If anyone’s got any doubt as to the business potential in social media, a recent white paper from PricewaterhouseCoopers should erase those doubts once and for all.  And I’m not referring to something as superficial – even silly – as letting your employees write their own blogs.

No, this report talks about something really significant – I would argue even revolutionary, and I am not being hyperbolic, here.  As this report from PwC suggests, the amount of customer intelligence on your company that exists now – at this moment – is staggering, its quality – or potential for spurring growth – immeasurable. 

The Internet has provided your market with the tools it needs to converse, in the form of social media – blogs, wikis, discussion forums, etc.  And the conversation – or, more accurately, thousands, hundreds of thousands, millions of conversations – are taking place now, as I write this.  The companies that learn to listen to, understand, and interpret these conversations, and innovate based on these conversations, are the companies for whom the sky is truly the limit.

Am I exaggerating?  Not a bit.  Companies now at the cusp of figuring out how to harness this galaxy of customer and market intelligence are already reaping huge rewards.  A recent Business Week article discussed how Bungie – the makers of the wildly-successful Halo3 video game – observed what some of their most ardent fans were doing completely independent of the company.  Bungie understood that players desired to “re-live” and share particular action sequences.  So they built in a feature that enables a player to “film” his play – from any angle in a full 360-degree view – and, on the X-Box platform, recommend and share clips with up to three other people at once.  The company also upgraded its Web site with features that enable players to “…use an Xbox Live account to track statistics, download saved films and edited levels, and view screenshots posted by others from within the game.”  Bungie’s clever new game components not only have increased sales, but – far more importantly – will generate a stream of ongoing revenue almost unheard of in an industry in which nearly every product is, from a revenue perspective, a one-off. 

In essence, you can begin leveraging the voice of the market now – this moment – to innovate in ways you literally cannot imagine.  Read the PwC report for yourself. 

So – are you listening?  How are you embedding the customer into your business?

I just finished reading an interesting article in Forbes called “Built for Innovation.” Authors Stephen Wunker and George Pohle conclude that successful companies tend to
approach innovation by embracing one of four models:

• The marketplace of ideas
• Visionary leadership
• Systematic innovation
• Collaborative innovation

While reading this article, I found myself recalling an excellent book entitled “The Discipline of Market Leaders” by Michael Treacy and Fred Wiersema. In this book the authors suggest that successful companies must predominantly focus on one (and only one) of three core disciplines: Product leadership, customer intimacy, or operational excellence.

I always struggled with the conclusion in this book because I personally believe that a successful company can (and should) pursue excellence in each of these areas. And while focus is key, focus to the exclusion of other disciplines it can also be self-limiting in, not least of all, expectations.

I draw a parallel between the book and article. Taking the four innovation models as our point of reference, my hypothesis in innovation is that successful companies must foster innovation practices in each of the three process-oriented models, wary of the fact that visionary leaders appear few and far between. In other words, embracing one innovation model in particular appears equally as self-limiting, whereas the models themselves are complimentary and not mutually exclusive.

Last week I spoke with the CEO of an idea management solution provider who posed the following question: if Stage-Gate has been around for 15 years and has been embraced by an estimated 70% of US mid- to large-sized manufacturers, then why is there still such incredible waste in R&D (estimated at 76% of overall R&D spend)? Good question.

My take is that the adoption of the Stage-Gate process remains largely focused on product development rather than ideation - “building the product right.” As we know, it’s great to build the product right - unless it’s the wrong product in the first place! Until such time that we all do a better job of “building the right product,” we will continue to witness incredible R&D waste.

If I’m right, then the current wave of interest around ideation and voice-of-the-market is well-placed and readily explained. It will lead to significant improvement in R&D effectiveness. Whether the heart of the challenge is the lack of credible data feeding the Stage-Gate process (i.e. ideas) or shortcomings in the application of Stage-Gate for the ideation process itself, remains to be seen.

Start-up companies feel especially vulnerable with regard to revealing their technology to potential customers and partners. But the instinct to protect one’s intellectual property - the hard-earned fruits of their innovation labors - at all costs often results in missed business opportunities. I’m not saying that we should throw caution to the wind and publish our IP on myspace.com. I do suggest, however, that we contemplate what a friend and colleague advised me a couple of years ago: That Italian racing cars do not have rear-view mirrors. The reason for this is that drivers need not worry about what is happening in their wake and should at all times focus on what’s in front of them.

More often than not, the business opportunity being explored has more potential for a positive outcome than a negative one. It’s very difficult to commercialize your technology if nobody sees it. And let’s face it – if your partners and competitors want to see your technology, they’ll find a way. Keeping our eyes on the road ahead is what helps us all to keep our market leadership position and not follow in our competitors’ wake.

So I disagree with Andy Grove when he opines that only the paranoid survive. Don’t let paranoia get in the way of realizing your company’s potential.

OK - I admit that the concept of crushing competition is appealing, provided we act within ethical and moral constraints. But if you take this attitude too far, you can miss out on opportunity. Here’s an example:

I recently attended an industry event recently where a competitor was a fellow exhibitor. Making the obligatory rounds, I stopped by their booth to introduce myself to the staffers there working the event. I had hoped to share opinions and insights into our market with the m. Instead I was met with utter rudeness and arrogance.

We all smile through our teeth at competitors and wish each other well. That’s what professionals do. It’s called common courtesy. However, smart professionals understand that competitors are also market development partners. So next time you talk to a competitor, treat them like a partner. I bet that you’ll learn more from the (somewhat guarded) exchange of market insight than you would by idle boasting.

What part of the enterprise has not been outsourced? From a Product Lifecycle Management perspective, manufacturing and product design development have been outsourced with largely positive results. In broad strokes, these services have become commoditized - which leaves innovation as the last competitive differentiator. So far so good.

Now fast-forward to today. Only 15% of Global CEOs expect ideas for tomorrow’s winning products to originate from internal R&D organizations. Industry movements, such as customer-centric innovation and open innovation, actually serve to outsource the very aspect of your business upon which your market survival hinges – your ability to innovate!

Now that’s ironic. What’s next? Is the “next” last competitive differentiator not what you innovate, but how you innovate?