Inside Out — The usual approach is to look at our existing problems (usually operational) and solve them or to look at the existing processes and change them to make them better, faster safer, or cheaper, in order to better serve customer needs. However, the link between the problem being solved, the proposed solution, and the customer need is frequently tenuous and usually based on unshared, unexamined, unproved assumptions. More often than not, the time and effort expended does not justify the eventual outcome.
Outside In — Start with the customer’s goals, determine what capabilities we need to meet those goals, and then what actions we need to take to build those capabilities. Actions could be changes in leadership styles, process modifications, or changes in organizational structures, rules, policies, norms, etc. This works really well for organizational transformations. For product development, techniques that can be useful are Gojko Adzic’s Impact Mapping and Tom and Kai Gilb’s Stakeholder Value & Product Quality Requirements defined in Evolutionary Project Management.