It is tough leading a company today when the initiatives you are expected to control are buffeted by constantly changing forces. The rules business once lived by have been turned upside down.
Power has shifted from producers to customers, for instance. "Any color they want as long as it's black" has been replaced by: "What they want, when they want it, at the price they want." It's not only the customers who have gained control, the companies close to the customer now tell the upstream manufacturers what to do. Twenty years ago, P&G (PG) told retailers what they would buy and how to display it. Now Wal-Mart (WMT) tells everyone what they will make, the price, and how it will be presented.
In another shift, the standard thinking about consumer segments no longer applies. Toyota built the Echo car and the Scion brand for members of Generation Y, but they are being purchased by members of AARP
WHAT TO MAKE? Competitors are now coming from everywhere and anywhere. Search giant Google (GOOG) is Microsoft's (MSFT) big headache; popular Web site Craig's List threatens newspapers relying on classified ads. Low-cost PC makers in China that no one has ever heard of -- Lenovo -- are buying major brands like IBM's (IBM) ThinkPad.
Finally, whole industries are transforming. While music industry giants dither, a computer company in Silicon Valley designs a cool digital music product, a whole new set of services, and a profitable retail chain, building alliances with publishers and musicians and creating a highly profitable business.
The leaders of more than one multibillion-dollar company have exclaimed to me, "We know how to make anything, my problem is we don't know what to make!" The general problem is that even as technological progress has given companies unprecedented possibilities, consumers' ever-expanding options for how to live, work, learn, and play leave businesses with less knowledge about their customers' daily lives.
MEETING UNARTICULATED NEEDS. The good news is that new methods, emerging from the field of design, can help companies understand customer patterns and create remarkable innovations. The core of design knowledge most valuable to companies is now composed of four parts: Discovering users' needs before they do, finding patterns in seemingly chaotic data that link user value to economic value, visualizing innovations early in the development process, and creating interrelated systems of solutions.
Consumers today are much more likely to get angry when their interaction with a product or service is less than perfect. The companies that win are the ones that surprise customers with great experiences they didn't even know they could have. But to create those great experiences, it's essential to discover the often-unarticulated needs of users.
Lenovo, the Chinese computer outfit, is a case study of turning user value into business success. Years ago, the company decided to pursue a strategy of high-value products and let Dell (DELL) own the low-cost position in China.
KNOWLEDGE FROM CHAOS. Conducting ethnographic research, Lenovo had discovered that Chinese families almost always share a single computer. Rather than requiring each family member to navigate the desktop interface, with its drop-down menus, to find their favorite programs, the design team created a keyboard with a large rotating knob. By turning the knob to, say, the Grandmother position, the computer interface would be customized to her preferences. The son clicks to his position, and the PC gives him the choice of his games and homework.
Design is also being used to discover new business opportunities, not just to improve existing offerings. Hong Kong Telecom, Gold Peak Industries, and Motorola (MOT) recently supported a team at Illinois Institute of Technology's Institute of Design researching interactive homes in Hong Kong. The executives and our team knew there would be opportunities for new products and services related to home control, entertainment, and security. However, we knew if we used existing products as our starting point, our ability to innovate would be limited.
We broadened our research to focus on people's daily activities, rather than products. We analyzed thousands of photographs and hours of video. As is always the case with ethnographic data, it first seemed completely chaotic. But the analysis showed that in addition to the three predicted areas ripe for innovation, six additional areas existed that the companies had not even considered. Importantly, those areas were still free of competition, while the three predicted markets were already dense with rivals.
VISUALIZING SOLUTIONS. Visualizing and prototyping solutions early in the development process helps an organization move from abstract discussion to concrete, effective action. Tara Lemmey, CEO of Lens Ventures, is using design methods to help the Homeland Security Dept. understand the myriad ways bioterrorists could attack the U.S. and explore alternate systems for rapid response.
The number of potential targets, agencies, information systems, organizational protocols, and other factors that have to work together are almost impossible to comprehend. While the agencies' plans for a rapid response seemed to make sense when viewed at a high level of abstraction, it wasn't until Lemmey visualized their response scenarios graphically did they realize the plans would not work.
Neither could they understand her recommendations for new response systems until she presented them using visualization techniques. Her approach is now recommended by the 9/11 Commission and is written into the Intelligence Reform & Terrorism Prevention Act of 2004.
SYSTEM OF INNOVATIONS. Of course, systemic thinking is important to companies, too. When I talk to leaders in consumer electronics, they all tell me they are trying to develop at least one service offering linked to each existing products because they are not making any money on the products themselves. Increasingly, businesses need to rely on systems of offerings rather than single solutions.
The iPod has already become a cliché about the power of design. It's true that it is a cool, easy-to-use product. But does anyone think it would be nearly as successful if it were sold through standard retailers and did not include iTunes?
The real iPod story is the design of the whole system of innovations that make digital music a viable business. iTunes not only offers an intuitive way to organize music, it gives Apple (AAPL) a way to let their customers buy music on the Web legally -- a great alternative to suing them, which is not very user-centered. In Apple stores, the Genius Bar gives phenomenal personal service, and the retail locations work so well that their revenue per square foot is the same as a jewelry store. This year a new Apple store is opening every eight days.
No matter how great the product, without the retail presence and the array of services, all designed as a system, the iPod would merely be one of a hundred other personal music products on a big-box shelf. Taken together, these new design methods help executives create offerings that surprise both their customers and their competitors.