Tuesday, 28 February 2012

Innovation Festivals: A Source of Ideas

Last weekend was the global service jam - billed as 48 hours to change the world. Teams from 40 countries created 350 new service ideas across the course of a weekend - all themed on Hidden Treasure. Its an interesting concept - 48 hours to form - first a team (bear in mind participants have not necessarily met before and therefore can hardly be called a team at the start) - and second a new service idea. And the idea has to be documented and demonstrated. What a great way of engaging people in innovation.

I saw a linked piece in the UK's Guardian travel supplement recently. This time focusing on the innovation festivals that are sprouting up all over the world. Clearly the best known innovation event is TED (Technology, Entertainment and Design), but TED has sprouted a load of local TEDx events (independently organised TED events). I liked the Guardian article because it introduced a range of other innovation festivals, including Wisdom 2.0 in California, South by South West in Austin Texas, The Do lectures in Wales, 99% Conference in New York, Future Everything in Manchester, Likeminds in Devon, Vivid Sydney in Australia, North by North East in Toronto Canada and the unsubtly named World Domination Summit in Portland.

Its fascinating that social media, coupled with networking events are bringing people together simply to enjoy one another's company as they create new service ideas. Where does that leave service deign in organisations? If you have armies of volunteers offering their time and thoughts freely to one another, how do organisations compete with the collective wisdom of the crowd? In fact one could ask whether organisations should compete - maybe the time for open service innovation is upon us.

Andy Neely

Sunday, 19 February 2012

How Companies Learn Your Secrets

One of the most popular stories in last week’s New York Times was provocatively entitled – how companies learn your secrets. Drawing on material for a new book by author and journalist, Charles Duhigg, the article explores behavioural science and analytics in retailing. The highlight of the article is the story of a father who comes to a Target store complaining that Target is sending his high-school daughter vouchers for discounts on baby products. “Why are you sending my daughter these vouchers”, he screams. “Are you trying to encourage her to get pregnant”? A few days later the father calls the store manager to apologise – it turns out his teenage daughter is pregnant after all, she just hadn’t got round to telling her father yet!

How did Target get to know that the girl was pregnant before she’d even told her dad? Simple, through customer analytics – by looking at people’s shopping habits Target and many other retailers can make intimate predictions about people’s lives. Start buying lots of meals for one and the retailers will assume a relationship breakup. Stop buying eggs and the store might assume you’ve got your own chickens! Pregnancy is particularly important because it is such a major life change that it brings many other opportunities for the store. Most of us are creatures of habit. We buy the same toothpaste, soap and deodorant year after year – simply through habit. Research suggests that pregnancy is one of the best times to break old habits and form new ones. Target’s research suggests that an increase in sales of unscented lotions and vitamins is linked to pregnancy. Couple these two facts and the implications are profound. Target can predict who is and who is not pregnant, send those who are likely to be pregnant coupons and vouchers to use and try - in the process - to create new shopping habits for individual customers.

This brave new world, where big brother is watching, offers opportunities, but there are also significant risks for the organisations involved. Privacy concerns and reputational damage can be significant. Just look at the comments on the New York Times article – there are a lot people who are worried about the power of analytics and the potential for abuse of the data. Clearly organisations can see the benefits of analytics, but they also have to weight up the risks and put in place some very carefully considered governance mechanisms to avoid headlines like “how companies learn your secrets”.

Andy Neely and Ed Barrows

Is Servitization for You?

There’s much talk of the servitization of manufacturing – supplementing products with services. The most recent data suggests that some 70% of economic activity lies in the service sector. Yet this figure ignores the significant proportion of service within the traditional manufacturing sector. Capital intense manufacturing firms, like BAE Systems and Rolls Royce, now generate over 50% of their revenues from service and support. Others, such as the oil majors have vertically integrated, offering downstream retail services, as well as upstream extraction operations. The shift to services seems inexorable and pervades many walks of life, but is it for you?

In answering this question there are some basic issues to consider. The first is quite simply are you selling a product that people want or need to own? Some products are consumed during use – think of food or fireworks. Your customer has to take ownership of these products, as they are used during the consumption process and have no resale value after they have been used. Other products are aspirational – products that customers don't need to own, but that they choose to own because of the value the product confers. We don’t need expensive cars to take us from A to B, or expensive watches to tell the time, but some people choose to spend their money on these luxury purchases because of the status ownership of the product confers.

Clearly there is scope to offer services associated with both consumed products and aspirational products. Restaurants are service and they use food as an input. Suppliers can offer to automatically restock restaurant supplies, an inventory management service, associated with food stocks. Some businesses choose to rent or lease aspirational products – luxury cars and even designer watches. In fact it is almost impossible to define a product that cannot be accompanied by a service. The question is where does the value lie. And can the service be delivered efficiently enough to generate a decent return.

For more detail on the shift to services see the Cambridge Service Alliance report – The Servitization of Manufacturing: Further Evidence

Andy Neely, Director Cambridge Service Alliance

The Fallacy of Leading Indicators

In recent months we’ve noticed an increasing number of executives asking “how do I get leading indicators”? It seems that everyone is frustrated by the fact that lagging indicators only report history and what has happened. And in today’s turbulent environment – where past performance is only a weak indicator of future potential – historical data has become even less useful. Hence the search for the magic leading indicators…

The problem with this search is that it is a fool’s errand. There’s no such thing as a leading indicator. Let us illustrate the point. Often people claim that customer satisfaction is a leading indicator. If you satisfy customers today, they’ll come back tomorrow and buy again from you. And even if they don’t come back, if they are happy, they’ll tell their friends about your great product or service and encourage them to buy from you. So customer satisfaction is a leading indicator of future sales.

Let’s look at this from a different perspective – let’s think about the link between customer and employee satisfaction. Many executives would argue that happy employees lead to happy customers. If employees are happy, they work harder, deliver better service, look after the customers more – hence customers are happier. So employee satisfaction is a leading indicator – it indicates what future customer satisfaction might be. But then customer satisfaction is a lagging indicator – at least it is a lagging indicator with respect to employee satisfaction. And therein lies the rub – customer satisfaction is both a leading indicator (with regard to future sales) and a lagging indicator (with regard to employee satisfaction). How useful is a categorization framework that allows a single item – customer satisfaction – to be both a leading and a lagging indicator?

So what’s the answer? All the talk of leading and lagging indicators is meaningless, unless you consider the context. What really matters is the relationship between the measures – the performance model that shows how different dimensions of performance interact and impact one another. To ask the question – what leading indicators should I use is na├»ve. The question we have to ask is what performance model am I using to run this business? A good performance model illustrates the relationship between the different measures, allowing managers to understand how value is created through a network of interacting elements.