What You Can Learn From Your Customer’s Customer

Innovative companies fund internal research and development to gain an edge in the marketplace. They also work closely with their suppliers in an effort to offer greater functionality and performance for their customers. However, some critical new product insights don’t come from suppliers and customers working together but from the customer’s customers. When suppliers and customers cooperate, the authors write, they can “tweak” the technology to provide big gains in value for the customer’s customers. In contrast to recent research on how suppliers and customers cooperate to save on costs, the authors examine the innovation process to understand how to achieve outcomes for the end user that otherwise would not occur. Drawing on numerous examples from technology companies, they look at how suppliers and customers become open to tweaking the supplier’s offering to better serve the customer’s customers; what makes for successful tweaking; and various ways parties can share the fruits of collaboration so that everyone benefits.
Although some progressive suppliers and customers saw the potential benefits of working together, many of the businesses the authors examined regarded this kind of cooperation as a last resort. Small suppliers saw large prospective customers as slow to make decisions and overly aggressive about claiming intellectual property that came out of collaborations; large customers also tended to withhold information about how they used the suppliers’ technologies and their customers’ applications. However, the authors found that some technology businesses consciously seek opportunities to cooperate with their customers and customer’s customers. This was particularly true with small and medium-sized companies.
The authors explore two key issues: the extent to which contact between the supplier and the customer’s customer needs to be direct; and how businesses bridge across different partial understandings to improve their chances of success. Although being able to interact with the customer’s customer directly is desirable in many instances, the authors found that businesses that aren’t able to arrange for this can compensate. The authors also found that by working together with their customers and the customer’s customers, some suppliers identified new business models that made their offerings more valuable.