Developing new products and services in today's economy requires a process of adaptive innovation—in other words, the ability to adjust to the fast-changing needs of target markets. For that reason, it begins at the edge of the business, with the people closest to the customer—or with anyone else receiving value from the company.

Customers are important recipients of value, yes, but by no means are they the only audience worthy of attention. Employees, value-chain partners, investors, the media... all will experience value flowing from your organization and will need to be invited to collaborate in creating that value.

To adapt to a dynamic market's demands, your company needs relationship-centricity embedded into its very DNA. Strategic relationships, both internal and external, constitute the asset that drives adaptive innovation.

Adaptive innovation is never fixed in a point in time; it is never "one and done." It is ongoing, creating new norms through creative disruption of the status quo... because if you don't disrupt yourself, someone else will. I have seen in my consulting work with clients that disruption often comes from an unknown or an underestimated competitor. Marriott is not going to get disrupted by Hyatt; it gets disrupted by three college dropouts who rent out an air mattress in their apartment. Now look at the market capitalization of Airbnb.

There are three fundamental steps necessary to support this process of co-creating value via adaptive innovation.

1. Listen louder

Expand your organization's environmental scanning capacity to find—and your ability to prioritize—relevant information in guiding strategic planning, innovation, and marketing.

Some might think I'm using "listening louder" as a synonym for environmental scanning, market intelligence, or market sensing. That's not the case; none of those have a pulse! While they are all activities that produce information needed to drive strategic planning, and each feeds the process of listening louder, they do not emphasize the active role of the entities to whom you are listening.

Listening louder allows organizations to transform customers, partners, and employees (strategic relationships, all) into active co-creators of value rather than passive consumers of value.

Listening louder to your strategic relationships also helps you discover information that your managers didn't think to monitor, that your data mining algorithms were not tuned to detect, that the media you follow hadn't yet become interested in. Listening louder casts a much wider net than environmental scanning alone. It takes you outside your industry, outside your geography, outside the echo chamber of your internal relationships:

  • What is that brilliant professor at that lesser-known university doing?
  • What is that process consultant in that other smaller market doing?
  • Why is a passionate JP Morgan Chase executive with deep domain expertise thinking about negative yield?
  • What is that incubator startup doing with Watson?

2. Detect faint market signals

These faint signals the emergent bits of information that offer organizations a means to detect trends or changes in environmental factors early on, thus giving you a head start over your competitors with regards to adaptive innovation.

Think of a faint signal as a unique need or randomly mentioned pain point by a broad, often unrelated audience. It might be masked as an interesting perspective by an astute customer, or an employee who notices why or how you are doing something. It could be a comment that a partner company makes related to what they've observed about your organization, or a comment you hear several times at conferences.

Strategically, faint signals are at their most valuable when they are most subtle, like the slight changes in animal behavior that precede an earthquake. But here's the rub: Many of those faint signals will simply be irrelevant to your organization. That's why you need a litmus test to detect which are relevant to you, to your market dynamics, and to the strategic path between your present circumstances and aspirational future.

If you hear something once, it could easily be an anomaly. If you hear it over and over again, pay attention. If you are hearing that rumble from people you like, you respect, and you trust… then your strategic relationships are serving as your signal scouts. They are helping you identify faint signals in your market.

3. Deploy pilots and prototypes

Once you've filtered 50 faint market signals down to 25 and identified 10 that are relevant… once you've performed the due diligence to verify, validate, or void that working set… then you will have winnowed a vast array of potential innovations down to a small handful, perhaps two or three.

Then the question becomes, "Now what?" This is the time to act like a hungry, nimble, but thrifty startup. I counsel my clients and mentees to follow a path of pilots and prototypes very early in the innovation lifecycle.

Build a version of your innovation that makes its value evident. You don't need a perfect working model; you just need something tangible that conveys how it eases a pain point or delivers a gain, how recipients of this value are explicitly better off because it exists. Doing so takes a certain mentality: If you're not embarrassed to show it, you're too late. When you're 80% ready, move; the last 20% doesn't matter.

Conversations around a prototype are the co-create economy version of focus groups. That prototyping is going to go through multiple iterations, each benefiting from the reactions, insights, and suggestions of the previous one. As Guy Kawasaki said, forget about the PowerPoints; focus on prototypes!

How do you create a model of an idea quickly and get that in front of your target audience? Not friends and family: They love you, but they are not going to write you a check for your innovation (and if they do, it will be for all the wrong reasons).

To launch a big idea, get a prototype to an audience that will care, that knows the difference, that will recognize the value in what you are trying to create.

Customers are not the only people who need to be invited into that conversation around innovation and value. Your employees are also crucial contributors to your innovation engine. Polly LaBarre, a director of the business think tank Management Lab, told Forbes, "Simply put, you can't grow the innovation quotient of your company if you don't invest in employees' creative capacity. If you want to strengthen the creative capital of your company, you must make innovation an everywhere, everyday job."

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Three Ways to Co-Create Business Value (and New Products and Services) via Adaptive Innovation

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image of David Nour

David Nour is an expert in business relationships and the author of the new book, Co-Create: How Your Business Will Profit from Innovative and Strategic Collaboration.

LinkedIn: David Nour

Twitter: @davidnour