driving profitable growth aug06

1© 2006, ISBM - Penn State

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2006 Annual Members’ MeetingDriving Profitable Growth: B-to-B

The 23rd Annual ISBM Members’ Meeting summary

Driving Profitable Growth: B-to-B

August 22 - 23, 2006State College, PA

Presentations summarized:

• Larry Keeley, Doblin Inc., “Sometimes Things Change: B2B Innovation Effectiveness”

• Martha Rogers, Peppers & Rogers Group, “Who Moved My ROI? Building the Value ofthe Customer and the Company”

• James C. Anderson, Northwestern University, ”Customer Value Propositions as theGuiding Beacon for Profitable Growth”

• Jeneanne Rae, Peer Insight, “The Discipline of Service Innovation”

• Robert Spekman, University of Virginia, “The Use of Alliances to Foster Growth:Issues, Insights and Implications”

(list continued)


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Presentations (continued):

• Victor Saliterman, ADP Employer Services. “ADP’s Strategies to Accelerate Sales Growth”

• Jeffrey J. Fox, Fox & Company, “Driving Your Personal Growth: The Secrets of Great Rainmakers”

• John Jacko, Flowserve Corporation, “Mobilizing the Brand for Growth”

• Mark Maxwell, Dow Corning Corp., “Two-Brand Strategy: Xiameter & Dow Corning”


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Sometimes Things Change:B2B Innovation

Larry KeeleyPresident & Co-founder

Doblin [email protected]

Key insights from Larry Keeley

Keynote Address:

Author of:The Taming of the New (forthcoming from Harvard Business School Press)


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Sometimes things change • Most people are completely confused about innovation. People in vast and overwhelming numbers fail at it• .Innovation is not the same thing as invention.• Your job as a leader is to spot inflection points in the market, when your customers’ needs change. Then youhave to think of your markets in fresher ways.• Never, ever go into an innovation challenge without engineers, but never, ever try to innovate with just engineers. You need some regular people, too.• Innovators look for opportunities to build dominant business platforms and powerful strategies for completetransformations in a business. Innovators like General Electric think about businesses end-to-end. • Too often we assume that an innovation will take hold everywhere simultaneously, but that’s never the case.• But we all tend to underestimate the amount of change that will occur in the long run.• If you focus on the current battleground in your industry, you’ll miss the future every time. Always there arefrontier issues. Don’t underestimate those changing value propositions on the fringe.

Take a fresh look at innovation fundamentals• Innovation is not fundamentally technological advance.• The challenge is to be a leader, finding a pathway to innovation when no one has blazed the trail before you.• We live in one of the most extraordinary times of change in the history of our species. Innovation is crucialto you. • In my research over the last seven years, in more than 400 interviews in 63 industries, not one of theleaders talked about innovation with confidence. They thought innovation was something happening to them,not something they can control and profit from.• If any of 3 universal conditions occur in your company, innovation will be difficult. Your job as a leader is to mollify them.

• Ambiguity: Facing too many options, we wait for “more data” before making a decision.• Complexity: reluctance to try something different and risky.• Volatility: punishments for missing your numbers are swift and certain.



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Essentials for innovation• 3 conditions are very positively correlated with serial innovation excellence, the ability to innovate routinely and reliably. They drive innovation excellence.

• Curiosity about how the world is changing.• Confidence in the tools you use to innovate.• Courage to pursue a small number of big ideas rather than, as is common, a large number of little ideas.

• The notion of a culture of innovation is “soft and silly.” If you want culture, it’s easy. Innovate successfully three times in a row. The culture of innovation comes after you’ve achieved the competence.• A “discipline of innovation” is emerging because:

• Operational excellence is no longer enough: every good business has it• An increased rate of change has made an ability to change more valuable• Methods and tools are emerging to vastly improve innovation success rates• Design—used effectively—is now an imperative for competitiveness• Companies need new insights to achieve growth

• Doblin expects it will take 2-4 more years for the discipline of innovation to become a robust, mainstream practice, codified in better business schools.

Innovation myths• Innovation is not about creativity, fundamentally about new products, very costly, or requiring many ideas to find one that works. We have put myth ahead of logic for a very long time.• Rather than settle for the norm of a 95% failure rate for new projects, if you know what you’re doing you canachieve from 35% to 70% success of projects hitting their ROI targets. The range will shift to 40-80% in coming years.



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Define innovation• The term “innovation” should be reserved for an initiative that can produce a viable new business concept.This keeps us from the sloppy, but nearly universal habit of just calling anything new an innovation • Force expectations. Successful innovations must build value:

• Throw off enough free cash flow to justify themselves• Meet internal hurdles and performance targets• Occur fast enough to stay ahead of competition• Occur often enough to keep our brands relevant

Doblin’s framework: 10 types of innovation

Graphic © 2006 Doblin Inc.



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Using innovation types strategically• The five process and offering innovation types dominate how companies think of innovation.

• Innovation teams generally start at the middle, with new product ideas.• Thinking of innovation only within core competencies is a huge mistake. Think instead of radical departures from what you do, rooted in what you’re good at, and so develop new competencies.

• The other five types are vastly more valuable in B2B• Delivery innovations—channel, brand and customer experience—will deepen customer relationships.Visualize your customer set and dramatize everything you do for those folks.• Finance innovations—business model and networking—provide the two biggest market changes.

• The distribution of all innovation projects, including the 95% that fail:




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• Innovation patterns of winning projects: the genetic code of innovation excellence.


Exemplary innovators’ patterns• Dell Computer—8 innovation types, but not product innovation. Dell pursues business model, networking, core process, product system, service, channel, brand and customer experience innovations.• iPod—8 innovation types: business model, networking, enabling process, product performance, product system, service, brand and customer experience.• Google—8 innovation types: business model, networking, core process, product performance, product system, service, brand and customer experience.• Xiameter—6 innovation types: business model, networking, product system, channel, brand and customer experience.



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Innovation discipline model


• Leadership crafts the agenda. This process provides 10 times the innovation hit rate of other processes. • Pay attention to the unmet needs of non-users of your product.• In contrast, the Stage Gate Process is the single most likely way to guarantee innovation mediocrity. It amplifies errors of commission and omission in predicting the future.

Innovation landscapes assess industry innovation patterns (see next slides)• Diagnostic technique that illustrates innovation activity over time in an industry.• Has already been used to analyze dozens of industries

• Scalable, fast, widely respected• Published in HBR, September 1999• Patent expected shortly

• Look for: • big peaks indicate areas of extensive activity that will be expensive areas for competing• many peaks indicate complicated, multidisciplinary competition• valleys indicate possible areas of opportunity, where the industry has ignored an innovation approach.



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Computers and peripherals• Complex: 6 types of innovation in evidence• Costly and sophisticated• Overly center-weighted



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Passenger airline travel• Significant omissions in performance and experience• Business model in play (LCC)

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Retail, looking at your customer’s innovation needs

Innovation themes based on current profile

Graphics © 2006 Doblin Inc.



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The healthcare industry value chain




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Platforms Rule!• Innovation platforms are the single most important amplifier of value and profitability. • Leading B2B and B2C platforms provide enabling processes

• B2B examples: IBM Websphere, Microsoft Office, Oracle, Linux, SAP, Microsoft Windows.• Platforms are the antidote to product-oriented.thinking. They provide connections to customers.

• Example:the successful publishing franchise of the “Chicken Soup” series of books (70+ titles) byCanfield and Hansen.

• When you get a platform right, the market will rise up and create its own source of value.

Strategic value of platforms1. Platforms serve many kinds of customers . Adapts to customer needs rather than predicting customer need.2. They are open and/or extensible. Customers, partners and even users can continuously improve and adapt the uses of the platform, or in some cases, the platform itself.3. Creates a market. Vendors, partners, developers, or even customers can offer services on, through, or for the platform—and make money off of it.4. Builds a brand. The platform becomes a powerful brand that derives its power from the scope of its participants and capabilities.5. Fosters communities. Users build communities of interest and practice around platforms they like.6. Generates network effects & efficiencies. The more people on a platform, the more cost-efficient a platform is; as more people move onto a platform the more valuable the platform becomes to you, your customers and partners.7. Crosses market boundaries. Platforms are not constrained by traditional markets, but are shaped by the participants and their interests which cross market categories.8. Creates dependencies. Ultimately, powerful platforms de-risk actions of all participants in an market “ecosystem” making switching costly, risky and undesirable.



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Test each of your innovation candidates. Is it likely to lead to a breakthrough platform?• Is it exhibiting positive growth momentum?• Is it getting an unfair share of attention in popular media?• Does it permit unanticipated extension & application?• Are other firms making money off of it?• Are other firms investing R&D around it?• Does it contribute to brand value and cachet?• Does it exhibit increasing economic returns? • Does it enjoy one or more forms of IP protection?

The General Electric example: • A distinctive innovation process focused on “imagination breakthroughs” to increase the rate of organicgrowth.•135 projects that are getting direct CEO-level attention• Designed to move its organic growth rate from 5% to 8%• Blockbuster projects that will take GE into a new lines of business, geographic areas or customer bases. • Each IB needs to give GE incremental growth of at least $100 million in 3 to 5 years • CEO Jeff Immelt has agreed to invest $5 billion in 80 IB’s—from microjet engines to the GE Money Bankin Europe—to generate $25 billion in revenue by YE’07

In response to an audience question …• The notion of controlling innovation as if it’s a linear process is the wrong place to start, because innovation processes constantly change. Even within development platforms, business models change at different phases of development. You must know the appropriate metrics for each stage in order to know if you’re still on track.• Growth almost always come from non-sers, not your current customers. In our innovation discipline model, the critical diagnosis stage is where counterintuitive ideas surface.



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Who Moved My ROI?Building the Value of the Customer

and the Company

Martha RogersFounding Partner

Peppers & Rogers [email protected]

Co-author of, most recently:Don Peppers and Martha Rogers, Return on Customer: Creating Maximum Value from Your Scarcest Resource (New York: Doubleday Currency Books, 2005)

Key insights from Martha Rogers


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ROC and ROI: Maximizing Enterprise Value• With more products, channels and capital available today, the biggest limiting factor to growth is a shortageof paying customers, who have value today and value tomorrow. We should strive to maximize the lifetime value we receive from each customer. •The Return on CustomerSM (ROC)SM metric is more appropriate than ROI because the number of customers is the actual growth constraint. • But because of typical financial budgeting practices, we act as if cash is the scarcest resource and we striveto maximize return on the financial investment: ROI.

• ROI = (profit + ∆ investment value) / starting value of investment• ROC = (profit + ∆ customer value) / starting value of customer

• Which would you choose in setting cost and profit margins for a transaction? Maximizing immediate ROI or long-term ROC from your a finite customer base?

• When customers buy, each transaction alters their likelihood of buying tomorrow. Maximizing the ROItoday, risking creation of a less-than-favorable customer experience, could destroy long-term customer equity by reducing customers’ likelihood of buying tomorrow.• Excessive focus on the short term creates a culture of bad management by distorting how a companyviews the value that its customers create for it—the only source of organic growth for the firm.• Marketing can destroy value if a campaign annoys some customers and erodes customer equity.—potential future profit—more than it boosts current profit..

For example …• Marketing treatment 1 vs. 2

© 2006 by Peppers & Rogers Group



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• If cash is scarce, maximize return on investment, the scarce resource.

• If customers are scarce, maximize return on customers, the scarce resource.



• Transactions that maximize ROC while exceeding the ROI hurdle rate provide the most value to the firm.

ROC in practice •Verizon’s wireless division generated $13.7 billion in earnings from 2002 to 2004 (Owned by VerizonCommunications and Vodaphone). But during this period the firm also cut monthly customer churnin half, from 2.6% to 1.3%.• Cutting churn required balancing immediate profit against long-term customer satisfaction.• Verizon created an additional $10.4 billion of value, in the form of increased customer long-term value!• Average ROC during the period: 64%.



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A different dimension of business practice • What if we could, and did, measure how much today’s decisions really cost?• What if salespeople, service reps, account managers, and CEOs were penalized for the customer equity they have to spend today to achieve this quarter’s revenues?• What if Wall Street analysts held companies accountable for customer equity (as the best measure of enterprise value) as well as current revenue?• In a “learning relationship,” we raise customer switching costs by tailoring products, services and interactions. The more the customer invests in talking with you, the greater the customer’s stake in making therelationship work.• To maximize a customer’s value, we figure out a customer’s needs and meet them better than competitors do.• We anticipate customer needs and take the customer’s point of view, treating different customers differently tocreate a culture of trust and build the value of the customer base.• Focusing on ROC helps to measure and manage the training, empowerment and motivation of employees to better serve customers via judgment, creativity, intuition and resourcefulness.

Six Rules for making ROC the driver of managerial decisions 1. Balance both long and short term. Don’t ignore the importance of either.2. Long-term customer value (LTV) is important, but LTV change is the number you actually want. Identify the leading indicators of LTV change.3. Think and act in a customer-specific way. Customer relationships are required to maximize ROC.4. Earn the trust of your customers. Customers only care about what they need from you. To provide value, youneed to take their point of view.5. Educate your employees and empower them to take action. Everyone can have a different task, but the ROCmetric provides a unifying objective for the whole organization.6. Return on Customer = Total Shareholder Return. Customer equity equals enterprise value and the sourceof organic growth for an operating company.



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Customer Value Propositionsas the Guiding Beacon for

Profitable GrowthJames C. Anderson

Professor of MarketingKellogg School of Management

Northwestern UniversityISBM Fellow

[email protected] of, most recently:James C. Anderson and James A. Narus:— Business Market Management: Understanding, Creating and Delivering Value, 2nd, ed, (New York: Pearson Prentice Hall, 2005)— Rare Commodities: Moving Business Markets Beyond Price to Value, forthcoming from HarvardBusiness School Press in spring 2007.

Key insights from James C. Anderson


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Customer Value Propositions• Arguably, ”value proposition” has become one of the most widely-used terms in business marketing,starting to become popular about six years ago.• A persuasive value proposition earns a supplier the chance to engage the customer in a conversation about the market offering.• Increasingly, supplier value propositions take the unconvincing, if undocumented, generic form: “Our product will save you money!” • There is little specificity or agreement as to what constitutes a value proposition or what makes one persuasive, as shown by management focus group responses in Europe and the United States.

• The most common definition cites all benefits. • Value proposition stated as all benefits customers receive from a market offering. It answers the customer question: “Why should our firm purchase your offering?”• This approach makes the least demands on the supplier• To construct it and have the sales force deliver it requires knowledge of one’s own market offering.• Potential pitfall: Benefit assertion. Citing features doesn’t automatically translate to benefits.

• A more limiting definition cites favorable points of difference.• Value proposition stated as all favorable points-of-difference a market offering has relative to the next-best alternative.• Answers customer question: “Why should our firm purchase your offering instead of your competitor’s?”• To construct and have sales force deliver it requires knowledge of one’s own market offering and next-best-alternative offering. (But competitive knowledge is often sketchy.)• Potential pitfall: Value presumption. Just because it’s a difference doesn’t mean the benefit deliversvalue to the specific customer.



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• The most effective value propositions provide a resonating focus.• Value proposition stated as as the one or two points-of-difference (and, perhaps, a point-of-parity) whose improvement will deliver the greatest customer value for the foreseeable future. • Simply citing more benefits is not better. Cite the benefits that really matter to the specific customer.• Include among parity points benefits that all serious contenders provide.• Concede parity for a point of contention on which the customer mistakenly believes the competitiveoffering is superior.• Answers customer question: “What is most worthwhile for our firm to keep in mind about your offering?”• To construct and have sales force deliver it requires knowledge of how own market offering specifically delivers superior value to customers compared to next-best-alternative offering.• Potential pitfall: Requires customer value research. Requires more than just thinking up snappymarketing communications slogans.

Customer Value Management• An essential requirement: Suppliers persuasively demonstrate and document the value of their offerings relative to the next-best alternatives, enabling suppliers to substantiate resonating focus value propositions.• Value case histories and value calculators persuade the customer to try the market offering.

• Test buyer assertions that price is all that matters by asking if they’d pay a higher price if justifiedby demonstrably superior performance.• Develop a library of case histories ready to show to customers.

• Managers must know the distinctive value propositions that resonate for each product in each marketsegment.• Benefits of all types—technical, economic, service and social—can be expressed monetarily.



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Best practice example: Sonoco• They win in markets others dismiss as commoditized by demonstrating technological innovation, documenting resonating benefits and earning price premiums even on prosaic products (e.g. 55-gallon drums).• Their value proposition criteria:

• Is it distinctive? How is Sonoco uniquely able to deliver better than competitors can?• Is it measurable in monetary terms? How can we show the value convincingly?• Is it sustainable? How can we provide the advantage for a 3-5-year period?

• The No. 1 metric on general managers’ performance scorecard is developing distinctivevalue propositions for each product for each market segment and key account. Performance metricsmust bear them out

Best practice example: Applied Industrial Technologies• Name change, from Bearings Inc., put the firm on a higher plane of perceived capability.• Advertising documents specific case history dollar savings.

For additional information:James C. Anderson, James A. Narus and Wouter vanRossum, “Customer Value Propositions in Business Markets,” Harvard Business Review, March 2006. Copiesavailable through ISBM.



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The Discipline ofService Innovation

Jeneanne M. RaeCo-founder and President

Peer Insight [email protected]

Key insights from Jeneanne M. Rae


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The emerging science of Service Innovation• As U.S. income from services continues to grow while income from products declines, new transformative business disciplines adapt to the shift: quality, then reengineering, and now creating the customer experience.• The margins products earn increasingly depend on the service functions they provide, meeting customerneeds for mixes of tangible and intangible “solutions.”

• Companies built to produce products aren’t necessarily poised to produce services. • We know innovation works for products, but what tools guide innovation for intangible-dominant solutions? Academics are just beginning to understand service innovation tools, business model development and service value propositions.

Results from our 30-month study• Interviews: 600 management innovators and 75 recent projects across 30 participating Fortune 500 firms.• 65% B2B projects, 70% of sample pure service innovations, 40% of projects new-to-segment, 60% planned internally. • Six Sigma works for low-risk projects (incremental and modest service innovations), but a different innovationprocess is needed for substantial, ambitious and highly novel service innovations

Graphic ©

2006 Peer Insight LLC

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• Managers close to their businesses have a better service innovation success rate than specialist groups.

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The most potent service innovation disciplinesG

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Implication: Do three things right1. Leadership: the 1990s leadership style is succumbing to the new leadership paradigm

• Rarely talk about innovation ⇒ ⇒ Speak candidly about innovation challenges• No innovation model and few resources ⇒ ⇒ Sufficient resources/structures provided• No innovation definition or metrics ⇒ ⇒ Clear definition of risks and rewards• No leadership time spent on innovation ⇒ ⇒ Leaders spend hands-on time• Leadership style is directive: “Make it happen” ⇒ ⇒ Inspiration and collaboration: “We can do it”

2. Customer experience design• Focus on the entire customer journey.• Identify the moments of truth; understand the emotional components (latent needs).• Engage customers early to explore new offers and business models.• Use design thinking to supplement the traditional business disciplines in the offer creation process.

• Chart the “customer journey” and analyze the customer’s “pain points.” Our “painstorming” analysis:

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3. Change management plays a big part in building innovation capabilities. •You cannot innovate without change.• Enroll the internal stakeholders early and keep them involved.• Seven ways to turbocharge a change program

• Kill something big in public• Bring in a hired gun• Set a BHAG (Big Hairy Audacious Goal)• Move to a new address• Commission a big visible project• Get on the board of directors radar• Change how people are compensated

• Innovation research gets beyond specific needs. Commercial lending service example.

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• Build a sustainable operating model

• Communicate, communicate, COMMUNICATE, internally and externally



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B2B vs B2B service innovation• The biggest differences are at the process front end, where B2C makes much greater use of early-to-marketfeedback, robust customer experience design, deep customer insight and leveraging the contribution of outside parties.

Q & A (highlight)Q — Are services enough to keep the American economy preeminent in the world?A — Our know-how can be exported; Europe, for example, is studying service innovation more than before.I’m optimistic about the U.S. because we are customer oriented rather than putting operations at the centerof business strategy. Washington might have it wrong, however. Technology does not equal innovation.Innovation is really about the customer.



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The Use of Alliances toFoster Growth:

Issues, Insights and Implications

Robert E. SpekmanProfessor of Business

Darden Graduate School of Business University of Virginia

ISBM [email protected]

Co-author of, most recently:Edward W. Davis and Robert E. Spekman,The Extended Enterprise: Gaining Competitive Advantage Through Collaborative Supply Chains (New York: Financial Times Prentice Hall Books, 2003)

Key insights from Robert E. Spekman


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2006 Annual Members’ MeetingDriving Profitable Growth: B-to-BDefinitionAlliances are close, collaborative relationships between two or more firms with the intent of accomplishing mutually compatible goals that would be difficult for each to achieve alone. That implies that alliances areopen-ended contracts between separate firms with shared governance.Partnerships/Alliances have strengths and weaknesses• To take options on the future, they are formed to:

• Share R&D costs, risks and reduce uncertainty• Reduce duplication and gain efficiencies• Increase market power, access new markets• Gain new knowledge• Exploit synergies and gain knowledge• Promote standards

• Alliances have drawbacks. There are pirates who will partner just to get your technology.• Incompatibility with cooperation and interests of the firm• Loss of control of vital technology, sharing control• Coordination increases transaction costs• Creating a potential competitor

According to the data• Alliances result in higher growth, sometimes > 35%• ROE is 70 % greater for alliance-intensive firms• Facts

- failure rates < mergers and acquisitions- one alliance formed every 90 seconds- over 60 % fail but just 20% of good alliances fail while 80% of bad a;;alliances fail

• Laws of Small Numbers: Of 100 alliances that enter negotiation ...- 90 will not reach an agreement - 5 will fail to exceed expectations - 2 will last more than four years



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The Phylum of alliances

We need to rethink our approach to alliances• Typically, we ask, “what do successful alliances look like?” Perhaps we should ask, “what do companies that are successful at alliances look like?”• Our goal is to understand what distinguishes those companies and what management must do to be asuccessful strategic alliance company• Partners must be aligned on core values and different levels of fit.• Partners need to understand each other intimately, focusing on the relationship. It’s not simply a matter ofcontracts and financial due diligence.Strategic Fit Future Vision and Value Proposition Competitive Advantage Customers’ Needs Long-term Strategy and Goals Values and Beliefs

Chemistry-Culture Fit Decision-Making Trust, Culture and Teamwork Alignment of Systems, Processes Risk Preference Quality of Relationships Leadership and Commitment

Operational Fit Systems Integration Performance Processes Integrative Mechanisms Fast Time Implementation Complementary Process Capability



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Equity vs. non-equity, and technology transfer§• There are advantages to taking equity positions in lieu of licensing

- Provides claims on future earnings of the company- Aligns the goals of the partners especially towards the commercialization of the technology- Based on the credibility of the organization it could add legitimacy to the venture

• There are also risks- The obvious no earnings, zero economic payoff- 100 disclosures ⇒⇒ 10 patents ⇒ ⇒ 1 commercial success- Culpability in that you become liable for the unintended consequences

• Licensing involves selling the right to use an invention for fees (upfront royalty + recurring fees for sales that result)• Choice of governance— equity alliances• Ownership: 51% doesn’t really give you control of the JV; 50-50 partners have equal “skin in the game.”• Equity alliances (JVs)

- Chosen when Transaction Costs are perceived as high- Since incentives are aligned, there ought to be less freeriding and less chance for opportunism- Are described by

• Admin monitoring systems like a board of directors• Greater and more accurate flows of information• More adaptable to change because of alignment

- Disadvantages• Hard to establish, untangle, or fundamentally change

§ Source: Management Science, vol. 48 2002



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• Choice of governance— Non-equity alliances (more contractually biased)- Can take many forms from licensing, tech exchanges, sourcing, production and marketing/distribution agreements- More easily entered, terminated and at a lower cost- Yet, demonstrate less commitment given the ease of entry and exits.- Most run into trouble within 4 years, as conditions change.

‘Robert’s Rules’• Alliance success is a function of both direct and indirect ties• Managers must consider the impact of indirect ties although these secondary and tertiary alliances mightnot be readily known• While the number of ties does have a positive impact on performance due to knowledge sharing there is adarker side

- Free riding- Opportunistic behavior- One can be trusting but the other might not be trustworthy- Raises questions of partner selection and competencies sought

• Alliances are not one size fits all look for fit and alignment• Partnership success is a function of

- Closeness of effort to in-house R&D- Ability to learn from partnership and partners- Absence of problems with appropriation of information- Efforts to absorb from partner and partnership go up and mechanisms to protect IP exist

• The more you stray from your core the likelihood of success falls • Complementary works best as it builds on individual firm strengths• Invest in your peoples’ alliance capability; it can make a difference



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• Relative size is not important; it is better to measure ability to teach and learn than to argue overpercentages• Remember the majority fallacy and the elevator test• Alliances work, take hard work, and simultaneously are durable and fragile• Growth comes from ideas, inspiration and interest but is based on people working in an open and trustingenvironment• Networks both give new ideas a chance to bloom but have a darker side– you are known by the companyyou keep• Be wary of pirates in partner suits• Start small and then grow. “Don’t attempt to solve world hunger at the start.”



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ADP’s Strategies to AccelerateSales Growth

Victor SalitermanSenior Vice President, Marketing

ADP Employer Serviceswww.ADPemploymentreport.com

[email protected]

Key insights from Victor Saliterman

Member Case History:


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Our business• Best known for our outsourced payroll services, the lion’s share of our human resources solutions offerings.• 53% market share and $5.8 billion revenue.for Employer Services; $8.9 billion for ADP in total.• ADP moves more money than any other organization save for the U.S. Social Security Administration.

• $930 billion in client tax, direct deposit and related funds.• Including the float involved, those services provide 45% of our revenue.

• Market growing only modestly: ~5%.• Maintaining a reputation for uncompromising ethics and integrity is critical. ADP is only one of five U.S. industrial companies rated AAA by S&P and Moody’s.• Our financial growth is fueled by new clients, the success of “beyond payroll” products, and growth initiatives.• We’re seeking other markets for organic growth.

Our focused growth portfolio• Broaden traditional areas of advantage (e.g., distribution)

•Teleweb Sales •Lead Sharing Between Organizations

• Expand into new / adjacent markets •Insurance Distribution•Pay-by-Pay Workers’ Compensation•BPO (COS, ASO, F&A) single process to multi-process outsourcing•International Expansion and working with multinational clients

• Leverage untapped assets—e.g.additional services for 24 million recipients of ADP payroll checks.•Worksite Marketing•ADP National Employment Report based on our massive database.

Did we have a specific innovation framework?No. Our ideas were spawned by working directly with clients.



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Growth innovation: Lead sharing between organizations

• Background:•Small Business Services & TotalSource (new organization bundles small-business services)

•Pursue similar size prospects•Significant client base -- potential to “upsell” •Strong / established relationships to leverage

• Key Challenge:•Cross organizational boundaries to share ADP “assets” vs. maximizing individual business results

•Solution:•Established SBS & TotalSource lead sharing process•Implemented Grass Roots Strategy; “top down” approach would not have built buy-in

•Partnered at all levels, starting at district sales manager level•Matched product -offering organizations to identified prospect needs; a major culture shift for us.•Designed incentives program to reward partnership / team behavior

• Results after 5½ years’ experience•Lead sharing represents over 30% of TotalSource’s dollar sales / new clients•Stronger competitive positioning; improved customer retention

• Observations / Lessons Learned: •Grass Roots Strategy offered:

•Non-threatening environment—share a lead and still get paid•Benefit to both sales teams, small business account reps and TotalSource reps work jointly.•Ease of entry into new markets

•Complex product offering•Requires ongoing training / education commitment

•Difficult to implement up market in 100-250 employee firm range, where small business rep can set upa key account program without enlisting TotalSource assistance.



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Growth innovation: Pay-by-Pay workers’ compensation

• Background: •Insurance large ‘pain point’ for clients•Significant ADP client base, with strong relationships and client information to leverage •Workers compensation required in all states - except Texas

• Key Challenge: Effectively sell complex licensed product through traditional sales force• Solution:

•Started in late 2001•Designed pay-per-payroll product offering— a unique value proposition

•Information exchange with carrier•Money movement component unique to industry—solve clients’ potential cash flow problems

•Established new sales practices•Compensation•Telesales group•Field – telesales partnering•Training people selling payroll to sell a more complex product

• Results:•Strong top / bottom line growth•Improved retention rates; program attracts more clients with superior risk management•Greater accuracy / loss ratio versus alternative•Generated 18k new clients – Fiscal 2007

•80% to 90% new payroll clients• Observations / Lessons Learned:

•Direct relationship to core business provided sales link and support•Growth too constrained by “local” resources•Adjacent markets may require creative sales model•Specialty / licensed products require extensive training



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Growth innovation: Worksite Marketing

• Background:•ADP’s “DNA” is B2B direct sales focus •ES client employee base strategic asset•Strong client relationships to leverage

• Key Challenge: Success in two-stage sales model: B2B first, then uncharted B2C marketing and sales; mustestablish credibility in new arena • Solution:

•Established dedicated Worksite Marketing business •B2B distribution via telesales

•Designed offering: “employer friendly”; targeted - three products; respected partners •Provided payroll deduction convenience•Created direct B2C channel via existing ADP contact point—paychecks

• Results:•Launched April 2006 - positive early results•Strong employer participation rate•40% decisions positive on initial telesales effort•Annualized response rates on target - 1% to 2%•Mixed employee close rates . Online savings account with HSBC sold best.

• Observations / Lessons Learned:•Strong employer partnership / endorsement helpful though not mandatory•Direct marketing approach – multiple vs. single offering. Single offering per mailing pulls best.•Product does not have to be best in class, but it must be competitive •Strong brand partners address credibility issue—e.g. HBSC, Liberty Mutual•Customer experience critical; it’s imperative to correct launch problems quickly



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Growth innovation: ADP National Employment Report

• Background•Leverage core knowledge / assets and data •Build brand awareness in cost effective manner •Sales vs. marketing driven culture•Financial market influencers crave information

• Key Challenge: Cost-effectively build brand awareness consistent with ADP’s strong reputation and core business• Solution:

•Monthly employment indicator based on actual payroll data vs. survey•Partnered with Macroeconomic Advisers for economic analysis and credibility•Each month, release two days prior to “benchmark” Bureau of Labor Statistics data release•Employ two-pronged PR strategy: key financial influencers, and then media

• Results:•Launched May 2006•Increased public relations / advertising

•Over 150 broadcast segments – CNBC•1,100 subscriptions / 500 articles top tier publications

•Improved brand awareness • Observations / Lessons Learned:

•Open / transparent internal / external communication critical; a big cultural shift internally and externally•PR can be “roller coaster”; the media can be very fickle•May need patience with key message adoption •Ultimately need “suite” of new offerings to release during the course of a month, to maintain voice.



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Driving Your Personal Growth:The Secrets of Great Rainmakers

Jeffrey J. FoxFounder and PresidentFox & Company, [email protected]

Author of, most recently:Secrets of Great Rainmakers: The Keys to Success and Wealth (New York: Hyperion, 2006)

Key insights from Jeffrey Fox

Annual Members Banquet address:


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Your company’s most important job

Peter Drucker said: "'Because it is its purpose to create a customer, any business enterprise has two and only two basic functions, marketing and innovation. Marketing is the distinguishing, unique function of a business.' Therefore, your job is the most important job in your company."

My definition of marketing: "The identification, attraction, getting and keeping of profitable customers.” That means there is no function in a business that does not have a marketing tilt. Every job in a company should be about getting and keeping customers.

‘Dollarize,’ for Customers, Company and Career

"You must help your customers make money. True rainmakers, what marketing superstars do, is sell money. They dollarize, turning benefits into dollars and sense. That is the difference, the only difference. Customers will make your company money, but first customers must see how they are going to make money.

"The big opportunity is how to dollarize the value of what you sell so that customers agree with that. You can't just sell with pretty adjectives. You must quantify the phrase 'value added.' Dollarization distinguishes the uniquevalue of your products, your company, your brand, your sales, your whole value system. Dollarization puts the buzz in the buzzword 'value added.'"

The dictionary definition of value specifies a numerical quantity. "Value should always be expressed as a number.Customers will figure it out. You sell value with numbers, not adjectives."

"The rationalization for dollarization rests on a common misunderstanding, that customer buy things. They do not.Customers don't buy products, features or benefits or technologies. They buy what they get from the technology. People don't buy BTUs, they buy a nice air conditioned room."



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"Nobody on the planet cares about technology. They don't care about how things work. Customers care about what they get. All of the benefits you offer can be dollarized. It's our job as marketers to teach our advertising agencies and our salespeople how to say that, to show how our products represent that, and to price accordingly. You price to value, and value is a numerical quantity."

"Nobody in the business-to-business world wants to buy anything. They want to invest to solve a problem. Our job is to help the customer quantify the return he gets on the investment."

"For your careers as marketing superstars: Superstars help customers make money, and money is what the customers get, the return on the investment in you. The customer's investment is what you get, ergo, the more customers make, the more they will invest and buy."

Three rainmaker/marketing superstar questions

"Know the answers to these and you'll be running your companies, or the shareholders should be making you run their companies:

1.” When you're looking to sell, advertise, price a product or segment a market, knowing what you know about the market, ask, 'If I were a customer, why would I do business with me?' It's the single most important question in marketing. It has vast implications for pre-call planning for a salesman, vast implications for a copy platform for an advertising agency. If you can answer it in dollars and sense, you've got a rock solid platform for doing business. When you know the answer, give it to your salespeople, give it to your ad agency, give it to your product development people."

2. “Ask, 'How much money will I make for my customer tomorrow?' Next year? You've got to know it. You're the expert."

3. “Ask, 'How much money did I make my customer yesterday? Last year? Through the entire history of ourrelationship?' They don't know. If you do, you won't lose them."



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Company Patriot

"Don't ignore the common, ordinary product that is just turning out money. Marketing music is 'Ka-ching, ka-ching.' Who cares as long as it rings the cash register?"

"Be a flag-waving company patriot. You've got to be Mr. or Ms. Outside, selling the story fearlessly, not worried about the price. Inside, you lead from the middle: quiet, humble, ask questions, remove frustration and give credit. Only marketers can do it."

"Ask yourself, what would you do if you owned the company? If you don't break the laws or God or man, do it."

"Marketing is the greatest job in the company, the most important but the least understood job in the company. Without customers, there ain't no company."

Early to bed, early to rise,Sell hard and dollarize!.



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Mobilizing the Brand for Growth

John H. Jacko, Jr.Vice President, Chief Marketing Officer

Flowserve [email protected]

Key insights from John H. Jacko Jr.



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Flowserve creates organic growth through a consistent branding culture• Flowserve is a market leader, $2.7 billion sales, in the global fluid motion and control business (56 countries). with pumps, valves and seals that move, control and protect the key strategic processes of our customers. • Serving the process industries with a strong stable of heritage brand names and industry experience. More than50 acquisitions since the company’s 1872 founding.• The respective pumps, valves, and seals businesses constitute three strong silos we’re trying to integrate.• As we expand, into key markets such as China, we try to go in as the Flowserve brand, a unified brandapproach which is not part of our legacy.Our desired shift, using internal branding as a lever of change

• Acquisitions sometimes don’t hew to policy.Employees show little loyalty to the new owner’s brand.

• Acquisition employees repeatedly contrasted the “good old days” of the past with the Flowserve present..

Graphics © 2006 Flowserve Corporation



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Customer and employee focus groups and interviews indicated problems to overcome• 19% of customers said Flowserve name means nothing to them. Employees tended to think of Flowserveas “nothing but a name” and a “holding company” of brands.• 35% of customer unable or unwilling to cite Flowserve strengths. Company’s heritage brands known for good products, but the Flowserve name itself was “an empty vessel.” • 30% of customers could not cite company weaknesses; they didn’t know us. Customers and employees alike often cited poor communication, poor coordination and a confusing structure.• Both customers and employees chose “working together with you” as the most appealing positioning for us.

Brand strategy development, beginning Feb. 2003• Because our different units tend to sell to the same customers, we decided to be a “branded house” promisinga consistent customer experience, rather than a “house of brands.” • Chose a dual-branding strategy associating heritage brand strengths with Flowserve “Experience in Motion.”• We enunciated a specific brand promise, brand position, brand support points, and the “6 Cs” of brand values:(“Commitment, Collaboration, Creativity, Competence, Confidence and Character”)• Built consistent employee key messages through internal communications stressing:

• We All Represent The Brand• Be Agents Of Change – Help Drive Improvements• Respect Our Heritage As We Build The Flowserve Brand• Use The ‘Power Of Our Portfolio’ For Growth• Think “Customer” Everyday – No Penalties For Doing The Right Thing!

• Built consistent external key messages:• Moving from “Products” to “Products and Solutions” Company• Power of the Flowserve Portfolio• Strong, Strategic Business Partner for Emerging Markets• Integrated Platform— combining many different customer systems



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• Culture change has taken longer than we expected.• Launched the “Spirit of Flowserve” incentive recognition program for living the values of Flowserve as well asmaking the metrics goals.• Improved internal communications programs, corporate image building and a brand standards Web site for internal and external users. Three-month-old Web site is our largest brand touchpoint.

• 2.5 million hits so far.• Site once aligned just by products is now also aligned by industry served, services and solutions.

• Cross-divisional compliance drives consistency in marketing materials.

Assessing the first three years …• Lessons Learned

•Have Patience! - Culture Building Is A Slow Process. You’ll always find someone resisting.•Data Drives The Real Buy-in — At All Levels Of The Organization•Stay The Course — People May Not “Value” Soft Side. Help them understand it.

• What Worked Well?•Face-to-Face All-Hands Meeting of Communications Team•Finding Regional Champions – Institute “Glocal” Approach•Brand Visits – Action Plans, Spirit of Collaboration•Brand Resource Center – Web Tools, Templates, Standards•Correlate Customer Satisfaction And Loyalty•Brand Value Recognition Program – Reward Behaviors•Bake Brand Values into Performance Management Process

• A lot of organic growth has come out of thinking like one company with one brand.



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Going forward priorities

• Strategic•New Agency Partner – Help Us “Bring the Brand Out”•Institute Brand Equity Measurement – Understand Progress•Continue to Embed, Broaden the Brand Internally – Define and Deliver the Flowserve Customer Experience•Drive 100% Consistency on Look, Feel, Messaging•Pursue Unique Brand Opportunities in Emerging Markets

• Tactical•Continue Brand Resource Web site Build Out•Regional Champions – In Un-Served Regions•Brand Calling Cards, Gift store, Other Internal Permeation•Environmental Branding (Inside/Outside Plants)•Continue Personal Brand Visits – Evangelize!

Q & A (highlights)• We still organize our profit centers by product, but we know that has to change.• Depending on products and customer size, we sell direct or through distributors. We’ve been doing a lot of work to bring distributors into the process—distributor councils, Web site, etc.—and we’re just finishing achannel management study. It’s a tricky issue; you can’t change the channel too quickly without losing sales.• We are implementing “quick response centers,” now 50 around the world, for customers which will impinge ondistributors.• Regional champions played a critical role in breaking down local resistance. They have to be seen as collaborators.• Compensation depends on meeting the numbers and living the values of the collaborative culture.



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Two-Brand Strategy:Xiameter & Dow Corning

Mark MaxwellGlobal Marketing Communications Director

Core Products BusinessDow Corning [email protected]

Key insights from Mark Maxwell



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Business model innovation: new brand serves price-sensitive customers• Dow Corning, a global leader in silicon-based technology with more than 7,000 products for diverseglobal industries; a JV launched in 1943 by Dow Chemical and Corning Inc.• New approach to market needed

• The industry is maturing•Customers are more selective and more demanding•Competition increasing globally and locally•Pricing pressures are constant

• Globalization pressures•Challenging business environment•Harder to differentiate in mature markets

• Looked at business through customers’ eyes•Consolidated customer survey research over 5 years (plus ongoing VOC input from Commercial team)•Customers want to reduce costs to increase their profitability •Customers want easier ways to do business with suppliers

• Customer survey identified customer segments• Some need proven performance and reliability • Others need help keeping up with innovation changes and the latest innovations• Mature businesses must drive down costs • Some want the lowest price and don’t need high levels of support. A revelation to us, a company builton technology and innovation. We had to learn that some customers don’t care about that.

• Customers want easier way to do business with suppliers based on their needs, exactly, No more; no less.



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The result: a new strategy and new corporate brand—Xiameter•Value propositions based on customer needs-based segmentation for value

Graphic © 2006 Dow Corning Corporation

• Segmented customers’ needs based on their product life cycles• Created new business model to address mature needs segment, the price seekers.

• We no longer say “We can’t do business that way”• Launched a new brand and value proposition for a specific group of customers• No longer “give” service and expertise away

• Introduced a Solutions Platform within the Dow Corning Brand• Value proposition emphasizes the importance of choice and meeting customer needs—exactly.



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The Xiameter business model: enforced to prevent brands “creeping to the middle”• Global introduction in 2002 – launched in 50 countries simultaneously • Offers customers choices and an easy way to do business online. But it’s not a model for everyone.• Targets customers who buy in large volumes and know what they need and how to use materials• Fully utilizes our SAP capabilities• Simple, clear business rules are extremely critical; must be respected and followed

•Self service – on-line registration, on-line ordering•Logistics – order lead times, minimum/maximum order quantities•Pricing – market-driven prices completely transparent, confirmed during order placement

• Web-enabled business model reduces costs. Roughly 30-35% of our business is conducted online. • Online order entry electronically linked to global real-time production planning

•An order is placed and immediately scheduled in production planning • Automated documentation

•Order acknowledgements, shipping confirmations, invoices• Transparent, dynamic “real-time” pricing. Market-driven prices for large volumes of standard products.

Customer choice among unique brands. We don’t force customers one way or the other.



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Business Lessons Learned• Customers want choices. Some customers buy both brands, but from different Web pages or channels.• Continuously seek new ways to address customers’ needs-

•Innovation critical in all we do, including business model innovation. • Change management is essential

•Education is critical to success – Internal & External• Create and stay true to the business rules• New business models can be disruptive but can spur growth and innovative thinking. • Go fast, accept risk, and learn. We felt we had talked with the right customers for the right amount of time.Successes• Very little business was cannibalized from Dow Corning brand. Less than 10% of Xiameter customers wereDow Corning customers. We tapped a new market we hadn’t seen.• Customers do not buy from both brands to receive the Dow Corning services. We monitor this very closely.• Customers have stayed with Xiameter. On-going surveys indicate customers like the business model.• Xiameter has made significant financial contributions to Dow Corning’s bottom line• Financial results show our strategy to focus on customer needs is working:

•2004 sales were US$3.37 billion, up 17% from 2003•2005 sales were US$3.87 billion, up 15% from 2004•Maintained industry leadership position

• Brand Research results:•Annual survey has been 5 years running•Customers understand the value propositions of our two brands•Customer satisfaction is extremely high for both brands

• Customer choices: •Customers appreciate having a choice in how they purchase silicon-based products•Employees have options in offering customer choices based on the needs of their business



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Q & A (highlights)• We will borrow expertise from Dow Corning to back a warranty claim a Xiameter customer might have.• We maintain contact with Xiameter customers, to ensure that they properly are buying the right brand choice.• Salespeople get credit for the first year volume for Dow Corning customers that switch to Xiameter.• We set Xiameter prices based on market prices. Dow Corning prices also affected by services provided andcompetition.• Competition has been surprised. It could meet our prices, but not our cost efficiencies, back-officecapabilities and ordering ease. It’s not as easy as it looks on paper.• We improved cost accounting, particularly for non-manufacturing costs. We have a better handle on costs at the brand and product level, and are working on costs at the customer level. • We didn’t face a lot of changes at the manufacturing level. Positively, we eased some production processes.• We do offer an a la carte service menu for Xiameter customers with a limited specific need. We haven’t donea lot of that; most customers go to one brand or another. We don’t want to give the middle groundaway.• Because silicon is a commodity, you might see Xiameter spot prices exceed long-term contractualDow Corning prices for a short period of time. Customers tend to understand that when they play the spot market game. We’ve had some interesting discussions about that internally.• Change management is a big part of our transition, going after transaction-oriented customers in a company with a culture of innovation and value-added. Transition requires the full support of senior management. The real change occurred at the customer interface, to get marketing and sales people to feel okay telling customers, “Yes, we can meet your needs. But it’s different than we’ve done it before.” People needed to see it working to believe it. When they saw it, it became a sustaining process. This is the one thing that could have killed the program, but that didn’t happen. I give all the credit to our senior leaders.


driving profitable growth aug06

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