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Beyond Social CRM: The Open Innovation Revolution

The idea of bringing customers into the process of defining the products and service of your organization is one that is gaining a lot of steam. One manifestation of that is the increased interest in Social CRM. In this scenario, companies engage their social customers for feedback and marketing purposes. Taking it a step further, Mark Tamis and Esteban Kolsky see the higher purpose as organizing the business around the newly social customers.

And then there’s Stefan Lindegaard.

Stefan is a leading open innovation consultant and author of the recently published book, The Open Innovation Revolution. He sees things advancing even further. From page 13 of his book:

Open innovation is about integrating external partners in the entire innovation process. This should happen not just in the idea or technology-development phase but also in all other phases toward market acceptance. User-driven innovation is great because it directs your innovation efforts toward market needs. Open innovation takes you to the next step by providing more opportunities through external partners as you address those market needs.

Stefan is on to something. To illustrate his point, I put together these two graphics, based on a hypothetical product delivery value chain. The first graphic might be properly termed, “lightweight open innovation”:

Here’s where Stefan sees the (r)evolution of this:

That’s quite a feat there, isn’t it? Incorporate a greater range of external input throughout your company’s innovation process. As Stefan describes it on page 12:

User-driven is highly related to open innovation, but it has to go further to become open innovation. This happens when you not only get ideas from external sources but also let external players become key players in the process of turning ideas into a business.

The Value of Open Innovation

And what is the value of taking open innovation to a more integrated, advanced level? Procter & Gamble illustrates the benefit. In 2000, P&G CEO A.G Lafley set a goal of having 50% of the company’s products derived from external sources. To accomplish this, the company consciously engaged external parties through its Connect + Develop initiative. Through Connect + Develop, P&G conducted a two-way exchange of ideas and feedback with industry, leveraging a dedicated staff of over 50 people. The results?

  • In 2000, the success rate of new products was 15-20%. By 2008, the new product success rate rose to between 50 – 60%. (pdf)
  • R&D investment as a percentage of sales is down from 4.8% in 2000 to 3.4% in 2006. (link)

The company attributes its success to its open innovation model. And the advantage continues. Diversified, globally-based P&G’s stock price is up 7% over the past 5 years, while the diversified, globally-based businesses of the S&P 500 are down 2%. That’s a 9 percentage point spread.

P&G sees a key benefit of its ambitious open innovation model as this: to be the preferred partner of choice when external parties have a good idea. Think about that. The volume of good ideas that can occur outside your organization is significant. When individuals, academics and industry players do have these ideas, who’s at the top of their mind for partnering? That’s a significant, sustainable competitive advantage.

The Open Innovation Revolution looks at a number of aspects companies need to address to integrate open innovation more fully into their company’s processes.

It Starts with a Vision and Planning

The initial steps are crucial for establishing an open innovation strategy. Stefan observes that you only get “one-and-a-half chances to do this thing right”. So what are the key considerations for organizations considering open innovation?

  1. Establish a clear mandate, a strong strategic purpose and an ideation theme
  2. Conduct a stakeholder analysis
  3. Develop a communication strategy
  4. Build a common language
  5. Include organizational approaches that achieve TBX (T = top; B = bottom; X = across)
  6. Strive to be innovative instead of working to become innovative

His book addresses each of those elements. He also includes examples of companies (often Danish) incorporating these steps.

The step that most resonated with me is the first one, establish a clear mandate. When this is done, it moves the initiative from an interesting suggestion to an approach supported culturally, with processes, management buy-in and identified key players.

But it’s also the hardest and is less amenable to bottom-up experimentation. I say that as someone who has read the value of bottom-up viral adoption and experimentation in the Enterprise 2.0 world. If an organization is going to engage external parties in the co-creation, co-development process, you’d better make sure you’ve got legal and senior management signed-on.

And Stefan emphasizes the issues that will be faced internally at companies as they seek to establish their open innovation mandate. A favorite term of mine is “corporate antibodies”. These are the people inside an organization that will seek to sabotage an open innovation initiative. Why?

They don’t see the effort as 2+2=5. For them, it’s 2+2=2

Essentially they fear having their own projects derailed, and potentially losing their power inside the organization. This is where senior management needs to push the effort, and even crack a few skulls if needed. Here’s how Stefan relates it (page 32):

Mads Clausen, former CEO at Danfoss, was very good at taking managers aside and looking them straight in the eye while telling them that he really believed in this innovation initiative and that he hoped the manager shared his approach.

Innovation leaders must also educate executives on open innovation and, more importantly, must make the consequences of executive decisions very clear.

In Chapter 8 of the book, Stefan addresses strategies for overcoming corporate antibodies.

People, Networking, Roadblocks, Personal Brand and Time Management

Throughout the rest of The Open Innovation Revolution, Stefan discusses a variety of elements that factor into open innovation success.

With people, he has identified two archetypes: innovation leaders and intrapreneurs. Innovation leaders work at the strategic and tactical level to build the internal platform to handle open innovation. Intrapreneurs work at the operational level on initiatives. Key questions he answers are: how to identify and develop these people?

With networking, he applies concepts of social network analysis. And spends some time talking about how you individually can go about your networking. Networking’s value is in finding new ideas and connecting with people globally, and even internally.

Roadblocks include the corporate antibodies, but other issues as well. Top executives may not “get” open innovation. Also, radical innovation is too high a threshold to seek.

Personal brand is a useful term, and one that immediately puts some people off. One interesting tidbit Stefan notes is that establishing a personal brand is seen as manipulative in many countries, but “less so in the United States.” In the chapter discussing personal brand, he includes some worksheets to help you think about your own.

Time management is no doubt an issue for most of us. He includes Parkinson’s Law, which I hadn’t heard of but immediately recognized as true: “Work expands so as to fill the time available for its completion.” He provides advice and frameworks for better managing time.

Admittedly, the personal branding and time management sections weren’t quite my cup of tea. But my guess is they reflect conversations he’s had over the years with many employees of companies who are figuring out open innovation. For example, remember his note that Europeans and the rest of the world outside the U.S. are reticent about this personal branding thing.

Start Thinking about Open Innovation

An area which I’d like to see more is a description of how open innovation works operationally. For instance, do you have existing personnel lead the interactions with external parties? Or is it better to have external connectors lead the coordination? What are the intellectual property issues to be considered? What are the contractual models for sharing the benefits of the effort?

Perhaps this is fodder for a future book by Stefan. But as it is, The Open Innovation Revolution is a smart, rich introduction to the concepts underlying this emerging practice. Stefan knows his stuff, and readers will come away with a better sense of how to prepare their organization, and themselves, for the coming revolution.

I’m @bhc3 on Twitter, and I’m a Senior Consultant with HYPE Innovation.

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How Much of a Relationship Do Your Customers Actually Want?

On the Harvard Business Review, Matt Dixon and Lara Ponomareff wrote a piece that caught my eye, Why Your Customers Don’t Want to Talk to You. Consumers increasingly prefer self-service, and the authors speculate:

Maybe customers are shifting toward self service because they don’t want a relationship with companies. While this secular trend could be explained away as just a change in consumers’ channel preferences, skeptics might argue that customers never wanted the kind of relationship that companies have always hoped for, and that self service now allows customers the “out” they’ve been looking for all along.

For managers hell-bent on deepening relationships with their customers, that’s a sobering thought.

That last line is particularly relevant to the new thinking: that companies need to engage their customers in “conversations”, which social media is enabling. A related question to ask is, do they really want a “relationship” at all with companies?

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What exactly is a “relationship”?

Let’s start with an important point: what exactly is a “relationship”? Put simply, it’s a two-way connection I have with you based on some form of interaction(s). In that sense, buying a product from a company qualifies as a “relationship”. But that’s insufficient. We want to know how deep is the relationship?

The thinking of Mark Granovetter is relevant, provided helpfully by Lithium’s Michael Wu. Four elements determine the depth of a relationship:

  1. Time spend together
  2. Emotional intensity
  3. Intimacy (mutual confiding)
  4. Reciprocity

Now, apply those elements of relationship to the way you think about companies from which you buy. What’s the emotional intensity you have with the power company? Do you find yourself confiding with Amazon.com when you purchase something? How much time are you and your bank spending together?

Those questions point to a more commonly understood definition for relationship: high scores on the four Granovetter dimensions. But scoring high on those dimensions is an insurmountable hurdle for most companies vis-à-vis their customers.

The job your product is hired to do

This idea that companies need to think in terms of the “job their product has been hired to do” is one I learned from Clayton Christensen, Harvard professor and author of The Innovator’s Dilemma. It’s understanding why the customer buys your product, and what needs it fulfills. “Needs” often being different than thinking in terms of the features a product has.

This is what defines the relationship customers want to have with a company.

Leading social CRM thinker Wim Rampen argues this in his post Social CRM – What Relationships Should You Care For, And Why? In the post, he states this:

From a company’s perspective, a relationship with your Customers is not what you need most. You need most to understand what job it is your Customers are trying to get done.

Wim is spot on. That’s the innovation mantra. Nicely applied to social CRM.

The depth of a customer’s relationship depends on the job you’re hired to do

My interest in having a relationship – the deeper, more commonly understood definition – with a company is directly proportional to the complexity of the job I’ve hired you to do, as follows:

Here’s how the different jobs size up.

Efficiency, simplicity, convenience

In a consumer-based world, we have but only so much bandwidth for purchasing things which require lots of our time to engage and use. Mostly, we need commodities.

And you know what? We need ’em fast, reliable and without taking up a lot of time. In this bucket o’ jobs-to-be-done, spending a lot of cycles engaging with many companies in ongoing relationships just will not cut it. How would you get anything else done?

It’s as Jon Husband shared with me on Twitter:

<Do they even want a relationship with companies? #scrm #acinsights> I don’t

The nature of relationships in this scenario is transactional. And there’s nothing wrong with that. My bank gives me efficiency, low cost and no hassles. I’m loyal, but I don’t have a deep relationship with them.

They just happen to satisfy well a job of convenience and efficiency I need done.

Episodic interaction events

Mountain Dew ran a great social media campaign called DEWmocracy. DEWmocracy got consumers involved in a number of initiatives:

  • Ad agency selection
  • New flavor selection
  • New drink names
  • Package creation

The campaign was a great example of an episodic event to drive interactions. This was relationship-building beyond the core product offering. What made it successful is that it extended the job-to-be-done. Sure, Mountain Dew tastes great, and you can enjoy cans of it. That alone really points toward convenience and simplicity, the lowest=level relationship.

But Mountain Dew was able to elevate the complexity of the job. It got people involved in the support processes for the production and distribution. Genius, and of course, risky. But many consumers responded. They found it fun to participate, and Mountain Dew reciprocated, as Ad Age notes:

Once you’ve engaged consumers, you can’t stop. Mtn Dew made an effort to let consumers know why it was taking their advice, as well as why it wasn’t.

Now that DEWmocracy has mostly run its course, the relationship will become shallow again. Until the next event. But it has raised market awareness, and established what the company is about in consumers’ minds.

One last note here. Old Spice’s recent social media marketing blitz was not an example of addressing the job-to-be-done. It was pure marketing awareness, a point well-made by Jacob Morgan. And it worked.

Complex job, long-term usage

SAP. When you think of SAP software, do you think, “lightweight, simple-to-use, rip-n-replace anytime?” No, you don’t. SAP software is legendarily complex and powerful. They are a huge company with thousands of customers, billions in revenue and myriad business applications.

This is a complex job-to-be-done.

SAP maintains a strong customer community and extended ecosystem (including the SAP Developer Network) to manage its relationships with customers. Which makes absolute sense considering the complexity of the job-to-be-done. Customers want a relationship with SAP. Frankly, they need it.

Complex jobs often mean several things for customers:

  • Recurring need to interact with the company for information
  • Higher switching costs, increasing the need to understand what the company’s future direction is
  • Variety of use cases, meaning many ideas for future product versions

It is in these situations where the popular notion of “relationship” most closely matches what customers seek.

The core focus is the job-to-be-done

Clayton Christensen wrote this with regard to the way companies should consider their customers:

With few exceptions, every job people need or want to do has a social, a functional, and an emotional dimension. If marketers understand each of these dimensions, then they can design a product that’s precisely targeted to the job. In other words, the job, not the customer, is the fundamental unit of analysis for a marketer who hopes to develop products that customers will buy.

That’s the perspective  from companies toward customers, not so much for relationships, but for product features.

The job is also the fundamental unit of analysis going the other way, customers toward companies. Understanding the complexity of the job-to-be-done points to how deep a relationship customers want.

I’m @bhc3 on Twitter.

Three Models for Applying Customer Feedback to Innovation

Customers have always been core to companies’ existence. An obvious statement for sure. Customers are the source of cash flow, and have historically been thought of in marketing and transactional contexts.

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But in recent years, we’ve seen the rise of a new way to consider customers. As vital influencers of company activities and strategies. Two popular ways this is taking form are the social CRM movement, and the emergence of open innovation.

If you follow discussions in these developing strategies, you see that there are differing views as to the value of customer feedback. Understanding the different use cases of customer feedback helps organizations to set objectives and expectations appropriately, and to create effective frameworks for engaging customers.

Let’s look at three models for applying customer feedback to innovation.

Customer Feedback and Innovation Objectives

The graph below highlights the three models:

The three objectives on the graph are:

  • Features – product or service requests
  • Product’s “job” – understand the deeper purpose your product fulfills
  • Proposal – putting a new concept in front of customers to understand its key value drivers

The X-axis measures the difficulty of getting feedback relevant to a particular objective. The Y-axis measures the impact on company results for the different objectives.

Some notes on the three models follow. For context, I’m including some ideas proposed by Starbucks customers on the My Starbucks Idea site.

Features

Customers – hundreds, thousands, millions of them – are constantly using your products and services. This makes them well-positioned to suggest future product features and service enhancements. As a customer, you become intimately familiar with a product’s utility, and what else you want to see.

You can see this on the My Starbucks Idea site. Some examples of customer product and service ideas:

  • Use dark chocolate in espresso drinks #
  • More milk substitute options #
  • Healthy food items #
  • Mobile QR codes with payment info and drink order (scan-n-pay) #
  • Separate lines for drip coffee buyers (during morning rush hour) #

Often, I see this type of innovation pooh-poohed, as if it is not worth the effort. I fundamentally disagree with that position. This is the important, block-and-tackle work of serving a large market.

As the graph shows, these individual innovations won’t dramatically change a company’s fortunes. But in aggregate, they become a vital part of the product strategy for companies. Soliciting useful ideas for features is relatively easy.

It is important to remember that no company will blindly follow whatever ideas are suggested.  Innovation here is customer-centered, but not majority centered.

Product’s “Job”

The notion that customers hire your product to do a “job” is one I learned from Clayton Christensen. He stresses thinking of what customers need to accomplish, as opposed to thinking of product features or customer demographic segments. This frees your mind to address products differently than as a collection of features.

The challenge is to go deeper on what the customers are requesting. This is where customer feedback is not the final answer. Rather, it’s an important clue as to what “job” your customers are hiring for. Take a look at these five ideas from the Starbucks ideas site:

  • I need a 24 hour Starbucks #
  • Have late night locations near hospitals #
  • Later Weekend Hours #
  • More comfortable seating and extended hours #
  • New/additional 24hr locations #
  • Open late #

Now as features go, the ideas above are pretty basic. Keep Starbucks open later. But rather than look at them that way, are they providing clues about the “job” customers hire Starbucks to do?

It’s obvious customers are hiring Starbucks for more than a cup of coffee. Starbucks has consciously built out a more lifestyle-based experience. These requests for nighttime hours are indicators that Starbucks has an opportunity to address a new “job”. Here’s my interpretation of the “job” (yours may be different):

People want the solo intellectual pursuits of reading a book, creative writing, researching or getting projects done on a computer. They could do this at home with their own coffee brew or tea. But there’s something social about being around others, even if you’re not engaging with them. You’re connected to the world, as you view it through the periphery of your mind’s focus.

People want to pursue their individual interests, but do it in a way that let’s them feel connected to larger society, be around kindred types and keep tabs on what is happening.

If you accept that as the “job” that customers hire Starbucks to do at nighttime, then the next activity in customer-centric innovation is to come up with other features of the experience that address the “job”.

This is where Starbucks can suggest new features to customers, based on a better understanding of the “job”. The new features can be put out to the customer community for their feedback.

Proposal

Roberto Verganti describes a “proposal” in his book, Design Driven Innovation. A proposal is a product that is not a linear change in your offering, but represents a radical change in meaning. Many purchases – such as a Starbucks coffee – have meaning beyond the coffee. In fact, I’d argue Starbucks has successfully performed a radical change in meaning with its coffee varieties, “baristas” and lifestyle experience. Much different than say, a Dunkin Donuts or McDonalds coffee.

Verganti also takes a fairly dogmatic position against customer-centric innovation. Rather, he argues for vision-centered innovation. The inspiration and sources for vision comes via learning from networks at the edge of societal change, within your industry and outside it. But it’s not without a role for customers after all. As he wrote recently on the Harvard Business Review:

They need to propose new unsolicited products and services that are both attractive, sustainable, and profitable. It is only within the framework of a vision-centered process that users can provide precious insights.

In this model, customers cannot tell you the new, unimagined things they want. Would anyone have suggested a need for Adobe Acrobat, Turbotax, Facebook or Twitter? But once a company has a new proposal for customers, they can become part of the development process. As Russell Ackoff and Herbert Addison wrote in the Little Book of f-Laws (pdf):

There is no point in asking consumers – who do not know what they want – to say what they want. Many new product and service introductions have been disastrous despite the extensive surveys conducted to show that there is consumer interest in, and intention to buy, such a product or service. These surveys have incorrectly assumed that most consumers know what they want.

Consumers can discover what they want in products and services by designing them. It is in design that people find what they want. Furthermore, consumer involvement in product/service design almost always gets creative results.

Engaging customers to get their ideas for something radically different holds great value here. This is not an exercise in determining market interest – although that might be a side outcome. Rather, it’s a process of getting ideas to flesh out this proposal. Let customers help determine the radical innovation of meaning for a new concept.

Progress on the Open Innovation and Social CRM Fronts

The graph above is really more a spectrum, not a series of discrete models. For example, where feature requests leave off and become input about a product’s “job” isn’t a step function. More part of a continuum. But it’s helpful for discussion purposes to describe three models, because there are differences at different points of the spectrum.

As both open innovation and social CRM progress, think about the implications of these approaches on integrating customer feedback into innovation.

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