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A New Economy Leads to Knowledge Channel Innovation

By Langdon Morris

There are six distinct innovation views that typically need to be integrated into one clear perspective in order to come out with the best possible results: three outsider viewpoints and three insider perspectives: Outsider Perspectives – Knowledge Channel Innovation, Peer-to-Peer Innovation, Outside-In Innovation; Insider Perspectives – Technology-Driven Innovation, Bottom-Up Innovation, Top-Down Innovation. This is Part 1 of a six-part series examining each of these perspectives.

The Debate Continues

The complexity of the innovation process is no mystery to anyone who has ever worked to create something new, or to run a group that is responsible for creating them on a continual basis. Because of this complexity – and the overall importance of innovation – practitioners and academics alike are searching for the keys to making it work.

Lately there has been a lot of talk about Open Innovation, and rightly so. Opening up the innovation process can bring powerful results by expanding the scope of available concepts and options, and by introducing new perspectives. Many companies that once ran closed R&D operations have found that opening their work up to “outside” perspectives has yielded great results including Procter & Gamble, IBM and Eli Lilly.

At the same time, “insiders” can be powerful innovators too, because they understand problems and possibilities from the perspective of those who create and deliver products and services. But just labeling these two types of innovators – “outsiders” and “insiders” – is not specific enough because it doesn’t necessarily help us understand the personalities and processes that the people, companies and governments globally involved with innovation must master.

The Customer Is Number One

During the last two decades the marketplace has grown progressively customer-centric – with companies striving to understand the needs and desires of their customers so that they can target more successful products and services. Although the phrase “customer-centric” is cliché, the necessity of developing a profound understanding of customers remains essential.

Companies do focus groups and surveys, market studies and competitor analysis to try to understand their customers. Many leading companies are also engaging in activities like ethnographic research, which can expose the critical, hidden factors that shape customer attitudes and behaviors. This sort of knowledge is valuable, but it can only take you so far. Knowledge Channel Innovation is innovation driven by a company’s interaction with customers.

Consider the South Korean cosmetics firm Missha. The company started as an online retailer before opening storefronts, and from the beginning it invited its customers to provide substantive feedback – about products, packaging, pricing, image – in short, everything. What Missha found should not have been a surprise, but it was new to many: its customers had a lot to say and they liked being asked. The result is that during a period of five years, Missha has built a customer base of more than 1.8 million customers who are actively engaged with determining the company’s future.

This is, in effect, a new business model, one in which customer feedback is not treated as a glorified suggestion box, but rather as a process of capturing information that significantly influences the strategic direction of the business. There appeared a fundamental shift in the market that was identified first in the 1980s, the shift from a transactions-based economic process to a knowledge-based process.1 In a transactions-based economy, the fact of buying and selling goods and services defines the structure of economic activity. Features and benefits are what matter, and what customers focus on. The act of buying creates relationships.

A Deeper Relationship

By the 1980s, however, a new pattern was clearly emerging. In the new pattern customers showed that while they did care about features and benefits, they also wanted a deeper level of knowledge about the goods and services they were buying. Astute companies, like Dell, began to provide more information to current and potential customers. The key to sharing the information? The knowledge needed to be free and available to anyone, whether or not such knowledge led to the purchase of a product or service.

In this new economy, the exchange of knowledge creates relationships. Buying and selling come later, if at all.

“The knowledge channel” is the channel that companies use to exchange knowledge with their established and future customers. Taking this exchange seriously and nurturing these relationships have defined early winners in the knowledge economy. Those companies and people involved with innovation must interact directly with customers. While marketing and product management groups may resist this radical notion, it is a requirement. And when R&D staffs talk with customers, they need to have useful information to share with them as well – it’s a two-way street.

The lesson is clear: if you want to learn about your customers, you need to share valuable knowledge with them.

1. 4th Generation R&D by Langdon Morris and William Miller. For more information see The Knowledge Channel by Langdon Morris.

About the Author:

Langdon Morris is a partner of InnovationLabs and author or co-author of six books. His most recent work, “Permanent Innovation: The Definitive Guide to the Principles, Strategies, and Methods of Successful Innovators,” is available as a free download at Contact lmorris (at) or visit