought to your market.
Which growth pathway (or pathways) was followed? Why did it succeed?

2. Which growth pathway gets the most innovation spending in your market? Do all competitors
behave the same way? How is the innovation budget allocated?

3. Which pathways mean the most to our customers? Why?

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