One common theme I often see, regardless of company size, industry, or product maturity, is innovation. Whether you're driven to innovate to stay at the forefront of your industry, aiming for incremental product improvements, or placing "innovation" high on the company agenda due to the latest tech trend or industry disruptor, innovation remains a hot topic.

As long as I’ve been involved in product development, innovation has always been a demand, almost a must, high up on the agenda. But the real question is: what do we mean by innovation, and what are the drivers behind our innovation efforts?

The Different Innovation Types

We often refer to innovation as a stroke of genius from a revolutionary mind that changes user behaviors. The iPhone is frequently cited in this context. While it's undeniable that a new way of interacting with our phones was unimaginable before 2007, leading to an entirely new industry we now can't live without, this is not the only form of innovation. In fact, such radical innovation, where a market is disrupted by a tech breakthrough, is rare.

Most of us work within the realms of incremental and sustaining innovation.

The Two Drivers for Innovation

Understanding the different types of innovation is important, mainly to define expectations and focus brainpower. But what I find even more crucial is understanding the different drivers behind innovation, as these apply regardless of the innovation type.

I recently read a brilliant article by Doug Sundheim where he masterfully points out that to innovate efficiently, we need to pay attention to the drivers behind innovation. His perspective, especially the concrete user case he presents, made me reflect on what teams that innovate successfully have in common besides the obvious context of their work. One clear component shines through: customer-centricity.

As the article highlights, the real difference lies in what drives the innovation. I like to think about it as two different approaches:

Customer-Focused Innovation:

This develops from the desire to solve a real customer need or pain point that can generate business growth. If your starting point is solving a real and significant customer problem, and you do so in a way that creates business growth, innovation will naturally follow. This is a proactive approach that starts from a deep understanding of the problem space, market position, and product differentiation.

Disruption-Driven Innovation:

This develops from the desire to protect one's business from being surpassed by a technological shift or competitors. This type of innovation is not driven by user needs but by business needs connected to fear. This is a reactive approach, with drivers coming more from an inside-out perspective rather than a clear connection to customers.

Unfortunately, in my experience, many companies are driven by the latter rather than the former. A clear user case to consider when thinking about innovation drivers is AI. I see many companies trying to drive an innovation agenda with AI, almost as if it is expected of them. There's a fear of becoming obsolete and internal pressure to innovate. This is a perfect recipe for innovation driven by fear, not by need. This is why many attempts to use AI do not succeed.

Let's look at two concrete examples: one of a company succeeding and one failing. Note that these are external observations without internal data.

Klarna's LLM-Powered Customer Support Chat

**The Problem**: Helping customers who have a query about their order to get a fast answer.
**The Solution**: Using a custom version of ChatGPT as a digital assistant for support errands. The chat is trained to answer common questions and connect to an agent for more complicated issues. It can also handle different languages.
**The Driver**: Customer-driven innovation, powered by tech.
**The Result**: A real user problem is solved with the help of LLM application, clearly innovating Klarna’s business. The customer service GPT resolves 2/3 of customer service chats in much less time and is estimated to have a significant impact on the bottom line. The company continues to invest in this specific user case to improve the experience, likely pushing other digital products into the sphere of “innovation by fear” as this improvement will surely create new expectations for customer support response times.

On the right an image showing the effect of implementing the chat, shared at Product Tank Stockholm

Zillow's LLM-Powered Search

The Problem: Helping property seekers find properties using a conversational chat.
The Solution: Using an LLM-powered chat where potential buyers can discuss their property preferences and get results based on their criteria.
The Driver: Tech-driven innovation, attempting to solve a user problem.
The Result: I have no data on the usage of Zillow's LLM-powered search, but I assume that if it were a hit, we would have heard about it. I believe the main reason for its lack of success, at least so far, is that property searches are better solved by traditional filtering by location, price, and property type. These three criteria are crucial in real estate, and the current implementation of a chat-based search is less efficient. Additionally, users' need for control is significant in real estate searches. In this case, the technology doesn’t meet the need in the best way, and innovation falls flat.

Comparing the results of different innovation drivers

Reflecting and understanding on what drives your innovation efforts—whether it’s solving customer problems or staying ahead of potential disruptions—can make a significant difference in the effectiveness and sustainability of your innovation strategy.