The Day My Pareto Chart Broke Down (We Do Not Understand the Customer, part 2)

 I was a Toyota-trained engineer & entrepreneur who was committed to eliminating waste & creating value. I had started companies & written OpEx/Lean books. I thought I understood the customer. My illusions were shattered in Singapore.

My friend and colleague, Laurent Simon, helped me up a steep learning curve. We worked together in east Asia’s Financial Services & Consumer Goods industries and eventually built an innovation practice. We even wrote a book about our adventures & ideas.

Facts inform decisions, emotion drives action.

New Growth, I learned, depends on how well we answer the following questions:

1. Who is the customer?
2. What does the customer value?
3. Why do they buy (or not) from us?

At first, I approached these questions like an engineer (in our book we call this the ‘Hacker’ mentality). The results were discouraging. I learned that people say all manner of things they don’t really believe or say things they think you want to hear. I learned that people often don’t know what they want - until they see it.

I learned that how people feel and how they look to their peers is more important than a product’s functionality. And I learned that people change their minds repeatedly for no apparent reason. Turns out people are much more unpredictable than a manufacturing process or a chemical reaction... Duh.

I was learning what Aristotle had taught the world 2,400 years ago.  There is the World of Necessity, and the World of Contingency. Laboratories, factories, supply chains, science, mathematics and Operational Excellence live in the former.  Taste, fashion, opinion, politics and style live in the latter. And the latter is much dicier place, full of known and unknown ‘unknowns’. The latter is place where customers like or dislike something for no apparent reason, where trends appear, disappear or reverse without any apparent logic.

What I’d learned as an OpEx leader worked well in the factory and supply chain - and not so well in the volatile, uncertain, complex and ambiguous world of the customer. I had to accept that all I’d learned as an OpEx leader was necessary, but not sufficient. I did not understand the customer - not even close.

‘We have to understand the customer,’ Laurent said, ‘better than they understand themselves.’ At first, I thought it was marketing tosh. Eventually, after multiple sprints and new product launches, it finally clicked for me.

In fact, I remember the moment when my world view shifted. We were working with an innovation team in the Wealth Management industry. Our focus was the coveted ‘ultra high new worth’ (UHNW) customer segment. Laurent, the project leader, led the team through a series of Discovery and Validation experiments, seeking to begin to answer of the key questions posed above: What does the customer value?

Donning my Toyota engineer cap, I did a risk analysis of the pain points we’d identified, ranking them using a familiar Risk Management Index (Risk = frequency x severity). I put together a Pareto chart and suggested we focus on the top three.

Laurent disagreed. ‘That’s what our competitors are doing. And their performance – and ours - is the same across these parameters. It’s a wash, it’s trench warfare. That’s not where Value lies.’ He then pointed out a barely perceptible pain point, to me at least, related to the clients’ elderly parents. He hypothesized that solving this fear was a key to delighting these customers.

‘I have to disagree,’ I replied. ‘The frequency is very low, and the severity is low. The parents would some low-level anxiety for a short period of time. We should focus elsewhere.’

I was thinking like a ‘Hacker’ – a term we used in a book we wrote about our Singapore adventures. Laurent was thinking like a ‘Hipster’ - one who can intuit the entire customer journey by putting themselves in the customer’s shoes. ‘You don’t understand,’ he replied. ‘Asian cultures revere their and ancestors. UHNW individuals are focused on life & legacy goals, as well as financial goals. If we solve this difficult problem, we’ll delight them – and they’ll tell all their friends about it.’

That’s how we found our Blue ocean – and that’s when the light came on - click!  Our goal was to find a place far away from the highly crowded and competitive traditional UHNW market (Red ocean). The segment has evolving needs that go beyond investment returns. Here was an opportunity to create non-traditional value and differentiate deeply.

‘Growth hacking’ helped us understand the UHNW customer better than they understood themselves. And I learned that my OpEx/Lean knowledge was necessary, but not sufficient for sustained prosperity.

Best wishes,

Pascal Dennis         E: pascal.dennis@leansystems.org