Ten Questions with Erich Joachimsthaler - Hidden In Plain Sight - Demand-first Innovation And Growth

What do Allianz Group, Apple Inc. (NASDAQ: AAPL), Axe, GE Healthcare (NYSE: GE), BMW, Proctor & Gamble (NYSE: PG), Starbucks (NASDAQ: SBUX), and Netflix have in common? These innovators consistently and successfully bring to market winning innovations, achieve profitable new growth, and reinvent their business for the future.

Erich Joachimsthaler, founder and CEO of Vivaldi Partners, a strategy, innovation and marketing consulting company, in his newly published book - Hidden In Plain Sight : How to find and execute your company's next big growth strategy - provides us insightful answers to real questions facing businesses today: on creating successful innovations and driving profitable growth - by introducing a new methodology “demand-first innovation and growth” (DIG). Joachimsthaler purports a poignant view of the misplaced state of innovation in the broader market.

I was able to obtain a copy of Hidden In Plain Sight from Harvard Business School Press publicist Michelle Morgan. Michelle also introduced me to Joachimsthaler. Rather than indulge you with my analysis and thoughts on this must-read innovation book and the three-part method of the DIG model, I wanted to share with you something even better: Top Ten Answers from Erich Joachimsthaler himself on my most pressing questions.

One lucky person will win a FREE hardcover book in an “Innovation Raffle” on behalf of HBS Press (ended)

Without further ado:

Top Ten Questions and Answers on Hidden In Plain Sight with Erich Joachimsthaler:

Question #1: Why are key opportunities for innovation and growth hidden in plain sight? Do companies even know about this?

Erich Joachimsthaler: In the book, I discuss four reasons why opportunities are hidden in plain sight. First, is the fact that growing a company requires establishing processes, systems, and procedures. Growth requires that work is divided into divisions or business units which fragments a company’s view of the customer. Second, are strategic considerations. Company often follow mantra’s like: stick to the knitting and therefore continue to invest into a direction that has proven to be right in the past. Third, and this is the most important reason is that American companies today live comfortably in the world of either the product perspective or the customer perspective. That is, there is either a mentality of looking at the world from the product perspective or the customer perspective. Both of the perspectives have one central tenet that underlies them. It is the need-fulfillment paradigm. Find a need and fill it. The problem is that this model is not only obsolete, it is generic and geriatric – time to retire it and send it to Florida. We are facing a dilemma in mammoth proportion in America. Companies need to learn and accept that we are in a world of product proliferation where we already have served nearly every need several times over, where there are over 50 varieties of bottled water, over 78 different Lay’s chip varieties, over 29 varieties of Pop Tarts and over 20 different milk types – no longer the company is in charge, but the customer. Fourth, success begets success. Success also infuses a company with an inside-out perspective. Often times, companies not only don’t see the opportunities, they often don’t know about them in the first place.

Question #2: "We are differentiating our products from competitors' offerings, segmenting the marketplace to identify new customers or consumers, growing through mergers and acquisitions, developing brand new products and extending brands, and actively listening to customers or consumers. We have everything in place to be successful." Is this a fallacy?

Erich Joachimsthaler: Yes, this is exactly and precisely the problem. These practices are the practices that have worked in the past – they have worked during the years where consumers were in search of products and services, where consumers found the station breaks on TV a form of entertainment. Companies are wrong in thinking that listening to consumers is equal to understanding. The problem of huge proportions that American businesses are facing is the fact that our fundamental paradigm of business, the very essence and foundation of what creates the success for business until today is now in question. You have to abandon the simplistic notion of the need-fulfillment paradigm. The complexities of today’s consumers can no longer be measured in terms of a set of attributes, product or brand attributes, that need to be fulfilled or exceeded and that ensures commercial success. You follow this paradigm and you are more likely competing based on features in commodity hell than building a profitable growth business. We have got to retire the outdated notions that the need-fulfillment paradigm serves any useful purpose today in the day and age where over 95 percent of all new products fail within the first year. You have also got to retire the basic notion that consumers can tell you what they want. I am of the opinion that consumers can not know what they have not experienced. It is important that we are not consumer-led, not marketing-led and not product or technology led – we have got to find a new approach to growth which is described in my book.

Question #3: Why is it important for a company to look from the outside in and let go of existing processes and models?

Erich Joachimsthaler: It is a natural human tendency to pursue patterns that have worked and that have made us successful. It is only natural, therefore, that Sony looks at the world in terms of finding more customers for the Walkman. After all, the Walkman has been a huge success and why would hundreds of millions of Walkmans sold be wrong. But this very success can blind executives in not seeing the biggest opportunities in plain sight.

And outside-in perspective, and be mindful, I do not mean a customer perspective, can provide an unbiased and untainted view of the opportunities that a company has. It is a hard thing to do, though.

Question #4: What is Customer Advantage? Is it the same as profitably serving the needs and want of my customers - aka maximizing gains from customers?

Erich Joachimsthaler: Precisely not! Profitably serving the needs and wants of customers is a notion that is reminiscent of the need-fulfillment paradigm. The corollary is that one can profitably serve consumers needs and wants if one has something that is different from competitors and competitors can not right away copy it. Today, the notions of competitive advantage, of differentiation for the sake of differentiation and of serving customers to delight them need to be questioned. Remember the highly differentiated Iridium phone service, a brick-size phone that had an antenna the size of a base ball bat. It came with a 3,000 dollars basic plan plus 7 dollars per minute of calling. Calling of course required that one needed to step outside a building as it would not work inside, and one needed to be clear of buildings after all. Motorola spent billions of dollars in it and there was an enormous conviction that there will be a big market. And it was extremely differentiated. Or do you remember and equally highly touted and buzzed up, hyped up new product, the Segway Personal Transporter, it was highly differentiated and was to change the way we walk and stroll or transport ourselves from point A to point B. There was also a conviction from study after study with consumers that there was a big market. Right? Now, we live in an age where the iPod has become the big success. Now, if differentiation is so important? Can you tell me what the No. 2 MP3 player is? Or No. 3? Then, iPod is differentiated from what? How about the so important iTunes downloadable service? If iTunes is the No. 1 downloading service for music? What is the No. 2 or 3? Have you ever bothered comparing any of the services? That’s my point. I bet you can’t give the answers, because when you achieve customer advantage, the comparison is irrelevant. People have absorbed and assimilated the iPod into their lives. We live many more minutes of our 1,440 minutes we all live from midnight to midnight with our iPods – and that is customer advantage – it is how your product fits into the everyday life of consumers. It is not the simplistic notion of how much my product or brand is different from competitors.

Question #5: What is the changing ecosystem of demand? How do Procter & Gamble and GE address this?

Erich Joachimsthaler: The ecosystem of demand paradigm changes the simplistic need-fulfillment paradigm. It maps the complexities of the everyday lives. Importantly, is the mapping process itself. It does not start with identifying needs and wants using some sort of ganglion marketing research procedure. Instead, it begins with mapping the everyday life of consumers in the case of P&G or customers for GE. The starting point is the GAP or Goals, Activities and Priorities of people. This is the gap that the current product perspectives and the current dominant consumer perspectives totally miss. The GAP is what really matters, here and now, today in the everyday life of consumers. The GAP is however only the starting point. It is only useful if one sees the GAP in the context, the social-cultural context in which one lives. Context is everything! The GAP then focuses on behaviors and we study the behaviors in the context in which they occur. This is a crucial aspect of our model. We believe that the best predictor of behavior is behavior, not attitudes and not opinions or brand reputations. It is as simple as this and it is as complex as this. Starting with this behavioral perspective – what really matters to consumers in their everyday life, we explore unarticulated needs and wants, but also urges, passions, fantasies and desires. As you progress with putting layer and layer of complexity on understanding the demand landscape from this perspective, the contours of the ecosystem of demand emerge. It is powerful rendition of where the opportunities for the business lie. So, you think this is a bit too complex, everything has to be simple. Frankly speaking, I disagree. Remember, we are talking about your wife or your husband or your next door neighbor, would you agree with me that we do not live around simple people? We have got to abandon the simplistic notions of consumer demand that exists today.

How did GE or P&G do it? To begin with, both companies began observing their consumers without the biases of their own products and brands. This has been a near revolution at these companies. Both stories are well described in the book. GE Healthcare for example studied anesthesiologists and their behaviors during key surgical procedures in the operating room. P&G studied people around their everyday lives around their home, not simply when they were scrubbing the bathroom floors. These companies also learned that they needed to reframe their existing businesses and categories and pursue entire new thinking routines in order to really understand their businesses better. An important aspect of their success has been that the new insights from the research led to an entire new search of helping consumers or anesthesiologists that involved multiple businesses inside the company and even communities from outside the company. And even more importantly the entire strategic blueprint for action – in the case of P&G, its marketing model has changed. Today, P&G seeks one to one relationships with over 60 million households in America (more than every second household), it has established their own presence on Second Life, it has established their own social networking sites, it is revamping the entire marketing success model that it itself developed and perfected over the last fifty years.

Question #6: What is DIG, and how is it different from my company's innovation model?

Erich Joachimsthaler: The DIG model is a systematic, systemic and repeatable process to identify and executive innovation and growth strategies. It replaces the existing model of SAV or screwing around vigorously, sometimes also called the fuzzy front end of existing innovation models. In the fuzzy front end, one searches wildly for ideas that then can be put through the classic stage-gate process of new product development. In the DIG model, the focus is not on the product, it is on finding ways of creating a transformational change in consumers’ everyday life. Therefore, the innovation can be a product, a solution, a new technology, a business model, or no product at all. And because it is a process, there is a chance of winning again and again, of repeating the success. It does not rely on the occasional brilliance of one particular executive.

Question #7: Can a company still succeed if it cannot create a complete demand landscape? How did Frito-Lay stay on top of high-profile customer trends by creating a complete demand landscape?

Erich Joachimsthaler: Yes, in reality, we cannot completely map the entire ecosystem of consumer demand – it is an evolving process. We prefer to get a very good rendition of the contours of the demand landscape, then dig deep – hence the acronym DIG. We do always focus on a specific component of it first – what we call the demand landscape. At Frito-Lay we identified the moments around which Lays is currently consumed during the 1,440 minutes we all live. We then identified other moments in everyday life that are relevant. We then analyzed the trends in each of the moments. For example, a moment in the office is impacted by different trends than a moment at home or on the go. And mind you, we did not begin with deep dive of people’s psychology around snacking and studying product attribute configuration or emotional drivers of the Lays’ consumption experience.

Question #8: How and why did Allianz reframe the opportunity space? Was this needed? Was Allianz successful?

Erich Joachimsthaler: In the case of Allianz, the emphasis was on reframing the opportunity space. This was so because in the insurance business, particularly the personal liability insurance business, there was the feeling that there were no innovations possible. It is an old and very traditional business. It is a business that matured and consumers simply buy based on the lowest price or annual fee.

At Allianz, the personal liability business was important to the company. Allianz was by far the leader in the market with a significant price premium. Where do you go from here? The feeling was that new competitors only force the market into the wrong direction - lower prices and cheapened services through telephone trees and outsourcing arrangements in low-cost countries.

Allianz was able to rethink the entire personal liability business and it was done not simply based on largely visionary ideas but forty concrete innovations that the executives in part themselves came up with, by looking at the demand landscape in totally new ways – using the 12 BIG (breakthrough innovation and growth) lenses that are described in the book.

Question #9: How does BMW create sustainable Customer Advantage? What could BMW do differently?

Erich Joachimsthaler: The BMW story in the book describes how this company has understood their demand landscape and how it has developed a portfolio of cars ranging from the BMW brand, the MINI brand to the Rolls Royce brand – a premium car manufacturer that sells over a million automobiles! The chapter in the book describes how the company has developed a strategic blueprint for action (the third component of the DIG model), that captures a relevant part of the ecosystem of demand. In this example, the component of the blueprint described is the company’s world-class brand management system. You will learn how the company adopted an entire new model of branding for the MINI than the success model it used for the BMW brand. And hence, they have drawn in different consumers for the MINI brand than for the BMW brands. The chapter illustrates how the DIG model opens up strategic options for building profitable growth that one would not otherwise see from a traditional business as usual perspective. At BMW, the innovation, the breakthrough was not another technology, but the innovation was about the brand management approach and how it created a deeper affiliation and hence customer advantage.

BMW has done a lot of things right and what they can do differently now is never ever forget and be mindful that innovation – even at BMW where innovation has such a strong technology core – goes far beyond its habitual technology domain and into brand management, design, and new business models. I think the story in the chapter vividly describes this BMW difference.

Question #10: What drives Apple's innovation and growth? Is Apple better at connecting with and engaging consumers?

Erich Joachimsthaler: Apple’s innovation and growth is first and foremost driven by inner conviction about the outer world – a conviction that is manifested by Steve Jobs and largely led by him and people around him.

This conviction is about changing how consumers live around music or entertainment. It is not merely a product focus, although it might appear this way. Apple has created the transformational change that I talk about in the book, it has created the customer advantage as I define it. It has changed the way we find out about music, the way we select music, buy music, listen to music, store music and discard music – in short, it has changed how we manage music in our lives (something that is fairly important to all of us), it also has changed how we manage video, etc.

It is not merely a better experience from competitor X, but it is a transformation of our lives, a part of our lives and Apple moves on doing the same with our entire digital lives, watch the launches of iTV and iPhone.

If Apple merely would define a set of needs and wants and then seek to fulfill it, they would ask consumers what they like or dislike about the Walkman and then create a better Walkman. I think that model of need-fulfillment paradigm is NOT at the core of the Apple process. Instead, Apple develops a notion of the changing consumer landscape. Think about around 2000 or 2001, there were already some consumers who downloaded songs from Napster and Kazaa. They see how the demand landscape is changing and they develop their own thinking, what I call structured thinking, around how to create a transformative experience for consumers. They don’t rely solely on consumer input and focus groups. In the process, Steve Jobs reframes the entire opportunity space for Apple – from a computer company, to a music company (Apple happens to be now one of the largest music retailers), to be an entertainment company. You ask about connecting with consumers? What would Madison Avenue recommend you? They would say: you need to find an emotional message that creates a connection with the consumers – touting functional and emotional benefits and achieve a clear positioning relative to competitors. How would that look like? Most likely a message, communicated over TV that clearly explains the principal benefits and the reasons to believe this benefits to targeted consumers. What would a marketer recommend? He or she would recommend that Apple segments the market into those who like more noisy music versus the sophisticated music lover who perhaps listen to classic music. And if you look at what Apple did, it seems they have followed little of the standard advice from marketers or advertising professionals. Connection and engagement does not happen on the small screen, the TV set or the large screen, but it happens in the 1,440 minutes where consumers live and work and play. Engagement and connection for Apple has nothing to do with emotionalizing the difference of iPod over the Walkman or touting superior product attributes. Look at their advertisements. Their marketing program or advertising program cannot be printed on paper or shown in little films called TV or cinema spots. Their program of connecting with consumers is about the 2,000 accessories that they have licensed to Bose and other companies so that we can absorb and assimilate the iPod into our 1,400 minutes we all live every day.

All Important Question: What are the top three takeaways from Hidden in Plain Sight that help companies internalize the DIG agenda?

Erich Joachimsthaler: The important takeaways are:
1) Innovation and growth is not a fuzzy process of screwing around vigorously (SAV) but can be a systematic process,
2) Innovation and growth is not something that happens in a department like R&D or product development – innovation and growth is a company-wide activity and only if you have a process can you also engage the entire organization,
3) Innovation and growth is not about products or solutions – it is about creating a transformational change in the way people live, work and play – and in order to achieve that, the innovation can be a product, a solution, a technology and new business model like at Netflix or no product at all. It could even just be a management innovation like brand management at BMW or a better supply chain management process.

If you follow these three takeaways, there is a chance to win again and again and to achieve a larger transformation of your company, and reinvention of the business for the future.

Selected references:

Leading eBook on Creativity and Innovation in Business

Creativity and Innovation Best Practices

Creativity and Innovation Case Studies

The Innovation Index

Top 50 innovative companies in the world

References:

Erich Joachimsthaler: Hidden In Plain Sight - How to find and execute your company's next big growth strategy

HBR IdeaCast with Erich Joachimsthaler

Apple, GE, P&G and Starbucks are 4 of the Top 20 innovators of The Innovation Index

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