Archive for July, 2013|Monthly archive page

Co-create products with your customers

Contrary to what your parents told you, it often does pay to follow the crowd.

Many companies are using crowd sourcing strategies to gather new ideas or provide operational support.  Crowd sourcing involves the harnessing of dozens if not thousands of people through specialized techniques and intermediaries to address a specific business opportunity or solve a research problem.  Some leading companies have taken crowd sourcing to the next level, collaborating with customers and key stakeholders to co-create new products or troubleshoot perplexing problems.  This new approach can spark breakthrough innovation and solve difficult technical challenges much faster and at lower total cost than deploying expensive R&D teams or buying risky start-ups.

Co-creation is well suited to better deliver on customer needs, at lower product development costs and risks.  Some notable examples of co-creation (as highlighted in the Harvard Business Review) include:

FedEx

Problem: How to ensure on-time, zero-defect delivery of live tissues for organ donation.

Solution:  With external medical staff and suppliers, FedEx developed a sophisticated logistics technology that manages key variables like location, temperature and pressure.

General Electric

Problem:  How to extract Alberta’s heavy oil in an environmentally friendly, low-cost way.

Solution:  GE, government officials and customers collaborated at a shared innovation centre to develop a new water filtration system that reduced water consumption.

Microsoft

Problem: How to improve the performance of a call centre.

Solution: Working with customers and call centre agents, Microsoft redesigned the customer experience to make it more personal and responsive.

A variety of innovation projects have used co-creation in diverse areas such as new product design, content creation, software development, video games and mobile app development.  Interestingly, some companies and entrepreneurs are using new crowd sourcing models like Kickstarter or Indiegogo to finance new products and TV and movie production.

To exploit co-creation’s potential, firms must pay attention to five key ingredients:

1.   A willingness to open up and interact

Collaborating with customers and stakeholders is not easy for many companies, even ones that purport to be customer-centric.  Since Co-creation is a creative and problem-solving process, it requires all employees to be good listeners and collaborators.  For inward-looking cultures, leaders may have to encourage openness by tweaking management systems, launching change management initiatives or bringing in outside facilitators.

2.   A big but specific problem

Leaders will get the most out of co-creation strategies when they target big problems and opportunities that the firm cannot deal with on its own.  Open-ended problems are rarely successful, given the challenges of engaging participants and vetting the ideas.

To effectively manage the process, management should craft a number of hypotheses for the crowd to explore.  Furthermore, the firm should anticipate that prospective solutions would evolve as different stakeholder groups provide input.

3.   Make it easy for the right people

Leveraging dozens if not thousands of stakeholders across many organizations and regions can be complicated. To keep the co-creation process controllable and productive, managers must carefully consider the makeup of the internal team and extent of outside collaboration.  Firms should cast a wide net to attract the right number of external experts, in areas like the supply chain and customer ecosystem as well as universities and startups.  Moreover, organizations need to make sure they have the right data, rules and IT systems to foster rich interactions.

Numbers matter; for some problems, the input of a dozen experts can be more valuable than hundreds of amateurs. Furthermore, the number of submitted ideas will be proportional to the ease of participation. P&G’s Connect + Develop program requires only a name, email and physical address to submit an idea.

4.   The right platform

To properly engage the crowd, companies should carefully consider which online or physical vehicle they use.  In some cases, web-based platforms like Crowdspring or InnoCentive will work best.  In other cases, firms should consider building their own specialized co-creation model like GE or 3M’s customer innovation centres.

5.   Evaluate well

Even when using hypotheses, companies can still get inundated with many interesting ideas.  To understand which solutions are feasible and have the greatest potential, managers should undertake quick online experiments, computer simulations or launch first in virtual worlds like Second Life.

Utilizing the crowd can be problematic. Like executing other key business strategies, prudent leaders will ‘measure twice and cut once,’ to ensure they design the right program for the right challenge – and can leverage the raw value of the biggest ideas. For those that do, Co-creation will be a game-changer in terms of better tackling customer needs and improving the pace and efficiency of innovation.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Advertisements

Organize around capabilities not functions

Can a 21st century business excel with a 20th century organizational structure?  Unfortunately for a lot of companies, the answer is no. To cope with today’s challenges, companies need to be agile, adaptive and tech-savvy.  This is extremely difficult when the traditional organizational structure consisting of multiple, siloed functional groups like marketing or finance are incapable of delivering the capabilities needed to drive competitiveness while minimizing risks. Instead, CEOs should consider redesigning their structures around strategic capabilities in order to maximize organizational performance at the lowest cost.

Dysfunctional groups

The functional model has become so ingrained in management philosophies that few question its usefulness. They should.  By their nature, functional groups are specialized, good for a few narrow tasks but challenged to operate in difficult business environments characterized by competing priorities, limited resources or featuring cross-organizational problems like low employee engagement. Anyone who has worked in a large enterprise knows that many functional groups can be divorced from the needs of the customer or business units, rigid in their approach and often lacking in the latest skill sets.

These drawbacks make it tough for functionally driven organizations to develop world-class capabilities and support strategic priorities.  Attempts to address these shortcomings by adding matrix-based teams and shared services usually come up short. Functional groups will often retain their original veto power, limiting the power of collaboration.  Furthermore, using fluid, matrix teams can increase complexity, add confusion and slow down decision-making.  These measures may ultimately fail because they don’t get to the root of the problem: the functional model is no longer relevant for today’s competitive challenges and environment.

Capabilities win

One of our client projects demonstrated that some firms are better off with a new organizational structure, one built around capabilities and not functions.

A manufacturer’s procurement department had significant performance issues that were affecting their competitiveness. In this sector, a well-tuned procurement capability is critical to managing an extensive parts list that feeds into a just-in-time production model.  The department’s narrow cost minimization focus worked initially but then the wheels fell off. The procurement group became siloed,  no longer responsive to the divisions that were trying to become more customer-centric. Moreover, the firm was no longer receiving new innovations from its chastened vendors. Our solution was to create an internal Procurement Centre of Excellence.  We worked with the lines of business and other functional groups to develop a new and unique Procurement structure that could align their activities to corporate strategies, attract new talent and better address all stakeholder needs. The formation of this new capabilities-based group led to improved vendor relations, reduced internal politicking and lower purchasing costs.

Implementing a capabilities-driven structure

The first step is for each company to identify those capabilities, which are needed to outflank competition, and those they just need to ‘keep the lights on’.  For strategic capabilities, the firm would identify which internal and external ingredients are needed to build a world-class capability. Once many of these people, tools and IT assets are assembled, the leadership will want to integrate them into the enterprise through the following steps:

Establish new senior roles. Capabilities-based teams should have C-level sponsors, similar to a Chief Risk Officer or Innovation Officer to ensure accountability, align plans to corporate strategies and to garner the necessary authority and resources.  These unique leaders need to be politically savvy and have cross-functional knowledge so that they can reconcile the disparate needs and assets of various groups.

Create permanent cross-functional teams. Capabilities-based teams should combine multiple skill sets and functional specialists within formal structures (i.e. part of the organizational chart) and with clear mandates and resources.

Tweak the systems. Management and IT systems should always support strategy.  Firms will need to redesign some of the policies and practices to incorporate the new structures.  Some areas to consider include recruiting, performance measurement and budget allocations.

Cultivate generalists. To be successful, these new structures must staff beyond narrow functional skills to include people with strong generalist skills and habits (representing key internal groups) and traits such as problem solving and collaboration.

Measure performance. As these groups are strategic, they need to be measured and managed through charters and metrics that directly link to key corporate goals.

Organizational change is never easy. In the above client example, management had to overcome cultural, reporting and vendor-management challenges.  However, the results are well worth it. Companies that do their homework and move boldly to a capabilities-based organizational structure can reignite corporate performance and competitiveness.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

The curse of expertise

Conventional wisdom says that possessing deep subject matter expertise is a prerequisite for organizations looking to innovate. Yet, when product managers, technologists or innovation gatekeepers have too much knowledge their preconceived notions or experiences can prevent breakthrough solutions from emerging.

This common psychological state – we call it the ‘curse of expertise’ – is considered by psychologists and behavioral economists to be a harmful cognitive bias, preventing some individuals and teams from finding and implementing ‘out of the box’ innovations. Companies looking to be more innovative can preempt these effects through organizational change, new staffing practices and the use of specialized facilitation tools.

Every person has cognitive biases. They arise from our need to make sense of a situation before deciding on a course of action. Contextual understanding and subsequent actions are typically shaped from past experiences, knowledge as well as likes and dislikes. Our automatic and practical response to difficult business challenges – which is what innovate thinking is all about – is first shaped by our understanding of ‘how we’ve always done it here.’ If we have done it (or seen it done elsewhere) in the past, that’s the way, it probably is going to be done — rightly or wrongly — in the future. This bias is closely connected to another organizational predisposition, the NIMBY effect. The ‘not invented in my backyard’ bias also makes it difficult for external ideas or technologies to be accepted and business challenges to be met.

Self-evident? Perhaps. In our consulting experience, many companies and their leaders often don’t recognize there is bias in their thinking or processes. Even when they acknowledge the predisposition, the effects may be too strong and institutionalized to enable breakthrough thinking. To overcome the bias, some organizations will try to bring the outside in by pursuing Open Innovation strategies or acquiring innovative start-ups. While often successful, these strategies can still fall victim to the curse. New ideas, approaches and technologies still need to be filtered, evaluated and disseminated through the organization. Not surprisingly, the role of innovation gatekeeper and cheerleader often falls to knowledgeable and experienced managers – the very people with the ‘curse of expertise.’ Alas, great ideas will get to the front door, but typically not inside.

The curse is not always apparent. Also problematic is how the curse influences analytical and decision-making practices. For example, managers often write detailed requirements and desired specifications for new innovation projects based only what they have seen work in the past, not what may actually be possible or viable. In order to make this process manageable, some R&D leaders will inadvertently limit innovation by creating exclusion lists that routinely ignore certain companies, industries or technologies from their consideration.

It is not a foregone conclusion that a company full of experts will suffer from the curse. Many innovative companies – usually stock full of knowledgeable people – are able to mitigate the curse through their processes, policies and cultural norms. Our innovation-focused consulting work leverages many of their best practices, including these 4 strategies.

Get recognition

The curse is most dangerous when no one recognizes or challenges it. One way to recognize the 800-lb gorilla is to approach the business challenge in an agnostic and objective fashion, by defining up-front the real problem to be solved and the solution’s ideal benefits and characteristics.

Find the right data

Innovative thinking often gets kiboshed by experts based on their – nebulous, out-of-date, or unverified – opinions. Indeed, gut feel has an important place in decision-making. Highly innovative companies, however, emphasize the primacy of holistic and credible data, especially that from consumers, over opinion. Two effective ways of getting good data is through undertaking proper qualitative and quantitative research, and conducting ‘quick and dirty,’ measurable experiments.

Foster diversity

Staffing innovation teams with diverse roles, knowledge, and cultures is a proven way to enhance problem solving, avoiding groupthink and inciting breakthrough creativity. Diversity-enhancing measures should also cover hiring and job rotation practices, corporate education programs and cultural initiatives.

Leverage specialized tools

Our firm employs a variety of facilitation tools that help firms challenge conventional wisdom and push innovation boundaries. These tools vary from specialized analytical techniques like problem restatement or divergent/convergent thinking to establishing an internal or external ‘devil’s advocacy’ group to tackle the business challenge in a totally different fashion.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Pricing lessons from the Rolling Stones

Over the years, the Rolling Stones have shown the world about what rock ‘n’ roll is all about.  Back in May, they looked to prove this again by embarking on a 50thanniversary concert tour.  This time, however, the band discovered that they can’t always get what they want.  For the first time in their history, the Rolling Stones had difficulty selling out venues especially the premium seats.  Their difficulties selling tickets offers valuable pricing lessons for other entertainment, sports and premium-product brands.

Initially, ticket prices included $600 for arena seats up to $2,000 for general admission seating in front of the stage.  Not surprisingly, sales lagged from the outset.  The band had to discount prices to fill their first venue, the Staples Center, and subsequent dates.  For the Stones, the impact was lost revenue, a tarnished image and irate fans who resented others getting the same tickets for a lot less money. Though normally aggressive pricers, the Stones clearly overstepped this time.  No wonder some promoters were having a 19th Nervous Breakdown.

The band’s predicament is one that all premium brands can relate to. It is not uncommon for pricing to occasionally overshoot the perceived value or the customer’s ability and/or willingness to pay. The challenge is how to set or recalibrate your pricing and value proposition in a way that maximizes revenue, doesn’t damage the brand or anger customers who paid full price.

Here are a few successful strategies we’ve employed in the past:

Understand your patron

Given economic and demographic realities, the ability of thousands of fans to pay exorbitant concert ticket prices may be a thing of the past.  The Stones incorrectly assumed their fans would continue to see the same value and pay record prices for 70-year-old rockers performing a 40-year-old music catalogue. A more thorough understanding of their customer needs could have led to more segmented pricing levels, early-bird discounts, smaller venues or more delivered value.

Boost your value

The value of a concert experience is reasonably understood.  You pay high prices and get one or two bands performing in a stadium for two hours. Instead of lowering prices, the Stones could have increased the real and perceived value delivered by providing a free gift with purchase (high perceived value with low actual cost), more product (i.e. longer show) or offering bundles (sell a limited edition t-shirt with premium seats).

Communicating high, experiential value is also critical to maximizing sales. Premium quality goods have sophisticated brand values communicated through packaging, advertising and merchandising.  On the other hand, most musical acts tend to have generic brand values, lacking in authenticity or exclusivity.  To sustain premium pricing, brand managers need to ensure all elements of their marketing mix convey an exceptional brand image.

“Succeeding with premium pricing requires that customers clearly understand how your product is superior to substitutes or competitors,” says pricing expert Claire Johnson, senior vice-president and chief financial officer at CIBC Mellon. “The right price point compensates sellers for delivering a better product while leaving buyers satisfied with the value received — and a willingness to repurchase.”

Sell through other channels

When facing unsold tickets or extremely high demand, many acts and teams will use scalpers to distribute their tickets and protect their image. Acts will use scalpers to sell the best seats (so that fans blame scalpers, not the bands themselves, for inflating prices) or to unload excess inventory (so bands don’t look desperate).  Making this strategy work requires the bands to offer bulk blocks of seats and discounts to scalpers. This tack is analogous to premium brands selling their discounted merchandise at outlet stores.

Selectively, lower prices

Price is an important signal of performance, exclusivity and quality.  Reducing the price like the Stones did, especially through clumsy discounting, may provide a short-term revenue and volume lift but may end up doing long-term damage to the brand.  However, there are times when a price decrease is the right strategic move.  The Stones were publicly accused of gouging their fans.  Cutting the price may end up restoring some brand equity by demonstrating fairness and transparency.

The Rolling Stones invested 50 years of hard work to be crowned the “greatest rock ‘n’ roll band.” It would be a shame if poorly considered pricing decisions ended their run amidst accusations of greed, weak sales and sloppy execution.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.