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The Press, March 2014

At the risk of being labelled politically incorrect, I love the latest Air New Zealand safety video, featuring a bevy of Sports Illustrated swimsuit models in the Cook Islands. Not for obvious reasons though.

I love the fact it exemplifies how more Kiwi companies should approach their business. More of us, especially in the hi-tech exporting sector, need to ‘break out the bikinis’.

Air New Zealand are real innovators. They are not just inventive with their ‘product’ i.e. air travel, but about everything else that goes with it. This reflects where the world’s best companies are going.

As a recent Harvard Business Review Article by US academic Niraj Dawar put it: “The strategic question that drives business today is not “What else can we make?” but “What else can we do for our customers?” Customers and the market—not the factory or the product—now stand at the core of the business.”

Dawar’s thesis is that firms can spend too much time obsessing about what they make and how they make it (what he calls ‘upstream’ activities), and too little on making a difference to how customer’s find and use their products (the ‘downstream’ activities of a business).

The simple example Dawar offers is Hyundai when the global financial crisis hit their US sales. They innovated around the customer problem by offering an assurance that any buyer who lost their job within a year of buying a new Hyundai could return it with no impact on their credit rating.

In New Zealand we use innovation as shorthand for inventing, developing and building products. We seem obsessed with making ‘stuff’, less focussed on actually selling it at a profit.

It’s time we acknowledged that innovation outside of the product development process is not only possible, but increasingly important to our global competitiveness. Too many firms work hard on their product innovation ‘muscles’, and too little on their market innovation strength.

Too many firms are like the gym goer who has developed a toned upper body but neglected to work on their legs so they remain skinny and underdeveloped, ruining the overall effect (especially in a bikini).

In recent years Air New Zealand have led the way in terms of innovation in ‘downstream’ activities i.e. those focussed on the customer and the market. The Sports Illustrated Swimsuit safety video is the latest in a string of productions, invariably popular and sometimes controversial, that have delivered enormous amounts of online exposure for the airline.

Instead of the expensive old television commercials of old, they’ve bought us safety videos around the All Blacks, The Hobbits, Bear Grylls, Richard Simmons, a bunch of older people and even naked (but painted) airline staff. The Hobbits alone got 12 million views on YouTube.

Then there has been smarts around the customer experience, enabling online or smartphone based ticket purchase, seat selection and check-in.

Pricing innovations have included breaking down ticket prices into components – fare, luggage, entertainment etc – acknowledging the customer values these parts differently. Grabaseat provides a lower price option, while trading off convenience. They've also tried other ideas like customers bidding in an auction for upgrades to long haul tickets.

This doesn't mean they have ignored the upstream activities, in fact Air New Zealand has been acknowledged for good decisions around buying new planes, building alliances with other airlines and pruning unprofitable routes. What they have done is paired that traditional focus with one on innovating around the customer.

When Air New Zealand recently announced their 6 month profit to December 2013, it had increased by 40%, Qantas posted a significant loss and indicated they would be cutting 5000 jobs.Both airlines have faced the same challenges in terms of a tough airline sector, but Air New Zealand’s performance has been far superior.

How do you break out the bikinis for your business?

The answer starts with your customer. To develop effective downstream ideas you need to be able to understand the customer’s ‘journey’, from the time they even remotely start thinking about your kind of product, through evaluating all their options, trying it out, purchasing it, using it right, right through to finishing with it.

Increasingly this needs to be done online. Customers are doing all of their research, feature comparison and price checking using the web, no matter how big and complex the product, and if you are not there it is hard to compete.

Fisher & Paykel (brilliant distribution channels), Xero (clever use of online channels) and SLI Systems (market segment focus) are all Kiwi technology companies with world class products and a relentless focus on improving them, but have also innovated ‘downstream’, in the market.

They have a well-developed but well-balanced business ‘physique’, enabling them to succeed in big, intensely competitive markets like the US. Accept that your product is probably good enough, break out the bikinis and focus more on what else you need to attract and delight customers.

 

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