AOL, Nokia, RIM, Kodak, DEC. All the same story: once-great companies that suffered disruption. In business, if you’re not listening to the right customers, it can all disappear before you realize what’s happening.
Many modern businesses take stock in the reality of disruptive innovation and try to react accordingly. In the software industry, giants like Microsoft, SAP, Oracle, and IBM have all invested heavily in the cloud technologies that are disrupting software. In car rentals, firms like Hertz and Enterprise are making bets on car-sharing operations. Even dominant businesses like Amazon and Facebook spend enormous sums of money to snatch up and independently operate disruptive businesses like Quidsi and Whatsapp. But in almost all of these situations, the threat is clear and present by the time an investment is made.
So, the question is, why — with a strong understanding of the dynamics of disruption — are we still so slow to move?
Pundits and managers alike readily cite reasons including the stresses of business model innovation or the difficulty of making small experimental investments inside the four walls of an established organization. I don’t believe these answers.
In my experience, I’ve never seen a stalwart executive fail to tear down these barriers when conscious of the significance of the change on their doorstep. With an understanding of disruption, leaders don’t want to relegate themselves to slow decay simply for reasons of organizational friction. That’s not the legacy executives hope will be recorded next to their names on the pages of the Wall Street Journal articles and Harvard Business School case studies — inaction and powerlessness.
My experience points me toward another answer: Most businesses aren’t listening to the right customers. Most businesses spend their time listening to their most demanding customers — not only because those customers tend to be the most profitable, but also because our listening techniques direct us towards the customers who speak the loudest. And we end up ignoring — sometimes not even hearing — other customers who may become equally valuable in the future.
It’s the way we listen that allows good companies to get eaten from the ankles up; forced to react, not anticipate. To get ahead of disruption, managers need to fundamentally change how they gather customer feedback.
Steve Blank often likes to point out that start-ups are entities formed to identify product-market fit. In the early days, an organization’s very survival hinges on its ability to hearing what the market wants. Once they discover what that is, along with their target market, success becomes a game of execution. Our quest for “understanding” disappears unless it is driving growth and profitability.
When there are no disrupters on the horizon, management’s singular focus on growth and profitability doesn’t interfere our ability to listen to the market and predict the future. Customers who have the largest demands will tell us so in sales meetings and reinforce their message when they vote with their wallets. Customers that companies would normally neglect, those that offer lower profitability – those who feel like we’re providing more functionality than they need – will also tell us so in the form of customer complaints and negative social sentiment. Because, before disruption is on the horizon, there is generally no other game in town. For a real-world example, just consider the airline industry. For the most part, there still are no good alternatives to air travel and far too frequently, the disruptive point-to-point carriers simply don’t fly the routes that compete with the major incumbents. So the airlines court the opinion of their premium flyers and are able to sort through the complaints from of the rest of us who are forced to fly around the country with lost luggage.
Before disruption, feedback abounds. But the listening techniques that companies naturally employ in their early days are utterly inept to direct strategy once a disruptive entrant enters the arena with a credible substitute for upmarket competitors.
Once a disruptive substitute emerges, the paradigm changes. Instead of complaining, customers at the low end of the market can simply leave. They no longer feel captive, as if their only option is to yell as loudly as possible in order to be heard. They don’t feel an emotional investment. They simply feel like they made a temporary decision, and its time to make a new one. So they exit.
Albert Hirschman described this phenomenon in his essay, Exit, Voice, and Loyalty. He used economic theory to explain trends he saw in both business and politics. One of his insights was that as the market changes and new options emerge for your customers, so too must your listening tactics and your approach to building customer loyalty. This is where most of our organizations fall down. As disrupters emerge on the scene, we simply trudge along expecting the same listening and prioritization tools to guide our operations. But those tools fail us in understanding what our customers see in these new entrants.
Customer surveys are unlikely to drive engagement from the bottom of the market or the customers who’ve long since abandoned the platform. Social listening is likely to collect input from customers who feel invested or captive in our solutions, not those that are on the verge of leaving for greener pastures. Sales feedback will tend to focus on the best, most profitable, customers, neglecting the voice of the meager customers with no appetite for solutions from the current portfolio.
Keeping a company from faltering in the face of a disruptive entrant requires awareness that only different listening practices can provide. Whenever I’m approached by a firm trying to anticipate disruption, I suggest three tactics to improve listening practices — tactics that we could all benefit from.
Religiously conduct customer exit interviews. The customers who opt to buy different products instead of your own are those who can tell you the most about the appeal of those products. Those customers can articulate where you fell short and where others did better. Often, to identify who these customers are, you need to set up different types of listening systems. Put people in stores to observe purchases, send email questionnaires to customers who haven’t visited you in a while to solicit their opinions. Have an honest and open conversation about where you fell short.
Strengthen engagement tools for low profit customers. Many organizations do a great job at bringing their best customers into the discussion when it comes to the next generation of product or service. The gaming industry looks to blogs and conventions to understand how the “hardcore” gamers will react to improvement. But when it comes to disruption, you need tools to engage those in other segments of the market. You need to identify who’s on the margin of your business and actively open channels for communication with them. Start advisory groups and user communities intentionally populated with people who only engage with your core products peripherally. They won’t feel as invested as your best customers, so you’ll need to make sure you do the work to get them involved and contributing feedback. Unfortunately, if you don’t do the work, you may remain stuck in the echo chamber associated with daily business.
Use the data time machine to predict competitor growth. Your business likely grew up out of the low end of a market, once upon a time. A powerful tool in understanding the appeal and threat of your competitors is revisiting your own history. If the customers that are leaving today had left 10 years ago, what would have been the impact on your growth? If they’d left 20 years ago, how much profit would have been lost? Would you even be in business today? This type of listening to economic indicators can both help you understand the speed and scope of your disruption as well as position the significance of the threat to your executives. There is no better tool than a rational and realistic description of risk to get large companies to move.
Adapting to disruption is never easy. But it is possible to be aware of the threat far before it’s tearing your business apart. The key is understanding which customers you naturally listen to, and to focus some of your listening on those that you don’t before its too late.
source: Which Customers to Listen to, When April 07, 2014 at 03:00PM