The Empty Whitecoat

New Paper on Outcome-Driven Innovation

A new introductory paper on Outcome-Driven Innovation has just been released by my Strategyn US colleagues, written by founder Tony Ulwick. Here is an extract:

"Innovation is the key to company growth, yet as a business process, it is poorly understood, its execution is highly inefficient, and its output is unpredictable. Why? Dozens of plausible explanations have been published over the years by practitioners and academics alike, but when it comes right down to it, the innovation process is broken for two very fundamental reasons – there is no universal agreement on precisely what the inputs into the innovation process should be or how they should be used to drive the innovation process. It’s that simple."

To request a copy of the paper, drop me an email.

“Value”, “Value”, “Value”– the Most Vague and Over-Used Word in Marketing

Everyday, marketers, product developers, managers, all business-people in fact talk about “value”. In fact, I reckon it is probably the most popular – yet at the same time, most misunderstood - word used in everyday business conversation

(Quick “non-empirical test” using Google: Value – 776 million hits, Customer – 583 million hits, “A Definition of Value” – 606 hits!)

For the past 2-3 years - off and on admittedly, I have been interested in how value is increasingly being co-created by firms and customers. ("Traditionally, learning about customer needs and the process of value-creation occurred within the firm’s boundaries or at best within partnerships amongst firms. The role of the firm was the development and delivery of goods and services, and the role of the customer was the consumption of those goods and services. However, a perspective of the firm as an autonomous value-creator is becoming increasingly redundant … " etc etc)

Over this period, I have become increasingly aware that to understand co-creation and by extension, to understand how firms can become effective co-creators with their customers, it is first essential to have much greater clarity on what we mean by value – particularly what value is being created and when, by whom and for whom. In the book, The Service-Dominant Logic of Marketing (eds. Vargo and Lusch), Woodruff and Flint critique our understanding and use of value as being too conceptual and too vague. They suggest that value is too often talked about as a “variable or a state-of-being” and little time is spent understanding the processes behind how customers form the value judgments that they do.

In terms of providing definitions of value, Woddruff and Flint go on to identify two broad schools of thought. These are firm-centric and customer-centric perspectives.

Firm-Centric Perspectives

Much of the knowledge on customer value is from the firm’s perspective in that it emphasises one of three varieties of firm-created or -derived value:

1. Value-Added   This perspective suggests that value is embedded in the firm’s products and services and is independent of the customers’ perceptions of value. As such, value is something that is owned, created and exchanged by the firm and the emphasis is on designing offers that target customers will purchase.
2. Economic Worth of a Customer   Here, the firm’s concern is to extract value from (particularly existing) customers and to segment them according to their value potential. Much of popular CRM and customer loyalty thinking focuses on this variety of value
3. Economic Worth of a Seller’s Product / Service Offering to a Customer   This view defines a customer’s view of value in primarily monetary terms – where value is equated to price – and that customer’s measure the value attained in terms of their ability to derive a preferable deal from sellers.

We then have an important customer-centric perspective on value-definition.

Customer-Centric Perspectives

1. Value-in-Use, is a concept which defines value as something that is perceived by a customer when interacting with products and services in use situations. Rather than the value being contained in the product, here value refers to a customer’s meaning that is attached to product and service bundles relative to a use context. In other words, a customer’s valuation of a product or service depends on their experience with its use in situations that are important to them. Another way of putting this - value-in-use can be expressed as the job that customers are trying to get done. They "hire" a product or service which they believe will help them get these jobs done most effectively and efficiently.

This is of course a much more useful perspective for identifying how firms can co-create value with their customers – it is the experience or value-in-use relative to a specific context that is being co-created and which should form the primary unit of analysis for value-creation.

Now, using these definitions of value, I argue it is possible to identify two broad categories or styles of co-creation, 1) Value-Added within a Firm-Centric perspective and 2) a Customer-Centric Value-In-Use perspective

1) Value-Added Co-Creation within a Firm-Centric Perspective

1. Product “Finishing”, The customer completes the product or service and is the final co-creator of value or actor in the business system or value chain, e.g. IKEA

2. New Product Design and Development (Lead User), Here a limited number of expert customers are invited “into the firm” to share their knowledge and contribute to the development of new products and services. There is a good description of the Lego Mindstorms lead user project in February 2006’s Wired magazine. Other examples include Harley Davidson HOG events, Saturn Cars, Proctor and Gamble’s Connect & Develop programme and Silicon Graphics.

3. Existing Product Adaptation (Customer Feedback), Here the company actively solicits expressed customer needs or feedback to improve its products, e.g. Cisco and Microsoft Knowledgebase

4. Mass Customisation, This is the provision to the customer of a limited set of company-determined choices or options with which the customer can personalise a standard product or service template. Examples include Adidas custom shoes, Dell PC’s and BMW cars (plus most other manufacturers)

5. Open Community Ideation and Product Design and Development. I differentiate the open-source movement because a) it is more distributed and b) firms cede more control to the community of users and creators. Also, open source tends to bias in digital environments, creating mods to games software for example as well as the well-known examples of Linux, Firefox and Sugar CRM. I also include Innocentive here because of its community basis for creating solutions to R&D problems.

6. New Service Design, I distinguish new service design from new product design and development (Lead User) (2 above) because service tends to involve more consumers in the innovation process and are also easier to test in markets than products through experimentation, probe and learn approaches. Also, of course, service value is inherently more adaptable than tangible product value, involving more knowledge-rich interaction. Examples include Teliasonera’s testing and piloting of new mobile phone services and Alaris Medical Systems constant dialogue with customers to improve its advocacy offering.

2) Customer-Centric Value-In-Use Co-Creation

7. Real-Time Marketing & Service Adaptation, Moving more to within markets and value-in-use with higher adaptability, this style of co-creation is characterised by high levels of customer dialogue and interaction, enabled by digital technology. This allows individual customers to change the value presented by the firm in real-time, so for example, Cemex allows its customers to modify the delivery time and quantity of cement to fit with their changing operational requirements, Fedex allows large corporate customers to change package transit times and destinations in real-time. These are enabled via an intelligent knowledge interface between the firm and the individual customer.

8. Personalised Experience Value and Knowledge Co-Creation. Finally, this is where the firm and the customer interact within an experience environment to realise unique co-created value. The unit of value is not the product or the service but the individual experience and its interaction with a host or experience network partners. Examples here include those such as iPod / iTunes (facilitates a personalised music experience, it is less about the white box and more about the experience gateway it provides), Medtronics pacemakers (less about the pacemaker technology, more about the intelligent care network ), John Deere (less about the heavy agricultural machinery, more about the remote sensing capability and adapt-to-farm conditions value) and Amazon (especially in the US which is experimenting with all kinds of personalised interfaces and content).

Capabilities for 7 and 8 Value-in-Use Co-Creation

Traditional Voice of the Customer approaches to customer needs identification tend to emphasise the value-added concept at the expense of value-in-use in their assumptions about customer needs and value. For example, the House of Quality first defined a set of capabilities and a process for collecting customer needs. Since then, many methods have been developed for translating VoC data into inputs into the value-creation process. In each instance, the firm tries to identify known or latent needs/wants of customers through a variety of mechanisms such as interviews, surveys, observational techniques, and so on. In these approaches, the firm’s capabilities are designed to help it learn about customer needs that exist in the market, beyond the boundaries of the firm. The company does the asking, the listening, the observing, experimenting and learning; customer needs/wants are the object of the study. After the firm learns about customer needs and wants, it then develops and delivers the goods and services that it feels will provide value to customers.

Now however, co-creation demands an alternative process for “co-creating the voice of the customer”, one where the customer and the firm are engaged together in the asking, listening, observing and experimenting – that is, both are engaged in learning. Importantly, the subject of the value-creation process is both the firm’s needs and wants and the customers’ needs and wants. This will be the subject of some later posts. Cheers

Interview with Tony Ulwick, author of What Customers Want

Roger Dennis, over at IdeaPort, posts a multi-part email interview with Tony Ulwick, founder of Strategyn, and creator of Outcome-Driven Innovation (ODI) and author of What Customers Want.

Tony talks about how he originated the concept of ODI and the underlying principle of understanding the jobs that customers are trying to get done:

In my recent book, What Customers Want, (McGraw Hill, 2005), I reinforce the theory that customers buy products and services to get jobs done. [Harvard Business School professor Clayton Christensen introduced this terminology in The Innovator’s Solution. He also cites my work in his book as we have been pushing this thinking for years.] If a company wants to think like a customer, it too must focus on the jobs the customer is trying to get done. This point has far-reaching ramifications.

When the job is accepted as the unit of analysis it means that companies must not capture requirements on a product or service – rather they must capture requirements on the job or jobs that the product or service is intended to perform. This means that instead of asking customers about improving a product, VOC practitioners must be more process focused and

(1) deconstruct the job the customer is trying to get done into process steps, and
(2) determine what metrics customers use to measure the successful execution of the job.

We call these metrics the customers’ desired outcomes. [I first introduced this thinking in the January 2002 HBR article, Turn Customer Input Into Innovation]. We have developed over 40 rules regarding the structure, content and format of these statements. Precision is the key to removing variability from the process.

A customer need, then, is defined as the customer’s fundamental measures of performance associated with getting a job done. This is a critical point, because after these metrics are uncovered, they are prioritized to reveal which are highly important and poorly satisfied (underserved) – thus revealing the best opportunities for growth. This valuable information (which is what I was looking for back in the days of the PCjr) is then used to prioritize the development pipeline, brainstorm new ideas, evaluate product concepts, communicate a products value, etc.

Worth a look.

Successful Innovation is about Process, not just Ideas

I had a great response to a question I posed to our contacts at Strategyn, creators of the Outcome-Driven Innovation method (ODI) which my company, The OMC Group, licenses for the UK. We were discussing how ODI compares to TRIZ, Voice of Customer and other innovation and idea-generation methods.

   

Here is the basis of Strategyn’s argument which I have elaborated upon – and of course, subscribe to.

   

For most companies seeking to innovate, coming up with the ideas is never the problem (TRIZ is a method for idea-generation). Far from it – often there is no shortage of good ideas as well as people willing to offer them.

   

Rather, the real challenge is two-fold; first and obviously, there is the difficulty of knowing which ideas will address the biggest opportunities in the market (for creating breakthrough value, creating new markets or disrupting existing ones) and thereby create greatest returns.

   

But the second challenge is often overlooked and is perhaps more significant. It concerns the difficulty of convincing internal decision-makers to commit to a solution that they do not buy into. “Not invented here”, a lack of appropriate risk/reward structure or internal politics can be much bigger obstacles to successful innovation than just a drought of ideas alone.

 

Put another way ... a superior capability to generate ideas and identify solutions to address valuable opportunities – whilst important - do not necessarily make a company a good innovator. Rather, Strategyn’s view is that innovation must be viewed as a business or operational process, just like any other (like six sigma, lean, project management, sales force automation, CRM etc.). Yet remarkably, it seems that few companies have a disciplined, rigorous and repeatable process for innovation. In fact, it is probably the only management activity where failure is seemingly tolerated as a worthwhile price to pay for future success.

   

Having a process for innovation means that companies have a much better chance of getting valuable and valued ideas through the layers of decision-makers and doubters. It is this which separates the successful innovators from the also-rans.

 

(Apologies for the lack of posting activity. OMC is in deep-dive mode in an ODI engagement).

Market and Non-Market Co-Creation: HOG Events

When I think of market and non-market co-creation, I think of Harley Davidson HOG events. Putting it simply, if you think about it there are three kinds of co-creative interaction going on here:

(1) Harley Davidson (HD) execs dialogue with Bikers - where HD is engaging the biker to find out what they want / what isnt working to sell them more HD gear / products / better experiences. This is a market-based form of innovation where there is a value on the exchange of ideas, which HD is willing to invest in.

(2) Biker to Biker exchange - where bikers are buying and selling components or swapping gear based on a market-defined price or bartered value of ownership. This is also a market.

(3) Biker to Biker dialogue - exchanging tips, ideas, experiences, providing best advice to each other, arranging other events and discovering ways to adjust HD's bikes to get better performance or add parts.. This is a non-market form of co-creation. There is high reciprocity and a social interaction for no motive other than to feel part of an active community.

The common theme is that they are all engaged in some form of learning, but some of these interactions are underpinned by a market or profit motive, others by a participation motive and a sense of belonging. OK, this is an oversimplification and not entirely original but the premise is that by stimulating type (3) co-creation, then firms have a better chance of growing their brand equity.

Market and Non-Market Co-Creation

It is important to identify that co-creation is not just about firms improving their social marketing, open innovation, community-building and learning efforts to generate new proprietary and valuable knowledge with/from their customers.

Rather, there is also a form of co-creation that is largely independent of markets, where individuals willingly come together to create and share self-generated information, knowledge and content independent of any mechanisms of market exchange. In The Wealth of Networks, Yochai Benkler explores the dimensions and potential of such non-market co-creation / collaboration in some depth.

Making the distinction between the two types of co-creation primarily depends on how we define a market… Put simply, a market is where there is some kind of economic mechanism or price for the value exchanged between two parties and where the value is proprietary, that is, it is produced and owned by one party who expects some value in return for its exchange.

But in a non-market context, there is no economic mechanism or price for exchange and no ownership of information or goods. In a co-creation sense, such environments are characterised by the collaborative creation and sharing of knowledge and information by individuals in decentralised communities. The “value” derived by individuals in such communities is not moderated by an economic price but by social factors, experiential elements, meaning, learning, attention and shared values. Importantly, the co-creation that occurs here is independent of any market mechanism or desire for ownership by any party. We can see these forms of co-creation in open source software, media, journalism, blogging, entertainment, gaming and other digital environments. e.g Wikipedia..

As Yochai Benkler argues, such self-organising communities pose a threat to established firms seeking to use tweaked old market approaches to bolster their brands, innovation efforts and levels of social engagement – mainly because there is a limit as to how far such firms can “own” channels of knowledge production and are able to manage engagement when they apply a market-based logic and its associated capabilities.

Paul van Blokland just drew my attention to a related essay by Michel Bouwens on peer2peer and human evolution which can be found (http://integralvisioning.org/article.php?story=p2ptheory1). In a comment to an earlier blog of mine on this subject, Paul provides excerpts from Michael Bouwens paper:

Markets do not function according to the criteria of collective intelligence and holoptism, but rather, in the form of insect-like swarming intelligence. Yes, there are autonomous agents in a distributed environment, but each individual only sees his own immediate benefit.

Markets are based on 'neutral' cooperation, and not on synergestic cooperation: no reciprocity is created.

Markets operate for the exchange value and profit, not directly for the use value.

Whereas P2P aims at full participation, markets only fulfill the needs of those with purchasing power.

Paul writes that the paper's overall conclusion is that p2p aims at participation while markets "which are proprietary, secret and restricted are opposed to this aim of participation."

Co-Creation and the 12 Different Ways for Companies to Innovate

There is neat article in latest Sloan MIT Management Review by Mohanbir Sawhney, Robert Wolcott  and Inigo Arroniz, The 12 Different Ways for Companies to Innovate (subscription required): Here is an excerpt:

..what exactly is innovation? Although the subject has risen to the top of the CEO agenda, many companies have a mistakenly narrow view of it. They might see innovation only as synonymous with new product development or traditional R&D. But such myopia can lead to the systematic erosion of competitive advantage, resulting in firms within an industry looking more similar to each other over time. Best practices get copied, encouraged by benchmarking. Consequently, companies within an industry tend to pursue the same customers with similar offerings, using undifferentiated capabilities and processes. And they tend to innovate along the same dimensions. In technology-based industries, for example, most firms focus on product R&D. In the chemical or oil and gas industries, the emphasis is on process innovations. And consumer-packaged goods manufacturers tend to concentrate on branding and distribution. But if all firms in an industry are seeking opportunities in the same places, they tend to come up with the same innovations. Thus, viewing innovation too narrowly blinds companies to opportunities and leaves them vulnerable to competitors with broader perspectives.

How to think differently

Mohan and his co-authors then continue to explain how companies can avoid innovation myopia...

We propose anchoring the discussion on the customer outcomes that result from innovation, and we suggest that managers think holistically in terms of all possible dimensions through which their organisations can innovate. Accordingly, we define innovation as the creation of substantial new value for customers and the firm by creatively changing one or more dimensions of the business system.

The authors define twelve such innovation dimensions in total. These are: Brand, Networking, Presence ("where"), Supply Chain, Organisation, Processes ("how"), Value Capture, Customer Experience, Customers ("who"), Solutions, Platforms and Offerings ("what"), They then continue...

Traditionally, most firms’ innovation strategies are the result of simple inertia or industry convention. But when a company identifies and pursues neglected innovation dimensions, it can change the basis of competition and leave other firms at a distinct disadvantage because each dimension requires a different set of capabilities.

Co-Creation and new theory of Disruptive Innovation

I am particularly interested in how certain of these innovation dimensions are now more capable of disrupting incumbent firms than others. For example, I had a chat with Karl Long about how co-creating firms have the potential to disrupt existing markets in new ways (Clayton Christensen in The Innovators Solution writes only about how simpler, cheaper, more convenient products and technologies can disrupt existing markets). So for example, using the article's dimensions – co-creating firms should seek to innovate along a co-ordinated combination of Brand (Engagement), (Social / Community) Network and Customer Experience (Design / Elements) dimensions. Importantly, to be a successful co-creating open business, it is not enough to excel in one alone but all three simultaneously.

A bank that podcasts!

First Direct, by a country mile the UK's best and most innovative bank, has launched a great new podcast service to help customers stay informed whilst on the move (and all other usual contexts).

They are probably the only bank I know where customers would be willing to "listen in" to what it has to say. But the great thing about the new service is that the podcasts are not polished or crafted by some brand or PR agency and then delivered by a professional "talking head". No, they are given by First Direct staff ... directly..

The first, a podcast on how customers can better manage their online security uses an interview with the Head of E-Commerce, Darren Sugden to get several messages across, most of which are non-banking related.

How brilliantly authentic and a terrific example of customer advocacy.... Hats off to First Direct who continue to drive innovation in UK financial services.  I almost look forward to the next instalment... !

Experience hierarchy and non-market co-creation

Over at Experience Curve, Karl Long is further deepening the analysis of customer experience elements that enable and promote co-creation.

Using the example of Second Life, the online multi-player gaming environment, Karl is doing a good job dissecting the components and catalysts of successful co-creation. These include:

• Developing a foundation of Trust
• Motivating and Educating the Customer to become more active participants
• Extending the emphasis on lean consumption-style, functional usability
• Providing access to peer group knowledge and skill
• Facilitating Individual freedom and control - or autonomy as Karl describes
• ... leading to emotional / aspirational co-creativity and participation

What is interesting is Karl's use of "De-Motivators" and "Motivators" to identify both tablestake elements - those critical foundations upon which co-creative interaction can build -  and motivators - those which speed the rate, frequency and learning intensity of customer co-creation.

I think it is fair to say that my past emphasis on understanding the dynamics of co-creation has had a distinct firm-centric or managerial slant. That is to say that I have been concerned about how firms can evolve from largely closed systems to open, co-creating learning systems. In effect, I have been exploring how old market learning capabilities (e.g. CRM style customer data gathering and profiling, traditional market research, segmentation etc.. ) can be usurped by new co-creative market learning mechanisms that emphasise much greater customer involvement and knowledge. 

I can see now that many of the elements for successful co-creation exist outside the corporate or market mechanism of exchange, no matter how advanced a firm is in enacting new capabilities to learn from customers.

Rather, successful co-creation requires firms to find an appropriate locus of learning between both market and non-market sources of ideas and knowledge. Of course, the latter, founded on self-organising attention and engagement are mostly independent of market mechanisms and industrial age capitalisation altogether (Second Life being a good example). The problem is that many established firms still feel able to enter into these non-market, autonomous idea pools using industrial age logic and rational economic arguments, as well as in some cases tired and outmoded marketing efforts where the emphasis is on surface-level tinkering of the customer engagement model, not its wholesale and holistic realignment and reorientation.

I find that Karl's thinking and summary of co-creation experience elements can help such firms to discover the true meaning and enablers of co-creation through advanced forms of engagement driven by holistic experience elements. I suggest you take a look too...

Google targets mobile future

Great BBC article here about how Google understands the specific user context of mobile search...

Highlights for me are the following quotes by Dipchand "Deep" Nishar, the man in charge of Google Mobile.

"The same search query, because of the context, means very different search results," said Mr Nishar. "Search on mobiles is about finding not browsing.

"It's a smaller form factor and you are not going to sit at it for three hours. Most people in the developed world are within 20 or 30 minutes of broadband and a screen, and that's when they will browse.

"On a mobile it's important that you find it right away."

This means that Google has to slice its huge corpus of data differently for mobile users and tailor results to where people are sitting or standing when they make the query.

For instance, he said, the first result that comes up after typing "film" into a PC browser is the Internet Movie Database.

"But type 'films' into a mobile browser and you are most likely going to see a movie," he told the BBC News website.

In outcome-driven innovation parlance, the article illustrates the importance of understanding the "Jobs" that different customers (from different cultures) are trying to get done when using their mobiles for search. Jobs can be both functional or emotional (social / personal) in nature.

Once these different Jobs are known, then it is possible to identify the different desired outcomes that people are seeking to achieve when using their mobile for search. By identifying important yet unsatisfied outcomes,  companies can spot more precise opportunities for creating breakthrough product and service innovation.

I am running a pre-conference workshop on Outcome Driven Innovation in Telecoms at the IIR Telecoms conference on Churn and Loyalty in Amsterdam on July 10th. More details can be found here.