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UPDATE: I've posted an entry on the $300 House on the Harvard Business Review site: The $300 House: The Co-creation Challenge >>

One of my professors, the late C.K. [Prahalad], used to say that "managers are so preoccupied with operating efficiently that they don't even think about value in terms of the consumer's experience."

Sadly, despite all the brouhaha about customer-centricity, most companies still operate in a highly product-centric manner.   The difference between the two approaches, using C.K.'s words follows:

The traditional company-centric view says: (1) the consumer is outside the domain of the value chain; (2) the enterprise controls where, when, and how value is added in the value chain; (3) value is created in a series of activities controlled by the enterprise before the point of purchase; (4) there is a single point of exchange where value is extracted from the customer for the enterprise.

The consumer-centric view says: (1) the consumer is an integral part of the system for value creation; (2) the consumer can influence where, when, and how value is generated; (3) the consumer need not respect industry boundaries in the search for value; (4) the consumer can compete with companies for value extraction; (5) there are multiple points of exchange where the consumer and the company can co-create value.

All is not dark and bleak of course.  Several countries, cities, companies, and nonprofit oranizations are beginning to take the initiative to collaborate with their customers to co-create value in fields as diverse as healthcare innovations (Norway), improving the quality of life of 50+ year olds (Scotland), Swasthaya Chetna; Hindi for creating health awareness (Hindustan Lever), and Crashing the Super Bowl (Frito-Lay).   

In my new book, I devote an entire chapter to co-creation beyond the business world.  I share case studies of how the new platforms of customer collaboration and co-creation can be applied equally effectively beyond the business world, to drive collaborative innovation efforts in fields such as education, health care, energy, alleviation of poverty, and sustainability. The consumer-centric view is gaining momentum in non-business environments as countries, regions, and cities experiment with collaboration to co-create more promising futures for their people and the environments in which they live.

One example of a project which will be using co-creation at the bottom of the pyramid is the $300 House (disclosure: I'm an advisor).

$300 House for the Poor

The project, which came to life based on the remarkable response to a blog entry in Harvard Business Review, will take into account customer needs in various countries - from Haiti to India and the Philippines.  I don't expect to see a single house design emerge, but rather a variety of local designs - each designed to meet local needs.

How do you engage the customer at the bottom of the pyramid?  By spending time with them, and understanding their experiences, challenges, and frustrations as they tackle everyday tasks and chores that so many of us take for granted. Or like A.G. Lafley was fond of saying - by doing your laundry in 25 countries! 

Let's just pause for a moment to acknowledge that your company's customer of the future may well be at the bottom of the pyramid.  You would be well advised to adopt a customer-centric mindset and develop a system of initiatives to engage her.
book_medium.gifCome October, Springer will launch my new book, Collaboration and Co-Creation: New Platforms for Marketing and Innovation.  In this blog post, I'd like to briefly introduce the book - what motivated it, its structure, and essence.  I'd also like to take this opportunity to recognize and celebrate my collaborators.

It's a rare day when some media personality or academic guru doesn't proclaim - this is not your father/grandfather's economy!  It isn't. The reason it isn't is because the ethos (defining characteristics) of today's world is different.  Several C's and a T; connectivity, creativity, collaboration, community, and technology, especially the Internet, best capture the ethos of the world we live, play, and work in.  At the center of this maelstrom lies a new and empowered customer that best exemplifies this ethos in motion.

Companies today are dealing with a new type of customer; one that is more educated, better connected, and infinitely more creative and resourceful than at any time in the past. Today's customers expect to be heard; they are unwilling to be mere consumers, passive and invisible at the end of a long value chain - instead they want to be collaborators and co-producers of the products and services they consume.  They don't want to merely watch TV reports on Haiti's earthquake, they also want to report on it and use their social media skills to mobilize aid.  They don't want to merely watch the Super Bowl game, they also want to win Frito Lay's "Crash the Super Bowl Ad Contest" by creating ads for Doritos.  They don't want to merely moan and groan about Dell's lousy customer service - been there, done that - they also want to shape Dell's customer service and product innovation priorities by participating in its IdeaStorm community.   

Consequently, customer collaboration and co-creation is a hot item on the strategic agenda of most companies.  They have been fired up by books like Wikinomics, Here Comes Everybody, Crowdsourcing, We-Think, etc., that applaud and celebrate the rise of the empowered customer.  They hear pundits urging them to rethink the way in which traditional firm-centric activities like marketing and innovation should be implemented to win the empowered customer's business.

But for most companies the key question is how?  There is little out there to help them migrate from applause to implementation.  What does a company do after it gets all excited and motivated about collaborating with customers?  How does it engage them in re-shaping its marketing and innovation efforts? A few market leaders, like Unilever, IBM, Hallmark, and Audi have figured it out.  But the majority of companies are still huddled at the starting line debating how best to implement collaborative innovation programs.

About the Book

Collaboration and Co-Creation helps bridge this gap.  Using a simple and easy-to-understand framework, Listen-Engage-Respond, and numerous case studies from around the world, the book helps readers shake hands with a core set of thinking and action tools for implementing collaborative innovation programs in their own companies.  It nudges readers to view collaborative innovation as a business process that can be systematically designed and implemented, not as some spontaneous, self-organizing outburst of periodic customer benevolence.  The book was written with a show, don't tell mindset.   Hence the emphasis on sharing, discussing, and guiding using a variety of business and non-business cases, examples, and stories, so as to make the content eminently readable and interesting.   

Collaboration and Co-creation is a compact eight-chapter book.    

  • Chapters 1 and 2 set the stage.  Using case studies like the creation of the Oxford English Dictionary, birth of mountain biking, open source software, and Hallmark, chapter 1 discusses the evolution and dissemination of collaborative innovation in contemporary businesses.  Chapter 2 presents the Listen-Engage-Respond framework and illustrates it with case studies involving the Phoenix Suns and Unilever's Marmite.
  • Chapters 3 through 6 provide an elaboration of the Listen-Engage-Respond framework.  They discuss each of the legs of the framework, once again liberally supported with a large number of short (a few paragraphs) and regular (a few pages) case studies.  A few examples being - Barak Obama's election campaign, International Flavors and Fragrances, Nike, Audi, Blizzard Entertainment, Nokia, P&G, Frito Lay, NASA, Ellen Degeneres, and the Susan G. Komen Race for the Cure.
  • Chapters 7 and 8 aim to end the book on an emotional high.  Chapter 7 discusses the implications of becoming more open and collaborative on traditional firm-centric activities like marketing and innovation.  Supporting examples and case studies drawing on the experience of Unilever, Crayola, IBM, Sun, and Ubuntu are provided to help support the discussion.  Chapter 8 takes the reader on an eclectic journey beyond the business world.  Using examples ranging from the country of Denmark, to a clinic of innovation in Norway, to IBM's innovation jams, the chapter discusses how the Listen-Engage-Respond framework is just as effective and relevant in co-creating value in the fields of education, healthcare, economic growth, and global welfare, as in co-creating advertising based on UGC (user-generated content).

The book's Foreword is by Mr. Paul Polman, CEO of Unilever.  Leading business executives and thought leaders from the academic and consulting worlds, like Vijay Govindrajan, Nicolas Mirzayantz, Jacob Buur, Vince Barabba, John Hagel III, and Steve Howe, who had a chance to review the content before it went to print, have provided their insights and frank assessment of the book's framework and ability to foster customer-centric transformation.  We hope you will find it just as useful in leading customer-centric transformations in your own companies.


deanna web.jpg

Writing a book is seldom a solo endeavor; it is always a team event.  Collaboration and Co-creation is no exception.  I would like to acknowledge and celebrate Deanna Lawrence and Gabriela Head's valuable contributions to researching the myriads of cases and examples that breathe life into the book's content and their participation in triggering and writing various chapter drafts.  

Thumbnail image for Gabriela 2009.jpg

This collaboration has a very compelling underlying story that deserves to be shared.  Deanna lives in Michigan, Gabriela in Arizona, and I in Virginia.  I have known and worked with Deanna for several years, so working remotely with her was not a big deal.  But till today, one book and hundreds of calls later, I have yet to meet Gabriela.  And barring a two-hour meeting over a cup of coffee while in Arizona to attend a wedding, well after approximately 70% of the book was written, neither does Deanna have any previous history of working with Gabriela.  Needless to add, we are working hard to synchronize intent and calendars so we can all be in one place and toast the launch of the book in October.     

As the famous line in the classic short story - Face on the Wall - states, truth is not only stranger than fiction, but also greatly more interesting.  Yes, it is true, honest and productive work relationships can flourish, despite time and distance barriers.  They merely need a steady and constant infusion of trust and commitment.  Make no mistake, though, it is difficult, but infinitely rewarding.  I was not surprised at all therefore to learn that the latest "Richard Beckhard Memorial Prize" for the best article published in 2008-2009 was awarded by the editors of Sloan Management Review to the article  - How to Manage Virtual Teams.  Folks, if anyone is looking to do more research on this subject and needs first hand experiential data, please talk to us.  We will be happy to tell all!

In the coming weeks, I intend to feature interviews with companies and individuals who shared their stories with us and also provide more details on selected aspects of the book.  Stay tuned!

In Rethinking Marketing: From Marketing Products to Cultivating Customers my co-authors and I wrote about how companies must make products and brands subservient to long-term customer relationships.  We also made the point that 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.

In much the same way, I'm more convinced than ever that we must rethink the purpose of modern businesses.  As the global financial crisis has so bluntly shown us, "maximizing shareholder value" is no longer a sustainable purpose for business.  We doubt it ever was.  But back then, Jack Welch was preaching the gospel and companies were lapping it up.  Interestingly, even Jack Welch is no longer singing the "maximize shareholder value" song. 

This is the age of consumer capitalism and the triple bottom line.  The new gospel is people, planet, and then profits.  Near term thinking that just does good for the company without consideration for the environment, or the social social systems that a company operates in, is not a responsible option!    

So where should we look for new role models? 

Across the border to the north, and across the Atlantic to the sub-continent.


Recently I read an article describing Ratan Tata's visit to Canada to deliver the first Thomas Bata Lecture on Responsible Capitalism.

The late Thomas Bata and Ratan Tata, and their corporations have a lot in common.  They epitomize socially-conscious leadership

The Tata story has been well covered in this article, which sums up the vision as follows:

Since its founding in 1868, Tata has operated on the premise that a company thrives on social capital (the value created from investing in good community and human relationships) in the same way that it relies on hard assets for sustainable growth. With every generation, Tata's executives and managers say, they have nurtured and improved their capability for "stakeholder management": basing investments and operating decisions on the needs and interests of all who will be affected. For Tata, this means shareholders, employees, customers, and the people of the countries where Tata operates -- historically India, but potentially anywhere.
These are not platitudes. Tata has won the goodwill of the people not by talk, but through action. Key decisions are based on the impact on society.  The company's humanitarian actions, for both employees and non-employees, following the dastardly November 2008 terrorist attacks on the Taj hotel are well documented, and have won raging applause from even the most anodized critics of business. 

People first, business second.  Both Bata and Tata teach us that it is possible to be a global powerhouse without sacrificing one's soul.  It is not necessary to separate social good from business well being, as so many companies do.

Dartmouth's Professor Vijay Govindarajan explains the Tata Nano as a social innovation:

Through his actions in the Tata Nano project, Ratan Tata has demonstrated that capitalism can have a soul--the profit mission and the social mission do not conflict and can, in fact, be pursued simultaneously. 
Increasingly, we are going to see businesses doing well by doing good, a philosophy that guides thinking and decision making at Unilever. In a recent discussion, Harish Manwani - President Asia, Africa, Eastern and Central European Regions at Unilever - shared that for Unilever value co-creation was not just collaborating with customers, it is collaborating with the interlinked ecosystems that the company operates in.  According to him, this passion and commitment to doing well by doing good, is the reason why the Dow Jones Sustainability Index has rated Unilever as the best company in its category for ten years running. I intend featuring more of the Unilever social responsibility story in my forthcoming blogs.

Social good and company well being can co-exist, as the examples of Bata, Tata, and Unilever demonstrate.  They should not be divorced from each other any longer. The people and the social systems they live in are both customers of the company.  The paramount purpose of modern businesses should be more than just "Do No Harm."  Rather it must be "Do Long Term Good for All."
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.

effectiveexecutive.gifEffective 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

Often, the more people use an expression, the less certain we are what they really mean by it.  It's as if usage guarantees understanding, and more frequent usage guarantees deeper understanding.  But that's not true.  Take expressions like Web 2.0, the new normal, or sustainability.  People don't often explain or use these terms the same way. 

In the interview, I explained co-creation not by defining it, but by decomposing it, to better explain its features and characteristics. 

Co-creation, as currently used in the business and marketing world, has a very specific meaning.  Rather than present a definition, my preference would be to explain co-creation by decomposing it, so we can better understand its characteristics.  First, co-creation, represents interaction, and takes place between one or more firms, and one or more actual or potential customers.  Second, this interaction is willing, purposive, and intentional.  Third, this interaction is managed, either by the firm, or jointly by the firm and its customers.  Fourth, the output of this interaction results in value for both the firm and for its customers.  Lastly, the value created for customers may or may not be unique, and is derived through a variety of experiences, such as suggesting ideas, refining current value, designing new products, improving current designs, fixing defects, and consuming new products and services.

Customization and Co-Creation

I've blogged on this topic before when I interviewed Page Moreau.  But its worth revisiting, since the two words are often used interchangeably, giving the impression that the two concepts are the same.

There is no doubt that in specific cases there is a blurring of boundaries, but customization and co-creation are not the same.

Let me answer the last part of the question first - do boundaries between customization and co-creation get blurred?  Yes, they do.  Part of the reason is that researchers and authors who introduce these terms are not always diligent in defining them, and differentiating them from other similar terms.  Let me illustrate this for you with an example.  Take a men's clothing company like Paul Fredrick, that sells its offerings through a catalog.  If you want to order dress shirts, you have two options.  You can either buy the color and pattern you prefer, in your size, based on all the shirts displayed in the catalog, or you can order a custom shirt.  Customization allows you to mix and match the fabric, collar and cuff styles, fit, pleat style, pocket, among other things!  But wait, there's more.  You can also have the shirt personalized, by having your initials monogrammed in several different styles, in different colors, on either the cuff, or the pocket.  Customization, personalization, or both! But is it co-creation?

What is important to realize is that customization and personalization are possible only within the boundaries of choices offered by the company.  To go back to the shirt example, the only way I can order a shirt with kurta sleeves (an Indian style shirt with tubular sleeves) is if the company offers that option.  If the company does not offer that option, then all that I can do is pick from the sleeve styles offered.  This is in sharp contrast to co-creation.  If the shirt were being co-created, then all options would be on the table, including kurta sleeves, because the starting point would be a blank canvas, not a menu of predetermined options and styles.

I am sure I'll blog again on the similarities and differences between customization and co-creation.  We owe it to ourselves to keep our thinking fresh and focused. 
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. 

druckersbrain.jpgHBR 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!

Happy 100th Peter!  You are not forgotten.

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! 

hb.gifIn 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:

hb_dia.gifThe 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.  

The American Marketing Association (AMA), Decision Strategies International, a global consultancy specializing in scenario planning, and a group of marketing leaders from industry and academics recently completed a project on the role of marketing in 2015 - Future of Marketing in 2015 - an American Marketing Association Special Report.

After nearly a year of secondary research, a survey of business and consumer marketers, and workshops with marketing leaders, the AMA developed four possible future states in 2015 and their potential impact on marketing in the organization.  These scenarios are presented below.  For each scenario, the project also created thumbnail sketches of key goals and objectives of professionals operating in each scenario.  

The four scenarios and the CMO archetypes for each scenario follow:


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.  

A useful tactic in evaluating the output of a future oriented undertaking is to study the inputs used.  The report states that the scenario building process began with an identification of forces that might shape the role of marketing between now and 2015.  The key issues and trends identified were:

  • Shrinking world, expanding relationships - increase in globalization and technology integration
  • Rise of new class, BRIC by BRIC - creation of new consumer markets
  • Innovation or Invasion - push back due to micro-profiling and and behavioral targeting
  • Command and Control becomes Cultivate and Create - two way conversations providing valuable information for new products/services offerings
  • Channel Convergence and Consequence - traditional media continues to be challenged
  • Talent Turmoil - increasing competition for valued skills and competencies
  • Pressure to Prove - Marketing is persistently challenged to prove strategic value and bottom line contribution.
Only one of the above inputs - "command and control becoming cultivate and create" - comes close to addressing how the concept and dynamics of value creation are changing.  What could be more fundamental than the identification, creation, delivery, and nurturing of customer value?  Yet not one of the archetypes presented above is obsessed with it.  

The Future of Marketing should be a paradigm shift, not a straight line extension of Marketing's current focus with selling, promoting, and packaging.  Even more disappointing is that the above scenarios and archetypes do little to move Marketing from its current inward product focus to a more outward customer orientation.  

Marketing needs a bolder different future, one that is obsessed with customer value creation.  This bolder future can't be achieved by a functional focus alone, no matter how cleverly worded - network integrator, sales facilitator, etc.  Because Marketing is not a function, it is a business orientation that shapes how a company creates long term, sustainable value for customers, for society, and for itself.

The Future of Marketing can't lie in peddling influence and shouting brand superiority.  It must lie in making investments in consumption ecosystems, of which the company is only one small part.  For the future of marketing to be viable, it must part ways with its incarnation of today.  The scenario that is personally most exciting to me is one where an obsession with customer value makes marketing as we know it today obsolete and unnecessary!

That indeed would be a bright new future.

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.

At recent G20 conferences, Japan and South Korea trumpeted their stimulus plans as Green New Deals, while China has earmarked $30 billion of its package for environmental programs.  In the United States, the Obama administration continues to emphasize its commitment to the environment, dedicating $80 billion of its $800 billion package to support green projects.

To maximize the benefits from these investments, local governments must successfully engage their citizens to influence their thinking and behaviors.  Indeed, it is no coincidence that the most significant innovations occur within distinct cities or communities, as local governments can more easily interact with citizens, soliciting their feedback on key initiatives and working with them to execute policy. 

The greenest communities share some common characteristics - energy-efficient buildings, renewable energy sources, widespread recycling, efficient and comprehensive mass transit, and substantive nature trails/green space.  But that's just the cost of being green!

At the end of the day what they excel at is actively involving their residents in implementing green initiatives--the same way as corporations like Whole Foods do (discussed in the previous post).  Two shining examples of innovative community initiatives are Curitiba and Malmö.

Curitiba, in Brazil, developed a holistic urban plan in the 1970s and 80s to preserve green space, establish a recycling program, and reinvent its public transportation system.  However, given Curitiba's limited resources, it relies heavily on its residents to execute its initiatives.

Watch Brazilian urban planning guru, Jaime Lerner explain his philosophy of how to make life better for people by making cities more livable.

  • Curitiba's Cambio Verde program enables low-income citizens to exchange their metal and glass waste for fresh produce and bus tickets.  Due to this program and widespread recycling of all residents, the city has emerged as Brazil's number one recycler, reusing 70% of its waste.
  • Curitiba used existing roadways to develop a rapid transit bus system that links all areas of the city.  Investments in a high-speed, high-capacity bus network increased ridership by 400% in over 20 years; now 60% of urban travel occurs by bus.  While citizens are more likely to own cars than other Brazilians, they use 25% less fuel per capita. Furthermore, 41 cities, ranging from Los Angeles to Bogotá to Seoul, are in the process of replicating Curitiba's transit system.
  • The city's Technology Street showcases 24 different homes, each built to spotlight sustainable construction materials, such as bamboo, or homes operating with renewable energy.  The city encourages prospective homeowners to meet with the architects of these residents prior to starting any new construction.
  • Mandates for dedicated green space have encouraged residents to independently plant more than 1.5 million trees on city streets.  A city-appointed shepherd and his flock of 30 sheep trim the grass in many of the nation's parks! 

Malmö, Sweden, an industrial city in which the economy crashed and burned in the 1990s, has reinvented itself as a pioneer in sustainable development as an Ekostaden, or eco-city.  Currently, Scandinavia receives more recognition than any other region for its sustainable living practices, with Sweden alone supporting more than 60 "eco-cities."   How have they done it?  A combination of bold politics, experimentation, and community empowerment.

Several key initiatives have enabled the city to achieve the following: 

  • Widespread solicitation and implementation of citizens' unique ideas.  One resident developed a plan for a new storm water system that captures 70% of rain water in one area of the city.
  • A community (Western Harbour) in which the government encouraged innovation from architects and planners to enable 100% renewable energy from the sun, wind, hydropower, and biofuels generated from organic waste
  • A mandate for increased green space, resulting in one of the largest developments of botanical roof gardens in the world with which citizens can insulate their homes, plant their own herbs and vegetables, and reduce the city's carbon dioxide emissions   
  • A transportation system dominated by cyclers and mass transit.  The city worked to make the cycling paths and bus network aesthetically pleasing to encourage shifts in citizen behavior.

Collaboration and Engagement are potent platforms for the co-creation of value, whether commercial or social.  In both the commercial and social arenas, companies and institutions are only just beginning to truly understand the power of WE.  Appropriately harnessing it and leveraging its power is still a few horizons away.

The old way of doing business is dead for business and marketing executives.  It is dying fast for those who run countries and communities as well.

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
While we don't need to add to the growing numbers who want to kick GM in the teeth, we don't need to be naive bystanders either.  Does the agenda above suggest reinvention or does it suggest semantic symbolism aimed at placating its new stakeholders and gaining unexamined sympathy of the general public?  Seems like the latter - as far as my vote goes.

Reinvention is not stitching together the best remnants of an eroding asset base that is incapable of producing relevant value for future markets.  Its about transformation, about creating a new asset base capable of producing relevant value for future markets.    

GM has failed on both counts.  Its reinvention manifesto is totally silent on its vision of future value and future customers. 

  • Cars and Trucks are not the only platforms for future value - or is GM declaring that it has no intention of participating in creating mass transit systems for green cities of the future? 
  • Individual customers and families are not the only future customers - or is GM declaring that it has no intention of partnering with municipalities and local governments to help them search for longer term and sustainable transportation solutions?

Alfred D. Chandler, the noted business historian declared that essentially businesses are people.  Another Alfred, Alfred Adler, no business historian, but a psychologist par excellence, advised us that in order to understand people watch their feet.  The Washington Post informs us that at the Detroit Metropolitan Airport, before you reach baggage claim, a new GM auto sits on display in the airport's gift shop.  Its not the much touted 2011 Volt, not one of the new GM hybrids, not even the Chevy Malibu which has got some impressive positive press.  But a car that flies in the face of all claims of reinvention - the Chevy Camaro SS with a V8 engine!

A throwback to the muscle car days, an era that still maintains an eerie grip on GM's self image and its business mission.  Sexy with charisma, is how Bob Lutz one of the executives most identified with GM's reinvention, recently described the Camaro.  He himself drives a gas guzzling Corvette 2009, the ultimate aspiration of muscle car lovers.  If businesses are people, and the people most responsible for GM's reinvention walk as described above, then all the din about GM's reinvention is exactly what it is - all hype, no hope!

Wake up, GM! For true reinvention to materialize, the caterpillar needs to become a butterfly!  Time for merely being a faster, leaner, meaner, car company are over - that's just the cost of doing business, not the platform of a rejuvenated glorious existence.  

"One word is too often profaned..."

The poet Shelley was of course talking about love!

The word innovation, while undoubtedly more prosaic, could soon be wearing that tag, if we are not careful.  The current practice of labeling anything new as an innovation, maybe acceptable literally, but leaves a lot to be desired if we are to capture both the body and soul of the word - not merely something new, but also creating incremental value and welfare for some segment of society.  

I have been thinking about this issue for some time now.  The trigger was Akerlof and Shiller's excellent book Animal Spirits and Gillian Tett's FT article Lost through destructive creation.  Both are truly impressive pieces, but I was uncomfortable with the usage of the word innovation to discuss financial products and practices that had heaped unprecedented ruin on millions of people around the globe.  It led me to start a dialogue with some of my academic and corporate collaborators on when is an innovation not an innovation?

Federal Reserve Chairman Ben Bernanke's address in Washington on April 17 on Innovative Financial Services for the Underserved was the nudge we needed to stop discussing and start writing.  In his speech, Bernanke admitted that financial innovations can misfire, but appealed for regulation not to prevent innovation.  Rather, he recommended, that regulation should ensure that innovations are sufficiently transparent and understandable to allow consumer choice to drive good market outcomes. 

Not everything new creates incremental value!  So, back to the key question - what characteristics of innovation best capture its literal meaning and its economic soul? 

In a single sentence: an innovation is not an innovation, when it produces snake oil!  More formally, for an innovation to capture and reflect both its body (literal meaning - new) and soul (economic meaning - incremental value) it needs to pass the following litmus tests.

Is the innovation creating a valued asset?

Fundamentally, innovations are about asset creation.  These assets can be tangible or intangible.  Consider any of the past or current innovations - ATM's, MRI, iPhone -all of them created assets.  The financial innovations that created products, better known by their acronyms, like CDO (collaterilsed debt obligations of asset-backed securities), fail this test.

Credit risk, by definition, is a liability.  No amount of packaging and reselling it can convert it into an asset.  Furthermore, moving credit risk around in an economic system by selling it and reselling it to a variety of interlinked organizations does not create value; it erodes it.

Is there mutuality of benefits?

Gillette promotes its Fusion Power shaving system as better than a Mach 3 - a result of 8 years of shaving innovation and 20 patents.  Since Gillette would like to benefit from this innovation, wet shaving enthusiasts have to shell out more money for the Fusion Power razor and shaving cartridges than they did for Mach 3.  But is it only Gillette that benefits?  Not really, so does the shaver, in a mix of real and perceived ways.

But who benefited from the host of credit derivative innovations that are at the center of the current global financial crisis.  Not the consumers borrowing, not even the shareholders of the banks doing the lending, only those banks and brokerage institutions that garnered fees at each stage of the slicing, dicing, and lending chain!


Is the process of value creation transparent?

Both Apple and Pandora have introduced innovations in the personal music listening space.  The process through which they create value for music lovers is very different - iTunes vs. the music genome project - but very transparent.

But that was not the case with Enron or the dot-com companies.  The innovations in natural gas trading and gas-fired electrical generation systems that allowed Enron to miraculously book ever growing profits were hardly transparent.  Valuation systems followed by analysts to forecast and monetize eyeballs in the case of dot-com companies were not transparent either.  Nor are innovations, like securitized debt products, that transform mortgages to bonds and allow banks to lend significantly more per unit of capital.    

Is the innovation simple to understand?

Two blades are better than one, three better than two, and five better than three.  Gillette's positive that an average wet shaving enthusiast can handle this level of complexity.  Innovation or overkill is the subject for another blog, but for the time being Gillette and the wet shaving army get it - more is better.

Simplicity is not part of the vocabulary of financial innovations that have landed us in this mess.  These innovations were the result of complex computer-based systems that were imported from elsewhere - usually hard sciences - and designed and operated by statistical decathletes with next to no domain knowledge.  Very much like 17-year olds designing CRM systems in their dorm rooms in the valley at the height of the dot-com boom.

Tett is spot on in his assessment when he states that these innovations became so intense that they outran the comprehension of ordinary bankers and regulators.  Bernanke too echoes this sentiment when he alluded to complexity and opacity of financial innovations being at the heart of the current financial crisis.     

Do claims and puffery totally overshadow substance?

Quackery and fraudulent patent medicines were well and alive in 19th century USA.  Theatrical performances and fire and brimstone selling pitches, more befitting religious sermons, usually accompanied the selling of these products.  Not difficult to understand why?  The extra sizzle had to compensate for the lack of steak!

The original developers of credit derivatives wanted us to believe that their creations would promote market completion, or more perfect free markets.  Perhaps, but not when they are not traded on the free market!  In the case of both Enron and the financial innovations in question, the claims far exceeded the benefits.  Far from creating freer markets, they created opaque trading worlds for concentrating risk that few on the outside truly understood.

The word innovation is more than just a label.  Greater understanding is required of its essence as a key driver of economic prosperity.  Hopefully, this will lead to more discipline in its usage.  The word innovation is a merit badge and not every new product or service is worthy of it.



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This page is an archive of recent entries in the Product Development category.

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