Have you ever wondered why GMs top-management never understood why their customers are not buying their cars? Because they have fooled themselves (or have been fooled) and never experienced the real customer experience. Management got lost in a disconnected reality that was based on staged product demonstrations with customized products that were build for one reason: to make top management believe that GM is producing great cars.

One of the best indicators of a customer experience focused organization is the commitment from top-management not only to deliver ordinary products and services but to go the extra mile and surprise and delight customers with a company’s offerings. If top management wants to show real commitment, it has to experience the real customer experience in order to ensure that decision are made based on reality and not on a“virtual reality” based on product demonstrations in the boardroom.

Product Demonstrations vs. Experiencing the Customers’ Experience

In an article from “The Truth About Cars” I have found an interesting statement that described how top-management at General Motors experienced their products:

As you probably know, ever since GM was founded, its execs have either been driven by a chauffeur or provided with carefully prepared and maintained examples of the company’s most expensive vehicles. Of course, there are times when the suits must sign off on the company’s more prosaic products. Since 1953, this intersection between high flyer and mass market occurred at GM’s Mesa, Arizona, Desert Proving Grounds (DPG). The execs would fly into Phoenix’s Sky Harbor airport, limo out to the DPG and drive the company’s latest models. The execs would fly into Phoenix’s Sky Harbor airport, limo out to the DPG and drive the company’s latest models.

Our agent says that all the vehicles the execs drove were “ringers.” More specifically, the engineers would tweak the test vehicles to remove any hint of imperfection. “They use a rolling radius machine to choose the best tires, fix the headliner, tighten panel and interior gaps, remove shakes and rattles, repair bodywork—everything and anything.”

Did the execs know this? “Nope. And nobody was going to tell them . . . As far as they knew, the cars were exactly as they would be coming off the line. That’s why Bob Lutz thinks GM’s products are world-class. The ones he’s driven are.”

I asked Agent X if the GM execs would ever drive the cars again. Did he know if Wagoner or Lutz dropped in at a dealership to test drive a random sample off the lot? He found the idea amusing.

For a number of reasons, middle-management at General Motors decided that it might be better to deliver a staged customer experience to top-management instead of showing them the real customer experience of driving a GM car. Of course this behavior was probably induced by top-management itself. But for now the cause is not import, the impact this has had is much more important.

If this would have happened in the accounting departments, auditors might have discovered this lack of transparency and there would have been investigations about false accounting practices and false reporting. But in product development the only signs for misinterpretation through staged customer experiences are lackluster sales as well as a management board which is unable to explain them since they have only experienced the greatest products.

Experience is the best Teacher

It is essential for top management to experience the “real” customer experience first-hand. If you are not doing that it is just like looking at your balance sheet that is not audited but merely created to give an impression that everything is fine.

If you are working in a truly customer-oriented company, your CEO will spend time right where the company’s customers are. Without assistants, without a secretary and without his direct reports who ensure that everything is working perfectly. If your CEO is not doing that, you don’t truly have a focus on the customer and one might end up in a situation just like GM – wondering why nobody is buying your amazing products that have been presented in the corporate boardroom.

Read the full article: Inside GM: Mystery of Crap Interiors Solved

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Economically difficult times create a lot of uncertainty in organizations and many businesses have to cut back their activities in various areas to limit expenses and protect the sustainability of their business. A lot has been written about the importance of customer-focus, innovation and design in a recession. The conclusion is always the same: these areas are just as important as ever and if you have to trim back in your organization you better do this in non-core business areas and keep on investing in the core-areas of your business.

This is obviously not rocket science but where are the real-world examples of companies that have reinvented themselves in a downturn?

Economic challenging times require a focus on customer value

There are some and my personal favorite is an analysis in BusinessWeek from May 2001 (Sorry Steve, Here’s Why Apple Stores Won’t Work) where the author outlines why Apple’s new retail outlets are not going to be successful.

[The] Problem is, the numbers don’t add up. Given the decision to set up shop in high-rent districts in Manhattan, Boston, Chicago, and Jobs’s hometown of Palo Alto, Calif., the leases for Apple’s stores could cost $1.2 million a year each, says David A. Goldstein, president of researcher Channel Marketing Corp. Since PC retailing gross margins are normally 10% or less, Apple would have to sell $12 million a year per store to pay for the space. Gateway does about $8 million annually at each of its Country Stores. Then there’s the cost of construction, hiring experienced staff. “I give them two years before they’re turning out the lights on a very painful and expensive mistake,” says Goldstein.     

The pundits have been wrong, here are some of current numbers that show the success of the Apple retail stores (found here and here):

• Twenty percent of Apple’s revenue comes from the Apple Store
• Apple made $1.25B at the Apple Store in the fourth quarter of this year, which is 42 percent more than last year
• Apple makes $4,000 per square foot of Apple Store surface area every year

Reflecting on this example we can see that even though analysts and journalists believed that this is not the right way to go, it was obviously (or maybe luckily) a successful move. In a recession it is easy for everyone to predict the failure of new products, services or distribution channels. The article additionally shows how much you should rely on others to estimate the success of new products or services.

Indeed it is more difficult to launch new products and services in a downturn compared with boom times. Instead of building new products and services based on any random hype topic in boom times where value is defined investors, media or other entrepreneurs, new products and services have to deliver real value to customers in a recessions.

The world doesn’t need another social network which is merely a clone of Facebook, LinkedIn or Xing. What is needed in challenging economic times are transformational products and services that provide value to customers.

Of course the case study with Apple is not the only one, the UK Design Council, the national strategic body for promoting the use of design in business, has published an article titled “Designs to overcome a downturn – Facts, Figures and case studies” with several case studies where designers worked together with companies from different sizes and sectors to improve their performance during challenging economic conditions. The case studies that are presented are from Castle Rock Brewery, Thistle Hotels, McCain Oven Chips, HMV and Ian Macleod Distillers.

You should also check out the collection of other case studies that highlight the role of design in action.

So what is the role of the design in challenging economic times?

As we can see from these different case studies, approaching these situations with design in mind (in a sense of focusing on delivering “designed” artifacts) as well as with a design mindset (solving the problems through the eyes of a designer) can lead to successful re-definitions of value propositions.

Cost-cutting and trimming excessive resources has been and will be an essential approach to focus on the essential core of a business and to provide the necessary resources so that new products and services can be designed, produced and marketed.

If you think that this downturn is different and you do not need a designer to make your products “look nice” you should think twice. Making things look nice is not the job of a designer. Solving problems and providing value is one of the essential goals of design and looking at current problems from a different perspective might just provide the insight or solution that could prepare you for the next upturn. 

Image courtesy of [mikbaird] and [ihtatho]

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Businesses are confronted with an increasing rate of innovation and the ability to continuously and systematically develop innovative products and services is becoming a critical factor to sustain a competitive advantage. Our role as one of the leading business schools in Europe is to prepare our graduates for these challenges.

Prof. Dr. Walter Brenner, Director of the Institute of Information Management, University of St. Gallen in Switzerland and Prof. Larry Leifer, Director Center for Design Research, Stanford University initiated a collaboration in 2005 where student teams work on product and service innovation challenges presented by corporate partners. Teams take projects all the way from defining design requirements to constructing functional prototypes ready for consumer testing and technical evaluation. Projects typically combine aspects from sustainability, automotive, medical, communication, and user interaction.

Students working towards their master’s degree in information, media and technology management participate in this  two-semester course where they learn the necessary skills to gather deep consumer insights, develop ideas through various ideation techniques and synthesize these ideas into conceptual prototypes of innovative products and services.

In the fourth year of this cooperation 12 students are working in three teams to work on the next big idea with problem statements from three corporate partners. The corporate partners in 2008/2009 are BASF,  Lonza and Swisscom.

My role in this course is twofold, firstly I am teaching and coaching the students in the design process and the different methods and tools that are used in the different stages, secondly I am doing research on the course observing different aspects of the design process and design collaboration with business students.

More information about the course can be found on the official website at http://designthinking.iwi.unisg.ch

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Take a random CEO and ask him what he expects from his employees and you will very often hear that his employees should think outside-the-box, challenge the status quo and come up with radical new ideas and execute them to achieve extraordinary business results.

Even though top-management encourages employees to try something new and give them a “permission to fail”, many people do not go the extra mile but prefer to stay in a mode of “comfortable apathy”. It is too risky for many employees because if their endeavor fails, they risk their career, might lose their bonus, and in the worst case even their job. One can understand employees when they ask themselves “Why should I go the extra mile, when I can risk my bonus and career chances?”

Overcoming these challenges is difficult and there is definitely no silver bullet but with a different take on performance goals, it might be possible to stimulate the willingness to innovate and drive change while at the same time providing measure that limit the employee’s risks.

Strategic stretch goals to stimulate innovation

By reaching for what appears to be the impossible, we often actually do the impossible. And even when we do not quite make it, we inevitably wind up doing much better than we would have done.Jack Welch

The concept of stretch goals has been broadly applied at General Electric in order to limit the annual bargaining between managers and their employees on performance goals. Stretch goals should limit such negotiating and improve long-term view, stimulate breakthrough ideas and justify trade-offs in one year to harvest the benefits in the following years.

A definition of stretch goals

Strategic stretch goals are goals that cannot be achieved with what is known and how is worked today. They aim for something that is impossible today.

This definition is important because setting the wrong stretch goals will burnout your people. Such tactical stretch goals are goals that can be achieved with the current way of work and they usually result in employees doing more of the same – which ultimately means longer hours.

Strategic stretch goals really push the boundaries of what is assumed to be possible to strive for the impossible. Only when you aim for the impossible, something that cannot be achieved with existing practices, you have the “pressure” to come up with radical new ideas instead of increasing your workload.

An example

Let us assume that you have defined a 10% growth goal for your business segment in the coming year. Instead of defining a tactical stretch goal of 15% growth for next year, a strategic stretch goal would aim for a 50% growth. Confronted with such a growth target, managers would have to come up with different solutions than simply working harder and longer. Maybe new distribution channels, new partnerships or other strategies could be a solution but working longer hours will not even bring you close to the 50% growth.

The “urgency” to innovate

Defining strategic stretch goals gives employees that are willing to innovate an opportunity to realize their ideas. For those that do not see the need to innovate yet, stretch goals can create a “sense of urgency” that stimulates and forces them to work on ideas that help to achieve these goals. The point of “pressure” and “sense of urgency” is not to get people working harder. It is to get people to do things differently and raise the capability of the organization.

How can you define stretch goals in your organization?

If you have not defined stretch goals in your organization, it will be difficult to introduce the concept, define them and link them to the bonus system in your organization. Nevertheless, you could easily run a workshop where you define stretch goals and work together with other people in your organization to develop radical ideas that might bring you closer to the strategic stretch goal.

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Following Tom Kelley’s quote that "Innovation is not just a program, it’s a way of life" I have recently taken a closer look at the characteristics of an "innovation lifestyle", especially in organizations.

During this research I found an article titled "Fostering an innovation mindset" which defines an innovative mindset as a pervasive spirit that stimulates individuals and teams to create newness in all areas of an organization.

Here is an excerpt of the introduction:

You know a company with an innovation mindset when you see the way employees interact with one another. They treat one another with respect, admiration, and cooperation. They smile. They laugh. They express consideration and thoughtfulness. They listen. They focus on the benefits desired by consumers rather than on their own personal gain. They come to work with an optimistic enthusiasm, because they believe that what they do each day really does count. They focus on the future rather than on the past. They exude self-confidence, possess a healthy self-esteem, and believe in their own capabilities and strengths. They have faith in innovation and in one another.

Found in: "Fostering an innovation mindset" by Thomas D. Kuczmarski, based on his book "Innovation: Leadership Strategies for the Competitive Edge".

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