The CEO Bookshelf: Lessons from the Global Innovation 1000
In the Books supplement of the New York Times’s Sunday edition, there is a recurring feature called By the Book. Every week, a famous author shares what she is reading, what other authors have influenced her writing and, most entertainingly, which three authors, dead or alive she would like to have over for dinner. Even if I have not read any of the books or authors she lists, I find that section illuminating as it challenges me to think about areas and points of view outside of my immediate interests. This is our goal with this series: Rob and I may be far from published, let alone famous, authors, but by sharing what we are reading, we hope to provoke us all to think more broadly and from a different perspective about the issues that we as design professionals, technology enthusiasts and business leaders find relevant.
What keeps you up at night? I was asked this question recently, and I am guessing a lot of people in senior leadership positions are often asked something similar. Despite a healthy economy, there is plenty for us to lose sleep over; from how government policy decisions will impact our businesses to saturated markets and increased competition. Perhaps one of the most pressing worries is “how will we stay relevant in the digital economy?,” because failure to adjust can result in more than just sleepless nights.
CEOs are seeing their revenues starting to level off as their product lines become more commoditized and the demands from their customers outweigh their ability to deliver meaningful value (see GoPro). There is also the rising threat from non-traditional competitors entering the markets from an entirely different vector. These so called upstarts are agile, data-savvy, and laser-focused on the opportunities around the unmet needs of your customers. When this assault is coupled with endless waves of emerging technology trends, it can start to feel like you are under siege. No wonder you can’t sleep at night.
A recent survey by PwC investigates trends at the world’s largest corporate R&D spenders. The survey, called Global Innovation 1000, revealed that most companies continue to increase their investment in research and development to hedge their bets against an uncertain future. But doubling down on R&D spending is not likely to be enough on its own, as it is more important how you spend your R&D budget, as opposed to simply how much you spend. According to the survey, software and services far outpace investment in product R&D. This in turn begs the question – how do you spend your innovation dollars? How can you be confident of maximizing your returns? And what are some of the lessons we can glean from the Global 1000?
The Customer Journey: Your Northern Light
Big Data, IoT, AI, VR—the fast pace of emerging technology can be disorienting. How do you know which one to pursue and which one to hold off on? One way to increase the likelihood of success is to focus on the entire customer journey. Too often we tend to focus on a very specific part of the customer experience, usually the part that involves our product; when they are evaluating it, when they are buying it, and when they are using it. While this can lead to incremental improvements to an existing product, it can also prevent you from seeing the broader opportunities. When you have a holistic view of your customer, you can better appreciate their motivations, their real goals (“jobs to be done”), as well as their pain points.
For example, take John Deere, the world’s leading manufacturer of agricultural, construction and forestry machinery, is in the process of becoming a software and services company. Why? Because the hardware is only one product that meets one need of the customer. Beyond this one intersection, there are so many unmet needs that can be served by John Deere once they fully understand their customer’s journey. This equals opportunity for the company, according to the words of one of its executives:
“Our customers continue to expect the best equipment,” says Klaus Hoehn, vice president of advanced technology and engineering. “But on top of that, they want us to provide solutions that address the pain points they’re experiencing in their business.” Deere’s newest generation of corn planters not only run at twice the speed of previous models, but also feature monitors, sensors, and software that optimize the planting process and generate detailed computerized data about how and where seeds are sown.
We recently talked to a CPG company whose goal was to turn one of its key products into an IoT-enabled, “smart” version. Needless to say, the strategy of trend chasing without thinking about the customer and their needs is as successful as pavement chasing. And leaves the same scars.
Data: A True Life Saver
Similarly, the data that surrounds your customer can allow you to be more informed about their behaviors so you can better meet their needs. Medtronic, one of the world’s largest medical device companies, makes continuous glucose monitors (CGMs) to help patients with Type 2 diabetes better manage their condition. The problem is that monitoring glucose levels is only one part of the equation, for what is missing is an understanding of the activities that lead to a rise or fall in glucose levels. In December of 2016, Medtronic announced a partnership with the activity tracker company FitBit, so now Medtronic could leverage the insights from the data surrounding the patient’s activities. The business media applauded the move:
“The ability to track daily activity and understand how different exercise regimens or levels of activity will affect glucose levels could be a life-altering level of detail for many diabetes patients. Additionally, many patients are forced to manually log their activity to report to their doctor, which could lead to increased errors. The activity trackers allow the patients to have their data collected passively, continuously, and sent immediately to their healthcare team.”
This partnernship between Medtronic and FitBit echoes our work on Chronicle, the platform for people with chronic conditions, is an example of how data, software and devices can create a fabric of offerings that may be an API and a sensor away from your traditional business model.
Data+Customer=New Service Business Models
According to the PWC Survey, “spending on service offerings will surpass spending on product offerings by 2020.” That may not sound unusual until you inspect the list of spenders and find out that the majority of them come from the less service oriented world of consumer electronics, automotive, pharmaceuticals. Having established a strong connection with the customer and generating data from software and services residing on top of that hardware investment and infrastructure allows them to constantly (and profitably) reinvent themselves. Just look at Uber—Uber Rides, UberEats, UberHealth. What’s next?
We are experimenting with this ourselves—what would be the most meaningful service and experience that we can create when we take into account a new hardware capability (cars), new level of machine smarts (AI) and the needs of real people? Is there a way for us to think more broadly about the adjacent possible and along the way generate value for different types of companies and for society?
One of my favorite “authors” Yogi Berra is credited with this quote “It’s tough to make predictions, especially about the future.” And given the pace of change and the uncertainty we all face, we will face challenges no matter how successful we are today, or how healthy our bottom line is. My recommendation is to place your focus on the customer experience and let that guide your decisions about R&D investments. This approach may not solve all your problems, but it can certainly give you one less thing to worry about. And who knows, you might even sleep a little better. I know I do.