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May 2011 Archives

The Key to Business Growth Today

Posted by Bill Lee on May 24, 2011 at 03:52 PM

Business growth is eluding a lot of good companies today, as the usual approaches--acquisitions, alliances, pursuing cutting edge technology bandwagons, entering fast growth markets, etc.--turn out to be a tough slog. Here are some thoughts on how the dynamics of growth are changing:

1. The key to growth in the next 5 years will be community marketing.

Companies that get good at building and engaging with customer communities--and we are in very early stages of this compared to what's coming--will be the ones best positioned to achieve sustainable growth. These are the ones that will turn the "loss of control of the conversation" about their products and services into a marketing, sales and product development dynamo for their firms. Those that begin rapidly learning and building expertise now will develop a big advantage.

2. Companies must first dramatically expand their customer value proposition.

 The value proposition that companies can now build for their customers is nothing short of a revolution--one that few firms  yet understand. Even now, most firms and marketing experts speak assume that customer value means only that the firm provides a product or service that helps the customer "get a job done" and provide a pleasant experience in the process. But vibrant customer communities can create value that dwarfs the standard value proposition. They provide customers access to their peers, the opportunity to build relationships, learn and exchange ideas, and gain recognition and status. Saleforce.com's city tour events, for example--live events that put customers together with prospects and the media--allowed customers to show their expertise and how they were helping their own firms succeed. SFDC began calling outstanding customers "Heros" and touting their accomplishments in their advertising.

3. Companies can then harvest dramatically increased value provided by customers.

Companies that engage customers in such ways will then find it easy to harvest tremendous value from customers beyond what they purchase. Properly engaged customers will sell for you, market for you, participate in your community building efforts, spread positive word of mouth, provide valuable input into product development and firm strategy. Customer referrals at some firms, when totaled up company wide, can rival a company's total revenue from purchasing. Salesforce.com found that some 80% of prospects who attended its city tour events and interacted with customers (as opposed to just sales people) wound up becoming customers themselves--a superb "close rate" that founder Mark Benioff credits to such customer sales people.

4.  To powerfully scale the harvesting of such customer wealth, companies will need to build a solid foundation of metrics.

Many companies today aren't even able to tell which of their customers are most profitable simply based on what they purchase--never mind the other value they contribute. But a reasonably robust CRM system, plus a good CFO, can help you put the measure in place that will keep track of this. (And CEOs are often  astonished at the results. Very often, 20% or less of their customers contribute all of the firms profits.) Once that base is established, companies that lead the charge of growth in the next five years will then know who their most valuable referring customers are, which customers generate the most lucrative word of mouth, and so forth. The key to growth will then be to get under those metrics to learn how to create more such high-value customers. The key to growth, in other words, isn't out there with an overpriced aquisition or hard-to-integrate alliance; it's hidden under your own roof.

A Look Inside Apple's Magic Kingdom

Posted by Bill Lee on May 16, 2011 at 12:20 PM

Interesting article in the current Fortune <http://tech.fortune.cnn.com/2011/05/09/inside-apple/>. Some interesting takeaways to me (confirming Steve Jobs' remarkable contrarianism as perhaps the key to his tremendous success).

For example, he dismisses the need for managerial skills, preferring to cultivate process specialists. Indeed Apple's organization doesn't have a matrix structure, dotted lines, committees,or separate lines of business--it's the organizational personification of the firm's simple product line. The Apple meritocracy can be brutal, but turnover is low. The firm has no grand strategy contrary to widespread belief, but can move much more rapidly than comparably sized firms. Jobs regards P&L as a distraction--only one executive in the company has P&L responsiblity. Unlike Microsoft (and a lot of other companies) Apple doesn't look for revenue opportunities and figure out how to capture them. It builds great products within its areas of competency, and then sells them. 

Here's more detail:

 - Steve Jobs is dismissive of "management" skills, and the company has no general managers. Apple has only 70 or so VPs (for 25,000 employees). 

- Instead they develop process specialists--graphic arts, supply chain, coding, retailing, etc. Apple's retail chief, Ron Johnson, doesn't handle inventory, for example--store inventory and all other supply chain issues are handled  by COO Tin Cook, an expert in supply chain management. To Jobs, this approach creates an organization with best-in-class skills. General managers tend to create fiefdoms.

- Not surprisingly, a huge focus of Jobs is to institutionalize what he does so that the company can continue its success when he's gone. As part of that effort he's brought in top academic talent to create case studies of how critical decisions in the company's history were made.

-- Somewhere between a janitor and a VP, "reasons don't matter anymore." It's a hard core, no excuses environment. When a rare recent goof,  MobileMe, happened, he called the Mobile Me team into a meeting, berated them for a half hour, then replaced the executive in charge on the spot.

- That said , turnover at Apple is quite low. 

- Every Monday Jobs and his executive team review the whole business, including every product under development. It's tedious--80% of each meeting is the same as the last one--but it keeps everyone on the same page, an important aspect of the firm's famous ability to focus.

- Everyone knows who's responsible for what--this approach even has an acronym--the "DRI" (directly responsible individual). When a DRI's project appears on the Monday meeting agenda, so does his or her name. DRI names also appear next to action items on the action lists that result from meetings.

- Apple's famous simplicity found in it's small, well defined product line is reflected in a simple org structure.  It has no matrix structure, no dotted lines, no committees,  no separate lines of business, and no general managers. Jobs considers P&L to be a distraction, so only one executive -- the CFO -- has P&L responsibility. 

- The Apple org structure has a center and two concentric circles. Jobs (CEO) is at the center, a small group of a dozen or so senior executives in a circle around Jobs, and each of them has one to five or six executive reports---who comprise a 3d, outer circle.  This is where Apple's speed comes  from.  "If the executive team decides to change direction, it's instantaneous," said one former senior executive. 

- People think the company has some grand strategy, but it doesn't.  What it has is the ability to make and implement fast decisions, including corrections when it screws up. For example, Apple execs completely overlooked that 3d party developers would clamor to develop apps for the iPhone, but were able to respond quickly to the demand when the iPhone was released.

- Every year or so, Jobs gathers a group called the "Top 100" for a three day offsite in an undisclosed location for an intensive strategy session.  Jobs will include people one year and exclude them the next, and some of the 100 are not executives. They're selected for their ability to contribute. At the meeting, Jobs shares his grand vision for the firm going forward. 

- These are the 100 people Jobs would take with him, if he ever had to restart it from the ground up.

- An executive who worked at both Microsoft and Apple distinguished their approaches to business: Microsoft identifies a pocket of unrealized revenue and tries to figure out what to make to capture it. Apple starts with great products and then sells them. "Prototypes and demos always come before spreadsheets" at Apple, as one executive put it.

 

10 Provocative Questions to Ask Your Senior Executive Sponsor

Posted by Bill Lee on May 10, 2011 at 07:19 PM

FROM THE MAY 2011 NEWSLETTER

Last month's issue provided seven tips for better listening to a senior executive--a critical step in gaining her trust and ultimately her active support. Once your senior executive sponsor knows you're listening--and consturctively contributing to the conversation--you can start guiding the discussion to those areas where he or she, and you, can really increase the impact of your reference- and other customer engagement-programs on her goals and ultimately, the success of the business. 

The best way to do that is by asking provocative questions. Following is a list of 10 such questions that raise issues that a) are highly likely to relate to her goals, b) you can help with and c) that if needed, I can provide free resources to help you do so (contact me directly on this). Don't just ask these blindly. Pick the ones that relate most closely to the goals she's outlined with you to this point, using the listening skills we talked about last time. 

And as I pointed out last time, all of this will assume that you have the RIGHT kind of senior executive to approach in this way: one who is open to ideas, values input from thoughtful people, and welcomes pushback and challenges to conventional wisdom (even his pet beliefs). (And if you don't work with such an executive, you might think about finding another one!)

Following are the 10 provocative questions. You and your reference or other customer engaggement programs can help address these--indeed, they already are at some firms. If your senior executive responds strongly to one or more of these and wants further input from you, feel free to contact me directly and I'll get you some:

1. Do we know how much of our business comes through referrals? If not, shouldn't we? Shouldn't it be at least one third?

2. Same questions for influencers.

3. How are our customer retention rates? Have they been holding or decreasing? If decreasing, do we know why?

4. How much of our business (or the relevant line of business) is coming through our website? How much should it be?

5. What impact is our customer community having on our business? If we're touting that we have 500,000 customers in our community, shouldn't we be getting more than 3% / 5% / 10% (whatever the number is) of our business from them directly or indirectly?

6.  We currently sell to mid-level technology managers. Could we sell more strategic solutions to the C-suite at our customer, who have larger budgets,and are less price sensitive?

7. How is new product adoption going? Are we finding enough early adopters? Are the early adopters helpful in selling to our mainstream markets--or are they too different from main stream buyers?

8. How well is our new product development going? Do we keep up with the success rates of NPD efforts? If they're low, are we bringing customers into the NPD process effectively?

9.  What is our system for creating quality references vs. quantities of references? How do we tell the difference? How do we spread this knowledge around the organization?

 - Are we able to measure the impact of individual customers on earnings (not just revenues)? That is, do we know not only how much customers pay, but also how much they cost? Shouldn't we know this in order to better target marketing spend? 

 Some of these may seem pretty bold, but you'll find that if you start slowly and build up, substantial trust and respect will develop with your senior executive sponsor. And that will be key to your success and his.

In Part 2 in our next issue, we'll provide a set of specific provocative questions about customer references and customer engagement in general, that can be used very effectively to increase his support and involvement as your mutual trust grows.