Recently in Customer Collaboration Category

Recently, I had the pleasure of being introduced to ICFAI University, one of India's leading educational institutions, recognized for its skills in developing innovative educational programs and writing insightful case studies.  It is also a leading publisher, 18 magazines and 46 journals, in areas such as marketing, finance, environment, and health care.

Effective Executive is the flagship magazine of the University.  Started in 2000 and published monthly, it features articles on topics like marketing, strategy, sustainability, and innovation.  Every issue also features interviews on these topics with experts.  In the recent past, the magazine has interviewed globally renowned experts and intellectuals, like Philip Kotler, Michael Tracy, Pankaj Ghemawat, Vijay Govindarajan, and Dr.A.P.J.Abdul Kalam, a renowned nuclear scientist, and former President of India.

The magazine's latest issue is dedicated to the theme Co-Creation: the New Frontiers of Competitive Advantage.  The issue features an interview conducted with me on my HBR article and on co-creation. 

I would like to share two key topics covered by the interview.  The first deals with the nature of co-creation, and the second with the difference between customization and co-creation.

Understanding co-creation

Cogito ergo sum - one of Descartes's most famous legacies - loosely translated as, I think, therefore I am.

Peter Drucker had a similar way of introducing himself - I write - is how he used to introduce himself.  What Peter should have really said was - I think and I write, and I don't know which one comes first.  An interesting chicken and egg problem, but not one you lose sleep over, especially if your writing borders on the prolific, and your thinking can stand the test of time!

November 2009 marked the 100th anniversary of Peter Drucker's birth and we should celebrate it.  Universally acclaimed as a great management thinker and business guru, for over 50 years, from the early 1950's to the early 2000's his provocative and often controversial ideas dominated the business world. 

The management kingdom is rediscovering him and finding him to be just as relevant as he was all those years ago. 

HBR ran a special issue on Drucker in Nov. 2009 - asking What Would Peter Drucker Do?

Books like Inside Drucker's Brain are attempting to make him and his cutting edge thinking more accessible.  

Paradoxically, in the West, where he made his greatest contributions, he is all but forgotten, pushed aside by gurus du jour.  On the other side of the Atlantic, Drucker societies are still alive and flourishing.  They assemble routinely to discuss his work and learn from his teachings.

It is impossible to compress a sixty-year career comprising over thirty books that have sold over 5 million copies and scores of articles, including some HBR classics, in a page or two.  So, how about we take inspiration from Hollywood and present instead a 90 second trailer on the World according to Peter Drucker.

His signature idea - Management by Objectives; still relevant, especially as companies flounder with direction and purpose. 

His committed and unwavering focus - the long term health and well being of companies, not short-term hits.  He rarely blamed individuals, maintaining that it was always the underlying systems that were the root causes of failure.  He believed organizations should constantly challenge their design and operations; he saw this as the key to long-term well being.

His favorite questions - What is your company's ultimate purpose? Who is the customer? What is your mission?  What is it you should continue to do?  What is it you should stop doing? Where has the obsession with the short-term undermined long-term effectiveness? Why aren't some younger people in the company earning more than the Directors?  

His passions - writing, context-bound thinking, integrating ideas, processes not outcomes, urging companies to innovate and create the future, long-term corporate well being, nurturing future stars, and of course - the CUSTOMER!

What did A.G. Lafley, ex CEO of P&G, learn from Drucker?

In A.G.'s own words:

Over the years, I learned many things from Peter, but far and away the most important were the simplest:

1. The purpose of company is to create a customer.
2. A business is defined by the needs, wants, desires a customer satisfies when buying the company's product or service.
3. To satisfy the customer is the most important mission and purpose of every business.

No presentation of Peter Drucker's work is complete without sharing some of his memorable quotes and brilliant observations.  A very brief, you might even say self-serving, sampling related to marketing, the customer, and innovation follow.   

• Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. 

• The customer rather than the manufacturer defines a market

• Of course innovation is risky.  But so is stepping into the car to drive to the supermarket for a loaf of bread.  All economic activity is by definition 'high risk.' And defending yesterday - that is, not innovating - is far more risky than making tomorrow.

Paraphrasing Drucker and taking a few artistic liberties: since customers define markets, and market creation should be the fundamental focus of a company, and innovation is the primary fuel that drives this market creation - then what better world to be thinking, writing, and consulting in, than customer-driven innovation!

We are being constantly reminded, by scholars, practitioners, and journalists, that today's individuals and business organizations live in a highly networked, interactive, and collaborative world. 

This new reality has given rise to new customer behaviors, and to entirely new vocabularies.  The consumer is dead, long live Prosumers, Trysumers, and several other forms of  - - - sumers yet to be born.

• Prosumers - today's customers are both producers and consumers; i.e., they are not just consumption machines, but also contributors and co-creators of unique value
  
  
• Trysumers - consumers immune to most advertising, who enjoy full access to information, reviews, and navigation, who love to try out new products and services - appliances, artists, outfits, food, holiday destinations - new "anything", with post mass-market gusto

Despite this daily dose of revivalist thinking, several companies approach their customers and markets as if they were still stuck in the 1960s; an era of impersonal transactions with the customer, relying on everything "mass" - mass markets, mass media, and mass undifferentiated value.  For these companies, Marketing is still a one-way street, where companies do the talking and influencing through their advertising, and customers do the listening and consuming; passively at the end of a long invisible value chain.

There is something wrong with this picture and it needs fixing.  What is wrong is that most companies are still set up to market products.  That needs fixing.  Companies must transition from marketing products to cultivating customers! 

In the January-February Harvard Business Review article - Rethinking Marketing (download here) - my co-authors (Roland Rust, Christine Moorman) and I discuss how companies must shift their focus from driving product-centered transactions, to building long-term relationships with customers by offering whichever of the company's products the customer values most at any given time. 

This can only be done if companies make products and brands subservient to long-term customer relationships.  And that means - reinventing the marketing department altogether.

The essence of reconfiguring marketing as a customer department is captured in this diagram:

The traditional marketing department must be reconfigured as a customer department that puts building customer relationships ahead of pushing specific products. To this end, product managers and customer-focused departments report to a Chief Customer Officer instead of a CMO, and support the strategies of customer or segment managers.

Two key implications of this reconfiguration need additional emphasis:

• First, reconfiguration is not merely drawing a different looking organizational chart, with different sounding titles.  It is a fundamental shift in allocating, sharing, and managing resources - people, budgets, and information.  This has implications not only for which tasks get priority and how they are executed, but also for who is the best person to execute them.  For instance, since the role of the customer manager is the ultimate expression of what marketing should be - cocreating unique value with and for specific customers - we expect them to approach their task more like consumer anthropologists and behavioral scientists (see my post on A.G. Lafley), as opposed to advertising or promotion specialists.
  
  
• Second, in this reconfigured world, being able to offer relevant consumer value at all times becomes a key driver of business success and profitable growth.  For ongoing customer value innovation to become a part of the DNA of the organization, it is important that the company move from an internally focused concept of customer value creation, to a more open, collaborative model of co-creating value with customers and other key stakeholders.  Integrating R&D into the customer department will go a long way to ensuring that the customer remains at the center of all value creation activities.

A migration from marketing products to cultivating customers will also require a shift in metrics to gauge the effectiveness of a company's customer-focused strategy.  We discuss four new ways of thinking about business success in this customer-led world of marketing:

• Focus more on customer profitability, less on product profitability
• Customer Lifetime Value (CLV) thinking should trump maximizing current sales thinking
• Customer equity - the sum of all CLV's of a company's customer base - should replace a brand equity orientation  
• Companies should pay more attention to customer equity share, and less attention to market share
  

I hope you find the article relevant, interesting, and useful.  If you're having similar discussions in your own organizations, please share them with me.  I'd love to start a conversation with you on how we need to rethink and reinvent the fundamental focus of marketing.

DOWNLOAD: Rethinking Marketing, by Roland Rust, Christine Moormon, Gaurav Bhalla, Harvard Business Review, January-February 2010.  

CMO Archetypes:



While the effort of the AMA to peer into the future is laudable, I am personally very troubled by the output, and the lack of emphasis on some fundamental game-changing trends like customer collaboration, value co-creation, customization, and open systems thinking.  

Page Moreau is an Associate Professor of Marketing at the Leeds School of Business at the University of Colorado in Boulder.  She obtained her Ph.D. In Marketing from Columbia University.  Her research interests span the areas of customization, value co-creation, innovation, and customer collaboration.  Her 2005 paper: Designing the Solution: The Impact of Constraints on Consumers' Creativity, received the best paper award in 2008.  No that's not a typo.  Academics like ideas in papers to ferment before they recognize them! 

I met Page a few years ago at an MSI conference on Innovation.  We met again in June this year at yet another MSI conference at which she presented some of her ideas on customization.  I thought the blog's readers would be interested, so I invited her for a conversation, to share her thinking, and she most graciously accepted.

Hyatt Hotel's has been in the news lately - for all the wrong reasons.  As was the CEO of Whole Foods a few weeks ago!  In fact, I could begin this blog the way I began my May 21 blog (What do General Mills and Finland have in common?) and ask - what do the Hyatt Hotel and the CEO of Whole Foods, John Mackey, have in common?  

On August 11, John Mackey penned a op-ed on health care reform in the WSJ strongly aligned with right wing, conservative thinking.  His opening quote makes transparent his personal leanings.

"The problem with socialism is that eventually you run out of other people's money." - Margaret Thatcher

On Sep. 17, Hyatt fired approximately 100 housekeeping staff in Boston.  According to the Globe, Hyatt fired housekeepers at the Hyatt Regency Boston, Hyatt Harborside, and Hyatt Regency Cambridge, replacing them with workers from an Atlanta staffing company.



One can argue what's wrong with that.  The constitution of the United States guarantees a person the right to free speech, and capitalism the right to a company to structure its labor force and its costs (most of the fired housekeepers were minority women, making $15 an hour; it is expected the replacement workers will make $8 an hour).

However, in today's networked, interconnected world, company's and CEOs are not just individuals or employers.  They are symbols of what their companies stand for, and for what their customers stand for.

Customers who shop at Whole Foods are liberal, pro-environment, anti GMO, pro-organic food people.  It is not that they want to deny John Mackey the right to his opinions; it is that they felt let down and violated.  John's op-ed diminished the value customers derive from their association with the store and their shopping experience there. Take a look at the poll at wholeboycott.com:

 

Clearly, those who run Whole Foods have not spent enough time to understand the dynamics of today's interconnected networked world.  The concept of customer value has changed.  Customers don't just derive value from the products and services a store has to offer, they also derive value from what the company and its executives stand for.

Hyatt's case is no different.  The outrage is not about whether it's a good business decision - its not about Hyatt's understanding of cost cutting and optimizing a housekeeping budget - its whether Hyatt has a good heart or not?  The issue is also about whether I will get value by staying at a hotel chain that acts in such a heartless fashion.

A company or a CEO can't be so naïve as to ignore the context they operate in.  There is still blood on the streets.  A large number of people are struggling to get by and the evening news is full of heartbreak stories.  We live in an era where Politicians are actually regarded as more trustworthy than Business Leaders!  Don't believe me?  Ask CNN!

Today's customers are talking to each other - in both the real and digital worlds.  Though what they say in the digital world can often be more potent, due to the speed and ease with which digital opinion can whip up bystanders into a frenzy about issues they deeply care about.  The environment is one such issue, health care is another, having a job and avoiding economic pain probably tops the list.

Are John Mackey and Hyatt not listening?  Intelligent companies in touch with the realities of the digital market place don't just listen when customers talk to them.  They listen even when customers are not talking to them or about them.  Why?  Because smart companies realize they don't control the conversation agenda, they are merely a part of it. 

The next few years are likely to witness numerous environmental initiatives around the globe.  For starters, the 2009 UN Climate Change Conference is expected to update the Kyoto Protocol.  Additionally, several countries are looking to green policy stimulus packages to pull them out of the current recession.

You can hardly turn on the television or open a newspaper without witnessing a company's advertisements featuring its "green" or "sustainable" products or business practices. 

In response to rapidly growing demand from consumers, the market for these products tripled between 2007 and 2008 with Nielsen predicting a marketplace of more than $400 billion in 2010.

But what do companies mean when they claim a green product or sustainable business practice?  A range of interpretations exist, but the majority feature these ideas:

•    Green products are both environmentally and socially responsible and can often be described as follows: organically grown, locally sourced, carbon-neutral, recycled/recyclable, and/or energy-efficient.  A variety of sources show that consumers perceive consumer goods manufacturers such as Seventh Generation, which makes cleaning products from natural ingredients, and Toyota, with the Prius and its commitment to environmental management, as some of the world's greenest companies.

•    Sustainable business practice can include organizations that produce green products and services but more broadly, it requires a corporate focus on long-term benefits for the environment, community, and society.  Sustainable companies also pursue the "triple bottom line" of people, planet, and profits.  Wal-Mart and Whirlpool, with their efforts to "green" their entire supply chains and introduce eco-friendly products to the masses, represent two companies dedicated to sustainable development.  Some researchers also cite products linked to a cause, such as the Product Red suite, whereby companies donate proceeds to fighting AIDS in Africa.

Due in large part to rapidly shifting consumer attitudes and increasing enthusiasm for green products, companies ranging from Honda to Clorox brought nearly 6,000 "green" products to market in 2007 alone.  However, this proliferation of products during a global recession has led consumers to become very discerning regarding the legitimacy of companies' green claims.  The cynicism is justified, as often terms like green and sustainable are used to describe a variety of practices ranging from "greenwashing" to reputation-management to customer-focused, holistic sustainable business practice.  

As more companies make green claims, government and consumer scrutiny of these claims also increases.  Many groups now watch out for greenwashing, a practice whereby companies lead consumers to think that their products are more environmentally friendly than they actually are.  Clairol received considerable scrutiny in the early 2000s for claims that its Herbal Essences line offered "a truly organic experience," when in fact, the formula included many chemicals.  More recently, Kmart and other chains have provoked criticisms for false claims of biodegradable paper goods.

Companies working to improve their reputation in the area of sustainability attempt to offset or neutralize the effects of their businesses without concerning themselves with influencing consumer behavior or the behavior of partners in their supply chain.  Enterprise Rent-a-Car, for example, has independently committed to building 50 million trees over the next 50 years to more than offset the emissions from its vehicles.

However, the most interesting examples of greening and sustainability tend to be where companies actively involve their customers in sustainable business practice.  These companies are most likely to improve their own profitability and succeed in tangibly benefiting their communities through improved consumer behavior.  A few examples of companies leading the pack follow.

Whole Foods won the 2009 Green Choice award from Natural Health magazine due to its commitment to substantive, earth-friendly initiatives that inspire its suppliers, competitors, and customers to follow suit. 
•    After banning plastic bags from its stores in early 2008, the company recently announced that three times as many customers now shop with reusable bags.   Furthermore, it estimates that this shift has kept 150 million bags out of landfills since 2008.  COO A.C. Gallo states, "At first we wondered if shoppers would just switch to paper but to our great surprise, people have been truly excited about using reusable bags."

Fairmont Hotels and Resorts was the first global hotel to launch an environmental management program back in 1990.  Since then, its commitment to sustainability has touched its partners, guests, and the broader business community. 
•    By 2010, the company's largest suppliers will comply with its Green Procurement Policy.
•    The company has sold tens of thousands of copies of its Green Partnership Guide, a "going green" handbook for companies across industries. 
•    Guests worldwide pay a premium to contribute to the company's environmental initiatives, which include Lexus Hybrid Living Suites and Travel Green packages:

Finally, retail giant Wal-Mart has committed itself to improving sustainability across every facet of its business, extending this goal from suppliers to stores to consumers.  The trump card with consumers, not surprisingly, continues to be everyday low prices even within its green product lines.  Evidence that collaboration with consumers is working:
•    66% higher adoption rate of green products (including compact fluorescent bulbs, organic foods, and paper products made with recycled material) among its shoppers between April 2007 to April 2008
•    Increased mainstream acceptance and purchase of Clorox Green Works natural cleaning products and Fair Trade coffee

Corporate practices in green and sustainable initiatives are still in an embryonic stage, making it difficult to offer a prescription for those companies who have yet to start walking.  Perhaps you have come across some initiatives that have impressed you or made you change your own behavior. 

Care to share them with the readers of this blog?  Please do, we can learn together.

In December, I blogged about why GM needs to reinvent itself and why a bailout will not be enough.  So, when I heard that GM was planning to reinvent itself, naturally I was both excited and curious.  But before we go any further, just in case any of you gung-ho readers get any wrong ideas - no, I am not taking any credit, just asking questions.

Is GM truly reinventing itself or is it merely trying to dress up its image for life after bankruptcy?  Let's not be self-serving and evaluate GM's actions against the criteria for reinvention laid out in my December blog, let's just listen to GM's own words on how it intends to lead its new reinvented life and then pause to ask ourselves - symbolism or substance?

Based on reviewing a number of GM's press and video releases, GM's new identity revolves around the following features:

• New GM to be built from GM's best and strongest parts
• Best brands, best products (fuel efficient, world class quality, green, outstanding design) 
• Best in class cars and trucks
• Product focussed and dedicated to customers (quality and service)
• Leaner, meaner, greener, faster

The answer: A desire to grow through innovation, to provide greater and better value to their customers/citizens, and to co-create this value with selected collaborators and customers.

Let's visit General Mills first.

Most companies have big egos!  Not surprisingly they are quick to disproportionately aggrandize their own skills and knowledge; especially when it comes to innovation and new product/service development.  A symptom of this kind of thinking is the not invented here (NIH) syndrome - companies suddenly turning deaf and blind to suggestions coming from outside their four walls.

At one time or the other, the NIH syndrome has struck several big and not-so-big name companies.  Apple, Hallmark, and even P&G are all guilty.  Remember the well-publicized case of Shea O'Gorman.  Apple drove the 9-year-old third-grader to tears, when in response to her hand written letter to Steve Jobs offering ideas on how to improve the iPod Nano, she got a response not from Steve but from the company's law department.  They curtly informed young Shea that Apple doesn't accept unsolicited ideas, so she should not send them her suggestions and if she wanted to know why she could read their legal policy posted on the Internet.  

Till very recently General Mills had their own version of NIH - Policy 16 - which stated that no outside product suggestions would be accepted.  But all that changed a few years ago when the company had Wheaties for breakfast and became a champion and an industry role model for open innovation.

General Mills' G-WIN, an open innovation initiative, is entering its terrible twos.  Happy birthday G-WIN!  The initiative seeks outside partnerships with entrepreneurs, inventors, universities and other food companies.  During its young life the program has generated hundreds of concepts for patented technologies or potential products that are complementary to its existing brands and businesses.

Two notable successes:

• Fiber One® Chewy Bars: General Mills teamed with an exclusive partner on a fiber ingredient to develop a delicious snack bar with 9 grams of fiber per bar. Within months of the product launch, Fiber One bars were among the top 10 best-selling grain bars on the market.
  
  
• Progresso® Reduced Sodium soups: Through a new proprietary partnership with an external company with considerable expertise in healthy foods, General Mills was able to source a great-tasting new lower-sodium ingredient for its Progresso Reduced Sodium soups.  In the first year of launch, fifty percent of sales for lower-sodium Progresso soups came from consumers who weren't previously buying Progresso.

Collaboration and customer driven innovation bring resources, passion, and an energy that companies bogged down by their rules, standard operating procedures, and reverence for hierarchy just can't match.  

It's just not companies but also countries that are fast signing on.  Not surprising to see Finland, one of the top 3 knowledge economies of the world, leading the pack.  Last Fall, Finland, home of Nokia, the world's largest manufacturer of mobile phones, unveiled a new innovation plan to keep the tiny Nordic country competitive in an increasingly competitive global market. 

Two aspects of the new strategy are especially noteworthy:

• A desire to be more connected with innovative companies and researchers from abroad - Finland has just over 5 million people.  In order to make this connectedness a reality, Finland has begun establishing a network of international innovation centers under its FinNode program.  These centers help Finnish scientists and companies establish contacts with centers of excellence globally and can be found in Japan, Russia, China, and USA
  
  
• A second noteworthy objective of the new strategy is to move beyond a knowledge push environment, where scientists and engineers come up with the ideas and push them to the market, to a demand pull system, with private companies and users playing an active role in market oriented innovation.

Two different economic entities, a company and a country, similar platforms for growth - collaboration and customer driven innovation.   Good Luck G-WIN; Onnea Finland!