Adrian J. Slywotzky, Part Two: An interview by Bob Morris

Posted on: September 13th, 2011 by bobmorris

Adrian J. Slywotzky

Adrian J. Slywotzky is a consultant and author of several books on economic theory and management. He graduated from Harvard College and holds a JD from Harvard Law School and an MBA from Harvard Business School. He has worked as a consultant since 1979 and is currently a partner at Oliver Wyman. His published books include Value Migration: How to Think Several Moves Ahead of the Competition (1995), The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow’s Profits with David J. Morrison and Bob Andelman (1998), Profit Patterns: 30 Ways to Anticipate and Profit from Strategic Forces Reshaping Your Business with Morrison and Ted Moser (1999), How Digital Is Your Business? with Morrison (2000), Profit Patterns: A Field Guide with Morrison (2002), The Art of Profitability (2004), How to Grow When Markets Don’t with Richard Wise (2005), The Upside: From Risk Taking to Risk Shaping—How to Turn Your Greatest Threat into Your Biggest Growth Opportunity with Karl Weber (2007), and most recently, Demand: Creating What People Love Before They Know They Want It, also with Weber (2011)

Note: You may wish to read the first part of the interview first. In it, Slywotzky responds to general questions and then several about his earlier works. If so, please click here.

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Morris: Although I highly regard the three books previously discussed as well as your other works, I want to say now that I think Demand is the most interesting and – yes – the most entertaining book you have written…thus far. Was it as enjoyable to write as people will find it to be when they read it?

Slywotzky:  The fun you had in reading Demand absolutely mirrors the fun we had in researching and writing it.  In particular, getting to meet so many of the “demand creators,” ranging from brilliant CEOs to front-line employees with a passion for solving customer problems, was a real treat.  They’re among the most creative, caring, and interesting people I’ve ever met, and I came away with a deep sense of admiration for them and what they contribute to our world.

Morris: To what extent (if any) does the book in final form differ from the one you originally envisioned?

Slywotzky:  There was a complete draft of Demand almost two years ago, but it was much more of a traditional business book than the version you’ve read; it contained graphs, tables, and even a bit of technical jargon.  It could have been published in that form, but realizing that the theme was of broad interest and importance in today’s demand-challenged economy, we decided to revise it thoroughly, with a much greater emphasis on stories and personalities.  I hope the positive reactions from you and other early readers mean that Demand will reach a wider audience—and maybe even help to change the way organizations around the world do business.

Morris: Were there any head-snapping revelations while writing it?

Slywotzky:  Yes, in almost every story that we researched!  Here’s just one example.  We were stunned to learn that Netflix actually struggled to enroll enough customers to achieve liftoff, until they realized that having distribution centers scattered all over the country was key. They found that when DVDs could be delivered by the Postal Service overnight the service became far more magnetic and desirable. People couldn’t stop talking about it. The discovery came as a surprise even to Netflix executives, and to this day very few people are aware of the crucial role that the US Post Office played in making Netflix a huge success.

Morris: As I read the first few chapters, I was reminded of a common expression, “I’ll know it when I see it.” It seems to me that those who create demand envision the “it” before anyone else does, perhaps after recognizing an unmet need and then determining how best to respond to it. Is that an accurate assessment?

Slywotzky:  Very much so.  That’s one of the real gifts demand creators have—the ability to recognize the gap between what we settle for and what we really want or need, and then to imagine the perfect product or service that will fill it. By drawing the hassle map of the customer, it becomes much easier to see the sources of tomorrow’s demand. It’s a bit like x-ray vision for entrepreneurs.

Morris: Your use the term “product” to include both an item and a provision of service, both of which are indeed produced for a consumer. Whatever form the product may take, here’s my question: How best to create demand for commodities that are essentially interchangeable and sold for essentially the same price?

Slywotzky:  There are many answers, depending on specific circumstances.  Sometimes the key to escaping the commoditization trap is by providing ancillary products or services that enhance the value of your offering.  We call this “big box thinking,” with the big box of supporting products or services providing differentiation to the “little box” represented by the basic core product.  In other cases, the key is to offer the commoditized product in a place, a time, or a specific form that competitors can’t match and that customers find uniquely valuable.

Morris: Please explain what you mean by “the mystery of demand.” Will your book eliminate that mystery?

Slywotzky: You touched on the mystery with your question about commoditized products.  We live in a world where seemingly identical goods often produce vastly different streams of demand—where the iPod, for example, dramatically outsells every other MP3 player despite the fact that their functions are almost the same.  There are numerous cases of two seemingly similar products where one produces 5x more demand than the other. We wondered why demand appears so unpredictable in cases like this—and why otherwise well-run companies so often fail to elicit demand for new products they create.  Demand suggests the answers we discovered through several years of research.

Morris: What business lessons can be learned from the process by which Zipcar eventually achieved sustainable success?

Slywotzky:  It’s a great story with a host of possible lessons for various kinds of readers.  Maybe the most dramatic is that seemingly tiny functional differences can have a huge impact on demand.  Zipcar’s online car rental system was beautifully designed and highly efficient, but customers shied away from becoming members until the average walking distance to the nearest car was whittled from 10 minutes to 5 minutes.  Imagine that—Zipcar can save members hundreds or even thousands of dollars per year as compared with the expense of owning their own vehicle, but that extra five minutes of walking time made all the difference!

Morris: How does Wegmans differentiate itself from its competition?

Slywotzky:  We were shocked by the kinds of comments Wegmans customers offered about the grocery chain—“love” is the only word you can use to describe their feelings (in fact, 90 percent of Wegmans’ customers say they “love” the store).  And there are lots of specifics one can point to in defining the difference, like the huge selection of specialized foods, the ultra-fast checkout lines, and so on.  But the key difference in the way Wegmans treats its people.  They reward employees well, train them extravagantly, recognize and reward their creativity, and empower them to solve customer problems.  The result is a store staffed with hundreds of demand creators.  Quite amazing.

Morris: Please explain which health care “dots” CareMore connects? How is it done? Can almost any other organization do it?

Slywotzky:  As we explain in Demand, CareMore provides health care to elderly people in southern California and a growing number of other western states—the most at-risk, costly population to care for.  They manage to produce better outcomes at lower cost than comparable organizations by thinking about and connecting all aspects of patient well-being.  For example, a patient with diabetes who suffers a small cut gets treated at a dedicated wound clinic where his bandage is changed every couple of days.  If he forgets to keep his appointment, a CareMore staffer calls to check in—and will even send a car service, free of charge, if the patient needs a ride.  It sounds basic, but the average clinic or doctor’s office doesn’t take care of details like this.  And the result is a much lower rate of infections and many fewer needless amputations—saving heartache and lots of money in the long run.  Could other organizations do the same?  Probably—if they apply the same level of creative thinking, systemic analysis, and obsession with details that CareMore uses.

Morris: You assert, “It’s what you don’t see that counts.” That statement reminds me of an observation made long ago by César Ritz, the founder of the Ritz-Carlton Hotel Company, that “people like to be served, but invisibly.” Are you and Ritz making the same point?

Slywotzky:  The underlying spirit is similar, though we’re probably referring to different things.  In some cases of brilliant “dot-connecting,” customers actually get a sense of delight from seeing how the system serves them, eliminating hassles and making complex tasks easy and fun.  For example, one of the keys to the success of the Kindle was the huge, easy-to-navigate Amazon bookstore, which no previous e-reader could match.  That isn’t “invisible,” but it does provide an almost-magical service experience that I bet Cesar Ritz would have admired.

Morris: For those who have not as yet read Demand, you devote a separate chapter to each of nine steps or stages of a process “that all great demand creators follow.” Of the nine, which do most people find most difficult? Why?

 Slywotzky: Great question, and a tough one.  My guess would be that the very first challenge—creating a magnetic problem—is where most people stumble.  It’s so easy and tempting to stop your product development process once you’ve created a product that is good or even very good.  It’s a rare person with the tenacity and vision to see the product through the customer’s eyes and then to keep improving it until it is impossible to resist.

Morris: Which do they seem to find easiest? Why?

Slywotzky:  Wow, it would be great if one or more of the steps of demand creation was actually easy!  But I think leaders at most companies and other organizations would tell you they are all difficult, though in different ways.

Morris: What do you find most impressive about what Tetra Pak does and how it does it?

Slywotzky:  Among other things, Tetra Pak does a great job of tailoring its products to fit demand variations among many kinds of customers.  They invented aseptic packaging of the kind you find in fruit juice boxes that require no refrigeration.  Now they have a system where they work with many kinds of food processing companies around the world and will actually send a team of engineers, scientists, and production experts to study your existing systems and design machinery around your needs.  In the process, they eliminate wasted steps, reduce loss of product, trim energy and water use, and otherwise improve your way of doing business.  Quite an amazing step up from simply designing and selling great packages.

Morris: What is Netflix’s “200 year-old secret weapon”?

Slywotzky:  I mentioned it earlier—it’s the US Post Office, the low-tech infrastructure that complements Netflix’s amazing high-tech infrastructure to get DVDs into the hands of customers within hours.  Now that Internet streaming is beginning to replace physical DVDs, Netflix is starting to deliver movies to customers even faster—within seconds rather than hours.

Morris: Here’s a follow-up questions: To what extent (if any) could Blockbuster have brought the same “weapon” into competition? Why didn’t it?

Slywotzky:  There’s no reason in the world that Blockbuster couldn’t have matched or exceeded Netflix—if they had moved quickly.  Instead, they let years go by before trying to launch their own DVD-by-mail program, by which time Netflix had mastered the technology, the software, and the infrastructure and so created a hard-to-surmount lead.  When we visited a Netflix fulfillment facility, we came away in awe and found ourselves saying, “If we were Blockbuster or any other competitor today, we wouldn’t even bother trying to duplicate this incredible system.”

Morris: In your opinion, what must Teach for America do to expand and increase its impact on public school education in the U.S.? Where specifically must demand for what it offers be created or increased, for example?

Slywotzky: The brilliance of Teach for America lies in its ability to create new demand of several kinds.  It has led Ivy League graduates to demand teaching jobs in some of the country’s toughest communities; it has helped thousands of youngsters in those same schools to demand the chance to go to college and be successful; and it is leading parents and school boards in at-risk districts to demand higher standards of educational performance by both educators and students.  We’re beginning to see this demand revolution snowball as the word gets out—“Kids in inner-city schools or poor rural neighborhoods can learn!”  The effects are being felt way beyond the classrooms where Teach for America corps members are at work. The most poignant moment in the process, the demand-creating moment occurs when a child first believes that they might actually be able to go to college. It’s at that moment that demand for education that works becomes reality.

Morris: What is the “Myth of the Average Customer”?

Slywotzky:  Lots of organizations tailor their products, services, and marketing programs to fit the “average customer”—forgetting that, in fact, their customer set includes thousands of even millions of individuals, very few of whom may fit the profile of the “average customer.”  Smart demand creators are figuring out ways to identify and define many customer profiles and then to make it easy for those varying customer types to meet their individual demands using products from the same company.

Morris: Long ago, Mark Twain advised against competing against those (e.g. newspapers) who purchase ink by the barrel. Today, I think, he would advise against competing with those who know how to take full advantage of the social media. Here’s my question: What are the greatest opportunities and (yes) the most serious dangers associated with social networks such as Facebook, Twitter, YouTube, and Yelp?

Slywotzky: A great amount of real demand creation has shifted away from one-way broadcast advertising to word of mouth, to peer to peer, and community-based communication. Social media has become key to creating the intensity of customer conversation that you need to build magnetic products. They are a huge multiplier.

But, they multiply negatives as quickly, or even more quickly than they multiply positives. And the privacy costs are still not fully gauged – we may be in uncharted waters for a good while.

Morris: What is “customer churn” and what seem to be the most common misconception about it?

Slywotzky: Customer acquisition costs are high. Buyers who become customers can stay as customers for years (“loyals”), or leave for other competitors’ offerings (creating high churn in the customer base). The most common misconceptions? Churn is inevitable, and it’s a cost of doing business. Yet, demand creators who build a steep trajectory of improvement achieve the opposite effect: their retention rates are high, and actually improve over time.

Morris: For those who have not as yet read Demand, what are the most important lessons to be learned from the challenges that the Seattle Opera’s and, especially, from its initiatives to respond effectively to those challenges?

Slywotzky:  Imagine trying to find enough customers in a medium-sized American city to support a highly specialized product—opera—that is extremely expensive to produce.  Seattle Opera has figured out how to create demand for its product at a higher per-capita rate than the world-famous operas in major cities.  Among its other brilliant demand-creating moves, the Seattle Opera has found ways to connect its classic art form to many varying customer types—from young professionals, using opera-centered social evenings at trendy local hotspots, to grade-school kids, where they send teams of talented young musicians and singers to work with fifth graders on producing and performing their own version of a real, live opera.  The lesson: If you study your varying sets of potential customers and figure out what interests and excites them, you can create a very good chance of providing them with what they really want and need.

Morris: Please explain why launch is “the Achilles heel” of the demand creation process.

Slywotzky:  Statistics show that the percentages of new products that fail upon launch are staggering—depending on the industry, they range anywhere from 50 to 80 percent or even higher.  That’s an enormous waste of time, energy, money, and potential demand.

Morris: What “secrets” can be learned from the most successful launch “masters”?

Slywotzky: There are a handful of companies that have figured out how to change the odds of success on launch from 20 or 30 percent to 70 or 80 percent.  The strategies and tactics they employ are numerous.  One is to create and test multiple variations of a new product before choosing the best one to launch—something Toyota did with the Prius, and something Apple does, for example, every time they create a new electronic device.  Another is to massively deploy internal resources around launch so as to accelerate the process—every month you can shave off the product development time improves the chance that your product will still be relevant and will still be several steps ahead of the competition by the time it hits the market.  Launch masters use these and a dozen other techniques to beat the dismal odds that defeat most other companies.

Morris: I was surprised to encounter your discussion of one of Hamlet’s soliloquies, beginning “To be or not to be…” What’s that all about?

Slywotzky: Shakespeare supposedly had the reputation of “never blotting a line” in his manuscripts—that is, of never rewriting his work.  Actually the opposite is true—there’s evidence that all of his greatest plays, including Hamlet, were written and revised numerous times, continually improving throughout the process.  And since Shakespeare himself was an actor and director, he undoubtedly reworked his scripts based on feedback and reactions from performers who’d tested the material before live audiences.  Great demand creators do the same thing—they’re never satisfied with the first version of a product, but devote countless hours to tweaking and experimenting with it, long past the point when most people would declare it “good enough,” or even “very good.”

Morris: I share your high regard for the Pixar organization and its leaders, notably Ed Catmull and John Lasseter. Although Pixar is inimitable, are there any business lessons from what it does and how it does it that would be of value to much smaller organizations such as family-owned local franchises of national chains?

Slywotzky: That’s a tough challenge, since most franchised businesses have to follow policies set by the national organization, which limits their scope for individual creativity.  But one of the secrets of Pixar than any small business person can use, including a franchisees, is to look at the business through the eyes and the emotions of customers.  Pixar tries to make movies that its employees and their families will like. They contantly ask “Would I like to see this movie? Would my family like to see this movie?” They constantly study audiences and rework their scripts, characters, music, and other production elements to evoke positive responses from real families.  In the same way, a franchise manager should try to experience his or her business the way a customer does.  For example, try calling the office and asking for information without identifying yourself as the boss.  You’ll learn something about how customer service feels from the outside in—and probably discover a couple of ways to help your people become more customer-friendly.

Morris: What is “Goldman’s Law” and why is it significant?

Slywotzky: Famous Hollywood screenwriter William Goldman once observed: “Nobody knows anything” when it comes to predicting box office success. You just can’t do it; it’s a hit or miss business.

Many launch veterans feel the same way.

And yet, as the examples in Chapter 8 of Demand show, when you develop a system that governs your work, whether in films, or pharmaceuticals, or venture capital, or other fields, you can defy Goldman’s law, and do so repeatedly.

Morris: In your opinion, why has Kleiner Perkins achieved and then sustained success for decades?

Slywotzky: Kleiner Perkins developed and applied an incredibly disciplined system. It focused, above all, on market risks, and developed numerous ways to beat it. Its system also concentrated on incredible idea maximization, draconian selection, aggressive exploitation of its network for both ideas, and golden interventions at critical points in a venture’s development.

Morris: You suggest that the lesson for organizations interested in consistent, large-scale demand creation is the need to focus on two simple questions: “What’s the overall size and quality of our portfolio of ideas?” and “How can we do a better job of choosing the best candidates from our portfolio to invest in?” Here’s my own question: Which of the two questions you pose seems to be most difficult fir most business leaders to answer? Why?

Slywotzky: Choosing the best candidates is harder. There’s so much sheer unknowability involved, so many wild card variables. The combination of experience and insight, however, enables the best to:

a)  Anticipate what the fatal flaws will/might be, and

b)  See ways in which these flaws might be overcome.

That said, still an incredibly difficult skill to develop. Chapter 8 provides some good models for doing so.

Morris: What is “the biggest spark”? What ignites it? Then what?

Slywotzky: The biggest spark of demand creation comes from new technological discovery that leads to the development of entire new industries.  Think about how the steam engine revolutionized industry in the 1800s, or how the transistor and its descendant, the microchip, launched businesses from the personal computer and the digital television to the Internet.  One of the challenges facing demand creation in the two decades to come is the relative decline in spending on science by some of our great corporations as well as by the federal government.  In Demand, we describe some of the amazing work in basic science being done by organizations like MIT Media Lab and SRI International that are trying to fill the gap.  We’re hoping other groups will step up to contribute to the effort so that huge, demand-creating breakthroughs in energy, materials, preventive medicine, and other disciplines will continue to drive the growth of the world economy.

Morris: Please explain the reference to Sir Edmund Hillary and Tenzing Norgay.

Slywotzky: Some forms of demand are foothills, others are mountains, others are the Himalayas. Hillary and Norgay conquered Everest. It was a great breakthrough. In the world of Demand, there are the rare individuals whose breakthrough achievements (Watts, Edison, Bell, Shockley) open a pathway to the Himalayas of new demand, bringing enormous new benefits to customers, and creating millions of new jobs.

Morris: You suggest that this is “the question for today”:  What institutions in contemporary society are fostering the culture of discovery that will lead to the next transistor? You later ask, “Who is going to produce the scientific breakthroughs that will create the new industries on which tomorrow’s demand will be based. Here’s my question for you: In your opinion, who are the prime candidates?

Slywotzky: It’s a very tough question. Certainly the organizations described in Chapter 9 are playing an ever greater role, but there are some very important others as well.

To me, the most intriguiging is IBM, which has quietly been doing phenomenal work. Consider not just Deep Blue, but Watson’s triumph in Jeopardy. Don’t be fooled by the context of this triumph. You can see applications across a wide range of fields from assisting in medical diagnosis, manufacturing diagnosis, and many others.

Watson, as it evolves, may well be the “transistor” of the 21st century.

Morris: Near the book’s conclusion, you observe, “Despite the brilliant work of today’s demand creators, we are living largely off inherited riches,” Please explain.

Slywotzky: We used to invest in basic science much more than we do today, especially in critical mass organizations. They produced extraordinary results, and created numerous new industries.

But the last time we created a new industry (the Internet) was in 1995. Name one new industry capable of creating 2 to 3 million high-paying jobs in the next half decade.

Hard to answer. It’s time to begin reinvesting in the kind of basic science that will enable us to start creating new industries again.

Morris: What is the significance of the fact that “great demand creators are endlessly varied”?

Slywotzky: It’s a discovery we made in the process of researching and writing the book—and it leads to what we think may be the single most important message we have to offer.  Demand creators aren’t just brilliant CEOs like Steve Jobs, technological geniuses like Thomas Edison, or clever entrepreneurs like Richard Branson.  They can come from any walk of life.  They can be front-line employees who find better ways to serve customer needs.  They can be government employees or people working for NGOs who do a great job of connecting people with the resources they need to improve their lives.  They can be founders of nonprofit groups like Wendy Kopp, the creator of Teach for America, or Muhammad Yunus, who invented microcredit.  In fact, no matter what you do, there’s a way you can contribute to the creation of new demand, which leads to the satisfaction of human needs, economic growth, and all kinds of social progress.  We hope people who read Demand will be inspired to join the effort!

Morris: Which question had you hoped to be asked about Demand during this interview – but weren’t – and what is your response to it?

Slywotzky: “Who is responsible for creating new Demand?” The single most important learning we get from the demand creators profiled in the book is a very simple, and a very tough one: when thinking about who’s responsible for creating new demand, don’t look up or around, look in the mirror.

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Adrian J. Slywotzky cordially invites you to check out the resources at the book’s website by clicking here:

 

 

 

 

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2 Responses

  1. Karl Weber says:

    I’m Adrian’s coauthor–thanks for running this interview! As you may have already heard, the link to our book blog doesn’t work. Hope you can fix it! Again, thanks.

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