Posted by Mark Brousseau
The best technology. The best employees. The biggest budget. The strongest R&D department. Check, check, check, and check! If you think these are all the elements you need in order to build a consistently successful company, you’re wrong. Dan Adams says there is one other factor you’ll need to check off that list—an innovation strategy that works.
“The best way to ensure your company will be a success is to deliver more than your share of customer value,” says Adams, author of New Product Blueprinting: The Handbook for B2B Organic Growth. “Specifically, you need to develop differentiated products that provide benefits your customers crave. Products they can’t get anywhere else at a comparable cost. But you shouldn’t be guessing what they want. You should base your product innovation on what they say they want.”
Adams notes that back in 2007, Booz Allen Hamilton released an important study on innovation called “The Customer Connection: The Global Innovation 1000.” The company studied 84 percent of the planet’s corporate R&D spending and identified several distinct innovation strategies.
Most importantly, says Adams, the study highlighted one essential element of successful innovation that too many companies forget. Your employees aren’t the only people you should be engaging to create truly unique and profitable products. You should actually be focusing your efforts on engaging your customers!
The Booz Allen Hamilton study found that when it comes to innovation, customer engagement has a huge payoff. It noted, “Companies that directly engaged their customers had superior results regardless of innovation strategy.”
"And not just a little bit superior, a lot superior,” says Adams. “Those companies that used direct customer engagement while innovating versus indirect customer insight enjoyed great financial gains.”
In fact, the study found that the companies that based their innovation strategies on customer feedback experienced gains in the following key areas:
1) Profit Growth: Operating income growth rate that was three times higher.
2) Shareholder Return: Total shareholder return that was 65 percent higher.
3) Return on Assets: Return on assets that was two times higher.
“What should you do with this information?” asks Adams. “For starters, if you’re in a conversation about your company’s innovation and nobody’s talking about the customer, realize something might be very wrong. To put it in terms of the study, your company might be practicing ‘indirect customer insight’ instead of ‘direct customer engagement.’ This is a kind way of saying, ‘We’ve lost track of who our innovation is supposed to help.’”
If you think your company needs some innovation help, read on for a few words of advice from Adams.
Take it to the next level. For more than five years, Adams has been helping B2B suppliers engage their customers in the innovation process. In that time, he has almost seen it all! And he’s used what he’s seen to distinguish six levels of customer engagement during product development. What’s your level?
Level 1: Our Conference Room: At the lowest level, you decide what customers want around your conference room table. Internal opinions determine the design of your next new product.
Level 2: Ask Our Experts: At the next level, you poll your sales force, tech service department, and other internal experts to determine customer needs. Better—because more voices are heard—but still too “internal.”
Level 3: Customer Survey: Here you use surveys and polls to ask customers what they want. This begins to shake out internal biases…but doesn’t deliver much in the way of deep insight.
Level 4: Qualitative VOC Interviews: You send out interview teams that meet with customers to learn what they want. This is a quantum leap from VOO (voice of ourselves) to VOC (voice of the customer).
Level 5: Quantitative VOC Interviews: The problem with just qualitative VOC is that people hear what they want to hear. Quantitative feedback drives out assumptions, bias, and wishful thinking.
Level 6: B2B VOC Interviews: Unlike end-consumers, B2B customers are knowledgeable, rational, and interested. B2B-optimized interview methodology fully engages them to take advantage of this.
“If you aren’t happy with your level, don’t worry,” says Adams. “Through solid training and committed leadership, I’ve seen businesses leap from Level 1 to 6 in the space of a year.”
Remember who’s showing you the money. A successful company innovates for its customers, not itself. “That’s because nobody inside your company can pay for innovation,” notes Adams. “Only your customers can do that. So the more closely you engage those who pay…the more you learn what they’ll pay for.”
Make sure you’re asking the right questions. Too often, innovation is misunderstood as the process of coming up with the right answers. “The reality is that it is actually about asking the right questions,” explains Adams. “If the bright people in your company are focused on real customer needs, they’ll run circles around the bright people at competitors who are focused elsewhere.”
Learn to pre-sell. “I believe the Booz Allen Hamilton conclusions are especially potent for the B2B supplier serving a concentrated market,” says Adams. “If you interview the ten largest prospects in your target market correctly, you’ll engage them so they’ll be primed to buy when you launch that new product.”
“So the bottom line is if you want to boost your innovation, you should start by directly engaging your customers,” says Adams. “And do this in a way that allows you to understand their world, focus on their important, unsatisfied needs, and entice them to keep working with you.
"This innovation strategy is great because you are removing the guessing game aspect of new product development,” he concludes. “You won’t have to worry about whether or not your customers will like your new products because you’ll already know you are delivering exactly what they want.”
What do you think?
Showing posts with label product development. Show all posts
Showing posts with label product development. Show all posts
Wednesday, June 22, 2011
Wednesday, March 2, 2011
How real are those price pressures?
By George F. Brown, Jr.
Decisions on pricing are almost among the toughest ones facing business executives. Customers and competitors alike put tremendous pressure on firms that raise prices. At the same time, ongoing increases in the costs of health care benefits, energy, raw materials, wages, and other factors of production cannot be easily overcome without price increases. The question most often asked in discussions about pricing is “How real are those price pressures?” If they reflect fundamental market forces, price increases can translate into lost business and a serious erosion in market share. If they involve posturing and negotiation tactics alone, price increases can remove a lot of the pressure on the coming year’s annual plan.
Four fundamental indicators can help to determine if price pressures are real or not. Each of these can be measured, and provides solid insights into the characteristics of a firm’s business environment that impact on pricing decisions. These indicators are useful in multiple ways. In addition to helping to identify price pressures that must be taken seriously, they are useful when monitored over time and when evaluated from one product line to another or from one market segment to another. Monitoring these indicators over time can spotlight instances in which a product is evolving towards commodity status, with the obvious implications of such a migration in terms of future margins and the need to focus on ways of reducing the costs of such products. Evaluating these indicators across product lines and market segments can allow a firm to focus price increases appropriately, thereby avoiding a strategy that is on average right, but wrong for every product and market segment.
One executive commented that his sales team’s philosophy seems to be to respond to every price challenge that is encountered. That strategy might avoid an occasional loss of business to a competitor, but it has adverse long-term implications. In CoDestiny, we discuss the trap of falling unnecessarily into a vicious cycle of price-based competition. Firms that do so subsequently find themselves having to reduce investments in product development, high-value services, and other ways in which they respond to customer needs and differentiate their offering. As they do so, their products become more and more of a commodity, and price cuts become the only way in which they can win competitive battles.
The first indicator that defines the strength of pricing pressures is the capacity balance in the industry. Simply stated, the more excess capacity that exists in an industry relative to demand, the more real and intense pricing pressures will be. This indicator can change rapidly over time as demand moves with the business cycle. It also can change in a significant step-function way as firms build new plants or shutter older ones. To a significant extent, this indicator is one that is largely outside the control of the individual firm. It can make decisions on its own capacity, but except in a few unique industries, the overall capacity balance is determined by other industry participants. The capacity balance is a very significant indicator; in industries with a massive overhang of unused capacity, the pricing pressures will be incredibly intense, almost overshadowing any favorable implications that might be seen in the other three indicators.
The second indicator involves the degree of “protection” that exists for the business or product line being examined. Protection can be legal in the form of patents or copyrights, but it also can involve the degree of customization, engineering, design, or service embedded into the product. The evidence is strong that such value contributions place implicit barriers to competition and impose significant costs of change on customers that shift suppliers. The customers that elect to buy products which are customized or highly engineered do so because of the value they get from them; as a result, they are not likely to casually shift to another supplier with increased risk of disappointing results. In a common sense way, this indicator reflects the fact that when a supplier’s offering includes elements that are of high value to customers, that supplier should be able to capture some of that value in their pricing.
The third indicator focuses on the business environment into which the supplier is selling. In healthy business environments, pricing pressures are less intense and less real. The measures of health involve not only the supplier’s direct customer, but even more so the customers are later stages further along the customer chain. Every business has seen occasions when everyone is scrambling to keep up with demand. In those circumstances, price challenges are often the furthest thing from everyone’s mind. And every business has seen unhealthy markets, ones in which finding a customer is itself a challenge. In those situations, the tendency is to look back at the supply chain and battle for every dime. Pricing pressures travel along the customer chain. If a participant at any stage of the customer chain, from the lowest tier supplier to the final end customers that use the product, is facing a difficult business environment, the implications tend to ripple along the customer chain, another manifestation of the old saying that a chain is only as strong as its weakest link.
The fourth indicator focuses on the relationship between the supplier and the customer. There are two basic elements to this indicator. On the positive side, instances in which the parties consider each other a “strategic supplier” or a “strategic customer” are ones in which pricing pressures are likely to be less intense. This isn’t to suggest that buyers become soft in strategic relationships. Rather, the reality is that other elements to the relationship are far more important than price, and pricing rarely dominates the agenda of meetings between the two organizations. In strong relationships, the firms involved have largely solved the pricing issue, and can quickly reach agreement and move on to more important topics. On the negative side, our research indicates that the suppliers that rank among the customer’s largest, suppliers whose products are expensive, and suppliers whose products represent a significant portion of their customer’s product cost structure sit on the bulls-eye, attracting the attention of both purchasing managers and competitors.
In the context of various consulting projects, we’ve examined these indicators in many diverse industries and economic environments. Over and over, the result has shown significant variation from product line to product line and from one market segment to another. Such learning has allowed firms to make pricing decisions that were appropriate to the business environment in which they were operating, and to do so on a segment by segment basis. Occasionally, the process has spotlighted sharp shifts taking place from one time period to the next, allowing firms to make forward-looking pricing decisions. The process has also allowed firms to uncover quite a few surprises in the indicators and their implications – and these surprises have been in both directions, some positive ones where firms had inappropriately accepted pricing challenges as an ongoing reality and some negative ones in which firms had been unaware of the pressures that were sure to come. A real strength of this approach is the rigor that it brings to discussions of pricing, allowing firms to get beyond the latest “war story” and to discuss pricing options from a factual base.
George F. Brown, Jr., along with Atlee Valentine Pope, is the author of CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs, published by Greenleaf Book Group Press of Austin, TX.
Decisions on pricing are almost among the toughest ones facing business executives. Customers and competitors alike put tremendous pressure on firms that raise prices. At the same time, ongoing increases in the costs of health care benefits, energy, raw materials, wages, and other factors of production cannot be easily overcome without price increases. The question most often asked in discussions about pricing is “How real are those price pressures?” If they reflect fundamental market forces, price increases can translate into lost business and a serious erosion in market share. If they involve posturing and negotiation tactics alone, price increases can remove a lot of the pressure on the coming year’s annual plan.
Four fundamental indicators can help to determine if price pressures are real or not. Each of these can be measured, and provides solid insights into the characteristics of a firm’s business environment that impact on pricing decisions. These indicators are useful in multiple ways. In addition to helping to identify price pressures that must be taken seriously, they are useful when monitored over time and when evaluated from one product line to another or from one market segment to another. Monitoring these indicators over time can spotlight instances in which a product is evolving towards commodity status, with the obvious implications of such a migration in terms of future margins and the need to focus on ways of reducing the costs of such products. Evaluating these indicators across product lines and market segments can allow a firm to focus price increases appropriately, thereby avoiding a strategy that is on average right, but wrong for every product and market segment.
One executive commented that his sales team’s philosophy seems to be to respond to every price challenge that is encountered. That strategy might avoid an occasional loss of business to a competitor, but it has adverse long-term implications. In CoDestiny, we discuss the trap of falling unnecessarily into a vicious cycle of price-based competition. Firms that do so subsequently find themselves having to reduce investments in product development, high-value services, and other ways in which they respond to customer needs and differentiate their offering. As they do so, their products become more and more of a commodity, and price cuts become the only way in which they can win competitive battles.
The first indicator that defines the strength of pricing pressures is the capacity balance in the industry. Simply stated, the more excess capacity that exists in an industry relative to demand, the more real and intense pricing pressures will be. This indicator can change rapidly over time as demand moves with the business cycle. It also can change in a significant step-function way as firms build new plants or shutter older ones. To a significant extent, this indicator is one that is largely outside the control of the individual firm. It can make decisions on its own capacity, but except in a few unique industries, the overall capacity balance is determined by other industry participants. The capacity balance is a very significant indicator; in industries with a massive overhang of unused capacity, the pricing pressures will be incredibly intense, almost overshadowing any favorable implications that might be seen in the other three indicators.
The second indicator involves the degree of “protection” that exists for the business or product line being examined. Protection can be legal in the form of patents or copyrights, but it also can involve the degree of customization, engineering, design, or service embedded into the product. The evidence is strong that such value contributions place implicit barriers to competition and impose significant costs of change on customers that shift suppliers. The customers that elect to buy products which are customized or highly engineered do so because of the value they get from them; as a result, they are not likely to casually shift to another supplier with increased risk of disappointing results. In a common sense way, this indicator reflects the fact that when a supplier’s offering includes elements that are of high value to customers, that supplier should be able to capture some of that value in their pricing.
The third indicator focuses on the business environment into which the supplier is selling. In healthy business environments, pricing pressures are less intense and less real. The measures of health involve not only the supplier’s direct customer, but even more so the customers are later stages further along the customer chain. Every business has seen occasions when everyone is scrambling to keep up with demand. In those circumstances, price challenges are often the furthest thing from everyone’s mind. And every business has seen unhealthy markets, ones in which finding a customer is itself a challenge. In those situations, the tendency is to look back at the supply chain and battle for every dime. Pricing pressures travel along the customer chain. If a participant at any stage of the customer chain, from the lowest tier supplier to the final end customers that use the product, is facing a difficult business environment, the implications tend to ripple along the customer chain, another manifestation of the old saying that a chain is only as strong as its weakest link.
The fourth indicator focuses on the relationship between the supplier and the customer. There are two basic elements to this indicator. On the positive side, instances in which the parties consider each other a “strategic supplier” or a “strategic customer” are ones in which pricing pressures are likely to be less intense. This isn’t to suggest that buyers become soft in strategic relationships. Rather, the reality is that other elements to the relationship are far more important than price, and pricing rarely dominates the agenda of meetings between the two organizations. In strong relationships, the firms involved have largely solved the pricing issue, and can quickly reach agreement and move on to more important topics. On the negative side, our research indicates that the suppliers that rank among the customer’s largest, suppliers whose products are expensive, and suppliers whose products represent a significant portion of their customer’s product cost structure sit on the bulls-eye, attracting the attention of both purchasing managers and competitors.
In the context of various consulting projects, we’ve examined these indicators in many diverse industries and economic environments. Over and over, the result has shown significant variation from product line to product line and from one market segment to another. Such learning has allowed firms to make pricing decisions that were appropriate to the business environment in which they were operating, and to do so on a segment by segment basis. Occasionally, the process has spotlighted sharp shifts taking place from one time period to the next, allowing firms to make forward-looking pricing decisions. The process has also allowed firms to uncover quite a few surprises in the indicators and their implications – and these surprises have been in both directions, some positive ones where firms had inappropriately accepted pricing challenges as an ongoing reality and some negative ones in which firms had been unaware of the pressures that were sure to come. A real strength of this approach is the rigor that it brings to discussions of pricing, allowing firms to get beyond the latest “war story” and to discuss pricing options from a factual base.
George F. Brown, Jr., along with Atlee Valentine Pope, is the author of CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs, published by Greenleaf Book Group Press of Austin, TX.
Monday, September 27, 2010
It's OK to Look
Posted by Mark Brousseau
Companies pursue patents for a wide variety of reasons -- competitive advantage, company valuation, tax credits and others -- but in chasing patent claims, did you know that it actually benefits companies to look at patent applications filed by competitors, too?
That’s what one patent expert, attorney Roger Maxwell, believes. In his experience, searching competitors’ published patent applications and existing patents has actually helped his clients maximize their commercial advantages and follow the law.
“We can take a lesson from Hollywood,” he said. “Every aspiring screenwriter’s lament is that no producer will ever accept an unsolicited manuscript. There’s a reason for that. In copyright law, just as it almost always is in patent law, lack of intent is not a defense. In other words, if an agent or a producer even opens an unsolicited script, and 5 years later produces a film with elements from that script entirely by accident, they could be sued for copyright infringement. To prevent that, they simply don’t accept unsolicited material unless it comes from a licensed agent they trust.”
Maxwell says that the same principle can be applied for companies seeking patents, only in reverse. Whereas access in the copyright arena can lead to inadvertent copying and infringement, access in the patent area can lead to a better understanding of the state-of-the-art, better product design and better patents.
“It is very possible -- and even likely in some cases -- that one company’s patent may well duplicate elements from someone else’s application or existing patent,” Maxwell says.
“Because intent is not normally an issue, that company could actually be held liable for patent infringement, even if it didn’t know what the other company’s patents said. In the case of patents, it’s important to refrain from having your patent infringe on anyone else’s, even if it’s by accident,” he explains.
So they don’t waste time and money proving they are violating the law and/or setting themselves up to pay damages, it is critical for companies that are preparing patent applications to search published patent applications as well as existing patents, according to Maxwell.
“In examining other applications, a company can ensure that no elements of their applications cross over with something already on the books, even if it’s in an application filed by someone else,” he adds. “If you know what your competitors are working on with regard to their patents, as the public records afford you the capability to do, then you can work to not use any of their claimable technology in the pursuit of your own patent. That adds more weight to your claim and helps maintain the integrity of the system."
"The whole reason for patents is to recognize the proprietary ownership of a company’s intellectual property and to ensure unique ideas and executions of concepts can be protected. If a company finds a patent that it feels may arguably cover its products, it can further investigate the issue. If the investigation leads them to believe that their design does not infringe or the patent is not valid, an opinion from counsel may shield the company from enhanced damages that could triple the actual damages," Maxwell explains. "If the investigation reveals that the patent is valid and infringed the company can either redesign their product or negotiate either a license or a purchase of the patent."
"In my view, the best way to get a great patent is to check all available sources to make sure your application is verifiably unique and free from infringement of anyone else’s ideas already in the patent system,” Maxwell concludes.
What do you think?
Companies pursue patents for a wide variety of reasons -- competitive advantage, company valuation, tax credits and others -- but in chasing patent claims, did you know that it actually benefits companies to look at patent applications filed by competitors, too?
That’s what one patent expert, attorney Roger Maxwell, believes. In his experience, searching competitors’ published patent applications and existing patents has actually helped his clients maximize their commercial advantages and follow the law.
“We can take a lesson from Hollywood,” he said. “Every aspiring screenwriter’s lament is that no producer will ever accept an unsolicited manuscript. There’s a reason for that. In copyright law, just as it almost always is in patent law, lack of intent is not a defense. In other words, if an agent or a producer even opens an unsolicited script, and 5 years later produces a film with elements from that script entirely by accident, they could be sued for copyright infringement. To prevent that, they simply don’t accept unsolicited material unless it comes from a licensed agent they trust.”
Maxwell says that the same principle can be applied for companies seeking patents, only in reverse. Whereas access in the copyright arena can lead to inadvertent copying and infringement, access in the patent area can lead to a better understanding of the state-of-the-art, better product design and better patents.
“It is very possible -- and even likely in some cases -- that one company’s patent may well duplicate elements from someone else’s application or existing patent,” Maxwell says.
“Because intent is not normally an issue, that company could actually be held liable for patent infringement, even if it didn’t know what the other company’s patents said. In the case of patents, it’s important to refrain from having your patent infringe on anyone else’s, even if it’s by accident,” he explains.
So they don’t waste time and money proving they are violating the law and/or setting themselves up to pay damages, it is critical for companies that are preparing patent applications to search published patent applications as well as existing patents, according to Maxwell.
“In examining other applications, a company can ensure that no elements of their applications cross over with something already on the books, even if it’s in an application filed by someone else,” he adds. “If you know what your competitors are working on with regard to their patents, as the public records afford you the capability to do, then you can work to not use any of their claimable technology in the pursuit of your own patent. That adds more weight to your claim and helps maintain the integrity of the system."
"The whole reason for patents is to recognize the proprietary ownership of a company’s intellectual property and to ensure unique ideas and executions of concepts can be protected. If a company finds a patent that it feels may arguably cover its products, it can further investigate the issue. If the investigation leads them to believe that their design does not infringe or the patent is not valid, an opinion from counsel may shield the company from enhanced damages that could triple the actual damages," Maxwell explains. "If the investigation reveals that the patent is valid and infringed the company can either redesign their product or negotiate either a license or a purchase of the patent."
"In my view, the best way to get a great patent is to check all available sources to make sure your application is verifiably unique and free from infringement of anyone else’s ideas already in the patent system,” Maxwell concludes.
What do you think?
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