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