March 2009 Archives

Experimentation: Critical to Customer-Driven Innovation Success

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In the Feb. 2009 issue of HBR, Tom Davenport offers advice on how to design smart business experiments. His main assertion is that in too many companies business innovations are launched on a wing and a prayer.  

Tom's focus is on rigor, and knowledge, and valid conclusions. No arguments there; but there is even a more fundamental issue - a company's willingness to embrace experimentation.

Several thinkers, like Eric von Hippel, Stefan Thomke, and Michael Schrage have discussed the benefits of experimentation. Going beyond the obvious links with innovation, they discuss how experimentation can help companies create new value for customers faster and more effectively.

Experimentation is an essential ingredient for customer driven innovation. Getting companies to embrace it enthusiastically is key, if the true potential of co-creating value with customers is to be realized. So, the critical question then becomes: How do we get companies excited about experimentation in the context of value co-creation?

Here are a few prescriptions with extremely positive side-effects:

Recommendation 1: Get over the Steve Jobs syndrome 

Too many companies suffer from the White Knight and the one omniscient, omnipotent decision maker syndrome. As brilliant as Steve Jobs is even he could not have predicted that the backbone of iPhone's mass appeal would be their multitude of diverse open-source apps. Even their latest ad speaks to this phenomenon. 

In an environment where it is difficult to predict where users will take an innovation, involving a larger group of interested users through experimentation is even more critical. And before you dismiss this as being applicable only to technology products - think Arm & Hammer! It did not start off in our refrigerators and toothpastes, but it sure did show up there.

Recommendation 2: Lose addiction to control 

All addictions thrive on the addict's perceived sense of loss, if the addiction were to be given up. Behavioral economists will have a field day with the psychological addiction companies have to control. Their gain-loss equation is totally focused on what they will lose; not what they stand to gain. Those that have - Mozilla Firefox, Dell, P&G, Hallmark, Under Armour - can testify that less company control often translates into more value for the customer, because you can engage in more "what-if" thinking. In short, you can experiment more, something that Mitchell Baker points to in explaining the success of Firefox in her interview with The Mckinsey Quarterly.

Recommendation 3: Redefine success 

For most companies failure is the deviation from what was expected or planned for. Not so in the world of experimentation, where failures are often the proverbial stepping stones to success. In the world of innovation, experiments that fail can actually have a large number of positive side effects, such as speedy elimination of unproductive alternatives, rapid learning, and building on that learning through more rapid testing. According to Stefan Thomke, early failures can lead to more powerful successes faster; a sentiment that IDEO echoes when they talk of failing often to succeed sooner! 

Recommendation 4: Get serious about play 

Most companies have tired ideas about work and play. The unrelenting focus on tasks, processes, and narrowly defined outcomes are a major stumbling block to turning people loose. And you can't experiment if you don't invite your people to play.

Inviting people to play lures them to play innovative "what-if" games and turns passive stakeholders into active collaborators - as Dell did with its customers, Boeing with its engineers and designers on the 737 assembly project, and Toyota with its suppliers. 

Experimentation is essential to customer-driven innovation not only because it enables faster development of products and services better suited to customers' needs, but also because it enables innovations that companies alone can't imagine!

Companies that don't enthusiastically embrace experimentation forego this opportunity to start new conversations on innovation and value creation.  All that remains - to paraphrase George Orwell - is a huge dump of worn-out metaphors, recycled as new and improved thinking. 
By Gaurav Bhalla on March 25, 2009 4:18 PM | Comments | TrackBacks | Permalink

Customer Driven Innovation: A Top Priority for the CIO?

A little late perhaps, but I came across InformationWeek's Top 10 CIO Issues for 2009. The list is a blend of technology and business issues.  

Surprisingly, a business issue - Customer-Facing Innovation - got the top vote!

The article tells us that while its essential to be innovating across all parts of a company's operation, the greatest value in 2009 will come from efforts that directly connect a company's brands, products, services, and capabilities with its customers. 

The report also goes on to make an interesting prediction.

In 2009, I think we'll see this term shift from "customer-facing" to "customer-embracing" to signify the move from the largely passive approach of merely facing your customers to the more active and engaged notion of embracing.
Personally, I think the prediction misses its mark - they should have labeled the priority customer-driven innovation! 

But semantics aside, my first reaction was a positive one. Not that we need IT czars or CIOs endorsing our passions. But I thought it could only help if departments other than innovation and marketing embrace and implement customer driven innovation programs.

My initial positive reaction however gave way to gripping anxiety, thanks to Gillian Tett and Krishna Guha. In his excellent FT article, analyzing the current financial crisis, Guha identifies a key culprit:

The adoption of computer-based systems for measuring credit risk, imported from the hard sciences, designed by statistical geeks with little or no understanding of the dynamics of credit markets.

I could not help ask myself the question, what do CIOs know of customer-driven innovation? Are they going to spend the time and effort learning about customer-driven innovation, before trying to intervene? Will they tailor their interventions to suit the needs of customer-driven innovation in different business contexts? Or will they embrace it so tightly in their arms of standardization and efficiency as to suffocate its spirit?

Remember CRM - Customer Relationship Management? Its widely recognized and accepted that in most companies, CRM programs achieved significantly less than what they were expected to. And while finger-pointing never helped clean up a mess, there is irrefutable evidence that CRM programs failed due to:

  • too much IT involvement, 
  • too much focus on internal processes,
  • too much discussion about dirty data,
  • too many arguments about integration, and
  • too little focus on the customer!
Ironically, in their preoccupation with implementing technological solutions, companies and their vendors lost sight of the obvious - CRM programs are about customers!  They are about getting customers closer to the company, about increasing customer loyalty, by providing them with relevant and unique value that they would find difficult to get from the company's competitors. Or if they would, they would have to pay a much higher price.

No matter how companies sugar coat the finger-pointing game, at the end of the day we can safely say that implementing market-facing programs, especially those that involve customers, who don't always behave predictably, are about more than just technological wizardry.

Whiz kids, whether they be yet-to-start shaving ivy league graduates, or overgrown beards at SAP and Oracle with little or no understanding of why customers buy, how their preferences are shaped, and how why they decide to stay with a company or switch, is a sure recipe for failure.  This was true for CRM; and will hold for customer-facing/embracing/driven innovation as well.

So the question is - will CIO's benefit customer driven innovation, or will they limit and circumscribe it?

Should we evoke George Santayana's wisdom and remind the various CXO's of CRM's history of underachievement so they are not doomed to repeat it, this time for customer driven innovation?  Or should we heave a sigh of relief that it is indeed history, keep our fingers crossed, and hope for the best?

I am for waving banners and marching! How about you?
By Gaurav Bhalla on March 16, 2009 9:55 AM | Comments | TrackBacks | Permalink

Barriers to Customer-Centricity

Have you heard Branford Marsalis' rendition of I heard you twice the first time? 

That's what you feel like telling most companies when you hear their claims to be customer-centric. It is difficult to pick up an annual report without hearing loud assertions of customer-centricity and customer value focus.

But few companies have started the journey in earnest, and fewer still can claim proficiency.

A Gartner Group report informs us that by 2007 fewer than 20% of marketing organizations among the Global 1000 enterprises had evolved enough to successfully leverage customer centric processes and capabilities.

The same Gartner report offers companies a performance tip. It advises that marketers that devote at least 50% of their time to advanced customer marketing processes and capabilities will achieve marketing ROI at least 30% greater than their peers who lack such an emphasis.

But this kind of thinking and exhortation is not new. In the 1950's and 1960's thinkers like Peter Drucker and Ted Levitt were urging companies to focus on the customer and customer needs - customers don't buy ¼" drills, they buy ¼" holes. 

For several years now marketing scholars have been advocating firms to shift their thinking away from a brand-centered way of thinking - managing product portfolios, to a customer-centered way of thinking - managing customer portfolios. Recent research has demonstrated quite conclusively that customer value is an excellent proxy for firm value and that companies investing in customer-centric initiatives enjoy higher financial returns.

The question that naturally arises is: "Why haven't more companies become addicted to a customer-centric way of life?"

After all, customer-centricity sounds right, it feels right, it even does right (higher financial returns). Why then the lag in evolution?

If we want to go beyond the usual suspects of culture and leadership, we will need to check our assumptions.  Quite a few of them are not true, the most notable being that strategy failures are due mainly due to failures of conceptualization and implementation.  But as I like to explain in my strategy courses, organizations are people, and most strategy failures are human failures.

Three human failures:

1) insufficient appreciation of a significant other,
2) the inability to visualize an alternate reality, and
3) the lack of will,

provide a non-traditional explanation why the signal to noise ratio for customer-centricity is so low.

Do companies really value their customers?

As ridiculous as the question sounds, it must be asked, given all the evidence we are surrounded with. Simply put, if they did, companies would behave differently, in a more customer-centric way. If the customer was a significant other of a company in a social sense, the two would have got divorced and stayed permanently divorced.

How do we explain this? Prayer offers an interesting analogy. For the majority of human beings, prayer is still an exercise of the lip affair, not the heart. Similarly, for most companies, customers are a lip affair, not a heart affair. 

For companies to become customer centric, customers must become a heart affair. As long as companies value their personal odyssey for the next round of higher profits and higher sales more than they value customers, this will never happen.

Type in the words "customer centric" in Google, and the first thing you find is customer-centric selling.  Not customer-centric innovation, not customer-centric product development, not customer-centric strategy.  Just selling.

The bare truth is that for most companies, the customer is a mere invisible means to an ever-increasing end; sales, market share, and profits. And the end is invariably more valuable than the means.

Can companies visualize the separate reality that customer-centricity represents?

Jack Nicklaus reportedly never played a golf shot without first visualizing it in his mind's eye.  Research conducted by brain scientists and cognitive psychologists affirms that the ability to visualize positive outcomes increases the probability of those needs becoming reality

But what if the company can't visualize what it really means to be customer-centric?  After all they can see tangibles like products, sales, and revenue charts on a daily basis.  And while it may not be ideal or optimum, it is real!

What if this alternate reality is really more hype than substance, what then?  And since most companies can never quite answer this question satisfactorily, the alternate reality stays locked and companies stay home, foregoing the customer-centric journey, despite its promise of greater prosperity and riches.

Do companies have the will to put in the hard yards that living a customer-centric life demands?

By all accounts customer-centricity is hard to build and sustain in large organizations. It requires a significant investment in people, training, resources, realignment of structure and processes, and breaking down information and power silos, to name just a few.  This is hard work and could test the will of even the most determined CEO. 

A few years ago I was in Athens, attending a global managers meeting for a large agency.  On the last day a great ritual was staged.  In the old Greek tradition we threw plates in the air (they were paper plates, throwing real china plates is banned), to symbolize a break from the past.  We committed ourselves to our customers, to innovation, and went home.  On returning home nothing changed, everything stayed exactly the way it was. 

Most companies want to win at customer-centricity.  They want the customer to love them more than their competitors.  But rarely do they have the will to do whatever it takes to earn the customer's love.  Up to a point, and no more. 

We don't need more analysis to understand why there is such a huge chasm between what companies claim by way of customer-centricity and how they actually conduct their businesses. 

All that we need is to acknowledge a cold and brutal fact:

customers are not # 1!

And as the good bard said - "...ay, there's the rub"

By Gaurav Bhalla on March 10, 2009 2:03 PM | 4 Comments | 2 TrackBacks | Permalink

P&G Collaborates with Google, Facebook, MySpace, and Twitter

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There's something about champions that sets them apart from the rest of us. They never stop challenging themselves to grow, to become better, to get to the next level of performance.

Walter Payton, the Chicago Bears running back standout was a true champion. In his book - The New Dynamics of Winning - Denis Waitley tells the story that during off-season Payton would train by running up a steep hill in a Chicago suburb. Sometimes other pro-footballers would join him, but Walter would go a few more times, after they had stopped totally exhausted. And then when he felt he had enough, he would go, one more time.

One more hill, always one more hill.

Procter & Gamble is a very durable champion; they've been around for over a hundred years. And rather than toot their Hall of Fame status, they continue to challenge themselves. Not satisfied, even after all these years of stardom and glory. This time the company is challenging itself to understand and master the emerging world of on-line social media.

According to the Cincinnati Enquirer, P&G will host a meeting of digital minds next month at its downtown headquarters. Senior executives from the emerging world of online social media will meet with marketing executives from the Cincinnati-based company. Early reports indicate that executives from major online companies - Google, Facebook, MySpace and Twitter - will be attending the March 11 event.

In classical P&G style, the company is in no hurry to divulge the full guest list. Martha Depenbrock, the company's spokesperson informs us that about 100 marketing and media professional from the worlds of advertising, branding, and technology are expected to attend. About 20% of the attendees are from digital companies.

The event will provide senior marketing executives from P&G a first-hand opportunity to gain familiarity and hands-on experience with understanding and using social-media tools; the most rapidly growing form of online communication in the US. According to a Forrester Research study, about 75 percent of adult Internet users in the U.S. now use social tools such as Facebook to connect with each other. This number, up from 56% in 2007, is expected to continue to increase.

The increase in social media users presents a potentially attractive opportunity for advertisers, like P&G, to connect with consumers. However, questions concerning ROI, effectiveness metrics, and best-in-class strategies to leverage the power of this medium still need to be figured out. P&G's executives want to figure all that out and more. But first the basics - learning how to use digital forums to advertise the company's category topping brands - at the March 11 meeting of minds summit.

P&G wants to be ahead of the curve, it wants to get there early. One more hill, this time before the others wake up and get their act together.

This is not new thinking at P&G. Earlier, we learned that Google and P&G swapped employees to learn from each other.  In a networked world, where not just consumers but companies are connected as well, value creation occurs differently than in a traditional, bounded world. It is co-created. And this co-creation takes place when businesses engage any relevant part of their ecosystem, not just when they engage with their consumers.

In today's world no company can go the distance alone. Value chains have long given way to value constellations. Not for all companies though. Some companies still live by the maxim - Not Invented Here.  And like all markets, this market for B2B collaboration and co-creation is segmented as well.  At least three types of companies come to mind:

  • Asleep and Unaware - indigent both in concepts and imagination
  • Aware but Catatonic - attached to rhetoric; immobilized by the thought of living differently
  • Active Seekers - ready to jump on a ship and set sail, because they are convinced that answers lie somewhere else; where, they are not sure, but they are willing to travel far and wide to find them (a very workable definition for out-of-the-box thinking and action). 
The question to challenge the little grey cells: Google + Facebook + Twitter + P&G = ? We don't know yet, we'll find out soon. However, this we do know - definitely, more than what P&G could have created alone.

Thank you P&G!  For searching, for pushing your executives to learn, and for starting yet another lab for customer-driven innovation.

By Gaurav Bhalla on March 1, 2009 4:45 PM | Comments | TrackBacks | Permalink
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