By Hunter Hastings and Jeff Saperstein
In the 21st century, the reorganization and profits that businesses achieved through supply chain improvements must be replicated in their demand chains. Replacing hierarchical, job-description-driven organizations with boundary-less, role-driven networks will help your business eliminate silo walls, resulting in customer-centric networks that create demand and value. Demand creation is the new goal for a new century.
Global business executives face a host of pressures: volatile markets, security issues, global competition and emerging new business models. These factors are forcing organizations to be more responsive to evolving market needs; more flexible in how they operate; more focused on their core competencies; more nimble at partnering; and more resilient to external threats. Developing a work force that adapts to change and capably innovates is now a paramount strategic challenge.
Recently, an IBM report that polled more than 750 chief executive officers worldwide identified collaboration as a key tenet to fostering innovation and growth.
The most significant barriers to collaboration were, in order of importance:
We propose that demand creation may be one solution. It focuses upon improving collaboration – based on new business processes supported by technology – to make the organization more customer centric and responsive, which will increase sustainable growth and profits.
The productivity revolution of the last 25 years occurred in organizing the supply chain. The next 25 years is about organizing the demand chain to ensure predictable, sustainable, profitable, long-term growth for global corporations. We need to design organizations and processes that can make demand creation a scientific, process-based, predictable, repeatable management science.
Demand creation is new. Before it emerged, companies attempted to drive demand by sending torrents of e-mails, paying for search engine advertising, managing a sales funnel in CRM software and investing millions of dollars behind unpredictable ideas for advertising and communications. All these methods are old hat.
The new demand creation discipline is based on scientific processes to understand customer needs, translate these insights into innovation and effectively take the innovations to market using repeatable systems, metrics and mathematical models. In addition, companies will innovate via new organizational designs to change how they operate internally across boundaries as well as externally with customers, collaborators and even competitors.
The rise of the modern global corporation in the 20th century created unprecedented wealth and regional power by leveraging a hierarchical organization comprising functional divisions and departments that operated in a mass production and distribution paradigm. Companies, such as Procter & Gamble in packaged goods and IBM in computer hardware, dominated their industries by creating the “gold standards” in practices to maximize profit based on these principles. The functions of research and development, marketing, sales and information technologies emerged as distinctive competencies within their own “silos” and coordinated with other departments from within the walls of their silos as needed.
The most significant development for global corporations in the last quarter of the 20th century was transforming the supply chain – creating “boundary-less” organizations and deploying technologies that manage process for low cost, speed, flexibility and customer service operations, like Wal-Mart and Toyota.
In the first quarter of the 21st century the most significant transformation will be a parallel effort on the demand side – driving top-line revenue growth organically through reliable, competitively advantaged demand creation systems. The convergence of R&D, marketing, sales and IT into a new function – demand creation – will be the focus of the next 20 years of enterprise development. It will require a different organization, new processes, new role definitions and, most significantly, a customer- and consumer-centric organization that will attract, retain and partner with the customer/consumer in a profoundly different way than the centralized, hierarchical, functional, mass-marketed and efficiency-focused corporation.
Four significant business revolutions are coming together in a perfect storm of innovation: the digital, business process, business organization and Internet revolutions. Successful companies will learn to reshape their R&D, marketing, sales and IT functions and job specifications within a new customer-centric organization to take account of these changes.
The fundamental change is reversing the flow of the corporation from inside-out to outside-in. All activities of the corporation that were outbound – R&D, sales, marketing, advertising, promotion and service centers – now must be reversed. Customers decide when they have a need and when they are ready to listen to information or receive a service from a company that might meet that need. The company must restructure so it can anticipate and respond. We’ve never had a management science for this new paradigm. How successful companies and institutions are changing to meet this challenge is the core quest of our inquiry.
Inbound-outbound relationships must change, just as centralized/decentralized relationships must change. The center is no longer the locus of power in the organization, no longer where all-important decisions are made. The hierarchy no longer functions because demand creation decisions are made at the bottom, not the top. We need to engineer business processes and structures, metrics and technology to enable the decentralization of decisions by everyone in the organization to serve the consumer/customer.
The organization has to rethink strategy, structure, process and rewards. Management must reconsider the kinds of people, processes and rewards to get things right in opening the organization.
Companies of all sizes exist to create value. They must create value for customers. That’s why customers buy the goods and services the company sells.
But first, we must examine how companies do the work that creates value. We must recognize that the old form of organization – the old way work was done – has run out of steam, and a new way is emerging. The emergent organization is called the value creation network.Figure 1 defines the component differences between the old 20th century organization structure and the new 21st century network. Jobs are the building blocks of the 20th century structure. When you join a corporation, you get a job and a job description. The job description defines which tasks you are allotted and what responsibilities you have. But it seldom describes how you contribute to the transformation of the assets of the corporation – its knowledge, information, processes and methods.
Jobs are grouped in a function, such as marketing, sales, operations, finance or legal. This functional organization solidifies specialization; jobholders are subject-matter experts. They are defined by their function. Most frequently, they are promoted within their function, but seldom do they move into another function. Sure, we all know of lawyers who have become CEOs and salespeople who have become marketers. But mostly we think in terms of the ascendant career in the function – the ultimate achievement of the marketer is to become chief marketing officer, of the lawyer to become chief counsel, and of the financial analyst to become chief financial officer.
And the very concept of “chief this” and “chief that” reveals the key structural device of the organization: the hierarchy. You start at the bottom and work your way up to the top. You report to a superior, who assesses your job performance. You are not customer-centric; you are boss-centric. You succeed by pleasing your superiors; you are rewarded when your superiors say you are doing a good job.
Jobs in functions and functional hierarchies are captured in the organizational chart. It’s home base for you – you can find where you are, like a conference room on a building diagram or a line item on a database. You know what level you have reached and the next level that you aspire to. You govern your business life by assessing where you are in the hierarchy relative to where you want to be and where your reference individuals are.
None of this organizational design and structure is about value creation. It’s about how those in charge can give orders to the people who work in the organization and expect that their orders will be followed.
Patricia Seybold, author of Outside Innovation, suggests the organizational structure is well-ingrained in most corporate cultures and is part of human nature.
“No matter how fast you want to move, human nature is going to get in the way. It’s not about a particular type of person because everybody usually has a lot of goodwill. It’s trying to figure out what are really the best ways to get information flowing across these functional silos and try to get everybody seeing things the same way. ... What happens is that in many organizations there is a degree of inertia. … And you can come up with as many blueprints as you want – top-down leadership, customer champions, road maps for how to do things – but the fact of the matter is they’re only going to work at the pace at which the organization’s culture is able to absorb them.”
As opposed to jobs in functions in hierarchies, the networked organization starts from the idea of roles. Everyone in the organization can identify their role in the value creation process: how they contribute to the purpose of the enterprise.
Here is an actual example from a major global corporation we worked with, masked for confidentiality. The company tried to drive innovation and growth by putting the customer at the center of all innovation processes. This was a laudable goal since insights – deep understanding of the motivations that drive customer behavior – can create new growth streams as an input to innovation. They created the job of customer insights manager in the business units.
The next stage was to bring in the human resources function to define the job responsibilities and tasks to be done and to specify what qualifications and experience candidates needed. The human resources function generated a job description of tasks, responsibilities and qualifications, along a reporting hierarchy indicating who these jobholders would report to in the organizational structure. The company created and filled the new positions. Then came a flurry of activity and allocation of budget resources to generate new customer understanding through segmentation studies and other research techniques and insights workshops to generate real customer insights. The insights were transferred to the R&D function and to the marketing function as input to their processes.
But then two barriers arose to value creation. First, the process driven by R&D to develop new products did not produce the right kinds of innovations. There were too many small ideas, and they tended to be continuous improvements rather than step changes or major leaps forward. Second, the process driven by marketing to communicate with the consumer produced a similar result – more of the same that’s a little bit better, rather than innovative ways to engage with customers and create a new basis for customer relationships.
Meanwhile, the customer insights managers became dismayed and frustrated. They did a good job of generating insights but did not see those insights turned into demand-generating innovation and, worse, were given no role in the downstream commercialization of their insights. In the world of process-based organization, the right hand-offs were made from the insights generation function to the R&D function and to the marketing function. But in the world of value creation, this was not producing the required results.
If management had thought of customer insights as a role instead of a job, it would have redefined the overall role as insights generation. This would include an insights-to-innovation role of working with R&D to transform the insight into product ideas and commercialize them. It also would include an insights-to-brand-building role to work with marketing to transform the insights into stronger and more productive customer relationships. These roles are defined by exchanging results and assessment information with another role to improve future outputs. Such a role-based view defines much more clearly the value contribution that the individual is making than a job description of customer insights manager.
Roles are defined not as positions in a hierarchy, but by interactions with others. A role is a collaborative concept. In a job, you must complete a set of tasks. In a role, you must figure out how to work with others effectively to create value. In job-based hierarchies, we often hear about the problems of “politics” and about the difficulty of performing “across silos.” That’s because functional hierarchies are created in organizational charts.
In a role-based organization, collaboration is the whole point. Roles are defined by effective interactions with others. And the medium of interaction is the exchange. In my role, I collaborate with other roles by providing an output that the collaborators require in order to perform their role. The exchange could be called a deliverable – usually an intangible one. It might be processed information or an analysis; it might be a strategy that the next role turns into plans and initiatives. The organizational implication of the collaborative nature of roles – and the exchange of intangibles between roles – is that accountability is horizontal.
By contrast, in the conventional organizational hierarchy, accountability is vertical. You are told what to do by your boss, and your boss assesses whether you performed the defined task satisfactorily. In the collaborative network of roles, accountability is horizontal – to other people who require deliverables from you. Accountability changes from an assessment of your performance by a superior to an objective measurement of whether your role delivered value or not.
That’s a radical change in the nature of work.
The second major change in value creation is that intangibles create value. We’ve long known that intangibles have a role in the corporation. The “bedrock” theory of business was that assets were the source of value, and the amount of value created could be captured by calculating a return on assets (factories, buildings and piles of capital) or return on investment.
Today we understand that assets also can be intangibles. The first realization probably was centered on the idea of patents – pieces of intellectual property that could be codified, certified by the government and competitively protected so that the inventor of the intangible could benefit. For a long time, business theorists got tangled up in calculating the value of intangible assets. Since factories and buildings could be valued, it stands to reason that patents and other intangibles could be valued.
Now we realize that the important question is not, “What is the value of intangible assets?” but rather, “How do intangible assets create new value?” That’s a harder question to answer, made even harder because we have identified more intangibles that can create value. The range includes brands, processes, information, reputation, corporate cultures and even work processes.
Essentially, value is created when a role completes a deliverable for another role to use. The deliverable can be an intangible output, such as an insight into customer behavior and motivations. But it must be wrapped up in an enabling intangible, which could be a process or a framework. The enabling intangible tells recipients what to do when they receive the deliverable.
For example, let’s refer back to the customer insights role mentioned earlier. Suppose that role generates an insight and then hands it to three recipients: R&D, customer solutions and strategic planning. For the R&D recipient, the insight must be handed over in the context of the insights-to-innovation process so R&D knows how to plug the insight into the product research and development process. That way, the insight could trigger a better innovation.
For the customer solutions recipient, the commercialization and communications process must enable the insight so that customer solutions can leverage the insight into a solution (and the story of the solution) that benefits the customer. For the strategic planning recipient, the insight must be wrapped into the strategic planning process to inform the development of the five-year plan and intelligently allocate resources.
In each case, if a process did not accompany the insight, the recipient would not know how to use it and create value. When the insight is enabled by the process, the result is a focused effort driving toward an end result of value to the customer (Figure 2): a new innovation that capitalizes on the insight, a new solution where the innovation is combined with others and with the appropriate information to maximize its benefit to the customer, and a new strategic plan to allocate resources to make the most value out of the insight as possible. Figure 2 defines the differences between structure and network to create value.
Intangibles create value by combining new deliverables (ideas, insights, innovations, plans and communications) with the appropriate enabling process. The ultimate receiver is the customer, who receives a solution that may include some tangible assets (such as a product) and a whole lot of enabling intangibles (such as the sales process, the communications process, the relationship management process, training, servicing and many more). In opening the organization to create networks of roles and multifunctional teams, management can unleash expertise and creativity for innovative solutions that will increase growth.
The organization looks different when viewed from the perspective of how it creates value rather than how it is structured. The vertical hierarchy and specialist functional job pillars do not create value; collaboration between people playing roles and utilizing processes and other intangibles creates value. Figure 3 illustrates the process.
The key roles and processes in the demand creation network are:
The most important value-creation network in the enterprise is demand creation. In the past, we would have used a term like marketing, or product marketing, or sales or customer management.
With demand creation we see the continuous, seamless linkage among marketing, customer management, R&D and product development. Feedback from the customer and the market provides the R&D team with the data it needs to create and develop new products. Similarly, the operations team uses feedback about the logistical needs of the customer to improve service. These activities – the exchange of information to improve deliverables – create value. They build the relationship capital of the enterprise, and they generate revenue in the continued and expanded exchange of goods and services. The ultimate output is growth – of the enterprise, of the level of exchange with customers, and ultimately of the economy in which they operate and collaborate.
Purposeful growth is the only outcome that matters. Whether it is the growth of GDP, the growth of global trade or the growth of jobs, we are pleased when growth occurs and disappointed when growth stagnates or reverses. Growth is the important metric as the indicator of success for our careers, our enterprise, our economy and our world.
Growth starts from demand creation. Without demand there is no growth. Without increasing demand, there is no continuous improvement. Our hope is to identify the keys to successful demand creation and bust the silos to open the organization for growth.
This article is adapted from the book Bust the Silos: Opening Your Organization for Growth by Hunter Hastings and Jeff Saperstein, ©2009.
As chairman of a demand creation consultancy with clients in the Americas, Asia and Europe, Hunter Hastings co-authored, with Jeff Saperstein, The New Marketing Mission and Improve Your Marketing to Grow Your Business. Hastings developed demand creation principles and case studies at the consulting company EMM Group and now applies these principles in his role as chief marketing officer at JBS USA, the North American arm of JBS, one of the world’s largest multiprotein producers.
Jeff Saperstein is an author, teacher and consultant. His books and case studies focus on best practices for innovation. He has worked with governments, corporations and nongovernmental organizations to use marketing to increase growth. Saperstein teaches in the College of Business at San Francisco State University as well as for other corporations.