Building a virtuous circle of data-driven innovation

Embedding data into product and service development cycles can lead to a virtuous circle of innovation and competitive advantage.

The days of launching products into the marketplace and incrementally improving them every few years with modifications and improvements to keep up with changing tastes and fashions is coming to an end. Customers are becoming more sophisticated as innovative companies engage in continuous improvements based on ever-increasing flows of data from users as they engage with products and services. One of the key objectives for any company should be to make sure they manage this data and that it is not under the control of a third party.

Retail loyalty cards are a good example of this with retailers using the data captured to build rich pictures of their customers’ shopping habits and create stronger relationships. In the UK, the Boots pharmacy chain, a subsidiary of Walgreens in the US, claims more than 14 million users of its Advantage card and has one of the highest usage rates per transaction of any loyalty scheme. The company combines Advantage data with a range of third-party sources to improve its product offerings as well as determine where to open new stores.

Integrating data capture into the product

While retail loyalty cards could be seen as an incremental innovation within the overall retail experience, increasingly products and services are being designed with data capture at their core. Electric toothbrushes which monitor brushing habits and dental hygiene and then present the data to users and dentists have been on the market for several years. For brush manufacturers this offers the chance to become part of the health routine of users and create a form of customer lock-in as switching to a different brand of toothbrush would mean losing historical data.

Connected home devices such as thermostats, alarms, locks and lighting have similar strategies. Once the data created through usage is captured and has value for the end user, it becomes a bigger decision to change supplier. Technology companies have known this for several decades, but consumer goods companies are now waking up to the potential of embedded intelligence in products. Where many companies go wrong is not offering enough value to customers from data capture. The benefits have to be mutual or, however clever the product is, people won’t buy into it if it does not offer real benefits. The business case for smart toothbrushes is still to be decided by the market.

Leveraging customers for data creation

Amazon is the king of leveraging customer data to improve its services and innovate. Customer reviews are a key selling point for the company and cost Amazon almost nothing to collect and publish. Travel comparison sites use review data in the same way to create virtuous circles of customer value. It also shifts the power balance between these sites and suppliers that sell services and products through them. As Amazon, Trivago, Expedia and a few others become key destination portals for consumers, the importance of customer reviews increases further and puts further pressure on suppliers to fit in with the rating criteria imposed by portal owners.

While Amazon and the large travel portals use scale to build the data-driven facets of their business models, smaller companies can still use customer data to drive innovation. TomTom aggregates data from users of its navigation products to provide real-time traffic alerts to all its subscribers. Financial services company, Mint analyses user data on spending and transactions to improve the advice it offers on budgeting for other customers.

Building a data innovation flywheel

Where possible, the objective for any company using data to drive innovation should be to create a virtuous circle of data capture, integration, improvement and implementation. This requires products and services to be designed on the basis of continuous improvement. Gartner’s Doug Laney has coined the phrase Infonomics to describe how companies should treat data as a valuable resource like other corporate assets to be managed and exploited for commercial returns. The Infonomics model is a good framework for any CIO or manager thinking about how to integrate data into their company’s innovation program.

As software and communications technology becomes increasingly embedded in the physical world, the line between services and products starts to blur. Tesla is proof of this and is forcing an industry bound in a century-long tradition of incremental product improvements to understand the importance of software and real-time data capture for continuous innovation. The company is able to push over-the-air updates to a Tesla’s operating system, fixing braking and navigation problems instantly. This pattern is already emerging in other industries from haulage, heavy industrial machinery and construction to education and banking. Companies which integrate data capture, analysis and integration into their workflows and product development will be at a distinct advantage to those that carry on with business as usual. Retailers in shopping malls and high streets around the world are waking up to this fact.

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