Co-Innovation: What the Best Companies Do Differently


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In tough economic times, business leaders may think that simply setting and meeting higher sales quotas is the answer to staying competitive. In this paper from The Summit Group a different tactic is advocated for: becoming more customer-centric in order to win business easier and keep the customers you already have. In this white paper, learn what leading companies are doing to develop a deeper understanding of what matters most to their customers as a strategy to counter commoditization, strengthen relationships, and accelerate growth in a hyper-competitive business environment.

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Co-Innovation: What the Best Companies Do Differently

  1. 1. What  the  Best    Co-­‐Innovation     Companies  Do  Differently   The Summit Group © 2013
  2. 2. Co-­‐Innovation:  What  the  Best  Companies  Do  Differently    In  Brief  The forces impacting profitable growth are intensifying, and as a result, companies in many industries faceaccelerating commoditization of product and service margins. Additionally, given the economic malaise,organic growth must be more intentionally developed and a more structured and replicatable approach isrequired.In this white paper The Summit Group describes what leading companies are doing to develop a deeperunderstanding of what matters most to their customers as a strategy to counter commoditization, strengthenrelationships, and accelerate growth in a hyper-competitive business environment.Traditional sources of profit such as quality products and services, operational excellence, and branding –the capabilities within the firm’s direct control - remain important, but are no longer sufficient to sustainprofitable growth. 2 of 12
  3. 3. Increasingly, firms will need to co-create new sources of revenue by understanding, leveraging, aligning,and executing together with customers and partners along their value chain. Critical to successful HorizontalValue Creation™ − as we call this strategy − are superior people and collaborative relationshipcompetencies. (Figure 1)Companies should not underestimate the barriers to successful Horizontal Value Creation™. The products,competencies, organization, and culture that enabled past success may get in the way of collaboration andre-thinking the value proposition. 3 of 12
  4. 4. The  Easy  Growth  is  Over    With concentration along the vertical value chain and increasing supplier and buyer bargaining power,companies are challenged to pass rising costs onto their customers. Their ability to create value is less thanmatched by their power to capture it. Technology, information access, and globalization accelerate thesqueeze on margins. “Organizations are bombarded by change, and many are struggling to keep up.” 1The traditional sources of value - product and services, lowest cost/pricing, and branding - become harder tosustain as competitors’ offerings rapidly replicate quality, features, and benefits at a lower price.Mind  the  Gap    In this hyper-competitive environment, the leadership team’s role becomes more complex. On one hand,customer expectations escalate, while on the other, corporate stakeholders push for sustained growth andmargins as effective go-to-market execution is increasingly challenged by orchestrating cross-enterprise,virtual resources.In a recent research study, 154 buy-side executives responded that only 7 percent of sales people “truly getit” when asked, “What percentage of all the people you see from the supplier community is worthy of a long-term relationship?”2Organizations that are not able to respond to their key customer’s requirements and continue to focus onlyon product and service features are likely to lose share and put strategic relationships at risk.      1 IBM CEO Survey, May 20082 The Summit Group, ITC, LSE; “What Customers Seek,” 2006 4 of 12
  5. 5.  What  Customers  Seek  In the same study, customer executives were asked to identify what distinguishes true business partnersfrom transactional suppliers. They emphasized that both internal and customer-facing skills differentiateleading vendors.Customers want to deal with business people who are “real”, demonstrate higher orders of businessacumen, and are able to mobilize their organization to deliver solutions quantified in real value terms thataddress the customer’s key business issues and initiatives.What  the  Best  Do  Differently  From our research and field experience with some of the world’s leading companies, The Summit Grouphas distilled what the best do differently to elevate strategic relationships, counter commoditization, andaccelerate growth. 5 of 12
  6. 6. The Summit Group’s four-step Value Creation Framework enables companies to re-engineer and transformhow they go to market. These steps are: 1. Them. Understand your customer’s business agenda and industry value drivers. 2. Us. Leverage cross-enterprise assets and capabilities to co-create customized solutions. 3. Fit. Align and articulate a compelling value proposition with absolute clarity on how your capabilities impact what your customers want, and what your customer’s customer cares about. 4. Proof. Execute by securing resources and commitment based on a common agenda, joint scorecard, and review process.While this framework is simple – and it’s meant to be – what distinguishes leading companies from theircompetition is how they institutionalize this approach. From our experience, companies that outperform theirpeers do the following: • Establish a replicable enterprise-wide approach to customer-centric value creation. The whole organization – not only sales – is oriented towards the customer. For example, at a tech company, you want to be the company that makes sure the primary focus is on the customer at a time when other vendors are focused on technology. Customer satisfaction should be a company-wide performance metric enabled by cross-functional teams, account segmentation, executive sponsorship, customer advisory boards, and a world-class customer relationship development process. • Continually refine which customers they choose to align with and focus resources on. Strategic fit and market attractiveness criteria must enter into the selection process. The Summit Group believes it is essential to identify, in addition to strategic customers, “lighthouse” companies who are forward-thinking innovators and are expected to drive future segment growth – these may, or may not be, current customers. 6 of 12
  7. 7. • Take collaboration to the next level to secure alignment, gain deeper insight into customer priorities, and uncover new mutual growth opportunities which would often have been invisible to each company acting on its own. In a recent Bain trend study3 over 65 percent of the executive respondents believed they could dramatically boost innovation by collaborating with outsiders, even competitors. • Rigorously prioritize opportunities and bring clarity to where there is fit and where there is not. • Articulate a compelling value proposition, which aligns self-interest with customer priorities and quantifies internal and customer outcomes. • Effectively act on strategic customer and value chain insights to co-create relevant, differentiated solutions that leverage their mutual cross-enterprise capabilities and resources. As Jack Welch puts it, "An organizations ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.”4 • Secure mutual commitment – through joint planning, common scorecards, and reviews - to drive effective go-to-market execution. • Elevate the sales teams’ operating system by building core relationship development skills and leveraging team members’ signature strengths. The application of these skills and strengths is re-enforced through authentic sales leadership and coaching.3 Bain Company – Tools & Trends Study based on 1,221 international executives’ response, 20074 Jack Welch, former Chairman & CEO, General Electric 7 of 12
  8. 8. By institutionalizing this approach, leading companies are able to have significant immediate and long-termimpact on customer loyalty, profit, and growth.Understand  Your  Customer’s  Business  Agenda  and  Industry  Value  Drivers  (Them)    Understanding your customer’s business is nothing new. As Peter Drucker said, “The aim of marketing is toknow and understand the customer so well the product or service fits him and sells itself.”Our research would indicate, however, that relatively few companies are getting it right. 8 of 12
  9. 9. The first step in the Horizontal Value Creation™ framework is to ask strategic customers and “lighthouse”companies the question: “What do you care about and why?” The challenge is to engage and ask in such away as to gain deep, unique, strategic, and tactical insight into industry value drivers, the customer’sbusiness issues and initiatives, and critical success factors.While quantitative and qualitative research, as well as customer satisfaction surveys, provide companieswith plentiful data, it is usually “filtered” through third parties, is difficult to interpret, is harder to act on, andseldom provides the depth of insight required to guide the development of differentiated and customizedsolutions.To understand the “ultimate truth” − the unfiltered voice of the customer − and establish the foundation forco-innovation, a number of The Summit Group’s clients are pioneering an approach to take collaborativevalue creation to the next level.At the heart of this collaborative practice is a structured dialogue with the customer designed to: • Gain deep insight into the customer’s business and industry value drivers • Establish strong alignment and focus on the customer’s top priorities and initiatives • Assess and refine opportunities for co-innovation as a basis for developing a mutual growth blueprint • Establish a tighter joint business plan and elevated rhythm for the relationshipThe six-step agenda for this facilitated conversation is outlined in Figure 2.Wal-­‐Mart  and  GlaxoSmithKline  Collaborative  Value  CreationGlaxoSmithKline, a client of The Summit Group, used this framework to elevate their Wal-Mart relationshipand identify mutual, long-term growth engines. 9 of 12
  10. 10. The story begins when Lee Scott, CEO and President of Wal-Mart Stores, Inc., declared that businessneeded to take a lead in fixing healthcare.5 This led to Wal-Mart’s “Health & Wellness” initiative and thereshaping of their mission to “save people money so they can live better.” GlaxoSmithKline (GSK) wasinvited to join a coalition of the best and brightest businesses tasked with re-architecting delivery ofhealthcare around six key health issues.By applying the Horizontal Value Creation™ framework, The Summit Group has facilitated an ongoinginitiative that started with a one-day dialogue between Wal-Mart and GSK executives in Bentonville,Arkansas.5 “Burdened by healthcare US businesses seek a shift,” Christian Science Monitor, February 2007 10 of 12
  11. 11. As a result, Wal-Mart and GSK identified four areas that have the best fit and greatest potential to drive whatwas called the “Health & Wellness Flywheel.” 1. Elevate the role of the pharmacy within Wal-Mart. 2. Offer a set of professional pharmacy services. 3. Help Wal-Mart leverage their enterprise capabilities to raise consumer nutrition and health awareness. 4. Lobby Washington together under a banner called “Change the Healthcare Debate.” (Figure 3)Underneath each of these four areas, GlaxoSmithKline initially identified seventeen “collaborative actionofferings” − initiatives to make this happen − which were stratified down to four major action offerings thatbest aligned GSK’s capabilities with Wal-Mart’s vision and are of most value to both parties – right now.While this initiative is still in progress, it has already resulted in significant incremental revenue for bothcompanies and is enabling the Wal-Mart mission to “Save More. Live Better.” “Already, Wal-Marts drug andhealthcare ventures provide big chunks of its sales and profits.”6Todd Hutsko, GSK VP-Sales for the Wal-Mart alliance said, "Because of re-architecting our relationship withWal-Mart we have shipped over $500M more in product this year to Wal-Mart without any new productintroduction."In  Summary  Product and service leadership, operational excellence, and brand strength remain important drivers ofprofitable growth. However, there is currently a “value shift” taking place. In the future, winning performancewill be driven by pro-active customer collaboration enabling strategic business alignment and co-innovationwith “market-shaping” customers.6 Business Week, “Wal-Mart, Your friendly drugstore,” June 5, 2008 11 of 12
  12. 12. About The Summit GroupThe Summit Group has been providing value creation thought leadership for over twenty years and workswith leading companies’ executives and sales teams to develop talent, elevate strategic relationships,execute go-to-market strategies, ensure business relevance, and accelerate growth. For more informationplease visit GoToMeetingOnline Meetings Made Easy.GoToMeeting is the extremely simple, extraordinarily powerful web conferencing service from Citrix. Itintegrates HD video conferencing, screen sharing and audio conferencing, allowing you to collaborateeffectively online in a face-to-face environment. Hold unlimited meetings for one low flat fee and attendmeetings from a Mac, PC and mobile devices. GoToMeeting will change the way you work – and perhaps awhole lot more. To learn more, visit 12 of 12