January 2010 Archives

scurve.gifWhat's wrong with driving your business using the historic S-curve (innovation) model?  The innovation model has virtually dominated all literature, organization design, sales training, and investment strategies since the world economic boom following World War II. This is the common and erroneous management belief that we can continue to grow our business by improving current products and/or continuously making breakthrough innovations. 

We call it the Drug of Innovation.

Many of the great B-to-B brands that appeared during the last century were created riding a breakthrough innovation - copiers, computers, etc. The ability of these companies to differentiate their brand through their products and drive significant margins  -  as their products were first adopted by the market then improved for the markets - was a very long cycle. 

To understand how much that's changed and will continue to change look at the PC life cycle - introduced by Apple, then quickly dominated by IBM - then a free for all with many entering, exiting and dominating (rags to riches to rags) changing all the time.  Today leadership oscillates between a few players with cost becoming the driving factor, as important, if not more important than product innovation. 

For the few firms that ride a breakthrough technology to market, the innovation model should be the dominant business model and can be effective for a time.  But for many established companies particularly in North America and Europe, the ability to differentiate a product or product line through feature enhancement has a very limited life cycle that is being ruthlessly compressed as more global product players come on-line particularly from China and India.  Furthermore, unless you happen to be Steve Jobs, the ability to predict breakthrough technologies that create whole new markets is virtually impossible.

We find the diagram below almost always describes a company's experience with innovation.

innovationpricecurve.gif

As we all know price differential begins to be pressured after a time for new products or product enhancements.  The issue for most firms is that this compression of price differential comes ever more quickly.  Soon firms and often entire industries are trapped in a no-win game of musical chairs as they take turns leading with ever-fleeting advantages based on product innovation.  Not only does commoditization rapidly effect their valuations but the musical chairs inevitably causes firms to innovate past their customers' real needs - thereby sinking hundreds of millions into products that few need at any price.

Question: When should firms get off this Drug of Innovation?

I believe the first step for most companies is for someone (sometimes anyone) to accept that the musical chairs cycle of innovation will slowly strangle the business.   This is so important - someone must see clearly that the emperor has no clothes.  Then they must accomplish a couple of things:

1) gain an understanding what the business model options are, what the correct direction is and become familiar with journey,
2) build a community within the business coalescing around these truths.
 
competitiveadvantage.gifThis in itself is very difficult - as I mentioned before, the innovation model dominates our business culture - we are prisoners of our mindsets.

We believe that an understanding of the business model choices immediately helps a business see its few options.  Historically there have been three distinct business models that have been successful - Innovation, Low cost, and Intimacy

That is not to say that each component is not pursued but that the business model used is driven primarily by one of these components.

Let's define customer intimacy as a business model: organizing business efforts to identify ideas to address true customer problems/opportunities at the highest level, bring those to the customers, and living with them to take advantage of those ideas. 

It is a complete integrated model - not a sales program.  At best, customers see you as an extension of themselves.

This blog is dedicated to the importance of this topic and the how of getting there -and there is much how. But let's, for a moment, take one aspect of it for illustrative purposes.

If we are going to be preoccupied with identifying/creating ideas that fundamentally help our clients (and lets call them clients - customers buy things, we serve the best interest of clients) then more of our R&D spend must be about those ideas.  Let me give an example:  let's say you provide some complex equipment for hospitals.  Some R&D spend must be on the broader Hospital problems - how to lower error rates in the hospital, how to get patients through faster.  You must bring better ideas to the client then the consulting firms they deal with today.  I know this seems impossible and it's not clear how it helps sell your current products - I assure you it's not impossible (in fact it's relatively straightforward) and it fundamentally impacts sales of current products.  We'll be discussing this as we move forward.

UP NEXT: The Customer Intimacy Journey.
Welcome. My name is Dean McMann and I'm the co-founder, CEO, and Senior Partner at McMann and Ransford. We  provide services and advice to many of the world's largest companies. I have personally led engagements working with dozens of firms including: IBM, Xerox, GE, Kodak, Oracle, HP, Peoplesoft, Compaq, Fujitsu and Trane as they have undertaken efforts to leverage the solution-led business model.

What did these firms have in common?

They were all taking the journey from product-centered companies to service-driven business models - based on the notion that "customer intimacy" surpasses product sales for its value-creating potential.

Because of competitive pressure, many corporations  have begun the journey to become solution led; or as we say "started to explore the Intimacy Engine™ business model."  We've worked closely with dozens and dealt with hundreds of these companies and most are daunted with this business model change.  Let's be clear, there is a promised land that allows companies to weather storms because they have become indispensable to their customers by building large portfolios of ideas that solve true important business problems - not just selling products, bundling products and services, adding professional services, or marketing solutions (think IBM and their success during the recent downturn).

This blog will be focused on the components of the transformative journey - what gets in the way, what keeps many from success, and what are the best ways to get through the journey.

Most complex B2B businesses need to move to this model at some point in their business cycle - particularly when they find that their innovation curve is no longer providing a long period of price differentiation for new products or product extensions.

However, most companies do not see the journey as moving to a new business model for which their current structures and measures are ill equipped. Further, many believe it is just a new way of selling - like so many sales training courses over the last 20 years. And finally, because this transformation is so different and difficult, they under-invest and set short-term success hurdles that cannot be met - and then get frustrated and quit. Often the very things that made these corporations successful in their high growth periods stand in their way moving to the new model.

 I think the customer intimacy journey affects every level of an organization: corporate, operating divisions, sales, R&D, financial measures, staff functions and maybe most important of all - individual leaders - struggling to make sense of the journey and how they can be successful. Through it all I have become more convinced of the power of the customer intimacy engine as the key business model for survival.

This blog is our response to this challenge.  We want to ask questions, discuss alternatives, and help shed some light on customer intimacy as a business model.  Specifically, we hope to:

- Advance our collective knowledge of the definitions, trends, and technologies for Intimacy Engine™ models.

- Examine the strategic alternatives available, i.e., how are business models going to change?

- Define an Intimacy Engine™ maturity model - the choices and use cases for large enterprises in a way that makes sense to leaders

- Develop recommendations for creating an Intimacy Engine™ discipline within your organization; present sample business justifications supporting "intimacy engine" investments.

- Define and understand the critical factors that contribute to improving customer intimacy.

- Discuss lessons learned from our experience over the past twenty years.

- Create a framework for measuring the Intimacy Engine™.

- Disseminate information on next practices, news, events, and relevant information on a regular basis.

I also think it would be helpful to examine the reasons for lack of success by companies seeking to change. Like any change initiative of this magnitude - many fail.  I want to lower that failure rate and assist companies in understanding what does not and what does work.

Finally, we will examine best practices from top to bottom:

  • what do the executives need to be doing?
  • what are the organization models?
  • what are the roles of HR, Finance, IT?
  • how are true solutions created?
  • what is the best portfolio model?
  • how are account relations altered?
In essence, we're here to help as you take the solution-led customer intimacy journey.

Please feel free to participate by commenting on the posts that follow.  I can be reached at McMann and Ransford.

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