How IBM, Intuit, and Rich Products Became More Customer-Centric JD June 17, 2015 entrepreneurship 170 How well do you know your customers? This seems to be a key question on the minds of not just marketers, but company strategists these days. We have shifted from a competitive landscape in which companies are more exclusively focused on external forces affecting their industries and sectors, to one that has become significantly more customer-centric. This intensive customer focus has increased as technology-enabled transparency and online social media accelerate an inexorable flow of market power downstream from suppliers to customers. Now, every company of any scale and in any sector wants to be closer to its customers, to understand them more deeply, and to tailor their products and services to serve them more precisely. Yet wanting to be closer with customers, and knowing what actual, operational pathways to take in order to achieve this are two very different things. In this article we look at three very different organizations – IBM, Rich Products, and Intuit – and the three different paths they have taken in reconfiguring their operations for more customer intimacy, by changing methods, reengineering processes, and transforming culture. IBM: Applying a Hybrid Design-Thinking Approach Consider the battle waged by IBM’s software development teams between competing methods for getting closer to customers. The issue arose as a result of changes to IBM’s business model for software. In the past, IBM mostly provided enterprise software to customers who installed it on their own computers. Their product development teams followed a traditional software development method – called “Waterfall” – in which they spent months defining customer requirements and functional specifications, coding the software, and testing it for quality and reliability. They followed a sequence that resulted in new products or major updates to products every year or two. The rise of cloud computing changed all this. Technology companies using the cloud model provide their clients software or other computer technologies in the form of services delivered over the internet. The clients don’t have to own or maintain the technology. That makes it possible for the producers of the software to improve it much more frequently, with no effort required by customers. In response to the rapid advance of cloud computing, IBM’s software engineering groups embraced the Agile development method – with teams focused on incremental delivery of new capabilities every few weeks or months. Over time, teams adopted an even more aggressive approach to software development called “continuous delivery,” a highly automated method that enables them to make many small changes per day. This way, they can respond very quickly to new or changing customer needs, incrementally. Insight Center At about the same time, however, IBM’s design group, which was created to improve the user experience, was adopting a new “design thinking” approach to application development. This method’s primary aim is to attain deep understanding of customer needs using ethnography, anthropology, and other user-research techniques – putting users, rather than features, first in the planning process. Designers engage directly with individual users, developing empathy, observing how they work, and uncovering surprising ideas to help make their lives better. With this approach, cross-functional teams quickly develop prototypes to bounce off of customers. Charlie Hill, Distinguished Engineer and CTO, IBM Design, told us, “To deliver fundamentally different and better user experiences, designers want to take a step back and observe users actually doing their jobs. They want to understand what the user is trying to do at work, not simply how they interact with an existing application. Without this kind of understanding and exploration, a product team’s backlog of coding requirements is unlikely to deliver a compelling user experience. We want to bring our design thinking muscles to explore and play with how the user’s experience could be better in the future.” As design expertise became more critical to the success of IBM products and services, increasingly designers worked more frequently in collaboration with software engineers on product development. They faced a culture clash, however. The designers were focused on creating better user experiences, while the engineers were focused on speed, quality, and efficiency. To the engineers, the design thinking process seemed like a return to the Waterfall method. Phil Gilbert, general manager of IBM Design: “In design thinking, you need to listen to the people doing the job, while in continuous delivery you don’t need to talk to users; you just monitor what they do on the web.” In the end, through many discussions and much gathering of data, the company came up with a hybrid method for product development that combined elements of both approaches, which they call IBM Design Thinking. They assembled teams for each product or service that combined designers with engineers, and they created a new development process. The key steps: 1) Clarify three key objectives (called “hills”) framed as target outcomes for users for each software release. 2) Engage people who are going to use the software or service (called “sponsor users”) from start to finish through the development process. 3) Demonstrate the state of the proposed solution from the standpoint of the user in periodic reviews (called “playbacks”). This effort began two years ago, and more than 100 product teams have embraced IBM Design Thinking. These teams are delivering updates continually. Many of the updates are incremental improvements based on the data collected every time someone uses the application, and some are bigger changes to the experience resulting from insights gained during direct observation of users doing their jobs. The new approach is working. The parts of the business where the approach is used most intensively grew revenue by double digits in 2014. Rich Products: Achieving Customer Intimacy through Reengineering Rich Products, a $3.3 billion food products company, has made a startling transition in its process for developing and introducing new products in response to customer requests. In Rich’s old, functional “silo-based” process, a marketing person with a new customer opportunity would contact their favorite R&D associate, the regulatory and quality assurance departments, packaging, and the plant. This ad hoc, sequential approach was replaced by a cross-functional team, which simultaneously accelerated its time to market and created a much more “intimate” relationship between Rich’s associates and its customers. This transition was triggered both by struggles to meet the needs of customers with urgent turnaround requirements (such as a restaurant with a seasonal offer, or a school system that needed to plan its menu) and by executives frustrated with losing the potential business from these custom orders. The pressure created by these inside and outside perspectives resulted in a strategic reengineering effort that targeted their new product development process, refocusing it to increase customer intimacy. The first step for the process redesign team: living with the customer in order to map customer journeys. They looked at the end use of new products, and asked how they could build it faster and stay close to the customer. They expanded the scope of the process to go from generating the new product idea to following up with the customer after the product launched, delivering not just a product, but a service. They mapped the process for their teams, then put the teams together to do it. And they are continuing to refine the process and remove bottlenecks, as they seek to improve new metrics for speed. The new process design was reengineered with the customer as its main focus and the cross-functional team as its primary vehicle. Functions on the team include: process managers, dedicated coordinators, research and development, sales and marketing, operations, quality assurance, traffic, and regulatory. Rather than simply taking customers’ orders, these teams now push harder into exploring how the customer wants to use products and precisely how Rich’s can help the customer succeed. Bringing all of its functional capabilities together into one team, Rich’s can move far faster and with more agility than in its functional, sequential past. Decisions that once took weeks can now be made in moments as the team works together. These teams focus on more than just product formulation, now constantly probing customer usage, storage, and pricing plans to make sure that both Rich’s and the customer make profitable returns. “This has been a game-changer for us,” said Maureen Lynch, the new product development process owner. “We’ve moved from ad hoc day-to-day product planning to the deployment of a long-term disciplined approach supported by purposeful metrics.” The main measure is the number of days from when a customer request comes in to when it goes out. The schedule is visible and there is clear communication about what they’re working on. They focus on fewer customer requests at a time, allowing for a more responsive turnaround. Results have included improvements in customer satisfaction and an overall positive “Rich experience.” On-time-delivery has improved by 10%. Resource utilization accuracy has increased. Obstacles have been removed in getting resources from functional groups. And visibility has improved. This new approach was recently on display in Rich’s participation with the “Pizza 4 Patriots” program. Using their new process design, Rich’s was able to ship 5,000 specially designed pizzas to military personnel in Afghanistan within a month to meet a Super Bowl deadline. They had a forum for a triage discussion already in place, and the group understood the requirements. They were ready to execute with a new process, clear roles, and the required tools. Intuit: Reviving a Culture Built Around Customers From its founding 31 years ago, Intuit has been an entrepreneurial company, creating personal finance and tax preparation products such as Quicken, TurboTax, and QuickBooks. Intuit has always had a reputation as a customer-focused company, which is fairly unique among software companies. Hugh Molotsi, vice president, Intuit Labs Incubator, told us that in the early days (the 1990s), founder Scott Cook taught employees about observing customers and finding real problems in their lives and solving them. There were “usability labs” where customers would try products and employees would observe them and see where they had problems, and “Follow Me Homes” where employees would observe customers at work and at home. And they had an annual big survey to gather customer insights. But as Intuit grew, informality and entrepreneurship began to morph into procedure and bureaucracy. The focus on customers slowly turned into a hunt for “bugs” and problems rather than acutely listening for and responding to customer needs. In other words, the traditional visits to customers were more focused on problem-solving than discovery. They were “fixing” rather than learning. As Suzanne Pellican, vice president and design fellow at QuickBooks, told us, “The vast majority of our growth comes from word of mouth. When you fix bugs, it doesn’t generate enthusiasm from our customers. Fixing a bug isn’t compelling to get them to recommend us. We weren’t surpassing customers’ expectations. And it showed in our Net Promoter Scores. They were flat.” These issues came to a head with “Merlin,” a major initiative intended to simplify building component-based products. After three years of work, the project was abandoned after missing several milestones. However, recognizing that they had drifted away from the customer-centricity that characterized their entrepreneurial past, Intuit embarked on a major new cultural and operating initiative called “Design for Delight,” in recognition of the fact that “Intuit needed to go past meeting customer requirements to delighting them.” There are three core principles to Design for Delight: Deep Customer Empathy – Immerse yourself with customers to know them better than they know themselves. To understand what really matters to customers, you should watch them, talk with them, and put yourself in their shoes. Go Broad to Go Narrow – Create options before making choices. There are lots of possible answers, so to get one great idea, you need to create lots. The first idea is rarely the best. Rapid Experiments with Customers – Get customer feedback early and often to understand the pros and cons of options. Watching customers react to prototypes through trial and error is better than relying on our own opinions. Using these principles Intuit began driving design thinking deep into its culture and operations. To do this they trained and deployed a cadre of 200 Innovation Catalysts who were embedded into the business units, created and held a large number of immersive experiential workshops, and added design thinking into their leadership training programs. Here’s more from Suzanne Pellican: Design for Delight (D4D) is a core capability of our company. We knew that it would take seven years of nurturing to get it in our DNA, and we made an investment in insuring that our employees use it. For example, it takes practicing D4D (our version of design thinking) six or ten times before employees start using it in their daily work. We persisted because our ambition to improve our customers’ financial lives means that we are always falling short. Even when we could start to see the changes in the ways employees work and in some customer outcomes, we kept nurturing it because we needed to see it in better products that we’re proud of and that our customers love. Throughout these years of cultural transformation, Intuit’s leadership support has been constant. Besides tracking dashboards that measure customer satisfaction, their leaders model behaviors that show the importance of customers. For example, when CEO Brad Smith does his tour of 15 sites to share the state of the company, the first people he meets with at each site are customers. Then he meets with employees. Then he meets with the leadership team. One Destination, Three Paths All three of these organizations dramatically improved their level of customer connection, but each achieved it using a different kind of operational approach. IBM developed a hybrid design-engineering-based method which synthesized deep customer analysis and rapid product and service changes. Rich Products reengineered its product development process by demolishing traditional functional silos and creating a team primed for speedy responses to customer needs. And Intuit embarked on a multi-year cultural transformation to re-embed the idea of creating customer delight in its DNA. These approaches certainly are not mutually exclusive. As the business world inevitably becomes more customer-centric, you will need to draw on one or more of them to get and keep a competitive edge through customer intimacy.