The transformation of “customer driven”, “customer-centered”, “customer-defined” from just empty buzzwords in the latest management books to central values, key strategic skills is continuing.

Patricia Seybold’s 2006 book Outside Innovation: How Your Customers Will Co-Design Your Company’s Future (Harper Collins, New York 2006) provides a broad review of many techniques used by a wide range of companies to incorporate customers and customer ideas into product design. The book is sufficiently current to include examples for web-centered customer environments. Ms. Seybold has gathered a large number of examples in varying market segments. This makes the book a worthwhile read just for these through examples. Unfortunately, the formalization of the ideas remains low. This makes this book look and feel like a collection of anecdotes. The book closes with “Five Steps to Outside Innovation”, “Five Core Competencies to Master”, and “Five Pitfalls to Avoid”. Unfortunately Ms. Seybold never really develops her copywrited, “Customer Scenario” to organize the methods and approaches to get beyond the notion that customer inputs to innovation are a series of “I want….” statements.

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Peter Drucker wrote a charming little book in 1967, The Effective Executive: The Definitive Guide to Getting Things Done. I have now read it numerous times and each revisit rewards me.

Just this morning I was speaking with a manager about efforts to refocus a business on new services and the difficulty of dragging along the old, tried-and-true services that still have a customer base and generate revenues. Drucker had quite a bit to say about this problem of the past. In the chapter titled, First Things First, he wrote, “Systematic sloughing off of the old is the one and only way to force the new.” And, “Yesterday’s successes ….. always linger on long beyond the productive life.”

Drucker wrote in the same chapter, “It is more productive to convert an opportunity into results than to solve the problem — which only restores the equilibrium of yesterday.” This seems like quite a provocation to most managers. After all, managers and management are all about problem solving. Or so we seem all to think. But, from Drucker’s perspective, problems are always about the past. This is very clear from his notion that solving problems only reestablishes the status of the past, some sort of guarantee that we can reproduce the results of the past. Whereas, opportunities are about the future.  The future is where customers in the real world are, not in the past. Drucker sees the world as continually evolving and requiring new solutions to new problems, always defined by customers.

So, then, back to where I started. One of the hardest things for any manager to do is to look away from the products and services of the past. These may very well still be producing revenues and profits, though analysis and planning are telling them that future customers and revenues must come from elsewhere.   

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Drucker

Recently I have been returning to Peter Drucker’s work, specifically The Practice of Management (originally published in 1954, the current edition is HarperBusiness, 1993). On page 50, Drucker says the following:

 ”What is our business is not determined by the producer but by the consumer. It is not defined by the company’s name, statutes, or articles of incorporation but by the want the consumer satisfies when he buys a product or service. The question can therefore be answered only by looking at the business from the outside, from the point of view of the customer and the market what the consumer sees, thinks, believes and wants at any given time must be accepted by management is an objective fact deserving to be taken as seriously as the reports of a salesman, the tests of the engineer or the figures of the accountant — something few managements find it easy to do. In management must make a conscious effort to get honest answers from the consumer himself rather than attempt to read his mind.”                

Customer -Centered Business

So here we are reading something written in 1954 that is still very difficult to do. Almost everyone in business speaks the words, the rhetoric,  of the customer centric business. But it still seems incredibly difficult to overcome the centripetal forces of day-to-day business and really engage customers directly and frankly.    

 Web-Marketing

A recent social web marketing seminar (Social Media Club Boston) reminded me again of this very same problem. One of the presenter’s, Greg Jarboe, SEO-PR, told a wonderful story of  how Southwest Airlines learned that though they might forbid the use of the word “cheap” internally, customers on the web are searching for “cheap airfares” not “inexpensive” or “frugal” or “cost-effective”. Even on the web, or perhaps even more so, the customer defines the terms and values of the game. All the more reason to put effort into finding out what they customer really wants.  

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Michael Volpe, VP Marketing at Hubspot, the web marketing software company, pointed me to this book in one of his presentations. I have been sufficiently impressed by the quality of HubSpot’s work that I ran over to my local library and signed it out.

The New Rules of Marketing & PR is a breakthrough book for me about the new world of web-marketing. Here is Scott’s list of the new rules of marketing and PR (I added the numbers to the list for reference later):

1. Marketing is more than just advertising.
2. PR is for more than just a mainstream media audience.
3. You are what you publish.
4. People want authenticity, not spin.
5. People want participation, not propaganda.
6. Instead of causing one-way interruption, marketing is about delivering content at just the precise moment your audience needs it.
7. Marketers must shift their thinking from mainstream marketing to the masses to a strategy of reaching vast numbers of under-served audiences via the Web.
8. PR is not about your boss seeing your company on TV. It’s about your buyerts seeing your company on the Web.
9. Marketing is not about your agency winning awards. Its about your organization winning business.
10. The Internet has made public relations public again, after years of almost exclsuive focus on media.
11. Companies must drive people into the purchasing process with great online content.
12. Blogs, podcasts, e-books, news releases, and other forms of online content let organizations communicate directly with buyers in a form they appreciate
13. On the Web, the lines between marketing and PR have blurred.

Numbers 3, 4, 5, 6, 11, & 12 are the core of the message. And I might add a couple of more notes here. First, all of this is hard work. You don’t hire some outside ad firm to handle this. People intimate with your company’s core values need to be involved. But, then, this means that with a bit of good focus and time management, you also do not need to spend a lot of money to utilize these tools. Second, the role of truth seems central to how you communicate, listen to, converse with, and engage your audience, your clients and customers.

Scott’s book is very well written and clearly organized. This is a must read for those of us still trying to figure out how to leverage the new web-marketing world. It provides a great introduction to seeing an overall strategy for web-marketing.

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An important step for every business manager is to understand where profits are coming from. Too many managers are relying on  the basic Profit and Loss statement that comes to them from their accountant. This is not always a useful management tool.

Lets take a look at a situation where a web-based services company is experiencing good growth and reasonable profits. They have four lines of business addressing their single basic service to four different markets. Based on their market analysis, they decide that they will focus their marketing dollars and development resources on one of the four for the next year.

Six months into the mission, sales have continued upwards, but profits are not tracking along at the same rate, the quality of earnings is suffering. Why is this happening?

First they muscled their way through some spreadsheet work sorting out their COGS (Cost Of Goods Sold) and reassigning previously Fixed Expenses in marketing that really could be assigned to each of their four market areas. Then they discovered that the the market segment that they had focused their efforts on had never been very profitable and they had made the situation worse by increasing the sales volume through it.

On closer analysis it became evident that the lack of profitability came from two sources. First, the marketing costs of acquiring customers in  this market channel had been 60% higher than in  the others. Second, the vendor providing the back office services supporting this channel was 30% more expensive than vendors supporting the other market segments. In the short run, the managers decided to shift their focus to another one of their markets. In the long run they decided to search for a better vendor and conduct some research on why the marketing costs were so high.

So, if you have a business where you are selling more than one product or service to more than a lone customer, think about developing the financial management tools that will tell you where your sales and profits are actually coming from.

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