Management by empathy — building the future of business, the experience economy
What is the key to customer orientation today? How does it work in companies like Apple, Nespresso (Nestlé) or Patagonia for example, who are particularly successful in their markets? The answer is that these companies have moved on from selling “naked” products and services to delivering experiences that are full of value. Their value proposition is not limited to the features of their product but covers all interactions with the customer, incorporating customer needs and the promise of the brand: The customer gets to be a long-term partner in a partnership that is not only defined by economic or emotional benefits but by a value the customers perceive as meaningful for their lifestyle, for their life. Sustainability is achieved by satisfying needs that originate in the customers’ beliefs and values.
With the introduction of the terms “Experience Design”, “design thinking” and “customer-driven innovation”, the discussion about the purpose of companies (and thus management) has shifted. Companies now need to create “value” and “meaningful experiences”. But why? Rodney Fitch explains it best: “Only one company can be the cheapest, the others have to use design” (Egan, 2010). Design is presented as the skill that allows companies to develop product and service experiences that do need not to be lowest- or low-cost. The point is not the naked product or service performance but the creation of a holistic experience, perceived by the customer as relevant and meaningful. Design as “making meaning” (Shedroff/Rhea/Diller, 2008).
The term Experience Design has not yet been formally defined. It develops in a dialogue between economy and science. An important benchmark was set by Nathan Shedroff in 2001 with his publication “Experience Design 1”. An important overview is edited by Thomas Lockwood: “DesignThinking” (2010). Among other things, it describes the shift in meaning of the term design over time, away from product design to an approach whereby design is primarily a communication process. Design as an interdisciplinary creator of solutions has been highlighted by institutions such as the British Design Council or the Design Management Institute in Boston for over 30 years.
Kimbell (2010) explains Experience Design with the toaster principle: Before, designers, managers and companies would work on designing individual products and services and bring them to market — for example a toaster. Today, the challenge consists in realizing entire toaster projects. And it is essential to understand the physical environment of a toaster and all social interactions around it to be able to create a solution with added value. Design in the sense of “beautifying objects” is history. Schrage (2010) offers a similar argument: “Great designers facilitate great interactions around great design(s).” Great communication (and not great forms) is the key to a great solution.
These hypotheses, focusing on thinking in systems and the power of the communication process, are the basis of our approach. The core skills in our definition of designful management are:
1. Explore your customer: To explore the customer means to understand his expressed and hidden needs. This can be done by visits, interviews, observation, focus groups. It’s not an analytical process. The skill “explore your customer” often results in the capability of telling the story of the customer.
2. Prototype your offer: Prototyping means to develop the future by creating (and not by discussing/analyzing). Prototypes show clearly what is possible and what is not possible and how/if the customer’s needs are met. Prototyping enables the “great interaction” because it makes experts discuss design solutions and not theory.
3. Reframe your strategy: Customer-focused innovation often uncovers needs that can’t be met with the existent products/services. The exploration of the customer makes a company discover new business opportunities which aren’t backed by the actual strategy. If the opportunity is to be realized without re-framing the strategy there will be endless battles in the development and delivery process.
4. Use the energy of the team: Creating experiences and innovations requires to integrate multidisciplinary thinking. It’s a group process which isn’t democratic but tries to create the best results to meet customer’s needs. To facilitate such a complex process requires a specific set of social interaction skills.
All these skills help to create value propositions which are often a hybrid system of product and service. The value proposition is the engine of Experience Design and in many companies it is also the driving force of innovation. It is basically comparable to a business case, but unlike standard development projects it is not only factored in the middle of a project but it is the starting point of all activities. The value proposition defines customer and company benefits based on customer needs assessment, correlating the assessment with market conditions and internal resources.
A widely known template is NABC by SRI (Carlson&Wilmot, 2006). Here, the proposition consists of four steps: N = what’s the unmet customer’s need, A = what’s the approach, B = what’s the benefit, C = what’s the competition. In our example with the HR department, the strategy reframing originated in the in-depth analysis of the need (by means of dialogue, personas, feedback sessions). The department realized they had been focusing on the wrong need.
Costar, the value proposition developed by Friedman, Gyorffy and Gyr EDG (https://enterprisedevelop.com/#co-star), is more detailed than the NABC. The business case is divided into six elements:
- Who is the Customer and what is his/hers unmet need?
- What is the significant, high-impact Opportunity on the market?
- What is your Solution?
- Who needs to be on the Team?
- What is your Advantage over alternatives/competitor’s solutions?
- What Results will be achieved?
The value of this tool is its systemic nature. All Costar elements are interdependent. If the designer discovers that he could increase the advantage by slightly changing the solution, the tool allows him to simultaneously check if the customer need is still addressed and if the change still translates into an opportunity on the market.
Thinking in value propositions leads to strategically relevant questions:
· Is the project in agreement with the existing strategy?
· Will it generate such a benefit as to justify a strategy reframing? Or would a spin-off be a better idea?
· Does the solution originate in wishful thinking that doesn’t make any strategic sense?
The consistent application of a template in setting up a value proposition can change a company substantially. The template provides the company with a new grammar of change and innovation — you could say it instills the drive to innovate.
Experience Design provides the mindset and the tools enabling companies to offer these meaningful experiences. Our concept of Experience Design is based on the four skills mentioned above. The underlying competence to these is empathy: the urge to understand, compassion for the need of the customer, the need of employees and the need of society. Empathy is the one basic competence needed to create sustainable value in the economy of the future.
This article was originally published in “leadership — learning for the future”.
References:
Egan, John: Corporate Design Foundation, link: http://www.cdf.org/issue_journal/baas_sir_john_egan_on_design.html
Carlson, Curtis / Wilmot, William: Innovation: The Five Disciplines for Creating What Customers Want, Crown Business, 2006.
Diller, Steve / Shedroff, Nathan / Rhea, Darrel: Making Meaning, New Riders Publ, 2008.
Lockwood, Thomas (editor): Design Thinking, Integration Innovation, Customer Experience and Brand Value, Allworth Press, 2009.
Kimbell, Lucy: From User-centred Design to Designing for Service, 8/9/2010, presentation held at “Transforming Design. Design/Managememnt Europe 14”, London.
Schrage, Michael: Experimenting with “Design Transformation”, 8/9/2010, presentation held at “Transforming Design. Design/Management Europe 14”, London.
Gyorffy, Laszlo and Friedman, Lisa: CO-STAR: Perfecting and Pitching Your Brilliant Idea. A Practical Handbook for Innovators, in publication, 2012.