Demanding Views

May Release From Harvard
Frames Demand-First
Innovation & Growth (DIG) Model
Challenges Companies To DIG Deeper For Customer Insights

Somewhere in the center of the white board, between the latest and greatest product introductions from R&D and the new competitive growth plan from sales and marketing, there sits a significant growth opportunity. Most companies will unfortunately miss it.
To help locate that key intersection of innovation, changing customer behaviors and competitive success, author Erich Joachimsthaler has built a new framework for customer advantage called Demand-First Innovation and Growth, or the DIG model. It is the cornerstone of a new book called Hidden In Plain Sight: How to Find and Execute Your Company’s Next Big Growth Strategy, scheduled for release in May from Harvard Business School Press.
Joachimsthaler, who has spent more than 25 years studying companies’ connections and disconnections with customers in his role as founder and CEO of consulting firm Vivaldi Partners, argues that companies need to understand the changing ecosystem of demand and identify the biggest opportunities for innovation and growth.
The book draws upon some great behind-the-curtain case studies illustrating the successful growth strategies from such consumer brands as Unilever’s Axe and Procter & Gamble’s Crest White Strips to such B2B leaders as GE Healthcare and State Street Bank. DemandGen Report discussed the DIG model as well as other insights in the book in a conversation with Mr. Joachimsthaler prior to the book’s official release. The following are some of the highlights of that conversation:

DGR: There was an article in a recent edition of Business Week that talked about the “Innovation Backlash.” Do you think all of the hype around innovation has come at the expense of focusing on the needs of the customer?
Joachimsthaler: Marketers who spend all of their time on understanding customer needs are not any better at innovation. Let’s not fall into the simplistic, it’s-all-about-the-customer trap. Those days of better understanding customers are over just like the Reagan Presidency. The problem is far more deeply rooted for American businesses. We have come from a product perspective that began during the industrial revolution. Today we also have many companies that have adopted a customer perspective to business, and there is nobody who should argue against it.
The real problem that stares in our face is that the tough challenges for companies in innovation and growth today is neither solved by following the customer needs perspective nor the product perspective. The key point is: none of these perspectives really help you to achieve dramatic growth through innovation because both perspectives are insufficient, obsolete and have run their course. They don’t really help companies to see the biggest opportunities for innovation and growth in plain sight, right under their nose. Even the so-called customer perspective has lost its usefulness in today’s business environment. The customer perspective is rooted in what we call the need-fulfillment paradigm. Find a need and fill it and they will come. This approach is practiced everywhere, it is generic and worse, it is geriatric, time to retire it and to send it to Florida.

"Even the so-called customer perspective has lost its usefulness in today’s business environment. The customer perspective is rooted in what we call the need-fulfillment paradigm. Find a need and fill it and they will come. This approach is practiced everywhere, it is generic and worse, it is geriatric, time to retire it and to send it to Florida."

DGR: Then if it isn’t about a product focus or a customer focus, where do companies get started to drive real innovation?
Joachimsthaler: My thesis is: if you really want to see the biggest opportunities for growth and identify and deliver breakthrough innovations, you have to start at an altogether different starting point. You have to start with the behaviors of people, not just customers or consumers on their stated psychological needs and preferences. You have to zoom in to a very different aspect of life – not consumer needs, although you may find new untapped or unarticulated consumer needs as you go on.
You have to understand the behaviors and actions of people in their everyday life or work life first and map what I call the ecosystem of consumer demand. Understanding the complexity of this ecosystem of consumer demand is the starting point for identifying opportunities for dramatic growth and breakthrough innovation. The basic unit of analysis of the ecosystem of demand is the behavior of people – how people learn about music, evaluate music, buy music, listen to music, store music and discard music, for example. From this basic analysis should follow a deepened understanding of the social-situational contexts in which these behaviors take place and this necessarily leads to understand the new and unarticulated needs, wants but more importantly, passions, desires, urges and fantasies that people have in their daily contexts.
In a way, Steve Jobs has envisioned this ecosystem of consumer demand, while Sony missed it – even though the opportunity in the MP3 business where right in front of Sony’ executives noses.

DGR: How does that study of behaviors and actions alter the traditional approach of building demand?
Joachimsthaler: We all know that today’s consumer is very different from the naïve consumer of yester-year that considered the 30-second commercial as informative. That still was a consumer in the sense that he or she looked for new products or services to buy and satisfy his or her needs. It is time that companies stop thinking of this consumer and adopt the necessary sophistication about the ephemeral and changing nature of their opportunities – and truly understand the ecosystem of consumer demand they are facing.

DGR: There are several examples mentioned in your book about the impact of online tools as a way to get closer to consumers, either through research or marketing. Do you see "new media" as a key enabler to collaborating with customers and successfully building a demand-first strategy?
Joachimsthaler: Absolutely. The power of the new media is that there are many existing communities that can be tapped into, thanks to what some call Web 2.0 and technologies that enable these communities. However, most companies today still don’t know how to mine these communities for insight, how to fit into these communities, how to connect with them. The new media opportunities are just now beginning to emerge. And we don’t necessarily have the right answers either. We work on various models very intensively right now.

DGR: One of the case studies you cite in the book is Allianz, a global insurance company that had success by marrying marketing and product development. Are the traditional silos that often exist in a big company a hurdle to new models like DIG?
Joachimsthaler: Yes, I believe the silos that naturally develop, as part of growing a business is a big part of the problem. It creates a blind spot for executives and as a result so many opportunities remain for them hidden in plain sight. As you look through the Allianz example, you can learn how to establish a systematic and repeatable process to overcome this blind spot and find opportunities for dramatic growth through innovation, again and again. It is not simply about creating an innovation culture. It is making sure that marketing and product development sit in the same car when taking it on the autobahn of innovation. That’s not easy especially in traditional industries like insurance, but it can be done.

DGR: Another interesting concept from the book challenges companies to find where they fit into customers’ 1,440 minutes each day. Do you see “Day In the Life Diaries” and other similar models being more applicable to consumer products or do they have a place for all businesses?
Joachimsthaler: Reframing the challenge of innovation and growth in terms of how to fit into the 1,440 minutes of people’s every day life is indeed a powerful exercise. It changes the objective function away from the better, faster, cheaper arms race that underpins much of the innovation mindset of today. It works well in the context of consumer products, where our company has worked with numerous clients.
However, in the book, I describe applications in B2B sectors such as financial services with State Street and medical technologies at GE Healthcare. The most prolific applications of the DIG model can be found in the industrial services and other application areas. At the end of the line, there are always people and whether they are people who buy a razor and a blade or apply sophisticated technologies in their jobs, is not really the issue.

Former Cisco Exec Spotlights
Power Of Evidence Marketing
Case Studies, Industry Proof Points New Tools

The transformation from product selling to solution selling has already had a significant impact on markets like information technology, where buyers are highly sophisticated and products quickly become commodities. One of the key results of that transformation has been the growth of “evidence marketing,” according to Amir Hartman, a former senior executive at Cisco Systems and author of Ruthless Execution.
Many other markets are still at the beginning of the change cycle in terms of evidence marketing, but Hartman suggested the trend is moving far beyond technology. He pointed out that the early adopters of evidence marketing and consultative selling have seen growth in incremental sales, as well as improved customer loyalty and higher average margins.
Referred to in some industries as “value engineering” or “consultative selling,” Hartman defined evidence marketing as a disciplined approach to assessing and enhancing the customer experience. In more basic terms, he referred to evidence marketing as “talking about how you can solve point points or problems.” In addition to case studies and customer testimonials, he suggested these strategies should utilize fact-based quantitative measures as well as industry-specific customer proof points.

“Some companies have been willing to take on some risk by adopting gain-sharing scenarios like value-based pricing, where they establish a baseline price and then agree upon a sliding scale based on achieving certain milestones.” -- Amir Hartman, Mainstay Partners

Hartman is currently the managing director of San Mateo, CA-based Mainstay Partners, which provides strategic services to such companies as Oracle, Honeywell and Motorola. During his career, Hartman was one of the chief architects of the successful consultative sales approach adopted by Cisco Systems. He is also on the faculty at both Columbia's Graduate School of Business and Berkeley's Haas School of Business, where he teaches in their Executive MBA programs.
Back in 1997, Cisco created its Internet Business Solutions Group to work closely with top accounts to build executive level relationships and develop business justification for technology investments. During its first five years of existence, the launch of IBSG was credited with helping Cisco achieve over $200 million in competitive wins and increase average customer deal size by over 20%. “Cisco is a great model of converting what could have been a black box company into a thought leader that talked to its customers about business solutions,” Hartman said.
Since building a large consultative sales organization like Cisco’s requires a significant investment, Hartman suggested that smaller companies have looked to hook up with customer peer groups or offer deep dive business assessments. “Some companies have been willing to take on some risk by adopting gain-sharing scenarios like value-based pricing, where they establish a baseline price and then agree upon a sliding scale based on achieving certain milestones,” he said.