Profitable Growth Strategies
Are you a “disruptor” or a “disruptee”?
At some point, your company will be one or the other. Disruption is a way of life in the corporate world, and companies that are disrupted suffer greatly. In fact, few companies survive major inflection points in their markets. Some completely miss the inflection point while others either create second-rate plans or they bungle their execution.
In 1960, the life expectancy of a company in the Fortune 500 was 75 years; today it is at 15 years and dropping. Disruptions have become a way of life. Even seemingly great companies can miss inflection points in their markets. Those that recognize change and effectively address it, will survive to be the disruptors, while those that don’t will get disrupted – the disruptees.
Netflix disrupted movie delivery. Result: Blockbuster gone.
Amazon disrupted the book industry. Result: Borders gone. (Actually, Amazon has disrupted quite a few companies.)
Uber and Lyft disrupted the taxi industry. Result: Wake up call received, but taxi companies don’t seem to be upping their game.
AirBnB disrupted the hotel industry. Result: TBD.
Which type company is yours – disruptor or disruptee?
Characteristics of Disruptees: Any one of these can kill you.
- They fail to appreciate changes in the market, whether customer behaviors/expectations, technology, business models, new entrants, etc.
- They are invested heavily in status quo, with the entire company optimized to deliver what may soon be not nearly good enough.
- Their installed base demands continuity and backward compatibility.
- Old product designs are too cumbersome to move quickly without starting over.
- They don’t have the needed expertise for desired changes and are unwilling to build or acquire it.
- Sacred cows and old biasses flourish, affecting even the best of intentions to change.
Characteristics of Disruptors:
- They recognize the possibilities of a new reality and refuse to be slaves to the past.
- They deal with the installed base issue to regain quickness.
- They fully commit to appropriate initiatives.
- They modify their investment profiles to fit.
- Regular check-ups and adjustments keep old biasses at bay.
- Critically, they are either new companies or are willing to find a way to recapture their entrepreneurial heritage.
Don’t be a disruptee. If the market is changing or you see the potential for change, leading is far more effective than trying to maintain the status quo. It’s also a lot more fun.
Herding Cross-Silo Cats
Startups have a huge advantage over large companies. A small team of people dedicated to one, and only one goal. Everybody moves in the same direction. Everybody lives and dies by that goal – or at least their wallets do. Everybody is tightly connected. Everybody contributes well beyond their job descriptions. No legacy customers to support. You get the picture. Of course, startups have unique challenges as well – resource limitations, brand awareness, and only embryonic partnerships, to name a few. But the entrepreneurial thrill and clarity of purpose are energizing.
Now contrast that with a Fortune 500 company that has just decided to pursue its latest strategic initiative.
- First, any initiative is likely one of a many.
- It typically relies on changes throughout the company in order to succeed.
- It typically emanates from a single functional area.
- And that brings us to the well-known elephant in the corporate boardroom. Functional organizations that don’t do inter-functional initiatives well. Below the CEO, nobody is truly in charge of the changes that must be made, and the CEO can’t dedicate enough time to it. To be sure, somebody is “responsible” for success of the strategy, but he often doesn’t have the cross-silo mandate to affect change, making it like herding cats. And that somebody also has a day job ensuring that his team makes its many goals, leaving little time to ensure that required changes occur elsewhere in the company.
It’s no wonder that companies often take major initiatives off-site to incubate, effectively replicating the advantages of a startup with the added advantages of the larger company.
But even this has its limitations. Eventually, the existing sales force and partners must be trained. The supply chain must be integrated. Support/service teams must change. That wouldn’t be so difficult for a simple product change, but big Strategies, with a capital S, can require much more.
- Go to market may change dramatically, whether by addressing wholly new markets or approaching traditional markets differently.
- Sales people must be motivated to sell the new offerings when old ones are more comfortable to them, with existing sales pipelines.
- The company’s entire business model may change, requiring a balancing act with Wall Street to communicate the value of the change and requiring an investment high wire act to ramp down the old model while ramping up the new model.
- People will lose jobs as they become less relevant while the new strategy creates new jobs requiring new skills.
These issues beg some critical questions: Who is truly empowered to ensure that planned customer experiences are enabled across the company? Who will deal with the conflicting budgets, priorities, biasses, history, and comp plans, all of which are designed to run the old company rather than the new one? Who will ensure that even well-intentioned execution is not crippled by biasses born of the old model? Your strategy is only as good as its execution.
We have found two solutions that work, although neither is perfect:
- A Chief Customer Experience Officer (or equivalent), empowered by the CEO to affect change across many initiatives. An insider with internal relationships and implicit trust, but it’s seldom more than an advisory role and can be hobbled by traditional company biasses.
- An outside resource, focused on a single initiative, typically with senior management mandate and air cover, but trust has to be earned and long-term outside help can be expensive.
Which one is best for you depends on your individual situation and on your appetite for a more permanent cross-silo infrastructure with enough power to make change happen.
Your Strategy is only as good as its Execution
We use the term Value Alignment to describe how a company can best match its efforts to the needs of customers at every customer touch point. Our technology-based clients typically resonate with this concept as worthwhile, but when push comes to shove, most tech companies focus first on their primary products and services, with other issues addressed later and as lower priorities. Yet those “other issues” can often generate the most persistent customer loyalty results. Products and services can be replicated and customer perceptions will change rapidly, but a great purchasing or support experience, for instance, generates persistent perceptions that can’t easily be shaken by competitors. The “other issues” are sticky.
When we design customer experiences, we help our clients understand that products and services are only a portion of the plan. Everything a customer experiences with or about your company is an opportunity to differentiate yourself. We take into account a wide range of those opportunities; some are directly enabled by products and services while others are independent of the products/services themselves. The opportunities span every encounter from initial exposure to the company, through the shopping and purchasing process, and throughout the life of the relationship.
Full Value Alignment means that every part of your company is working in support of a set of designed experiences.
- Value Needs- Understand key customer goals and challenges. Discover what drives customers’ behaviors and perceptions, both now and over time. Understand how both internal and external changes will alter those behaviors and perceptions.
- Value Strategy- Build a comprehensive company plan that responds to market needs through compelling designed customer experiences. Include all aspects involved with attracting and retaining customers, both internally and through partners.
- Value Promise- Build a full communications program – content, tone, media choice – that clearly differentiates you from others to gain customers’ preference.
- Value Delivery- Invest and measure across the company to fully support the intended strategy.
- Value Perceptions- Ensure through products, services and go to market that customers are conscious of the value they are receiving.
Like it or not, customer perceptions of your offerings are the only ones that matter. Your carefully crafted value propositions only become true if customers:
- Need the value
- Learn of it
- Believe that you will deliver greater value than your competitors
- Act on that belief by doing business with you
- Receive the value you promise,
- And actually perceive that they received it.
And the best way to ensure the customer perceives this value is to align the entire company around this set of experiences.
Is your company well-equipped to grow?
Why do companies succeed in the market? Why not? How can they move toward success?
Both market success and market failure are critical to understand if you wish to grow over time. Simple win/loss analyses don’t provide real answers. Rather companies need to understand the customers who bring you growth, from their point of view. They are after all the ones who create those successes and failures through their decisions and actions.
This quick 7-question self-assessment will help you understand how well-equipped your organization is to understand your market, extract game-changing insights and effectively act on that insight.
- CUSTOMERS – Do we really understand our customers’ overall business goals, challenges, processes and needs and why they buy from us and from others?
- OR do we just use our own opinions?
- PARTNERS – Do we understand why our partners have chosen to do business with us?
- OR do we wonder why they don’t always do what we ask them to do?
- SEGMENTATION – Do we segment our market based on differing value needs and decision-making behaviors?
- OR do we segment based on demographics that make targeting easy?
- VALUE PROPOSITION – Does our Strategic Value Proposition drive all aspects of our business, to align value delivery across the organization?
- OR is it a marketing afterthought?
- CUSTOMER JOURNEY – Do our assessments, plans and investments include all aspects of the customers’ journey with us, and do we act on all of these journey issues?
- OR do we focus on the product itself and hope that others address the rest?
- COMMUNICATIONS – Do we describe experiences and benefits, clearly differentiating our offers from others?
- OR do we make the same claims as everybody else, focusing primarily on product features?
- INVESTMENTS – Does our investment profile match the current priorities of our customers?
- OR does the profile simply reflect what helped us succeed years ago?
If you don’t like your answers to these questions, please contact us. We can help.
Customers Want Great Experiences
We’ve been hearing plenty about customer experience design recently. It’s a hot topic at universities, companies and in many online groups. This is rather exciting to us, because we’ve been doing customer experience design for over 20 years.
In my last post, I described how customers make decisions. In simple terms, it’s based on the experiences they expect to receive and the positive (or negative) value of those experiences. Customers do look at features, of course, but they do so to prove to themselves that they will get the experiences you promise. Customers also have experiences independent of product/service features, such as their discovery and purchasing experience, or customer support. All of these experiences, whether planned by you or not, differentiate your company from the competition, either positively or negatively. All of them affect the decisions your customers make.
Given that backdrop, it behooves companies to consciously build your business around the experiences most valued by your customers. First, focus efforts on understanding the experiences that customers would value and how they would prioritize those experiences, then build products, services and go to market plans in service of those experiences. Doing so is central to our techniques and generates unique insights.
To many, this may sound completely backwards. Too many companies build their products and services first. Then as a marketing afterthought, they develop the hopefully compelling reasons that customers should buy. Theirs is what we control systems folks call an open loop process. There’s little or no feedback to point everybody in a single direction that is compelling to customers – no True North to help internal people make the inevitable tough trade-offs.
Customer Experience Design includes discovering what experiences customers value most highly, then examining your competition, your own capabilities and major changes in your market to decide which experiences you can profitably deliver and why those will win customers’ preference. Our open-ended conversations with customers, partners, service providers and other influencers can create true magic when we explore their lives and discover answers to questions you never thought to ask. These are often the deep insights that drive real innovation for you – unique experiences that will delight your customers. Contrast this with other forms of research, which are great at quantifying known issues or getting feedback on existing concepts but far less useful for disruptive insight. Our client-tested customer experience design process can be found in our methodology description.
Why do customers buy? Or not buy?
All companies face this question as they seek more customers and higher revenue.
- Engineering-Driven companies – the majority of tech companies – believe the right feature set will compel customers to buy and unfortunately pay relatively little attention to other issues.
- Customer-Compelled companies are obsessed with simply giving customers what they say they want.
- And Followers believe that emulating the market leader will generate success.
Our experience and that of the most successful companies over time is different. Each of the above mindsets may work for awhile, but it will not produce a winning strategy over time. And when customers don’t buy, we often hear “they just don’t get it”. Yet it’s the Provider who often doesn’t get it, lacking a real understanding of the motivations and perceptions that drive customer behaviors.
Customers decide based on comparisons of their various options – Our offerings, our competitors’ offerings, do-it-themselves or do nothing. And they assess which alternative will make them better off – which will provide them the most value. That’s value as they define, experience and perceive it, not necessarily as we define it.
There is a wide range of dimensions involved. Here are a few examples:
- Amazon.com cares plenty about computers and associated software that is always up and available to keep their virtual storefront open. When the storefront closes, they lose big money – around $100,000 of revenue per minute.
- When things go wrong with any product or service, the treatment you get from customer support can either generate long-term loyalty or disdain, either of which will affect future purchase decisions.
- And of course everybody in the internet age is concerned about the security of the personal information they submit just to do business with you. Getting that information stolen can wreak havoc on customers’ lives and on your business.
- Many people simply want to be “cool” (or “rad” or “bad” or “far out”, depending on your generation – these aren’t all teenagers, by the way). Apple has played to this for decades. One look at an iPod ad makes this very clear.
Each of the above examples is about customers’ experiences and the impact of those experiences, much more than being about your offering itself. The features of what you offer are enablers of some experiences, to be sure, but many critical customer experiences have nothing to do with your primary offer.
Customers compare the experiences that you offer them with those of their alternatives. In some cases, you might be superior to any given alternative while in others you might be inferior. These experiences, as the customer perceives them, are the heart of the customer value proposition.
Customers typically pay for your offer, so they compare costs as well. Of course, if they don’t pay, in an ad-supported model, your customer is really your advertiser and your user is the product.
Customers must act in order to get the experiences above. Those actions may be minimal (e.g., one-click purchasing on Amazon), or they may be very significant (e.g., distasteful price negotiations to purchase a car).
So, in summary, there are three primary components to customer decision making:
- The experiences you offer, whether superior or inferior to their other alternatives. These experiences span from initial discovery of your company through purchase, use, troubles (if any) and finally disposal.
- The price you charge, as compared to their alternatives.
- And the actions they must take to get these, as compared to their alternatives.
It is our job to understand what experiences are critical to customers and how they perceive us and others. From this understanding we can create plans – products, services, go to market – that will inspire customers to do business with us. A robust strategy should be built upon the foundation described above, for each segment of your market.
Listening as a Strategy
How comfortable would you be if you were asked to drop into character and be interviewed as one of your customers? You would be asked a variety of questions, including some that you’ve never discussed with that customer. Do you believe that you could answer as your customer would? It can be done. And its value is huge.
We conduct many paired interviews with our clients and with their customers. In these, we discuss the same subjects with our client that we expect to discuss with their customer. This helps to establish a baseline hypothesis for validation and it provides a great assessment of value alignment. We have found that in the majority of cases, companies have inaccurate impressions of their customers that can be dangerous to their bottom line.
Here’s a rather extreme but impactful real-life example: A client of ours had a 20-year, $50M/year relationship with a large customer, and we were asked to talk with that customer on their behalf, as part of a broader engagement to gain actionable customer insights. In order to prepare ourselves, we discussed the customer at length with our client, interviewing them as if they were the customer. This was a tough customer, we were told, that valued price and price alone. Although our client had plenty of other value to bring to this customer, we were told that this wouldn’t matter. We then spent most of a full day with the customer, discussing a broad range of subjects regarding their business – we were not there to sell. There is one quote from this customer that I will never forget: “If the only thing you present to me is your price, how can I judge you on anything else?” Our client’s pre-conceived notions about this customer had colored their thinking so heavily that they created a self-fulfilling prophesy. Once they got past this, an unexpected and incremental $50M revenue opportunity quickly materialized.
“Becoming the customer” is how we describe learning so much about your customer that you feel you could accurately represent their interests in any discussion. What are the customer’s goals? What keeps them from reaching those goals? What support systems do they have? Describe the various relevant processes in the customer’s business. What works and doesn’t work in each of them? What are the customer’s perceptions of your company and of other alternatives they have available?
These questions and others provide far more insight than a dim-the-lights experience where a company presents its wares and asks then asks them what they want. We already know what they want. Your customers want better products for free. Unfortunately, that’s not very helpful or actionable, so you need to learn far more.
Rather than asking your customers what they want, ask them what they do and how they’re impacted in their own lives. By spending a day in their lives and “becoming” these customers, you will become much better informed about how to gain their preferences over time. This type of conversation will develop true innovative insight that can lead to disruptive change.
Some of the best companies in the world listen to their customers in this way. When P&G execs travel, they regularly get off the plane and go to the home of a P&G consumer to watch how they use their products. Additionally, P&G sends new recruits to live with families in new market areas in order to understand them better. This “day in the life” experience is terrific and far better than just asking customers what they want. There are lots of ways to achieve it.
If companies such as P&G believe in listening as a strategy, could you?
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