Part2: What is the best lean way to understand VALUE (in terms of what our customers want)?
To take up where we left off last week, let’s say that understanding value is about obsessively (and perfectly) formulating the correct customer preferences at two levels:
- At company (or brand) level: what generic preferences should all our products reflect? A construction company, for instance, can decide that all its buildings – regardless of the customer’s architect’s requirement – will include a special effort to lower energy consumption. How could you write the sentence “Toyota = peace of mind” for your own activity?
- At product level: each specific product needs a preference identity that corresponds to its target market. Think Lexus, which combines the drive of a Mercedes with the comfort of a Cadillac; or iQ, which is the size of a Smart with the feel of a sedan; or Prius, that seamlessly blends the consumption/pollution of an electric car with the autonomy of any normal car.
This may look easy to do, but is an illusion born of hindsight. When you are in the thick of product development, you are overwhelmed with information and glutted with opinions about what customers really want. Understanding customer value means being able to formulate customer preference statements clearly (out of all the things customers could prefer) in order to align the company’s efforts on these choices. Because these gambles have such a huge impact, your understanding of these customer preferences should be constantly challenged and refined.
But don’t change tacks too quickly. Steve Jobs, for instance, was obsessed with calligraphy, and his taste for texture was a key part of apple’s products (whether this was an identified customer preference or a bee in the genius’ bonnet, I can’t tell). The moment he left for the journey of all journeys, his successors claimed he’d gone too far and that customers wanted simpler graphics à la Microsoft. As an Apple lifetime user, I find this talk scary. Conversely, when Larry Page took the CEO job at Google, he focused on good-looking apps rather than the existing goal of rapid evolution—a choice that has succeeded (so far).
How then, in the fog of war, can you figure out what these key preferences are and how they play off in specific aspects of every product? The answer is genchi genbutsu and product takt. As Jim Collins has pointed out with his “hedgehog” strategy, business leaders tend to be selected for their staying power and persistence on clear strategies. This is great when it works, but think of all the great leaders who have driven their firms into the ground by hanging on too tightly to the wrong ideas. Where, then, should we look for confirming our ideas about customer preferences?
- Marketing and related activities: the first place to look would be with surveys and competitor analysis to get a feel for how the entire market is moving. This is a very poor guide to actually select preferences, particularly at product level, since this information will make you a follower, not a leader. It is still however an essential part of reading the market: what is the market’s current base line and fashionable obsession?
- genchi genbutsu: visit customers, investigate every customer complaint, and figure out how customers really use your product as opposed to what you think they do with it. As I writer, I’d like to think my customers actually read my books, but more often than not, they purchase the book for their subordinates to read – and these stack them on the pile of “to do when I have the time.” What does this tell me about how I should write books? Or, more to the point about what makes books sell? There’s nothing wrong with a hedgehog notion about what customers prefer (say, durability), but you also need a fox’s strategy of looking at many, many specific instances to understand what durability really means, how it plays out, and what competing preferences your customers have.
- A takt of products: as Eric Ries points out in the lean startup, the only sure way to test customer preferences is to split a test group and test product variances. This is possible with websites, but much harder to do with actual products. So, accepting that whatever Marketing says has to be taken with a huge pinch of salt, you need to rethink your products in terms of a product stream, not a single product. The product streams implies that you release a product at a regular rhythm (or takt) and watch very carefully what gambles you’re taking with each product, and what the product’s sales curve tell you about what customers really prefer. This is a radically different approach to product release from the traditional “lets put any sexy gizmo in the new product and hope people will buy it.”
In exploring customer preferences, what should we look at? In March 2011, Toyota announced “we want Toyota to be a company that customers choose and brings a smile to every customer who chooses it.” How do we look for that? In his brilliant exploration of the aesthetics of green design, architect Lance Hosey (The Shape of Green) highlights three elements in liking a product:
- Attractiveness: how does your product trigger a “wow, I want it” reaction in your target customers. This is not just about B2C – I’ve seen many investment decisions taken simply on the basis of “I want it” (new IT system anyone? Large German machine?) by someone senior enough. So, clear your mind, and look at how customers react to your product at first sight: what is there to want that would make them smile?
- Relationship: do you remember that jacket you finally had to throw away (no wait, put back in the closet in case of…) because you’d worn it so much it has become part of you? Some products grow on you as you use them. They develop a relationship with their user that most other products don’t. As users, in most cases, we tend to rent an object to do a task (in Clayton Christensen’s terms). But with some products, this is not simply the case, as we develop an irrational feeling towards the product (some, on the other hand we have to use and we hate). So watch out for it: do customers learn to love or products, or do they remain indifferent?
- Effectiveness: does the product actually do the job – and how durably? Just yesterday evening I was battling with the new-fangled corkscrew which doesn’t fit in the hand, doesn’t go straight in the cork, and broke the cork half-way out. I then had to rummage around all drawers to find the old basic one that did the job. Watch how customers use your product, and how easily it does the main job – as opposed to all the bells and whistles around it.
Finally, these qualitative preferences need to be expressed in terms of quantitative performance measures – again, not the simplest task. Ultimately, I believe that understanding value is about being able to have a feel for the performance/price ratio in the customer’s mind. But, again, absolutes don’t make much sense, and people will be comparing across a product range – or, more complicated, about alternative ways to get the same job done.
I don’t believe there’s a simple answer to your question but, yet, I am convinced that there is no more important question than that. To sum up the discussion, I’d say that the best lean way to understand customer value would be to understand that:
- Understanding customer value is the result of constantly fitting customer experience data points against explicit preference hypotheses.
- Understanding customer value is a deliberate and obsessive process
- Because it’s about distinguishing the signal from the noise in an area where every data point carries a value judgment and personal bias.
- Understanding customer value is about expressing how preferences translate into specific product performance metrics, and yet recognizing that the feel of performance is not necessary the same as the metric (the feel of silence is not necessarily the decibel count).
- Understanding customer value is an on-going process, not a state.
Lead With Respect Shares Tangible Practices That Develop Others, Says Author Michael Balle
Michael and Freddy Balle's book Lead With Respect portrays on-the-job behaviors of lean leaders which can be learned through practice. Michael explains how these can help fulfill the promise of lean by aligning the company’s success to individual fulfillment.
How Can Lean Affect Shareholder Value?
Lean can help challenge assumptions and surface opinions that ultimately improve shareholder value, argues Michael Balle.
Why Lean Is the Strategy We Need For Today's World
At all times, and especially in uncertain conditions such as today, lean is a learning framework, argue Michael Balle and Dan Jones.