Jan 08 2015

Improving Customer Experience in a Connected World

Happy New Year 2015

After a long hiatus from blogging I am back as I see some very interesting developments that have prompted me to blog.

In November 2014 issue of HBR, an article by Michael E Porter and James E Heppelmann on the topic of “How Smart, Connected Products Are Transforming Competition” got me excited. In summary, that article talked about the third wave of IT transformation where IT is becoming part of the product itself through the additions of sensors, processors, software, connectivity and analytics. Companies like Cisco, Bosch and others have talked about this concept as “Internet of Everything”, which in itself is a big challenge and huge opportunity.

Customer experience in a connected world would be much better

For instance, many of us have experienced long wait times when we call our

line_figure_phone_400_clr_9858service providers, specifically when it is technical issues related to the products they have provided us. We get transferred from one customer service rep to another as they try to find ways to solve our problem. While this is happening we are getting frustrated as we have to repeat our problem all over again in the hope to finding a solution.

Reason this happens is that most service providers have a tiered structure of response. The first line of response is Tier 1 response, which consists of inexpensive resources who are not tech savvy. They are trained to gather basic information about the customer and their problem. They are also able to do some basic tasks like resetting the modem or rebooting the router. Their knowledge is usually limited and hence they are not able to fix a technical problem.

If doing simple tasks does not fix the problem then they send the call over to Tier 2 support who have more knowledge and a bit more decision-making authority. They get paid a bit more than the Tier 1 resource.

If Tier 2 support cannot fix the problem then the call is sent to Tier 3 technical support,  the highest level of technical support. When there is a technical issue with the products it requires Tier 3 level of support to solve the problem. But companies cannot have Tier 3 answering the call as they are expensive and limited resources. So they make the customers go through the process until they reach the right level of support. This is frustrating for the customers and pretty expensive for the companies as well.

What if the products could figure the level of support they need even before the customer calls? Think about the customer experience it would deliver if the Tier 3 support rep calls the customer and informs them of the technical issue their product might be facing. They also have instructions on fixing the issue or have already mailed a replacement product to fix the issue. This type of service would “wow” the customer and deliver best-in-class customer experience.

“Internet of Everything” could offer this solution


In this case the product has sensors that gather data about different aspects of the product health and communicate that out to the service software that is in the cloud. The software analyzes the data along with many other local data points related to the product environment. Based on this analysis the software determines when a set of data points sent by the product are outside of normal operation. By determining the abnormal operation severity , software is able to alert right level of support who in turn get in touch with the customer to resolve the issue.

This level of proactive monitoring, diagnosis and response will completely change the model of services being delivered to the customer and deliver best-in-class customer experience.

Of course, the above scenario is easier said than done as it would involve collaboration between different players in the ecosystem. But if a company can take a lead and bring these players together, then they would have a significant competitive advantage.

Permanent link to this article: http://www.jagannemani.com/2015/01/08/improving-customer-experience-in-a-connected-world/

Aug 01 2013

5 Steps for Setting Innovation Goals

Innovation Challenges

Innovation is not easy, as it usually involves developing something that has not been done before with the hope that the target audiences like the end results. Not only that, throughout this journey many variables need to managed, like executive sponsorship for innovation, funding, employee motivation, customer interest, product development and marketing, just to name a few. It is challenging to make sure that these forces align. This is done by having a clear innovation goals well before you board this journey. 

Why set Innovation Goals?


When you set a goal for innovation, it helps your employees/team to focus on the right priorities. It empowers them to make the right decisions throughout the journey, decisions that would help your organization meet the innovation goals. Without these goals your employees are lost and when it is time to make decisions they would not know how to make the right decision. So they would either go to the leader and expect them to make the right decision or they would make a decision that might be counter-productive to the overall innovation effort. In either case it would end up hurting and delaying the innovation efforts. 

5 Steps to Setting Innovation Goals

Goal setting takes some work, but once you have set the goals it helps you throughout your innovation journey. So it is wise to take time to set the right goals. 

Your innovation efforts should be geared towards delivering best-in-class customer experience, as this ensures that the customers like your innovation and they would award your their business. You can read about the innovative nine factors customer experience framework that I use for innovation here

Here are the five steps for creating your innovation goals and empowering your team and innovation efforts:

Step 1: Understand Customer Experience Needs


Understand the unmet customer experience needs of your target segment. This can be done by talking to customers, understanding their current workflows and observing them use a current solution. You can use structured surveys to uncover the customer experience needs as well. 

This will help you understand where the customer is crying out for help, but is not getting much from the current solutions. Map the customer experience needs on the framework. 

Step 2: Understand Current Experience

Customer_Experience_FrameworkMap the customer experience delivered by the current solutions on the framework. Make sure you do this for all the current solutions that are available to the customer. 

You can understand this through customer interviews, structured surveys and by observing customer frustrations while using the current solutions. Customers might not be able to articulate their frustrations well, but they sure are good at demonstrating it to you. So make sure you see them use the current solution. 

Step 3: Identify gaps in Customer Needs

stick_figure_leap_ledges_400_clr_8870Once you have mapped the customer experience needs and that delivered by the current solutions onto the framework, the gaps in the desired customer experience will be obvious. These gaps present the opportunity for you to exploit through your innovation efforts. 



Step 4: Pick your Customer Experience Factors

gold_streak_3_150_clr_648Once you have figured out the gaps, you would be tempted to satisfy all the customer experience needs. Of course all innovators dream about solving world hunger or about ruling the world. But in this case you have to wisely pick the customer experience factors that you are going to impact through innovation.

I recommend that you pick just three factors and innovate to deliver best-in-class customer experience on those factors. This will help you focus your teams on the a few targeted factors, help you in communicating your differentiation well and make it easy for the customer to choose you. 

Step 5: Create Goals Aligned to the Factors

write_your_goals_here_400_clr_5038Once you have picked the three factors, define goals that would enable you to deliver best-in-class experience on those three factors.

For example, if you come to know that customers are finding it difficult to use the current solutions, and you chose to deliver best-in-class customer experience on the Convenience factor. Then your goal should be “Ease of Use”, and its description should be about making it easier for customers to use your solution. Not only that, you should pick success metrics that you can measure to see if you met your goals. Use these goals and the related success metrics to empower and measure your employees and your innovation efforts. 

Using this methodology to set your innovation goals will ensure that your innovation will make a difference in your customer’s lives. These goals would help you in ensuring that your innovation is moving along in the right direction. It would also help you in prioritizing overall innovation efforts. 

Let me know what you think about this approach and how you go about setting your innovation goals. You can also read about companies that have successfully innovated to deliver best-in-class customer experience in my book “Shift: Innovation that Disrupts Markets, Topples Giants and Makes You #1“.

Permanent link to this article: http://www.jagannemani.com/2013/08/01/5-steps-for-setting-innovation-goals/

Jul 11 2013

Don’t Be Surprised By Your Customers – Maker’s Mark Case Study

I wrote this post for Jeffrey Baumgartner and it was posted in his 103 report on 7/3/2013



makers-mark-bourbon-290x290Mid February 2013, CEO of Maker’s Mark, Rob Samuels was preparing to reverse the biggest marketing blunder in the history of this company. Their decision to water down their bourbon from 45% alcohol content to 42% alcohol content was not received well by the market. This resulted in a backlash from their loyal customer base and gave competitors an opportunity to attack them.

Over the past few years, Maker’s Mark Bourbon had seen a surge in demand which has led to shortfall in supplies. It takes six years for the bourbon to age, making it difficult to for Maker’s Mark to increase supply in response to the demand. They worried that their loyal customer base would switch to other brands when they would be hit by supply shortages. Hence Maker’s Mark was left with no choice but to water down the alcohol content to meet the demand. They estimated that this action would increase the supplies by 6%, which would make a lot of happy customers.

Well the mistake they made is that they misread the customer experience needs of their target segment. Their customers enjoyed the high quality bourbon they got from them and were not willing to trade that to fix supply shortages.

In fact this is a story of many successful companies. They become successful by delivering good customer experience. But once they get there, they lose touch with their customers and hence open doors for others to out innovate and deliver better customer experience. This has been the focus on my research for the past few years and I have published a book on the topic of customer experience driven innovation, titled “Shift: Innovation That Disrupts Markets, Topples Giants and Makes You #1”.  My research found that customer experience needs across many different industries can be described by nine factors, which are Requirements, Price, Convenience, Availability, Service/Support, Quality, Fashion, Social Responsibility and Brand (download detailed explanation of this framework here, or watch 4 min video about this framework here). Customers demand best-in-class experience across three to five factors on this framework, and offer their business in return to companies that deliver such experience. Most of the customers just care about their experience and are seldom loyal to a company. And when a company makes decisions that deteriorate their experience, they take up arms and make noise.

This is exactly what happened in the case of Maker’s Mark bourbon. Any whiskey that is bottled over 80 proof is considered to be Bourbon. By reducing the alcohol content down to 42%, Maker’s Mark was cutting down the proof to 84.  This will still make it Bourbon, but it would reduce the quality of the drink for customers who are used to 90 proof whiskeys. Hence this decision was considered as a downgrade from the best-in-class customer experience its customers received on “Quality” factor to improve the experience they received on “Availability” factor. This was not acceptable to its customers and hence the company had to reverse its decision. Had they known their customers better, they would not have made this decision and be surprised by the customer reaction.

Companies should stop being surprised by their customers, as often this is not good news. Rather they should understand their customer experience needs and focus on innovating to deliver better experience.  The nine factor customer experience framework helps you understand customer experience needs and minimizes surprises. There are many examples of companies that have innovated to deliver better customer experience, minimized surprises from the customers and have managed to shift the market in their favor. Much of this is covered in my book.

How does your company work on minimizing surprises from the customers? Would a structured framework help you minimize such surprises?

Permanent link to this article: http://www.jagannemani.com/2013/07/11/dont-be-surprised-by-your-customers-makers-mark-case-study/

Jun 10 2013

Customer Experience Innovation Framework explained in a 4 min video


Permanent link to this article: http://www.jagannemani.com/2013/06/10/customer-experience-innovation-framework-explained-in-a-4-min-video/

May 15 2013

Customer Experience Framework – Free Chapter Download

Thank you for your interest in the innovative nine factor customer experience. You can learn all about this framework by downloading this free chapter.

Shift Cover

Book is available on Amazon.com. Happy reading.

Permanent link to this article: http://www.jagannemani.com/2013/05/15/customer-experience-framework-free-chapter-download/

Jun 14 2012

Better Customer Experience Delivers Better Value to the Customers

Long ago, when I was interviewing for a consulting job, I had to learn the consulting speak. And one of the cliché in that consulting speak was “delivering value to clients”, which when used would signal to my potential employer that I am “client ready” and ready for the job.

“Delivering Value to Clients” is part of the core strategy for many consulting companies, it was the core theme of most meetings, it was even part of employee evaluations.

But what does it really mean? Can we measure it easily and consistently? Is there a metric that indicates if we have delivered value?

In my opinion, the value delivered to a client is always subjective, as it varies by the situation and by the client. In some cases, clients realize immediate ROI from all the work done by the consultants, and hence value is delivered. In others, it takes years to realize the value and by then everyone has forgotten the consultants. So it is not easy to find value in consulting assignments, even though clients and consultants spend weeks together solving a problem.

Similarly, “Delivering Value to a Customer” seems to have become the cliché within product and service companies. Measuring the value delivered is even more difficult when the company and customers do not interact face to face. Because value is not a simple variable that can be measured easily, but a result from a complex equation that include many variables.

Let me share an example from my experience to show the complexity related to delivering value. I was analyzing the reasons for customer attrition with one of my products, and found that “Price Value match” was often stated as a reason for customers cancellations. To understand this better, I called those customers to discuss the reasons for cancellation. I would also call some of the happy customers to understand the value they got from the product. Below are my findings on “Delivering Value” to the customers:

1) Value is a complex equation: It has Price on one side and other aspects of the product (like functionality, ease of use, quality, service/support, warranty) on the other side. It is never easy to objectively measure the value delivered to a customer, but there are ways to subjectively decide if the customer is getting enough value from the product (such as, by measuring Net Promoter Score).

2) Even free products need to deliver value: For free products, Time is used in place of price to measure value. Only those products that justify the use of customer’s time deliver good value.

3) Factors that contribute value vary by customer and by situation: Every customer values different aspects of the product differently. Some customers value customer support more than any other aspects of the product. While others value ease of use or quality more. Every customers uses the product in different situations and in different environments, and the value a product delivers to the customer in those different situations is different. Hence traditional customer segmentation methods (those based on size or geography) do not apply when trying to measure value. Rather companies should focus on the job that the customer is trying to do and see if the product improves their ability in doing the job (i.e. delivers value)

4) Mental Calculations of value: There are no systems to help the customer objectively measure the value they get from a product, so most customers do these calculations in their heads. After buying a product, customer place a value per use and mentally try to figure out how many times they need to use the product to recover the price they paid. If this mental calculation is reasonable, they continue to use the product. This mental calculation is tough on subscription model businesses, where customers pay a fee every month for using the product or service. This is because the customer is comparing what they got every month for the fee they pay that month. If they feel that they are getting  enough value, they continue with the subscription if not they cancel their subscription.

5) Customer experience is key to delivering value: The customer experience delivered by the product helps in determining the value of the product. Functionality of the product, ease of use, quality, reliability and support all play a vital part in delivering value to the customer. All these factors are not equally valued by the customer, hence it is important to understand what the customers value and deliver that customer experience.

In summary, delivering value is a complex undertaking and companies that focus on this as a strategy find it challenging to measure or deliver value. They should rather focus on tangible aspects of customer experience as it will make sure that the customer gets what they need, i.e. good experience. This will help the company in winning more customers and market share in the long run.

Permanent link to this article: http://www.jagannemani.com/2012/06/14/better-customer-experience-delivers-better-value/

May 22 2012

What are the Biggest Drivers of Customer Experience?

There are many factors that contribute to superior customer experiences…out of the following 10 choices, which do you consider to be the top three drivers?

Think of a recent experience that you had as a customer and make your choices. You can see the results of the poll after your “Vote”.

Share your opinion and learn about the Biggest Drivers of Customer Experience.

Permanent link to this article: http://www.jagannemani.com/2012/05/22/biggest-drivers-customer-experience/

Mar 26 2012

Fab.com : Customer Experience Success Story

This is an updated blog post on the customer experience driven innovation story of Fab.com.

In January 2010, Jason Goldberg and Bradford Shellhammer launched Fabulis.com, a social networking website for gay people. The initial vision of the founders was to become Yelp, Groupon and Facebook for gay people. Jason Goldberg was a successful serial entrepreneur who had successfully exited a couple of ventures before and Bradford Shellhammer was good with design. They both launched this social networking website which managed to attract 110,000 total customers and about 30,000 active users. Though they built a good website, Fabulis.com did not deliver a differentiated customer experience compared to Yelp, Groupon or Facebook, so gay people did not feel the need to use this website.

By early 2011, the founders realized that they need to do something different. So they shut down the site in order to develop a newer, un-served niche where they could be much more successful — one based on design. In June 2011, they launched Fab.com, a flash sales website (i.e. a site that offers products at deep discounts for a limited time) for the fashion-oriented customer segment.

When Fab.com decided to move away from the gay market to a flash sales market, they entered an overcrowded marketplace with players like amazon.com, branded retail stores/websites, and many flash sales websites. All these retail outlets offered price discounts and had spent a lot of money to attract customers to their sites/stores. So how could a start-up compete against these seasoned incumbents? Fab.com did so by focusing on delivering a customer experience that was different from any other retailer.

Online/Retail shoppers have different expectations based on what the shopper is looking for and the time of the year. During holidays they want a wide choice of gifts at throw away prices; at times like Valentine’s Day they want to find cool surprises. And throughout the year it is about finding the items that they need at a reasonable price or with a memorable customer experience. Retailers and websites that have successfully differentiated themselves on the customer experience they deliver have seen repeat customers.

In order to understand how Fab.com differentiated itself in the overcrowded retail space, let us compare them with the customer experience delivered by other types of retailers in a variety of shopping situations.

High-end retailers, like Niemen Marcus or Louis Vuitton, attract shoppers who are looking for specific high-end fashion products. Over the years these high-end retailers have improved their ability to attract and sell to both impulse shoppers and fashion oriented shoppers by delivering a good customer experience. They meet customer requirements by providing them the products they are looking for; hence the requirements aspect of customer experience is high. They make it convenient for the customer to shop in their stores, provide good service, and deliver high quality products that are very fashionable. So these high-end retailers score high on convenience, service/support, quality and fashion. They cannot guarantee that the specific item that the customer is shopping for is available in the store, but they can get it shipped to the customer’s home through their online stores. Hence they typically rate as “medium” on availability aspect of customer experience. The customer experience delivered by these high-end retailers is shown in the figure below.

Customer Experience delivered by High-end Retailers

Now let’s review the shopping experience delivered by online retailers like Amazon.com. The key to Amazon.com’s success is to deliver a customer experience that makes the customer think of them first while shopping online. They are focused on attracting customers who know what they want, and are looking to buy soon. So they make sure that they have what the customer is looking for, at the right price, in a convenient online location, and with reasonable customer support. They have a variety of items available, from books, toys, electronics, games, watches etc. But the primary factors that they differentiate on are Price, Convenience and Availability. The price factor is very important for online shopping and they deliver this by making sure that the prices of items sold on Amazon.com are highly competitive. Amazon.com makes it convenient for customers to find the products they want to buy through a very efficient search engine. Also they have a good recommendation engine which suggests products to the customer based on the buying history of other similar users. These coupled with free two day shipping for Prime customers, and free regular shipping for all customers on most items, make it convenient for the customers to shop at Amazon.com. The customer experience delivered by Amazon.com is shown in Figure 4 below.

Amazon.com Customer Experience

Between the high-end retailers and Amazon.com, fashion, convenience, price, service/support and quality aspects of customer experience have already been covered. So how could Fab.com differentiate itself from Amazon.com and these high-end retailers by offering something new to fashion oriented customers?

First and foremost they achieved this by focusing on design, delivered through an attractive website that offers cool products with high visual appeal to fashion-oriented shoppers. Visitors to Fab.com are not necessarily looking for a specific item; they do, however, want access to some cool, visually appealing products they wouldn’t find anywhere else. Every day at Fab.com, customers can find wide variety of products including artwork, jewelry, and designer furniture with prices ranging from $1 to $1000+.  Fab.com does not restrict itself to a core set of designers; rather it offers any product that has cool design that would appeal to its customer base. This kind of variety is difficult to find in high-end retail stores, which is how Fab.com offers more to its customers.

Fab.com also offers deep discounts for limited time, which tempts customers to make impulse purchases. These discounts include their daily sales of up to 70%, with most prominent discounts in the 25% to 45% range. These sales are offered for 72 hours and shoppers see a counter on top of each product page that creates an urgency to buy. Also, when the customer adds the item to the shopping cart they have 15 minutes to make the purchase. After 15 minutes the item is automatically removed from the cart. This creates a sense of urgency for the customer, and helps the impulse buyer to make that purchase.

It is great to offer fashionable products at deep discounts and get impulse buyers to make that purchase. But for a business to be successful and attract enough paying customers, it needs to satisfy the customer experience across at least three factors. And this is true for Fab.com as well, as it needs customers to visit its website and trust it to share their credit card information with the website. Also, since a website creates a sense of urgency for buying the products it is essential for customer to trust the company for making the purchase. This is where the need for a strong brand comes in for Fab.com, and the founders did a great job of building the brand within a limited budget.

Before launching the website Fab.com signed up about 175,000 customers through various viral marketing activities and strategic advertising. This ensured that the sellers were willing to sell the products at Fab.com as the site had a decent customer base. Fab.com built social sharing capability within the website and encouraged their customers to share their purchase information with their friends on social networks like Facebook. Many customers were happy to share the information about the cool products that they bought at Fab.com. This created further brand recognition and attracted more customers to the website.

After getting an initial set of customers and modest success, Fab.com founders shared their story of converting a failure to success with media and on social media. This topic is of interest many people and after reading about this success story people started exploring Fab.com. Blogs, news articles, presentations, videos, twitter feeds and Facebook shares went buzzing with the Fab.com success story. This created global brand value for Fab.com, and they saw their customer base increase exponentially. Within seven months of launching the website, Fab.com had two million subscribers with about $200,000 daily sales on average.

Fab.com Customer Experience

The above picture depicts the customer experience delivered by Fab.com, which is high on three factors Fashion, Brand and Price. It is not a website that customers visit when they want to buy a specific product as that product might not be available on the website. Fab.com does not store any inventory, and it passes the order out to the seller for fulfillment. This leads to long delays in shipment of the orders. Most customers expect an ecommerce website to have the products they need and ship it to them as soon as the order is placed. So Fab.com does not meet the requirements of online shopper and hence scores low on requirements aspect of customer experience.

The site conducts product flash sales for 72 hours, and after that the product might not be available. Also, there are limited quantity of items available for sale, hence Fab.com scores low on availability. Lack of search engine to search for products, brand names or designers make it less convenient for the customers, hence it scores low on convenience aspect of customer experience. Long wait times for receiving the product without a way to track the true status of the order and no return policy make Fab.com score low on support/service. Like many online retailers it would be difficult for Fab.com to control the quality aspect of the product as it is really the experience delivered by the seller. Hence it scores low on quality aspect of customer experience as well.

Overall Fab.com has experienced good growth and profitability by focusing on three aspects of customer experience (Price, Fashion and Brand). But to continue growing it would need to offer better customer experience across a few other factors as well.

Fab.com is a great example of how innovative companies can be successful by delivering good customer experience on just three factors, the minimum number required for achieving customer attention. Similarly, innovative companies looking to differentiate themselves in a crowded marketplace should figure out the three factors that can help them differentiate and deliver good experience across those three factors.

Permanent link to this article: http://www.jagannemani.com/2012/03/26/fab-com-customer-experience-success-story/

Feb 27 2012

Social Responsibility Focused Innovation in Pharma Industry

In early 80s a new deadly disease came into existence, first in some gay men, then in injection drug users followed by users of blood related products. Most of the patients affected by this pandemic has suppressed immune systems and were falling severely sick with diseases that people with a decent immune system would never get. This caused alarm for National Institute of Health (NIH) and they started funding research projects to figure out the basic science behind the disease which we refer to as Acquired Immunodeficiency Syndrome (AIDS). They demonstrated that Human immunodeficiency virus (HIV) causes AIDS and funded basic and clinical research to discover drugs that could treat the HIV infection. They have also funded clinical trials to figure out the drug combinations for slowing down, halting and preventing the HIV infection.

Over the last three decades, NIH has had phenomenal success in fighting one of the biggest pandemic of our lifetimes. And when it started on this mission, its primary focus was not to wipe out the disease, not the price points at which it can sell the drug and definitely not making a blockbuster profitable drug. Its primary focus was to provide baseline cure that would enable us to slow down the progress of the disease and its impact on our society. The primary target customer for NIH supported research institutes and private companies working on HIV drug research was Food and Drug Administration (FDA), as they had to get FDA approval for releasing drugs that could slow down the progress of HIV infection. Drugs were quickly approved by FDA, even if the drug had minimal impact on HIV infection. Social need for baseline cure to HIV infection was the single most important focus of all the players in the ecosystem (NIH, research institutes, private companies and FDA). Hence FDA’s customer experience expectation was as depicted in the figure below:

FDA had the social responsibility to provide baseline cure for HIV infection and hence it had such high social responsibility expectation. It relied on NIH funded/supported research to help discover the drug and hence its expectation was high on brand. Its focus initially was not to eliminate the pandemic but to take the right steps in slowing down the impact of HIV infection. So it was fine with approving any drug that had minimal impact on the infection but with sufficient quality, hence the low to medium impact on requirements and quality. And FDA wanted to make the drug available to a contained population of AIDS patients so that it can understand the impacts of the drug further, which ranks the availability factor between low and medium.

This type of social responsibility based customer experience is not uncommon in pharmaceutical industry, rather this is what makes treatment for many non-common diseases possible.

Permanent link to this article: http://www.jagannemani.com/2012/02/27/social-responsibility-focused-innovation-in-pharma-industry/

Jan 31 2012

Innovation Process: Essential Discipline for Innovators

Have you heard of an entrepreneur or visionary who believes in a methodical process. Well there are very few of those, but many visionaries do not believe in process. They rather figure things out and get them done. Process for them is bureaucracy which just delays work without adding much value.

Many of these visionaries start projects without performing required due diligence. Many of them realize mid-way through the project that it is not as attractive as they first thought, as a result wasting a lot of time and resources.

This blog is about a structured innovation process that will help innovators in evaluating ideas at the rapid pace and investing their limited resources in ideas with good market potential. The innovation process described below is a disciplined process that will help innovators discover potential problems  well ahead of time and help them fix the problems before making serious investment into the idea.

Iterative innovation process described above evaluates various aspects of the idea at varying levels of detail through each iteration.

Evaluate phase (iteration#1):

This is a very quick evaluation phase which needs to completed in short time. The goal of this phase is to quickly test the opportunity and decide if there is merit to investigate this opportunity further. Use secondary research methodologies to perform high level analysis on customer, strategic, financial and commercial viability of the idea.

Perform customer analysis (using the customer experience framework) to understand the experience delivered by current solutions. Based on current customer experience and customer expectations, a new target customer experience model is developed.Strategic analysis involves analyzing the companies intent and ability to provide the new target customer experience. Some of the questions answered during strategic analysis are: Does innovation enhance companies position in the market? Does the company have the tools/skills required to deliver the target customer experience?Perform financial analysis to understand the market opportunity and revenue potential from pursuing the opportunity. Conduct commercial analysis to understand how the product/service will reach the customer. Does the company have the right ability and structure to deliver innovation to its customer? Or do they have to partner with some others to deliver the right customer experience?

Once the analysis is complete “Go”/”No-Go” decision is made on this innovative idea. If the idea has merit to do further analysis it moves into the “Explore” phase.

Explore phase (iteration #2)

During explore phase the ideas need to evaluated in greater detail by analyzing data/customer inputs from outside the company. Primary research is the focus on this phase, which requires the innovator to gather as much external data and feedback as possible. Customer surveys, one on one customer interviews and job shadows are some of the methodologies used in this phase to understand customer experience factors. Develop competitive analysis along with 3 – 5 year strategic road-map in this phase to see if the idea fits into the strategic road-map. Gather cost information throughout this phase to understand the financial impact of providing different customer experience. Based on the cost and revenue analysis, develop a financial model focusing on net profitability. Draw sales and marketing plans and test them to figure out the commercial viability.

At the end of this phase a detailed plan on how to win the market is developed, and “Go”/”No-Go” decision is made. Based on the size and maturity level of a company, you might want to stop after Explore phase. For example, entrepreneurs might want to stop after this phase and focus on building the innovation. While bigger more mature companies should take it further to “Examine” phase.

Examine phase (iteration #3)

 This phase is about making sure all the details related to innovation idea are flushed out. During customer analysis, focus on gathering all the requirements from the customers. Conducted focus groups, solution jams or outcome based surveys to understand the exact customer experience that would help you win over the customers. Get customers to force rank their requirements and do some price sensitivity testing to understand their willingness to pay. For strategic analysis, make sure that the innovation idea has a home once it is developed. Find the right organization and a good leader who would take P&L responsibility for the innovation idea. For financial analysis build a detailed cash flow statement that highlights the break even periods, investment requirements and expected ROI. Conduct some sensitivity analysis on the different assumptions and paint worst case, average case and best case scenarios. For commercial analysis, get your sales team on board and figure out the overall sales targets. You would also need to determine their compensation model and any accelerators for pushing the innovation idea into the market.

The three iteration approach presented here is a well-tested process that would help in testing out the innovation idea. If any idea withstands the test of all the three iterations and still looks good, it is an idea worth investing.

Permanent link to this article: http://www.jagannemani.com/2012/01/31/innovation-process-essential-discipline-for-innovators/

Jan 12 2012

Innovation focused on Customer Experience

During my consulting years I had the good fortune of working on many innovative projects. And I would share one such experience to show the impact of customer experience framework on innovation.

This project was with a networking equipment manufacturing company (makes switches, routers etc for businesses). We were engaged to develop the right strategy and business model to take away the market share from the market leader (800 pound gorilla).

I started by analyzing the market and understanding the customer experience delivered by each player. Given that it was a B2B (business to business) market with long sales cycle, I needed to understand the primary drivers of customer experience. So I immediately plugged myself into an inflight sales opportunity and learned that meeting customer requirements and having a good quality record was table stakes. The next best factor was brand value of the company and the relationship that customer executives had with networking equipment vendor sales staff. Without meeting these three factors, networking equipment vendors were not even invited to the table for discussion.

My client scored high on these three factors and hence was invited to bid. The next factor that customers evaluated vendors on was price. Now this factor had many aspects to it like street price, discount%, yearly service fees, financing options, leasing options, terminal value at the end of a lease etc. Using these different components many different versions of the price were presented, reviewed with the customer and iterated upon. And when we were convinced that we had the best price factor we submitted the proposal.

Unfortunately, my client did not win the deal as the market leader had better relationship with the customer and had more financial levers that provided better price related customer experience. It quickly became clear to me that we could not win on any one of the above factors (Requirements, Quality, Price and Brand), and we need to deliver better customer experience on some other factors. My client’s customer experience and that of the competitors is below.

Given that it was a big B2B transaction for networking equipment, availability can be planned and executed on. Service/support is part of service level agreement, so it was not possible to differentiate highly on these factors. Fashion and social responsibility do not have much of an impact on big B2B sales. So only factor that was left was convenience, and we thought hard about ways to deliver better customer experience on the convenience factor.

Then it dawned on me that accounting for expensive networking equipment is a pain, especially when the expense hits the balance sheet. Also, asset tracking is a big pain point which requires tracking and reporting the status of the assets on a quarterly basis. These pain points were created because of US accounting requirements, and big customers were facing lot of costs/risk due to these requirements. Also adoption of international FASB accounting rules was going to elevate the pain further.

To address these pain points we designed a “Networking Equipment Subscription Program” that would allow customers to get equipment on a monthly basis without any contracts or penalties. In this program the equipment is not owned by the customer, so it does not show up on the balance sheet and they do not have to track and report it. They just have to make sure that they keep making monthly payments for the time period they use the product and return the product when they do not need it anymore. This was designed to make it convenient for customers to procure and use networking equipment, customer experience graph is show below.

Given that this program delivered better customer experience by making it convenient for customer to account for and manage the assets, this program was successful on launch and we were able to beat initial sales estimates by 100x.

Since our goal was to make it convenient for customers to procure and use networking equipment, we learned about some issues with the business model that would make it less convenient for certain segment of customers. Having learned about those issues we were able to proactively fix the issues and win big business deals within those segments as well. For example, hosting providers found it very inconvenient to rip the equipment of the network and ship it back when it is not being used. Given the variations in their network usage, they wanted the convenience of having the spare capacity. But they did not want to pay for spare capacity or return the equipment. To solve this problem, the business model was further adjusted to make sure that demand and supply were tightly matched and the risk of unused capacity was minimized.

By focusing on a differentiating factor of customer experience, we were able to build a strong business that was successful at launch.

Permanent link to this article: http://www.jagannemani.com/2012/01/12/innovation-focused-on-customer-experience/

Dec 27 2011

Airline Industry Customer Experience

There was time when airline travel was comfortable and convenient, with free luggage check-in, free drinks,  free food and in-flight entertainment. Airline Industry customer experience has changed significantly since, and is a prime case study on how customers’ adapt to changing priorities of companies.

For US Airline industry, the priority has changed from delivering good customer experience to being financial sound. Unfortunately, this industry wide priority change has hurt customer experience and forced customers to reconsider their expectations. The purpose of this blog is to analyze the customer experience delivered by different airlines, using the “Customer Experience Framework” (read about the framework here).

When it comes to customer experience there is hardly much differentiation across the major US Airlines (except Southwest). Airlines segment their customers into preferred customers and regular customers and deliver different customer experience to both segments. Customer experience map for preferred customers is below:

Preferred Customers with loyalty programs get high brand experience from the airlines. Associated with this high brand experience is better convenience and better price. These customers do not pay extra for better seats, check-in luggage, standby flights, preferential boarding or even upgrades. These additional perks make it convenient and cost-effective for preferred customers to travel with just one airline. On top of Brand, Convenience and Availability, the top airlines do meet customer requirements as they are able to fly customers from place to place. Also, they offer good availability through their own fleet and their partner networks. So the top airlines do well across 5 factors for their preferred customers.

But with Regular customers, the customer experience delivered by these major airlines is completely different as shown in the figure below.

For regular customers,  airlines deliver the same experience across Requirements and Availability factors. But they do not deliver other experiences that are reserved for their brand loyal customers. Hence the customer experience for regular customers is strong across three factors (i.e. requirements, availability and brand). Based on this experience, regular customers do not have any incentive to fly with one airline and they shop for the best combination of price & convenience (direct vs. 1/2 stops).

In summary, major airlines deliver good customer experience across 5 factors for preferred customers and across 3 factors for regular customers. Given the distribution of their customer base across preferred and regular customers, they are able to deliver this customer experience while aligning well with their current financial priorities.

Discussion about airlines industry will not be complete without discussing Southwest Airlines, figure below depicts Southwest’s customer experience chart.

Given their business model it is difficult for Southwest to differentiate customer experience for their preferred and regular customers. Their customer experience is focused on price, as they do not charge any additional fees for luggage, standby, change fees etc. for any of their customers. Also, their boarding process is based on first come first serve basis (though preferred customers do get the “A” boarding) which does not preclude a regular customer for getting into the plane first and occupying convenient exit row seat. So Southwest delivers good customer experience across Brand, Requirements and Price for all customer segments. Given the lack of extensive partnership and limited airports that Southwest serves, it falls short on the availability aspect, and service/support is no different than the major airlines.

Based on the customer experience maps for these major airlines, there is opportunity for other airlines to deliver better experience across other factors and build a business model on that experience. Please let me know of what your think about airline industry customer experience.

Permanent link to this article: http://www.jagannemani.com/2011/12/27/airline-industry-customer-experience/

Dec 22 2011

Netflix Saga: A Customer Experience Perspective

My last blog described a new “Customer Experience Framework” (read it here), that companies could use to understand their customers’ experience. In this blog, I use this framework to illustrate the affect recent Netflix fiasco had on customer experience.

In 1990’s Blockbuster used to dominate the video rental marketplace. They had shops that were conveniently located in many neighborhoods and rented good quality movies . Figure below depicts the Customer Experience delivered by Blockbuster during that time period.

Blockbuster was really strong on four dimensions of customer experience, Requirements, Price, Quality and Brand. Blockbuster met customer requirements by having a wide genres of movies available for diverse customers. The price of renting a video was less than the price of watching it at the movie theater, which greatly appealed to families. They made sure that  video quality was good. And Blockbuster built enough trust and brand value to support its place in the market. Though the above four factors were working well for Blockbuster, a few factors went against it. For one it was not convenient to rent or return movies from Blockbuster. Rain or snow, renters had to make sure that they drop the movie back on time or they were charged a late fee. Second, availability was a suspect, as the movie that customer wants might not be available. Third service was weak as customers had to wait in long lines during typical renting periods (i.e. Friday nights). These three factors caused enough bad customer experience for Blockbuster’s customers. But since Blockbuster offered customers good experience across four important factors customers continued to rent movies from Blockbuster.

Enter Netflix, after a few trials at their business model in early 2000 Netflix started flat monthly fee unlimited rentals with no late charges or due dates. Every customer could check out three DVDs at once which would be refilled with movies in the queue once any DVD was returned. Figure below depicts the customer experience delivered by Netflix during its initial days.

Though Netflix did not have much Brand recognition, it made sure that it competed on 4 other factors of customer experience, i.e. Requirement, Price, Quality and Convenience. Netflix started offering a good selection of good quality movies across diverse genres. They made it easy for the customers to rent and return DVDs from Netflix, as the DVDs showed up at customers’ door steps. They made sure that customers’ monthly cost of movie rental remained flat and customers were not penalized for not returning the movies on time, which made them better on price dimension than Blockbuster. So frustrated Blockbuster customers started switching to Netflix as now there was an alternative that could offer them better customer experience.

As Netflix started getting more customers, it added brand factor to the customer experience (i.e. customers could now trust Netflix with their credit cards and their information). But pretty soon Netflix realized that they had left the Availability gap in their customer experience. There were some smart customers who maximized their 3 DVDs, with two DVDs in transit (one outbound and one inbound) and one always available for viewing. But not all customers are smart, so many ended up having 3 DVDs with them at once and no DVDs for a next 3 – 5 days. This availability problem could have hurt Netflix, but they plugged it by offering online streaming for a few more dollars per month. So Netflix’s customer experience chart looked something like the figure below.

Now Netflix delivered strong customer experience over six factors, Requirements, Price, Availability, Convenience, Quality and Brand. They also did a decent support job that enhanced the customer experience. This level of customer experience changed the rental landscape and Netflix grew to become a market leader. At the same time, Blockbuster struggled to deliver the right customer experience, started losing customers and struggled financially.

But delivering strong customer experience across six factors and decent customer experience across one more factor is not easy. Netflix realized this in mid 2011, when they saw the financial strain of delivering this customer experience. Given that their main competitor was out of business, they tried to redefine their customer experience. They increased prices by ~60%, and planned to separate their online and DVD by mail businesses into two separate businesses. This would need customers to create two different logins (one with Netflix and other with DVD by mail business Quickster), and keep up two different accounts. Due to customer outrage they backed off from their plans, but had they gone ahead with plans their customer experience graph would have looked like in picture below.

By increasing the price, Netflix is delivering some bad customer experience as customers are forced to pay a price point that is higher than what they have been paying for years. But separating online and DVD offering, they would have recreated the availability problem. Not all movies/shows are available online and managing the flow of DVDs requires some smart management. Having two separate accounts with two different companies with no customer data sharing between both would have made it really inconvenient for the customers as well. Also parental control that is not easy to use and inability to group/show list of recently watched movies creates a convenience barrier.

Though Netflix has backed off its plan to separate the business, the increase in prices has forced many customers to choose just one service. Because of this forced choice, Netflix is delivering the customer experience a depicted in the picture above. It is strong across 3 factors (Requirements, Brand and Quality) and decent enough on 2 other factors (Service/Support and Convenience). But as the downfall of Blockbuster thought us that being good on 3 factors is not good enough. So customers have to wait for Netflix to improve its performance across more factors or wait for an innovative company to disrupt video rental marketplace.

Please share you thoughts about this blog and “Customer Experience Framework


Permanent link to this article: http://www.jagannemani.com/2011/12/22/netflix-saga-a-customer-experience-perspective/

Dec 20 2011

Customer Experience: Nine factors that impact customer experience

Many of us have had customer experience horror stories, either that of your cellphone not working when you have a flat tire, or that of being stuck at an airport for hours or many other such situations. After each of these situations we wonder if the company cares about us as a customer and do they really need our business.

On the other hand, companies are trying to solve the puzzle related to delivering best-in-class customer experience. They have leadership roles focused on “Customer Experience” and have it as part of their core strategy. They are hoping to solve this puzzle and be that customer loved brand.

Though both customers and companies are focused on customer experience, it often feels as both are digging a tunnel from both ends, one that would not meet in the middle.

So how should a company solve the customer experience puzzle in a way that is easy to understand, some way that would help them differentiate themselves against the competition.

Here is a “Customer Experience Framework” with nine key factors that drive that experience. This framework is applicable across many industries as demonstrated by the examples below.


Companies should map the customer experience they deliver on these nine factors against their competitors. Doing this will inform them if they are best-in-class, ordinary or sub-par on that particular factor.

Customer Experience Framework

  1. Requirements: Different customers have different requirements from a product/service, and how a product satisfies those needs defines the requirements aspect of customer experience. Companies usually tend to overshoot on the customer requirements, which enables them to serve many diverse customer segments with one product. This is good unless there is a conflict with other key factors of customer experience. An example of customer requirements for a television is 1080p, 3D, HDMI outputs, LED, 60″ etc…
  2. Price: This is one of the key factors of customer experience, as it defines the value that the customer is able to derive from the product. For a Wal-Mart shopper, low prices deliver the right kind of experience. While Neiman Marcus prices deliver the right kind of customer experience to high-end luxury shopper. So this factor varies by the customer segment being served.
  3. Availability: Many companies ignore this factor but this is one of the key drivers of customer experience. This is driven by availability of your product/service when the customer needs it the most. Your customers rely on your products/service for their needs, and not being available drives a bad customer experience. For example, availability of mobile network when a customer wants to make a phone call or get some information. Similarly, availability of e-commerce websites that offer the right product when the customer is looking to buy.
  4. Convenience: This factor determines how easy is it to use your product/service in different situations. The easier it is to get access to and use in different situations the better is the customer experience. A good example of this would be Google search, as it is easy to use search engine that deliver good results consistently.
  5. Service/Support: Post-sale service/support, which is essential in many industries. Different methods of delivering service/support are available and accepted as enough for delivering the right customer experience. But one aspect that remains key is the time spent for initial contact and satisfactory resolution. Insurance companies carefully measure their performance on delivering this customer experience. Many of these companies are making it easier to file claims and the resolve claims at a fast pace.
  6. Quality: Imagine your television breaks down right in middle of an important game, quality is an essential part of customer experience and it hurts companies over a long run when product quality is sub-par. And example of a company delivering good experience on this dimension is BMW. With their 48K and 4 year full service maintenance program they have taken out quality fears from a complicated machine which has many parts that can break.
  7. Fashion: This is the “Cool factor” define by how cool your product is perceived by the customer. This requires meeting customer requirements it in a way that amazes the customer. Apple iPhone comes to mind as an example, but I would like to give one from semiconductor industry. NVIDIA and AMD are fierce competitors in the graphics card market, they keep delivering cool products year after year to amaze and capture the gamer market. The quality of graphic images and the speed of rendering keeps improving every year. I tag this as fashion as the trend keeps changing all the time. The most cool thing today might be outdated tomorrow, as experienced by Motorola RAZR.
  8. Social Responsibility: This does not have much to do with the product/service but more to do with the practices employed by the company. A socially responsible company that employs the right practices in the minds of its customer base delivers good customer experience. An example is Nike and the effect of the child labor issue on its business. Also, Toyota’s efforts to convince the American customer that their cars create jobs in US. Also, the green revolution and the phone app for flight boarding passes.
  9. Brand: All companies have some brand value that gives the customer the level of comfort required for doing business with that company, hence driving the customer experience. This is the most important factor of all as it carries the fruits/burdens of good/bad customer experiences across the other eight factors. For B2C focused companies this customer experience is associated with the company, for B2B focused companies this experience is a function of individual relationships and company brand.

Companies that focus on just one of these nine factors seldom survive, and it is impossible for a company to be best-in-class at all nine factors. But a good company is best-in-class on 3 – 5 factors. The company might or might not choose to focus on the other factors. Depending on the factors they choose, they define the customer segment they attract and the financial benefit they derive from those customers.

Let me know what you think about the customer experience framework.

Permanent link to this article: http://www.jagannemani.com/2011/12/20/customer-experience-nine-factors-that-impact-customer-experience/

Dec 12 2011

Customer Knowledge Chasm: Barrier to customer feedback on disruptive innovation

Many books and innovation speakers talk about importance of customer feedback during innovation process. They believe that building something without customer feedback is like gambling, the results are often not predictable and most innovations fail. Innovation success rate across all industries is around 4%, and there are a few preachers who believe this will be improved by gathering lots of customer feedback before building the product.

While there is some truth to that and customer feedback is very useful in many cases, it does not necessarily help innovation in all the cases. And this is because of gaps in customer knowledge, something that I am calling “Customer Knowledge Chasm

For example, before iPhone disrupted the smart phone market, there were many researchers/innovators working on figuring out the way to combine mobility and internet together. There were a few incremental/sustaining solutions that worked just fine. During that time, many customers were not able to describe how best to make mobility and internet work together.This is because majority of the customers are not visionary, and current products/solutions are their frame of reference. So for them it is very difficult to break away from this frame of reference and think of something that is completely disruptive. Hence  “Customer Knowledge Chasm” exists, as described in the framework below.

Many of the customer touch points help with Incremental and Sustaining Innovation, few examples described below:

  • Bug Reports: Help in identifying bugs and understanding bug intensity within the products. This in turns helps in prioritizing the bugs and fixing them within right time frames.
  • Forums/Chat/ Calls/Discussions: Help with identifying the product shortcomings in different use cases. These give a good sense of priority by customer segments for closing the product shortcomings.
  • One of One Interviews/Day in a Life of Customer Study/Voice of Customer: Provide distinct views of customer pain points related to current product at that point of time. These can highlight Product shortcomings or performance issues. They also provide a good sense of product use process, which in turn can help in enhancing the functionality.
  • Focus groups/Solution jams: Here a few customer come together and discuss their experience with their current products. Based on their experience and pain points they brainstorm and provide feedback on the enhancements that would better their experience. Even in this case the best knowledge they are able to offer is around enhanced functionality.

And there are many such customer research methodologies that offer insights/knowledge within current product frame of reference. Many of these customer research methodologies run into “Customer Knowledge Chasm”.

There are ways to avoid “Customer Knowledge Chasm” and it is done by understanding the job that customers are trying to get done, the process that they follow and the ideal outcomes they would like to achieve. By focusing on jobs, process and outcomes, we do not have to rely on customer knowledge and hence avoid the chasm. Innovating to improve the outcomes of the job also ensures that product is relevant to the customer and they would buy if we build.

In a future blog I would share more information about Jobs/Process/Outcomes methodology. Please share your thoughts on this blog.

Permanent link to this article: http://www.jagannemani.com/2011/12/12/customer-knowledge-chasm-barrier-to-customer-feedback-on-disruptive-innovation/

Dec 03 2011

Power of Prototype: Tale of two ideas during Market Research

Having a prototype makes a big difference in market research, I knew of this before but it learned this again during recent customer visits. So here is a blog presenting my learning around “Power of Prototype”.


The best way to present this is by telling a tale of two ideas; to maintain confidentiality I would call them idea #1 and idea #2. Idea #1 is a new idea for us and for our customers, something that will create a product category. Idea #2 is new to us but there are products out there that serve the purpose.

Over the last few months I have talked to customers about the two ideas to gauge their interest and gather their requirements. I did two rounds of customer research. During first round, I visited few customers and discussed the innovation ideas and their requirements. The goal was to gather enough information that would help us in doing a deeper market research.

During second round, I invited a few customers to a “Solution Jam” and facilitated discussion about the ideas. The goal here is to get customers to tell us what they want from the product and will they buy if we build it. Overall expectation is to get higher customer interaction as we move from round 1 to round 2, which helps us in clearly defining the products. With this as a background, here is what happened during those customer research rounds.

Customer Research Round #1:

Idea #1: We had a good working prototype for this idea and I was able to quickly demo this prototype to get the discussion started. Many of the customers sat on the edge of their chairs and provided me with a lot of inputs about product functionality. Given that this is a new product for us and for our customers, it was exciting to see that customers had so much to share.  And this level of excitement and feedback was consistent across all customer interviews.

Idea #2: We did not have a prototype for this, and we shared block level diagrams and got good feedback from the customers. Since there were other products in the market that somewhat served the purpose, they were able to compare and tell us what to do to differentiate our product. Interactions around this topic were also consistent and good.

Customer Research Round #2:

Idea #1: We decided that the prototype UI did not adhere to company standards and we did not have time to rebuild a working prototype. So we decided to drop the prototype from customer solution jams. Rather we build some screen shots that we threw into a presentation, created a story around it and shared the story with the customers. Discussion sequence was still the same and the participants were of similar background as in round #1. But customer interaction just fell off the cliff. They were struggling to imagine what this product does and went off on tangents describing the problems they have with our current products. It became increasingly difficult to keep the customers focused on the topic of discussion, and not much data was gathered from the customers.

Idea #2: We built a working prototype for this idea that we used during the solution jams. To be consistent we started with the block diagram within a presentation to gather customer inputs. After some initial discussions, we would show them the prototype and that resulted in them giving us lot of requirements. They would ask us to click some buttons, go through some screens and provide us requirements throughout the discussion. Customer interaction around this idea grew exponentially and we were able to gather a lot of customer requirements. We were also able to get them to prioritize the requirements and tell us about their price sensitivity as well.

Figure below illustrates how the customer interaction levels changes between the two research rounds for both ideas.


Prototyping and demoing innovative ideas is the best way to gather detailed customer requirements, as it paints a picture in customers’ mind and helps them think of pain points that this solution can solve. Without a prototype, you run into the risk of customers’ hijacking the discussion and inundating you with current product complaints.

Please share your experiences with prototypes and customer interviews.

Permanent link to this article: http://www.jagannemani.com/2011/12/03/power-of-prototype-tale-of-two-ideas-during-market-research/

Nov 29 2011

Why Innovation Metrics need to be different from other Business Metrics?

Business Metrics are important for any business, as metrics  motivate employees to do the right thing for the business. Also, metrics help in understanding current business performance and in continuous improvement.

Senior leaders often question the need for separate metrics for innovation projects and established business. They measure both new innovation projects and established businesses using the same metrics. This approach will choke innovation and will lead to more sustaining improvements, and not disruptive innovations. In this blog I highlight the need for separate new innovation metrics.

First, new innovation focus is much different from that of established businesses.

As shown in the picture above, established business should focus more on scaling the business by building in capabilities focused around improving revenues, operating margins and asset efficiency. New Innovation’s focus on the other hand is around proving the business model and technology. So teams working on new innovations should focus on testing out markets and launching right technologies with right business models. Once they have tested and proved the market potential, they can start focusing on scaling the business and start measuring their performance using similar metrics as established businesses.

Second, new innovation projects cannot compete with the scale of established businesses. They always need more time to ramp up revenues and to justify costs for developing/supporting the products. Many of the efficiency metrics (such as Development/Production efficiency) look really bad for innovation projects when compared with established businesses. On the other hand, comparing metrics like quarter over quarter revenue growth % will put the established businesses to shame and will not portray the right picture.

Third, there is more uncertainty and risk associated with new innovation projects. And if innovation is measured using the same metrics as established business, mid-level managers will take the easy route to achieving business performance and their bonuses. They would put all their efforts in established businesses or on sustaining improvements to meet their business performance goals.

Right metrics tied to right performance incentives is the best way to motivate employees to deliver right results. Hence it is important to have the right metrics for every part of the business, and measure it diligently. In a future blog, I would share my thinking on the right innovation metrics. Hope you find this blog useful in separating the innovation metrics from rest of the business.

Permanent link to this article: http://www.jagannemani.com/2011/11/29/why-innovation-metrics-need-to-be-different-from-other-business-metrics/

Nov 25 2011

Understanding non-consumption and barriers to innovation consumption

Eyes of many inventors lit up when they discover non-consumption (i.e. users who do not use any product for performing a particular function, though their might be alternatives available). For example, when we see people using paper based workflow when they can easily automate the entire process by using electronic workflows. Innovators immediately draw up plans and build a product that targets these non-consumers.

But when the results are not as expected, it becomes frustrating and they wonder why the non-consumption still exists. The reason is that non-consumption is most difficult to understand and solve, and it cannot be solved by dreaming up and developing a product within office walls. To disrupt non-consumption, the innovators need to get out in the field and understand why it exists in the first place. Once you understand the reasons you can try to solve for eliminating non-consumption and many times this has nothing to do with the product. In this blog I would highlight few reasons why non-consumption exists, drawing from my experience and reasons suggested in a must read book “The Innovator Guide to Growth “.

Here are top five reasons for non-consumption:

  1. Behavioral: Imagine a situation, a worker has used a paper based workflow for 30 years. She started on this job right after school and worries about her financials if this workflow automates. There could be hundreds of these workers in a company and they do not want any technology to disrupt their jobs. They will create big resistance to change and non-consumption will continue to exist. The solution here is change management and convincing management about the financial advantages of automating the process. Product innovation can do very little in terms of eliminating non-consumption.
  2. Specialized Skill: Jobs where specific skills are needed and technology is not an option. This is typically the case in services industry, like healthcare. But right type of technology can cut non-consumption by making the job less dependent on skill. An example shared in the book is about hip and knee implant makers improving their product over years, making it easy and foolproof to implant their products. This essentially is reducing the impact of orthopedic surgeons’ skill in the surgery, hence increasing consumption of the product earlier in the value chain.
  3. Price: Major reason for non-consumption to exist is that alternative technology is too expensive to justify the use. This constraint to product use can be easily spotted, but solving the problem takes significant analysis and innovation. Product/service providers need to understand different customer segments and the customers’ lifetime value to the company. Based on this analysis, they need to analyze the high value segments (both in terms of $ and scale) and see if Price is still a constraint. If it is then companies need to cut down the price of their products/service. This can be done by eliminating the features/functionality that the customers do not care or by improving overall efficiency in producing and delivering the product/service to the customers.
  4. Access: Customers might really like a product and would like to use it, but they are not able to use the product in their environment. For example, sales people who are always in the field cannot access the customer information/intelligence inside the sales management tool. Unless this tool has someway to deliver this information right before that big meeting. This will create access problems which will lead to non-consumption. This can be solved by methodically deconstructing the process in which the product/service is to be used, adding environmental restrictions to the process and innovating a product/service that will work within this constrained environment.
  5. Time: Here non-consumption has been created because it is very difficult or cumbersome to use the product. An example from the book is reading newspaper, as it is becoming increasingly difficult for people to spend hour+ in a day to read newspaper. Hence there has been a steady decline in newspaper readership. To identify this constraint, one needs to understand the ideal outcomes that a customer wants while using the product. And if one of the highly unsatisfied outcome is related to “ease of use” or “time to consume”, then we know that non-consumption is related to time. This can be solved by simplifying the product and making it easier to consume the product/service on-demand or in smaller chunks of time.

All of the above mentioned constraints to non-consumption can be solved by actively listening to customers, understanding their process/environments and innovating products that can be used in those environments. Please share your thoughts and experiences related to non-consumption in the comments.

Permanent link to this article: http://www.jagannemani.com/2011/11/25/understanding-non-consumption-and-barriers-to-innovation-consumption/

Nov 23 2011

Strategy Frameworks for Innovation

Strategy is core to innovation as without solid long-term strategy all the efforts put into innovation will not lead to right results. Also, strategy helps define innovation as it helps in answering the following questions:

  • Does the company really need to grow organically or is inorganic growth a better option?
  • Does the company need to build the innovative product, or can it partner or buy another player with right technology?
  • Is this the right time to innovate and get this product out?
  • What kind of financials should the company expect?
  • What is the right time frame for innovative business to be profitable?

Many such strategic questions need to be answered by innovative leaders. And many leaders rely on strategy frameworks to help them answer these questions. When it comes to strategy frameworks there is no one size that fits all, and hence I would like to share my opinions on few of the strategy frameworks that I have used in the past, the pros and cons of using the framework and my recommendation.

BCG Growth-Share Matrix: (Read about this framework here)

This framework has been used by many companies for years to figure out the best places to invest their limited resources. It is a powerful framework as it helps in prioritizing the investments by short and long term potential of the business.It tells us to milk our cash cows, kill the dogs, improve question marks and invest in the stars.

But the recommendations from this framework are easier said than done. For example, it is not always easy to kill the dog or milk the cash cow without investing (because competition will catch up and the cash cow will turn into a dog within two years). Also, this framework does not really help in figuring out the future growth opportunities, i.e. the adjacent markets where the company has no current offerings.In today’s business environment no business leader can solely rely on current product offerings and expect to remain competitive in couple of years.

Hence I do feel that this is not the right strategy framework for innovating in today’s business environment.

McKinsey’s Three Horizons of Growth: (Read about this framework here)

This framework suggests that every leader should look at their business over three horizons (short, medium and long) and set their investment priorities based on their expectations across the three horizons. For example, Horizon 1 is all about superior execution so the investment should focus on scale and efficiency of the business. Horizon 2 is about Positional Advantage, so the investment focus should be at becoming the market leader and setting the standards. Horizon 3 is about innovation, where company try quite a few things which could be a hit or miss. But the investment in Horizon 3 sets the tone for future value contribution by the company. This framework suggests that equal attention should be paid to all horizons with right investment corresponding to each opportunity. It also suggests a set of metrics, talent and capabilities required for each horizon.

Though this is a good framework it really does not address the core capability question for the company. It does not force the business leaders to think outside the box in terms of potential future opportunities which are not on companies radar.

Deloitte’s Growth Framework: (could not find a link to this framework)

Though this framework is not as simple as the other two frameworks, it does a good job of laying down the business opportunities as core, adjacent and new. It also helps business leaders understand the risk/uncertainty involved in each opportunity (for example, new opportunities are much more riskier with uncertain outcomes than the core opportunities).

Business leaders can plot their current and future business opportunities on this framework as a bubble chart (size of bubble corresponds to revenue potential of the opportunity), and clearly see where to invest their time, effort and capital. Also, it helps them think out of the box and really explore other areas which are beyond the core, which helps the business leaders in focusing and creating long-term value for their shareholders.

Though this helps in framing the strategic opportunities well, it does lack the time aspect. And I have solved that issue in the past by portraying a product /services road-map. This allows me to have a healthy discussion about investment opportunities followed by a investment timing discussion.

Based on my experience, I would recommend Deloitte Growth Framework for figuring our investment priorities with some aspects of McKinsey’s Horizon framework to figure out metrics/talent/capabilities across the  time horizons.

Happy Thanksgiving; Thank you for reading my blog post.

Permanent link to this article: http://www.jagannemani.com/2011/11/23/strategy-frameworks-for-innovation/

Oct 29 2011

Innovation Needs Ambidextrous CEOs

In a earlier blog I had discussed  “Innovation Influencers” and how each influencers holds a critical piece of the puzzle required to unlock innovation. At the center of this puzzle is the CEO of the company. CEO should take personal interest in innovation and cultivate the right culture within the company.

HBR article on “The Ambidextrous CEO” analyzes this topic well and here are some of the reasons why it is important for the CEO to support innovation.

  1. Innovation drives long-term growth: Stable companies have a good understanding of their traditional growth rate based on market dynamics. Company shareholders know the traditional growth rate and expect companies to do better year over year. Without innovation, companies cannot meet shareholders’  ever growing demand for growth. Hence, CEO’s rely on innovation to build the future growth engines that would help them meet their future growth obligations.
  2. Future is more uncertain with innovation than with core products: Issues with core products, revenue expectations, margin expectations and overall performance is estimated relatively well with core products. But innovation potential is very uncertain and usually a wild guess. And who better to guide/support the team dealing with this uncertainty than the most visionary person in the room, i.e. the CEO.
  3. Traditional business metrics do not apply to innovation: Given many innovation projects start out with no or modest revenue numbers, business metrics like contribution margin, revenue per FTE etc cannot be applied to innovation projects. These metrics make innovation projects look bad and ignore future potential of the projects. When executives try to measure innovation using the same scale as core business, CEO needs to step up and support innovation to give it a chance to survive.
  4. Left to mid-level managers, innovation will suffer: Budget decisions, staffing decisions, marketing and sales support decisions, and many more such decisions are usually made in support of core products. This is because mid-level managers are trying to make decisions in their best interests and in supporting their products. Given that innovation products are not the responsibility of majority of the mid-level managers, they tend to starve innovation projects. This is where CEO needs to step in and assign right resources for innovation projects to make sure that innovation thrives at the organization.
  5. Innovative companies enjoy higher multiples and generate more shareholder value: Typically companies that innovate and generate higher growth rates get better multiple for their earnings. This in turn generates better shareholder return, which is the primary job of the CEO.

Companies where innovation is actively supported by the CEO, strive at innovation and generate better shareholder value

Permanent link to this article: http://www.jagannemani.com/2011/10/29/innovation-needs-ambidextrous-ceos/

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