CHAPTER 10

The Think Phase—Discover How You can Excel

Imagination is more important than knowledge.

For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution.

—Albert Einstein

In this first chapter covering the first step in the agile management process, the Think phase, you will see how to translate new requirements into concrete results. You’ll also learn how to determine what improvements you want to experiment with in the next iteration of the Think–Do–Learn cycle. Among others, we’ll be looking at these subjects.

10.1 Working with the Business Model Canvas

Each of the changes which you read about in section 9.1 has a direct impact on your business model. And you’ll have to adapt your business model to these new requirements. Much of this approach uses the Business Model Canvas (BMC), which, in turn, often illustrates issues using the 80/20 rule, which we encountered in section 6.1. The canvas gives your team a format to brainstorm and design in an iterative way, making a practical and, importantly, visual outline of your ideas. Ideas that might relate to entirely new products or services, but also to adapting and improving existing products and services. The BMC’s speed and flexibility, and the fact that the approach suits both internal and external customers, makes it ideal for agile management. Based on the words and images of the canvas you create, you can break these down into detailed parts and then experiment to find out what does and does not work well in practice.

An Example: Apple

When Steve Jobs returns to Apple, in the late 90s, the company is on its last legs. He recognizes that innovation is the only way to save his “baby,” and one of his first steps is to introduce the iPod.

Figure 10.1 shows you an overview, in BMC format,¹ of the canvas for the iPod that Apple launched in 2001. At this time, the market is full of competitive MP3 players. For users, however, it is difficult to convert their existing music collections into MP3 format for these players. Also transferring their music files to the player is complicated and time consuming. Moreover, the players cannot display details of the music in a simple, easy-to-understand way. And, finally, there is almost no music available for online purchase and download, as music companies can only imagine negative consequences from this kind of sales model and are unwilling to work together. This is partly because, at this time, a lot of music is being illegally downloaded from sites like Napster.

Figure 10.1 The business model canvas for Apple’s iPod

Apple sees a great opportunity for offering a seamless music experience. Hardware and software must work together in a very user-friendly way and the artists’ music must be organized and accessible, in a single location, and be easy to buy and get onto your own player or computer. It should be an experience with which everyone will fall in love. At the same time, it happens that the choice of an iPod and iTunes, and the time and money that users invest in building their music collections, ensures they never want to switch to future competitors. Apple generates massive revenues through smart channel-management. The hardware is sold via its own channels and through selected retailers, and high prices are set and maintained.

Hardware, software, and content go hand-in-hand. After the launch, Apple goes to work customizing the experience by making significant, step-by-step improvements. In addition to repeated small improvement steps, Apple is also taking giant steps. In 2003, it launches the iTunes Store, designed to be an integral part of the iTunes software experience. Exclusive agreements with almost all music companies ensure that competitors cannot easily enter this market. The iTunes store offers a very low entry point, with single numbers selling at only $0.99. Payment is quick and easy via an iTunes account and the download begins immediately, taking only a few moments. Gradually, Apple broadens its content offerings, adding podcasts and video.

In 2007, Apple then takes a massive step: from the iPod, it creates the iPhone and brings it to market. As we saw in Chapter 2, this is ultimately the final blow for market leaders Nokia and BlackBerry. It is a game changer, a totally disruptive technology. A revolutionary device with graphical touch screen operation, which works seamlessly with iTunes for music and software updates and adds a new word to our dictionaries: smartphone. Apple creates incredible interest, and consumers are rushing to pay Apple’s high prices. The same year sees the launch of the Apple TV, which works with iTunes on existing televisions and computers including Window’s PCs. Improvement never falters and, step by regular step, Apple adds and updates features and services.

In 2008, within an update to the iTunes program, Apple launches the App Store. For iPhone users, it offers Apple-approved games, and apps from non-Apple developers, both free and paid. The revenue model guarantees Apple 30 percent of all sales generated by an app. By enforcing developer standards that ensure seamless working between hardware, software, and content, Apple distinguishes itself from the fragmented supply models of all the other smartphone brands and app stores.

Another giant step occurs in 2010, when Apple is again a first mover with the introduction of a tablet, the iPad. Similar to the iPhone, it functions seamlessly with iTunes and the App Store. The tablet offers a brand new app, the Apple iBook, for the purchase and reading of e-books: Apple is now a direct competitor of Amazon and other e-book and e-reader providers.

In 2015, Apple launched its subscription service for streaming music, Apple Music. It does so to address the decline in iTunes music sales resulting from the success of Spotify.

By the end of 2016, Apple has sold a total of 1,023 billion iPhones, 338 million iPads, and, by the end of 2015, 404 million iPods and 26 million Apple TVs—nearly 1.8 billion units in total. iTunes and the App Store have approximately 575 million customers, who have downloaded a total of 45 billion songs, 6 billion videos, and 100 billion apps. There are 43 million songs, 240,000 movies and TV shows, and 1.4 million apps available.²

Now that we have explored how one uses the canvas, via the iPod example, we can go look, in a little more detail, at the different parts of the canvas.

Right Section = Value

The canvas consists of fields with very close relationships. It facilitates your adaptivity, because changes can be made visible within the Customer segments field at the top right. In it, you describe what requirements your target group—whether it is an internal customer within your own organization or external in the market—demands from your organization, department, or team. This also applies to the Channels field: here you describe which channels your internal/external customer wants to use in relation to your products and services. Through these you detail, as precisely as possible, what the customer wants and how you can best deliver it. Paragraphs 10.3 and 10.4 display this analysis in the form of the persona and customer journey.

The requirements of your target audience are the basis for the central field, the Value proposition. Here, you translate the desires and needs of the internal or external customer to the features and benefits of your products and services. You translate them in relationship to how you (as you described in the Customer relationships field) want to engage with customers and how this should generate revenue (as in the Revenue streams field). How this process will work exactly, is discussed in section 12.1.

This right section, made up of the five fields; Customer segments, Channels, Value proposition, Customer relationships, and Revenue streams, forms the core of the BMC. This is where value is created; it is the hub around which the rest revolves.

Left Section = Effectiveness and Efficiency

The remaining four parts in the left section are based on those on the right side and focus on effectiveness and efficiency. Which of the Key activities, Key resources, and Key partners are needed to make this possible? And which Cost structures belong with them? Changes in the five core areas above have direct consequences for the other four areas, because they must be adjusted accordingly. This is a concrete example of adaptivity in practice. It helps to ask yourself certain questions while using the 80/20 rule, and you can find these in Table 10.1.

Table 10.1 The translation of the right to the left side of the canvas

 

This book focuses on the right side of the canvas and will not elaborate on the Key activities, Key resources, Key partners, and Cost structures. For those interested, details, explanations, and examples can be found in the excellent book Business Model Generation by Osterwalder and Pigneur. However, it is worth staying for the next section, covering methods to analyze and optimize the left section of the canvas. These are value-stream mapping and process mapping.

10.2 Internal Perspective: Value-Stream Mapping and Process Mapping

Value-stream mapping and process mapping have their origins in the Toyota Production System and Lean (as discussed in chapter 6). These methods suit all types of organizations in all industries, whether production or services, profit or nonprofit, business or consumer markets, digital or physical processes. You can use them from two perspectives: first to dig deeper into the BMC as discussed above; second, they can be used separately from the canvas. For example, because you find that you have a limited grasp of why your internal processes don’t seem to be going very well and are hindering value creation. Often, then, internal customers are complaining about their internal suppliers. Or you observe symptoms via other sources, such as indicators, abnormalities, incidents, ideas, audits, risk assessments, and inquiries.

Value-stream mapping allows you to analyze multiple processes simultaneously. These processes can be synchronous or sequential. What you’re looking for is whether the possibility exists to achieve improvements between these processes. Process mapping means you choose a specific process and look within it to see what might be improved.

Become a Garbage-Collector

Both approaches are about identifying where value can be created for internal or external customers. Value is anything for which the customer is willing to pay, literally or figuratively. Naturally you want to get the most out the process of value creation. To achieve this, you might try imagining yourself as a kind of garbage-collector, walking along behind a garbage truck that’s cruising through your organization and picking up waste wherever you encounter it. By “waste” (what Lean calls muda), we mean any affairs or activities that do not add value, or which impose an unnecessary burden on your resources. This involves the flow of information, services, and goods throughout the organization.

Often, looking at abstract figures in reports can give you an incomplete or distorted view of these issues. The best way to learn what is needed is to get out from behind your desk and start investigating. See for yourself how things are really going in your contact centers, shops, offices, factory, or department. That is where it is happening. Lean knows this as the principle of genchi gembutsu.

But in which garbage bags are you going to start looking? There are nine different kinds:

1. Overproduction—If too much is produced, too quickly for the internal or external customer’s demand, this unnecessarily uses raw materials, part-finished goods, personnel, and equipment. It also creates unnecessary transport, storage, and administration and consumes funds.
2. Stock—Above a certain minimum level (just-in-time), stockpiling puts an unnecessary burden on resources such as buildings, transport, staff, administration, and finance. The organization also then runs the risk of theft, fire, as well as quality reduction, and value loss due to aging.
3. Defects—Products and services that have errors or defects provide additional work and costs because things need to be fixed. They might even need to be destroyed, meaning totally writing-off all the time, money, and resources that went into their production.
4. Movement—If employees need to make unnecessary movements when handling or operating devices or servicing clients, it will cost unnecessary time and energy. Think of a service-counter employee who constantly has to walk back and forth to the printer or to a storeroom to get brochures and cards.
5. Process design—Are processes logically designed? If not, then this leads to waste within the work itself. Consider the process of mortgage-application processing, which almost always proceeds sequentially, while many steps can be executed in parallel. Or a process which has unnecessary steps. Such as when a customer fills out a web form, which an employee then prints and sends to a colleague, who manually copies this into a quotation, which is then emailed back to the customer, and then printed and stored for reference during follow-up calls.
6. Waiting times—Employees sitting still, because they can’t do anything, is a waste of time. This happens, for example, when they have to wait for information from a system or from a colleague. Or if parts are missing, equipment isn’t working, or the employee is simply overseeing a colleague (or device) who is performing value-adding activities.
7. Transport—Unnecessary handling of materials can result from overproduction or unnecessary inventory. Products can also be transported unnecessarily due to less-than-optimal routing in the distribution network, or information travelling horizontally or vertically, via too many people, before arriving at the person who needs it.
8. Wasted time—This applies when employees are unnecessarily using time. For example, when they seek clarification about a poorly explained task. Or when they must search, sort, correct, interrupt, find inaccessible colleagues, participate in irrelevant meetings, monitor the progress of complex processes, and so on.
9. Instability—In addition, it is possible that your processes are unstable (Lean calls this mura). There are too many peaks and troughs in the speed and magnitude of the flow of information, services, and products. In other words, it’s all or nothing, causing your processes to deteriorate in quality and efficiency. Think of how busy it can be in shops or contact centers during particular seasons, holidays, or at weekends. You must have the capacity for these peak times, but avoid unnecessary costs in the quiet times, while you always want to deliver a quality experience.

Visualizing

When you have been in the workplace, it can be helpful, later, to visualize what you found. This helps you to organize your own thoughts or to engage others in identifying opportunities for improvements. With brown paper*, sticky notes, and markers, you can represent the current progress of a particular process or group of processes for a specific product or service. While drawing and looking at the result, you often discover how things could be improved. Figure 10.2 shows a simplified example of a process map for the repair of lease cars.

Figure 10.2 Process map for car repair

For example, in mapping out the above process, it was discovered that customers were often unpleasantly surprised to learn they had to pay a part of the cost; their excess or own risk. This was because customers were not always informed about the consequences of choosing for a nonapproved bodyshop in place of one approved by the lease/insurance company. In addition, there could be significant possible savings in processing time, by allowing customers to make direct contact with the bodyshop instead of through the leasing company.

10.3 The Persona: Your Customer as Imaginary Friend

Now that we have discussed the internal perspective, in 10.2, it is time to use the BMC to examine the external perspective. As we saw in the first two of the eight agile principles, the organization should operate with an outside-in perspective rather than inside-out. For long, many organizations thought that they were the center of the universe, with customers circling around them. But actually, it is the opposite: the customer is in the middle and is free to choose with which of the multiple organizations circling around him he will spend his money. Just as Copernicus, contrary to popular belief, found out that earth was orbiting the sun.

So organizations should be customer-centric. This requires, among other things, to get into the customer’s head; into his desires, needs, and behavior. This applies both to internal and external customers. For this, you can use the voice of the customer information sources that you’ll see later in section 13.2.

From Market Definition to Market Segmentation

It is easy to identify your internal customers, but not so easy, perhaps, with external customers. So let’s look at the latter. In Section 9.1, you already saw how you define your market. The next step is to determine which segments you believe make up your market. A segment is a group of (potential) customers with common characteristics, which is distinctly different from another group. You could say segments are internally homogeneous and mutually heterogeneous. But how do you establish what your segments are? Via segmentation criteria.

So segmentation criteria address the features of (potential) customers and come in three “flavors”:

1. Socio-demographic factors: what are they?
   • These are hard criteria such as residential address, age, gender, education, income, and family situation.
   • For business markets this is called firmographics, and includes data such as the business address, turnover, number of employees, industry type, and DMU (decision-making unit: roles, for example, such as buyer, user, influencer, and decision maker).
2. Behavior: what do they do?
   • First, how do they use the product or service? Consider the type of product or service, response, importance to the user, when used, how often, where, how—and how much/often—is it used, degree of loyalty, how long as a customer and status (active, dormant, prospect).
   • In addition, you can look at how they use orientation channels, sales channels, and usage channels.
   • Online channels offer the advantage of being able to perform real-time segmentation by looking at click behavior (for instance, with the help of cookies).
3. Attitude: what do they think and feel?
   • This concerns soft criteria such as beliefs, motivations, desires, needs and goals, preferences, buying motives, and criteria (unique buying reasons), attitudes toward specific topics and products/services, willingness to adopt innovations, and who or what influences them (e.g., media, authorities, communities, colleagues, stakeholders, references, examples).

By defining which segmentation criteria are relevant to you and combining them with each other, you try to form unique groups. Think of it as the well-known board game Who is it?, where you have to guess an opponent’s “person” by asking Yes/No questions about their characteristics. Similar to how you find your ideal partner on a dating site. So diagnose like a doctor: you ask ever-deeper logical questions until you have a clear picture. A useful tool is the nested approach (see Figure 10.3), originally developed by Bonoma and Shapiro for business markets, but also well suited to consumer markets. In this model, you work from the outside to the inside. So you start with hard criteria, which are usually the easiest, and then you see how much further you can get using progressively softer criteria.

Figure 10.3 The “nested approach”; at the bottom are examples of criteria for the related step

You’ll also need to be sure that the criteria are traceable. In other words, you have to be able to designate specific people or companies, within a market segment, from your desk. (And, for example, this might be difficult if you segment by people with curly hair and blue eyes). Sometimes, it can be useful to look for a so-called proxy, a criterion which can be an indicator of what you are looking for. For example, in consumer markets, the postcode is a reliable indicator of criteria such as income, education, and family situation.

How does this segmentation look in practice? In the leisure travel market, for example, you can distinguish between five segments:

1. Planners: older people with high incomes who spend a lot of money on package holidays. They book well in advance and often still use travel agencies and travel guides.
2. Active holidaymakers: older people with high incomes who spend a lot of money on long-distance travel or camping and hiking and are then active, at their holiday location, for example on tours and museum visits. They put their whole trip together themselves.
3. Fun seekers: young people who book impulsively. Mostly, they go to party islands, where they spend a lot of money on adventure activities, amusement parks, and clubs.
4. Package buyers: young people with a limited budget who book last-minute cheap package holidays.
5. Stay-at-homes: young families and young people living alone. They would rather spend their money on home-improvements or a car, and therefore they holiday in their own country, sometimes just making day trips.

From Market Segments to Target-Group Segments

When you have defined the market segments, the next question is which are you going to target. Some will be more attractive than others. This is called target-group selection. It entails scoring and then prioritizing your market segments based on two factors: the value, and chance of success. The value lies in aspects such as spending, potential gross margin, loyalty, and operating costs. Chances of success are about the share of wallet, references, access to decision makers, competitive pressures, and so on.

An example; for security companies, it is smart to focus on “triggers” as a selection criterion. If there have been recent break-ins to individuals or companies in their immediate environment, they are more likely to want to invest in an alarm system. So they constitute the primary target-group segment.

From Target-group Segments to Personas

Once you’ve selected your target-group segment(s) from the market segments, it can be very useful to develop a “persona.” This concept dates back to the Roman times. A persona was a theatrical mask used by actors on stage to make immediately clear to the public what role they played. That mask had to be very recognizable. The same principle applies to organizations and their clients. Many people find it difficult, on the basis of a combination of abstract segmentation criteria, to get a clear idea or a concrete picture of the type of customer for whom they work (and who actually pays their salaries). And this hinders their customer focus and creativity. Therefore, it is smart to bring the customer to life by drawing a recognizable picture of his or her personality. As so often, this applies to both internal and external customers.

Look at it this way. Suppose you’ve bought a house and you’ve asked an interior designer to suggest a design for the rebuild. If he has already created a plan, he will walk with you through the house telling you what he has in mind in each area. He might suggest removing a wall, putting in glass doors, laying a wooden floor, or using a specific color of paint. After just a room or two, you might be finding him a bit difficult to follow, because most people are not very able to visualize something. And this is why many architects use special three-dimensional software to show their design to you. And then suddenly the penny drops. You will be excited (or not), begin thinking of other improvements and where you might start looking for new furniture.

And that is how it works with a persona. A persona is an archetype, a profile of a person—based on the 80/20 rule—that is a true representative of your target audience: a typical example or model, your quintessential customer. But how do you then define a persona? To do this you have to stand, empathetically, in the customer’s shoes; try to feel what the customer feels. The starting point is obviously that you need to know as much as possible about the desires and needs of your target group’s behavior. You can find more information about this, the voice of the customer, discussed in Chapter 12. If you lack any information, you can use assumptions, as long as you explicitly state this and validate their accuracy later. On this basis, you can describe your persona. You do that as a caricature, a stereotype. So the characteristics must stand out. A bit like the way children do when they are playing at being a policeman, fireman, knight, pilot, race-car driver, cook, flight-attendant or princess, or if they describe their imaginary boyfriend or girlfriend in detail. This facilitates persona recognition. Brings the customer to life. Here’s an example:

You can use the Figure 10.4 format with your team in a workshop. You brainstorm by putting the headings on a whiteboard or blank paper and filling the areas in with sticky notes. You describe a persona always in relation to what your organization has to offer in the marketplace. In consumer markets you focus on one person. In business markets, preferably you do this too. But it might be that, given the importance of the DMU, you need to describe an extra person for this role. Again, you can use the segmentation criteria that we discussed earlier:

Figure 10.4 The persona of an electrician

• Who is it? Socio-demographic characteristics, such as age.
• What’s he doing? What customer tasks, relevant to your organization should he perform?
• What does he feel? What rational and emotional outcomes and/or benefits will the customer derive from his tasks? What are the undesirable results, and the risks and barriers to a positive customer experience, that accompany his performing the client tasks?

After the brainstorming, you should “challenge” the outcomes. You propose questions such as: Is the persona familiar to anyone? What is its essence? Can anyone give a concrete example of such a client in our practice? On what information is the persona based? Are there assumptions we have to validate? To what extent can the features described be recognized, for example, by our CRM system?

Where necessary, you refine the descriptions. You then add a fictitious name with a profile picture, possibly with an empathetic quote and mood-board images. Finally, you process the whole into a visual profile, as shown in Figure 10.4. It is a good idea, as much as possible, to communicate the persona daily within your organization, so that every employee is encouraged to think about how to do something better every day for the customer. You can put up posters, photo frames or, if you think they’ll work, 3-D printed dolls. And come back to the persona again and again in conversations, meetings, emails, and presentations. The customer as icon, mascot, or pet.

10.4 Customer Journey: On Expedition with Your Customer

Based on your persona, you can start looking at customer behavior: what channels does the customer use, and when and for what purpose? And how does he feel about that; now? For this, we use a technique called customer journey mapping. Literally creating a map of the customer’s journey. As you did with the persona, here you can again use the voice of the customer, supplemented, where necessary, with (to be) validated assumptions.

How does that work? You start by zooming in on the customer’s tasks. A customer job (which is the official Lean terminology) consists of a set of activities performed by the customer with a specific goal in mind. Imagine someone who has just had his bike stolen. This is the trigger for the start of a process he, as a customer, will go through. He needs to buy another bike. How this is actually done, you can capture on brown paper while brainstorming with your team: what are steps he goes through and what customer tasks must he perform there? This leads to a list as shown in Figure 10.5.

Figure 10.5 The current customer process for the persona, “Bill Budget,” for the purchase and use of a bicycle

From this list, you then select a customer job, in order to delve deeper into the customer journey. Let’s do that now for the client task “Seek advice.” On fresh brown paper, you create three horizontal “swimming” lanes. In the middle, you describe the customer’s behavior: what activities does the customer perform? Then you describe in the top lane where such activities take place, the touchpoints. And then comes the most important part: in the lower lane, for each activity and its touchpoint, you imagine what the customer experience is: positive, negative, or neutral. When the customer has a very strong experience, also called a moment of truth, you mark that, for example with a star (because here you have to shine as an organization). This leads to an overview as shown in Figure 10.6.

Figure 10.6 The customer journey analysis to seek advice when buying a bike

A customer journey analysis works for both internal and external customers. It gives you direct insight into the opportunities for improvement; what and where they are. But which opportunity should you choose to start with? There is more about that in the next chapter.

By reading this chapter, you’ll have discovered the following:

•  The Think phase is as short as possible; the focus should be on the Do phase.

•  The Think phase usually comes down to prioritizing and planning, because from the existing to-do list, and new ideas from the Do and Learn phases, it is very clear what should be done (see Chapter 11). But for large projects, and organizations working for the first time with agile management, it is necessary to first make a comprehensive diagnosis.

•  Agile management works with “sketches” instead of plans. The Business Model Canvas is a useful starting point.

•  On the right side of the canvas, the customer is central. To serve him optimally, you have to know who your customer is, what he wants, and what he does. Based on information gained during the Learn phase, you can use analysis methods such as the persona and customer journey.

•  All this is applies to internal and external customers.

References

1.  Osterwalder, A., and Y. Pigneur. (2009). Business Model Generation. Netherlands: Wolters Kluwer.

2.  Statista.com and wikipedia.org.

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^*The Dutch business community regularly uses large-sized rolls of brown wrapping paper for this purpose.