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

We Do Not Understand the Customer, Part 1

 I thought I understood the customer. I was a Toyota-trained engineer & entrepreneur who immersed in creating Value & eliminating Waste. I’d launched companies, and written books on Strategy execution and Operational Excellence (aka Lean). I travelled the world advising C-suites & Boards.

Framing is everything.

My illusions were shattered in Singapore, where my colleague & Innovation sensei, Laurent Simon, helped me up a steep learning curve. We worked together in the Financial Services & Consumer Goods industries and eventually built an Innovation practice. We even wrote a book about our adventures & ideas.

Framing is everything. Our Toyota senseis taught us that a) Value is what ‘customers are willing to pay for,’ and b) Waste is everything else. Toyota senseis, famously, like to draw a circle on the shop floor, and ask the deshi (student) to closely observe the process. After an hour or more, the students report back on what they’ve seen, with an emphasis on the 3 M’s - Muda, Mura, and Muri (Waste, Unevenness, and Strain).

As a deshi, my Job One was learning how to identify, diagnose & eliminate the ‘Seven + One’ wastes. It’s a skill I practice to this day (to the consternation of my family). When I encounter a process in day-to-day life, I instinctively note bottlenecks, count WIP & calculate cycle times (while my wife rolls her eyes).

In addition to my Toyota training, I was lucky enough to grow up working in our family diner, the Imperial Grill, (which features prominently in the Andy & Me novels). There, wasted motion meant sore feet; delay meant the food arrives cold, defects meant the wrong food arrives, and so on. Waste is something I understand in my core, and OpEx/Lean provides an excellent framing and solid foundation.

But is the OpEx/Lean framing sufficient in a world of exponential technology? Does OpEx/Lean provide the methods & mindset needed to delight customers in the 21^st century and thereby ignite new Growth?

Here’s a different framing, courtesy of the late, great Clayton Christensen: Customers ‘hire’ a product or service to do a job for them. Customers don’t really care what we’re doing in the factory or supply chain, as long as they get cool stuff quick, that does the job at a fair price. To be sure, customers expect us to behave ethically and to do right by our employees, community & environment. But most of all, they want us to solve their problem.

Here's the really tricky part – often customers do not recognize that they have a given problem. In the hurly-burly of 21^st century life, many people are just hanging, trying to get through the day intact, having little time to reflect deeply about their experience. People put up with a great deal of hassle without much thought. But when they’re offered a remedy in a compelling, funny, and/or charming way they react, often very strongly.

And so, we have two different framings: one is the key to protecting the core business. The other shows the way to growth and sustained prosperity. More to come.

Best wishes,

Pascal Dennis, E: pascal.dennis@leansystems.org

In case you missed earlier blogs... please feel free to have another look….

Transformation - the Battles We Have to Win - Ignorance
Transformation - the Battles We Have to Win

Space - Battles We Have to Win, part 5

 Ambidexterity is the leader’s Job One and comprises: 1) Protecting the core business with Lean/OpEx, and 2) Igniting new Growth using Digital methods. Ambidexterity does not come easy. Here is the 5^th in a series on the battles we have to win.

The five blockers are a syndrome - each reinforces the others.

The deadly risks of our day are Volatility, Black Swans, and Obsolescence. Doing nothing is our riskiest option. When the ocean is in furious flux, alertness, agility and speed are of the essence, and ambidexterity is their clearest expression.

Ignorance, Fear, Scatter, Guesswork and Space. These are the ‘battles’ we have to win. Today I’ll talk about Space, summarize key lessons in the series.

Space

Whether we’re protecting our core business with Lean/OpEx, or igniting new growth with Digital, we have to make space for transformation – physical, temporal, financial, strategic, cultural and psychological space. Otherwise, corporate antibodies are likely to shut us down.  Indeed, (infamously) between 70 to 90% of both Lean/OpEx, and Digital transformations fail to meet their targets. If we do not create space for change, the blockers usually win. If we do not protect that space, the blockers always win.

Physical, Temporal, and Financial Space

A core element of my innovation work (aka ‘Smart Growth’) entails building a ‘Showcase’ wherein a selected, capable, motivated, 3H team of high achievers demonstrates a new way of working – and produces kick-ass results. And so, we need a dedicated physical space (aka Maker’s Space, Learning Lab, Incubator, Accelerator, Innovation Hub) wherein the team & the rest of the organization can learn by doing. We also need to carve out time, and a dedicated budget. For example, Lean experimentation & growth hacking entail landing pages, ads, explainer videos and the like through which we test & validate our hypotheses. Building an ecosystem of providers is in my experience the best, quickest & most effective way to doing so.

Strategic, Cultural, and Psychological Space

Strategic space means our strategy and its physical expressions (Obeya, Control Tower, Team Boards and so on) explicitly outline our Innovation targets and activities. Our visual expressions of Strategy reflect our commitment to ambidexterity: the is dedicated space for 1) protecting the core business, and 2) igniting new Growth.  The latter usually entails visual management showing the purpose, and status of our Innovation portfolio.

Cultural and psychological space means that senior leaders and the Board tirelessly express their commitment to working in a new way. DBS Bank (often cited as the ‘World’s Best Digital Bank’) is a good example. The bank’s Board & CEO, Piyush Gupta, have been the living expression DBS’ winning logic: Close to the customer; 30,000-person startup; Digital to the core. I can confirm that team members across the organization understand & accept the winning logic.  (I’ve randomly asked a few dozen of them over the years)

Transformation Blockers are a Syndrome

Our five blockers comprise a ‘syndrome’, in other words, a pattern of symptoms that reflect a specific pathology. Each blocker reinforces the others, making change particularly challenging. For example, Ignorance triggers Fear, which triggers Guesswork, which triggers Scatter. And these in turn compromise the physical, temporal and financial space needed to work in a new way. And that’s why 70 to 90 percent of transformation efforts fail to meet their objectives.

It's a heck of a problem, but it can be solved. That’s why I’m writing these articles.

Best wishes,

Pascal Dennis         E: pascal.dennis@leansystems.org

In case you missed earlier blogs... please feel free to have another look….

Transformation - the Battles We Have to Win - Ignorance
Transformation - the Battles We Have to Win

Guesswork – continued

 In the 21^st century, ambidexterity wins. We must both protect the core business with Lean/OpEx and ignite new Growth using Digital methods. Here is the fourth in a series on the battles we have to win.

Dangerous corporate animals

Ignorance, Fear, Scatter, Guesswork and Space - these are our blockers. Today I’ll talk continue talking about Guesswork. The remedies I discuss apply to both protecting the core business with Lean/OpEx and to igniting new Growth.

Guesswork

Guesswork entails jumping to conclusions in the absence of data or expertise. Direct causes include a lack of data, and cultural or leader arrogance. Last time I talked about how to fill the data void with YODA. Today, I’ll talk about cultural or leader arrogance.

HIPPO & ZEBRA Management

I’m the highest paid person in the room. What I say goes, and everybody knows it. That’s the HIPPO’s mindset. Data, who needs it? Facts, eye-witness accounts, I don’t care. World War I generals like Douglas Haig, John French, and Luigi Cadorna are among history’s most infamous HIPPOs. Each has a room in the Military Hall of Shame, and each valued their self-image more than the lives of their troops. Do their descendants not afflict us still?

I have zero expertise but I’m really adamant (or arrogant). That’s the ZEBRA’s mindset. Some company cultures value brashness and aggression. Oligopolies and other protected sectors are immune to the consequences of disastrous decision-making, not unlike WWI generals.

Fake it till you make it has become a cultural meme. The idea is that if you act confident and competent in a situation, even when you don't feel that way, you will eventually develop the actual desired skills and qualities. Such a mindset that can help you push past self-doubt and help you grow. But at some point, it becomes outright dishonesty. And left unchecked, ‘fake it till you make it’ creates a Guess work culture - phony, superficial, and prone to disaster.

There are other dangerous animals in the corporate menagerie including Seagulls, WOLFs, YAKs, and RHINOs, but you get the picture.

Building Your Culture’s Immune System

‘No bozos, ever’ was a Steve Jobs mantra. I’ve been lucky enough to work with some uniquely successful executives, and their common refrain is ‘You have to get the right people on the bus.’ That’s a polite rephrasing of Jobs’ mantra, no? A company’s Human Resources team and system has two essential & related roles: 1) to hire, engage, develop, reward, and retain good people, and 2) to identify & remove HIPPOs, ZEBRAs, and other dangerous corporate animals.

Company culture is the responsibility of senior leaders and the Board. Radical transparency means we leave our rank at the door. Facts trump opinion and hearsay. No facts? Sit down, and do not come here unprepared again. Working in a great organization is like playing hockey in the NHL. If you can’t skate, pass, and shoot, you won’t be on the ice. But if you’re humble, tenacious, and love the game, great companies will help you grow and succeed.

In my next article, I’ll address the fifth deadly blocker: Space.

Best wishes,

Pascal Dennis         E: pascal.dennis@leansystems.org