Do you know how much your customers needs have changed?

 I'm writing a (probably too soon) series of posts on what I've learned as we all return from the COVID epidemic.  Previously, I wrote that companies will need to focus on business model and process innovation over product innovation.  You can read that post here.

Today, I'm focusing on customer insight and why it will be so important now and in the short term (next 6-9 months).  The good news about the economic rebound is that everyone is going back to work, and the economy is picking up.  The slightly more interesting news is that consumer expectations and demands have changed during the pandemic, and you cannot expect that consumers have all the same wants and needs, or that they place the same emphasis or priority on the needs they had in the past.

An Emerson quote

It helps as a writer to acknowledge the great thinking and helpful quips from previous generations.  Emerson is helpful in this context.  He wrote that "A mind, once stretched by a new idea, never returns to its original dimensions."  I've used this quote in other blog posts, but it has never been as relevant as it is right now.

COVID didn't just stretch us, it pummeled us, isolated us, contained us, and in many ways changed us.  For some, it taught self-reliance.  For others, it taught them to learn to slow down.  For others, it taught them what they can do without.  For others, it changed focus and priority.  No matter what, everyone in the US, and for that matter, around the world, has been through some significant change.

The question we have, then, is:  will consumers come back and acquire and consume products and services in the same quantities, and at the same rate, as they did before the pandemic?  Anyone who creates products and services and simply forecasts that the market and consumers will return to the same level and type of consumption are kidding themselves.

Take me, for example

What COVID taught me is that I don't need as much stuff as I thought I did.  As a result, I'm trying to acquire less, and be more thoughtful when I acquire a new product or service.  I look at a closet full of clothes that I'm not wearing and think - why buy more?  I look at the foods available to me in a grocery store and think - why not cook rather than go out to eat?

Staying at home and avoiding crowds has made me think about appreciating and spending time with friends and building tighter bonds.  My spending habits, my acquisitions, my wants and needs have changed.

While I may be an unusual case, I'm not the only person whose habits, spending and behavior will be changed, for some period of time or perhaps forever, by COVID.

What do we need to learn or know?

If this one simple example tells you anything, it should tell you that companies that produce products and services need to gain a new understanding of their customers.  How have their behaviors changed through COVID?  Will they return to their "normal" behavior, or do they have new priorities and values?  What are the new, emerging wants and needs?  How do we create products and services and experiences that align to new expectations?

This all means that doing deep customer research is vital, and by this I don't mean asking a few people haphazardly or conducting a few surveys.  My sense is that people's behavior, values, relationships with each other, with money, with "stuff" has all changed.  It's going to take a lot more empathetic inquiry to know what has changed, how much things have changed, and how permanent these changes are.

Ethnography/Empathy/Appreciative Inquiry/Design Thinking

Doesn't really matter what you call it - you need to go out and get this done.  I think we'll see a real opportunity for companies, large and small, that can suss out what people really want and need now, and who can shift their creative energies into creating new products and services and experiences.

Any company assuming that everything and everyone is simply going "back to normal" is missing a major shift in the environment, and will miss substantial new opportunities and markets. 

How urgent is the need to understand how the market and consumers have shifted?  How much time are you spending on new attitudes and behaviors, new consumption models and patterns in your customer base?  I think there's a very high need for a lot of good market research now.

 

Burning Platforms and Business Models - Innovation lessons from COVID

Now that the COVID outbreak is increasingly in the rear view mirror, at least in the US, I thought it might be time to consider what innovation lessons the outbreak has for us.  Over the next few weeks I'll work up a couple of blog posts about what I think the outbreak, our reaction and the aftermath of COVID can tell us about innovation, creativity, new product development and more.

Today, I want to focus on the concept of first to market versus first to scale, and why most companies are placing far too much emphasis on innovating products when they should be focused on innovating processes or business models.  I'm also going to address briefly the need for burning platforms as an impetus for innovation.

What the US does well

Where health care and government provision of health care is concerned, the US does a few things well and a lot of things at best mediocre.  Our healthcare system is a mish mash of private, federal, state, military and other programs pieced together, which satisfies few people and costs more than necessary.

As you'd expect, we are probably the world leaders in developing and deploying new technology and pharmaceuticals to address first world issues, but these technologies are exceptionally expensive.  We aren't necessarily very good at day to day health care and health maintenance, and many people in the US lack even basic health care due to affordability issues.

This is what the US healthcare system looked like when we headed into the pandemic.  Not to mention the fact that the population suffers from first world problems like obesity and a lack of regular exercise, leading to more health care issues, and we have a rapidly aging population which consumes perhaps more than its fair share of the health care expenditures.

Covid and the reaction to COVID

When COVID first hit the US, we reacted to the virus in much the same way many people react to any new threat.  At first we ignored it, thinking it was an issue in China.  Then we downplayed the issue as more people in the US became ill, thinking that our first rate health care system would address the issue.  Then we panicked and did what we probably should have done initially - clamped down on interactions and travel and got serious about wearing masks.

It was about the time we got serious about COVID that another thing happened.  We in the US did something that our businesses, government and philosophies allow us to do very well - move quickly and effectively to find a solution, that is, once we all agree there is a serious problem.

Learning #1 - Never let a crisis go to waste

And it is this one idea that I want to focus on today - that whether we are talking about political problems, healthcare problems or more mundane problems like how to create a new product for a customer, every organization must recognize and agree that a problem exists, and determine that a concerted effort to create a new product or service is the only way to address it.  These are the bare minimum thresholds for innovation to gain the support it needs.

In the business world, we call this a "burning platform" - a problem so important and dire that it gets everyone's attention, and all of the normal hemming and hawing about whether or not to address it goes out the window.  In fact, the problem becomes so important and urgent that solutions that would normally be laughed out of the building become viable.  If you want to succeed in really interesting disruptive innovation in most organizations, you need to manufacture a crisis, or use a crisis to your advantage.

Learning #2 - Having a capability to organize and scale is most important

The US was terribly slow to react to COVID, but its business economy has a wonderful ability to move quickly when it needs to, so the government and major pharmaceutical companies combined to clear barriers, accelerate research and conduct meaningful trials of vaccines in record time.  Again, it's amazing what can get done in a crisis.

But here's the second important idea.  We were the laughingstock of the world, due to our "advanced" healthcare system but very high COVID infection rates.  In short order we went from a terrible healthcare criss to one of the world leaders in immunization.

The reason is NOT that we have the best ideas.  Vaccines were developed in many countries simultaneously.  Good ideas are like oxygen - they are everywhere.  And, it's not that our ideas are better than other countries' or scientists' ideas.  There are only so many ways to make a vaccine.

So, if ideas are relatively free, and if product ideas are ubiquitous, what wins?

Except in very specific niches or highly patented and protected spaces (which pharmaceuticals is normally one), what wins is the ability to scale an idea and get it to market.

What the US has, and what our businesses have, is an amazing ability to scale when we put our mind to it.  And this is the second learning for me from the pandemic.  Whether we are talking about governments or businesses or health care or any other organization, a significant amount of our focus should be to constantly innovate our ability to scale.  If good ideas are ubiquitous and relatively inexpensive, then it will be the companies that identify the best ideas and get them to an interested market at the right time that will win.

This means that the focus for innovation should be on how to develop and scale the best ideas quickly, which is really a focus on process and business model innovation.  The focus on process innovation should be obvious, but the business model innovation focus may not be quite so obvious.  Here's why I think business model innovation may become far more important.

Innovating the business model

The business models of most companies are relatively inflexible.  Once a company reaches a certain size, its ability to operate is relatively fixed within certain constraints, and changing those constraints may mean changing long held beliefs and deep investments in channels, people or technology.  This is the flexibility-efficiency tradeoff.  So far, it's been difficult to be both highly efficient AND highly flexible.  I think that in the future we may see more flexibility built into organizations so that they can adjust more readily to more rapidly emerging market conditions and consumer demands.

If these ideas hold merit, it will mean a greater focus on flexibility and adaptability to market needs and consumer demands, and the ability to adjust to sudden shifts such as COVID.  I think these factors are increasing and we'll see continued shocks to markets and economies, forcing companies to constantly rethink and readjust their business models.

Which means there needs to be a greater focus on how, when, and why to innovate a business model.

 

It's past time to think the unthinkable

 I've been noodling lately about what new way of thinking or new perspective or approach we can bring to companies and organizations that may help break what I think is a current innovation gridlock.

Today, a LOT of companies are talking about innovation (and digital transformation) and some are practicing what I'd like to call innovation theater - that is, doing some window dressing around innovation without actually committing to a real innovation program or deep change.  We can argue about the reasons for more talk and less real action - risk, time, money, COVID, etc - but that's not really the point.

The point - at least for this post - is to get businesses and people to think about what we really need:  new ways of thinking, new business models, new profit centers, new ways to go to market, new products and services and so forth.  I think people are tired of talking about innovation because it is a capability that needs an outcome.  Let's focus on the outcome, rather than the process or tool.

It's also time to start thinking about the unthinkable.  Generally, most change happens on the margins.  We start "changing" from a position of strength, in the core and work our way to the edge or margin of a business or industry.  From there we may stretch to adjacent industries or markets, but that's about it.  This is the least risky way to change and it aligns with our experience and business models.  But what if those older experiences and business models don't work in an emerging new reality?  This is the time when thinking about things that may have once been unthinkable becomes a reality.

Example: Doing away with the filibuster in the US Senate

For example, let's look at the political brouhaha around eliminating the filibuster in the Senate.  Both sides - the Democrats and the Republicans - are hypocritical when it comes to this rule.  Twelve months ago, if the Republicans had attempted to eliminate the filibuster, the Democrats would have raised Cain because the Republicans would have used the new rules to their advantage.  Now that the Democrats are in charge, they are happy to consider eliminating the filibuster because the Republicans may use it to block new legislation.

What they are both missing is the question - should we have a 60 vote requirement for EVERY piece of legislation?  Wouldn't we be far more likely to get consensus bills if the process required that the bill have 60 votes to pass?  Then, there would be no way for one party to force a measure through to passage.  Both sides would actually have to work together to pass legislation.

Perhaps we should be thinking the unthinkable in our politics - require more engagement and more votes to pass every bill, rather than trying to get the bare minimum to pass any bill.  Rather than eliminate the filibuster, make 60 votes the rule for every bill.

My recent shopping trip

One of the things I noticed while out on a shopping trip recently (to visit the strange new world of Aldi) was that the strip mall I was in contained almost no retailers, other than Aldi.  A strip mall that once had a clothing store, an auto parts store and so on is now almost entirely populated by restaurants or services organizations.  In fact the strip mall I visited was full of storefronts for guitar lessons, dance lessons, fitness camps, smoking cessation, insurance companies and so on.

Our economy is shifting rapidly from a "go get stuff at the store" to a "go get knowledge or learning".  We were a manufacturing economy, then we were a consumer driven economy.  Now we are a consumer economy that gets delivery of physical stuff, but strangely we still go out to get knowledge and experiences.  Part of the reason for the shift is home delivery, part of it is exhaustion at being online and part of it is a desire to experience and learn new things.  We are rapidly becoming a learning economy, with services delivered away from the home.

What happens if all of the physical stuff we need - groceries, paper goods, clothing, PCs, and so on - are simply shipped from large distribution centers, that is, we never physically shop for these things - and what we "go out" for are learning and experiences?  What does that do to existing shopping centers, busy highway intersections and so forth?  

Moreover, how does this shift our economy?  Today, most states get revenue from sales tax and income tax.  If sales tax on physical goods stays the same or falls, we will need to make up the difference on taxes on services, experiences or learning.  My home state of North Carolina has already begun taxing some services, and I think we'll see this grow and continue.

It may be time to think the unthinkable about how we live and work, and how state and local governments fund themselves.  

We don't want stuff to encumber us

Recently, a good friend offered us a valuable and beautiful dining room table and chairs.  This would fit very nicely into a dining room where we have a nice Persian rug we bought years ago.  However, both my wife and I decided almost instantly - no, we don't want the furniture.  Not because the furniture isn't nice, not because it was the wrong design or color.  We decided we don't want it because, similar to many other people I think, we don't want more stuff.  In fact, if anything COVID taught us we don't need a lot of stuff.

So, what happens to an economy where the basics get more expensive, but people want more experiences and less stuff?  If you are a producer of large capital goods for the home, or furniture, or nick nacks, or garden equipment, you might want to rethink your business model or product portfolio.  If I can get the product as a service, or simply just acquire a service, I think that's what many people will do.  Our economy and the product and service mix is going to change.  There are some products (groceries) that we cannot forego, but there are many products for sale that we can easily do without, or get the jobs to be done through a service.  When I walked through a Dollar Store recently my senses were almost assaulted by all the stuff available in the store.  I wondered to myself - who really needs all this stuff?

What happens to businesses and the economy in general if we become less consumption oriented? What if we don't buy cars but use Uber?   

Our economy may be on the cusp of a big transition, from an acquisitive, consumerist economy that can never have enough stuff, to a more discerning and less acquisitive economy that values experiences. 

Thinking the unthinkable

What this all could mean - every business, organization and government should start thinking about what could happen if the system flips a switch.  What happens if all we hold dear and felt were immutable conditions suddenly shifts?  It's happened before.  Look at the class system in the UK after the World Wars.  Think about the shift from candles and oil lamps to electricity.  Think about the founder of DEC saying that no one would need a computer in their home, or Gates saying no one would ever need more than 64K of RAM.  

Very few people or businesses think the unthinkable about themselves until they are left with no other options.  Given the pace of change and volatility in the marketplace, it may make a lot of sense to gather people within your organization, and a few people who aren't in your organization and who may not even want or need your product and think about whatever it is that is unthinkable in your company or your industry.  Because I think that the unthinkable is probably more likely to happen than you believe, and in some cases (my example would be the filibuster) the unthinkable may be a better option.

The way we work or operate today is what is right for conditions and expectations today.  Almost none of these conditions are physical laws (like gravity) that cannot be changed.  Companies, organizations and governments that fail to think about and plan for changes in existing conditions and constraints are bound to be disappointed in the next few years.

Why generalists will become more valuable

As we leave the COVID lockdown and the economy picks up steam again, I think many businesses will recognize a need for more generalists on their team.  That could pose a problem since so many people have structured themselves and their careers as specialists.  I'll start by admitting that I am a generalist, so in some ways this post may seem self-serving.  I'll present my case and let you be the judge.  

The case for specialization

For years, educational systems have focused on turning out students who are increasingly more and more specialized.  Not just an engineer, not just an electrical engineer, but a hardware specialist electrical engineer.  And the same goes for any number of degrees or areas of study.  And it gets worse the further you go in your education.  Pity the poor PhDs who try to find new areas of study to complete their research.

Businesses as well have contributed to the specialization trend.  As a focus on efficiency increases, gains in efficiency and reduction in uncertainty and variability are harder to achieve.  These fact lead to the need for ever-more specialized individuals who can shave smaller and smaller wins from a more and more efficient operation.  The increase in data and our ability to analyze data and turn it into insights and information also contributes to the increasing focus on specialization and minute changes to operation models.  Good data analysis may tell you than a small tweak in an offer or a manufacturing process can save pennies, but over a long production cycle that may create a significant win.  So we hone our data intelligence skills to find small wins, ignoring the larger patterns within the data.

Other factors driving specialization

There is also a time element to this idea.  In general, people who are working now in their 50s and 60s did not have as much of demand over their careers to be specialized, and to some degree have had more varied experiences.  Younger people have had more specialized training and businesses have gone through business process re-engineering, ERP and outsourcing to optimize practices, so younger workers have had less opportunity to cross corporate silos or gain broader expertise.

Finally, two external factors will have impact on this phenomenon as well.  COVID has reset the operating model for many businesses, sending many people to work from home, where they have less engagement with a broad assortment of people from different functions, so they tend to work primarily with their small work teams, again limiting experiences and breadth.  Digital transformation, simplifying rote work and automating tasks, will only accelerate this focus on specific knowledge and tasks.

Specialization works, until it doesn't

The good news about all this specialization is that it drives ever-increasing efficiency, reduces costs and drives profits.  That is, as long as the underlying conditions on which the models are built continue to operate.  If you can remember the housing meltdown in the late 2000s, there was a good example of this.  Collateralized Debt Obligations (CDOs) worked as a financial instrument as long as housing prices increased or were at least stable.  What the model did not take into consideration was a downward change in housing prices, which invalidated the model.  Decreasing prices didn't create a small problem for the model - decreasing home prices broke the CDO market, and eventually the stock market, because the model had a catastrophic flaw in it.

The interesting question is whether COVID, or digital transformation, or "as a service" changes or other shifts in market dynamics will change the underlying assumptions about a business, an industry or an economy.  If there is enough change, or even enough doubt, about how the models operate, then these highly efficient but relatively brittle models will fall apart.  And that's when the specialists, who know how to do one thing exceptionally well, will be in trouble.

Five things generalists do better

The opportunity for generalists is emerging and I think can be enormous.  A generalist is a person who is relatively good at a number of tasks, and generally enjoys doing different tasks more than specializing in one.  While using a generalist is less efficient, the generalist brings several things to bear that specialists often lack:

 - Bring experience or knowledge from other industries or functions - today, we can get a lot of learning from other people, functions, businesses or industries.  A bank can learn from a tool and die shop.  A high tech firm can learn from health care models.  If you don't have experience outside your function or industry, you will struggle to find these similar models and anecdotes.

 - Shapeshifting - generalists can take on more than one role or function, which makes them especially attractive to smaller firms or smaller teams within larger firms.  A generalist can participate across functions (marketing/sales/business development) because they have knowledge or experience or are simply adaptable and able to learn quickly.  As business models shift or customer demand change, being able to shift your model may require more people with more general and/or more adaptable skills.

 - Bridging silos and functions - specialists often speak only one language, and are hard for others who don't share their experience or passion to understand.  What I mean by this is that a deep data scientist may only be able to talk about data in a way that other data scientists understand, and not be able to place findings or insights into context for people who aren't data scientists.  Generalists can take insight or information from one source (say marketing) and help others in manufacturing understand what is being communicated and what it means.  Generalists can bridge the inevitable silos in the business - and this fact alone makes them valuable but unfortunately rare, because silos are strong and businesses do not value the bridging function.  Yet.

 - Thinking beyond the product - too many specialists are good at one thing - the tangible product, or the analysis of a spreadsheet, when customers and consumers want help with the whole solution - that is, the product, and the services that wrap around it, and the ecosystem that support it.  Generalists understand the value of the bigger picture and "get" why all of these things matter and should work together more seamlessly.

 - Demonstrating agility - specialists do one thing really well, and should be recognized and commended for that knowledge and experience.  However, when circumstances call for change, when the environment shifts, specialists can find it difficult to reconfigure their knowledge and skills.  A siloed organization full of specialists will find it exceptionally difficult to be nimble and agile.  Generalists, with broader experience and reach, will not suffer the same challenges when the need for agility and speed increase.

The CEOs chief complaints - communication, speed and inflexibility

The need for more generalists isn't a future problem - it is an existing problem only getting exacerbated by market conditions.  Most CEOs are frustrated with their company's lack of good communication, inflexibility, lack of innovation and slow response to change.  While there are a number of contributing factors to these issues, perhaps one of the biggest is that there is too much specialization which in turn hinders communication, speed and nimbleness.  

I think the need for generalists who are reasonably capable across a number of functions or disciplines will only increase as markets shift and the pace of change increases.