December 2008 Archives

Gerard Tellis and Ashish Sood wrote an interesting article last week in the Wall Street Journal on How to Back the Right Technology. 

Briefly, the article states that in figuring out which technologies to back executives make three fundamental mistakes:

• they fail to distinguish between different levels of technology
• they assume that technologies evolve along a linear path from innovation to obsolescence
• they fail to recognize that innovations fundamentally shape and alter consumers' tastes

The authors recommend that in the end companies are better off betting on more than one horse in deciding which technology to back.

Mistakes 1 and 3 grabbed my attention because of their strong implications for designers of customer collaboration and value co-creation programs . 

• Mistake 1: When I hear Tellis and Sood urge executives to distinguish between three levels of technological innovation - platform, design, and components - questions such as what are the relative roles of the company and the customer, where does technology begin and where does customer intuition take over, come to mind.
  
• Mistake 3: The authors caution executives about concluding that shifts in customer decision criteria or preferences are due to whims.  They argue instead that these shifts are due to and driven by emergence of new platform technologies.  To illustrate, it is likely that with the emergence of hybrid technologies, traditional auto selection criteria such as sporty, fun to drive, etc., will exert less influence on auto brand purchased than in the past, when hybrid technologies were less developed.

The consequences for co-creation activities are significant.  Consumer psychologists and behavioral economists inform us that customers collaborate and contribute most effectively when they operate in zones consistent with their knowledge and intuition.  This is the main reason why customers find it easier to gripe, vent, and express angst, but more difficult to give a concrete voice to their future objects of preference or consumption.

No doubt that engaging customers in their optimum zones of knowledge and intuition can result in a short-term competitive advantage through feature and design innovation  - example cell phones, smart kitchen appliances, i-drives in cars, and multi-function document handling machines (printer, copier, scanner, and fax).  However, excessive reliance on customer conversations focused on design and feature innovation can also have negative long-term side effects:

• Barry Schwartz (Paradox of Choice) and Roland Rust, et.al. (Defeating Feature Fatigue) draw attention to the diminishing quality of customer purchase and usage experience due to feature bloat and increased design complexity of products and services
  
• Design and feature innovation are necessary, but not sufficient for long-term competitive advantage.  Sony was impressive in design and feature innovations related to its CRT TV's, but Samsung overtook it by investing in an LCD platform.  Nokia, Samsung, and Motorola were impressive in the number of new cell phone models they introduced every year, but Apple was able to leapfrog all of them with its new iPhone platform

The interplay between platform innovation and consumer choice criteria, where platform innovation irreversibly alters how consumers choose, reminds us that companies should not underestimate the role of technology and technical know-how in designing and executing customer collaboration and co-creation programs. 

Samsung's Value Innovation Center provides an excellent role model for way it marries its focus on technology with an ongoing concern for feature and design innovation.  During a recent visit to the center in October, I had the opportunity to witness and learn about this relay between technology and customer-driven co-creation.  

Take for example the Bordeaux TV.  Science led off the relay with the LCD platform, giving rise to desirable features such as thinness and flat screen.  The customers took over from here and helped Samsung rethink the TV, not as an electronics appliance, but as an attractive accessory capable of blending in with the furniture in a room.  The black casing, the hidden speakers, and the Bordeaux glass-like lines, all came about as a result of customer collaboration and co-creation efforts. 

Pundits remind us everyday that context is key!  Technology must play a key role in providing context for open innovation programs.  As Samsung's Value Innovation Center teaches us, the marriage of technology with customer collaboration and co-creation efforts has the potential to ensure that companies win the design and feature innovation battles, without losing the platform innovation war!

Virtually all business performance indicators suggest that GM is in serious trouble. The company has lost $73 billion since the end of 2004, sales for 2008 are down by 20%, and market share of new car sales, excluding luxury brands like Saab, is below 10%.  Not surprising therefore that a variety of prescriptions are being offered to help restore GM to good health. 

Trying to restore GM to its previous levels of glory and market dominance is like trying to drive a car looking in the rear view mirror.  What we need today is windshield thinking; fresh forward-looking concepts that will help re-invent GM for new and emerging market, economic, and social realities.
 
The social, economic, and management forces that made GM a great car company have played themselves out. In the early 20's when GM was in its take-off stage of growth, American society was taking off as well.  People were moving from rural areas to urban areas, new highways and bridges were being built, and suburban USA was beginning to change the way America lived, shopped, worked, and played.  Sloan's brilliant insight into America's changing economic class structure - a car for every purse and purpose - helped millions of Americans establish their newly attained economic identities through the GM brand they drove.

Not surprising therefore that it was not just GM's economic assets that grew during this period.  Its symbolic assets grew as well.  GM came to be more than just a car company - it became a cultural and economic icon as well.  America had bought into what GM stood for; the company and its cars had become a means to an end, a means to upward economic and social mobility.

But that was yesterday.  Today's reality is different.  GM is no longer a part of America's iconic or symbolic consciousness.  CEO Rick Wagoner's assertion that the domestic auto business remains a path of upward mobility for millions of American families may be correct, but GM's contribution to that upward mobility has been shrinking for over three decades now.  In this context, urging GM to fix what is broken is only a partial solution.  All that it will do is temporarily stem the bleeding.  Good housekeeping may fix the plumbing leaks; it will not resolve the fundamental problems of an alienated customer base and an irrelevant iconic status.
 
To reverse the decline of its economic and symbolic value to America, GM needs to reinvent itself. 

Companies like IBM, Kodak, and Apple have demonstrated the superiority of reinvention over fixing.  They extricated themselves from shrinking sales and profits by reinventing their futures and finding different ways to shake hands with the market.
 
So how can GM reinvent itself?   
 
First, GM needs to cause itself more pain.  It needs to blow up its own memory banks, so that it can forget that it was once the world's most dominant car company.  To look at economic and social realities GM faces today with a fresh pair of eyes, will require giving up the car maker mentality.  Few companies suffer economic collapse due to memory failure; most do because they remember too much too long.   
 
Second, GM needs to find a new value-ecology to play in.  One of the fastest growing new angles lies at the intersection of transportation and energy.  A new ecosystem surrounding green technologies, alternative fuels, and emission free transportation is growing rapidly.  Entire cities, communities, and countries are already on board.  San Francisco recently unveiled ambitious plans to turn the Bay area into one of the world's leading centers for electric vehicles.  On the other side of the Atlantic, Sweden has made an astounding pledge to phase out fossil fuel usage by 2020.  Its citizens are already using buses and cars powered by methane made from garbage. 
 
Third, GM needs to rethink its markets and customers.  Markets and customers are not just those who consume GM's products and services.  Markets and customers should also include those who enable the consumption of GM's products and services - cities, governments, transit and public transport authorities, energy providers, and distributors.
 
Fourth, GM needs a new blueprint for drawing its own boundaries and determining who to partner with.  Trying to do everything yourself is yesterday's thinking, as is turning a blind eye to activities that lie outside a company's domain of primary operations.  In today's connected world, companies create value for their customers and for themselves by aligning with a carefully chosen set of collaborators.  Should GM collaborate with cities like San Francisco and invest in infrastructure projects for electric vehicles?  Or with companies involved in the production and distribution of alternate fuels?  Who GM decides to flock with in its new incarnation will significantly determine its future economic and iconic value.   
 
Fifth, GM must invest in a different set of eyes and ears - a set that promotes strategic sensitivity and vigilance.  GM lost its way because it lost touch with how its markets, consumers, and competition were changing.  Staying connected with the market, engaging customers in innovation conversations, and paying attention to changes taking place at the periphery before they become mainstream trends will help GM's reinvention efforts.

And finally, GM needs to rethink its approach to managing and management.  GM needs a management team that favors learning, investment, and innovation.  In the early part of the 20^th century, managing at GM was all about shaping markets and creating possibilities.  A combination of big ideas and business experimentation helped GM outpace its competitors.  Ideas, experimentation, and execution that create and shape markets are going to be at a premium in the first half of this century as well, not housekeeping fundamentals like quality and efficiency. 

Is GM capable of building a new organization in this century, the way it did in the last?  Is it capable of committing itself to a new risk?  That depends on what it values more - memories of bygone greatness, or the entrepreneurial excitement of a brand new economic and social journey, but with no guarantees of gold at the end of the rainbow.  Few companies get a second chance; even fewer use it wisely. 
 
Surprise us, GM.

One of my favorite books is a slim 39 page gem, called Obvious Adams, The story of a Successful Businessman, by Robert R. Updegraff; first published as a short story in the Saturday Evening Post in 1916.  It is an interesting story of poor boy who began life as Oliver B. Adams, and who grew up to be known as Obvious Adams in the business world. 

Why Obvious Adams?  Because of his simple but effective philosophy which states - in all our affairs, the obvious is most likely to work out well, and in business to prove sound and profitable.   So, why doesn't everybody follow this profound advice?  For several reasons, explains Updegraff - chief among them being that the obvious is apt to be so simple and commonplace that it has no appeal to the imagination.  In today's lingo - the obvious lacks sex-appeal!

Unlike Obvious Adams, A.G. Lafley is not a fictitious character.  But like Obvious Adams, Lafley is a successful businessman.  Recently, the CEO of P&G had lunch with Elizabeth Rigby of the Financial Times, and as I read the article that described their conversation, I could not help but think of the parallels between Lafley and Obvious Adams - between what Obvious Adams espoused and what Lafley has practiced. 

In his eight years at the helm, Lafley has turned P&G from a bloated and bureaucratic business back to being an American icon.  How did he do this?  Not by the sheer force of logic, nor by leaning heavily on bulky management speak.  He did it, as he explains in his book The Game Changer, co-authored with Ram Charan, by the obvious tactic of showing empathy and respect for P&G's customer.  He did it by breaking down the organizational wall between us and them; he became one of them, one of his customers.

How many CEOs do you know who have done laundry in 25 countries?  Or sat with his feet dangling in water, talking through an interpreter to a woman and her daughter doing their laundry in a river in China?  Or studying low-income women's daily washing rituals in Mexico?  No, this is not a plug for A.G. Lafley.  It is an impassioned plea for authenticity in how organizations and their leaders do business with their customers.

Authenticity is the corner stone of customer driven innovation and co-creation of value.  Without authenticity there is no co-creation, only an imposition of what the company thinks a customer wants.  Authenticity based on respect and sensitivity to customer needs, wants, and desires should be an obvious cornerstone of a company's operating culture. 

But it rarely is. 

Most companies have little respect for their customers (or employees).  And the bigger they are, the less respect or sensitivity they are likely to show.  Its almost as if size breeds a sense of invulnerability. 

So where does this authenticity come from?  From the top, from how the mommies and daddies of the company live day-to-day.  Those of us who have been tested by parenting know the futility of don't do as I do, do as I say. 

We all know of CEOs asking their employees to do as they say.  Every now and then we come across a rare breed, who simply do, and expect the rest of the company to follow.  That's what is so appealing about Lafley.  He's a CEO and a commercial anthropologist!  An obviously explosive combination.    

May his tribe multiply!

Customer-driven innovation requires a shift in a company's mindset.

Without a customer there is no business!  What could be more obvious than that?  But while most companies claim to be customer-centric, or customer focused, few really are.  Why?  Because most companies are still product-centric, orchestrating customer interactions around a set of rigidly defined company offerings; they have yet to make the transition to co-creating relevant and uniquely meaningful value through personalized customer interactions.   

Take the example of Sport and Health, a chain of fitness clubs in the Northern Virginia area.  My family and I have been a member of this club for over 15 years.  During this time, the fundamental structure of the club has remained unchanged.  The basic identity of the club still revolves around its physical offerings - courts for tennis, racquet ball, and basketball, indoor track, fitness machines, spin cycles, swimming pool, racquet ball courts, and exercise/dance studios. 

However, we, the customers, have changed and so have our fitness needs.  If the club was truly customer-focused as it claims, then it should invest in understanding how its customers' needs are changing as they pass through various stages of their life-cycle.  Fifteen years ago, we had a child at home, we are empty nesters now.  Recently, when my membership came up for renewal, I decided to test the system.  After several irritating attempts I finally managed to connect with a human being.  I asked if they would be willing to accommodate my changed workout habits and fitness needs through a custom created membership plan.  The answer was a crisp no!  I could select from one of six standard membership alternatives; one, two, or a three year membership term, with tennis or without tennis. 

 Not all organizations are like the Health Club.  On a recent visit to the Boeing 737 plant, I saw first hand the extent to which Boeing works with its customers, different airlines of the world, to co-create relevant and specific customer value.  The interior of the plane is totally co-created by Boeing and the buying airline.

Starbucks is another example.  A key ingredient in Starbucks popularity is the ability of a customer to "co-create her coffee."  I'm pretty sure that if you were to walk in today and ask for a Gingersnap Latte without whipped cream they would oblige you, even though the drink preparation script specifies a whipped cream topping.  The Barista may lecture you on what you are giving up, but that's subject matter for another blog. 

Several factors contribute to companies falling short of their customer focused claims.  Key among them are:

1. Co-creating value with customers is effortful
2. Having to expend the extra effort tests a company's will; most companies come up short
3. Service companies, health clubs, restaurants, etc., still have a poor understanding  of innovation and its role in creating incremental customer value
4. Customer-driven innovation requires a shift in mindset, from a company-centric view that believes that value is intrinsic to a company's offerings, to a customer-centric view that says value is co-created through individual-specific interactions between consumers and companies

 

Of all the changes that the business world has faced in the last few years, none is more significant in reshaping how companies think about creating and delivering value to the market, than the informed and collaborative consumer.

For the better part of the 20th century, manufacturers and providers of services called all the shots, they enjoyed more power, relative to retailers and consumers. This picture changed with the advent of store and generic brands. As the size of retail operations increased, the balance of power shifted in favor of retailers. In some special cases, as in the case of Wal-Mart, the company no longer called the shots, the retailer did.

Power is shifting again today, this time from companies and retailers to consumers. Today's informed, connected, and web-savvy consumers are demanding and playing significantly more active roles in areas where only companies once functioned - such as price setting, product information, usage advice, advertising content, distribution, and packaging.

The informed, connected, collaborative customer can be both an opportunity and a threat.

Initially, more companies saw the threat, they could not understand the opportunity. That balance between threat and opportunity is beginning to change, especially in the area of innovation and co-creation of value. More companies are beginning to see and acknowledge the richness of interaction that is possible with new technology.

Innovation as a business and economic concept is not new. Companies like Polaroid, Gillette, Du Pont, and Apple have been practicing it for several decades. What is new is the urgency that developing an innovation competence has acquired and the realization that innovation need not be a solo venture, sponsored and nurtured exclusively within the four walls of an organization.

There is an emerging and growing awareness that opening the Innovation process, whereby a company connects with a large number of influences outside its physical boundaries, like universities, independent research labs, experts, and consumers will significantly improve the effectiveness of the entire co-creation of value process, from identification to delivery to post-consumption renewal.

Of all these open innovation connections, the one that interests me most is customer-driven innovation.

Why? Because it represents a fundamental and quantum shift in deciding which resources will be utilized to create what value for whom!

I've decided to blog about customer-driven innovation and value co-creation for three main reasons:

• Dialogue and Discovery - new movements, whether social or management thinking rarely arrive at our doorstep neatly packaged, ready for plug and play use. They need to be understood and discovered. Its my hope that my blog will provide this platform for dialogue and discovery.
  
  
• Rigor and Depth - one liners, elevator speeches, and catch phrases are useful, but not when we are learning something new. That's when we need rigor and depth in our thinking and conversations. As Alexander Pope so eloquently put it:

 A little learning is a dangerous thing
Drink deep or taste not the Pyrean spring
These shallow draughts intoxicate the brain
But drinking deeply sobers us again

• Execution and Evolution - in the absence of enlightened implementation, moving to the next stage of understanding will be impossible. Encouraging and fostering best-in-class thinking will remain a major goal of this blog.

Will you join us?

A few words about me.  My name is Gaurav Bhalla.  I'm a strategy, innovation, and marketing professional with global experience, having worked on three continents and with companies in over 20 countries.  Since the mid-70's, I have been associated with the business world as a consultant, executive, entrepreneur, and academic/executive educator.

I recently launched Knowledge Kinetics, my new entrepreneurial venture. The company will focus on the practice of customer driven innovation and value co-creation. The goal is to provoke deeper thinking and more rigorous execution of initiatives related to innovation and business growth, through a mix of consulting, executive education, and research/analysis.

In my previous incarnation I was the Global Innovation Director, at Kantar-TNS, one of the world's largest market information and insight companies.  Additionally, I have also held positions in corporate strategy, brand management, sales management, and market research, at companies like Nestle, Richardson Vicks, and Burke.   

I have worked with some of the largest brands in the world, such as GlaxoSmithKline, Bristol-Myers Squib, Amgen, Astra Zeneca, Pfizer, HP, Microsoft, IBM, Motorola, Samsung, Hughes Electronics, Seiko Epson, Coca Cola, P&G, Heinz, Capital One, Wachovia, and NASDAQ. 

I have also served as an adjunct professor at Duke University's Fuqua School of Business and am currently associated with the University of Maryland's R. H Smith School of Business, as adjunct faculty.

Contact me here >>