On Their Behalf

Inventors weren't  kind to Home Depot through the third quarter of 2006, driving down the stock by 14% at that time. Although sales increased by nearly 17% in the second quarter of 2006 vs. 2005, and operating profit increased by nearly 5%, the company suggested to analysts that the remainder of the year would be challenging.

In a 2004 interview, former Home Depot CEO Robert Nardelli voiced his planned strategy. “The landscape is strewn with retailers who got locked into a paradigm and couldn’t change.…We’re making sure we’re providing for where the customer is going, not where [he or she’s] been.”

The company  committed to investing more than $350 million in 2006 alone, to innovate the Home Depot “orange experience.” This includes more employees serving customers, revitalized store environments, self-service checkout, reset and refreshed store departments, and an “orange juiced” employee reward program for those demonstrating passion in serving customers.

Dell is also revamping, by embarking on “Dell 2.0”: an improvement strategy that encompasses a sweeping set of product, service, and support initiatives to enhance the customer experience. Dell’s innovation process is customer-driven at the core.

On the heels of its highly successful Six Sigma practice, General Electric has initiated CENCOR (calibrate, explore, create, organize, and realize), which is focused on innovation. It starts with connecting with customers.

These companies all see the criticality of strategies to innovate the customer experience and build loyalty.

Continuous Innovation
Customer loyalty is never earned once and then set for life. Companies must constantly earn it. This requires innovation to be continuous in the customer experience areas that drive loyalty. Otherwise, companies will find themselves suffering from the effects of the sigmoid curve (S-curve).

Applied to business life cycles, the S-curve basically states that company growth follows a curve—with relatively slow start-up and then acceleration after winning processes are in place.

Invariably, though, the company begins to slide down the top of the “S.” At this point, management might see declining growth and eroding markets. The company reinvests to revitalize — or to survive.

But why does there have to be an S-curve in managing the customer experience? As mentioned, building customer loyalty is a continuous process—as is managing growth. Why innovate for a period and then stop? Of course, there are reasons: those Wall Street pressures for near-term profitability change in company leadership, lack of personnel talent, and organizational inertia. In a 2006 American Marketing Association survey, The Quest for Innovation, global executives and managers:

• cited the key barriers to innovation as lack of organizational alignment, insufficient resources, no innovation strategy, and a shortage of goals and measures;
• affirmed that for innovation, it’s important that the customer be the central focus;
• noted the top reason for pursuing innovation within companies as “to respond to customer demands”;
• and indicated that the key factor in building an organizational culture of innovation is “customer focus.”

If companies don’t see the customer as the centerpiece for innovation, and manage their businesses to deliver a customer-valued experience, then innovation will have no compelling reason for being.

Companies that are resolute about the customer experience as their differentiator will not let innovation stoppers get in the way of the constant need to build customer loyalty. They will ingrain innovation in the customer experience as a core value.

The Barrier Busters
In a 2006 survey of the world’s most innovative companies, BusinessWeek Online (BW Online) ranked Apple Computer No. 1. At one point, more than one analyst deemed the company near-dead; yet things changed when Steve Jobs came back as CEO. He led many transformations, including the reinstallation of innovation—not as a one-time initiative, but as a core value and a continuous strategy to build customer loyalty. Everyone knows the results:

• a stream of products such as PowerBook, iBook, iMac, iPod, and iTunes;
• retail stores with technical help;
• new versions of acclaimed operating systems;
• Web site enhancements;

Amazon.com has also notoriously smashed barriers to innovation. In pursuing constant experiments to improve the experience of more than 57 million active customers, CEO Jeff Bezos has been unflappable. The company’s “customer experience pillars”—selection, convenience, and price—firmly rest on a foundation of innovation.

Like the aforementioned leaders, the relentlessness that Bezos brings to innovation is one of Amazon’s keys to success. He clearly sees his role as guardian of innovation and the customer experience. In a 2004 BW Online interview, Bezos states: “I absolutely think of myself as an innovator. I actually think most people, unleashed, are innovators. I think we get hamstrung, and we learn helplessness, and we learn that we can’t improve things. But natively, we’re all innovators.”

Similarly, FedEx founder Fred Smith views himself as an evangelist for innovation. He wrote a management manual for the company 20 years ago, which began with a quote on the inevitability of change (from philosopher Marcus Aurelius). Customers change, expectations change, and markets change; innovation fills the gaps that these changes cause. As Smith has stated, innovation is about seeing a gap that someone else hasn’t seen before.

Listening to Customers
Although customers might tell companies their needs, it is up to the latter to innovate on the former’s behalf. That means not only meeting stated needs, but also anticipating evolving and unexpressed needs. This is as Nardelli has noted—being there for customers as their requirements change, and being ahead of the S-curve. To understand their voices and the necessities that innovation can meet, companies must carefully listen to them. FedEx and Smith are legendary in this arena, and in hearing the unmet need for time-critical parcel delivery when no such service existed.

Did customers actually state that they wanted a desktop computer in white, clothed in a layer of clear plastic, with a hard drive integrated into the display? Did they mention desiring a desktop that automatically pulls up tools and cool Web sites, via widgets in a personalized dashboard, so they don’t have to click on “Favorites” or other applications every time they want to access them? It’s unlikely.

But one can imagine customers stating they were tired of the bulkiness of computer boxes, cord tangles, and ugly designs. They surely stated that they wished things were easier and more user-friendly. And maybe even in a nondefensive moment, customers said that they wanted to be proud of their computers — wishing they could show these off to friends. Companies and key leaders’ careful listening to customers can point out market opportunities that don’t yet exist, which can lead to quantum change—as top customer-focused companies are proving.

Marketing needs to walk hand-inhand with the CEO in being the customer conscience, go barrier smashing to overcome innovation obstacles, and be the bellwether for where customers are going—not just where they are. Most importantly: As mentioned, it must be the organizational catalyst to ensure that innovation on the customer’s behalf is not only an initiative, but also a part of the company’s continuously executed strategy.

About the Authors
Lawrence A. Crosby is CEO of Synovate Loyalty and based in Scottsdale, Ariz. He may be reached at larry.crosby@synovate.com.
Wayne Marks is senior vice president of business development at Synovate Loyalty and based in Walnut Creek, Calif. He may be reached at wayne.marks@synovate.com.
Sheree L. Johnson is global director of strategic marketing at Synovate Loyalty and based in Vancouver, British Columbia. She may be reached at sheree.johnson@synovate.com.

This article was published by American Marketing Assotiation in Marketing Management Journal, Mar/Apr2007