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This phase of the innovation process is all about generating new ideas. The main goal is to quickly identify and better understand customer requirements, so that the products that are developed can provide the highest possible value for the customer. Proven methods for reaching this goal include customer surveys, workshops or interviews, the preparation of customer personas or customer journeys, as well as research about markets and competitors. Using crowd-sourcing to generate ideas is another possible approach. 

In general, it is recommended that companies continuously engage in trend research and proprietary rights research in their core and adjacent business areas, so they are not surprised by new developments and technologies. Similarly, it is also very important to establish a structured process for inviting, collecting and assessing innovation ideas submitted by employees, and their understanding of the current market situation. Market and competitor analyses provide a data basis for generating innovative ideas and help with making decisions about their profitability. 

To this end, the market understanding that is developed from the data basis must be easy to understand and easily accessible to all employees in the company. Either employees should be incentivized to submit independent information, or communication should be directed at them regularly on the Intranet. Easy access to this data is essential for employees who are involved in innovation management. 

Employees who have a good understanding of the market find it easier to deal with their customers and their needs, and to contribute their own ideas. Other methods for generating ideas may include idea competitions or hackathons in the company or with external involvement. This approach can also be used for researching customer requirements. A good understanding of the market promotes a long-term outlook with regard to customer satisfaction, and also reduces the response time to new developments in the market.

When innovative ideas are developed in a company, it is essential that they are structured in a formalized and systematic manner so they can be compared during the selection and decision-making process. Clear selection criteria (e.g. profitability) must be defined in accordance with a business case that must be created for each idea, so that decisions can be made as to whether the ideas should be continued. In addition, all relevant stakeholders and possible sponsors in the company must also be included, since in the ideal case every innovation project is implemented as a project with an allocated budget, resources and schedule.

If at the end of the initiation phase the stakeholders decide to proceed with one or more ideas, you have reached the next phase in the innovation process. To ensure that as little time and money as possible is spent on developing products or services that do not meet customer requirements and therefore are not profitable, it is recommended that prototypes are rapidly developed and tested with the customer in iterative cycles. In this way, acceptance of the innovation in the market can be verified as early as possible. 
In terms of concept development, it makes sense to initially define the key requirements for the new product or service, the so-called “minimum viable product” (MVP). This process should focus on satisfying hitherto unmet customer requirements, and the value proposition should be designed in such a way that it can be easily discerned by the customer, who sees the advantage compared to other products and competitors and is prepared to honor it with higher prices, for example. 
Other aspects that should be considered when redesigning products or services include:

• Degree of customer integration (e.g. through communities, prototype testing or idea mailboxes)
• Approaching alternative customer segments
• Alternative communication and sales channels
• Cooperation with suppliers, sales partners, customers, research institutions and competitors
• Settlement of the service (buy versus lease), design of cost structure and efficiency improvements in internal processes such as billing routines
• Collecting customer's operations/usage data
• Provision of novel services by recombining existing resources and core competencies, and the reorganization of internal and external value chains through e.g. partnerships
• Assessment of risks for the innovation with its consequences and probabilities of occurrence

Where suggestions have been prepared for some of these items, it is not recommended that all are implemented at once, followed by the launch of the supposedly complete product. 

Instead, prototypes should be continuously used during the development process for testing and experimentation purposes. Mock-ups based on the current state of development can already be created during earlier phases, at the latest the MVP should be available as a functioning model. Prototypes can be used not just to verify assumptions and demonstrate concepts; rather, systematic customer surveys/observations can also be used to obtain assessments and feedback about acceptance and the product’s market potential. Negative feedback about a developed product means that one should not be afraid to abort the development process at this stage. Because it is exactly in such cases that iterative product development processes result in enormous cost savings.