The Empty Whitecoat

Open your borders and let the customer in

Here is a short introductory piece on customer integration and co-creation, written recently for Conspectus magazine.

Lift 06 Conference- Geneva February 2-3

I am delighted to be able to lend my support to Lift 06, a conference that Laurent Haug over at Ballpark and friends have been preparing for the past few months.

LIFT is about teaming up leading observers, explorers, and builders with people whose work depends on understanding current challenges and creative solutions presented by emerging technologies. As the promotion material describes, attendees will face cutting edge business models, bold predictions, radical thinking -- ideas to inject into their own part of the planet.

LIFT has a simple goal: connect people who are passionate about new applications of technology and propel their conversations into the broader world to improve life and work.

Why not come along and hear the likes of Cory Doctorow, Euan Semple, Robert Scoble, Jeffrey Huang, Xavier Comtesse, and a lot of other great speakers talk about the important topics of our changing world. The Internet, emerging technologies, global solidarity, design, and big ideas, be prepared for two days of intense ideas sharing and networking.

Visit the lift06.org website, check the speakers roster, the program, and sign up! It is only 295CHF (195 for students) for both days.

Making Consumer Knowledge Available and Useful

Several papers from a 2001 conference on Nelson and Winter's Evolutionary Theory of the Firm are available for download.

One by Lars Bo Jeppesen, Making Consumer Knowledge Available and Useful:The Case of the Computer Games Industry, caught my eye. It provides a highly prescient review and analysis of the factors influencing the opportunity for firms to source and co-ordinate consumer knowledge - and then make it valid for input into the innovation process. Here is one particularly insightful passage from the paper, defining a sort of Interface - Competence dynamic that influences the opp for valuable consumer knowledge sharing.

Primarily, firms are dependent on the number of consumer’s who are able (and willing) to engage in interaction with them. The higher the cost of interaction with producers the more reluctant consumers will be to make their knowledge available. So, the available interfaces between the parts must be considered. Secondarily, some degree of competence at the consumer level is necessary in order for knowledge to be valuable for the firm. The higher degree of interaction the firm has with highly competent consumers the better it leaves the firm to take advantage of consumer generated knowledge and thereby for innovation.

The benefits of interaction between end-consumers and producers vary among firms and industries according to interfaces available and according to degree of consumer competence. Certain firms or industries obtain only little or no feedback from end-consumers, simply because there exists no interface to connect the two entities. Other firms or industries get lots of feedback but of no value because their consumers are not competent. But we can also imagine the situation in which the presence of technologies allowing for efficient communication coincide with a crowd of competent consumers.

What this dynamic implies is that firm strategies for developing customer competence must be a vitial element of any co-creation programme. This flips traditional data-centric approaches to customer learning on their head, approaches epitomised by Citibanks' new US Supremo, Steven Freiberg recent declaration (in this week's BusinessWeek- Oct 24):

Freiberg’s first big push is to mine the bank’s 120 million credit-card customers—along with 18 million new ones annually—for more business. If he can sell at least one bank product to one in 20 of them, he says, he can double the retail bank’s profits. Also, Freiberg wants to step up marketing to professionals such as doctors and lawyers, as well as to small-business owners and CitiGold bank customers. These so-called mass affluent clients with at least $100,000 in assets are a potential goldmine. He figures that every new product they buy, say an auto loan or a mortgage, yields 12 times the profits of the first sale simply because the cost of recruiting new customers is so high.

I say get that man a Juicer! Squeezing the last drop of insights for targeted cross-selling to an existing customer database is ultimately an inside-out, zero-sum game rooted in 1990s CRM approaches. Frankly, its not particularly evolutionary either.

Anyway, Jeppesen's paper goes on to review the experiences of the computer games industry. It also uses the example of cyclists and their willingness and desire to adapt their machines to fit their personal preferences (Bicycles themselves were invented by users way back when - it would be interesting to review the history of their innovation from a co-creation perspective)..

Well worth a read.

Forrester Consumer Innovation Conference, NYC - Speaker videos

Here's a great resource. Charlene Li's blog is providing links to all the speaker videos at the recent Forrester conference on consumer innovation in NYC, September.

Check them out here.

Charlene's talk in particular is a great synthesis of the power of social computing. Her presentation is driven by one simple theme, "Successful social computing requires ceding control to build the relationship". Marvellous stuff.

Thanks to Graham Hill for the tip-off.

Achieving Customer Innovation: New OMC Group white paper

Imagine that you have a company which is characterised by average leadership capability and behaviours; top down directive change; poor communication; an inside-out customer perspective; a focus on lag measures and metrics; an historical and embedded emphasis on processes over people and all operating in the context of an increasingly commoditised and competitive market. If you were faced with the challenge of making this company more "outside-in", i.e. customer and market-oriented, how would you go about it? What are the key issues that will drive change? What would be the likely high level internal strategic issues? And exactly how would you embark on a programme of change?

In this new white paper, we provide answers to these challenging questions. Access your free copy from the OMC Website here. (registration required)

Here is a summary of the Getting Started tips we provide in the paper:

1. Start listening to what customers are saying! Monitor their conversations and respond with candor, integrity and openness to earn their trust.

2. Develop a strong internal case for exploring customer dialogue and learning using new social computing technologies. Switch some expenditure from broadcast advertising and marketing to blogs, RSS and podcasts. Start small yet aim to quickly prove the value of the knowledge gained.

3. Focus less on control and more on collaboration. Understand and promote the benefits of ceding brand control of customer relationships to build better two-way dialogue and conversation.

4. Create a customer community to stimulate collaborative knowledge exchange between customers. Actively participate in the community and be passionate about maintaining high levels of listening and engagement.

5. Train contact centre or staff in other established channels (such as branch) to ask more open-ended questions to gather contextual customer knowledge and uncover latent needs. Review existing call centre scripts and rules for their adaptability and learning potential.

6. Develop and test incentives for staff to systematically exchange customer feedback with appropriate teams or units within the company.

7. Define a new set of customer performance measures. Review existing KPI’s for their ability to promote an outside-in mindset and decision-making. Combine internal efficiency and effectiveness measures with customer-based efficiency and effectiveness measures.

8. Bring expert lead-user customers into the company and ask them about how they perceive, access and value the organisation, its products and services.

9. Design and test incentives to motivate and reward customers to share knowledge.

10. Overcome internal barriers to knowledge sharing by finding new spaces for employees and managers to socialise and exchange ideas.

11. Analyse customer complaints – a source of existing “value failure” and find the root-causes of failure.

12. Hold a customer innovation workshop for managers to connect with emerging market and customer trends and technologies – and the capabilities required to implement them successfully. Use the opportunity to rigorously challenge existing assumptions. (Yes, that is where OMC Group can come in!)

13. Review existing customer segmentation models to identify “fit for purpose”. For example, are needs-based segmentations really providing the insights required to innovate with higher predictability and success?

14. Measure existing levels of customer trust then identify and fix current “trustbusters” in company processes, behaviour and marketing communications.

15. Find new ways to observe customers in their “consumption environment” as they are using your company’s products and services. But again, do so openly and with high integrity.

This paper was written in response to a question posed on our website. We offer to provide bespoke replies, within three working days, to any question related to customer innovation. Questions must be posed by executives from commercial or public sector organisations and they must relate to customer innovation issues or opportunities that are genuine to their organisation. We reserve the right to not reply (although that is rarely the case).

Defining Customer Innovation

I often get asked what I mean when I use the phrase "Customer Innovation". Here's my explanation:

Customer innovation incorporates a number of emerging concepts and practices that help organisations address the challenge of growth in the age of the empowered and active customer (both business and consumer). It demands new approaches to innovation and strategy-making that emphasise rapid capability development, fast learning, ongoing experimentation and greater levels of collaboration in value-creation. Customer innovation impacts upon all the following activities, functions and disciplines:

Marketing strategy and management
Brand strategy and management
Communications strategy
Customer experience design and delivery
Customer relationship management
Customer service design and quality management
Market-sensing and customer learning
Market and customer segmentation
Creativity and knowledge management including market research
Partner and customer collaboration
Organisational alignment and purpose (values, behaviour and beliefs)
Innovation strategy and management
Innovation valuation, measurement and prioritisation
Strategy-making

For me customer innovation is not only an important perspective on value-creation but a whole new strategy discipline that organisations must embrace if they are to pursue growth successfully in the future. Put another way, customer innovation impacts the fundamental means by which value is created and growth sustained.

One of the difficulties I encounter when explaining the concept is that the "Innovation" word is traditionally associated with products and technology. There is a section in The Only Sustainable Edge by Hagel and Seely Brown that eloquently defines Innovation from a much broader organisational and strategic perspective:

We underscore the importance of innovation but we use the term more broadly than do most executives. Executives usually think in terms of product innovation as in generating the next wave of products that will strengthen market position. But product-related change is only one part of the innovation challenge. Innovation must involve capabilities; while it can occur at the product and service level, it can also involve process innovation and even business model innovation, such as uniquely recombining resources, practices and processes to generate new revenue streams. For example, Wal-Mart reinvented the retail business model by deploying a big-box retail format using a sophisticated logistics network so that it could deliver goods to rural areas at lower prices.

Innovation can also vary in scope, ranging from reactive improvements to more fundamental breakthroughs... One of the biggest challenges executives face is to know when and how to leap in capability innovation and when to move rapidly along a more incremental path. Innovation, as we broadly construe it, will reshape the very nature of the firm and relationships across firms, leading to a very different business landscape.

Although Hagel and Seely Brown's book provides a great analysis of capability-building and new innovation mechanisms at the edge of organisations (through new dynamic forms of firm-firm collaboration) and specialisation, their discussion largely omits the customer-firm colloboration, open innovation perspective. But, from Hagel's most recent post and article in the Mckinsey Quarterly, this seems like it could be the subject of their next book! Here is a quote from the article:

Cocreation is a powerful engine for innovation: instead of limiting it to what companies can devise within their own borders, pull systems throw the process open to many diverse participants, whose input can take product and service offerings in unexpected directions that serve a much broader range of needs. Instant-messaging networks, for instance, were initially marketed to teens as a way to communicate more rapidly, but financial traders, among many other people, now use them to gain an edge in rapidly moving financial markets.