The Customer Gap

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Customers are out-moving organization, creating a gap that has become the no.1 job for CEO’s to fill.

There is a growing divide between people and organizations. This is driven by the last forty years of societal change and the customers rapid adoption of new technology (link). The consequence is a change in how people make decisions (link) and more importantly; their demand patterns. Incumbents are now having to react to an expanding chasm of opportunities where a new generation of companies are taking advantage and disrupting existing industries.

In a recent study by Accenture on the potential disruption of the banking industry in America, the authors suggest:

“It doesn’t matter who makes it, the best app wins”

And this is not an isolated incident. In the HBR article Big Bang Disruption by Larry Downes and Paul F. Nunes we find the same conclusion:

“The innovators who create products at ‘hackathons’ aren’t even trying to disrupt your business. You’re just collateral damage”.

The difference being, that in an app-driven business world everything comes down to creating the best customer experience — understanding how, when and where customers want what kind of utility to solve which job with the goal of achieving what kind of value. (Not to mention how this physical/digital interaction should, look, feel and behave).

This customer driven approach is completely different from how many incumbents are thinking and working against their markets — which can be coined the industry approach. These companies don’t identify themselves by their customers, referring to them as universal abstractions through demographics — or just users when they are online. The point of reference for these companies therefore becomes their industry — what am I producing and how am I selling it?

The industry-driven approach is the kind of thinking that opens the company to the customer gap. Where customers are finding other solutions to solve their job. (An example is the B2C travel industry, being pulverized by the Internet because travelers found that planning their holiday was an integral and joyful part of the holiday experience. Which the travel industry weren’t able to understand, restructure and accommodate to rapidly enough).

Even if incumbents are pouring millions into customer insight programs these are framed by existing hypothesis forcing the answers to align with the current industry thinking (link).

In my experience companies are seeing customers new demand patterns, the potential collapse of industries or challenging new business models, but are not able to prioritize them.

And hence the customer gap opens up, shaking or even destroying industries.

Disclaimer: The Customer Gap is a theory/ an idea in development. As all theories it might be proven wrong, but I’m entertaining it because it answers a lot of articles, thoughts and experience that are pointing in this direction. Please ad to the discussion.

Let’s look at some of the evidence:

1.There is a gap and it is the no. 1 job:

“According to a recent global study of 1,500 CEOs conducted by IBM, the biggest challenge those CEOs face is the so called complexity gap. Eight out of 10 expect the business environment to grow in complexity, but fewer than half feel prepared for the change. The research also reveals that CEOs see a lack of customer insight as their biggest deficit in managing complexity. They prioritize gaining customer insight far above other decision-related tasks and rank “customer obsession” as the most critical leadership trait.“

Source: An Anthropologist walks into a bar, Christian Madsbjerg and Mikkel B. Rasmussen, HBR March 2014

2. It is a people driven problem

In her talk at the Techonomy conference in 2011 Shoshana Zuboff stated:

“The reigning model of capitalism periodically goes into decline when people are changing faster than organizations.”

Which is highly relevant to a quote from her stellar McKinsey article Creating value in the age of distributed capitalism.

“Every century or so, fundamental changes in the nature of consumption create new demand patterns that existing enterprises can’t meet.”

But what is pushing this change? Zuboff returns to this later in the same article, stating that it’s all about the customer:

“Mutations do not arise within industries; they arise as reconfigurations of assets defined by the unmet needs of individual end users.”

3. Companies invest in their best customers, leading them on a trajectory which leaves the low and medium market open to new offerings

In his talk The Capitalist Dilemma at The University of Virginia School of Law, Clayton Christensen describes how companies invest in technology to make existing products better for their best customers. This technology outshoots the needs of customers of low and medium value opening them to markets with different kinds of thinking and technology.

The job of a company or industry is not to keep on delivering the same product in the same way or better – it’s to identify which utility is being hired to do what job, then understand what other products or services can do the same job similarly, better or different and design new ways to stay in front of the job — as it changes.

An example being the Nintendo Wii, the only disruptive technology to come out of Japan the last thirty years. In the gaming console industry Sony and Microsoft where outspending each other trying to create more and more amazing, immersive and powerful gaming experiences. Loosing money on each console they sold because the technology became so expensive. Then the Wii arrived, taking a completely different approach to gaming, having a small processor and lower demand for graphics — but introduing a competely new way of thinking about play and immersion, one that Sony and Mircorosft weren’t able to prioritize with their current industry blinders on.

4. The Misuse of technology

From their report Embracing Digital technology, MIT Sloan together with Capgemini Consulting finds that the technology investments in companies are not doing the job that companies need it to do:

“Companies routinely invest in technology, and too often feel they get routine results. Technology’s promise is not simply to automate processes, but to open routes to new ways of doing business.”

and “According to 78% of respondents, achieving digital transformation will become critical to their organizations within the next two years.

The fault here is simple. We are investing in technology to take us on the same trajectory forward, not inviting technology to do what it can reinvent our business by forcing us to think about how we create and capitalize on customer value.

“I think historically where we [venture capitalists] fail is when we back technology. Where we succeed is when we back new business models.” — Bob Higgins Source: Reinventing your business models by Mark W. Johnson, Clayton Christensen and Henning Kagermann

“Companies that combine new products with new business models see much faster growth.” — Eddie Yoon and Linda Deeken, Why it pays to be a category creator

So what is the solution?

For the last years we have been looking at different big ideas in regards to the future of corporations. From Disruptive Change, Transient Advantage and Individualization to Customer Centricity amongst others. And we are seeing the same pattern over and over again: changes in customer demand is creating a gap between customers and organizations, and companies can close it based on their ability to:

  1. 1. See or prioritize changes in customer demand
    2. Understand and use technology to create new business ideas and new customers
    3. Rapidly and cheaply test and kill ideas

It is the conviction of our current thinking and experience that the complexity gap is just growing, and that most corporations are looking for the tools to solve it, as they feel the pain every day. We propose a customer driven mindset in order to find new offerings and design the business. The key is understanding and prioritizing your customers changing demand patterns and getting there by demolishing preconceived ideas, internal silos and gathering around one constant unifying entity — the customer.

Image via flickr

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