June 2010 Archives

I've shared some thoughts on how marketing executives should ensure the Customer Intimacy Engine™ is as integral part of their company strategy.

Now, I'd like to delve deeper into "why?"

Specifically, we'll look at the Customer Intimacy Engine™ from the perspective of the CFO or VP of Finance. I sometimes think of this role as the reality role - the CFO sees the next year plans as related to strategy clearly and is responsible for their ability-to-reach factor and is looking closely at this year's are-we-get-getting-there reality.

The CFO is the key advisor and early warning system of the P&L leader of a business. They know when things are not and will not work and that trying the same thing year after year without fundamental change is perilous. Over the years I have found their insights to be clear and sound and they almost always can clearly see the value of the Intimacy Engine™.

Recent surveys show that CFOs are focused on four types of growth:

Core growth: Increasing market share within existing or related segments. This contributes approximately 45 percent on average to a company's growth.

Customer or markets growth: Entering new markets or customer segments that are unrelated to existing ones. This contributes 23 percent to growth.

Product and service growth: Growing an existing customer base and identifying its needs to develop new products and services, especially in new sectors. This contributes 26 percent to growth.

Value chain expansion and/or new business: Vertically integrating the value chain or expanding into a brand new business opportunity that is only loosely related to the core. This represents about 8 percent of growth.

To achieve this growth, most enterprises will leverage a multi-year investment planning mechanism in their planning calendar. This is the tool that several CFOs have used to introduce the topic of  Intimacy Engine™ into the planning process. They do this because they have been through too many underperforming strategies, strategies that did not fundamentally alter the price compression that the product portfolio inevitably experiences as it is commoditized. Acquisitions that expand the product list (SKUs) but do not provide better profitability are just more options for making sales quotas. The same can be said for expensive product enhancements, announced with great fan fare but which only make a blip in the revenue numbers and sometimes reduce margin (R&D and go to market expenses related to new enhancements).

The list goes on and on.

Let's accept that it is very difficult to use the old business model to fundamentally change market forces of commoditization of a product line when others can catch up to anything new in a matter of months (or get ahead of us in same time frame) and often offer their products below your price point.

The very nature of a Customer Intimacy business model is based on value-creating activities. Here are some typical characteristics of an effective Customer Intimacy practice:

Strategic Partnerships
Customer Intimacy implies that you are working on solving your customers' most strategic problems. Your solutions create true partnerships.

Brand Equity
Customer Intimacy creates a sense that your organization is branded as a trusted advisor. Earlier, we mentioned that Customer Intimacy means actual daily presence in the trenches, solving real client problems. Remember, customer Intimacy means your organization  becomes an extension of your clients' organization.

Larger Deal Sizes
Customer Intimacy drives large deals - because they are more strategic and focus on solving critical business problems for your client.  You are not selling point-products.

Product Pull Through
Customer Intimacy enables product pull in these large deals. Your products are not competing on features and function any more. Rather, they become part of the larger solution.

Product Lifecycle Extension
Because your products are embedded in your solutions, they are not subject to typical price-competition.  We have found that this significantly extends the lifecycle for most products. 

Scalability
Once you understand and solve the key problems facing your clients, your ability to solve that problem for others in the industry becomes a key selling point.  Your successes create further opportunities to grow.

Reduced Selling and Marketing Costs
Over time, your brand equity and reputation as a trusted advisor to the industry means you don't have to spend as much money marketing.  The cost of customer interaction is greatly reduced, because you are already being paid to interact with the customer. 

So where does the CFO turn to create business value?   We see that customer intimacy impacts enterprise value creation across numerous factors. Back in October 2004 Deloitte Consulting LLP surveyed 124 financial executives about the creation of value at their companies, and constructed eight value-creating behaviors.  The study led to the creation of Deloitte's Enterprise Value Map - a useful tool which we can use as a starting point to study the impact of Customer Intimacy on business value.

deloitte_ev_small.gif

Specifically, we can point how embracing a Customer Intimacy business model creates a new platform for growth by impacting Revenue Growth, Operating Margin and Expectations. Here's how:

  • Revenue Growth is driven by "volume" and "pricing." Customer Intimacy enhances your ability to attract new customers as well as retain and grow current customers. It also significantly improves your  understanding of business unit performance and market values. You tailor products and services to new customer segments - with service chains that solve your customers' fiercest problems. Your pricing is strengthened because it is optimized based on the value-impact you have on your client. 

  • Operating Margins are improved because your SG&A costs go way down, as does your COGS.  In fact there is evidence that when you co-create products and services with your client, the value creation potential is far higher at a far lower cost.

  • Expectations in the market are changed as well.  Your company is viewed as a thought-leader, with unique solutions and capabilities.  Your partners are viewed as key contributors. In fact you build an entire ecosystem of value-creators. 
Thus, we often find the CFO hosting workshops to help business leaders learn:

- What is the real impact of the Customer Intimacy Engine™ as a business model?
- How does it truly work?
- What does it take to be successful?
- What markets/segments are most conducive to this business model?

Out of these event - almost always - an understanding is reached that the Customer Intimacy Engine™ business model must be embraced and that the company must find a way to become proficient in the model. Usually an effort is kicked off to prioritize the market/segments and build a cost benefit analysis. This finds its way into the proper annual business plans for R&D investment for the new offers, solution practice creation, and go-to-market adjustments etc.

Another path we have seen is where the financial executive leads the company in an educational process. By this I mean the executive starts building a corporate understanding of the problems caused by innovation and need for the Customer Intimacy Engine™. This is a mindshift approach and allows a greater degree of flexibility for education of a leadership team and a longer period of time for analysis and planning before the effort is placed into the regular planning and budgeting cycles. You could think of this effort similar to a strategy effort where the current state is examined, options considered, education provided and then direction selected. The value of this approach is it can be begun immediately - not dependent on planning cycles and can be done at the pace and manner that enables a deeper understanding of the model and a stronger by in of the effort.

Again why is the Finance leader an appropriate leader of this effort?

- They can clearly see when the Innovation Curve is no longer working for the company. Quarter after quarter they see the company strategy is not panning out. The CFO hears these phrases echoing in the halls: "Market share is slipping. Losing key deals on price. New features don't drive the impact we expected. Bundling our products was copied by our competitors. The length of time that our new product stays differentiated is ever shorter. Our services are leveraged almost given away to get low-margin product deals..."

- They see the entire business and have the data to support their views. No other role spends the amount of time they do examining the Financials and seeing trends.

- They are trusted and unbiased - they just want success and they do not have a dog in the hunt on a given sales approach nor are they enamored with a given product or product line.

- They can readily understand the potential financial impact of the Customer Intimacy Engine

In closing, I encourage the Finance leaders to challenge their companies views of what is possible and take the strategic steps necessary to lead the transformation.  It is not easy, of course. But the payoff is immensely rewarding.

You may recall that I recently wrote a blog post about enabling the sales executive and her organization titled Why Solution Selling is not Enough.

Today, I would like to discuss the role of the marketing executive in terms of customer intimacy.

In the simplest sense, marketing has a direct role in market strategy, participation strategy, and enabling the success. Because of their unique role and perspective on the business, marketing owns or is heavily involved in the strategy of the business, and often drives the decision-making process of how to address commoditization issues.

These include:
•    Expanding product lines to leverage current channels
•    Acquiring market share and thereby eliminating competitors
•    Moving to a platform offering
•    Moving to a suite of products that can be sold in a bundle format
•    Moving to the Intimacy Enginemodel.

All of these and other strategies make sense at different times and for different reasons and many times they need to be combined in order to deliver the transformation required. We believe that the Intimacy Engine™ should always be considered as a mechanism to change the paradigm of a business that is experiencing or will be experiencing the crushing cycle of innovation that does not yield the long term price differential needed to support the growth and profit margins of a sustainable business.

Marketing is key in assisting the organization in gaining an understanding of what’s at stake. Marketing has a future view of the business and therefore brings that to the discussion - often line executives must be immersed in the day to day do not have the time or maybe the information to question what can be different and what direction to go.

All significant product portfolio changes including the adoption of the Intimacy Engine™ require significant investment, process changes, leading new buyers, creating new messages, but the Intimacy Engine™ takes advantage of what we have today and what markets we’re in. It moves up the organization to executive buyers and provides a portfolio of things they are interested in. Furthermore, it allows the pull through of the existing products and services.

We have seen several marketing executives take the lead in getting their organizations head around the power and journey of the Intimacy Engine™.

Here, Mike Mendenhall of HP explains their campaign titled “Let’s Do Amazing”:


We’ll examine HP’s campaign in detail in another blog post, but suffice to say, it fits within the purview of marketing to take the lead.

Now here are the steps used by one of our clients as they lead their company’s business model transformation.

•    Market Participation strategy
Use these questions as inputs to the process:

- Which Markets/segments must you win in to continue your growth and margin requirements?
- What markets/segments do you do you need to move into wither to take from competitors or to leverage your product strategy
- What capabilities do you have that can be leveraged in a True Solution?

Often, your customers think of themselves as part of a vertical business segment - phama, food and beverage, energy etc. It is important when discussion an Intimacy Engine™ business that this perspective is used as the overriding structure.

•    Business Model development
A model can be developed to explain the investment and return rate including timing should be developed for the organization. This will most likely include a lengthy discussion of the Intimacy Enginebusiness model, its components, benefits, and other unique attributes. Also, where to pilot the model should be identified and reasoning provided.

•    Socialization Effort
The Marketing Executive is the perfect executive to take the lead in getting the broader management team on board. This often requires intellectual material, and an event set aside for the team to gather and go through and develops an understanding of the power and impact the Intimacy Engine can provide.

•    Pilot Implementation
This by definition is a combined, collaborative effort between a line executive and marketing to assure that appropriate resources are allocated - often new hires are required, for example. But, it is important that the broader executive team stay deeply evolved in the pilot’s progress - this will provide support for the inevitable challenges that occur, and the broadest understanding of the power of the model to be understood.

Obviously, there are significant efforts made during the pilot on offer development, market messaging and go to market messaging. Although these are quite different than traditional offers and messaging they follow the same process and must be properly enabled for success.

I hope I’ve made the case for why the marketing executive is a natural to take the lead in Customer Intimacy transformational initiatives.  Stay tuned for more on this topic.

In our line of work, we often see companies which innovate past the point that customers need or will pay for. 

We have seen this phenomenon in almost every B2B product group.

The cause?  A mistaken belief or assumption that companies can compete only through continuous innovation which is translated as continuous product differentiation.  At a certain point this leads to product over-engineering - too many features, product bloat, unnecessary complexity, and product extensions which customers dislike.  Technology replaces common sense.

We must have empathy for the company stuck in this mindset. They view themselves as product innovators and they always move their product forward in an effort to stay ahead of the competition. Furthermore, two powerful groups within the company - product development and sales - both push for continued expansion of features and functions. The product development group is always clamoring for more money to keep ahead of the Joneses, and sales must account for tougher market conditions. Thus, we hear a refrain: "the customer wants x and y and z!"

One example from the world of consumer electronics comes to mind. Although not a B2B example,  it fits this category and we can all relate to it: the heralded release of 3D TVs!   Just think how tough it is for TV companies to get us all to replace our cool flat screen TVs with the next big thing! perfect If they don't get us all to continue buying - we all know what that will mean!

In the B2B world, we see the same dilemma in medical devices where the technology is only needed in rare cases and is sold for much higher prices than current technology in use (which works for 99% of the cases).

We also see it in office machines - where the optimistic projections of an optimistic sales force hopes that the new color options will drastically improve the sales rate of a product under considerable pressure.

Sound familiar?

We see it all the time.  The relentless pressure to outdo the competition (if only for a few months) with products that just aren't needed.

So, what can you do?

First and foremost we must accept that innovation of current products has a limited life cycle and at some point drastically diminishing return on investment opportunities. Challenge the mindset, the assumptions, the myth of endless innovation.

Second, we must decide what portion of our markets/segments we must win to continue growth and profitability. Then we must look at those markets critically and determine where we are in the product innovation curve and admit that we might need a more dramatic impact than a product that no one really needs and won't pay a premium for.

Third, examine what alternatives truly exist:

•    Eliminate competitors through acquisition - consolidate the market
•    Expand our product lines - hopefully to a new innovation curve.
•    Bundle our products into larger deals where we can provide greater price flexibility and still remain profitable, and/or
•    Add the Customer Intimacy Engine business model to those areas that you must protect, or acquire from competitors, or improve product margins.

By adding the Customer Intimacy Engine to your strategy options (yes, it is a different business model with its own challenges) you have a viable alternative to the "innovate at all costs" mindset. Re-directing R&D money to a portfolio of True Solutions™ (ones that your customers executive truly need and want) you can add years of life to your product lines and focus on delivering what the customer truly needs and will pay for.  Sometimes it's not a bad idea to become a fast follower of proven new features instead of the company that has to get there first.

I've been amazed at the ability of companies to maintain the useful life of a product or products by owning the executive suite of their key customers and driving intellectual thought-leadership in their marketspace.
 
Granted it is not easy to begin to solve your customer's true problems or help them take advantage of big opportunities. It requires a new kind of offer set to be added to your product portfolio, different market and customer messaging and different account management techniques and often different talent and talent development efforts.

But, compared to spending millions - sometimes hundreds of millions - on product that will inevitably fail, it is a bargain and well worth the effort of learning a new business model.

P.S. - We may be wrong about the 3D TVs but I would not want to be betting my career or significant $$$ on products that are well past the sweet spot of a market.

splanet

How does IBM go beyond marketing platitudes to create a Smarter Planet campaign to change the world?  And is the campaign a True Solution™?  What lessons can we glean from IBM’s efforts?

In this blog entry, we’ll examine the depth and breadth of IBM’s Smarter Planet campaign. I use the word campaign, because at first glance, it looks like a marketing pitch.  But if you spend five minutes examining the message, you soon understand that IBM is leading the with a profound idea.

The idea is introduced eloquently by IBM’s Chairman and CEO Sam Palmisano:

we are all now connected—economically, technically and socially. But we’re also learning that being connected is not sufficient. Yes, the world continues to get “flatter.” And yes, it continues to get smaller and more interconnected. But something is happening that holds even greater potential. In a word, our planet is becoming smarter.

This isn’t just a metaphor. I mean infusing intelligence into the way the world literally works—the systems and processes that enable physical goods to be developed, manufactured, bought and sold… services to be delivered… everything from people and money to oil, water and electrons to move… and billions of people to work and live.

The idea, which in essence says that all areas of human endeavor can now be better understood by data-driven insights, is captured in three bullet-points:

  • Instrument the world’s systems
  • Interconnect them
  • Make them intelligent

IBM is proposing a new vision for an “intelligent” planet - broad enough to engage individuals, citizens, shareholders, industries, and governments under the concept of an almost utopian “smarter planet.”

Palmisano also states:

CEOs, CIOs, governors and mayors are asking:

  • How do I infuse intelligence into a system for which no one enterprise or agency is responsible?    
  • How do I bring all the necessary constituents together?     
  • How do I make the case for budget?     
  • How do I get a complex solution through my procurement department?     
  • How do I coalesce support with citizens?   
  • Where should I start?

If you recall, in a previous blog post I had stated that a solution is the embodiment of an idea - and how the idea can be realized.  The idea is the kernel of the change in the relationship from pushing products and discussing business opportunities.

I also explained that the power of ideas is that they immediately accomplish several things:

  • They focus the discussion on the idea - not the sales representatives (or consultants)  skills,  not the company or current relationship, but the idea.
  • They enable a more consultative conversation - discuss the merits of the idea in a particular environment.
  • They align with the way real decisions are made - instead of working against the process. 
What makes a good idea?  Ideas for this discussion are focused upon seizing an opportunity for a company - be it business growth or protection, increase revenue or cut costs.  A good idea is not wishful thinking - but a challenge to see the business differently.  A good idea should be easy to summarize - to be expressed in a few minutes.  A good idea should be actionable, understandable and straight forward to evaluate for applicability.  Finally, a good idea should have a “wow” factor.
'a Smarter Planet' logo

Image via Wikipedia


Granted some ideas are bigger than others - some require a bigger budget, some require more authority to move forward, but all good ideas should draw the client into a discussion about the possibilities.

Based on what we see, not only is IBM’s Smarter Planet a True Solution™, it’s a game-changer as well.  It focuses on deep expertise in vertical segments - literally leading the industries to a new promised land - one in which analysis and actionable-insight is gained from data.

Two other candidates for a similar company-wide True Solution™ can be seen at Accenture and Deloitte.

Accenture is building an idea-led solution business around “competing on analytics” - a term they clearly lead the industry in.

And at Deloitte, they too have a game-changing idea in “The Shift Index.” Will they use it to lead their customers to a new level of business competition?  

The opportunity for building a True Solution™ lies within every B2B services division. Where do you stand?

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