Book – Reinvention

reinvention.pngJust before our professional association meeting at the company office, we realized that the previous group was still occupying the room.  As a representative of both professional association and the company, I found myself encouraging previous group to leave and cleaning the tables.  A couple of books were left in the auditorium…

A free book on business reinvention?  Absolutely irresistible!

The book has quite interesting approach: a combination of organizational and personal (professional) change in one process, as authors thought that personal and organizational change processes were so similar, that two separate books were not needed.

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The most profound statement of the book is the comparison of the degree of change – external and internal for both an organization and an individual.

To be successful, you and your organization must have the ability to reinvent, pivot, and morph faster than the speed of the external environment that you operate within.  Possessing the ability to not only survive disruption but also accelerate results during turbulent and challenging times is a skill that must be mastered.

A cute video explains “six deadly blindfolds” and an approach to handle inevitable disruptions.

Do you or your organization have “buoys” in place so that you are rarely surprised when powerful shock-waves begin pounding on your shore?  Great organizations and highly adaptive professionals seem to be better at predicting and understanding incoming changes than others.

Elements needed for the reinvention effort to be successful:

  • Dissatisfaction (feeling a need for change)
  • Focus (well-articulated future state)
  • Alignment (available infrastructure, including tools, processes, finances, etc.)
  • Execution (comprehensive game plan with clear milestones)
  • Leadership 
  • Cost of Change (reinvention costs: financial, social, physical, mental, etc.)

(D x F x A x E)L > C

A general manager of a major division announced a plan of the division redesign, while the division was still producing better results than other parts of the company.  A push-back from the executive team was overcome by the requirement to conduct an environmental scan.  60 days later, humbled executives reported that they were actually #5 in market share, down from #2 and dropping fast. “They discovered new strategies of the competition.  And customers gave them an earful.  The executive team was now ready for a redesign.”

SweetmanCragun Group offers a collection of templates related to the reinvention steps mentioned in the book.

An interesting (and very relevant quote) from Catherine Fake, a co-founder of Flickr:

work.PNGSo often people are working hard at the wrong thing.  Working on the right thing is probably more important than working hard.

 

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Modern Marketing Experience 2017

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Fantastic conference, as usually!  This year, the emphasis on “people” aspect of the business and organizational alignment, introduced last year, became more clear.

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CMO track was also discussing who are right people for the organization, where they can be found, and how they can be trained and retained.  Modern marketing organizations (and, probably, not only marketing organizations) are working on creating their perfect teams.  Technology is evolving, and new opportunities can fall apart if not supported by human part of the enterprise.

Ron Corbisier (Relationship One), shared an interesting slide during his AI session, where he outlined primary topics of last decade.

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I was fortunate to attend seven of these conferences, and observed a progression of a different dimension – organizational evolution of marketing.

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Starting from 2010 (a year when I attended my first conference), and through 2011, 2012, 2013 “Marketing and Sales” was an important topic, and a few years later, London 2014, the emphasis shifted to “Marketing and IT,” even if challenge of working with sales continued to persist.  Juniper presented it progress as Technology > Process> People…  and, after a thoughtful pause, the presenter mentioned, “we should have started from people.”  Modern Marketing Experience 216 emphasized importance of “people and process” before “technology and data,” what, sometimes, takes a central stage to the detriment of the final outcome.

One more organization, La-Z-Boy, built its leadership team with CIO reporting to CMO.  From another side, one of mar tech vendors noticed that several projects went on-hold as IT was gaining more influence in organizations of his customers.  I guess, next year topic could be the organization itself.  By that time marketing teams will be in place and process within the company will be examined and questioned.

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Building a team: we are observing a usual progress from generalists to specialists, as companies grow and technologies mature.  The new objective of building a team: people who can learn.  We need people who can imagine the possibilities and live them: adaptive, flexible, learning and be open to the change.  Dropping what does not work is important.  Managers are trying to match skills to passion; if people are passionate, they will find a way.  Hiring to the culture is even more important as it was before and and hiring passion is critical.

Building a team of today and tomorrow: team should include partners, coaches, etc., and extend beyond company’s boundary.  CMOs are looking for people who can look ahead and collaborate.  “Your digital transformation brings people and ideas together.”  “We need to breach the silos!”

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Over the years the images of organizational silos persisted, but the number of the silos in the pictures increased – marketers have to interact with more business counterparts to be successful, and companies in general have to work together to innovate.

Innovation was another interesting point of the conference: Oracle presented an “Innovation Journey” wall, with well thought-through steps (from my perspective) of introduction and managing innovation.  The innovation process assessed business in general, rather than marketing or sales – conference attendees.  It was a pleasure to see that marketing “arrived” as an integral part of the business, rather than an independent component with questionable business value 🙂

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The most interesting part of the “innovation wall” was the detailed process steps paper – a list of seemingly ubiquitous points collected in one process.

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Interesting: test is included as part of the innovation, and though test includes agile components, the overall process is a typical example of a waterfall.

Combination of waterfall and agile approaches in project management was also suggested in another session “How Proper Project Management Can Make You a Change Hero.”

  • Only 25% of change management initiatives are successful
  • Top reasons for failure:
    • lack of consistent communication
    • overlooked stakeholders (excellent point!)
    • lack of executive support
  • As additional stakeholders and requirements will be revealed during the requirement gathering phase, it is important to re-identify objectives at this stage of the project.  “With a full understanding of requirements from each group, review your initially outlined objectives and adjust if needed.”  Objectives can change, and it is normal!
  • After the project:
    • review the objectives with stakeholders – were they met?
    • schedule “post launch check” a few months after the launch of the project to check if the change has been implemented successfully
      • During the check speak with stakeholders to make sure that the objectives are still met

Mixing waterfall and SCRUM is beneficial: overall project can be handled as waterfall, and development components can be run as scrum.

Interesting example of a project that faced an obstacle: in the beginning stages of lead nurturing project, executives questioned the need for the initiative.  The team suggested to do a 3 months test for a specific product or region and review results.  The result: time to sale has been cut in half for pilot-affected leads.  After the result was clear, the project has been extended to its original scope.

Beyond the Hype – Keys to Achieving ABM Success (Demandbase)

Beside well-known ABM advantages (better performance and increase of ABM benefits over time), and well-established process (sales and marketing alignment on account selection, etc.), the presentation had a few new (from my perspective) insights.

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Interesting : ABM is also considered an evolution started from new technology and merged into organizational approach.

  • When ABM is started, number of leads will go down, what is not comfortable for the organization, and needs to be communicated in advance
  • Many organizations will pilot ABM on a group of sales reps or a region to see results

ABM leadership team now includes operations (lovely!) – and it is not “IT,” but rather marketing operations function itself (highlights – VB)

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Another interesting point: ABM maturity progression also includes operational alignment, and progression beyond digital channels.  (Highlights – VB)

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Changes ABM is bringing to marketing and operations are generally re-orientation of existing (people, process, and, in this case, technology) to ABM – a more efficient business approach.

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A practical example from the session: a company wanted to increase sales in the enterprise sector.  Before a major advertising push, the organization evaluated the data (basic ISP source of site visits).  Result was revealing: enterprise visitors did come to the company’s site, but were more likely to bounce.  The company adjusted site messaging to appeal to enterprise prospects before advertising push.

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The presentation also addressed marketers’ concern that too much content was required for ABM; it is not entirely true.  Image above is an example of using the same asset (the same white paper), with different description targeted to four different companies.

The result: 200% increase in white paper downloads.

Hot topic of the conference – AI.  Ron’s session “Blowing Past the Buzzword of AI” put the topic into perspective.

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AI is not a “rules engine” or an algorithm, though it is a fantastic buzzword and an excellent excuse for funding.

AI is not a “thing” – it is a collection of things – AI is an “enabler.”

However, AI has requirements of constant data feed to be effective.

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Marketers also need to have a strategy how to feed enough data into their AI aps.  Now we are at the day one of a multi-year run.

We need to go to basics:

  • what is our strategy?
  • what are we trying to do?

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One of the AI application (or, rather, Intelligent Augmentation) mentioned during another session of the event was chat bots.

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Though targeted currently to b-to-c marketers, chat bots are “trained” to connect to the database and answer or even anticipate questions from the user.  Oracle representatives demonstrated an interface allowing to “instruct” chat bots to recognize topics accurately by correcting initial topic “guess” done by the system.

A few more curious points from the event:

  • “Content cul-de-sac” – opened PDF… and now what?
  • “Innovation is creating the best possible match between a solution and a problem (context: using analog experience as part of overall customer experience even if “printed brochure” is not as popular in the industry 🙂
  • Medtronic: achieved a significant improvement in lead conversion when samples (or printed materials) were sent to the target audience.  Target audience were nurses, who did not spend their day in front of the computer.
  • Medtronic: experience matters; physical experience matters more.  Sales can say: “What do you think about the […] we sent you?”
  • Video can be used throughout an entire customer journey, and creates lift in engagement and conversion.  However, it is not practical to use video everywhere.
  • Video case study: account managers recorded personal videos for the accounts they support.  “Hi, I am an account manager…  how can I help you get started?”  Videos have been sent to companies – customers of BrightCove; target audience – people who may be unaware that their organization was a BrightCove customer.  Emails used to deliver the video link received 200% total open rate!
  • Starting points for a video: website!  Gated product demos is #1 conversion point.  Then, customer testimonials is a popular and useful application for video content.
  • Video-focused question: what do I already do and can be converted to the video to be used in the future?
  • YouTube channel: “video retirement home.”  Keep viewers on your site!
  • People are more likely to watch 3 one-minute videos rather than one three-minute video.  Chapters help!
  • What is the biggest barrier for adoption in a large corp – not tech!  Make sure stakeholders are OK, understand who all stakeholders are to make progress.  It helps to have a video champion.
  • DXP – digital experience platform
  • New European privacy regulations are coming in 2018 http://info.mimecast.com/gdpr-prepare.html
  • Test and pilot – opportunity cost is too high to wait for perfection!
  • Transformation tips: break down large projects and make them available to somebody to get quick feedback
  • “Customer experience is a journey, not a destination”
  • What we could have been done better?  Would have started digital education of executives earlier…
  • Organizational challenge: how silo’s owners can be motivated to work across silos..
  • “Data is not a department – data needs to be everyone’s job…”
  • If the person “qualifies” to be nurtured in two topics, which one is first?  This is a business decisions – the topic that makes more sense for the company.
  • B-to-c email list grow: “give people something, usually a coupon…”

Book – Challenger Customer

bookExcellent book for marketers!  I would recommend to buy a physical book, which can be easily reviewed later and shared with a colleague.  Audible version, which I purchased, is fantastic to listen while walking in a park (I listened twice), but not as convenient to take notes and share.

The book describes changing of the buying process (buying now includes more diverse groups of people) and sales/marketing strategies that can increase number of “high quality sales” – premium solutions rather than minimum options.

Surprising discovery: finding correct stakeholders boosts the probability of a successful sale by 4%, but positioning the solution for each individual stakeholder reduces the probability of a successful sale by 4% also.

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Tailoring to the needs of individual stakeholders more hurt the quality of the deal.

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What are the main points of disagreement in customer buying groups?

  1. problem definition
  2. solution identification
  3. supplier selection

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Companies needs to concentrate on buyer group agreement on the solution regardless of a supplier.  Decision on the supplier is an easier one for a buyer group.

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Example: 

Medical supply company used to sell their instruments to surgeons.  Now the company is selling to a group of surgeons, CFOs, hospital administrators, etc.  The question is not which supplier is chosen for the surgical instruments, but what needs to be done for the benefit of the business in general, including buying new surgical instruments or building a parking garage.

The disagreement in the buying group is most intense at 37% into the purchase (well before the company will start reaching to any suppliers at 57% into the purchase).

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Diverse buying groups would not easily agree on anything disruptive and ambitious.

Customer buying group profiles:

  • go-getter (interested in organizational improvement and known for getting results; will be interested in “how” and not “why”)
  • skeptic (focuses on “why” – weary of complicated projects, concerned that the costs will be higher and the benefit lower than expected – needs a lot of convincing)
  • friend (accessible, can connect with others, happy to talk, though may not get much done)
  • teacher (wants to understand the big picture “Blue Ocean Strategy” person)
  • guide (information dealer – will share internal processes of the organization, though may not get much done)
  • climber (focused on personal gain)
  • blocker (wants to avoid change for a variety of reasons – might designed existing solution or had been burned by suppliers in the past)

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Top reps target customers who can build consensus and drive change, disregarding their title or budget authority.  They target “mobilizers” or “challenger customers” – go-getters, teachers, skeptics.  Average reps target guides, friends, and climbers.

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What needs to happen for a successful sale?  The supplier needs to teach, tailor (for consensus buying decision), and take control.

Teaching (or, more likely un-teaching)

The organization needs to have “commercial insight” – generating commercial insight is an organizational capability rather than a skill of an individual sales rep.

commercial-insight

As teaching the most effective before the prospective buyer is contacting the sales rep of any supplier, a supplier can do it through marketing content.  The effective content that changes customer’s perspective does not have to be easily accessible or easy to find,  it does not have to have interesting facts or anecdotes, it does not have to be easy to understand.  The content does not have to have a smart perspective.

Effective content must:

  • teach customers something new and compelling about their business
  • provide a customer a compelling reason to change their course of actions

In general, the content needs to illustrate that the cost of inaction is greater than the cost of change.  Thought leadership is not an insight.  The insight provides an implicit message: “you are doing it wrong” – and a reaction – “I need to change my approach.”

32:52 – 39:20 – Explanation of the Commercial Insight (though the entire video is very entertaining and helpful for anybody working with content marketing).

A-B

Commercial insight content should take the customer from point A to point B.

  • A – current state
  • B – future state

Suppliers typically explain how good B is.  However, suppliers need to explain the “pain of staying with A” first.  The customer seeing adoption of B as “pain of change,” the supplier needs to show that “pain of same” is greater.

4 questions to build commercial insight:

  1. What are our sustainable unique strengths?
  2. Of those unique strengths, which ones are currently under-appreciated by our customers?
  3. What are the customers fail to understand about their business that leads them to under-appreciate our unique sustainable capability now?
  4. What would we need to teach the customer about their business, that leads them to value that capability more then they do now?  OR – how we can credibly break down their A and build their B?

Example:  Dentsply

The company produced light weight, cordless, ergonomically designed instruments.  Though the dentists agreed that the instruments were superior to what they used currently, they did not want to make an investment into “nice to have” instruments.  Dentsply (with the help of hiring a knowledgeable dentist and a consultancy) found a different positioning for the instruments.  They look at what was important for the dental practice in general – and found that absenteeism and turnover of dental hygienists is a significant problem.  Better instruments to keep hygienists from work-related strain could reduce their absenteeism and cost of operating a dental practice.

“Don’t lead with what makes you unique – lead to what makes you unique.”

Un-teaching – the supplier explains that hygienist absenteeism cost more to dental practice than dentists realized.

Example: Xerox

School districts were printing a lot, but in black and white.  How to position color printers (better margins) at the time of shrinking school budgets?

Understanding customers broadly – not only IT who buys tech, but superintendents, lead teachers, etc.  Xerox focused on student performance rather than printer performance, and discovered that vibrant color improved focus and retention in students.  As Xerox printers of that category were low cost on the market (unique competitive advantage), the supplier was able to focus the customer’s attention on the improving students performance with color materials, rather than “buying printers.”

Commercial Insight sparks a new kind of conversation with customers—one that doesn’t start with you or your latest “solution.” It lets you start by teaching the customer something new about themselves. Below, one Xerox business unit that provides solutions to the K-12 education marketplace flipped the script from feature-centric customer interactions to Commercial Insight-led customer interactions.

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Content

All content should lead to the commercial insight.  Spark > Introduce > Confront

Spark – a counter-intuitive fact (possible in a sales tweet)

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Customer testimonials can be centered on A too.  For example a customer can talk about discovering that the company’s approach cost more than they realized, galvanizing the other stakeholders, and eventually solving the problem.

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Example: Smart Technologies 

Who is the most important person for the collaboration software decision?  Facilities?  CIO?  The answer was  – a person who sees the benefit of it in the organization and can champion the case by connecting other stakeholders.  The company targets this persona.

Lead scoring can be adjusted from sale readiness to mental model disruption.

When a commercial insight is ready, who should be approached with this information?  Bad contact in the organization might be worse than no contact at all, as new ideas can be associated with the reputation (unfavorable) of that person.  It is important to connect with a mobilizer, who can play different role in the buying decision.

Possible concern – climber.  If a person talks about personal benefit the solution can bring rather than group or organizational benefit, the person might be a “climber.”  The colleagues of this person already recognized it, and the new idea coming from this individual might not be perceived positively.

Taking control of customer buying process – helping the customer to create a functional buying group.  Important role of group learning.

Getting customer buying group to learn before buying results in 2/3  increase in probability of buying a premium solution.  It also boosts probability of buying additional future offering by 23%.

Collective learning is not getting stakeholders into one room, but getting them interact with each other in a certain way.  Facilitation of customer buying group  debate became more important than presentation.

Important: finding the common languages between different functions of the buying group and use common messaging.

Example: Sisco 

Sisco realized that a new executive is participating in technology purchasing decisions – the CMO.  Sisco used social listening to understand what aspects of technology are important for CMOs and how are they discussed in the industry.  Then, these conversations were compared to conversations generated by (and targeted to) CIOs.  When the common ground was discovered and messaging that addresses concern of both functions was created, the messaging has been tested in social media also – what was picked up and which terminology has been used.

Mobilizers need to be equipped with tools to help build the consensus in the organization – how to talk to other functions about the category of the solutions in general.  

The content can come from existing sales materials, but it needs to be vendor-neutral.

Examples are Marketo and SkillSoft.   

skillsoftMarketo provides a comprehensive guide explaining Marketing Automation solutions in general with instructions for marketers how to discuss this type of solutions with sales and IT, which arms the mobilizers with materials to use at the early stages of the sales cycle.  

SkillSoft created an un-gated guide explaining elearning that can be used by mobilizers and very useful by itself.  The guide has multiple links for additional, gated, content, which helps the company to generate leads.

Social selling

How do top sales reps engage with the potential customers early if the customers contact the organization at 57% of sales cycle, when the type of the solution has already been determined?  These sales reps go where prospects learn… including social media groups and became facilitators of learning, without mentioning their own solution.

Collective learning decreases probability of encountering a blocker by 20%.   There is 35% increase of probability of high quality sale, if collective learning is happening in a stakeholder group that has a blocker. In general, blockers reduce probability of a high quality deal by 47%.

Companies need to shift to supporting the customers’ purchase process. Rather than “How to help our sales people better sell…” the companies need to think “How our sales teams can help our customers better buy.”  Shifting forecasting from sales activities to “customer versifiers” increased accuracy of sales forecast of one organization by 70%.

Explanation major concepts – more from the sales side.

More useful materials on the topic are available on CEB page dedicated to the book.

Excellent book!

Corporate Visions – Persuasion and Content

corporate-visionsAnother fantastic event by Corporate Visions!  Learning very practical approaches to selling and persuasion in general is always valuable, for business and personal needs.  Practical approaches based on research that defies common sense are rare in the field and incredibly useful.

Which approach of persuasion will work better:

  1. Stated need – response with the service matching the need
  2. Stated need – response with the service matching the need plus additional value added service
  3. Stated need – response with the service matching the need plus explanation of unconsidered need and additional value added service to satisfy this need
  4. Stated need – response starting with explanation of the unconsidered need and the service to satisfy it (the service matching the stated need mentioned later)

Starting with unconsidered need is the most effective approach (statistically significant).  Unconsidered need increases persuasion only if it is introduced first.  Hmmm…

Effectiveness of this approach should not be dependent on the language – as decisions are based in the “survival” part of the brain, which developed evolutionary prior to the language parts.  However, neocortex, which has the capacity for speech, is location in the “justification” part of the brain…  so, justification of the decision made might be just a rationalization of the decision rather than the reason why the decision has been made.

We call them “solutions.”  But they are “change management projects.”

Unconsidered need creates demand for additional services.  However, if the services are just offered as an additional options, they can imply excessive pricing.

picPicture superiority effect

Yes, it is understandable, that visual materials are better than just text… but, what kind of visual materials?

In an experiment between “white board-type drawing,” a standard PPT slide, and a “zen” type image, the concept was remembered better after “white board-type drawing” demonstration.

What is the most valuable content?

Many companies are trying to provide “content,” but how effective these efforts are?

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Based on four types of content, the least effective content is more common in the business environment, but the least common content and the most difficult to produce has the most value.

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Just passing the data is not helpful.  Develop a distinct point of view that creates urgency and uniqueness.  Conduct unique primary research.

What executives values and sales people present?

Interestingly (and not surprising), executives value 4 times more business expertise that the sales person can provide.  However, fewer sales people are comfortable with this type of conversations, what creates “business value gap.”

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Book – The Obstacle Is The Way

ObstacleThoughtful and entertaining book with many useful ideas – or suggestions how to look at negative situations differently.  Rooted in Stoicism, the ideas are very relevant for modern people and modern business. One of the points of the book is separation of what can be controlled and what can not.  As many circumstances can be completely unfair, we should not spend energy on lamenting the unfairness of the situation, but rather find the most reasonable plan of action. Wonderful examples:

  • bananasTwo companies interested in growing bananas wanted to buy a desirable piece of land somewhere in Honduras.  Unfortunately, two different entities claimed the rights on the land and it was not clear which one can officially sell it.  The large company dispatched lawyers and tried to find the rightful owner, the smaller company, however, just met with both owners and bought the land twice.  This approach guaranteed the right of ownership of the land for the smaller company.
  • Government regulations prohibited building bridges across the river…  what interfered with banana shipments.  The solution was to build two long piers and a pontoon between them.  The construction did the job needed to transport bananas from one side of the river to another.
  • A black boy who wanted to read during the time of segregation, forged a request of a white person to allow him to pick up books for somebody else.

The book quotes Serenity Prayer…  what seem to be quite beneficial for business: “…to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.” rockWhen Thomas Edison watched his business burn… he suggested his son to call friends to watch the fire they will never see again (the fire was fueled by different chemicals used in the business).  Edison did not see a reason to be upset by the event that happened and could not be changed.  However, after the fire was extinguished, his company quickly started rebuilding the business.  

Book – The Innovator’s Dilemma

bookVery insightful book – the research and theory that emerged from its findings explained an interesting phenomenon, what now makes complete sense.  The main idea of the research is the explanation of surprising inability of established businesses to adopt disruptive innovation.  This inability lies in the success of the established businesses itself – their dedication to satisfy their customers’ needs.  As disruptive innovation does not yet have customers, or enough customers for successful business, the firm is unable to dedicate resources to the new, unknowable market.  When the market is large enough “to be interesting,” it is usually too late.

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Typically, the disruptive technology emerges at the point when it can not satisfy demands of the current market.  Sustaining innovation is different – this type of technological advance is appreciated by the current market of the established organizations, and they excel in bringing sustaining innovation to the market.  This principle is not intrinsically good or bad, it just exists – the author compares it to gravity.  Flight is possible when gravity is understood and taken into consideration, rather than defied.

What should established companies understand to be able to deal with disruptive innovation in their markets?

  1. Current customers are not the best guide on disruptive innovation – the current state of technology may not appeal to them now, but it could in the future
  2. Managing innovation mirrors resource allocation process: resources of the firm may not be available to pursue disruptive technology as the organization itself will allocate all available resources to the projects benefiting current customers.
  3. Adapting disruptive technology to fit existing markets while the technology is inadequate for them would fail.  New markets should be found for the disruptive technologies; these markets need to value current characteristics of the technology.  Disruptive technology should be framed as a marketing challenge, not a technological one. 
  4. Organizations exist within their value networks and adjusted to be successful in certain environment.  Established organizations lack organizational capabilities that successful pursuit of the disruptive technology requires.
  5. As markets for disruptive technologies are unknown and unknowable in advance, the probability that the correct market will be found quickly is low.  The company pursuing disruptive technology must plan to fail cheaply and not invest significant resources until the correct market is found.
  6. The company need to approach sustaining and disruptive technologies differently: first mover advantage is important in disruptive technology, but not in sustaining technology.
  7. Small entrants into the market often “protected” by the fact that they are doing something that just does not make sense for the established firms – pursuing new, small, unknown markets with lover margins than established organizations expect.

The best approach recommended for the established organizations is to create a separate entity that can pursue and develop disruptive technology.

excavatorThe case study that shows the process in the most transparent form is the evolution of excavator market.  First, the excavator producer switched successfully from steam to gasoline engine – no major player in the market disappeared.  This was a sustaining technology – it benefited current customer of the established firms.  Then, hydraulic power became a disruptive technology.  At first, it was not good enough to satisfy needs of existing excavator market – the size of bucket was not large enough.  However, small bucket size was perfect for a new market – building contractors – who now could use these excavators instead of digging small trenches by hands.  As the technology developed, the companies established in pre-hydraulic era did not survive the change…

Book – Tilt: Shifting Your Strategy from Products to Customers

tiltExcellent book!!  I suspect many markets would be happy if their top management took interest in the book 🙂  The book’s site positions the book as a “A Powerful Antidote to Product-centricity” – and it is so wonderfully correct.

My notes (though it was hard to take reasonably concise notes – so many concepts a excellent by themselves and deserve attention):

  •  For many companies the product is their business (building a better product is the path to a less competitive future… is the perception)
  • HarvardHowever, the answer to the question “Why do customers buy from us?” is answered usually not based on the product, but on the “downstream” values.
  • While customers buy because of the downstream values, most of the resources are concentrated in the “upstream” product area.
  • Firms have goals “increase revenue by X” and use strategies how to create value for customers, what may not be concentrated on a product, can include service, emotions (piece of mind, etc.).
  • Firms seek “competitive advantage” – building a way of creating value for customers that competitors can not easily duplicate.

Where is your company’s competitive advantage or “center of gravity” – upstream or downstream?

  • 20th century: competitive advantage used to be in upstream (production lines, teams of engineers, etc. Walmart network).  However, upstream competitive advantage is disappearing as production, logistics, design, and innovation can be outsources.
  • Downstream tilt:
    • Competitive advantage tilts downstream
    • Activities that add value
    • primary fixed costs in the business
  • Why is it happening?  Commodization – anybody can re product the product relatively quickly.
  • Importance of “downstream” example:  pharmaceutical companies at one point offered significant price reduction for the AIDS drubs to African countries, but the countries were not interested.  There was no infrastructure to distribute the medications and monitor the use.  “almost free” product had no value…
  • Parity in products still important, but to “win” a company has to have a downstream focus.

In the 21st century markets are maturing faster than managers

  • Upstream costs are becoming variable, as outsourcing becomes possible
  • Downstream costs are becoming fixed (and increasing)
    • customer acquisition
    • customer satisfaction
    • customer retention

The question is not “how much more of what we make can we sell?”  but the question is “what else our customers need?”  Transition from the economy of scale to the economy of scope.  Manufacturing cost is not a smaller percentage of the product price; downstream costs have increased.

Example: computer game to help 7-19 year old ADHD patients developed by a pharmaceutical company as part of “beyond the pill” initiative.

Identifying customers’ costs and risks:

Example:  Vine in UK seem to be too intimidating for the customers to select – too complicated product.  Solution was a simple limited collection of Vines with easy to understand color-coding.  UK vine consumption increased.

Example: Honda during recession.  Why customers do not buy cars?  They are afraid to loose their jobs.  Offer: you can return a car if you loose your job.  Sales double, while the rest of the industry saw sales decline 37% (2009).

Example: explosives for the quarries – a commodity with practically no switching costs; competition on price – commodity product.  Solution to escape price competition was to reduce the risk of the customer  in buying the product.  The customers (quarries) needed “crushed” rock rather than the explosives.  The risk of the customers were very high – if the blast was unsuccessful, the rock might be too large, what will require additional efforts or the rock might be too small, and their customers won’t buy it.  The explosives company started charging the quarries not for explosives, but for “crushed rock” guaranteeing that certain percentage of the rock will be proper size.  The company used its extensive blast data to guide quarries in proper use of explosives and was able to sell premium and highly differentiated product.