Co-Innovation

What the Best Companies Do Differently

The Summit Group 2013

Co-Innovation: What the Best Companies Do Differently

In Brief
The forces impacting profitable growth are intensifying, and as a result, companies in many industries face accelerating commoditization of product and service margins. Additionally, given the economic malaise, organic growth must be more intentionally developed and a more structured and replicatable approach is required. In this white paper The Summit Group describes what leading companies are doing to develop a deeper understanding of what matters most to their customers as a strategy to counter commoditization, strengthen relationships, and accelerate growth in a hyper-competitive business environment. Traditional sources of profit such as quality products and services, operational excellence, and branding the capabilities within the firms direct control - remain important, but are no longer sufficient to sustain profitable growth.

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Increasingly, firms will need to co-create new sources of revenue by understanding, leveraging, aligning, and executing together with customers and partners along their value chain. Critical to successful Horizontal Value Creation as we call this strategy are superior people and collaborative relationship competencies. (Figure 1)

Companies should not underestimate the barriers to successful Horizontal Value Creation. The products, competencies, organization, and culture that enabled past success may get in the way of collaboration and re-thinking the value proposition.

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The Easy Growth is Over

With concentration along the vertical value chain and increasing supplier and buyer bargaining power, companies are challenged to pass rising costs onto their customers. Their ability to create value is less than matched by their power to capture it. Technology, information access, and globalization accelerate the squeeze on margins. Organizations are bombarded by change, and many are struggling to keep up. 1 The traditional sources of value - product and services, lowest cost/pricing, and branding - become harder to sustain as competitors offerings rapidly replicate quality, features, and benefits at a lower price.

Mind the Gap

In this hyper-competitive environment, the leadership teams role becomes more complex. On one hand, customer expectations escalate, while on the other, corporate stakeholders push for sustained growth and margins as effective go-to-market execution is increasingly challenged by orchestrating cross-enterprise, virtual resources. In a recent research study, 154 buy-side executives responded that only 7 percent of sales people truly get it when asked, What percentage of all the people you see from the supplier community is worthy of a longterm relationship?2 Organizations that are not able to respond to their key customers requirements and continue to focus only on product and service features are likely to lose share and put strategic relationships at risk.
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IBM CEO Survey, May 2008 The Summit Group, ITC, LSE; What Customers Seek, 2006 4 of 12

What Customers Seek

In the same study, customer executives were asked to identify what distinguishes true business partners from transactional suppliers. They emphasized that both internal and customer-facing skills differentiate leading vendors. Customers want to deal with business people who are real, demonstrate higher orders of business acumen, and are able to mobilize their organization to deliver solutions quantified in real value terms that address the customers key business issues and initiatives.

What the Best Do Differently

From our research and field experience with some of the worlds leading companies, The Summit Group has distilled what the best do differently to elevate strategic relationships, counter commoditization, and accelerate growth.

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The Summit Groups four-step Value Creation Framework enables companies to re-engineer and transform how they go to market. These steps are: 1. Them. Understand your customers business agenda and industry value drivers. 2. Us. Leverage cross-enterprise assets and capabilities to co-create customized solutions. 3. Fit. Align and articulate a compelling value proposition with absolute clarity on how your capabilities impact what your customers want, and what your customers customer cares about. 4. Proof. Execute by securing resources and commitment based on a common agenda, joint scorecard, and review process. While this framework is simple and its meant to be what distinguishes leading companies from their competition is how they institutionalize this approach. From our experience, companies that outperform their peers do the following: Establish a replicable enterprise-wide approach to customer-centric value creation. The whole organization not only sales is oriented towards the customer. For example, at a tech company, you want to be the company that makes sure the primary focus is on the customer at a time when other vendors are focused on technology. Customer satisfaction should be a company-wide performance metric enabled by cross-functional teams, account segmentation, executive sponsorship, customer advisory boards, and a world-class customer relationship development process. Continually refine which customers they choose to align with and focus resources on. Strategic fit and market attractiveness criteria must enter into the selection process. The Summit Group believes it is essential to identify, in addition to strategic customers, lighthouse companies who are forward-thinking innovators and are expected to drive future segment growth these may, or may not be, current customers.
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 Take collaboration to the next level to secure alignment, gain deeper insight into customer priorities, and uncover new mutual growth opportunities which would often have been invisible to each company acting on its own. In a recent Bain trend study3 over 65 percent of the executive respondents believed they could dramatically boost innovation by collaborating with outsiders, even competitors. Rigorously prioritize opportunities and bring clarity to where there is fit and where there is not. Articulate a compelling value proposition, which aligns self-interest with customer priorities and quantifies internal and customer outcomes. Effectively act on strategic customer and value chain insights to co-create relevant, differentiated solutions that leverage their mutual cross-enterprise capabilities and resources. As Jack Welch puts it, "An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.4 Secure mutual commitment through joint planning, common scorecards, and reviews - to drive effective go-to-market execution. Elevate the sales teams operating system by building core relationship development skills and leveraging team members signature strengths. The application of these skills and strengths is re-enforced through authentic sales leadership and coaching.

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Bain Company Tools & Trends Study based on 1,221 international executives response, 2007 Jack Welch, former Chairman & CEO, General Electric 7 of 12

By institutionalizing this approach, leading companies are able to have significant immediate and long-term impact on customer loyalty, profit, and growth.

Understand Your Customers Business Agenda and Industry Value Drivers (Them)
Understanding your customers business is nothing new. As Peter Drucker said, The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself. Our research would indicate, however, that relatively few companies are getting it right.

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The first step in the Horizontal Value Creation framework is to ask strategic customers and lighthouse companies the question: What do you care about and why? The challenge is to engage and ask in such a way as to gain deep, unique, strategic, and tactical insight into industry value drivers, the customers business issues and initiatives, and critical success factors. While quantitative and qualitative research, as well as customer satisfaction surveys, provide companies with plentiful data, it is usually filtered through third parties, is difficult to interpret, is harder to act on, and seldom provides the depth of insight required to guide the development of differentiated and customized solutions. To understand the ultimate truth the unfiltered voice of the customer and establish the foundation for co-innovation, a number of The Summit Groups clients are pioneering an approach to take collaborative value creation to the next level. At the heart of this collaborative practice is a structured dialogue with the customer designed to: Gain deep insight into the customers business and industry value drivers Establish strong alignment and focus on the customers top priorities and initiatives Assess and refine opportunities for co-innovation as a basis for developing a mutual growth blueprint Establish a tighter joint business plan and elevated rhythm for the relationship The six-step agenda for this facilitated conversation is outlined in Figure 2.

Wal-Mart and GlaxoSmithKline Collaborative Value Creation

GlaxoSmithKline, a client of The Summit Group, used this framework to elevate their Wal-Mart relationship and identify mutual, long-term growth engines.

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The story begins when Lee Scott, CEO and President of Wal-Mart Stores, Inc., declared that business needed to take a lead in fixing healthcare.5 This led to Wal-Marts Health & Wellness initiative and the reshaping of their mission to save people money so they can live better. GlaxoSmithKline (GSK) was invited to join a coalition of the best and brightest businesses tasked with re-architecting delivery of healthcare around six key health issues.

By applying the Horizontal Value Creation framework, The Summit Group has facilitated an ongoing initiative that started with a one-day dialogue between Wal-Mart and GSK executives in Bentonville, Arkansas.
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Burdened by healthcare US businesses seek a shift, Christian Science Monitor, February 2007 10 of 12

As a result, Wal-Mart and GSK identified four areas that have the best fit and greatest potential to drive what was called the Health & Wellness Flywheel. 1. 2. 3. 4. Elevate the role of the pharmacy within Wal-Mart. Offer a set of professional pharmacy services. Help Wal-Mart leverage their enterprise capabilities to raise consumer nutrition and health awareness. Lobby Washington together under a banner called Change the Healthcare Debate. (Figure 3)

Underneath each of these four areas, GlaxoSmithKline initially identified seventeen collaborative action offerings initiatives to make this happen which were stratified down to four major action offerings that best aligned GSKs capabilities with Wal-Marts vision and are of most value to both parties right now. While this initiative is still in progress, it has already resulted in significant incremental revenue for both companies and is enabling the Wal-Mart mission to Save More. Live Better. Already, Wal-Mart's drug and healthcare ventures provide big chunks of its sales and profits.6 Todd Hutsko, GSK VP-Sales for the Wal-Mart alliance said, "Because of re-architecting our relationship with Wal-Mart we have shipped over $500M more in product this year to Wal-Mart without any new product introduction."

In Summary
Product and service leadership, operational excellence, and brand strength remain important drivers of profitable growth. However, there is currently a value shift taking place. In the future, winning performance will be driven by pro-active customer collaboration enabling strategic business alignment and co-innovation with market-shaping customers.
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Business Week, Wal-Mart, Your friendly drugstore, June 5, 2008 11 of 12

About The Summit Group

The Summit Group has been providing value creation thought leadership for over twenty years and works with leading companies executives and sales teams to develop talent, elevate strategic relationships, execute go-to-market strategies, ensure business relevance, and accelerate growth. For more information please visit www.summitvalue.com. About GoToMeeting

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