It is a well-known fact that early customer involvement in product or service development leads to better results in the marketplace, much higher quality and lower costs. Despite the fact that this practice has been considered a best practice for several decades, most entrepreneurs and small business people still fail to follow it. The results are predictable and almost always negative. Continue reading
The Human Body’s End of Life Process
On June 19, 2012 the New York Times published an article, “The Body’s Protein Cleaning Machine” about the Nobel Prize winning chemist Dr. Avram Hershko. His life work has been on understanding how the body’s cells rid themselves of old, defective proteins. Every cell has a protein ubiquitin that tags old and degenerated proteins for destruction. “Maybe you’ve heard of Parkinson’s disease and Alzheimer’s? There we have bad proteins accumulating in the brain and destroying brain cells. The reason we don’t get Alzheimer’s when we are 10 is that when we are young, the bad proteins are disposed of quickly. With age, the cell’s machinery may lose the ability to do that.”
This very interesting notion that the body has a built-in mechanism to rid itself of bad proteins reminded me of old lessons about the need for our businesses to have a similar mechanism. Product obsolescence is a terrible drag on sales and gross margins. A better strategy is to have an end of life process to drive out product obsolescence. Peter Drucker ((Peter Drucker, The Effective Executive, Harper Colophon Books, p.108)) put it this way:
Systematic sloughing off of the old is the one and only way to force the new. There is no lack of ideas in any organization I know. “Creativity” is not our problem. But few organizations ever get going on their own good ideas. Everybody is much too busy on the tasks of yesterday. Putting all programs and activities regularly on trial for their lives and getting rid of those that cannot prove their productivity work wonders in stimulating creativity even in the most hidebound bureaucracy.
Are you persuaded that your business needs An End Of Life Policy? Continue reading
Fast Company published an interesting article about an old story, 3M’s innovation culture yesterday, “How 3M Gave Everyone Days Off and Created an Innovation Dynamo” by Kaomi Goetz. The article repeats the well-known story of 3M’s policy of giving employees time to develop new ideas.
There is a critical element missing from this story.
I have not read Tim Brown’s book Change By Design, but this TED talk strikes me as very valuable in itself. I look forward to reading the book which has just been published. The focus on involving end users, rapid prototyping, systems thinking resonates for me. Lean practitioners will find much in common here. It is great to hear a designer talk forthrightly about the ephemeral nature of most design efforts and even alluding to how much design is gratuitous design.
Learn where value really comes from and how to leverage total value.
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At a recent business meeting, Stephen Giulietti (VP Wealth Management at Smith Barney, Boston), dropped this business aphorism in the midst of a story,
“Price is only an issue in the absence of value.”
This pithy little sentence reminded me of the continuing importance of the concept of “value”. One tough part of understanding and leveraging “value” is to understand where it originates.
Most business people act as though, and believe, that value is something that they develop, design, promote, sell, and produce for customers. Every function in a company believes that they produce value for their customers. Marketing and product development invent, position, and promote customer value. Every other function along the way to the actual delivery of a product or service to the customer declares that they are producing value for customers. But, ask, “How do you know that you are producing value for customers?” Very few can demonstrate that they systematically ask real customers to evaluate the value provided and actually act on the feedback they receive. So, this value is a self-defined and self-evaluated proposition.
The toughest point about “value” is to actually understand and embrace that customers define value. They define it as they make purchase decisions for products. In the case of services, customers continuously evaluate value. This occurs through those Moments of Truth ((you can download a whitepaper on Moments of Truth – “Managing Moments of Truth – Value Creation for Services Organizations” from our Resources page )) that happen every time a customer engages you for a service. It is easy to say, “Customers define value”. It is enormously difficult to follow the logic of this statement and implement the processes to assure that value definitions flow from customers. This commonly starts at the very beginning of the product development and marketing processes. Then, other processes pick up and carry it throughout the life cycle of a customer relationship.
Start with some basic ideas and work to the more rigorous. For example, think through the implications of the age-old selling technique, FABing (Features, Advantages, and Benefits). Most of us are reflexive and exhaustive in listing the features of our services. But, discipline yourself to confirm what the benefits are. Here is the parallel with the principle that customers define value, customers only buy benefits. Start with benefit statements and work backwards to the supporting advantages and features. This simple tool, applied to the new product development process, for example, means that you actually ask customers to help you invent the product/service. They get to define the benefits they are seeking. Then, engineers and others can develop the features to supply the benefits. Always ask, “How does this feature deliver a benefit customers said they want?” This will help to prevent feature creep and gratuitous design.
Now back to our aphorism – “Price is only an issue in the absence of value.”
Now that we think that we might have a method for determining what a customer desires in a product or service, how do we attach a monetary value to it? Our aphorism suggests that if we can present some real value to customers, then the price we charge will always be OK. However, if you are involved in a commodity, or near commodity business, for example, pizza, automobiles, refrigerators, aspirin, and so on, you are stuck with the fact that the price is quite driven by direct comparison shopping. So, by and large price really is an issue.
Some of these commodity markets actually offer substantial price ranges based on perceived brand valuations. Think of the price of Bayer aspirin versus generic aspirin, for example.
But, for most small businesses the only brand available that can win the higher price is one supported by real values like proximity, friendliness, promptness, politeness, courtesy, responsiveness, reliability, thoroughness, and others. Note that these values can be produced reliably and repeatedly. Note that these values offer opportunities to build a sustainable advantage over competitors.
These values apply to professional services, retail, home services, medical, wholesale distribution, in fact anywhere where business is conducted between humans. Without much of a stretch these same values apply on the Web.
The key challenges for most small businesses, especially those involved in services, is to correctly understand the total value you are delivering to customers. And, you must present this to customers in a manner that upsets their mental framework, their points of view, that they approach the service with. For example, is a will just the 20 page document that costs $800 placed in your hand? Or, is a will really a series of services that encompass uncovering your real desires for passing things and values along to your heirs and ends after your death with the proper carrying out of your wishes? An initial difficulty is to overcome the presumption by the customer that a will is just a document. How do you upset that framework and replace it with a new one that encompasses a larger, more valuable, cycle of services?
There is no cookie-cutter solution to this. But, the first necessary step is to envision the value, ask customers about this new vision, revise the vision based on what you learn, and then you will be positioned to answer the questions: (a) how do I reframe the value proposition, and (b), what monetary value do I attach to it?
I believe that if you do a thorough job of answering the first question then, in fact, assuming no craziness in the valuation, the aphorism will hold:
“Price is only an issue in the absence of value.”