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- In this podcast I share another case study from the book Hardball, Are You Planning to Play or Playing to Win? It is Published by the Harvard Business School Press.
- This is a case study about the Ford customer service division which at ne time was struggling. The division’s revenues were flat and only about 10% of dealerships were growing from their service operations. What made these results even more concerning is that in general the aftermarket parts business tends to grow faster than the original equipment market.
- This division supplies aftermarket parts and instruction on how to repair Ford vehicles.
- Several attempts to fix the business failed. They tried to focus on quality – “fix it right the first time.” They tried setting a goal of 100% service satisfaction – that didn’t go so well.
- They thought about opening Ford auto care locations separate from the dealership like Jiffy Lube and Midas. Internal dissension concluded this was a bad idea.
- They finally got fed up and established an executive team to solve the problem. They did a lot of good things – they collected information, assessed their competitive advantages and disadvantages, identified best practices, and ultimately explored options for reinvigorating growth. In the collecting information faze, they discovered challenging numbers. First year Ford car owners had less than half their maintenance done at the dealership as compared to 70% for Honda. The more they looked, the more Honda jumped out as having best industry practices.
- At this point in time, Honda was doing something that now all dealers do. They grouped a bunch of service requirements, established intervals when they should be done, and did bundle pricing. Honda marketed these bundled services with signage in the dealership and marketing mailers. In their marketing, they made a strong case for why Honda vehicles should be only serviced at Honda. Their service marketing actually became a platform for regular interaction with Honda owners, which served to create a happy customer willing to buy a Honda a second time.
- When the Ford team realized this, they went from fixing a problem to creating a true business growth opportunity. Egos and pride tried to derail the effort to mimic Honda. But ultimately the idea was to good to not pursue the bundled service approach. They overcame some of the internal resistance by taking the Honda program to a higher level. This is where a sense of ownership and pride kicked in.
- Unfortunately, the path to implementation was not easy. The culprit was again company culture. Company engineers were not comfortable or supportive of putting a variety of services into one bundle and at the same interval. The engineers argued that each of the components had a different ideal interval. Engineers were getting close to derailing the entire program when another executive made a compelling argument that the needs of the customer trumped the engineer’s needs.
- Having gained internal agreement, the next challenge the team faced was convincing their very independent dealers to join the program. In their dealer presentation, they focused on customer loyalty comparisons between Ford and Honda, the bundled service approach Honda used, and the customer sales and ownership lifecycle.
- Very quickly dealers realized that they could increase annual service revenue by over $200,000 with almost no additional expense. Fairly soon dealers realize that they were crazy if they didn’t do this. The overall dealer’s counsel supported the bundled service approach. With this overall support, they were on the road and fairly soon had 3400 dealers signed up for the program.
- In the next four years, Ford’s customer service division achieved double-digit growth. This was an indirect attack on Midas, Pep Boys and other independent garages that had been taking service business away from Ford dealerships. Soon into the program they added tires to the program and went from selling almost no tires to selling 1 million tires.
- The authors conclude by saying, “Ford had learned that it’s never enough to copy the details of someone else’s successful program. It’s essential that your organization create anew and develop genuine passion for it. The growth team felt the passion when they did their research and realized the size of the opportunity.”
- The authors mention some specific conditions when this approach of using another company’s best practices is a way to benefit your business.
- First, they advise to “copy only when it will enable you to gain leadership.” Ford took what they learned from Honda and made it better and made it their own. That enabled them to make a dramatic turnaround in their service business. Companies that copied others but failed to gain leadership include IBM and Kodak which entered the copier business with me too products and failed miserably. Kmart copied Home Depot when they started Builders Square and failed. These examples highlight what I call the arrogance of a brand name. Some companies think their brand-name is so strong that they do not need a competitively superior product just a brand name that they consider superior. All too many times, customers see right through this. In the the case of Ford Motor Company, they were more competing with their previous version of delivering service than any competitive company. There was the indirect attack component –if Ford owners would use Ford service more then it would take business away from Jiffy Lube and Midas.
- Second, the authors state, “borrow when it will facilitate the indirect attack.” If you copy someone else, don’t then turn around and compete directly with that someone else. If you borrow, consider using the me to version to compete with another company and target customers. Ricoh created a me to version of Xerox machines and used this version to compete in different distribution channels and with a different price and service models. Since Ricoh did not go directly against the profit sanctuary of Xerox, Xerox largely ignored their initiative.
- Third, the authors underscore the importance of making the copy your own. It is okay to borrow best practices from someone else, but to be really successful you then need to tailor these best practices to your business and culture and set a new, higher level for these best practices. In effect, you raise the bar for best practices and become the new recognized leader. This not only has a significant business benefit, but also helps greatly with the cultural issues. When done right, the copy can become a source of inspiration and pride, because you took someone else’s best practices and raised them to a much higher level.
- From an innovation perspective, there’s a lot to like here.
- When we are helping a client with innovation, as a part of our deep dive into the business we always look for best practices around the world as they relate to the client’s need. You don’t always find something either worth copying or that’s a good fit for the client company. We often use best practices used by other companies as excellent stimulus in a creative session. The stimulus is a starting point, not an end point. We use the stimulus in combination with other inputs to use the creative session to take all the ideas and make them better and make them a great fit for the client’s unique needs. In a way, this is taking the best practices of another company and making them your own, except that our process greatly facilitates not only making them your own but making them better.
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- This podcast provides proven, practical, and step-by-step elements from start to finish for an innovation program. A successful innovation program is a series of steps. Innovation programs need to meet certain criteria and objectives at the completion of a step before going onto the next step. Many people refer to this as the stage gate process, with the gate being the need to meet objectives before moving on.
- Generally speaking there are about six steps. In some cases, some businesses will combine steps and others will split a single step into multiple steps. Some companies may also skip a step if they do not have the capabilities or need for a specific step – you need to recognize that, in most cases, this means that you take on more risk.
- The six steps are: deep dive, vision and strategy, idea generation, concept learning, proof of concept, and introduction into the marketplace.
- Having completed the deep dive step you already have a good understanding of the dynamics of your business – both a detailed and big picture view. You have used these insights to craft a vision of what success looks like for your innovation program. To that you have harnessed a strategy statement that clearly articulates how you will achieve the vision.
- With that completed let’s get started with step three – idea generation for your innovation program.
- Step three is idea generation. This is essentially conducting a quantum idea generating session to produce the ideas potentially capable of helping you achieve your vision and consistent with your strategy. During the course of the session, there will absolutely be vectors of idea generation that tend to wander from the vision and the strategy. All of this is fine. When I’m facilitating a session, getting to the finish line can be a zig zag path, but it’s ultimately my responsibility to help the group get to that finish line where we deliver the needed ideas.
- Podcast episodes P1 through P6 provide you with a great introduction into the quantum idea generating process.
- The previous work on the deep dive and vision/strategy provides some very valuable material and insights into the best way of constructing and executing your particular quantum idea generating session.
- Regarding stimulus, all of the previous work leading up to the session is a potential source of great and relevant stimulus. You probably want to start the session sharing the vision and strategy and how this was arrived at. In doing this, you want to backup to the deep dive and in various places during the session consider sharing the 5-10 major dynamics and insights. The scheduling and sequencing of these really depends upon the roadmap you construct for a session lasting anywhere from one day up to four days. Having said that, the stimulus is really foundational stimulus to get everybody on the same page – at least for a moment. There will need to be many other forms of stimulus that follow these examples. Go back and review the podcast on stimulus to deepen your understanding of this path.
- Regarding diversity, your previous work will reveal where you really need more expertise than is available within the company. As mentioned in the diversity podcast, this can be people with highly specialized expertise in the direction you are exploring and/or it can be people with a very big picture view of cultural megatrends, for example. Any time your vision calls for an outcome that is dramatically better than some/most/all of competitive products, you absolutely need the right external expertise working in combination with your best internal experts to get the needed results.
- Let’s move on to the fourth step – concept learning. Coming out of the quantum idea generating session, the group identified the ideas they think have the highest potential – in most cases this is about ten – forty ideas.
- Following the session you want to take this group of ideas and make some further groupings of similar or related ideas and give further consideration to the relative potentials of all the ideas you have. You want to be very careful not to make too many hard and fast decisions that would cut a significant number of ideas coming out of the session.
- You can give consideration to conducting some qualitative learning. For example, focus groups can be conducted to share your rough draft concept statements for most or all of the ideas. You can supplement the statements with visuals as appropriate. You are not using the focus groups to make decisions about which ideas have the highest potential. Rather you’re looking for how clearly people understand the concepts from what you’ve written, especially your communication about the products’ benefits and how they meet customer needs.
- You then want to consider moving to quantitative research. This can be research with a fairly limited scope of just evaluating the concept on a series of proven and reasonably predictive criteria. You can also go an additional step of getting concept evaluation in combination with additional feedback. For example, Merwyn technology provides diagnostics on the strength of your benefit, reason to believe, and dramatic difference. It also provides a year one sales estimate based on criteria you specify.
- In evaluating these results, you want to establish ahead of time the criteria ideas need to meet before they can move onto the next step. This can be a certain concept score or year one sales estimate – they can also be other criteria that are right for your type of business. Nonetheless, at the end of the concept learning step, you want to be making decisions. These are not necessarily irrevocable decisions since an idea that gets put on hold now may come forward later when there are new learnings or developments.
- Next we move to the fifth step – proof of concept.
- In this step we take the few ideas coming out of the previous step – typically one – three ideas – and take them to a deeper learning stage.
- Most often this involves developing various forms of product prototypes. If it’s a beverage, the R&D organization works on a variety of formulations. If it is a new tool for a specific industry, the first step might be developing illustrations, followed by a looks like prototype that is not fully functional, to finally developing a fully functional prototype.
- As prototypes are developed, they are shared with potential customer groups, usually on a small, qualitative scale. You’re looking for quick feedback on what’s working and what’s not working. This quick feedback turns into rapid prototyping followed by additional feedback from potential customer groups.
- At the point that you have one or two product prototypes that have received generally positive feedback, you want to move into an actual product use research step. In consumer products, this is often referred to as in-home product testing in either monadic or paired comparison versus a major competitor testing. With B2B products this can be giving some of your lead users and biggest users of the product a prototype so you can learn in their actual environment working on actual products of theirs.
- This can often require more than one round of this kind of testing. But there is a developing and learning cycle that you use that’s right for your type of business. At the end of the stage, there again needs to be a decision-making methodology, usually including reliable quantitative research. The product needs to achieve a certain score and/or a minimum year one sales potential to be considered as a candidate for production and introduction into the marketplace.
- As a part of this decision-making process, there usually is an early on feasibility study involving all parts of the company that would be involved in manufacturing and distributing the product. You want to determine such things as potential manufacturing costs, raw material sources, and economics. Regarding economics, you want to develop preliminary cost and selling price models that are then combined with the year one sales estimates from separate research to determine the financial attractiveness of the idea.
- I have covered this very quickly and only from an overview perspective. There are many unique variations with specifics that are right for your type of product and business. Having said that, the overall thinking flow here is appropriate in most situations.
- When a product has met all of the criteria that each of the steps and is ready to move on to the next step, the last step is to move into the marketplace in some way. There are a variety of ways of moving into the marketplace and I will mention a few to illustrate some major options.
- Prior to moving into the marketplace there needs to be a major team effort to manufacture and distribute the new product. This typically requires multifunctional teams, capital expenditures, and a variety of new processes that can increase the risk of the project.
- When the product is ready to move in the marketplace here are some of the major options about how that can proceed.
- You can make a full national introduction. You go into all your markets at the same time.
- On the other end of the spectrum, you can go into some markets as a test market. Often the primary purpose of a test market is to test volume and price assumptions and the effectiveness of your marketing plan. Again, there are criteria that need to be achieved for the product to expand beyond the test market.
- You can move the product into carefully chosen markets, maybe with particular types of customers that can be especially supportive and helpful. This can be part of an overall phased rollout program. This can help reduce risk by learning and incorporating changes phase. Most often these are going to be improvements to the marketing program instead of the product itself.
- These three podcasts have covered the step-by-step innovation process from an overview perspective. As noted several times, there can be significant modifications to the steps outlined here based on the type of business and capabilities an enterprise has.
- My hope is that you get a general understanding of the steps you need to go through that tend to optimize the product, gather critical learning, and manage risk when done properly.
