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Innovation Benefits Realization
   Management for Implementing

BLUE OCEAN STRATEGY

 5 Phase-Gates For Managing Innovation
  From Formulation to Implementation

     By Dr. Iain Sanders, Design for Innovation, New Zealand


                                                               1
By way of introduction…
• This is part-1 of a 5 part series on -
       Innovation Benefits Realization:

1. Innovation Benefits Realization Management:
     Blue Ocean Strategy
2.   Innovation Benefits Realization:
     7 Levels to Manage
3.   Innovation Benefits Realization: Ideation TRIZ
4.   Innovation Benefits Realization:
     Managing Complexity
5.   New Product Development Process:
     NZTE Workshop

(The other parts can be viewed here:
http://www.designforinnovation.com/portfolio.html)    2
Design for Innovation


  What is Blue Ocean Strategy (BOS)?

• BOS is the result of a decade-long study of 150 strategic
  moves spanning more than 30 industries over 100 years
  (1880-2000).
• BOS is the simultaneous pursuit of differentiation and low
  cost.
• The aim of BOS is not to out-perform the competition in
  the existing industry, but to create new market space or a
  blue ocean, thereby making the competition irrelevant.
• While innovation has been seen as a random/experimental
  process where entrepreneurs and spin-offs are the primary
  drivers:
   – BOS offers systematic and reproducible methodologies and
     processes in pursuit of innovation by both new and existing
     firms.                                                   3
Design for Innovation



   Blue Ocean Strategy Imperative
• Prospects in most established market spaces (red oceans)
  are shrinking steadily.
• Technological advances have substantially improved
  industrial productivity, permitting suppliers to produce an
  unprecedented array of products and services.
• And as trade barriers between nations and regions fall and
  information on products and prices becomes instantly and
  globally available, niche markets and monopoly havens are
  continuing to disappear.
• At the same time, there is little evidence of any increase in
  demand, at least in the developed markets, where recent
  United Nations statistics even point to declining
  populations…
                                                              4
Emerging
 economies have
  developed the                           They have access
    business                             to virtually limitless
  development                                resources…
  capabilities of
OECD economies…
                                         An endless stream
A bottomless pool                            of hungry,
of cheap labour…                           motivated and
                                          skilled workers


                    Thanks to Low Cost
                      Differentiation!
                                                         5
idea creation & management, product
                                   innovation & development, business
                                   process improvements
  Value-Creation       random arrays of internal business opportunities
    Barometer          driven by project / business requirements




No training and leadership to formulate and
                                                                          6
implement blue ocean strategy…
“Systematic value capture,
Value-Creation                                  evaluation and development”
  Barometer Internally managed and developed product development process




                 Connections enable continuous innovation
Some training and leadership to formulate and
                                                                       7
implement blue ocean strategy…
“Leadership-driven Value Creation”

Value-Creation
                       Internally and externally managed and developed
  Barometer
                       product innovation and development process




                                                            These people drive the
                                                           creation of new ventures
                                                            and spin-outs, JVs etc.
                                                             (True entrepreneurs)



                Cluster activities are driven by strong leadership
Significant training and leadership to formulate
                                                                               8
and implement blue ocean strategy…
BUSINESS ASSET-CREATING NETWORKS
                            “Systematic Value Capture-Creation for New Ventures”
Value-Creation
                   Internally and externally adaptable and evolving value
  Barometer        capture-creation: new ventures initiated anywhere at anytime
                                                                            New Asset
                                                                             Cluster




                                 New
                               Venture
    Blue Ocean                 Creation
      Strategy                                              Network-venturing
   Formulation &                                            brokers are the key
  Implementation                                            to creating endless
    is the Norm
                                                             possibilities in an
                                                            innovative climate!
                     Network-venturing among business asset
                                                              9
                   clusters to create new kinds of assets, faster
Design for Innovation


Technology Innovation
Typology of Technological Innovations at the Enterprise Level

      High                                              Strategic
                                                        Systemic
                                                       Innovation
                             Continuous
     Degree                  Incremental
       of                     Innovation
   Management
                                              Radical Innovation

                      Unplanned
                     Improvements
      Low


                              Degree of Leadership and
                    Low                                            High
                            Contribution to Competitiveness
            AGILE INNOVATION FOR SUSTAINABLE COMPETITIVE ADVANTAGE        10
Moving With Speed: Agility
         Opportunity-driven Business Development

                       Fast                           Fast                                Fast      Sustaining
                       thinking                       decision-                           to        speed
                                                      making                              market
 Forecasting &                               Setting rules  Launching a                          Simplicity
  road-mapping                                                  crusade
                                              Getting rid of                                       Boundarylessness
 Anticipating                                 bureaucracy  Owning
                                                                competitive                         Self-confidence &
 Spotting trends                             Shuffling        advantage                            growth attitude
                                               portfolios
 Brainstorming                                                Getting suppliers                   Financial flexibility
                                              Unpacking        move fast
 Putting every                                proposals                                            Business Process
  idea through the                                             Staying beneath                      Mgmt System
  “grinder”                                   Constantly       the radar
                                               reassessing                                          Managing creativity
 Letting the best                                             Institutionalizing
  idea win                                                      innovation                          Staying close to the
Adapted from
                                                                                                     customer      11
“It’s not be big that eat the small…It’s the fast that eats the slow”, J.Jennings & L.Haughton
Survival vs. Market Leadership Strategies Design for Innovation
  Entry ticket to the        SURVIVAL STRATEGY         LEADERSHIP STRATEGY
  competition game                  Staying alive    Targeting market leadership
                         Winning and Retaining Customers
                                                     Creating higher customer
Customer Value             Low cost/benefit ratio
                                                     value
                                                     Differentiation and
Marketing Strategy         Mass marketing
                                                     positioning
Customer Satisfaction      Customer service          Customer intimacy
                           New attributes & Line     New product categories &
Product Innovation
                           extensions                New brands
                        Building Your Competitive Advantage
                                                     Building distinctive
Strategic Growth Focus     Building resources
                                                     capabilities
                                                                        D4I
Innovation                 Linear                    Systemic
Technology Innovation      Incremental               Radical
                                                                     FOCUS

Process Innovation         Functional improvements   Enterprise-wide BPM
                           Perfecting traditional    Creating new adaptable
Business Innovation                                                        12
                           business model            business models
Design Domains for Business Activities
         Vision Design       Mission Design          Implementation
             Phase               Phase                Design Phase



         WHAT?   HOW?            WHAT?   HOW?           WHAT?   HOW?

   Customer              Goals              Strategies            Activities
    Needs
                         (Gs)                   (STs)
    (CNs)                                                              (ATs)



   Customer          Functional                 Physical           Process
   Domain             Domain                    Domain             Domain


Strategy Formulation & Implementation                                          13
Design Domains for Business Activities
         Vision Design       Mission Design          Implementation
             Phase               Phase                Design Phase



         WHAT?   HOW?            WHAT?   HOW?           WHAT?   HOW?

   Customer              Goals              Strategies            Activities
    Needs
                         (Gs)                   (STs)
    (CNs)                                                              (ATs)



   Customer          Functional                 Physical           Process
   Domain             Domain                    Domain             Domain


Strategy Formulation & Implementation                                          14
Design Domains for Business Activities
         Vision Design       Mission Design          Implementation
             Phase               Phase                Design Phase



         WHAT?   HOW?            WHAT?   HOW?           WHAT?   HOW?

   Customer              Goals              Strategies            Activities
    Needs
                         (Gs)                   (STs)
    (CNs)                                                              (ATs)



   Customer          Functional                 Physical           Process
   Domain             Domain                    Domain             Domain


Strategy Formulation & Implementation                                          15
Design Domains for Business Activities
         Vision Design       Mission Design          Implementation
             Phase               Phase                Design Phase



         WHAT?   HOW?            WHAT?   HOW?           WHAT?   HOW?

   Customer              Goals              Strategies            Activities
    Needs
                         (Gs)                   (STs)
    (CNs)                                                              (ATs)



   Customer          Functional                 Physical           Process
   Domain             Domain                    Domain             Domain


Strategy Formulation & Implementation                                          16
Strategic Alignment of Business
Priorities with Opportunities


  2. What can we use?
    (Relevant Context: Customer Needs)




             1. Where are we going?
                (External Perspective: Market Scenarios)


    3.   How do we use it?
         (Formulate Strategy: Identify & Evaluate Opportunities)   17
Design for Innovation



5 Phase-Gates to Manage:

1.   Where are we Going?
2.   What can we Use Now?
3.   Create New Possibilities.
4.   Select Best Possibilities.
5.   Take Appropriate Action.



                                                18
Design for Innovation



1. Where are we Going?

  Gate-Check Focus:
 Benefits Identification




                                    19
How do we compete more effectively?
               Existing Value         New Value




   New        Expand into        Diversify and
  Context     new markets        expand into
             or applications     new markets


  Existing     Maintain          Diversify and
  Context      current          deepen existing
               strategy          relationships



What is our key value proposition?
                                                  20
Product-Market Matrix:
           Current Market        New Market




  New        Product
 Product                    Diversification
           Development



 Current     Market           Market
 Product   Penetration      Development




                                              21
Product-Market Matrix:
                           Current Market        New Market
   Make new product
                                                              This strategy chosen in
 offers more effectively
                                                              conjunction with one or
  and inexpensively to
                                                               more of the others or
   existing customers
                                                               when a crisis has been
   rather than to new
                                                                    recognized
          ones



  New                        Product
 Product                                    Diversification
                           Development



 Current                     Market           Market
 Product                   Penetration      Development
                                                                  Well-developed
                                                               products introduced
    De facto strategy:                                         into new markets to
 change nothing and sell                                        extend value: ideal
   more of the same to                                               when little
 existing customers and                                       modification required &
  extend customer base                                          room for growth in
                                                                 original market is22
                                                                     restricted
Green Mountain Coffee Roasters Strategy
             Current Market         New Market




              Phase 3:
   New          Sell
  Product   Complimentary
              Products

                                 Phase 2:
  Current     Phase 1:
                              Expand Base via
  Product      Sell to
                              Catalogue, Viral
             Core Market
                                 Marketing




                                                 23
Product-Customer Matrix:
             Old Customers       New Customers




  New         Define new
                              Approach with
 Product   components and
                                 caution
            solution needs

              Increase       Market and reach
   Old        marketing      new customers,
 Product    intensity and        improve
             awareness          scalability




                                                 24
Product-Customer Matrix:
             Old Customers       New Customers




  New         Define new
                              Approach with
 Product   components and
                                 caution
            solution needs
                                                Move transaction services
                                                      horizontally

              Increase       Market and reach
   Old        marketing      new customers,
 Product    intensity and        improve
             awareness          scalability
                                                 Develop new emerging
                                                   “retail” customers




                                                                  25
Product-Customer Matrix:
               Old Customers                   New Customers


             Better solution
             architectures,     New devices, broader control
           partnered products      of customer network




  New         Define new
                                          Approach with
 Product   components and
                                             caution
            solution needs
                                                               Move transaction services
                                                                     horizontally

                Increase                Market and reach
   Old          marketing               new customers,
 Product      intensity and                 improve
               awareness                   scalability
                                                                Develop new emerging
                                                                  “retail” customers




                                                                                 26
Charting the Future
• FUTURE SCENARIOS
   – What will the ECONOMIC ENVIRONMENT look like in X years?
   – What will the POLITICAL ENVIRONMENT look like in X years?
   – What will the REGULATORY & LEGISLATIVE ENVIRONMENT look like in X
     years?
   – What will the DEMOGRAPHIC & SOCIAL ENVIRONMENT look like in X years?
   – What will the MARKETS look like in X years?
   – What will CUSTOMER / USER PROFILES & HABITS look like in X years?
   – What will the COMPETITIVE ENVIRONMENT look like in X years?
   – What will the next two to three GENERATIONS OF TECHNOLOGY look like in
     X years?
   – What FEATURES & CONTENT will PRODUCTS have in the next X years?
   – What will MANUFACTURING PROCESSES & CAPABILITIES look like in X
     years?
   – What will SALES / MARKETING METHODS look like in X years?
   – What will DELIVERY / DISTRIBUTION METHODS & SYSTEMS look like in X
     years?
   – What will HUMAN, FINANCIAL, & NATURAL RESOURCES look like in X years?
                                                                     27
PULL or PUSH Economy?
• PULL ECONOMY                  • PUSH ECONOMY
   –   SUPPLY VS. DEMAND           –   DEMAND VS. SUPPLY
   –   CUSTOMER-DRIVEN             –   PRODUCER-DRIVEN
   –   MARKET FRAGMENTATION        –   MARKET SEGMENTATION
   –   SMALLER NUMBERS OF
       CUSTOMERS, DISSIMILAR       –   LARGE NUMBERS OF
       NEEDS                           CUSTOMERS, SIMILAR
   –   TAILORED PRODUCTS               NEEDS
   –   PREMIUM PRICES              –   GENERIC PRODUCT
   –   SHORTER PRODUCTION          –   COMMODITY PRICES
       RUNS                        –   LONG PRODUCTION RUNS
   –   FLEXIBLE, EFFECTIVE         –   EFFICIENT
       MANUFACTURING                   MANUFACTURING
   –   SHORTER PRODUCT CYCLES      –   LONG PRODUCT CYCLES
   –   LITTLE BRAND LOYALTY
                                   –   STRONG BRAND LOYALTY
   –   PROCESS INNOVATION
                                   –   PRODUCT INNOVATION
   –   CHANGING RULES
   –   FAST & NIMBLE               –   FIXED RULES
                                   –   STURDY & STABLE      28
Quantify Opportunities:
                Served Customers Unserved Customers




Unarticulated    Unexploited     Unexploited
   Needs        Opportunities   Opportunities



 Articulated     Exploited       Unexploited
   Needs        Opportunities   Opportunities




                                                      29
Quantify Opportunities:
                            Served Customers Unserved Customers
  Unarticulated-Served                                          Unarticulated-
  Customers: potential                                       Unserved Customers:
  for satisfied customers                                   proactive and visionary
   to become frustrated                                      companies like Honda
     or uninterested if                                       seek to get inside he
   unexpressed but felt                                     heads & experiences of
   needs not addressed                                      unaddressed customers


Unarticulated                Unexploited     Unexploited
   Needs                    Opportunities   Opportunities



 Articulated                 Exploited       Unexploited
   Needs                    Opportunities   Opportunities

                                                             Articulated-Unserved
                                                             Customers: offerings
    Articulated-Served
                                                            developed & perfected
    Customers: known
                                                            for existing customers
    world of customer
                                                               extended to new
          needs
                                                            customers in different
                                                                    markets     30
Design for Innovation



Blue Ocean Strategy in Action
• To reconstruct buyer value elements in crafting
    a new value curve, a Four Actions Framework is
    used.
•   To break the trade-off between product / service
    differentiation and low cost, and to create a new
    value curve, four key questions are used to
    challenge an industry's strategic logic and
    business model:


                                                        31
Design for Innovation

Four Key Questions to Challenge
Strategic Logic and Business Model:
• Which of the factors that the industry
  takes for granted should be eliminated ?
• Which factors should be reduced well
  below the industry's standard?
• Which factors should be raised well above
  the industry's standard?
• Which factors should be created that the
  industry has never offered?

                                                 32
Where are we going?
             Existing Industrial    Changing Industrial
                 Standards              Standards




 Reduce /
               Over-shot             Change
 Eliminate
               Customers            Consumers
  Factors


 Raise /
               Under-shot
 Create                            Nonconsumers
               Customers
 Factors




                                                          33
Where are we going?
                     Existing Industrial    Changing Industrial
                         Standards              Standards
   Which factors
                                                          Which factors that
 should be reduced
                                                          the industry takes
   well below the
                                                          for granted should
     industry’s
                                                            be eliminated?
    standard?


 Reduce /
                       Over-shot             Change
 Eliminate
                       Customers            Consumers
  Factors


 Raise /
                       Under-shot
 Create                                    Nonconsumers
                       Customers
 Factors

   Which factors
                                                             Which factors
  should be raised
                                                          should be created
   well above the
                                                           that the industry
     industry’s
                                                          has never offered?
     standard?
                                                                           34
Wine Example
              Existing Industrial            Changing Industrial
                  Standards                      Standards




             Reduce:                     Eliminate:
 Reduce /                                -Oenological terminology
             -Wine complexity
 Eliminate   -Wine range
                                          & distinctions
  Factors                                -Aging qualities
             -Vineyard prestige
                                         -Above-the-line marketing



 Raise /     Raise:                      Create:
                                         -Easy drinking
 Create      -Price vs. budget wines
                                         -Ease of selection
 Factors     -Retail store involvement
                                         -Fun & adventure




                                                                     35
Cirque du Soleil Example
              Existing Industrial       Changing Industrial
                  Standards                 Standards




                                    Eliminate:
 Reduce /    Reduce:                -Star performers
 Eliminate   -Fun & humour          -Animal shows
  Factors    -Thrill & danger       -Aisle concession sales
                                    -Multiple show arenas



 Raise /                            Create:
                                    -Theme
 Create      Raise:                 -Refined environment
             -Unique venue
 Factors                            -Multiple productions
                                    -Artistic music & dance




                                                              36
Market Entry / Growth Scenarios
SCENARIO 1                            SCENARIO 2                            SCENARIO 3
Non-consumers converted via cost,     Non-market legal barriers or          Business models exploit non-market
access or education                   distortions overcome or bypassed      regulatory barriers without
                                                                            addressing economic constraints
Example: telephone replacing          Example: Wireless bypasses telecom
telegraph, wireless replacing cable   monopoly access to customers          Example: Revolving loans for
                                                                            bundled Renewable Energy options
                                                                            address reliability requirements but
                                                                            not economies of scale constraints


SCENARIO 4                            SCENARIO 5                            SCENARIO 6
Non-market forces will not remove     Non-market forces will not overcome   New business models emerge to
technological interdependence         lack of industrial motivation or      serve least demanding overshot
                                      ability                               customers
Example: Broadband ISPs dependent
on telecom landline access            Example: Artificial price-fixing at   Example: Advertising revenue model
                                      petrol pump                           for free Google software




SCENARIO 7                            SCENARIO 8                            SCENARIO 9
Specialists entering and displacing   Standards or rules allow different    Sustaining new, and/or improved
integrated players for overshot       providers to meet min. requirements   products and services for undershot
customers                             of overshot customer segments         customers: integrators thrive,
                                                                            specialists struggle
Example: DataCol meter reading        Example: Parallel imports of solar
services for electric utilities       hot water systems, synthetic          Example: Windows operating system
                                      substitutes and other appliances
                                                                                                         37
Signals of Change
1. What jobs are customers in the industry trying to get
     done? Are customers not served, undershot, or
     overshot by current offerings? Along which
     dimensions do firms compete for customers?
2.   What improvements garnered premium prices in the
     past?
3.   Do integrated or specialized business models
     currently prevail? Are interfaces specifiable,
     verifiable, and predictable? If so, where is
     modularity occurring?
4.   Where are new business models emerging? Is there
     growth in fringe markets?
5.   What role does the government or its regulatory
     bodies play in enhancing or inhibiting innovation?38
Competitive Battles
1. What are industry players’ business models? What
     are their motivations? What are their skills?
2.   How do industry players compare to one another?
     How do they compare to the needs of the market?
     Where are there symmetries? Where are there
     asymmetries?
3.   Do the asymmetries tilt in favour of the attacker or
     the incumbent?
4.   Does the innovation naturally fit its target market? Is
     there evidence of cramming (forced fit)?
5.   Are there signs that a company is ceding a low-end
     market and trying to move up? Is there an “up” to
     move to? For how long?                             39
Strategic Choices
1. Is a company in a situation in which the right
     strategy needs to emerge? Is the firm giving itself
     the freedom to encourage emergent forces? Have
     managers wrestled with problems they are likely to
     face again? Have they shown the capacity to learn?
2.   Are investor values aligned with company needs? If
     the investor is a corporation, has growth stalled?
3.   Do value networks overlap? If they do, what are the
     degrees of overlap? Do they make it impossible to
     create a business model that has asymmetries?
4.   Is this an appropriate situation for a spinout? Is the
     company giving the spinout the freedom to do what
     is necessary?                                       40
Design for Innovation



Creating the Future

• “The best way to manage the future?
 Create it!”
  – The best competitive position to be in is to
    have no competition
     • This position can only be achieved by NOT playing
      the way your competition plays the game but
      rather by controlling the game, by creating
      products and services that change the rules in
      your favour.


                                                          41
Design for Innovation




How to Create the Future
   Use a framework that classifies best-practice business processes for
    identifying, developing and retaining customers
   The first-level processes in this framework for identifying best-
    practice business opportunities, define a company‟s basic operations,
    such as:
    1.   Understand markets and customers
    2.   Involve customers in the design of products and services
    3.   Market and sell products and services
    4.   Involve customers in the delivery of products and services.
    5.   Provide customer service
    6.   Manage customer information
   Supporting these basic operations, management and support
    processes maximize the value and use of human resources,
    information and technology, and financial and physical resources, to
    name a few                                                      42
Design for Innovation


      Set Strategic Direction
•   Which way is the business heading?
    1. What (if anything) gives this business distinctiveness?
    2. What skills does this business currently have that are better than those of the
        competition? Can this advantage be sustained for a period of more than a few
        years?
    3. How is this organization generally regarded in the industry or by outside
        experts? How do outsiders see the business's strategy? What do they think
        about it?
    4. What are this organization's strengths in creating a high performing business?
    5. What are the biggest roadblocks to this business becoming a high performing
        business?
    6. What does the business do? Why?
    7. What does it not do? Why not?
    8. Who are its customers / Who are not its customers?
    9. What are its products / What are not its products?
    10. What are its markets / What are not its markets?
    11. Why is the business in this business & not another?
    12. Why is the business focusing on these customers & not others? Why is it
        providing these services (or making these products) & not others?
    13. Does this business have more than one strategy?
                                                                                 43
Design for Innovation



Set Strategic Direction
• BUSINESS STRATEGY ISSUES
  1. VISION, VALUES, PURPOSE
  2. OVERALL DIRECTION
  3. DESIRED OUTCOMES
  4. LONG TERM OBJECTIVES
  5. STRATEGY TO ACHIEVE OBJECTIVES
• IDENTIFYING BUSINESS STRATEGY ISSUES
  – Identify 7 business strategy issues that need to be
     addressed in your business plan, examining:
       A. Strategic Issue
       B. Impact
       C. Action Required
                                                              44
45
Design for Innovation



   Establish Clear Objectives
• What is the business trying to achieve in the near future?
   –   STRATEGIC
       1. Has the business developed clear & formal objectives for the long-term as
          well as the immediate future?
       2. Are those objectives quantified in terms of rate & return, growth, market
          share, product or service development?
       3. Does the business know at what stage in their life cycles its products
          currently are?
       4. Does the business consider the following in its development of strategic
          objectives:
            Economic conditions, including the effects of inflation?
            Political conditions?
            Labour requirements?
            Capital requirements?
            Tax implications?
            Production capacity?
       5. Have the strategic objectives been embodied in a formalized financial plan
          looking a number of years ahead?
       6. Are the objectives & plans reviewed regularly & is the actual performance
          monitored against the plan?                                            46
Design for Innovation



    Establish Clear Objectives
•    What is the business trying to achieve in the near future?
    – OPERATIONAL
      7. Is the role to be played by each individual Advisor in
         achieving the plan clearly identified?
      8. Have the Advisors developed their own business plans?
      9. Is the business planning to expand in the coming year into a
         new:
          MARKET?
          SERVICE?
          CUSTOMER BASE?




                                                                   47
Design for Innovation



Establish Clear Objectives
• DEVELOP CLEAR OBJECTIVES & PLANS
   – S: SPECIFIC
   – M: MEASURABLE
   – A: ATTAINABLE
   – R: REASONABLE & RESOURCED
   – T: TIME BOUND
• KEY STRATEGIC OBJECTIVES
   – Identify 7 key strategic objectives for your business, the
     desired outcome, & how it can be measured, examining:
      • STRATEGIC OBJECTIVE
      • OUTCOME
      • HOW MEASURED
                                                                48
49
Design for Innovation



Develop Marketing Strategy
• What market is the business in, & who are its customers?
  1. Does our current marketing strategy give us the share of the local
     market we might expect?
  2. What kind of demand is there for our products & services?
  3. Will our strategy provide us with a sustainable competitive
     advantage?
  4. Will this marketing strategy help us accomplish our business
     objectives?
  5. What kind of future opportunity is there if the business objectives
     are achieved?
  6. What are the vulnerabilities of this strategy?
  7. Is this strategy consistent with the environment & changing
  8. How does this strategy fare in future mapping or scenario analysis?

                                                                     50
Design for Innovation



Develop Marketing Strategy
• DEVELOP MARKETING STRATEGY
    1. DEFINING YOUR MARKET
    2. IDENTIFYING TYPES OF CUSTOMERS
    3. COMPETITORS
    4. MARKETING STRATEGY
    5. PRODUCTS & SERVICES
    6. CUSTOMER SERVICE
•   MARKET SEGMENTATION
    – Identify the 7 key market segments for your business, identify
       their future potential & what action is required:
          A. SEGMENT
          B. NUMBER OF CUSTOMERS PER MONTH
          C. AVERAGE SPEND
          D. ON WHAT?
          E. POTENTIAL FOR DEVELOPMENT (HIGH, MEDIUM, LOW)
          F. HOW TO DEVELOP                                         51
Design for Innovation



2. What can we Use Now?

   Gate-Check Focus:
  Benefits Qualification




                                    52
Customer Value Map Matrix:
                    Low Customer-    High Customer-
                      perceived         perceived
                       quality           quality




High Customer-    Worse Customer
perceived price                      Unique Value
                       Value



Low Customer-                       Better Customer
perceived price   Commodity Value
                                         Value




                                                      53
Customer Value Map Matrix:
                               Low Customer-    High Customer-
                                                                Upscale goods and
   Customer preferences          perceived         perceived     services that offer
      shift in economic           quality           quality  unique value. Examples
     downturns, higher-                                        include: high-margin
    priced products often                                           products such as
   find themselves in this                                         custom jewelry for
           position                                               which close substitutes
                                                                      not available

High Customer-               Worse Customer
perceived price                                 Unique Value
                                  Value



Low Customer-                                  Better Customer
perceived price              Commodity Value
                                                    Value

                                                                   Products perceived as
  Goods are commodities
                                                                  value leaders; costs are
         with little
                                                                    competitive, and the
  differentiation between
                                                                   products possess the
    vendors, resulting in
                                                                   quality attributes that
     products selling on
                                                                   customers value most
            price
                                                                           highly       54
Levi Jeans Example
                    Low Customer-     High Customer-
                      perceived          perceived
                       quality            quality




High Customer-    Worse Customer    Normal Customer
perceived price        Value             Value



Low Customer-     Normal Customer   Better Customer
perceived price       Value              Value




                                                       55
Levi Jeans Example
                    Low Customer-          High Customer-
                      perceived               perceived
                       quality                 quality



                                            Competitor 1
High Customer-    Worse Customer
perceived price        Value
                  Levi’s                   Competitor 2


Low Customer-                             Better Customer
perceived price                                Value
                           Competitor 3




                                                            56
Design for Innovation




How to Create the Future
   Use a framework that classifies best-practice business processes for
    identifying, developing and retaining customers
   The first-level processes in this framework for identifying best-
    practice business opportunities, define a company‟s basic operations,
    such as:
    1.   Understand markets and customers
    2.   Involve customers in the design of products and services
    3.   Market and sell products and services
    4.   Involve customers in the delivery of products and services.
    5.   Provide customer service
    6.   Manage customer information
   Supporting these basic operations, management and support
    processes maximize the value and use of human resources,
    information and technology, and financial and physical resources, to
    name a few                                                      57
SWOT Matrix:
                  Internal         Internal
                Environment      Environment
                 Strengths       Weaknesses




   External
 Environment    Confront      Avoid or Prepare
   Threats


  External
Environment     Exploit           Search
Opportunities




                                                 58
SWOT Matrix:
                                 Internal         Internal
                                                                   Threat matched with
                               Environment      Environment     weakness. Some threats
   Threat is matched with
                                Strengths       Weaknesses      avoidable, and others are
  organizational strength –
                                                                     not. Confronting
    mobilize to limit and
                                                                 competitive threats with
     control the looming
                                                                   weakness is not only
           danger
                                                                  dangerous but drains
                                                                        resources

   External
 Environment                   Confront      Avoid or Prepare
   Threats


  External
Environment                    Exploit           Search
Opportunities
                                                                Opportunity is matched
   Opportunity is matched
                                                                   with weakness.
  with strength. Business’s
                                                                Opportunities exist that
  growing edge – where it
                                                                 the organization can
  can capitalize on areas of
                                                                 recognize but is not
     strategic advantage
                                                                  equipped to tackle
                                                                                      59
Generic Strategy Matrix:
                     Lower Cost for   Differentiate for
                      Competitive      Competitive
                       Advantage        Advantage




Broad Target for
  Competitive      Cost Leadership    Differentiation
    Scope


 Narrow Target                        Differentiation
for Competitive      Cost Focus
                                           Focus
     Scope




                                                          60
Generic Strategy Matrix:
                               Lower Cost for   Differentiate for
                                                                     Deliver some unique
                                Competitive      Competitive          form of value that
    Achieving the lowest
                                 Advantage        Advantage          customers recognize
     costs in an industry
                                                                       and appreciate,
    while maintaining an
                                                                        developing or
     acceptable level of
                                                                    exploiting talents and
            quality
                                                                    resources that set the
                                                                    company’s offer apart

Broad Target for
  Competitive                Cost Leadership    Differentiation
    Scope


 Narrow Target                                  Differentiation
for Competitive                Cost Focus
                                                     Focus
     Scope
   Take advantage of the
      unique needs of a                                             Added value within a
   segment of an industry                                            small segment of a
      that is difficult or                                           market rather than
    uneconomical for the                                              across the entire
    broad cost supplier to                                                 market
     service adequately                                                                61
Means and Ends Matrix:
               Incompatible   Compatible
                   Ends         Ends




 Compatible
   Means       Coalition      Cooperation




Incompatible
   Means       Conflict       Competition




                                            62
Means and Ends Matrix:
                           Incompatible   Compatible
                                                         Deliver some unique
                               Ends         Ends          form of value that
 Formed by competitors
                                                         customers recognize
  to address common,
                                                           and appreciate,
   usually short-term
                                                            developing or
      problems or
                                                        exploiting talents and
      adversaries
                                                        resources that set the
                                                        company’s offer apart

 Compatible
   Means                   Coalition      Cooperation




Incompatible
   Means                   Conflict       Competition

                                                         Companies within an
                                                           industry compete
   Situations become                                     against each other for
 increasingly polarized,                                  customers yet share
 resulting in zero-sum,                                 the need to educate the
   win-lose outcomes                                       public about their
                                                            collective value
                                                                             63
                                                              proposition
Design for Innovation




How to Create the Future
    The sub-processes (second-level processes) supporting the first-level
     processes are as follows:
    1. Understand markets and customers:
         i.     Understand the market environment
         ii.    Understand customers‟ wants and needs
         iii.   Segment customers
    2.     Involve customers in the design of products and services:
         i.     Develop new concepts and plans for products and services
         ii.    Design, build, and evaluate prototypes
         iii.   Refine and customize products or services, then test their effectiveness
    3.     Market and sell products and services:
         i.     Secure channels of distribution
         ii.    Establish pricing
         iii.   Develop advertising and promotion strategies
         iv.    Develop and deploy a sales force
         v.     Process orders
         vi.    Develop customers
                                                                                           64
Design for Innovation




How to Create the Future
    The sub-processes (second-level processes) supporting the first-level
     processes are as follows (continued):
    4.     Involve customers in the delivery of products and services:
         i.     Offer broad delivery options to become the „supplier of choice‟
         ii.    Use delivery customization to attract and retain core customers
         iii.   Identify customers‟ delivery needs
         iv.    Develop distribution capability
    5.     Provide customer service:
         i.     Establish „points-of-contact‟ excellence
         ii.    Build cross-functional „points-of-contact‟ cooperation
         iii.   Train employees to improve customers‟ expectations for products and services
    6.     Manage customer information:
         i.     Build customer profiles
         ii.    Establish service information
         iii.   Measure customer performance and satisfaction


                                                                                          65
Design for Innovation




How to Create the Future customers:
1. Best-practice agenda for understanding markets and
     Understand that the market is more than just the customer. In its broadest sense, the market
      environment includes the company‟s supply chain and merchant partners as well as intermediary
      customers and end users. A company‟s understanding of government regulations, trends in
      consumer purchasing, and unpredictable events can dramatically affect its production and
      relationship with customers
     Systematically create an image of the company‟s value chain, from suppliers to end users.
      Prominently displayed, this diagram serves to inform all employees how they fit into the market
      environment as well as how other stakeholders with whom they deal (customers, suppliers, and so
      forth) also fit into the market environment
     Survey your customers frequently, systematically, directly, and personally. Review the surveys and
      then share them with the people in our organization who need to know what those customers have to
      say. Responding personally to every survey, for example, should provide the norm for executive
      behavior. If you don‟t have time to respond personally, make sure someone in your company does
     Revise your products or services as customers request or tell them why they can‟t have it their way.
      Promote the new version and resurvey customers to assess their satisfaction. Survey every
      customer, for example, and require every employee linked to that customer to read and respond to
      those comments. Requests for new products and services can lead to expanded offerings and even
      new companies being launched
     Segment customers so that you can meet demands more directly and profitably. Establish the criteria
      by which customers should be grouped (by age, income, credit history, purchases, demographic
      factors, and so forth), then offer products and services tailored to those segments. When appropriate,
      partner with merchants and suppliers to create greater value for customers
                                                                                                   66
Design for Innovation




How to Create the Future
1.    Top ten best-practice diagnostic questions for understanding markets and
      customers:
     1.    Can you describe in detail all the major suppliers in your company‟s value chain and list substitute
           suppliers who could provide raw materials and component parts in an emergency? Do you need a
           week‟s review to do so? (You won‟t have a week if a fire destroys a supplier‟s production plant.)
     2.    How often do you survey your customers? Once a month? Once a year? Once a millennium?
     3.    Which customers do you choose to survey? Only those who call you first?
     4.    How good is your process for responding to customer concerns expressed in surveys?
     5.    What quick, tangible rewards do you offer customers who take the time to complete one of your
           surveys or requests for information?
     6.    What external sources other than surveys do you typically use to gather information about your
           customers? About competitors? About suppliers? About trends in the marketplace?
     7.    What other internal sources do you use to collect this information?
     8.    List five (or more) segmentations that your company currently uses. Can you explain succinctly the
           benefits it realizes from grouping customers as it does?
     9.    Name a product or service your company provides that has come about as a result of a customer
           request or survey and has since improved your overall profitability.
     10.   Does your company have a process for customers to evaluate your employees and departments? Is it
           similar to the Net Satisfaction Index that Dickens Data Systems has developed? Do you support
           cross-functional teams to analyze customer needs and fulfill them?

                                                                                                       67
Design for Innovation




How to Create the Future
2.       Best-practice agenda for involving customers in the design of products and
         services:
           Survey customers for their opinions, ideas, feelings, likes, and dislikes about products or services.
            Whenever possible, meet them face-to-face to discuss their views. Most important, listen closely to
            what they have to say
           From these surveys and other customer interactions, collect, categorize, and deliver information
            about product use to the people in our organization who need it
           Describe to your customers how they can help you understand their needs, then create products and
            services that meet those demands. Define the values that this step of the process has for them: more
            precisely customized products and services, speedier development, increased opportunities to
            participate in the design stages, and greater savings in production and use
           Make refinements in existing products and services, partnering with your customers either on their
            premises or yours when possible. Share information both at home and at the customer‟s site
           Test the refinement in a controlled environment with targeted segments of customers
           Market the successfully refined product, but keep the doors open to further improvements as you
            receive suggestions from your customers and as their needs change




                                                                                                         68
Design for Innovation




How to Create the Future
2.    Top ten best-practice diagnostic questions for involving customers in the
      design of products and services:
     1.    How do you gather customer input about product design and use? Telephone or mail surveys?
           Internet bulletin boards? Focus groups? Feasibility studies?
     2.    Do you have a team comprising representatives from various groups – manufacturing, engineering,
           marketing, sales, and so forth – that goes out to meet with customers?
     3.    Have you ever allowed your customers to decide whether or not you should implement a change, as
           Disney did in creating Mickey‟s Starland and character breakfasts?
     4.    To what extent do you involve customers in the design of prototypes? What about their customers?
     5.    Do you look for customer insights before making refinements or customization changes to existing
           products, as Black & Decker did in creating its VersaPak line?
     6.    Do you get wisdom and insights from customers at each step of development? Do you have a
           customer advisory board?
     7.    Do you partner with customers so that they allow your employees to visit their sites? If so, how many
           of these relationships do you have?
     8.    Do you have space reserved in your plant for your best clients (or suppliers) to collaborate with you in
           design, production, and other areas? (A mailbox slot or coffee mug doesn‟t count.)
     9.    How much do you share information with clients? Do you give them the right to attend design and
           engineering meetings? Get input on upcoming advertising and sales campaigns?
     10.   How easy is it for clients to reach someone at your company with a proposed change or refinement?
           How long does it take your company to respond? How many people get to see and discuss the
           proposal?
                                                                                                          69
Design for Innovation




How to Create the Future
3.       Best-practice agenda for marketing and selling products and services:
           Make sure you know all links in your value chain – all suppliers, distributors, advertisers, marketers,
            salespeople, and customers. By its thorough understanding of its value chain, Lexus was able to
            overcome potential distribution problems
           Establish a competitive pricing strategy, as Southwest Airlines has done by looking outside its
            industry (namely, to automobile rentals and other modes of transportation) to determine pricing
            policies
           Develop strong advertising strategies, seeking input from all levels of your company to develop an
            appropriate image that can distinguish your company from others in the industry. As Nike has
            proven, developing a good product is only half the battle. You also have to get the message to your
            customers
           Train your employees, especially those who will sell your products and services, to know everything
            they need to know about the market, the item they are selling, and the customers to whom they are
            selling. As Cutler-Hammer illustrates with its team-selling approach, this melding of individuals with
            different talents and degrees of expertise makes good business sense
           Develop an integrated system for processing orders tailored to customers‟ needs. Through its
            ValueLink program, Allegiance Healthcare serves over 150 acute-care hospitals in the United States
            with 98 percent fill-rate accuracy
           Do business with the customers you choose and in the ways you choose – by surveys, interviews,
            point-of-sale contacts, repair calls, and the like. As Peapod, Inc., and American Airlines have
            demonstrated, it is possible to partner with customers, establishing key drivers of greater value and
            lower prices
                                                                                                            70
Design for Innovation




How to Create the Future
3.    Top ten best-practice diagnostic questions for marketing and selling products
      and services:
     1.    The foundation of a successful sales effort is knowledge of customer needs and an ability to
           communicate how your products and services best fit those needs. What training systems does your
           company use to educate your salespeople and service technicians on: (i) identifying customers‟ key
           needs; and, (ii) differentiating your products and services from those of the competition?
     2.    How often do you retrain your employees in these and other areas? What tests do you give them?
     3.    When was the last time you critically evaluated your channels of distribution? Have you considered
           emerging channels such as the Internet?
     4.    Do you monitor your price performance and that of your competitors? How do you determine what
           customers are willing to pay?
     5.    Does your advertising strategy address current and developing trends in your market?
     6.    Have you studied non-customers and your lost customers to identify their needs? Have you
           responded to them appropriately?
     7.    How do you go about building a positive image for your company and its products? How do you help
           potential customers understand that they need your products and services
     8.    What degree of integration (such as EDI) do you have in place for processing orders?
     9.    What special offers or incentives do you offer selected segments of your customers?
     10.   Do you know what differentiates your products and services from your competitors‟ products and
           services? How do you communicate those differences?

                                                                                                     71
Design for Innovation




How to Create the Future
4.       Best-practice agenda for involving customers in the delivery of products and
         services:
           Become the „supplier of choice‟ by using out-of-box thinking to generate customer delivery solutions
            not bound by conventional wisdom, as New Pig Corporation, Norrell Corporation, and Holy Cross
            Hospital have done
           Customize delivery systems to fit the needs of core customers, in particular by creating channels of
            communication and service offerings to meet their demands. Establish a program similar to the
            CERRFS initiative undertaken by SARCOM
           Identify customer delivery requirements through a complete understanding of the impact that
            distribution has on a customer‟s business. As Granite Rock and Cemex show, often a best-practice
            company builds extensive lines of communication within its own system before streamlining its
            delivery services to customers
           Develop distribution capability as exemplified by Campbell‟s, paying close attention to small details –
            such as pallet size – that combine to solidify the customer-supplier relationship




                                                                                                           72
Design for Innovation




How to Create the Future customers in the
4. Top ten best-practice diagnostic questions for involving
   delivery of products and services:
  1.    How do you respond to customer delivery needs in emergency situations?
  2.    How do you identify the delivery service needs of individual customers? Do you use these needs as a
        method of customer segmentation?
  3.    Do you have just-in-time supply and continuous replenishment services?
  4.    What steps have you taken to ensure reliability in your delivery process? How do you communicate
        this process to your customers?
  5.    Do you have in-plant reps at customer sites? If so, what do you consider the biggest advantages of
        these relationships?
  6.    What is your delivery channel strategy? Do you align your delivery strategies to service specific
        customer needs?
  7.    Can you continuously track products from the production line to the customer‟s door?
  8.    Do you offer special delivery deals for large-scale purchases such as same-day shipping? Twenty-
        four-hour delivery? Any other customization features in packaging and delivery?
  9.    How do you differentiate your delivery strategy from competitors‟ trying to become the supplier of
        choice?
  10.   What methods of feedback (other than a payment) do you get from customers regarding delivery and
        repair information? How do you elicit this input – via phone surveys, the Internet, or other means?



                                                                                                   73
Design for Innovation




How to Create the Future
5.       Best-practice agenda for providing customer service:
           Establish primary „points of contact‟ between your employees and customers, instilling in customers
            the feeling that their needs are being met personally and promptly. At the same time, information can
            be used to alter company-wide business processes
           Build cross-functional cooperation by training employees to understand and enhance the entire
            customer experience, then holding them responsible for customer satisfaction. This training could
            come via improving lines of communication between management and frontline employees – much as
            Coldwell Banker Relocation Services does – or by instructing employees how to treat customers from
            the first point of contact, such as Hyatt and Disney
           Create a database to identify customer service failures and embrace their identification, recalling the
            principle that drives customer satisfaction at IBM and FedEx: Your customers know best what they
            don‟t like and what they can‟t understand
           Raise customer expectations for products and services by giving them high-quality treatment each
            step of the way. Whether it is greeting guests at the front door, as the Red jackets do at East
            Jefferson General Hospital, or helping guests locate keys to their locked cars, as Disney World
            attendants do, the best-practice company personalizes its customer service at every point of contact
           Make sure each employee has at hand all information needed to process a customer‟s request
            promptly and efficiently. Providing this information may require sophisticated databases such as
            those used by Hyatt Hotels to identify specific guests‟ needs and FedEx has in place to help
            customers track shipments. Or the organization may assemble data from customer surveys and
            distribute it as needed to appropriate personnel, much as East Jefferson General Hospital has done
            by collecting information from groups such as senior citizens to better prepare employees associated
            with its Elder Advantage program
                                                                                                           74
Design for Innovation




How to Create the Future
5.    Top ten best-practice diagnostic questions for providing customer service:
     1.    What is your customer retention rate? Does it indicate any trends you can act upon?
     2.    What is the level of cross-functional communication between your company and its customers?
     3.    Do you train employees throughout the organization in various tasks so that any of them can handle
           any problem that arises during the customer cycle?
     4.    What financial empowerment do you provide to your frontline employees to solve customer
           problems? Do you give them additional authority to make decisions on the spot?
     5.    Do those frontline employees have access to executive groups such as IBM‟s customer action
           councils where they can receive additional assistance and powers of authority?
     6.    Do you have in place a cross-functional database to track and analyze customer service highlights
           and lowlights?
     7.    How do you explicitly gauge your customers‟ satisfaction? Do focus groups play a role?
     8.    Is any portion of your company‟s merit system based on customer service?
     9.    Do you have a client advisory board? How often does it meet? What does it accomplish?
     10.   Do you surprise your customers with great customer service as East Jefferson general Hospital does
           with its red-jacketed representatives who accompany visitors to their destinations?




                                                                                                      75
Design for Innovation




How to Create the Future
6.       Best-practice agenda for managing customer information:
           Design and build profiles using a common database to track customer information. As American
            Express demonstrates, a complete and flexible database allows a company to capture significant
            information about customers and merchants, thereby controlling this three-way relationship by virtue
            of its involvement in each transaction
           Collect observations about customer preferences from point-of-contact employees who serve as
            „listening posts‟, as the Ritz-Carlton does
           Communicate customer satisfaction throughout the company. By using the chain‟s extensive
            database, each Ritz-Carlton hotel can combine its own employees‟ observations with those from
            employees who encountered the same guests on visits to other Ritz-Carlton hotels. This process
            helps the company prepare for guests‟ visits and secure long-term relationships
           Establish service information by studying how customers use (or misuse) products and services.
            Black & Decker discovered that it could actually instruct customers how best to use its VersaPak
            product, thereby altering customers‟ perceptions and ensuring sales. Peapod, Inc., on the other hand,
            finds that by understanding customers‟ buying patterns and preferences, it can capture present and
            future sales
           Gauge customer performance and satisfaction through both internal measures such as sales growth
            and revenues, and external ones such as industry analyses and customer surveys. As the Orange
            County Teachers FCU shows, it is possible to preserve customers‟ privacy while simultaneously
            establishing acceptable levels of risk and tracking how the company ranks against its competitors in
            terms of customer satisfaction


                                                                                                         76
Design for Innovation




How to Create the Future
6.    Top ten best-practice diagnostic questions for managing customer
      information:
     1.    Do you know your customers‟ purchasing patterns s o well that you can pinpoint when they will likely
           make their next purchase of one of your products? Are you holding your breath, or are you taking a
           jar of Skippy off the shelf as Peapod is doing?
     2.    Do you study customer profiles to determine how much individuals are willing or likely to spend for
           products or services?
     3.    Where will customers make their next purchase of one of your products? At a discount store, through
           a catalog, over the Internet? Will you be there to make the sale wherever the order occurs?
     4.    Can you track customer preferences and how they change over time? If so, what do you do with this
           information?
     5.    What means do you have for collecting, organizing, and sharing customer data with people
           throughout your company? Why do you want to keep your people in the dark?
     6.    Are you constantly surprising and delighting customers with your products and services? How do
           you know?
     7.    How do you build long-tern loyalty? (See „Building Customer Loyalty‟ below)
     8.    Does our organization have the capability for identifying customers to target with promotions specific
           to their needs? Can you find fans of a particular merchant or product as adeptly as American
           Express?
     9.    Can you deal with „ugly guests‟ as effectively as the Ritz-Carlton does?
     10.   Does your company try to educate customers in the proper use of products and services as Black &
           Decker does, or do you pray they‟ll educate themselves?
                                                                                                         77
Design for Innovation



Establish Current Position
• What is the current position of the business?
   1. What does the business do & why?
   2. How long has the business been operating?
   3. What stage of growth is the business at?
   4. What is the form of the business? (Limited Company etc.)
   5. Is the current form of business appropriate for future operations?
   6. What makes the business different?
   7. What are the major accomplishments of the business?
   8. What major setbacks have you met?
   9. What are the major challenges facing the business in the future?
   10.Who are your business partners or who do you have important
      relationships with?
   11.Are there well-defined business agreements & levels of service drawn
      up with business partners?
   12.Why is the business attractive to you & potential investors?
   13.How stable is the business financial performance?
   14.Does the business have a good reputation in its industry?          78
Design for Innovation



Establish Current Position

• FIVE STAGES OF GROWTH
 1. EXISTENCE
 2. SURVIVAL
 3. SUCCESS
 4. EXPANSION
 5. MATURITY



                                           79
80
Design for Innovation



Assess Business Environment
• What is happening in the business environment & what are the
   implications for the business?
   1. POLITICAL FACTORS: What is the Government doing? - still the
      major influence in the economy, consider pending elections,
      de-regulation, tax policy, & public confidence
   2. ECONOMIC FACTORS: What is the economy doing? - Inflation,
      leading indicators, interest rates, exchange rates, employment
      levels etc.
   3. ENVIRONMENTAL FACTORS: What is happening in the general
      environment? - Controls on business activity, regulations,
      availability of resources, climatic events
   4. SOCIAL FACTORS: What are the factors affecting society? -
      Population drift, immigration, wage rises, unemployment,
      mortgage rates, racial & cultural issues
   5. TECHNICAL FACTORS: What is happening in your particular
      industry or sector? - New products & services, organizational
      trends, market trends?
                                                                   81
Design for Innovation



Assess Business Environment

• ENVIRONMENTAL FOCUS
 – External Focus
    • Identify the 7 most significant factors in the
     business environment
       – A. Impact on Business
       – B. Action Required
 – Internal Focus
    • SWOT Analysis: List as many factors about
     our organization that you can think of

                                                       82
83
84
Design for Innovation


Identify Critical Success Factors
• What does the business need to be good at to succeed?
    1. Critical Success Factors (CSFs): List between 5-7 factors that are
       essential to the future success of the business
    2. How often are the CSFs reported on?
        • Weekly?
        • Monthly?
        • Quarterly?
        • Six Monthly?
        • Annually?
    3. Does the management information system provide the necessary
       information to monitor CSF performance at the appropriate level of
       detail?
•   TYPES OF CRITICAL SUCCESS FACTORS
    1. INDUSTRY FACTORS
    2. BUSINESS CAPABILITY
    3. FUNCTIONAL
    4. ENVIRONMENT
                                                                        85
Design for Innovation


Identify Critical Success Factors

• IDENTIFY CRITICAL SUCCESS FACTORS
  – Identify 7 Critical Success Factors for your
    business, how they impact, & how they should be
    measured, examining:
    A.Critical Success Factor
    B.Impact on Business
    C.How Measured



                                                    86
87
Design for Innovation


 Outline Business Processes
• What activities need to occur to achieve the business objectives?
   1. What are our major business processes? How many are there?
   2. What are our Units of Competitive Advantage (UCA) - those things that
      distinguish us from competitors & create an advantage in the market?
   3. What is our Value-added Support Work (VA) that facilitates the
      accomplishment of UCA work?
   4. What is our Essential Support Work (ES) that does not directly create
      an advantage of facilities that work, but which must be done if we are
      to continue to operate?
   5. What is our Non-essential Work (NE) - work that has lost its usefulness
      but continues to be done because of tradition?
   6. Which areas of our work could be regarded as industry best practice?
   7. Which areas of our work could benefit from comparison & improvement
      to meet industry best practice?
   8. Is taking risks accepted & used as a learning experience?
   9. Is creativity & innovation rewarded?
   10.Are all key business processes well under control?
                                                                        88
Design for Innovation

    Outline Business Processes
•    OUTLINE BUSINESS PROCESSES
    1. INPUTS: Time & resources you require for yourself & others to
       perform key activities
    2. ACTIVITIES / PROCESSES: Tasks you perform to add value to inputs
       you have received
    3. OUTPUTS: Your work product or services that meet your customer's
       requirements
•    BUSINESS PROCESS
    – Select one of your main business processes, then:
       1. Start at the first step, & note (for each step) the activity that takes
          place
       2. Work through each step in the process until you reach the end
          result
       3. Categorize each activity I - IV ranging from:
          (I) UCA - unit of competitive advantage
          (II)VA - value-added support work
          (III)ES - essential support work
          (IV)NE - non-essential support work
       4. Identify possible process improvements                             89
90
Design for Innovation



3. Create New Possibilities.

   Gate-Check Focus:
  Benefits Quantification




                                     91
Portfolio Analysis Matrix:
             Non-existent    Symbiotic
             Mutual Value   Mutual Value




 Excellent
 Business    Maintain          Grow
  Quality

   Poor
 Business                    Adjust
               Exit
  Quality                    or Limit




                                           92
Portfolio Analysis Matrix:
                          Non-existent    Symbiotic
                          Mutual Value   Mutual Value       It is profitable,
                                                             growing, and
  Worth doing for the
                                                          strategically well
 money but contributes
                                                        matched, representing
    little to long-term
                                                          a virtuous cycle of
 strategic development
                                                        learning, growth, and
                                                              profitability


 Excellent
 Business                 Maintain          Grow
  Quality

   Poor
 Business                                 Adjust
                            Exit
  Quality                                 or Limit

    This type of client
                                                        These assignments are
      relationship is
                                                           strategically well
   unsupportable and
                                                         aligned, but they are
 should be renegotiated
                                                        not profitable and may
  or stopped as soon as
                                                          not be generating
   legally and morally
                                                            additional work
         possible                                                          93
Design for Innovation



Identifying Opportunities
1. Unexpected Successes
2. Unexpected Failures
3. Unexpected External Events
4. Process Weaknesses
5. Industry / Market Structure Changes
6. High-Growth Areas
7. Converging Technologies
8. Demographic Changes
9. Perception Changes
10.New Knowledge                                       94
Unexpected Successes
1. What unexpected product success have you had recently?
2. In which geographic areas have you had unexpected success
   recently?
3. In which market / industry segments have you experienced
   unexpected success recently?
4. What customer segments have provided unexpected success
   recently?
5. What unexpected successes have your suppliers had recently?
6. What unexpected successes have your competitors had
   recently?
7. Which of your technologies has had unexpected success
   recently?
8. What unexpected customer / user groups have bought from
   you recently?
9. What unexpected sources have asked to sample, distribute, or
   represent your product recently?                        95
Unexpected Failures
1. What unexpected product failures have you had recently?
2. In which geographic areas have you had unexpected failures
   recently?
3. In which market / industry segments have you experienced
   unexpected failures recently?
4. What customer segments have provided unexpected failures
   recently?
5. What unexpected failures have your suppliers had recently?
6. What unexpected failures have your competitors had recently?
7. Which of your technologies has had unexpected failures
   recently?
8. Which customer / user groups have had unexpected failures
   recently?
9. Which distributors, dealers, & / or agents have had unexpected
   failures recently?                                        96
Design for Innovation



Unexpected External Events

 1. What unexpected external events have
    occurred recently?
 2. What unexpected internal events have
    occurred recently?
 3. Have any expected external & internal
    events combined in an unexpected way
    recently?

                                                97
Process Weaknesses
• Every process or system in existence has one of three things
  wrong with it:
   1.A bottleneck
   2.A weak link
   3.A missing link

• Checklist
   1.What self-contained processes exist in the organization?
   2.What process weaknesses exist in our customers' organization?
   3.What weakness or "missing link" prevents better process
     performance?
   4.Why do some processes perform better at some times than at
     others?
   5.What bottlenecks do each of these processes have?
   6.What process weaknesses among our competitors might we be
     able to improve on?                                      98
Design for Innovation

Industry / Market Structure Change
1. What major structural changes are occurring among your
   customers?
2. What major structural changes are occurring in your
   geographic markets?
3. What major structural changes are occurring within your
   market / industry structure or in the conduct of your business?
4. What major structural changes are occurring among your
   competitors?
5. What major structural changes are happening in your
   customers' businesses?
6. What major structural changes are occurring within your
   regulatory environment?
7. What major structural changes are occurring in your supplier
   relationships?
                                                                99
Design for Innovation


High-Growth Areas
1. What parts of the business are growing faster than
   economic or population growth?
2. What other businesses are growing faster than
   economic or population growth?
3. What potentially high-growth businesses related to
   yours are dominated by only one or two companies?
4. What parts of your competitors' businesses are
   growing faster than economic or population growth?
5. What parts of your customers' or suppliers' businesses
   are growing faster than economic or population
   growth?                                           100
Design for Innovation



Converging Technologies

1. What technologies in your business are
   converging or merging?
2. Which of your technologies is now being
   joined to outside technologies?
3. Which of your technologies can be more
   effective if deliberately converged?
4. What would be the ideal convergence of
   technologies in your business?
                                               101
Demographic Changes
• 4 categories of demographic changes need to be monitored in a firm's end
   customers:
                       1. Income
                       2. Age
                       3. Education
                       4. Mix
   Checklist
   1. How is the age distribution of your customers & users changing?
   2. How will the educational level of your customers & users change in the
      next few years?
   3. How will the income distribution of your customers & users change in
      the next few years?
   4. How will the geographic distribution of your customers & users change
      in the years ahead?
   5. How might the buying habits of your customers & users change in the
      years ahead?
   6. What are the customer demographics that might change over the years
      ahead?
   7. How will the mix of your users & customers change in the next
      few years?                                                      102
Perception Changes
1. What changes are occurring in how your products &
   services are perceived?
2. What changes are occurring in the values of your
   customers?
3. What changes are occurring in the lifestyle, image, &
   status of your customers?
4. How will changes in perception affect your customers &
   suppliers?
5. For what new purposes have customers purchased your
   products & services recently?
6. What intangible reasons are customers developing to
   support your products & services?
7. What societal, peer, & normative pressures will affect your
   products & services in the future?
                                                         103
Design for Innovation



New Knowledge

1. What new knowledge has recently
   become known about your business?
2. What combinations of knowledge have
   created new insights into your business?
3. What new sources of information about
   your business have recently been tapped?
4. What new patents or discoveries have
   been announced relating to your
   business?                                104
Design for Innovation



   Determine Business Capability
• How is the business organized, who are the key people involved, &
  is it capable of high performance?

• A. BUSINESS CAPABILITY
  1. What is this business really good at?
  2. What skills does this business currently have that are better than those
     of competitors?
  3. What capabilities are needed with this strategy?
  4. Where do customers say we need to improve?
  5. What is the gap between current capabilities & those capabilities
     needed to give the company an advantage?
  6. How easy is it to acquire or build the needed capabilities?
  7. How much time & money will be needed to develop these skills?
  8. What clients or contracts have been lost & to whom were they lost?
  9. Where & how is the competition beating this company?
  10.What programs does the company need or have in place that are
     designed to improve capabilities?
                                                                       105
Determine Business Capability
   How is the business organized, who are the key people involved, & is
    it capable of high performance?
   B. BUSINESS STRUCTURE
    1.  What parts of the business are well aligned to delivered our business
        strategy?
    2. What current beliefs, policies, procedures, systems, or other elements are
        not aligned to deliver our business strategy?
    3. What business initiatives are going well?
    4. What are the things that get in the way of the business achieving its
        objectives?
    5. What are the things in the business that are working well to support the
        business strategy?
    6. What does the business need to do better to execute the business
        strategy effectively?
    7. What gets in the way of people doing their work? Are there areas where
        effort is wasted?
    8. How do people spend their time?
    9. Where should efforts be focused to ensure competitive advantage?
    10. Where are the opportunity areas for improving efficiency & effectiveness?
                                                                          106
Design for Innovation


Determine Business Capability
•  Determine Business Capability
  – Governance
  – Structure
  – Organization
  – Management
  – Capability
• Organization Capability
  – Identify key individuals in our organization and for each specify:

1. Name                                    2. Area of responsibility
3. Length of service in industry (years)   4. Length of service in this office / area
5. Key strengths                           6. Weaknesses
7. Key areas for specialization            8. Development actions required
9. Successor if person left
                                                                              107
Strategic Alignment of Business
Priorities with Opportunities


  2. What can we use?
    (Relevant Context: Customer Needs)




             1. Where are we going?
                (External Perspective: Market Scenarios)


    3.   How do we use it?
         (Formulate Strategy: Identify & Evaluate Opportunities)   108
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
Innovation Benefits Realization Management
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Innovation Benefits Realization Management

  • 1. Innovation Benefits Realization Management for Implementing BLUE OCEAN STRATEGY 5 Phase-Gates For Managing Innovation From Formulation to Implementation By Dr. Iain Sanders, Design for Innovation, New Zealand 1
  • 2. By way of introduction… • This is part-1 of a 5 part series on - Innovation Benefits Realization: 1. Innovation Benefits Realization Management: Blue Ocean Strategy 2. Innovation Benefits Realization: 7 Levels to Manage 3. Innovation Benefits Realization: Ideation TRIZ 4. Innovation Benefits Realization: Managing Complexity 5. New Product Development Process: NZTE Workshop (The other parts can be viewed here: http://www.designforinnovation.com/portfolio.html) 2
  • 3. Design for Innovation What is Blue Ocean Strategy (BOS)? • BOS is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000). • BOS is the simultaneous pursuit of differentiation and low cost. • The aim of BOS is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant. • While innovation has been seen as a random/experimental process where entrepreneurs and spin-offs are the primary drivers: – BOS offers systematic and reproducible methodologies and processes in pursuit of innovation by both new and existing firms. 3
  • 4. Design for Innovation Blue Ocean Strategy Imperative • Prospects in most established market spaces (red oceans) are shrinking steadily. • Technological advances have substantially improved industrial productivity, permitting suppliers to produce an unprecedented array of products and services. • And as trade barriers between nations and regions fall and information on products and prices becomes instantly and globally available, niche markets and monopoly havens are continuing to disappear. • At the same time, there is little evidence of any increase in demand, at least in the developed markets, where recent United Nations statistics even point to declining populations… 4
  • 5. Emerging economies have developed the They have access business to virtually limitless development resources… capabilities of OECD economies… An endless stream A bottomless pool of hungry, of cheap labour… motivated and skilled workers Thanks to Low Cost Differentiation! 5
  • 6. idea creation & management, product innovation & development, business process improvements Value-Creation random arrays of internal business opportunities Barometer driven by project / business requirements No training and leadership to formulate and 6 implement blue ocean strategy…
  • 7. “Systematic value capture, Value-Creation evaluation and development” Barometer Internally managed and developed product development process Connections enable continuous innovation Some training and leadership to formulate and 7 implement blue ocean strategy…
  • 8. “Leadership-driven Value Creation” Value-Creation Internally and externally managed and developed Barometer product innovation and development process These people drive the creation of new ventures and spin-outs, JVs etc. (True entrepreneurs) Cluster activities are driven by strong leadership Significant training and leadership to formulate 8 and implement blue ocean strategy…
  • 9. BUSINESS ASSET-CREATING NETWORKS “Systematic Value Capture-Creation for New Ventures” Value-Creation Internally and externally adaptable and evolving value Barometer capture-creation: new ventures initiated anywhere at anytime New Asset Cluster New Venture Blue Ocean Creation Strategy Network-venturing Formulation & brokers are the key Implementation to creating endless is the Norm possibilities in an innovative climate! Network-venturing among business asset 9 clusters to create new kinds of assets, faster
  • 10. Design for Innovation Technology Innovation Typology of Technological Innovations at the Enterprise Level High Strategic Systemic Innovation Continuous Degree Incremental of Innovation Management Radical Innovation Unplanned Improvements Low Degree of Leadership and Low High Contribution to Competitiveness AGILE INNOVATION FOR SUSTAINABLE COMPETITIVE ADVANTAGE 10
  • 11. Moving With Speed: Agility Opportunity-driven Business Development Fast Fast Fast Sustaining thinking decision- to speed making market  Forecasting &  Setting rules  Launching a  Simplicity road-mapping crusade  Getting rid of  Boundarylessness  Anticipating bureaucracy  Owning competitive  Self-confidence &  Spotting trends  Shuffling advantage growth attitude portfolios  Brainstorming  Getting suppliers  Financial flexibility  Unpacking move fast  Putting every proposals  Business Process idea through the  Staying beneath Mgmt System “grinder”  Constantly the radar reassessing  Managing creativity  Letting the best  Institutionalizing idea win innovation  Staying close to the Adapted from customer 11 “It’s not be big that eat the small…It’s the fast that eats the slow”, J.Jennings & L.Haughton
  • 12. Survival vs. Market Leadership Strategies Design for Innovation Entry ticket to the SURVIVAL STRATEGY LEADERSHIP STRATEGY competition game Staying alive Targeting market leadership Winning and Retaining Customers Creating higher customer Customer Value Low cost/benefit ratio value Differentiation and Marketing Strategy Mass marketing positioning Customer Satisfaction Customer service Customer intimacy New attributes & Line New product categories & Product Innovation extensions New brands Building Your Competitive Advantage Building distinctive Strategic Growth Focus Building resources capabilities D4I Innovation Linear Systemic Technology Innovation Incremental Radical FOCUS Process Innovation Functional improvements Enterprise-wide BPM Perfecting traditional Creating new adaptable Business Innovation 12 business model business models
  • 13. Design Domains for Business Activities Vision Design Mission Design Implementation Phase Phase Design Phase WHAT? HOW? WHAT? HOW? WHAT? HOW? Customer Goals Strategies Activities Needs (Gs) (STs) (CNs) (ATs) Customer Functional Physical Process Domain Domain Domain Domain Strategy Formulation & Implementation 13
  • 14. Design Domains for Business Activities Vision Design Mission Design Implementation Phase Phase Design Phase WHAT? HOW? WHAT? HOW? WHAT? HOW? Customer Goals Strategies Activities Needs (Gs) (STs) (CNs) (ATs) Customer Functional Physical Process Domain Domain Domain Domain Strategy Formulation & Implementation 14
  • 15. Design Domains for Business Activities Vision Design Mission Design Implementation Phase Phase Design Phase WHAT? HOW? WHAT? HOW? WHAT? HOW? Customer Goals Strategies Activities Needs (Gs) (STs) (CNs) (ATs) Customer Functional Physical Process Domain Domain Domain Domain Strategy Formulation & Implementation 15
  • 16. Design Domains for Business Activities Vision Design Mission Design Implementation Phase Phase Design Phase WHAT? HOW? WHAT? HOW? WHAT? HOW? Customer Goals Strategies Activities Needs (Gs) (STs) (CNs) (ATs) Customer Functional Physical Process Domain Domain Domain Domain Strategy Formulation & Implementation 16
  • 17. Strategic Alignment of Business Priorities with Opportunities 2. What can we use? (Relevant Context: Customer Needs) 1. Where are we going? (External Perspective: Market Scenarios) 3. How do we use it? (Formulate Strategy: Identify & Evaluate Opportunities) 17
  • 18. Design for Innovation 5 Phase-Gates to Manage: 1. Where are we Going? 2. What can we Use Now? 3. Create New Possibilities. 4. Select Best Possibilities. 5. Take Appropriate Action. 18
  • 19. Design for Innovation 1. Where are we Going? Gate-Check Focus: Benefits Identification 19
  • 20. How do we compete more effectively? Existing Value New Value New Expand into Diversify and Context new markets expand into or applications new markets Existing Maintain Diversify and Context current deepen existing strategy relationships What is our key value proposition? 20
  • 21. Product-Market Matrix: Current Market New Market New Product Product Diversification Development Current Market Market Product Penetration Development 21
  • 22. Product-Market Matrix: Current Market New Market Make new product This strategy chosen in offers more effectively conjunction with one or and inexpensively to more of the others or existing customers when a crisis has been rather than to new recognized ones New Product Product Diversification Development Current Market Market Product Penetration Development Well-developed products introduced De facto strategy: into new markets to change nothing and sell extend value: ideal more of the same to when little existing customers and modification required & extend customer base room for growth in original market is22 restricted
  • 23. Green Mountain Coffee Roasters Strategy Current Market New Market Phase 3: New Sell Product Complimentary Products Phase 2: Current Phase 1: Expand Base via Product Sell to Catalogue, Viral Core Market Marketing 23
  • 24. Product-Customer Matrix: Old Customers New Customers New Define new Approach with Product components and caution solution needs Increase Market and reach Old marketing new customers, Product intensity and improve awareness scalability 24
  • 25. Product-Customer Matrix: Old Customers New Customers New Define new Approach with Product components and caution solution needs Move transaction services horizontally Increase Market and reach Old marketing new customers, Product intensity and improve awareness scalability Develop new emerging “retail” customers 25
  • 26. Product-Customer Matrix: Old Customers New Customers Better solution architectures, New devices, broader control partnered products of customer network New Define new Approach with Product components and caution solution needs Move transaction services horizontally Increase Market and reach Old marketing new customers, Product intensity and improve awareness scalability Develop new emerging “retail” customers 26
  • 27. Charting the Future • FUTURE SCENARIOS – What will the ECONOMIC ENVIRONMENT look like in X years? – What will the POLITICAL ENVIRONMENT look like in X years? – What will the REGULATORY & LEGISLATIVE ENVIRONMENT look like in X years? – What will the DEMOGRAPHIC & SOCIAL ENVIRONMENT look like in X years? – What will the MARKETS look like in X years? – What will CUSTOMER / USER PROFILES & HABITS look like in X years? – What will the COMPETITIVE ENVIRONMENT look like in X years? – What will the next two to three GENERATIONS OF TECHNOLOGY look like in X years? – What FEATURES & CONTENT will PRODUCTS have in the next X years? – What will MANUFACTURING PROCESSES & CAPABILITIES look like in X years? – What will SALES / MARKETING METHODS look like in X years? – What will DELIVERY / DISTRIBUTION METHODS & SYSTEMS look like in X years? – What will HUMAN, FINANCIAL, & NATURAL RESOURCES look like in X years? 27
  • 28. PULL or PUSH Economy? • PULL ECONOMY • PUSH ECONOMY – SUPPLY VS. DEMAND – DEMAND VS. SUPPLY – CUSTOMER-DRIVEN – PRODUCER-DRIVEN – MARKET FRAGMENTATION – MARKET SEGMENTATION – SMALLER NUMBERS OF CUSTOMERS, DISSIMILAR – LARGE NUMBERS OF NEEDS CUSTOMERS, SIMILAR – TAILORED PRODUCTS NEEDS – PREMIUM PRICES – GENERIC PRODUCT – SHORTER PRODUCTION – COMMODITY PRICES RUNS – LONG PRODUCTION RUNS – FLEXIBLE, EFFECTIVE – EFFICIENT MANUFACTURING MANUFACTURING – SHORTER PRODUCT CYCLES – LONG PRODUCT CYCLES – LITTLE BRAND LOYALTY – STRONG BRAND LOYALTY – PROCESS INNOVATION – PRODUCT INNOVATION – CHANGING RULES – FAST & NIMBLE – FIXED RULES – STURDY & STABLE 28
  • 29. Quantify Opportunities: Served Customers Unserved Customers Unarticulated Unexploited Unexploited Needs Opportunities Opportunities Articulated Exploited Unexploited Needs Opportunities Opportunities 29
  • 30. Quantify Opportunities: Served Customers Unserved Customers Unarticulated-Served Unarticulated- Customers: potential Unserved Customers: for satisfied customers proactive and visionary to become frustrated companies like Honda or uninterested if seek to get inside he unexpressed but felt heads & experiences of needs not addressed unaddressed customers Unarticulated Unexploited Unexploited Needs Opportunities Opportunities Articulated Exploited Unexploited Needs Opportunities Opportunities Articulated-Unserved Customers: offerings Articulated-Served developed & perfected Customers: known for existing customers world of customer extended to new needs customers in different markets 30
  • 31. Design for Innovation Blue Ocean Strategy in Action • To reconstruct buyer value elements in crafting a new value curve, a Four Actions Framework is used. • To break the trade-off between product / service differentiation and low cost, and to create a new value curve, four key questions are used to challenge an industry's strategic logic and business model: 31
  • 32. Design for Innovation Four Key Questions to Challenge Strategic Logic and Business Model: • Which of the factors that the industry takes for granted should be eliminated ? • Which factors should be reduced well below the industry's standard? • Which factors should be raised well above the industry's standard? • Which factors should be created that the industry has never offered? 32
  • 33. Where are we going? Existing Industrial Changing Industrial Standards Standards Reduce / Over-shot Change Eliminate Customers Consumers Factors Raise / Under-shot Create Nonconsumers Customers Factors 33
  • 34. Where are we going? Existing Industrial Changing Industrial Standards Standards Which factors Which factors that should be reduced the industry takes well below the for granted should industry’s be eliminated? standard? Reduce / Over-shot Change Eliminate Customers Consumers Factors Raise / Under-shot Create Nonconsumers Customers Factors Which factors Which factors should be raised should be created well above the that the industry industry’s has never offered? standard? 34
  • 35. Wine Example Existing Industrial Changing Industrial Standards Standards Reduce: Eliminate: Reduce / -Oenological terminology -Wine complexity Eliminate -Wine range & distinctions Factors -Aging qualities -Vineyard prestige -Above-the-line marketing Raise / Raise: Create: -Easy drinking Create -Price vs. budget wines -Ease of selection Factors -Retail store involvement -Fun & adventure 35
  • 36. Cirque du Soleil Example Existing Industrial Changing Industrial Standards Standards Eliminate: Reduce / Reduce: -Star performers Eliminate -Fun & humour -Animal shows Factors -Thrill & danger -Aisle concession sales -Multiple show arenas Raise / Create: -Theme Create Raise: -Refined environment -Unique venue Factors -Multiple productions -Artistic music & dance 36
  • 37. Market Entry / Growth Scenarios SCENARIO 1 SCENARIO 2 SCENARIO 3 Non-consumers converted via cost, Non-market legal barriers or Business models exploit non-market access or education distortions overcome or bypassed regulatory barriers without addressing economic constraints Example: telephone replacing Example: Wireless bypasses telecom telegraph, wireless replacing cable monopoly access to customers Example: Revolving loans for bundled Renewable Energy options address reliability requirements but not economies of scale constraints SCENARIO 4 SCENARIO 5 SCENARIO 6 Non-market forces will not remove Non-market forces will not overcome New business models emerge to technological interdependence lack of industrial motivation or serve least demanding overshot ability customers Example: Broadband ISPs dependent on telecom landline access Example: Artificial price-fixing at Example: Advertising revenue model petrol pump for free Google software SCENARIO 7 SCENARIO 8 SCENARIO 9 Specialists entering and displacing Standards or rules allow different Sustaining new, and/or improved integrated players for overshot providers to meet min. requirements products and services for undershot customers of overshot customer segments customers: integrators thrive, specialists struggle Example: DataCol meter reading Example: Parallel imports of solar services for electric utilities hot water systems, synthetic Example: Windows operating system substitutes and other appliances 37
  • 38. Signals of Change 1. What jobs are customers in the industry trying to get done? Are customers not served, undershot, or overshot by current offerings? Along which dimensions do firms compete for customers? 2. What improvements garnered premium prices in the past? 3. Do integrated or specialized business models currently prevail? Are interfaces specifiable, verifiable, and predictable? If so, where is modularity occurring? 4. Where are new business models emerging? Is there growth in fringe markets? 5. What role does the government or its regulatory bodies play in enhancing or inhibiting innovation?38
  • 39. Competitive Battles 1. What are industry players’ business models? What are their motivations? What are their skills? 2. How do industry players compare to one another? How do they compare to the needs of the market? Where are there symmetries? Where are there asymmetries? 3. Do the asymmetries tilt in favour of the attacker or the incumbent? 4. Does the innovation naturally fit its target market? Is there evidence of cramming (forced fit)? 5. Are there signs that a company is ceding a low-end market and trying to move up? Is there an “up” to move to? For how long? 39
  • 40. Strategic Choices 1. Is a company in a situation in which the right strategy needs to emerge? Is the firm giving itself the freedom to encourage emergent forces? Have managers wrestled with problems they are likely to face again? Have they shown the capacity to learn? 2. Are investor values aligned with company needs? If the investor is a corporation, has growth stalled? 3. Do value networks overlap? If they do, what are the degrees of overlap? Do they make it impossible to create a business model that has asymmetries? 4. Is this an appropriate situation for a spinout? Is the company giving the spinout the freedom to do what is necessary? 40
  • 41. Design for Innovation Creating the Future • “The best way to manage the future? Create it!” – The best competitive position to be in is to have no competition • This position can only be achieved by NOT playing the way your competition plays the game but rather by controlling the game, by creating products and services that change the rules in your favour. 41
  • 42. Design for Innovation How to Create the Future  Use a framework that classifies best-practice business processes for identifying, developing and retaining customers  The first-level processes in this framework for identifying best- practice business opportunities, define a company‟s basic operations, such as: 1. Understand markets and customers 2. Involve customers in the design of products and services 3. Market and sell products and services 4. Involve customers in the delivery of products and services. 5. Provide customer service 6. Manage customer information  Supporting these basic operations, management and support processes maximize the value and use of human resources, information and technology, and financial and physical resources, to name a few 42
  • 43. Design for Innovation Set Strategic Direction • Which way is the business heading? 1. What (if anything) gives this business distinctiveness? 2. What skills does this business currently have that are better than those of the competition? Can this advantage be sustained for a period of more than a few years? 3. How is this organization generally regarded in the industry or by outside experts? How do outsiders see the business's strategy? What do they think about it? 4. What are this organization's strengths in creating a high performing business? 5. What are the biggest roadblocks to this business becoming a high performing business? 6. What does the business do? Why? 7. What does it not do? Why not? 8. Who are its customers / Who are not its customers? 9. What are its products / What are not its products? 10. What are its markets / What are not its markets? 11. Why is the business in this business & not another? 12. Why is the business focusing on these customers & not others? Why is it providing these services (or making these products) & not others? 13. Does this business have more than one strategy? 43
  • 44. Design for Innovation Set Strategic Direction • BUSINESS STRATEGY ISSUES 1. VISION, VALUES, PURPOSE 2. OVERALL DIRECTION 3. DESIRED OUTCOMES 4. LONG TERM OBJECTIVES 5. STRATEGY TO ACHIEVE OBJECTIVES • IDENTIFYING BUSINESS STRATEGY ISSUES – Identify 7 business strategy issues that need to be addressed in your business plan, examining: A. Strategic Issue B. Impact C. Action Required 44
  • 45. 45
  • 46. Design for Innovation Establish Clear Objectives • What is the business trying to achieve in the near future? – STRATEGIC 1. Has the business developed clear & formal objectives for the long-term as well as the immediate future? 2. Are those objectives quantified in terms of rate & return, growth, market share, product or service development? 3. Does the business know at what stage in their life cycles its products currently are? 4. Does the business consider the following in its development of strategic objectives:  Economic conditions, including the effects of inflation?  Political conditions?  Labour requirements?  Capital requirements?  Tax implications?  Production capacity? 5. Have the strategic objectives been embodied in a formalized financial plan looking a number of years ahead? 6. Are the objectives & plans reviewed regularly & is the actual performance monitored against the plan? 46
  • 47. Design for Innovation Establish Clear Objectives • What is the business trying to achieve in the near future? – OPERATIONAL 7. Is the role to be played by each individual Advisor in achieving the plan clearly identified? 8. Have the Advisors developed their own business plans? 9. Is the business planning to expand in the coming year into a new:  MARKET?  SERVICE?  CUSTOMER BASE? 47
  • 48. Design for Innovation Establish Clear Objectives • DEVELOP CLEAR OBJECTIVES & PLANS – S: SPECIFIC – M: MEASURABLE – A: ATTAINABLE – R: REASONABLE & RESOURCED – T: TIME BOUND • KEY STRATEGIC OBJECTIVES – Identify 7 key strategic objectives for your business, the desired outcome, & how it can be measured, examining: • STRATEGIC OBJECTIVE • OUTCOME • HOW MEASURED 48
  • 49. 49
  • 50. Design for Innovation Develop Marketing Strategy • What market is the business in, & who are its customers? 1. Does our current marketing strategy give us the share of the local market we might expect? 2. What kind of demand is there for our products & services? 3. Will our strategy provide us with a sustainable competitive advantage? 4. Will this marketing strategy help us accomplish our business objectives? 5. What kind of future opportunity is there if the business objectives are achieved? 6. What are the vulnerabilities of this strategy? 7. Is this strategy consistent with the environment & changing 8. How does this strategy fare in future mapping or scenario analysis? 50
  • 51. Design for Innovation Develop Marketing Strategy • DEVELOP MARKETING STRATEGY 1. DEFINING YOUR MARKET 2. IDENTIFYING TYPES OF CUSTOMERS 3. COMPETITORS 4. MARKETING STRATEGY 5. PRODUCTS & SERVICES 6. CUSTOMER SERVICE • MARKET SEGMENTATION – Identify the 7 key market segments for your business, identify their future potential & what action is required: A. SEGMENT B. NUMBER OF CUSTOMERS PER MONTH C. AVERAGE SPEND D. ON WHAT? E. POTENTIAL FOR DEVELOPMENT (HIGH, MEDIUM, LOW) F. HOW TO DEVELOP 51
  • 52. Design for Innovation 2. What can we Use Now? Gate-Check Focus: Benefits Qualification 52
  • 53. Customer Value Map Matrix: Low Customer- High Customer- perceived perceived quality quality High Customer- Worse Customer perceived price Unique Value Value Low Customer- Better Customer perceived price Commodity Value Value 53
  • 54. Customer Value Map Matrix: Low Customer- High Customer- Upscale goods and Customer preferences perceived perceived services that offer shift in economic quality quality unique value. Examples downturns, higher- include: high-margin priced products often products such as find themselves in this custom jewelry for position which close substitutes not available High Customer- Worse Customer perceived price Unique Value Value Low Customer- Better Customer perceived price Commodity Value Value Products perceived as Goods are commodities value leaders; costs are with little competitive, and the differentiation between products possess the vendors, resulting in quality attributes that products selling on customers value most price highly 54
  • 55. Levi Jeans Example Low Customer- High Customer- perceived perceived quality quality High Customer- Worse Customer Normal Customer perceived price Value Value Low Customer- Normal Customer Better Customer perceived price Value Value 55
  • 56. Levi Jeans Example Low Customer- High Customer- perceived perceived quality quality Competitor 1 High Customer- Worse Customer perceived price Value Levi’s Competitor 2 Low Customer- Better Customer perceived price Value Competitor 3 56
  • 57. Design for Innovation How to Create the Future  Use a framework that classifies best-practice business processes for identifying, developing and retaining customers  The first-level processes in this framework for identifying best- practice business opportunities, define a company‟s basic operations, such as: 1. Understand markets and customers 2. Involve customers in the design of products and services 3. Market and sell products and services 4. Involve customers in the delivery of products and services. 5. Provide customer service 6. Manage customer information  Supporting these basic operations, management and support processes maximize the value and use of human resources, information and technology, and financial and physical resources, to name a few 57
  • 58. SWOT Matrix: Internal Internal Environment Environment Strengths Weaknesses External Environment Confront Avoid or Prepare Threats External Environment Exploit Search Opportunities 58
  • 59. SWOT Matrix: Internal Internal Threat matched with Environment Environment weakness. Some threats Threat is matched with Strengths Weaknesses avoidable, and others are organizational strength – not. Confronting mobilize to limit and competitive threats with control the looming weakness is not only danger dangerous but drains resources External Environment Confront Avoid or Prepare Threats External Environment Exploit Search Opportunities Opportunity is matched Opportunity is matched with weakness. with strength. Business’s Opportunities exist that growing edge – where it the organization can can capitalize on areas of recognize but is not strategic advantage equipped to tackle 59
  • 60. Generic Strategy Matrix: Lower Cost for Differentiate for Competitive Competitive Advantage Advantage Broad Target for Competitive Cost Leadership Differentiation Scope Narrow Target Differentiation for Competitive Cost Focus Focus Scope 60
  • 61. Generic Strategy Matrix: Lower Cost for Differentiate for Deliver some unique Competitive Competitive form of value that Achieving the lowest Advantage Advantage customers recognize costs in an industry and appreciate, while maintaining an developing or acceptable level of exploiting talents and quality resources that set the company’s offer apart Broad Target for Competitive Cost Leadership Differentiation Scope Narrow Target Differentiation for Competitive Cost Focus Focus Scope Take advantage of the unique needs of a Added value within a segment of an industry small segment of a that is difficult or market rather than uneconomical for the across the entire broad cost supplier to market service adequately 61
  • 62. Means and Ends Matrix: Incompatible Compatible Ends Ends Compatible Means Coalition Cooperation Incompatible Means Conflict Competition 62
  • 63. Means and Ends Matrix: Incompatible Compatible Deliver some unique Ends Ends form of value that Formed by competitors customers recognize to address common, and appreciate, usually short-term developing or problems or exploiting talents and adversaries resources that set the company’s offer apart Compatible Means Coalition Cooperation Incompatible Means Conflict Competition Companies within an industry compete Situations become against each other for increasingly polarized, customers yet share resulting in zero-sum, the need to educate the win-lose outcomes public about their collective value 63 proposition
  • 64. Design for Innovation How to Create the Future  The sub-processes (second-level processes) supporting the first-level processes are as follows: 1. Understand markets and customers: i. Understand the market environment ii. Understand customers‟ wants and needs iii. Segment customers 2. Involve customers in the design of products and services: i. Develop new concepts and plans for products and services ii. Design, build, and evaluate prototypes iii. Refine and customize products or services, then test their effectiveness 3. Market and sell products and services: i. Secure channels of distribution ii. Establish pricing iii. Develop advertising and promotion strategies iv. Develop and deploy a sales force v. Process orders vi. Develop customers 64
  • 65. Design for Innovation How to Create the Future  The sub-processes (second-level processes) supporting the first-level processes are as follows (continued): 4. Involve customers in the delivery of products and services: i. Offer broad delivery options to become the „supplier of choice‟ ii. Use delivery customization to attract and retain core customers iii. Identify customers‟ delivery needs iv. Develop distribution capability 5. Provide customer service: i. Establish „points-of-contact‟ excellence ii. Build cross-functional „points-of-contact‟ cooperation iii. Train employees to improve customers‟ expectations for products and services 6. Manage customer information: i. Build customer profiles ii. Establish service information iii. Measure customer performance and satisfaction 65
  • 66. Design for Innovation How to Create the Future customers: 1. Best-practice agenda for understanding markets and  Understand that the market is more than just the customer. In its broadest sense, the market environment includes the company‟s supply chain and merchant partners as well as intermediary customers and end users. A company‟s understanding of government regulations, trends in consumer purchasing, and unpredictable events can dramatically affect its production and relationship with customers  Systematically create an image of the company‟s value chain, from suppliers to end users. Prominently displayed, this diagram serves to inform all employees how they fit into the market environment as well as how other stakeholders with whom they deal (customers, suppliers, and so forth) also fit into the market environment  Survey your customers frequently, systematically, directly, and personally. Review the surveys and then share them with the people in our organization who need to know what those customers have to say. Responding personally to every survey, for example, should provide the norm for executive behavior. If you don‟t have time to respond personally, make sure someone in your company does  Revise your products or services as customers request or tell them why they can‟t have it their way. Promote the new version and resurvey customers to assess their satisfaction. Survey every customer, for example, and require every employee linked to that customer to read and respond to those comments. Requests for new products and services can lead to expanded offerings and even new companies being launched  Segment customers so that you can meet demands more directly and profitably. Establish the criteria by which customers should be grouped (by age, income, credit history, purchases, demographic factors, and so forth), then offer products and services tailored to those segments. When appropriate, partner with merchants and suppliers to create greater value for customers 66
  • 67. Design for Innovation How to Create the Future 1. Top ten best-practice diagnostic questions for understanding markets and customers: 1. Can you describe in detail all the major suppliers in your company‟s value chain and list substitute suppliers who could provide raw materials and component parts in an emergency? Do you need a week‟s review to do so? (You won‟t have a week if a fire destroys a supplier‟s production plant.) 2. How often do you survey your customers? Once a month? Once a year? Once a millennium? 3. Which customers do you choose to survey? Only those who call you first? 4. How good is your process for responding to customer concerns expressed in surveys? 5. What quick, tangible rewards do you offer customers who take the time to complete one of your surveys or requests for information? 6. What external sources other than surveys do you typically use to gather information about your customers? About competitors? About suppliers? About trends in the marketplace? 7. What other internal sources do you use to collect this information? 8. List five (or more) segmentations that your company currently uses. Can you explain succinctly the benefits it realizes from grouping customers as it does? 9. Name a product or service your company provides that has come about as a result of a customer request or survey and has since improved your overall profitability. 10. Does your company have a process for customers to evaluate your employees and departments? Is it similar to the Net Satisfaction Index that Dickens Data Systems has developed? Do you support cross-functional teams to analyze customer needs and fulfill them? 67
  • 68. Design for Innovation How to Create the Future 2. Best-practice agenda for involving customers in the design of products and services:  Survey customers for their opinions, ideas, feelings, likes, and dislikes about products or services. Whenever possible, meet them face-to-face to discuss their views. Most important, listen closely to what they have to say  From these surveys and other customer interactions, collect, categorize, and deliver information about product use to the people in our organization who need it  Describe to your customers how they can help you understand their needs, then create products and services that meet those demands. Define the values that this step of the process has for them: more precisely customized products and services, speedier development, increased opportunities to participate in the design stages, and greater savings in production and use  Make refinements in existing products and services, partnering with your customers either on their premises or yours when possible. Share information both at home and at the customer‟s site  Test the refinement in a controlled environment with targeted segments of customers  Market the successfully refined product, but keep the doors open to further improvements as you receive suggestions from your customers and as their needs change 68
  • 69. Design for Innovation How to Create the Future 2. Top ten best-practice diagnostic questions for involving customers in the design of products and services: 1. How do you gather customer input about product design and use? Telephone or mail surveys? Internet bulletin boards? Focus groups? Feasibility studies? 2. Do you have a team comprising representatives from various groups – manufacturing, engineering, marketing, sales, and so forth – that goes out to meet with customers? 3. Have you ever allowed your customers to decide whether or not you should implement a change, as Disney did in creating Mickey‟s Starland and character breakfasts? 4. To what extent do you involve customers in the design of prototypes? What about their customers? 5. Do you look for customer insights before making refinements or customization changes to existing products, as Black & Decker did in creating its VersaPak line? 6. Do you get wisdom and insights from customers at each step of development? Do you have a customer advisory board? 7. Do you partner with customers so that they allow your employees to visit their sites? If so, how many of these relationships do you have? 8. Do you have space reserved in your plant for your best clients (or suppliers) to collaborate with you in design, production, and other areas? (A mailbox slot or coffee mug doesn‟t count.) 9. How much do you share information with clients? Do you give them the right to attend design and engineering meetings? Get input on upcoming advertising and sales campaigns? 10. How easy is it for clients to reach someone at your company with a proposed change or refinement? How long does it take your company to respond? How many people get to see and discuss the proposal? 69
  • 70. Design for Innovation How to Create the Future 3. Best-practice agenda for marketing and selling products and services:  Make sure you know all links in your value chain – all suppliers, distributors, advertisers, marketers, salespeople, and customers. By its thorough understanding of its value chain, Lexus was able to overcome potential distribution problems  Establish a competitive pricing strategy, as Southwest Airlines has done by looking outside its industry (namely, to automobile rentals and other modes of transportation) to determine pricing policies  Develop strong advertising strategies, seeking input from all levels of your company to develop an appropriate image that can distinguish your company from others in the industry. As Nike has proven, developing a good product is only half the battle. You also have to get the message to your customers  Train your employees, especially those who will sell your products and services, to know everything they need to know about the market, the item they are selling, and the customers to whom they are selling. As Cutler-Hammer illustrates with its team-selling approach, this melding of individuals with different talents and degrees of expertise makes good business sense  Develop an integrated system for processing orders tailored to customers‟ needs. Through its ValueLink program, Allegiance Healthcare serves over 150 acute-care hospitals in the United States with 98 percent fill-rate accuracy  Do business with the customers you choose and in the ways you choose – by surveys, interviews, point-of-sale contacts, repair calls, and the like. As Peapod, Inc., and American Airlines have demonstrated, it is possible to partner with customers, establishing key drivers of greater value and lower prices 70
  • 71. Design for Innovation How to Create the Future 3. Top ten best-practice diagnostic questions for marketing and selling products and services: 1. The foundation of a successful sales effort is knowledge of customer needs and an ability to communicate how your products and services best fit those needs. What training systems does your company use to educate your salespeople and service technicians on: (i) identifying customers‟ key needs; and, (ii) differentiating your products and services from those of the competition? 2. How often do you retrain your employees in these and other areas? What tests do you give them? 3. When was the last time you critically evaluated your channels of distribution? Have you considered emerging channels such as the Internet? 4. Do you monitor your price performance and that of your competitors? How do you determine what customers are willing to pay? 5. Does your advertising strategy address current and developing trends in your market? 6. Have you studied non-customers and your lost customers to identify their needs? Have you responded to them appropriately? 7. How do you go about building a positive image for your company and its products? How do you help potential customers understand that they need your products and services 8. What degree of integration (such as EDI) do you have in place for processing orders? 9. What special offers or incentives do you offer selected segments of your customers? 10. Do you know what differentiates your products and services from your competitors‟ products and services? How do you communicate those differences? 71
  • 72. Design for Innovation How to Create the Future 4. Best-practice agenda for involving customers in the delivery of products and services:  Become the „supplier of choice‟ by using out-of-box thinking to generate customer delivery solutions not bound by conventional wisdom, as New Pig Corporation, Norrell Corporation, and Holy Cross Hospital have done  Customize delivery systems to fit the needs of core customers, in particular by creating channels of communication and service offerings to meet their demands. Establish a program similar to the CERRFS initiative undertaken by SARCOM  Identify customer delivery requirements through a complete understanding of the impact that distribution has on a customer‟s business. As Granite Rock and Cemex show, often a best-practice company builds extensive lines of communication within its own system before streamlining its delivery services to customers  Develop distribution capability as exemplified by Campbell‟s, paying close attention to small details – such as pallet size – that combine to solidify the customer-supplier relationship 72
  • 73. Design for Innovation How to Create the Future customers in the 4. Top ten best-practice diagnostic questions for involving delivery of products and services: 1. How do you respond to customer delivery needs in emergency situations? 2. How do you identify the delivery service needs of individual customers? Do you use these needs as a method of customer segmentation? 3. Do you have just-in-time supply and continuous replenishment services? 4. What steps have you taken to ensure reliability in your delivery process? How do you communicate this process to your customers? 5. Do you have in-plant reps at customer sites? If so, what do you consider the biggest advantages of these relationships? 6. What is your delivery channel strategy? Do you align your delivery strategies to service specific customer needs? 7. Can you continuously track products from the production line to the customer‟s door? 8. Do you offer special delivery deals for large-scale purchases such as same-day shipping? Twenty- four-hour delivery? Any other customization features in packaging and delivery? 9. How do you differentiate your delivery strategy from competitors‟ trying to become the supplier of choice? 10. What methods of feedback (other than a payment) do you get from customers regarding delivery and repair information? How do you elicit this input – via phone surveys, the Internet, or other means? 73
  • 74. Design for Innovation How to Create the Future 5. Best-practice agenda for providing customer service:  Establish primary „points of contact‟ between your employees and customers, instilling in customers the feeling that their needs are being met personally and promptly. At the same time, information can be used to alter company-wide business processes  Build cross-functional cooperation by training employees to understand and enhance the entire customer experience, then holding them responsible for customer satisfaction. This training could come via improving lines of communication between management and frontline employees – much as Coldwell Banker Relocation Services does – or by instructing employees how to treat customers from the first point of contact, such as Hyatt and Disney  Create a database to identify customer service failures and embrace their identification, recalling the principle that drives customer satisfaction at IBM and FedEx: Your customers know best what they don‟t like and what they can‟t understand  Raise customer expectations for products and services by giving them high-quality treatment each step of the way. Whether it is greeting guests at the front door, as the Red jackets do at East Jefferson General Hospital, or helping guests locate keys to their locked cars, as Disney World attendants do, the best-practice company personalizes its customer service at every point of contact  Make sure each employee has at hand all information needed to process a customer‟s request promptly and efficiently. Providing this information may require sophisticated databases such as those used by Hyatt Hotels to identify specific guests‟ needs and FedEx has in place to help customers track shipments. Or the organization may assemble data from customer surveys and distribute it as needed to appropriate personnel, much as East Jefferson General Hospital has done by collecting information from groups such as senior citizens to better prepare employees associated with its Elder Advantage program 74
  • 75. Design for Innovation How to Create the Future 5. Top ten best-practice diagnostic questions for providing customer service: 1. What is your customer retention rate? Does it indicate any trends you can act upon? 2. What is the level of cross-functional communication between your company and its customers? 3. Do you train employees throughout the organization in various tasks so that any of them can handle any problem that arises during the customer cycle? 4. What financial empowerment do you provide to your frontline employees to solve customer problems? Do you give them additional authority to make decisions on the spot? 5. Do those frontline employees have access to executive groups such as IBM‟s customer action councils where they can receive additional assistance and powers of authority? 6. Do you have in place a cross-functional database to track and analyze customer service highlights and lowlights? 7. How do you explicitly gauge your customers‟ satisfaction? Do focus groups play a role? 8. Is any portion of your company‟s merit system based on customer service? 9. Do you have a client advisory board? How often does it meet? What does it accomplish? 10. Do you surprise your customers with great customer service as East Jefferson general Hospital does with its red-jacketed representatives who accompany visitors to their destinations? 75
  • 76. Design for Innovation How to Create the Future 6. Best-practice agenda for managing customer information:  Design and build profiles using a common database to track customer information. As American Express demonstrates, a complete and flexible database allows a company to capture significant information about customers and merchants, thereby controlling this three-way relationship by virtue of its involvement in each transaction  Collect observations about customer preferences from point-of-contact employees who serve as „listening posts‟, as the Ritz-Carlton does  Communicate customer satisfaction throughout the company. By using the chain‟s extensive database, each Ritz-Carlton hotel can combine its own employees‟ observations with those from employees who encountered the same guests on visits to other Ritz-Carlton hotels. This process helps the company prepare for guests‟ visits and secure long-term relationships  Establish service information by studying how customers use (or misuse) products and services. Black & Decker discovered that it could actually instruct customers how best to use its VersaPak product, thereby altering customers‟ perceptions and ensuring sales. Peapod, Inc., on the other hand, finds that by understanding customers‟ buying patterns and preferences, it can capture present and future sales  Gauge customer performance and satisfaction through both internal measures such as sales growth and revenues, and external ones such as industry analyses and customer surveys. As the Orange County Teachers FCU shows, it is possible to preserve customers‟ privacy while simultaneously establishing acceptable levels of risk and tracking how the company ranks against its competitors in terms of customer satisfaction 76
  • 77. Design for Innovation How to Create the Future 6. Top ten best-practice diagnostic questions for managing customer information: 1. Do you know your customers‟ purchasing patterns s o well that you can pinpoint when they will likely make their next purchase of one of your products? Are you holding your breath, or are you taking a jar of Skippy off the shelf as Peapod is doing? 2. Do you study customer profiles to determine how much individuals are willing or likely to spend for products or services? 3. Where will customers make their next purchase of one of your products? At a discount store, through a catalog, over the Internet? Will you be there to make the sale wherever the order occurs? 4. Can you track customer preferences and how they change over time? If so, what do you do with this information? 5. What means do you have for collecting, organizing, and sharing customer data with people throughout your company? Why do you want to keep your people in the dark? 6. Are you constantly surprising and delighting customers with your products and services? How do you know? 7. How do you build long-tern loyalty? (See „Building Customer Loyalty‟ below) 8. Does our organization have the capability for identifying customers to target with promotions specific to their needs? Can you find fans of a particular merchant or product as adeptly as American Express? 9. Can you deal with „ugly guests‟ as effectively as the Ritz-Carlton does? 10. Does your company try to educate customers in the proper use of products and services as Black & Decker does, or do you pray they‟ll educate themselves? 77
  • 78. Design for Innovation Establish Current Position • What is the current position of the business? 1. What does the business do & why? 2. How long has the business been operating? 3. What stage of growth is the business at? 4. What is the form of the business? (Limited Company etc.) 5. Is the current form of business appropriate for future operations? 6. What makes the business different? 7. What are the major accomplishments of the business? 8. What major setbacks have you met? 9. What are the major challenges facing the business in the future? 10.Who are your business partners or who do you have important relationships with? 11.Are there well-defined business agreements & levels of service drawn up with business partners? 12.Why is the business attractive to you & potential investors? 13.How stable is the business financial performance? 14.Does the business have a good reputation in its industry? 78
  • 79. Design for Innovation Establish Current Position • FIVE STAGES OF GROWTH 1. EXISTENCE 2. SURVIVAL 3. SUCCESS 4. EXPANSION 5. MATURITY 79
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  • 81. Design for Innovation Assess Business Environment • What is happening in the business environment & what are the implications for the business? 1. POLITICAL FACTORS: What is the Government doing? - still the major influence in the economy, consider pending elections, de-regulation, tax policy, & public confidence 2. ECONOMIC FACTORS: What is the economy doing? - Inflation, leading indicators, interest rates, exchange rates, employment levels etc. 3. ENVIRONMENTAL FACTORS: What is happening in the general environment? - Controls on business activity, regulations, availability of resources, climatic events 4. SOCIAL FACTORS: What are the factors affecting society? - Population drift, immigration, wage rises, unemployment, mortgage rates, racial & cultural issues 5. TECHNICAL FACTORS: What is happening in your particular industry or sector? - New products & services, organizational trends, market trends? 81
  • 82. Design for Innovation Assess Business Environment • ENVIRONMENTAL FOCUS – External Focus • Identify the 7 most significant factors in the business environment – A. Impact on Business – B. Action Required – Internal Focus • SWOT Analysis: List as many factors about our organization that you can think of 82
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  • 85. Design for Innovation Identify Critical Success Factors • What does the business need to be good at to succeed? 1. Critical Success Factors (CSFs): List between 5-7 factors that are essential to the future success of the business 2. How often are the CSFs reported on? • Weekly? • Monthly? • Quarterly? • Six Monthly? • Annually? 3. Does the management information system provide the necessary information to monitor CSF performance at the appropriate level of detail? • TYPES OF CRITICAL SUCCESS FACTORS 1. INDUSTRY FACTORS 2. BUSINESS CAPABILITY 3. FUNCTIONAL 4. ENVIRONMENT 85
  • 86. Design for Innovation Identify Critical Success Factors • IDENTIFY CRITICAL SUCCESS FACTORS – Identify 7 Critical Success Factors for your business, how they impact, & how they should be measured, examining: A.Critical Success Factor B.Impact on Business C.How Measured 86
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  • 88. Design for Innovation Outline Business Processes • What activities need to occur to achieve the business objectives? 1. What are our major business processes? How many are there? 2. What are our Units of Competitive Advantage (UCA) - those things that distinguish us from competitors & create an advantage in the market? 3. What is our Value-added Support Work (VA) that facilitates the accomplishment of UCA work? 4. What is our Essential Support Work (ES) that does not directly create an advantage of facilities that work, but which must be done if we are to continue to operate? 5. What is our Non-essential Work (NE) - work that has lost its usefulness but continues to be done because of tradition? 6. Which areas of our work could be regarded as industry best practice? 7. Which areas of our work could benefit from comparison & improvement to meet industry best practice? 8. Is taking risks accepted & used as a learning experience? 9. Is creativity & innovation rewarded? 10.Are all key business processes well under control? 88
  • 89. Design for Innovation Outline Business Processes • OUTLINE BUSINESS PROCESSES 1. INPUTS: Time & resources you require for yourself & others to perform key activities 2. ACTIVITIES / PROCESSES: Tasks you perform to add value to inputs you have received 3. OUTPUTS: Your work product or services that meet your customer's requirements • BUSINESS PROCESS – Select one of your main business processes, then: 1. Start at the first step, & note (for each step) the activity that takes place 2. Work through each step in the process until you reach the end result 3. Categorize each activity I - IV ranging from: (I) UCA - unit of competitive advantage (II)VA - value-added support work (III)ES - essential support work (IV)NE - non-essential support work 4. Identify possible process improvements 89
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  • 91. Design for Innovation 3. Create New Possibilities. Gate-Check Focus: Benefits Quantification 91
  • 92. Portfolio Analysis Matrix: Non-existent Symbiotic Mutual Value Mutual Value Excellent Business Maintain Grow Quality Poor Business Adjust Exit Quality or Limit 92
  • 93. Portfolio Analysis Matrix: Non-existent Symbiotic Mutual Value Mutual Value It is profitable, growing, and Worth doing for the strategically well money but contributes matched, representing little to long-term a virtuous cycle of strategic development learning, growth, and profitability Excellent Business Maintain Grow Quality Poor Business Adjust Exit Quality or Limit This type of client These assignments are relationship is strategically well unsupportable and aligned, but they are should be renegotiated not profitable and may or stopped as soon as not be generating legally and morally additional work possible 93
  • 94. Design for Innovation Identifying Opportunities 1. Unexpected Successes 2. Unexpected Failures 3. Unexpected External Events 4. Process Weaknesses 5. Industry / Market Structure Changes 6. High-Growth Areas 7. Converging Technologies 8. Demographic Changes 9. Perception Changes 10.New Knowledge 94
  • 95. Unexpected Successes 1. What unexpected product success have you had recently? 2. In which geographic areas have you had unexpected success recently? 3. In which market / industry segments have you experienced unexpected success recently? 4. What customer segments have provided unexpected success recently? 5. What unexpected successes have your suppliers had recently? 6. What unexpected successes have your competitors had recently? 7. Which of your technologies has had unexpected success recently? 8. What unexpected customer / user groups have bought from you recently? 9. What unexpected sources have asked to sample, distribute, or represent your product recently? 95
  • 96. Unexpected Failures 1. What unexpected product failures have you had recently? 2. In which geographic areas have you had unexpected failures recently? 3. In which market / industry segments have you experienced unexpected failures recently? 4. What customer segments have provided unexpected failures recently? 5. What unexpected failures have your suppliers had recently? 6. What unexpected failures have your competitors had recently? 7. Which of your technologies has had unexpected failures recently? 8. Which customer / user groups have had unexpected failures recently? 9. Which distributors, dealers, & / or agents have had unexpected failures recently? 96
  • 97. Design for Innovation Unexpected External Events 1. What unexpected external events have occurred recently? 2. What unexpected internal events have occurred recently? 3. Have any expected external & internal events combined in an unexpected way recently? 97
  • 98. Process Weaknesses • Every process or system in existence has one of three things wrong with it: 1.A bottleneck 2.A weak link 3.A missing link • Checklist 1.What self-contained processes exist in the organization? 2.What process weaknesses exist in our customers' organization? 3.What weakness or "missing link" prevents better process performance? 4.Why do some processes perform better at some times than at others? 5.What bottlenecks do each of these processes have? 6.What process weaknesses among our competitors might we be able to improve on? 98
  • 99. Design for Innovation Industry / Market Structure Change 1. What major structural changes are occurring among your customers? 2. What major structural changes are occurring in your geographic markets? 3. What major structural changes are occurring within your market / industry structure or in the conduct of your business? 4. What major structural changes are occurring among your competitors? 5. What major structural changes are happening in your customers' businesses? 6. What major structural changes are occurring within your regulatory environment? 7. What major structural changes are occurring in your supplier relationships? 99
  • 100. Design for Innovation High-Growth Areas 1. What parts of the business are growing faster than economic or population growth? 2. What other businesses are growing faster than economic or population growth? 3. What potentially high-growth businesses related to yours are dominated by only one or two companies? 4. What parts of your competitors' businesses are growing faster than economic or population growth? 5. What parts of your customers' or suppliers' businesses are growing faster than economic or population growth? 100
  • 101. Design for Innovation Converging Technologies 1. What technologies in your business are converging or merging? 2. Which of your technologies is now being joined to outside technologies? 3. Which of your technologies can be more effective if deliberately converged? 4. What would be the ideal convergence of technologies in your business? 101
  • 102. Demographic Changes • 4 categories of demographic changes need to be monitored in a firm's end customers: 1. Income 2. Age 3. Education 4. Mix Checklist 1. How is the age distribution of your customers & users changing? 2. How will the educational level of your customers & users change in the next few years? 3. How will the income distribution of your customers & users change in the next few years? 4. How will the geographic distribution of your customers & users change in the years ahead? 5. How might the buying habits of your customers & users change in the years ahead? 6. What are the customer demographics that might change over the years ahead? 7. How will the mix of your users & customers change in the next few years? 102
  • 103. Perception Changes 1. What changes are occurring in how your products & services are perceived? 2. What changes are occurring in the values of your customers? 3. What changes are occurring in the lifestyle, image, & status of your customers? 4. How will changes in perception affect your customers & suppliers? 5. For what new purposes have customers purchased your products & services recently? 6. What intangible reasons are customers developing to support your products & services? 7. What societal, peer, & normative pressures will affect your products & services in the future? 103
  • 104. Design for Innovation New Knowledge 1. What new knowledge has recently become known about your business? 2. What combinations of knowledge have created new insights into your business? 3. What new sources of information about your business have recently been tapped? 4. What new patents or discoveries have been announced relating to your business? 104
  • 105. Design for Innovation Determine Business Capability • How is the business organized, who are the key people involved, & is it capable of high performance? • A. BUSINESS CAPABILITY 1. What is this business really good at? 2. What skills does this business currently have that are better than those of competitors? 3. What capabilities are needed with this strategy? 4. Where do customers say we need to improve? 5. What is the gap between current capabilities & those capabilities needed to give the company an advantage? 6. How easy is it to acquire or build the needed capabilities? 7. How much time & money will be needed to develop these skills? 8. What clients or contracts have been lost & to whom were they lost? 9. Where & how is the competition beating this company? 10.What programs does the company need or have in place that are designed to improve capabilities? 105
  • 106. Determine Business Capability  How is the business organized, who are the key people involved, & is it capable of high performance?  B. BUSINESS STRUCTURE 1. What parts of the business are well aligned to delivered our business strategy? 2. What current beliefs, policies, procedures, systems, or other elements are not aligned to deliver our business strategy? 3. What business initiatives are going well? 4. What are the things that get in the way of the business achieving its objectives? 5. What are the things in the business that are working well to support the business strategy? 6. What does the business need to do better to execute the business strategy effectively? 7. What gets in the way of people doing their work? Are there areas where effort is wasted? 8. How do people spend their time? 9. Where should efforts be focused to ensure competitive advantage? 10. Where are the opportunity areas for improving efficiency & effectiveness? 106
  • 107. Design for Innovation Determine Business Capability • Determine Business Capability – Governance – Structure – Organization – Management – Capability • Organization Capability – Identify key individuals in our organization and for each specify: 1. Name 2. Area of responsibility 3. Length of service in industry (years) 4. Length of service in this office / area 5. Key strengths 6. Weaknesses 7. Key areas for specialization 8. Development actions required 9. Successor if person left 107
  • 108. Strategic Alignment of Business Priorities with Opportunities 2. What can we use? (Relevant Context: Customer Needs) 1. Where are we going? (External Perspective: Market Scenarios) 3. How do we use it? (Formulate Strategy: Identify & Evaluate Opportunities) 108