26 October 2006

Knowledge@Wharton on getting to the heart of the customer

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Getting to the heart of the customer
Knowledge@Wharton, the always excellent online magazine of the Wharton School has published a special report on ‘Smart Growth’ (pdf version) with the subtitle: ‘Innovating to Meet the Needs of the Market without Feeding the Beast of Complexity’.

The report, which is written in collaboration with George Group Consulting, addresses how managers can avoid the creeping impact of complexity and clutter on operational processes and costs.

Interestingly, the first chapter of the three-part report discusses “ambidextrous” thinking where companies “identify the unmet and unarticulated needs of the customer and align their innovation processes to those insights“. The long chapter also discusses the importance of rapid and iterative prototyping during development.

“Companies must discover what innovations customers are willing to pay a premium for, identify their own competitive strengths and free up innovation capacity by removing or managing complexity within the organization’s products, services and operations. The potential reward is a better bottom line and increased visibility with customers, as companies invest in understanding customers’ needs while shedding the excess clutter that can bring down their rivals.”

“According to the book Fast Innovation: Achieving Superior Differentiation, Speed to Market, and Increased Profitability, by George Group’s Michael L. George, James Works and Kimberly Watson-Hemphill (McGraw-Hill, 2005), sources for analyzing customers’ needs might include ethnographic studies; face-to-face interviews with end-users and customers; diaries and intercepts; and expert advice and trend analysis on technology and markets. These help companies measure, explore and make tradeoffs among customer requirements, the authors write. Where differentiation in offerings is calibrated carefully to customer needs and fast-tracked to market, there is larger-than-usual opportunity to realize premium prices before commoditization.”

“What the authors found was that many companies spend too long in development time, and too little time and money in the upfront stage, leading to an inadequate understanding of customer needs. Companies are then compelled to commit more investments post-launch as they begin to understand customer responses and tweak their offerings.”

In an accompanying podcast (with transcript), Mike McCallister, CEO of Humana, discusses balancing innovation and complexity in the health care industry. Humana advocates a consumer-centered model — one in which product innovation is driven by consumer needs.

“Placing the consumer at the center is not easy,” McCallister admits, “because with innovation comes the potential for additional product and service complexity; the trick is delivering complexity only where consumers are willing to pay for it.”

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