The alliance between IBM and APPLE: illustrating the reverse value chain
This week Apple and IBM announced they were going to collaborate to attack the B2B market. But isn’t that the market in which IBM already reigns supreme? Why do they need Apple to do this?
Well, there are some missing elements in what IBM can offer the B2B market. Such as user-friendly applications on mobile devices. Exactly, Apple’s forte. Moreover, B2B users would also like to use their Apple devices not just for consumer applications. When you have gotten used to your Iphone and Ipad at home, you don’t want to trade it in at work.
The newly announced collaboration between Apple and IBM perfectly illustrates the reverse value chain. The reverse value chain starts from asking yourself what the essential components are of a solution that fulfils your customers’ needs. And then you ask yourself what assets you need to deliver upon that solution. Delineating these necessary assets will inevitably confront you with a number of missing pieces. Now the question arises how to overcome that gap. There are three options to pursue: (1) you start building the missing resources yourself, (2) you acquire a firm who already possesses these resources or (3) you work together with others who already have the resources. In other words, the build/buy/borrow question. More and more, firms opt for the last option. In the short term, it is the option that it quickest to implement. In the long term, it allows them to remain focused on their own strengths and avoid the acquisition curse. When they work, these collaborations allow firms to create customer value that no single firm could have created alone.
IBM reigns in the B2B market. Apple reigns in the mobile and usability space. Put the two together and you have all of the pieces of the puzzle of what the B2B market requires. And you have created a formula that is hard to copy.
Coopetition, more relevant than ever.
Only one more question that both players need to ask: “Do I deserve my seat at the table?”. What is my role in this game?” In a balanced ecosystem, each party contributes certain assets that other players do not possess. Players with complementary assets work together to assemble the full picture of the set of assets that is required to be successful.
Shareholder value or customer value?
The single most often asked question about customer centricity is whether the costs outweigh the benefits. Does customer centricity really pay off?
Too bad the sceptics don’t read academic journals. Because there, the answer to the question has been clearly given.
Staying in the ecosystem driver seat.
Bringing innovations to the market increasingly demands collaboration with others. But how do you make sure that you deserve your seat at the table?
Every ecosystem has a leader. An ecosystem leader creates the ecosystem’s structure, establishes fair standards and designs the reward system for each player. But being the leader does not equal having most power. Every participant in an ecosystem must ask himself: “what is my role in this game?” This is not a question of leading or following, it’s a question of deserving a seat at the table. It’s also not a question of being the biggest player in the ecosystem. A small player can be indispensable and reap great benefits from being part of an ecosystem if this small player possesses a piece of the puzzle that cannot be missed. Size therefore does not equal power. In a balanced ecosystem, each party contributes certain assets that are required, but that other players do not possess. Players with complementary assets work together to assemble the full picture of the set of resources that is required to be successful. Do you need to be in the driver’s seat of the ecosystem or can you be in the back seat? For non-dominant players in the ecosystem this uncertainty is heightened by a lack of control. Will I get my fair share of the returns? How long before I’m being squeezed out? How committed are the other players to this value chain?
When collaborating with others, there is an inevitable amount of uncertainty. All this depends on the contribution the company brings to the ecosystem. Do you contribute an asset that is required to enable the customer solution? Do you contribute an asset that is complementary to the other players? Do you contribute an asset that is unique? Do you contribute an asset that is easily replicable or substitutable? The answer to these questions determines whether your seat is stable or shaky. You do not necessarily need to be in the driver’s seat of the ecosystem to reap equitable rewards from it. But you do need to be in the driver’s seat of your own destiny in the ecosystem, and that is based on an understanding of the assets you bring to the table, protecting them and investing in them. Often, this means opening up the spectrum of the assets you have to contribute.
Don’t just think about technological assets as the route to ecosystem glory. Maybe you have critical data nobody else has? Or market access that is hard to recreate? Or unique experience and knowledge you can bring to the table?
Listening to customers and being innovative: a contradiction in terms?
Popular voices claim that listening to the customer is detrimental to innovation. The Henry Ford statement “If I would have asked my customers what they wanted, they would have said a faster horse” is likely to be quoted in defence of this argument. Is this true, or myth?
When it comes to innovation we often advocate a certain stubbornness. Innovation leaders are often seen as visionaries. People with the capacity to know what we want even before we know it ourselves. Steve Jobs is the poster child of this type of innovation leader. He famously reported “What Market research?” when asked about the consumer research that would underpin the I-Pad development.
A second archetype of innovation leader is the maverick. The internal product champion that pushes an innovation through an organisation by sheer force of will. And indeed, against the gravitational force of resistance to change, an innovation champion requires perseverance, patience, and a unwavering belief in the cause.
As a result of these two innovation leader archetypes, we have come to associate innovation with vision, perseverance and a general aversion towards asking customers what they want. Few people will ever question whether there is value for an organisation in being customer oriented. But when it comes to the question whether an organisation should listen to their customers when developing new products, we suddenly change our point of view. The prejudice against involving the customers’ voice in the innovation process is quite persistent. However, even Steve Jobs could be wrong. The man believed to have a built-in innovation radar also did not have a 100% success rate. For example, Steve Jobs enthusiastically endorsed the Segway, calling it “the most significant development since the personal computer”. Nevertheless, the Segway never delivered on the initial sales expectations.
It is time to celebrate a new type of innovation leader. The type of leader that realises that to win a game of darts, you better not play blindfolded. In other words, if you want to hit the innovation jackpot, you better know where the bulls-eye is. We need the type of innovation leader that takes a market-centric approach to innovation. Listening to the signals coming from the market and drive innovation from there. This type of innovation leader reacts to manifest needs of existing customers, but also anticipates new demands coming from new emerging segments.
More news on 9 June!
Is the future blurry or bright? Depends on the lens you use
The Three lenses of Customer Innovation
When exploring innovation opportunities, any company should use three lenses to look at the future. The first is about reacting immediately to imminent shifts in customer requirements. It’s about keeping a constant eye on the needs of existing customers and bringing those customers closer to the organisation . The second lens allows us to see a broader perspective from the customer’s point of view: it’s not about our products or services, it’s about what customers try to accomplish through our products and services. With the third lens we are anticipating the bigger changes that are going to affect our market in the future. The three lenses we use range from being reactive to being proactive.
For example, if you’re an airline, using the three lenses you are focused on three different questions:
- Lens 1: What do existing customers expect from us? Should we offer wifi on the plane?
- Lens 2: How can we improve the entire travel experience for customers, from the moment they book a ticket, to the moment they step out of their door and until they arrive at their destination.
- Lens 3: Will new meeting technology replace business travel?
For a financial services firm, the three lenses can mean asking the following questions:
- Lens 1: Should be offer chat services to help customers on Sundays?
- Lens 2: Can a simple, purely online offer appeal to a certain market segment?
- Lens 3: Will the mobile phone replace all payment transactions?
The three lenses differ in terms of the extent we can see clear. They range from a laser-like focus when using lens 1 to blurry images when using lens 3. Lens 1 is about building deep connections with existing customers. Lens 2 is about developing a view beyond our own product and service towards the role they play for customers. Lens 3 is about intense curiosity about new emerging opportunities on the periphery of our current market.
Each of these levels has a deeper impact on the company’s business model and stretches the organisation further away from its existing state. Lens 1 is about constant micro-innovation. “A day without change is a day wasted” is the mantra. This change is about constant improvement to respond to customers better. Here, we focus on serving existing customers better, with our existing business model. Lens 2 is about keeping the focus on customer solutions. Innovations are driven by solving customer’s problems, not so much by exploiting one’s own capabilities. In order to do so, companies need to stretch further than their comfort zone. Finally, Lens 3 is about renewing your business model to reach new markets or market segments.
Key questions to ask about the three lenses are:
- Do we actively deploy all three? : every company should make a conscious effort to develop processes that direct attention and resources to each lens. The three lenses do not represent a chronological evolution. We need a parallel effort in all three.
- Do we have the right balance of resources and attention on all 3 lenses? : The danger of myopia is always around the corner when focusing too much on the first lens. But betting all on the third lens means we don’t put enough resources towards incremental innovation.
- Do we close the cycle? : Exercising the 3 lenses is a continuous cycle. The third lens expands our view, and by converting it into new customer offerings, we make sure to bring this lens in closer focus. What once was the third lens eventually becomes the first lens. What once was a blurry image now becomes a crystal-clear view.
Follow the #custinno tweets from the book launch event on Thursday 22 May, from 4pm onwards on Twitter.
VIDEO: LENS #3: COLLABORATE
Connect-Convert-Collaborate processes represent the key capabilities for customer innovation. All three processes are intrinsically linked and lose their individual value when not exercised at the same time. Today we will look at the third lens.
Organisations collaborate with others where their own capabilities fall short. In doing so, they develop the ecosystem required to build and deliver the solutions their customers need. Instead of relying on own R&D, they stand on the shoulders of suppliers and partners to reach farther. They understand that you must work together in order to transform a good idea into a market success. They orchestrate the activities of an array of partners so that their joint efforts enable new products and solutions for customers. They cleverly exploit their own strengths to they can play a valuable role in the ecosystem they build.
“SOME OF US LIVE IN THE FUTURE TODAY, AND SOME OF US WILL STILL LIVE IN THE PAST TOMORROW”
In 1893, Josephine Cochrane unveiled an innovation at the Chicago World’s Fair: the first truly functional dishwasher. A prominent socialite, she had grown tired of her servants’ tendency to break her 17th century fine china and began to wash the dishes herself. She reportedly said ‘If nobody else is going to invent a dishwashing machine, I’ll do it myself’. She subsequently formed her own firm, Cochran’s Crescent Washing Machine Company, to manufacture the machines, primarily for sale to hotels and restaurants. Cochrane’s company eventually became KitchenAid, part of the Whirlpool Corporation.
Customers don’t necessarily passively wait for companies to better fit products to their needs. They often take matters in their own hands. In fact, 6% of users create or modify one or more of the products they use in order to address their needs . The collective R&D budget they represent exceeds the corporate R&D budget. They want businesses to pick their ideas up and make them commercially available. But when that doesn’t happen, they might do it themselves as well. Probably the most notable example is James Dyson, who amassed a personal net worth of $4,5 billion out of his frustration with the functionality of vacuum cleaners and hand dryers.
We live in the Age of the Prosumer. The Maker Faire, the festival where user inventions are celebrated attracts ten thousands of people. The first Maker Faire in San Mateo, California in 2006 attracted 18,000 people. This year, the event is expected to draw more than 165,000 people over two days, where consumers-inventors can showcase their inventions draws crowds from all over.
User innovation is from all eras and is much more prevalent than we often think. For example, 43 percent of key innovations in windsurfing, skateboarding, and snowboarding were commercialized by end-users . When it comes to scientific instruments, 77 percent of the innovations are estimated to come from users . 84 percent of companies on the category of baby and childrens’ gear were founded by user entrepreneurs : Moms, dads and even grandparents who did not find on the market what they were looking for, and decided to do something about that.
User innovators experiments and create a novel solution first of all to satisfy their own needs. They initially develop a product just for personal usage, to meet their own need. At this point in the process, they mostly don’t even think about turning their invention into a corporation to profit from the innovation. That idea gets triggered by exposing their innovation to others by using it. Once the innovator begins to use the product/service in public, others observe it, often providing feedback and sometimes expressing interest in buying it. This expression of interest frequently sparked the idea of founding a firm.
Clearly, there is a wealth of ideas that have already been developed by customers, waiting to be picked up by companies and brought to the market. Research on commercial and retail banking services shows that in 85% of these cases, users self-provided the service before any bank offered it . In other words, we just need to be observant enough to see what our customers already are doing, to pick up ideas for new products and services.
Users have some significant advantages over others for coming up with successful innovation ventures. First, users truly innovation on a need-basis. The needs they experience may be idiosyncratic, but more often than not they are actually universal and strike a chord with a larger audience. Because they have a privileged window into both needs and solutions, users can generate creative ideas. Not only do users understand their own needs (what the product is used for), but they also have a distinctive perspective on how it is used. Because they innovate from their own lives and needs, they immediately integrate how the product is going to be used in the original idea. Finally, users have a sense of demand from the market feedback they have received either from a community or through their own public use of the innovation. Increasingly the line between consumers and the companies producing products for them is blurring. Consumers themselves take up the role of inventor and producer. Smart companies don’t see this as a threat but join forces with consumer-makers.
Our approach to driving innovation from customers should not be limited to trying to understand customers and more about unleashing the innovative force that is already present within your customer base. If people have ideas and they want to share it, if you do not give them the possibility they will forget about it and you will never know about the idea. As it turns out, customer are well-equipped to come up with solutions, and they are already massively doing it to serve their own needs. We just need to uncover this untapped source that is already present.
THE SOLUTION? THE NAKED PRODUCT!
Many companies try to differentiate their offer by always adding on new features and functionality. And when they can’t differentiate with their products anymore, they add on services. All this under the code-name “customer solutions”. But this so-called “solution” can be a far cry from what customers really wanted. Adopting a customer’s perspective actually can mean stripping an offer from unwanted bells and whistles. Instead of adding on to our offering, the real solution that customers require is that we get rid of unwanted elements.
Three potential segments require a disintegrated solution, instead of an integrated solution:
- Overshot customers
Overshot customers want less than what anybody provides. Towards overshot customers, a solution often requires one to break down the existing offering into its separate components. Take for example the twist the airline industry has taken. For years airlines competed by adding ever more components into its customer solution (albeit concentrated mostly on business travellers and on that part of the customer journey that occurs on the airport or in the airplane). Those components went from food and beverage, upgrade possibilities, entertainment services to airport services such as priority lanes. For a large part of the market these services were neither appreciated nor required, adding only to the cost of the airline but not necessarily to customer satisfaction. In an opposite reaction, low-cost airlines stripped the offering down till only its essential core was left: bringing somebody from A to B, fast, affordable and on-time. Low-cost airline clearly deliver a solution to customers that fits their needs, however it is not through an integrated full-service solution.
- Expert customers
Sometimes customers have their own resources to manage their requirements and only need a company to fill in a piece of total solution. Pushing these customers into a fully integrated solution is fruitless. Dow Corning, the global leader in the silicone market, experienced a similar issue when they were increasingly confronted with price pressure. Dow Corning always competed with a full service offer containing a an expert sales approach, technical support, consulting and operational services. They discovered however that one segment of the market felt that these services were not, or no longer, necessary. These were customers who mostly bought the same type of product, in large quantities and had ample experience in using it in their own operations. While at a certain point there may have been value in Dow Corning’s additional services, that value had dissipated. These additional services no longer really reduced costs or risks for the customers. In fact, because the cost of these services was included in the overall price, they led to an inflated price for customers, who increasingly defected to other suppliers. To respond to this, Dow Corning launch a second brand, Xiameter, with an offering that better fit the types of costs and risk reduction that this price seeking segment required.
- Low-end noncustomers and budget-constrained customers
Low-end and budget-constrained customers’ priority along the customer journey is to reduce costs. Toward low-end noncustomers a solution may imply that you bring the costs down to an accessible level so they can enter the market. This often happens by outsourcing solution components to the customers themselves. Having customers involved by making it convenient to do tasks themselves can revolutionize the customer journey to make the desired outcome accessible to the budget-constrained customer.
At the time, tooth bleaching treatments were exclusively done by dentists at a price that made it out of reach for middle class budgets. That changed when P&G launched Crest Whitestrips and made a professional whitening treatment available at $30. The at-home DIY solution reached $100 million in sales its first year in the market.
Expert, low-end noncustomers, budget-constrained customers and overshot customers each prefer a disintegrated solution over an integrated solution. The reasons why though are totally different. The result though is the same: disintegrate a total solution into its components and mix and match the right tailored solutions back together. Often it is thought that solutions are created by adding on products and services and integrate them together. But it can also be the case that solutions are precisely created by disintegrating an existing offer. The key to do this is then to look at the existing offer as if it were an integrated offer. Then deconstruct it into its different components along the customer journey. Ask yourself with every component of it really adds value for the customer or if customers would prefer to reduce costs by taking it out?
VIDEO: LENS #2: CONVERTING
Connect-Convert-Collaborate processes represent the key capabilities for customer innovation. All three processes are intrinsically linked and lose their individual value when not exercised at the same time. Today we will look at the second lens.
Organisations that innovate around the customer see innovation as the only avenue for long term survival. Every day they innovate and convert customer insights into actionable change. Because they believe that this is the only route to stay ahead of competition. But mostly because in order to serve customers better, you have to constantly question if today's offerings still meet tomorrow's demands. Customer innovation requires from companies to continuously rethink whether old recipes still apply. They are continuously triggered through their constant exposure to new market information and ever changing customer demands. They do not limit themselves to incremental adaptations however. Equally important is to search for disruptive change and new emerging market that require a strong overhaul of their market strategy. Often this leads to new business models.
VIDEO: LENS #1: CONNECTING
Connect-Convert-Collaborate processes represent the key capabilities for customer innovation. All three processes are intrinsically linked and lose their individual value when not exercised at the same time. Today we will look at the first lens.
Organisations that innovate around the customer constantly connect with the market to anticipate on the changes they will be confronted with. They scan the environment to pick up signals of emerging and unfulfilled customer needs. They are in constant touch with their customers, listen to them, involve them, engage with them to understand their overall customer experience and unmet needs. They are triggered to understand pain points of their customers they currently have. But they do not become the slave of their customer base. Often the concern about listening intently to customers is the fear that it might result in inordinate attention to current markets so the company will fail to see emerging markets. Outside-in organisations prevent this from happening by also having a wide lens towards the entire potential markets including new emerging market segments or previously unaddressed segments.
CUSTOMER SOLUTIONS, WHAT’S IN A NAME?
“We deliver solutions”. It’s a popular mantra today, highlighting companies’ desire to satisfy customers’ needs instead of pushing products. But so often, ”A customer solution” has become an empty container term. What does it really mean to be a solution provider?
First off, solutions offer the answer to a customer’s problem. You take the full burden upon yourself to deliver everything that is required fulfil a customer’s need. Therefore, a solution consists of a flawlessly integrated combination of internal and/or external products, services and/or technologies required to fulfil the customer’s specific needs. That means each solution is characterised by a degree of integration and customization. The degree of integration consists of the extent to which products and services are combined to deliver a single solution. Kiehl’s auto-replenishment program for example combines the cosmetics products of Kiehl’s with a delivery service. The degree of customization consists of the extent to which a solution offering is customized in order to meet a specific client’s needs. Kiehl’s allows customers to control their frequency, schedule, quantity and every aspect of their subscription directly on their site, 24/7.
Solutions also do not have to consist of products and services. They can also be an integration of pure products or pure services. Wedding planners integrate a full range of operational, psychological and consultancy services…As an example of integration of products, think of your smartphone as the device that enables you to take a picture, share it with your friends and talk about it to them, all with one product that integrates all these functions in one “photosharing” solution.
So, if your strategy is to deliver complete customer solutions, ask yourself 3 questions:
- Are we really solving a customer’s problem?
- Do we integrate all of the components needed to solve the customer’s problem?
- Can customers customize their solution to their needs?
VIDEO: CUSTOMER INNOVATION
Being customer centric and being innovative are often presented as two opposite ends of the spectrum. Just as product leadership and customer intimacy are viewed as priorities that are irreconcilable. This book shows how these are false dichotomies.
Take for example the latest project KLM is working on. If you book a flight with KLM any day soon, you may be presented an interactive luggage tag. This interactive luggage tag will allow you to seamlessly get through check-in and baggage-check, bypassing the lines of other fliers trying to get through the terminal. As you enjoy your coffee, it will alert you of a gate change for your departing flight. And at arrival, it will allow you to trace your luggage quickly. This example of high technology will make your life easier as a traveller, shaving time off the exasperating experience that modern travel is. It will make sure that your luggage never gets lost, reduce the administrative flow, and make personal communication possible with you while you are in transit before boarding the flight.
Why does an airline like KLM bother to introduce smart gadgets to their travellers. To begin with, they are all too aware of the aggravations and struggles of today’s sky warriors. Their online frequent flier communities allow them to tap into customer segment on an on-going basis. And they realise that the overall experience of this customer does not start when boarding the plane, but is already going on at the airport. Creating an easy seamless airport check-in process does not only shave off time for the passenger, it also reduces the likelihood of errors. Being an airline, KLM does not possess the necessary technology to make the interactive luggage tag reality. After all, their core business is in operating aircraft not interactive identification technology. But start-up company EC-solution did have the skills to make it happen. KLM initiated a partnership, and together a workable solution was prototyped.
The story of KLM shows a new approach to innovation. Companies like KLM have unlocked the keys to longevity and growth. What characterises them? They relentlessly listen to customers. They relentlessly innovate. They adapt their business model when that is required to build the perfect customer solution. They build connections with outside parties to complement their in-house competencies with the competencies they miss to enable new customer solutions. They have abandoned much of the conventional wisdom on growth and innovation. They embrace the fact that in today's fast changing world, the only way to remain on top is to constantly feel the pulse of the market, and to not want to do everything yourself but join forces with others to deliver innovations to the market.
Customer innovation works backwards. Innovations are not crafted to find a "blue ocean" market or a "white space" opportunity. The sole and unique focus is on customer needs. Innovations are crafted to formulate a response to an unmet customer need. As a result of this exercise, they adapt accordingly. And very often they will conclude that they do not possess all the necessary skills in-house to fully deliver upon what the target market requires. Consequently they go outside to find those that can help them accomplish the full customer solution. Collaboration is the key to deliver upon market requirements quickly and completely.
As a result, these organisations operate according to a new model. This model encompasses three building blocks that describe the processes that organisations that excel at customer innovation engage in and master exceptionally well.
CORE CAPABILITIES: GUIDING LIGHT OR FATA MORGANA?
Few organisational theories have been so impactful and widely adopted as competence-based thinking. Developed in the late eighties by Gary Hamel and CK Prahalad, the concept of core competences is defined as the company’s overarching abilities that provide a common theme to its activities. Based on this theory, the corporation is not a collection of strategic business units, but a portfolio of core competencies—the company’s collective knowledge about how to coordinate diverse production skills and technologies. The concept of core competences is used in three different decisions:
To determine the basis for competitive advantage
- Used like this, the company organises itself by finding the common themes that underpin its diverse activities. We then make sure that these common themes are protected and prioritised and linkage mechanism are built across the organisation to make sure that they are appropriately supported and integrated.
To decide how to grow
- Used like this, the company applies the following reasoning to identify growth opportunities: “Where else could we exploit this core competence?”. For example, Disney has used its competence in customer service to set up a new business that provides service consultancy and training to other companies.
To decide what not to do
- Used like this, the company applies the following decision rule to new opportunities: “Can we leverage our existing competencies to exploit this opportunity?”. If the answer is no, you decide not to pursue the opportunity. Many companies use this decision criterion to decide on innovation proposals.
It is in the last area that companies may find themselves stumbling when trying to consolidate competence based thinking with customer-driven innovation. One may see that both approaches are at odds with one another, and lead to different decisions. It is the clash of inside-out thinking and outside-in thinking.
Core-competence thinking can lead to tunnel vision. Or as Jeff Bezos, CEO and founder of Amazon put it:“...The skills-forward approach says, “We are really good at X. What else can we do with X?” That’s a useful and rewarding business approach. However, if used exclusively, the company employing it will never be driven to develop fresh skills. Eventually the existing skills will become outmoded. Working backwards from customer needs often demands that we acquire new competencies and exercise new muscles, never mind how uncomfortable and awkward-feeling those first steps might be...”. This quote originates from the 2009 Letter to Shareholders in the Amazon Annual report. It counters the doubts analysts had about whether Amazon should venture into consumer devices.
Core competence thinking is at odds with business model innovation. New business models require new capabilities and make your existing capabilities obsolete. So, we should be careful focusing too much on the decision criteria “fit with our existing competences” to evaluate innovation projects. Because it will lead you away from transforming your business model, time and time again.