August 2010 Archives
Let's outline the characteristics of success in the commercialization phase:
- Ability to take accounts once hostile to your company - It is important at this stage that you convince your company that this business is important and a differentiation for the company. The chances are - unless you have been aggressive in making acquisitions - that your group's revenue and profits are not material to the company. Therefore, one key way to be above the radar screen in your company is a focused effort to win hostile or competitive accounts. This can usually be accomplished with the portfolio you have already developed or envisioned. However, do not shy away from creating things especially for this market - you can usually leverage them back into the current accounts. But this must be a focused effort that you assign, measure and reward resources to accomplish. The issue of dedicated resources or non-dedicated resources is determined by the opportunity size (many accounts and lots of dollars to get) and disciplined maturity of your team (are you able to task them with multiple responsibilities.) This one effort, - getting hostile accounts - if accomplished correctly with pulled through products and reported loudly, can be one of the most important efforts to get your company on board and keep them there.
- Ability to make margin on accounts, markets, and from a portfolio - You are not a business, just a hobby, if you cannot make money and make it predictably and consistently. By this point in your business, you need to be able to manage profitability in the accounts, markets and portfolios. The accounts buy your solutions - consulting, products and services - and they should produce a margin of 30% - 40%, depending on the mix for the consulting and services and better than average product margins (average for your products in that market). A market should produce enough of a margin to cover the solution development efforts, any product development efforts (residing in the business) and still produce high margins before corporate allocation. A portfolio should always be evaluated for its margin mix - this does not mean that the portfolio does not have need of some high impact/lower margin offers, it does. It means that as a portfolio, you need to know what stage its offers are in.
As illustrated in the chart below, every offer goes through a life cycle of growth and decline, or different messages to the market, and of adding and removing staff. It is important to understand your portfolio, manage your offers appropriately, and add and kill offers to maintain health, growth and the intimacy you need to make the Customer Intimacy Engine™ work.
- Ability to pull through products - During this phase you must prove that you can pull through significant products into your accounts. This does not mean significant as compared to all the products sold the old way, but significant as viewed as an account. This will force you to prove that you are creating intimacy and that you know how to leverage it. Further, it will validate your portfolio - especially those offers closely aligned to your products.
- Ability to add and equip staff - Remember that as you grow, you will be adding a significant number of people (this can be very stressful for today's companies that monitor the addition of talent like each new employee was marrying their child). Therefore you will be forced to be closer to "just in time" hiring then you might be comfortable with. There is not space here to completely explain the "just in time" hiring model and all its components . I will address that in another blog entry. Also remember that much of the staff you will be adding (at least until you are large enough to have a college and grad school hiring and development program) will come from the consulting firms. If you have been reading my blog, you know the benefits and challenges with this group. For everything else to work you must be able to hire, on-board to your business model and make them quickly successful. This is a strategic imperative and I can't tell you how many of our clients try to ignore this issue and then regret it until it is corrected. The methods for this are for another entry.
- You must be able to impact the company while you continue to perfect your ability to run this business and grow to become relevant - this can be done by taking hostile accounts
- You must make money, and make it consistently while managing the life cycle of your portfolio
- You must pull through products
- You must be able to add and deploy staff in this people-dependent business
I want to return to the journey to customer intimacy to provide assistance in understanding what is needed, what changes, how the organization changes along the way, etc. Let's begin the discussion of the commercialize stage. Specifically - how do you know you are ready for commercialization?
I think this begins when you have had some success in at least one area of the business:
- You have more than one offer but a complete portfolio - You have a small set of offers, usually at least one that functions above the safety line and at least one that is directed at a space where you have credibility and can pull through product. These will have been vetted in the market and proven to be meaningful and have enough market opportunity to continue investment in them. It is important that you build on a firm foundation when you move towards the commercialization phase. Also, remember that you might have to start several offers before you have a set that meets the above criteria.
- A team that is performing the sales and account functions appropriately - To move forward your group must be able to consistently perform the Idea Selling TM program (selling to executives through the power of ideas), and your group must be able to drive accounts through the Service Chains TM. Depending on the teams you begin with, this has different challenges - internal people will have to learn the skills of consulting and external consulting hires will have to adopt to the rigor of the model. Both of these are challenging, but you cannot move forward until your team can perform.
- Ability to make money at the project and account level - You must be able to put it all together at the account and project level. This business may not make money overall (depending on the size and breath of your enterprise), but the projects and accounts must be profitable to move forward. If you are struggling with this, it is usually a training issue - people are not following the model or do not know how to add consulting value.
- Demonstrated ability to pull through some product - The model is not proven to be working if you do not pull through something other than consulting - hardware, software, outsourcing. As stated above your portfolio at this point will include an offer or more than one offer that has the objective of pulling through product. This must be proven to happen consistently to move to the commercialization phase of the journey.
- Ability to manage the business - This is both a leadership and organization question. Let's take them separately: The leadership of this business, like the business itself, is much more about what happens at the customer then headquarters - the rubber meets the road in the field. Effective leadership must happen close to the customers - you must have a feel for what's going on, what your people are able to do, and what help they need. This is proactive leadership, not administrative management. Now the organization must support the leaders to be working this way.
By the time the business unit is ready to move to the commercialization stage the broader organization must be ready also. This includes:
- The HR function must be aligned. As you recall, pay is different for these people; hire fast fire fast is different for this organization; talent reviews are different; a much greater investment in development and training is needed, etc.
- Finance function must be tracking the correct data the correct way - utilization, realization, project profitability, account profitability, etc
- Less internal meetings - like all new things, errors will be made. The ability to act fast is crucial. The amount of time spent in the field is very different than other businesses, therefore, internal distractions must be kept to a minimum.
- Belief that broader company understands and supports the business - You can't move forward if the company is wishy-washy about the business. They must fully understand what is at stake and why the journey is so important and worth the effort. They must understand where you are and why moving forward is possible, what the next phase of the journey will look like, and what new challenges and opportunities it will hold.
See also: The Customer Intimacy Journey: Phase 1 - Form
Taking a company through an enterprise-wide business model transformation to the Customer Intimacy Engine will remind you of that celebrated Beatles song - The Long and Winding Road. [The performance above is post-Beatles, but Sir Paul delivers.]
Anything worth doing is, by definition, challenging and requires fortitude. How do you keep the organization focused and maintain the momentum?
Let's keep in mind that companies have difficulty focusing for long periods of time and (like children) want immediate gratification. Therefore you and those who are like minded must be responsible for getting them on the journey and keeping them on the path.
Because firms under invest in most new things, your effort may not be different. The journey is like building a skyscraper - lots of time spent building the foundation to support growth before significant financial outcomes are realized. (FYI, I'll discuss underinvestment as a root-cause of failure in the next post).
As you know, the true impact of the solutions-led Customer Intimacy Engine™ business model is pulling through the other products of the company. Therefore until critical mass is created and significant dollars are pulled through the business will not be viewed as significant - even a hundred million of new intimacy services will not be material for most large firms.
Add to these factors the truth that you are going to make some mistakes. You are going to select some solutions that don't work - particularly as you learn the business model. Further, you'll hire some expensive talent that won't work out.
Finally, you will screw up an account or two.
So you find yourself with an undeniable truth - if your company does not become successful in the Customer Intimacy Engine™ business model there will be troubled waters ahead. And, the challenge of keep the company moving forward when you are underfunded and many don't believe. A way forward must be found.
Let me provide some ideas:
- In the year one plan - provide trade-offs for approval - fast growth big investment - slow growth smaller investment. Always, remember to explain much of the investment is in what would be considered R&D for a new product.
- Develop specific road signs for each step of the program - this will focus them on the steps toward success:
- Hiring consultants that provide expertise in the vertical area in question
- Developing first True Solution™
- Taking solution to market and validating applicability
- Getting first sale
- Force 90 day critical reviews with broad leadership audience focused on what is and what is not working - do not fall into trap of selling them all the time on how great you are doing. This is a difficult and critical journey, and it is silly - not to mention fatal - to put all the risk on those assigned to make the transformation work.
- Develop a newsletter of the journey to tell everyone about the current successes and next steps
- Budget into the organization education time to go around company and evangelize through education on business model, value to organization, current steps, challenges, successes and what's next.
- Be quick to make corrections - one of the things several of our clients have had difficulty with is adjusting organization charts, compensation plans, key offers, etc as needed. Large corporations of very structured around the annual planning process. The Intimacy Engine™ model in the beginning must be flexible and agile. You will be forced to make many changes throughout the year in the early stages. This is going to frustrate the larger corporation, but make sure you continue to educate about the reasons for changing in mid-stream and why you will fail if you cannot adjust to new information.
- Don't fight city hall - every company has things that must be done to be a good citizen - whenever possible do the right thing
- Die on the right hills - as you know (if you have been reading this blog) there are several things that must happen in order for the journey to be successful and those can't be compromised.
On a positive note, I have witnessed several executives make their careers fighting for this journey but each time they had to keep the organization moving with them. Each of them become both experts in the model (could speak to anyone - internally and externally - on why it is important and how it works) and were aggressive, in-the-trenches leaders - they went to see customers and assisted their teams in understanding how things work and what to do in different situations.
I hope this helps. Next up, we look at under-investment and its consequences.
Today I want to discuss the importance of establishing a beachhead - a successful safe place to expand into a market.
This is important for an early solution business and for any new market/customer segment you go after. You must focus early offers on the market exclusively - it is so easy to ignore the needs of the executives in your market - we call this getting above the safety line - and focus on the products or abilities you have now. We've seen firms struggle in the first year of their Customer Intimacy Journey because they did not create anything meaningful for the market.
The Customer Intimacy Engine™ business model can take into account that your customer facing people are not used to selling to the executives, it can take into account your brand does not give you legitimacy in the executive-suite solving real problems, but it cannot make up for poorly planned offers - those with no real value to the executive.
The beachhead begins the process of establishing your legitimacy and proves to your organization that you can do it. The early focus should be on getting reference-able accounts that believe in what you offer. By the way you must be able to implement the new idea also - please see the blog entry on staffing and talent.
How do you select the first offers for a new market ?
You need to do a thorough review of what leading thinking for the market is focused upon. This would include:
1. Reviewing current thinking by consulting firms - this can be accomplished by reviewing their info in the market place and meeting with representatives from large and specialty firms.
2. Meeting with executives in the industry that are solving key new issues - these discussions must be done differently than market research and require market experts in the room on your behalf to interpret the comments.
3. Diagram the business - this should include org charts, supply chains, major processes, etc.
Once this exercise is complete and a diagram of potential opportunities is created, I suggest you meet with people who represent best practices for these areas within the market segment - these will usually be lower level people and or people who have left the industry and are working on these problems as adjuncts to the industry. Also, see what the associations are doing on these issues.
Now you should have a reasonable list of opportunities and enough information to begin the offer evaluation process.
The challenge with establishing a beachhead is that companies usually don't have the patience for spending time doing this and they want meaningful revenue now - this is usually because they look at Customer Intimacy Engine™ as "solution selling" - a go to market issue only. I suggest that you talk about this phase of the journey as R&D spend. A True Solutions™ portfolio is not that different from bringing a new product to market, similar phases are involved and similar investment is required, although the way in which the evaluation and creation activities are accomplished differ.
So how do you go about leveraging the beachhead? Once several accounts have purchased the new offer(s), you can trumpet the release of the offer, increase the staff involved and move towards leveraging the beachhead. This will include creating those offers that more directly pull through your products or outsourcing. This begins with building a strategy (portfolio document) of where you plan to take the market, which includes identifying how each offer area impact the safety line and/or builds critical mass, and/or drives solution revenue/profits, and/or pulls through products. This document in turn becomes the vision that drives the market activities you undertake for the business. It also provides a communication document for educating and discussing the business with your company on broader basis.
In summary, focus first on establishing a firm beachhead and then on the broader business offerings that expand your influence.