“IN SEARCH OF INNOVATIVE EXCELLENCE”

Opening remarks

 Research by McKinsey on the long-term robustness of the 100 largest companies on the NY Stock Exchange shows that almost 50% of the ones that focused on the bottom-line and on shareholder returns rather than on top-line growth got acquired or were delisted. (1)

To enable the enterprise to sustain top-line growth

i.e. sales, business leaders need to ensure that the enterprise excels in the development and in the deployment of collective innovativeness, the core capability that generate innovations and not just on a few spots, but over a good part of the business.

To facilitate the search of innovative excellence I break down the tasks and the teams on the links of my model of the 5 <value-chains>, which features the 2 external value-chains respectively of the customers and of the providers, and the 3 internal value-chains respectively of the operations, of the support, and the management. (2)

1.   In search for innovative excellence on the 2 external value-chains

Let us start with the ones who ultimately pay for our upkeep, the customers. For a granular look at the value created for and with the customers, McKinsey and other consultants talk about the “customer journey” and about the “customer experiences”. We prefer to focus on the <customer value-chain>, and, based on the work of Brad Gale, on the <customer recognized value>. (3) On each of the links of the customer value-chain, we should evaluate the effects that the different people and that the different products have on the customer recognized value. To appreciate the innovations or the lack of innovations on the customer value-chain, let us recall some of the basics of the customer recognized value.

The customer recognizes if the product meets or doesn’t meet the “musts” or needs i.e. the set of features or benefits considered indispensable for the purchase. Conversely the “wants” or wishes concern a set of more subjective and subtle appeals that can be measured on the Likert scale of 1-5.

To zoom in on the customer recognized value, the notion of the “product” should be broken down into the 5 product- deliverables as follows. (4) The primary deliverables meet the “musts” that lead to the purchase. The augmented deliverables meet “wants” that are appreciated. The auxiliary deliverables just come with the primary deliverables like the invoice, but the “wants” may concern features like clarity. The personal attention meets both “musts” and “wants” and it plays a key role in the services. Last but not least, the intangible deliverables like the brand, the design, enhance the perceived customer recognized value.

As already mentioned, link-by-link and for each of the pertinent 5 product-deliverables, we should look at who has innovated what with what results, what has not yet been innovated but maybe should be innovated. Let us not forget that certain links and certain product-deliverables are more important than others. Substantial progresses have been made with analytics, with big data, with the cloud, with intelligent robots, and now also with artificial intelligence.

Innovative excellence results from the investment of a combination of tangible and intangible resources, from their processing, and ensuing creation of value on the corporate resources. The collective innovativeness puts into gear mainly intangible resources, thus merely fixating the tangible resources will end-up sub-optimizing the creation of the <business-value>. (2)

Peppers & Rogers observed that customers have a variety of needs and wishes; some of them are manifest while others remain latent. Perspicacity and a holistic view of the customers habits and needs across the configuration of deliverables can bring out the latent “wants”, and it can even show opportunities for the innovation of the “musts”. (5)

Theoretically, there is an almost unlimited potential for differentiation. Therefore, Peppers & Rogers are strong proponents of migration strategies that seek to move customers from a low differentiation to a high differentiation of their needs and wishes. Marketing should be able to figure out the value-added to the customers recognize in the differentiated deliverables.

Traditionally, supply follows demand. But that is also changing. Akio Morita, one of the founders of Sony and a contributor to the innovation of the Walk-man, submitted: “Our plan is to lead the public with new products rather than asking them what they want. The public does not know what is possible, we do.” Morita’s words have turned out to be of high actuality.

Customer-intimacy, interactivity and information-flow, and the resolve to work together enable the enterprise to establish a partnering relationship with the selected customers and thus to create <customer-capital>, an intangible asset.

The assessment of customer capital is not as straight forward like subtracting liabilities from the assets on the balance sheet. However, the favorable effects of customer loyalty, of referrals, and of the alignment of the business system can be estimated. Moreover, the cost of customer defection can also be estimated. Albeit an intangible asset, customer capital, brand capital, and patents can be shown on the balance sheet as goodwill. The development of customer capital should be spelled out as one of the strategic objectives of the enterprise, and the pertinent distinctive capabilities must be constantly developed.

While much of the literature focuses on the final customers, industrial customers also deserve a careful, link-by-link analysis of their recognized value. Dealing with industrial customers is more factual based, but personal relations can be more even important than with the final customers.

The other external value-chain concerns the providers, i.e. the producers and distributors that serve the enterprise. The providers’ value-chain can be analyzed and managed with an approach similar to the one advocated for the customers’ value-chain. With the principal providers, the enterprise builds supply-chains that integrate the 5 <P> of innovation, namely: the innovation of products, of processes, of policies, of partner-relations, and of the platform(s).

 2.   In search for innovative excellence on the 3 internal value-chains

There is a justifiable bent to fixate the external value-chains because this is where money is made. However, the internal business-environment must change and it must innovate at least as fast as the external business-environment or it will be out phase, and it will end-up stymying the overall innovative excellence.

The people of the 3 internal value-chains - i.e. the operation, the support, and the management value-chains - work hand-in-hand to optimize the results on the 2 external value-chains. The people and teams on the 3 internal value-chains interact with the people on each of the 2 external value-chains.

Let us take a quick look at how things work out.

The effectiveness and the efficiencies of the interactions on the internal value-chains ensures the connectivity, creativity, and celerity that underpin innovative excellence.

The people on the links of the operations value-chain have their assigned tasks, and work closely with people on the customers value-chain or on the providers value-chain. They are where the actions take place, they live on a daily base the results of innovation-projects, they see the results and they take the appropriate initiates. They keep a vigilant eye on competition. The people on the operations value-chain call on their colleagues of the support value-chain if they need help, and they interact with people on the management value-chain as concern strategic guidelines, R+D, production+ logistics, finance, and – if needed – legal assistance.

The people of the support value-chain act like internal consultants. They may be charged with customer surveys and focus groups, they may implement immersive technologies, interactions with machines, and break-out tools like eye-tracking. They will disseminate best practices. In connection with their colleagues of the other internal value-chains, the people of the support value-chain will evaluate the performances and potential of the collective innovativeness and of the innovation-projects.

The people of the management value-chain steer, stir, and support the collective innovativeness and the innovation-projects. The management must be flexible in applying the resource allocation process; ready to fund promising proposals, ready to let projects to fail fast while protecting the innovators.  

The management must look to the synergies between the 5 <P>, i.e. the products, the processes, the policies, the partners, and the platform(s). It gets involved in the partnership-deals with core-customers and with principal providers.

The management will lead a creative consensus among the leaders of the 3 value-chains on the evaluation of the performances concerning the collective innovativeness, of the innovation-initiatives, and of the innovations that have been launched. It will trigger plans on how to grow organically or through acquisitions the core capabilities.

However, it should never happen but sometimes it does happen that the people on the internal value-chains interact better with people on the external value-chains than with other people on the internal value-chains. Most often the culprit lies in the management-system that forces people to follow rules rather than reason.

Closing remarks

The title of his paper was inspired by the seminal work of T. J. Peters and T. H. Waterman “In Search of Excellence”. (6)

Excellence is an ambition and a stimulation. In search of excellence is an important journey that many people undertake to harvest individual as well as for collective rewards. Because it is important and because it involves many people in different positions, this journey needs to be steered and stimulated by the business leaders.

To facilitate this journey, I have expanded on the value-chain model developed by Prof. Porter (6) into the 2 external value-chains respectively of the customers and of the providers, and into the 3 internal value-chains respectively of the operations, the support, and the management. The effectiveness of the interactions on the value-chains fosters the connectivity, creativity, and celerity which underpin the innovative excellence.

The search of innovative excellence should not be seen as another program that senior management hurls top-down, but as a natural routine that springs interesting interchanges.

 Bibliography

1.   Cventanovski, Hazan, Perrey Spillecke “Growing faster than the market”  McKinsey 12/2018

2.   W. A. Sussland “The Platform of Agile Management” Routledge 2018

3.   B. Gale “Managing Customer Value” Free Press1994

4.   W. A. Sussland “The innovative Enterprise” Create Space 2010

5.   D. Peppers and M. Rogers “Return on Customer” Marshall Cavendish 2005

6.   T. J. Peters and T. H. Waterman “In Search of Excellence” Harper Row 1982

7.   M. E. Porter “The Competitive Advantage” the Free Press 1985