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Creating customer value from technology

This document provides an overview of a class on creating customer value from technology. The class covers topics like competition, value identification, jobs to be done, and value migration. It discusses how technology-based strategy differs from classical strategy due to factors like discontinuous change and new value propositions. The document emphasizes understanding customer needs by focusing on the "jobs to be done" rather than traditional customer segmentation. Firms are advised to observe customers, understand the outcomes they want, and develop products and services to help customers get jobs done better or in new ways.

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April 8, 2014 ! Greg Hopper Adjunct Professor, Duke University Masters of Engineering Management Program Pratt School of Engineering Creating Customer Value from Technology
2 $19 BILLION????
Some perspective… 3 • 64 billion McNuggets
 • 82.5 million bottles of Johnnie Walker Blue
 • A Bugatti Veyron Grand Sport Vitesse for all 6,337 Facebook employees
4 ! What would you pay 
 to use Facebook? !
5 Agenda ▪ Module 1: Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
To study: how to allocate a firm’s resources to maximize the creation and preservation of customer value, AND
 how customer value changes. CompStrat Purpose 6
Market Dominators 7
2013/4 Stories 8
What will 2020 look like? 9 ?
Big Data ! Data Science 10
Managing Big Data 11
Changes in the Energy Industry 12 Source: WSJ, July 28, 2013
Golden Rice 13
Self-Driving Cars 14
Emerging Technologies 15 3D Printing Robotics
Fundamental challenge of strategy in technology-based companies 1. You start selling a successful product. 2. You continue to improve the product and sell a lot more. 3. You’re selling product faster than ever just as you saturate the market. 4a. These people find your product to be “too much”. 4b. These people find your product to be “too old”. 16
Fundamental Principles: #1 17 Technology Product≠ Product Value≠ Product Outcome≠
Fundamental Principle #2 18 “Where there is no competition,
 there is no market.” – Geoffrey Moore
An all-too common problem 19
Commercialization ▪ Bob McDonald, then CEO of Proctor and Gamble: ! “For us, innovation is not invention. It’s the conversion of an idea into consumer delight, and, ultimately, revenue and profits. ! If and idea or technology cannot be successfully commercialized, it’s not an innovation.” 20
Business Design ▪ Businesses can be designed just like products
 ▪ Mode of operation ! ▪ Use of money ! ▪ Source of profit and control points ! ▪ You should be able to draw the money flow 21
Week 11/9/13 22 Agenda ▪ Module 1: Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
23 Competitive Advantage has a Lifecycle ▪ Products
 ▪ “wired | tired | expired” (from WIRED magazine)
 ▪ People
 ▪ “You’re brilliant!” | “Good job.” | “What have you done for me lately?”
Purchase Lifecycle stages 24 Awareness ! Buyer may not actively be in
 the market for the offering;
 first stage of demand 
 generation activity. Consideration ! Buyer is actively in the market for offering; evaluating several suppliers. Need to be on “short list”. Conversion ! Buyer chooses a supplier. Terms and conditions may enter consideration in this selection process. Customer believes relationship with vendor starts here. Sales people think it ends here. Retention ! Help buyer get most out of offering; nurture relationship to improve odds of repeat business and/or referrals. Replacement ! If dissatisfied, the buyer will initiate the whole process all over, with the exception that the original supplier will not be in consideration.
Focus on Consideration Benefits Reputation Commodity Three-Level Model of Competition 25
Purchase Behavior Commodity Benefits Reputation Price
Purchase Behavior Benefits Reputation Price Compare features Commodity
Purchase Behavior Benefits Reputation Price Compare features Brand-driven Commodity
29 More detail ▪ Reputation ▪ Focus on maintaining relationship ▪ Don’t have to compete!
 ▪ Benefits ▪ Focus on offering superiority ▪ Compete on features that matter
 ▪ Commodity ▪ Focus on increasing relevance and credibility ▪ Compete on price
30 Another Perspective:
 from Escape Velocity ▪ Reputation: Tier 1 ▪ Market leaders ▪ The safe buy
 ▪ Benefits: Tier 2 ▪ Other well known names ▪ “Thinking Person’s Choice”
 ▪ Commodity: Tier 3 ▪ Unheralded players
31 Another Perspective:
 from Escape Velocity ▪ Reputation: Tier 1 ▪ Market leaders ▪ The safe buy
 ▪ Benefits: Tier 2 ▪ Other well known names ▪ “Thinking Person’s Choice”
 ▪ Commodity: Tier 3 ▪ Unheralded players Need to achieve separation from competitive set to move up
32 Another Perspective:
 from Escape Velocity ▪ Reputation: Tier 1 ▪ Market leaders ▪ The safe buy
 ▪ Benefits: Tier 2 ▪ Other well known names ▪ “Thinking Person’s Choice”
 ▪ Commodity: Tier 3 ▪ Unheralded players
33 Competitive Advantage ▪ Competitive advantage allows you to: ! ▪ Get more customers; ! ▪ Keep more customers; and ! ▪ Charge more.
Week 11/9/13 34 Breakout The Big Question: ! Can you sustain 
 a competitive advantage?
Competitive Advantage 
 Over Time Distinguishing Features Reputation Commodity Over time, all distinguishing features that matter to your customers will become part of the commodity-level offering. ! In other words, they become the basis of competition.
 They add to the cost of the offering, but no longer command a premium price.
36 Agenda ▪ Module 1: Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification! ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
37 Breakout What might some differences between classical and technology based strategy be?
Classical vs. Technological ▪ Classical
 ▪ Continuous ▪ Future is predictable ▪ Known offerings ▪ Established value propositions ▪ Marketing and promotion driven ▪ Doing the same things ▪ Technology-based ! ▪ Discontinuous ▪ High rate of change ▪ Education ▪ New value 
 propositions ▪ Education and awareness driven ▪ Doing things differently ▪ Doing different things 38
Strategy Needs are Different ▪ Technology-based industries require different approach to strategy than established firms in established industries 39
Escape Velocity ▪ Classic markets are cyclical in nature ! ▪ Technology markets face “secular market change” ! ▪ Definition: A 1-time expansion whenever a new category or new class of customers is created 40
Comparison ▪ CYCLICAL
 ▪ Mature markets ▪ Share shifts in small increments ▪ Operational efficiencies ▪ Semi-tolerant 41 ▪ SECULAR
 ▪ New/emerging markets ▪ High growth ▪ Make or break ▪ Intolerant
Christensen/Mintzberg: 
 Two Processes at Work 42
Is there a classical market? ▪ Information Technology (IT) is prototypical “high tech” ! ▪ 1980s & 1990s: Telecom, finance, defense, aerospace ▪ 1990s – present: Internet disrupted media, news, entertainment, music, communication, retail, mobility, utility computing (cloud) ▪ 2014 – future: Education? Manufacturing? What else? 43
44 Agenda ▪ Module 1: Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification! ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
Customer Centric ! ▪ “What can I do to create new value for my customers?”
 -- Michael Porter Customer Driven ! ▪ “If I asked my customers what they want, they’d say ‘a faster horse’.” 
 -- Henry Ford
 Key Difference 45
by Craig Stull, Phil Myers, and David Meerman Scott ! Find unresolved problems, 
 create breakthrough experiences and launch market resonators. Tuned In 46
Role of opinion ! ! “Your opinion, while interesting, is irrelevant.” 47
Resonator ! ! ▪ A breakthrough product or service that buyers immediately understand has value to them, even if they’ve never heard of you or your product. 48
Common Mistakes ▪ Three of the most common mistakes companies make that cause products or services to fail: ! ▪ Guessing ! ▪ Assuming ! ▪ Telling ! ▪ Stop making these mistakes by unlearning Six Business Myths 49
Myth #1 ▪ Customers know best!! ! ! ▪ Your customers are only a small subset of the market Customer Evaluators Potential 50
Myth #2 ▪ This is a commodity business!! ! ! ▪ Your distinctive competencies dictate how you build your products and services ! ▪ What would a Volvo sports car look like? 51
Meet the Volvo Tundra http://jalopnik.com/meet-the-concept-car-that-was-too-wild-for-volvo-1487322338 52
Futuristic Interior 53
The same firm designed this: 54
Too radical! 55
Fast forward thirty-five years… http://jalopnik.com/the-volvo-concept-coupe-this-is-it-1217800945 56
Note futuristic interior. 57
Myth #3 ▪ Innovation is everything!! ! ! ▪ Don’t innovate for innovation’s sake: Create value 58
Myth #4 ▪ We’re smarter!! ! ! ▪ Not a necessary nor sufficient condition for success. Finding untapped problems and solving them – creating breakthrough experiences – is. 59
Myth #5 ▪ Field of Dreams development 60
Myth #6 ▪ Revenue cures all!! ! ! ▪ A culture based around sales and revenues rarely creates hit products. ! ▪ A focus on sales can lead to companies being tuned out ▪ And they will miss when value migrates 61
Breakout ! ! ! Discuss these myths. ! Give examples. 62
Breakout 1. Customers know best. 2. This is a commodity business. 3. Innovation is everything. 4. We’re smarter. 5. Field of Dreams development. 6. Revenue cures all. 63
The “Tuned In” Process 64
Create an experience Discovery Breakthrough Experience! Packaging Service UsingBuying 65
66 Agenda ▪ Module 1: Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
The basic question segmentation 
 (tries to) answer ▪ What products will customers want to buy?
 ▪ What products should we develop? ▪ On which market segments should we focus? ▪ How can we know what the customers in those segments will value (and what they won’t)? ▪ How should we communicate the benefits of the products? 67
Usual Approaches to Segmentation ▪ Product type ▪ Price point ▪ Demographics ▪ Age ▪ Gender ▪ Income ▪ Home ownership status ▪ Profession ▪ Education ▪ Location ▪ Etc. 68
Traditional Segmentation ▪ Defined by attributes of product and/or customer ! ▪ Based upon a correlation between attribute and outcomes (i.e. purchase and use) ! ! ! ▪ Is this enough to base a disruptive strategy on? 69
Short Answer: No. ▪ When your marketing theory offers a plausible statement of causality AND ! ▪ Is based on circumstance-based categorizations (i.e. segmentation) THEN ! ▪ You can predict what features, functions and positioning will CAUSE customers to buy a product. 70
Key Insight: Customers Hire Products ▪ Customers are people or companies that have “jobs” to do, and they “hire” people – and products or services – to do those jobs. 71
Key Insight: Customers Hire Products ▪ Customers are people or companies that have “jobs” to do, and they “hire” people – and products or services – to do those jobs. ! ▪ The functional, emotional and social dimensions of the job determine the circumstances in which they buy. ! ▪ The critical unit of analysis is the circumstance, not the customer. 72
▪ Akio Morita – master of observation and induction ▪ From 1950 – 1982, Sony built 12 new disruptive growth businesses ▪ Looked at what people were trying to get done, and give them a way to do it better and cheaper using technology ▪ Sony’s run ended in the early ‘80s ! ▪ Why? 73
Outcome Driven Innovation 74
Definition ! Innovation is the creation of new 
 
 products, services or offerings 
 
 that create value for customers
 and contribute to growth.
 75
Innovation Questions 76
What Engineers Care About 77
What Customers Care About 78
Innovation Sources Universities Internal Capabilities Other Companies Observation Feet on the street Interviews Marketing Sales 79
Four types of Innovation ▪ Product or service innovation
 ▪ New market innovation
 ▪ Operational innovation
 ▪ Disruptive innovation 80
Customer-Jobs Matrix Customers get more jobs done – often ancillary or related jobs New customers do a job that nobody is doing yet; no product exists Customers get a job done better New customers do a job that others are already doing Devise products or services that help: Existing Customers New Customers Existing Jobs New Jobs 81
Customer inputs ▪ What jobs are they doing? ! ▪ What outcomes do they want? ! ▪ What constraints exist? 82
Breakout ! ! What “job” does a company
 “hire” the cloud to do? 83
Cloud Adoption Drivers Source: Everest Cloud Connect 2012 Enterprise Cloud Adoption Survey 84
Cloud Adoption Drivers Source: Everest Cloud Connect 2012 Enterprise Cloud Adoption Survey 85
Process ▪ Outcome Driven Innovation: What “jobs” do customers “hire” our products to do? ! ▪ Observation ! ▪ Interviews: Look for outcomes (dead mice, not better mousetraps) ! ▪ Measure importance and satisfaction of how jobs are done ▪ Can the job be done better? Can a new job be done? ! ▪ Prioritize 86
Prioritize – Step 1 from Strategyn 1 2 3 4 5 6 7 8 9 10 10 ! 9 ! 8 ! 7 ! 6 ! 5 ! 4 ! 3 ! 2 ! 1 Satisfaction Importance Overserved Appropriately Served Underserved Formula: ! Importance ! + MAX(Imp – Sat, 0) _________________ ! Opportunity 87
Prioritize – Step 1 from Strategyn 1 2 3 4 5 6 7 8 9 10 10 ! 9 ! 8 ! 7 ! 6 ! 5 ! 4 ! 3 ! 2 ! 1 Satisfaction Importance Overserved Appropriately Served Underserved Formula: ! Importance ! + MAX(Imp – Sat, 0) _________________ ! Opportunity Opportunity 88
Job to be done? 89
Add a new job ▪ Discover new music 90
Breakout ! ! What’s the next 
 “job to be done”? 91
92 Agenda ▪ Module 1: Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
Value Migration 93
Typical Product Life Cycle 94
Principles of Value Migration ▪ Products go through cycles; so do business designs ! ▪ The reason: customer preferences change over time
 ▪ They have evolving priorities and values 95
Market Forces: Reality Industry RivalrySupplier Power Buyer Power Threat of Entrants Technology & Pace of Change Globalization Threat of Substitutions Government Social and Cultural Shifts 96
Three Stages of Value Migration MarketValue/Revenue Value Inflow Stability Value Outflow • Limited competition • High growth • High profitability • Competitive stability • Stable market share • Stable margins • Competitive intensity • Declining sales • Low profits Talent, resources, and customers leave at an accelerating rate 2 1 97
Management Challenges 1. Construct a business design that will create and capture value 2. Maximize the ability of that design to perform during Phase I 3. Adjust investment intensity as the design moves to Phase II 4. Optimize the profitability and sustainability of the stability phase 5. Identify the requirements of the next generation design before competitors do 6. Creatively manage the transition to the new business design as value begins to flow out of the obsolete one 98
This is what management does. 1. Construct a business design that will create and capture value 2. Maximize the ability of that design to perform during Phase I 3. Adjust investment intensity as the design moves to Phase II 4. Optimize the profitability and sustainability of the stability phase! 5. Identify the requirements of the next generation design before competitors do 6. Creatively manage the transition to the new business design as value begins to flow out of the obsolete one 99
This is what it should do 1. Construct a business design that will create and capture value 2. Maximize the ability of that design to perform during Phase I 3. Adjust investment intensity as the design moves to Phase II 4. Optimize the profitability and sustainability of the stability phase 5. Identify the requirements of the next generation design before competitors do! 6. Creatively manage the transition to the new business design as value begins to flow out of the obsolete one 100
Market Forces: Reality Industry RivalrySupplier Power Buyer Power Threat of Entrants Technology & Pace of Change Globalization Threat of Substitutions Government Social and Cultural Shifts 101
The Competitive Radar Populate the inner circle with your direct competitors and put your indirect competitors in the outer circles. ! Shift your perspective. Step into your customers’ shoes. Look at the world through your customers’ eyes. What companies do your customers regard as their best option? ! What companies are not competitors yet, but could be in the next year or two? Put them on the periphery of the screen. Source: Slywotzsky, “The Profit Zone” 102
Example: Photography MarketValue/Revenue Value Inflow Stability Value Outflow • Limited competition • High growth • High profitability • Competitive stability • Stable market share • Stable margins • Competitive intensity • Declining sales • Low profits Talent, resources, and customers leave at an accelerating rate 2 1 103
Breakout ! ! ! What changes in customer values prompted the film business to decline? 104
Breakout ! ! Name some other victims
 of value migration. 105
Let’s Get Quantitative! ▪ Key Financial Metrics
 ▪ Market Capitalization (Price) ▪ Revenue (Sales) ▪ Gross Margin ▪ (Net Margin) ▪ (Enterprise Value) 106
Key Metric is Price/Sales ▪ Premise: ! ▪ Stock price includes investor expectation of future returns ! ▪ Revenues indicate present performance ! ! ▪ Ratio > 2 = Value Inflow to business model ! ▪ Ratio < 1 = Value Outflow 107
Price/Sales Ratio: 18-Feb-14 0.1 1.0 10.0 Value Inflow Stability Value Outflow Reference companies Industrial Technology (hardware) Technology (software) InternetIntegrated Xaas AAPL INTC T MS TRI NOK BBRY GE HON DD SI BANOC IBM HPQ XRX EMCNTAP BRCD CA MSFT SAP VMWRHT AMZN YHOO GOOG CRM RAX CTXS CSCOJNPR ORCL Off the Chart WorkDay 41.4 (+14%) !Splunk 34.5 (+62%) !NetSuite 20.2 (+17%) !Facebook 21.7 (+69%) 
 (Change since Mar-13) Legend !Green = Up since Mar-13 Red = Down since Mar-13 (Change more than 10%) !Italics = Pays dividend EQIX NFB SPLK 108
Breakout ! ! What trends do you see? ! What do you conclude? 109
BBRY: 5-year 110
BBRY: 10-year 111
Summary ▪ Competitive advantage derives from creating customer value ! ▪ Innovation provides engine for value creation ! ▪ Focus on outcomes ! ▪ Value migrates — competitive advantage must be maintained to sustain 112
113 Thank you! ! Questions? ! greg.hopper@duke.edu

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Creating customer value from technology

  • 1.
    April 8, 2014 ! GregHopper Adjunct Professor, Duke University Masters of Engineering Management Program Pratt School of Engineering Creating Customer Value from Technology
  • 2.
  • 3.
    Some perspective… 3 • 64billion McNuggets
 • 82.5 million bottles of Johnnie Walker Blue
 • A Bugatti Veyron Grand Sport Vitesse for all 6,337 Facebook employees
  • 4.
    4 ! What would youpay 
 to use Facebook? !
  • 5.
    5 Agenda ▪ Module 1:Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
  • 6.
    To study: how toallocate a firm’s resources to maximize the creation and preservation of customer value, AND
 how customer value changes. CompStrat Purpose 6
  • 7.
  • 8.
  • 9.
    What will 2020look like? 9 ?
  • 10.
    Big Data !Data Science 10
  • 11.
  • 12.
    Changes in theEnergy Industry 12 Source: WSJ, July 28, 2013
  • 13.
  • 14.
  • 15.
  • 16.
    Fundamental challenge ofstrategy in technology-based companies 1. You start selling a successful product. 2. You continue to improve the product and sell a lot more. 3. You’re selling product faster than ever just as you saturate the market. 4a. These people find your product to be “too much”. 4b. These people find your product to be “too old”. 16
  • 17.
    Fundamental Principles: #1 17 TechnologyProduct≠ Product Value≠ Product Outcome≠
  • 18.
    Fundamental Principle #2 18 “Wherethere is no competition,
 there is no market.” – Geoffrey Moore
  • 19.
  • 20.
    Commercialization ▪ Bob McDonald,then CEO of Proctor and Gamble: ! “For us, innovation is not invention. It’s the conversion of an idea into consumer delight, and, ultimately, revenue and profits. ! If and idea or technology cannot be successfully commercialized, it’s not an innovation.” 20
  • 21.
    Business Design ▪ Businessescan be designed just like products
 ▪ Mode of operation ! ▪ Use of money ! ▪ Source of profit and control points ! ▪ You should be able to draw the money flow 21
  • 22.
    Week 11/9/13 22 Agenda ▪Module 1: Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
  • 23.
    23 Competitive Advantage hasa Lifecycle ▪ Products
 ▪ “wired | tired | expired” (from WIRED magazine)
 ▪ People
 ▪ “You’re brilliant!” | “Good job.” | “What have you done for me lately?”
  • 24.
    Purchase Lifecycle stages 24 Awareness ! Buyermay not actively be in
 the market for the offering;
 first stage of demand 
 generation activity. Consideration ! Buyer is actively in the market for offering; evaluating several suppliers. Need to be on “short list”. Conversion ! Buyer chooses a supplier. Terms and conditions may enter consideration in this selection process. Customer believes relationship with vendor starts here. Sales people think it ends here. Retention ! Help buyer get most out of offering; nurture relationship to improve odds of repeat business and/or referrals. Replacement ! If dissatisfied, the buyer will initiate the whole process all over, with the exception that the original supplier will not be in consideration.
  • 25.
  • 26.
  • 27.
  • 28.
  • 29.
    29 More detail ▪ Reputation ▪Focus on maintaining relationship ▪ Don’t have to compete!
 ▪ Benefits ▪ Focus on offering superiority ▪ Compete on features that matter
 ▪ Commodity ▪ Focus on increasing relevance and credibility ▪ Compete on price
  • 30.
    30 Another Perspective:
 from EscapeVelocity ▪ Reputation: Tier 1 ▪ Market leaders ▪ The safe buy
 ▪ Benefits: Tier 2 ▪ Other well known names ▪ “Thinking Person’s Choice”
 ▪ Commodity: Tier 3 ▪ Unheralded players
  • 31.
    31 Another Perspective:
 from EscapeVelocity ▪ Reputation: Tier 1 ▪ Market leaders ▪ The safe buy
 ▪ Benefits: Tier 2 ▪ Other well known names ▪ “Thinking Person’s Choice”
 ▪ Commodity: Tier 3 ▪ Unheralded players Need to achieve separation from competitive set to move up
  • 32.
    32 Another Perspective:
 from EscapeVelocity ▪ Reputation: Tier 1 ▪ Market leaders ▪ The safe buy
 ▪ Benefits: Tier 2 ▪ Other well known names ▪ “Thinking Person’s Choice”
 ▪ Commodity: Tier 3 ▪ Unheralded players
  • 33.
    33 Competitive Advantage ▪ Competitiveadvantage allows you to: ! ▪ Get more customers; ! ▪ Keep more customers; and ! ▪ Charge more.
  • 34.
    Week 11/9/13 34 Breakout TheBig Question: ! Can you sustain 
 a competitive advantage?
  • 35.
    Competitive Advantage 
 OverTime Distinguishing Features Reputation Commodity Over time, all distinguishing features that matter to your customers will become part of the commodity-level offering. ! In other words, they become the basis of competition.
 They add to the cost of the offering, but no longer command a premium price.
  • 36.
    36 Agenda ▪ Module 1:Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification! ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
  • 37.
    37 Breakout What might somedifferences between classical and technology based strategy be?
  • 38.
    Classical vs. Technological ▪Classical
 ▪ Continuous ▪ Future is predictable ▪ Known offerings ▪ Established value propositions ▪ Marketing and promotion driven ▪ Doing the same things ▪ Technology-based ! ▪ Discontinuous ▪ High rate of change ▪ Education ▪ New value 
 propositions ▪ Education and awareness driven ▪ Doing things differently ▪ Doing different things 38
  • 39.
    Strategy Needs areDifferent ▪ Technology-based industries require different approach to strategy than established firms in established industries 39
  • 40.
    Escape Velocity ▪ Classicmarkets are cyclical in nature ! ▪ Technology markets face “secular market change” ! ▪ Definition: A 1-time expansion whenever a new category or new class of customers is created 40
  • 41.
    Comparison ▪ CYCLICAL
 ▪ Maturemarkets ▪ Share shifts in small increments ▪ Operational efficiencies ▪ Semi-tolerant 41 ▪ SECULAR
 ▪ New/emerging markets ▪ High growth ▪ Make or break ▪ Intolerant
  • 42.
  • 43.
    Is there aclassical market? ▪ Information Technology (IT) is prototypical “high tech” ! ▪ 1980s & 1990s: Telecom, finance, defense, aerospace ▪ 1990s – present: Internet disrupted media, news, entertainment, music, communication, retail, mobility, utility computing (cloud) ▪ 2014 – future: Education? Manufacturing? What else? 43
  • 44.
    44 Agenda ▪ Module 1:Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification! ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
  • 45.
    Customer Centric ! ▪ “Whatcan I do to create new value for my customers?”
 -- Michael Porter Customer Driven ! ▪ “If I asked my customers what they want, they’d say ‘a faster horse’.” 
 -- Henry Ford
 Key Difference 45
  • 46.
    by Craig Stull,Phil Myers, and David Meerman Scott ! Find unresolved problems, 
 create breakthrough experiences and launch market resonators. Tuned In 46
  • 47.
    Role of opinion ! ! “Youropinion, while interesting, is irrelevant.” 47
  • 48.
    Resonator ! ! ▪ A breakthroughproduct or service that buyers immediately understand has value to them, even if they’ve never heard of you or your product. 48
  • 49.
    Common Mistakes ▪ Threeof the most common mistakes companies make that cause products or services to fail: ! ▪ Guessing ! ▪ Assuming ! ▪ Telling ! ▪ Stop making these mistakes by unlearning Six Business Myths 49
  • 50.
    Myth #1 ▪ Customersknow best!! ! ! ▪ Your customers are only a small subset of the market Customer Evaluators Potential 50
  • 51.
    Myth #2 ▪ Thisis a commodity business!! ! ! ▪ Your distinctive competencies dictate how you build your products and services ! ▪ What would a Volvo sports car look like? 51
  • 52.
    Meet the VolvoTundra http://jalopnik.com/meet-the-concept-car-that-was-too-wild-for-volvo-1487322338 52
  • 53.
  • 54.
    The same firmdesigned this: 54
  • 55.
  • 56.
    Fast forward thirty-fiveyears… http://jalopnik.com/the-volvo-concept-coupe-this-is-it-1217800945 56
  • 57.
  • 58.
    Myth #3 ▪ Innovationis everything!! ! ! ▪ Don’t innovate for innovation’s sake: Create value 58
  • 59.
    Myth #4 ▪ We’resmarter!! ! ! ▪ Not a necessary nor sufficient condition for success. Finding untapped problems and solving them – creating breakthrough experiences – is. 59
  • 60.
    Myth #5 ▪ Fieldof Dreams development 60
  • 61.
    Myth #6 ▪ Revenuecures all!! ! ! ▪ A culture based around sales and revenues rarely creates hit products. ! ▪ A focus on sales can lead to companies being tuned out ▪ And they will miss when value migrates 61
  • 62.
  • 63.
    Breakout 1. Customers knowbest. 2. This is a commodity business. 3. Innovation is everything. 4. We’re smarter. 5. Field of Dreams development. 6. Revenue cures all. 63
  • 64.
  • 65.
  • 66.
    66 Agenda ▪ Module 1:Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
  • 67.
    The basic questionsegmentation 
 (tries to) answer ▪ What products will customers want to buy?
 ▪ What products should we develop? ▪ On which market segments should we focus? ▪ How can we know what the customers in those segments will value (and what they won’t)? ▪ How should we communicate the benefits of the products? 67
  • 68.
    Usual Approaches toSegmentation ▪ Product type ▪ Price point ▪ Demographics ▪ Age ▪ Gender ▪ Income ▪ Home ownership status ▪ Profession ▪ Education ▪ Location ▪ Etc. 68
  • 69.
    Traditional Segmentation ▪ Definedby attributes of product and/or customer ! ▪ Based upon a correlation between attribute and outcomes (i.e. purchase and use) ! ! ! ▪ Is this enough to base a disruptive strategy on? 69
  • 70.
    Short Answer: No. ▪When your marketing theory offers a plausible statement of causality AND ! ▪ Is based on circumstance-based categorizations (i.e. segmentation) THEN ! ▪ You can predict what features, functions and positioning will CAUSE customers to buy a product. 70
  • 71.
    Key Insight: CustomersHire Products ▪ Customers are people or companies that have “jobs” to do, and they “hire” people – and products or services – to do those jobs. 71
  • 72.
    Key Insight: CustomersHire Products ▪ Customers are people or companies that have “jobs” to do, and they “hire” people – and products or services – to do those jobs. ! ▪ The functional, emotional and social dimensions of the job determine the circumstances in which they buy. ! ▪ The critical unit of analysis is the circumstance, not the customer. 72
  • 73.
    ▪ Akio Morita– master of observation and induction ▪ From 1950 – 1982, Sony built 12 new disruptive growth businesses ▪ Looked at what people were trying to get done, and give them a way to do it better and cheaper using technology ▪ Sony’s run ended in the early ‘80s ! ▪ Why? 73
  • 74.
  • 75.
    Definition ! Innovation is thecreation of new 
 
 products, services or offerings 
 
 that create value for customers
 and contribute to growth.
 75
  • 76.
  • 77.
  • 78.
  • 79.
  • 80.
    Four types ofInnovation ▪ Product or service innovation
 ▪ New market innovation
 ▪ Operational innovation
 ▪ Disruptive innovation 80
  • 81.
    Customer-Jobs Matrix Customers getmore jobs done – often ancillary or related jobs New customers do a job that nobody is doing yet; no product exists Customers get a job done better New customers do a job that others are already doing Devise products or services that help: Existing Customers New Customers Existing Jobs New Jobs 81
  • 82.
    Customer inputs ▪ Whatjobs are they doing? ! ▪ What outcomes do they want? ! ▪ What constraints exist? 82
  • 83.
    Breakout ! ! What “job” doesa company
 “hire” the cloud to do? 83
  • 84.
    Cloud Adoption Drivers Source:Everest Cloud Connect 2012 Enterprise Cloud Adoption Survey 84
  • 85.
    Cloud Adoption Drivers Source:Everest Cloud Connect 2012 Enterprise Cloud Adoption Survey 85
  • 86.
    Process ▪ Outcome DrivenInnovation: What “jobs” do customers “hire” our products to do? ! ▪ Observation ! ▪ Interviews: Look for outcomes (dead mice, not better mousetraps) ! ▪ Measure importance and satisfaction of how jobs are done ▪ Can the job be done better? Can a new job be done? ! ▪ Prioritize 86
  • 87.
    Prioritize – Step1 from Strategyn 1 2 3 4 5 6 7 8 9 10 10 ! 9 ! 8 ! 7 ! 6 ! 5 ! 4 ! 3 ! 2 ! 1 Satisfaction Importance Overserved Appropriately Served Underserved Formula: ! Importance ! + MAX(Imp – Sat, 0) _________________ ! Opportunity 87
  • 88.
    Prioritize – Step1 from Strategyn 1 2 3 4 5 6 7 8 9 10 10 ! 9 ! 8 ! 7 ! 6 ! 5 ! 4 ! 3 ! 2 ! 1 Satisfaction Importance Overserved Appropriately Served Underserved Formula: ! Importance ! + MAX(Imp – Sat, 0) _________________ ! Opportunity Opportunity 88
  • 89.
    Job to bedone? 89
  • 90.
    Add a newjob ▪ Discover new music 90
  • 91.
    Breakout ! ! What’s the next
 “job to be done”? 91
  • 92.
    92 Agenda ▪ Module 1:Introduction
 ▪ Module 2: Competition
 ▪ Module 3: Value Identification ! ▪ Module 4: Jobs to be done
 ▪ Module 5: Value Migration
  • 93.
  • 94.
  • 95.
    Principles of ValueMigration ▪ Products go through cycles; so do business designs ! ▪ The reason: customer preferences change over time
 ▪ They have evolving priorities and values 95
  • 96.
    Market Forces: Reality IndustryRivalrySupplier Power Buyer Power Threat of Entrants Technology & Pace of Change Globalization Threat of Substitutions Government Social and Cultural Shifts 96
  • 97.
    Three Stages ofValue Migration MarketValue/Revenue Value Inflow Stability Value Outflow • Limited competition • High growth • High profitability • Competitive stability • Stable market share • Stable margins • Competitive intensity • Declining sales • Low profits Talent, resources, and customers leave at an accelerating rate 2 1 97
  • 98.
    Management Challenges 1. Constructa business design that will create and capture value 2. Maximize the ability of that design to perform during Phase I 3. Adjust investment intensity as the design moves to Phase II 4. Optimize the profitability and sustainability of the stability phase 5. Identify the requirements of the next generation design before competitors do 6. Creatively manage the transition to the new business design as value begins to flow out of the obsolete one 98
  • 99.
    This is whatmanagement does. 1. Construct a business design that will create and capture value 2. Maximize the ability of that design to perform during Phase I 3. Adjust investment intensity as the design moves to Phase II 4. Optimize the profitability and sustainability of the stability phase! 5. Identify the requirements of the next generation design before competitors do 6. Creatively manage the transition to the new business design as value begins to flow out of the obsolete one 99
  • 100.
    This is whatit should do 1. Construct a business design that will create and capture value 2. Maximize the ability of that design to perform during Phase I 3. Adjust investment intensity as the design moves to Phase II 4. Optimize the profitability and sustainability of the stability phase 5. Identify the requirements of the next generation design before competitors do! 6. Creatively manage the transition to the new business design as value begins to flow out of the obsolete one 100
  • 101.
    Market Forces: Reality IndustryRivalrySupplier Power Buyer Power Threat of Entrants Technology & Pace of Change Globalization Threat of Substitutions Government Social and Cultural Shifts 101
  • 102.
    The Competitive Radar Populatethe inner circle with your direct competitors and put your indirect competitors in the outer circles. ! Shift your perspective. Step into your customers’ shoes. Look at the world through your customers’ eyes. What companies do your customers regard as their best option? ! What companies are not competitors yet, but could be in the next year or two? Put them on the periphery of the screen. Source: Slywotzsky, “The Profit Zone” 102
  • 103.
    Example: Photography MarketValue/Revenue Value InflowStability Value Outflow • Limited competition • High growth • High profitability • Competitive stability • Stable market share • Stable margins • Competitive intensity • Declining sales • Low profits Talent, resources, and customers leave at an accelerating rate 2 1 103
  • 104.
    Breakout ! ! ! What changes incustomer values prompted the film business to decline? 104
  • 105.
    Breakout ! ! Name some othervictims
 of value migration. 105
  • 106.
    Let’s Get Quantitative! ▪Key Financial Metrics
 ▪ Market Capitalization (Price) ▪ Revenue (Sales) ▪ Gross Margin ▪ (Net Margin) ▪ (Enterprise Value) 106
  • 107.
    Key Metric isPrice/Sales ▪ Premise: ! ▪ Stock price includes investor expectation of future returns ! ▪ Revenues indicate present performance ! ! ▪ Ratio > 2 = Value Inflow to business model ! ▪ Ratio < 1 = Value Outflow 107
  • 108.
    Price/Sales Ratio: 18-Feb-14 0.1 1.0 10.0 Value Inflow Stability Value Outflow Reference companies Industrial Technology (hardware) Technology (software) InternetIntegratedXaas AAPL INTC T MS TRI NOK BBRY GE HON DD SI BANOC IBM HPQ XRX EMCNTAP BRCD CA MSFT SAP VMWRHT AMZN YHOO GOOG CRM RAX CTXS CSCOJNPR ORCL Off the Chart WorkDay 41.4 (+14%) !Splunk 34.5 (+62%) !NetSuite 20.2 (+17%) !Facebook 21.7 (+69%) 
 (Change since Mar-13) Legend !Green = Up since Mar-13 Red = Down since Mar-13 (Change more than 10%) !Italics = Pays dividend EQIX NFB SPLK 108
  • 109.
    Breakout ! ! What trends doyou see? ! What do you conclude? 109
  • 110.
  • 111.
  • 112.
    Summary ▪ Competitive advantagederives from creating customer value ! ▪ Innovation provides engine for value creation ! ▪ Focus on outcomes ! ▪ Value migrates — competitive advantage must be maintained to sustain 112
  • 113.