Go Innovate on the Periphery

One of the challenges facing market leaders is that transformational trends are only obvious when it's too late. Typically, transformation starts in seemingly disconnected industries, or as innocent offerings targeting completely different customer segments. To spot these trends early, companies need to heed the advice of Wharton Professor George Day and long-time thought leader (and current Innosight Board member) Richard Foster by heading to the periphery.

First, start with peripheral customers. MIT Professor Eric von Hippel has long advocated spending time with what he calls lead users. Because of their unique needs, these cutting-edge users often come up with novel solutions to problems and can provide you with powerful innovation insights. Look, too, at young customers, who are usually the first to snatch up new technologies because they don't have to unlearn ingrained behaviors. Also, consider customers facing extreme constraints. For example, a few years ago, we helped a company looking at hydration opportunities to investigate the workarounds created by soldiers in Iraq.

Second, investigate peripheral companies. Look to interesting start-ups or established companies that could creep into your market one day. In other words, avoid the temptation to limit yourself to traditional industry demarcations. As markets increasingly converge and collide, the company that will transform your industry will most likely start in a completely different industry. Also, investigate companies solving the same problems that your customers face. Pay particular attention to the ones who are dealing with those issues in different ways or targeting completely different customer groups.

At these peripheries, watch carefully for early signs of transformation. One thing to keep an eye out for is when a company with a business model that looks unattractive to historical market leaders comes up with a solution that makes it easier and simpler for people to address an identified pain point. Remember, transformation starts innocently, so ask what developments would indicate an accelerating pace of change.

Getting to the periphery not only helps to spot transformation early, it exposes leaders to new mindsets that support the pursuit of innovation and growth. For example, my client visited a range of start-ups and more established but non-competitive industry disruptors (for example, a supplier). Leaders returned from these visits with a number of interesting insights. One observed how the fear of running out of cash spurred incredible creativity in start-ups. Another told a story about the representative of a young, mid-sized company who boasted of his firm's egalitarian culture while admitting, "The boss really should be telling you these things." Several people commented on how deeply committed leaders were to innovation. Almost everyone witnessed a maniacal focus on customers.

You won't get these kinds of insights hobnobbing with the usual suspects at industry trade events. Find ways to get to the periphery to better prepare you for the transformations to come.