By Ilana Westerman, CEO, Create with Context

Many companies remain shell-shocked from the past 18 months of economic disaster.  As such, innovation – despite its potential rewards – is not exactly in fashion right now.

Though gurus like Jim Collins and others extol the virtues of using the downturn to capitalize on market opportunities or a competitor’s weakness, companies today are more likely to take a wait-and-see approach to innovation:  “Look for the quick bucks and the low-hanging fruit,” you might say to your management team.

But wait a minute: why not invest in innovation? And I’m not talking about focus groups and customer feedback surveys and Friday afternoon brainstorming sessions.

Economic indicators suggest that we are slowly pulling out of this global economic downturn. Despite the uncertainties ahead, this is the optimal time to think about innovation in a different light: what new groundbreaking product or service would truly resonate with your customers? It’s probably something they can’t articulate themselves. But it’s worthwhile to take the time to discern what motivates your customers and how you could meet a need they don’t even realize they have. In our work with clients, we call this calculated innovation.

When executives think about innovation, what often comes to mind is not far from the truth: engineers and marketing chiefs sit around a table and pontificate on the next big idea. This is fuzzy and abstract, and often not grounded in reality. Where do these ideas come from and how can you measure your risk?

No wonder innovation is scary for many companies. It could be a huge waste of money and time. Calculated innovation, on the other hand, is a process founded upon research to determine customers’ beliefs, motivations, and needs. That customer view is then mapped against the world in which your customers live: the cultural context and larger societal trends.

We have an alternative energy client, Mariah Power, a young company that manufactures wind turbines for businesses and residential use. The company came to us because they wanted to develop better awareness about the power of wind, which to many people is pretty abstract. While a potential customer could go to the company’s website to learn all about the Windspire turbines and how much wind was required to run one, the context was missing. What’s wind power going to do for me?

Research first, innovate later

To help find a solution to the problem, we started with in-depth ethnographic research. This involved in-home observation of consumers in three different states related to “green” behaviors such as recycling and environmentally-friendly products. The resulting research helped us define two different customer groups: one that goes the extra mile to be green, and another that needs an easy way to go green.

Using that research, we came up with a design for an application for Apple’s (AAPL) iPhone  called Windspire Me, that allows a user to simply hold the phone’s microphone up in the air to gain a reasonably accurate measure of the wind speed in their location.

The app gives the user a sample wind speed, with contextual information: this will power your microwave and toaster for a year, for example. For green enthusiasts, we included a button on the app that allows them to share their readings with friends. As more readings are shared, users can then see maps of wind speeds across their community to inspire grass roots lobbying for local green power. The app has just been submitted to the App Store, yet Mariah Power is already seeing some benefits.

“All we can say now is that interest has been really high,” the company’s spokesperson Amy Berry told me. “And for us, awareness is a big objective.”

Innovation is in the details

What we’ve also uncovered over the years is that calculated innovation is not just about the big picture but also the fine details. Execution is everything. During user testing for the Windspire Me app, we noticed that people were obstructing the microphone with their fingers when trying to measure the wind speed. As a result, we included a design change to show a visual in the app instructing people how to use it correctly. This iterative process of design is what makes a product in the end successful and valuable for users.

The point here is that innovation takes a thoughtful process. It takes macro-thinking and micro details. Most of all, it requires a deep, contextually-rooted understanding of your target customer groups.

We worked with Adobe (ADBE) Software on a several-month research project to determine how young people below the age of 18 use technology. The research uncovered many factors that defy conventional wisdom about software: the emerging generation could care less about a product with 20 new features but what they absolutely need is collaboration.

The next generation also sometimes wants to buy a piece of a product based on a specific need, versus the whole package. Adobe didn’t request the research to merely influence its next software versions– but to help shape the course of products over the next 10 years.

Surely, the company’s design strategy will change repeatedly in the next decade, but this long view of innovation is what will set companies apart from their competitors.

If you spend more time thinking about the future and researching what your customers will be doing and needing, you’ll have the proof to back up your plans for innovation, and that mitigates both the fear and the risk. This is the power of calculated innovation. What are your thoughts?

Westerman is co-founder and CEO at digital products consulting firm Create with Context, based in Santa Clara, CA.  The company helps clients develop and design products based on customer behavior, context, and technology.