Failure to Innovate or Meet Customer Needs

What Is Failure to Innovate or Meet Customer Needs?

Failure to innovate or meet customer needs is a risk that occurs when a company doesn’t respond and adapt to trends at a pace that meets or exceeds that of their peers. High-profile examples of failure to innovate or keep up with consumer taste include Kodak and Blockbuster, once-leading players in their respective industries that failed to adapt to the changing market.

Why Is the Failure to Innovate or Meet Customer Needs a Top Risk for Organizations Today?

No company is immune to competition, and the wholesale disruption of industries can occur at any time. As technological advances continue to accelerate and push the boundaries of what companies can offer, organizations are under more and more pressure to address customers’ emerging needs or face losing out to competitors. Amid the generative AI boom, for example, Google found itself trailing the competition when OpenAI released ChatGPT four months before Google’s rival product launched.

Additionally, consumer preferences are changing at an ever-faster rate because of mass communication, technological development and market segmentation. Companies must therefore keep an eye on the latest trends and tastes. This increased focus can be costly and resource-intensive, but it allows companies to tailor their products and services to meet shifting consumer expectations, ultimately strengthening loyalty and sustaining their market position. Fostering brand-loyal communities has proved to be an effective marketing and business strategy. Companies unwilling or unable to make similar investments can face a real risk of losing out to their competitors.

Further, as more and more industries and companies become more globalized, competitors exist around the world. In the context of a tightening economy, an increasing number of companies have to compete for more-discerning consumer spending, driving the need for businesses to differentiate.

A changing regulatory and legislative environment also heightens the risk of failing to innovate. Even if a company is not immediately at risk of losing out to a competitor, if it struggles to adapt to a change in regulation while its competitor responds quickly and effectively, the competitive landscape can change. Staying responsive to evolving market dynamics while monitoring and responding to regulatory developments can be a challenge for both emerging and established companies.

How Can Organizations Mitigate the Impact of Failing to Innovate or Meet Customer Needs?

One of the strongest determinants of a company’s ability to innovate is its talent. Therefore, establishing a broad and diverse pool of talent that can consistently generate new ideas is critical to success. Securing and maintaining an innovative workforce involves three key actions, each with its own best practices.

Acquiring talent:

• Look for creative people who think outside the box and are not afraid to challenge the norm.
• Embrace diversity, equity and inclusion practices to attract people who come from different backgrounds and offer diverse perspectives.

Retaining talent:

• Support employees through appropriate rewards, recognitions and benefits.
• Establish long-term career development journeys that empower employees to continually develop and grow with the company.

Reskilling and upskilling:

• To make sure that organizations evolve to meet changing needs, identify and define future requirements to create a road map for employee skill development.
• Ensure that employees have a thorough understanding of required reskilling areas so they can take ownership of their development paths and adapt and succeed in the future.

With the right talent in place, companies must then ensure that the work environment is conducive to innovation. Companies can create a culture that encourages exploration and experimentation by tracking related key performance indicators or offering employees rewards based on creative problem-solving and innovative ideas. A risk management framework that supports the company’s vision or objectives also fosters a culture of innovation. However, innovation can create new risks, so it’s important to review existing insurance policies when introducing new products or services to evaluate any potential coverage gaps. If new exposures are outside of a company’s risk appetite and can’t be transferred to the traditional insurance market, the company can consider alternative risk transfer options, such as a captive insurance company, to help manage the risk.

Instead of building capabilities from the ground up, organizations can boost innovation by acquiring new technology and services. Organizations that plan to acquire should conduct due diligence prior to acquisition and minimize transaction risk through warranty and indemnity insurance.

While innovation in the form of intellectual property (IP) such as patents and trade secrets has become one of the most valuable assets for companies, it is often one of the least understood, valued or protected. To remain competitive, companies must take measures to protect their IP. In addition to filing for patents and establishing procedures to protect trade secrets, highly competitive businesses are increasingly considering purchasing IP liability insurance as a risk transfer strategy.

General Disclaimer
This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent, or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss caused by reliance on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.