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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

The 23rd Annual ISBM Members Meeting summary

Driving Profitable Growth: B-to-B


August 22 - 23, 2006 State 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 of the Customer and the Company James C. Anderson, Northwestern University, Customer Value Propositions as the Guiding 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
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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Presentations (continued): Victor Saliterman, ADP Employer Services. ADPs 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

Keynote Address:

Sometimes Things Change:


B2B Innovation Larry Keeley
President & Co-founder Doblin Inc.
larry.keeley@doblin.com

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

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

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 you have 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 complete transformations 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 thats 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, youll miss the future every time. Always there are frontier issues. Dont underestimate those changing value propositions on the fringe.

Sometimes things change

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 crucial to you. In my research over the last seven years, in more than 400 interviews in 63 industries, not one of the leaders 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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Take a fresh look at innovation fundamentals Innovation is not fundamentally technological advance.

2006, ISBM - Penn State

2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

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, its easy. Innovate successfully three times in a row. The culture of innovation comes after youve 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 Designused effectivelyis 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 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 youre doing you can achieve from 35% to 70% success of projects hitting their ROI targets. The range will shift to 40-80% in coming years.

Essentials for innovation

Innovation myths

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

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

Doblins framework: 10 types of innovation

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Graphic 2006 Doblin Inc.

2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

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 youre good at, and so develop new competencies. The other five types are vastly more valuable in B2B Delivery innovationschannel, brand and customer experiencewill deepen customer relationships. Visualize your customer set and dramatize everything you do for those folks. Finance innovationsbusiness model and networkingprovide the two biggest market changes. The distribution of all innovation projects, including the 95% that fail:

Using innovation types strategically

Graphic 2006 Doblin Inc.

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

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


Graphic 2006 Doblin Inc.

Exemplary innovators patterns

Dell Computer8 innovation types, but not product innovation. Dell pursues business model, networking, core process, product system, service, channel, brand and customer experience innovations. iPod8 innovation types: business model, networking, enabling process, product performance, product system, service, brand and customer experience. Google8 innovation types: business model, networking, core process, product performance, product system, service, brand and customer experience. Xiameter6 innovation types: business model, networking, product system, channel, brand and customer experience.
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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

Innovation discipline model

Graphic 2006 Doblin Inc.

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. 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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Innovation landscapes assess industry innovation patterns (see next slides)

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

Computers and peripherals

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

Graphic 2006 Doblin Inc.

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

Passenger airline travel

Significant omissions in performance and experience Business model in play (LCC)

1988 1989 1990 1991 1992 1993 1994 1995

Graphics 2006 Doblin Inc.


Customer Experience

1997

1998

Retail, looking at your customers innovation needs


Innovation themes based on current profile

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Bu siness Mo dels

Enabling Processes

Netwo rkin g

Prod uct Perfo rman ce

1996

Core Processes

Prod uct Systems

Service

Chan nel

Brand

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

The healthcare industry value chain

Graphic 2006 Doblin Inc.


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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Larry Keeley

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

Platforms Rule!

Strategic value of platforms


1. 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 platformand 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B 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?

Key insights from Larry Keeley

Test each of your innovation candidates. Is it likely to lead to a breakthrough platform?

The General Electric example: A distinctive innovation process focused on imagination breakthroughs to increase the rate of organic
growth. 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 IBsfrom microjet engines to the GE Money Bank in Europeto generate $25 billion in revenue by YE07

In response to an audience question

The notion of controlling innovation as if its 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 youre 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Martha Rogers

Who Moved My ROI?


Building the Value of the Customer and the Company Martha Rogers
Founding Partner Peppers & Rogers Group
rogers@1to1.com

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)

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Martha Rogers

With more products, channels and capital available today, the biggest limiting factor to growth is a shortage of 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 strive to 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 ROI today, 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 company views the value that its customers create for itthe only source of organic growth for the firm. Marketing can destroy value if a campaign annoys some customers and erodes customer equity. potential future profitmore than it boosts current profit..

ROC and ROI: Maximizing Enterprise Value

For example

Marketing treatment 1 vs. 2

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2006 by Peppers & Rogers Group

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B If cash is scarce, maximize return on investment, the scarce resource.

Key insights from Martha Rogers

2006 by Peppers & Rogers Group

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

2006 by Peppers & Rogers Group

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

ROC in practice

Verizons wireless division generated $13.7 billion in earnings from 2002 to 2004 (Owned by Verizon Communications and Vodaphone). But during this period the firm also cut monthly customer churn in 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Martha Rogers

A different dimension of business practice

What if we could, and did, measure how much todays 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 quarters 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 customers stake in making the relationship work. To maximize a customers value, we figure out a customers needs and meet them better than competitors do. We anticipate customer needs and take the customers point of view, treating different customers differently to create 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. Dont 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, you need to take their point of view. 5. Educate your employees and empower them to take action. Everyone can have a different task, but the ROC metric provides a unifying objective for the whole organization. 6. Return on Customer = Total Shareholder Return. Customer equity equals enterprise value and the source of organic growth for an operating company.
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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from James C. Anderson

Customer Value Propositions as the Guiding Beacon for Profitable Growth


James C. Anderson
Professor of Marketing Kellogg School of Management Northwestern University
ISBM Fellow
jc-anderson@kellogg.northwestern.edu
Co-author 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 Harvard Business School Press in spring 2007.
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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from James C. Anderson

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 ones own market offering. Potential pitfall: Benefit assertion. Citing features doesnt 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 competitors? To construct and have sales force deliver it requires knowledge of ones own market offering and next-best-alternative offering. (But competitive knowledge is often sketchy.) Potential pitfall: Value presumption. Just because its a difference doesnt mean the benefit delivers value to the specific customer.

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from James C. Anderson

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 competitive offering 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 snappy marketing 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 theyd pay a higher price if justified by 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 market segment. Benefits of all typestechnical, economic, service and socialcan be expressed monetarily.

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from James C. Anderson

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 distinctive value propositions for each product for each market segment and key account. Performance metrics must 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 van Rossum, Customer Value Propositions in Business Markets, Harvard Business Review, March 2006. Copies available through ISBM.

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Jeneanne M. Rae

The Discipline of Service Innovation


Jeneanne M. Rae
Co-founder and President Peer Insight LLC
jrae@peerinsight.com

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Key insights from Jeneanne M. Rae

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 customer needs for mixes of tangible and intangible solutions. Companies built to produce products arent 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.
Graphic 2006 Peer Insight LLC.

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 innovation process is needed for substantial, ambitious and highly novel service innovations
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Results from our 30-month study

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Key insights from Jeneanne M. Rae


Graphics 2006 Peer Insight LLC.

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

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Key insights from Jeneanne M. Rae

The most potent service innovation disciplines

Graphic 2006 Peer Insight LLC.

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Key insights from Jeneanne M. Rae

Implication: Do three things right


1. 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 customers pain points. Our painstorming analysis: Commercial lending example
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Graphic 2006 Peer Insight LLC. 27

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Jeneanne M. Rae

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

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 Build a sustainable operating model 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 2006, ISBM - Penn State

Communicate, communicate, COMMUNICATE, internally and externally

Graphic 2006 Peer Insight LLC.

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Key insights from Jeneanne M. Rae

B2B vs B2B service innovation

The biggest differences are at the process front end, where B2C makes much greater use of early-to-market feedback, 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. Im optimistic about the U.S. because we are customer oriented rather than putting operations at the center of business strategy. Washington might have it wrong, however. Technology does not equal innovation. Innovation is really about the customer.

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Robert E. Spekman

The Use of Alliances to Foster Growth:


Issues, Insights and Implications Robert E. Spekman
Professor of Business Darden Graduate School of Business University of Virginia
ISBM Fellow
spekmanr@virginia.edu
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)
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Key insights from Robert E. Spekman

Definition
Alliances 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 are open-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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Key insights from Robert E. Spekman

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 a successful 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. Its not simply a matter of contracts and financial due diligence. Strategic Fit Chemistry-Culture Fit Operational Fit
Future Vision and Value Proposition Competitive Advantage Customers Needs Long-term Strategy and Goals Values and Beliefs
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Decision-Making Trust, Culture and Teamwork Alignment of Systems, Processes Risk Preference Quality of Relationships Leadership and Commitment
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Systems Integration Performance Processes Integrative Mechanisms Fast Time Implementation Complementary Process Capability

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Key insights from Robert E. Spekman

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 Source: Management Science, vol. 48 2002 - 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% doesnt 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 free riding 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

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Key insights from Robert E. Spekman

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.

Roberts 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 might not be readily known While the number of ties does have a positive impact on performance due to knowledge sharing there is a darker 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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Key insights from Robert E. Spekman

Relative size is not important; it is better to measure ability to teach and learn than to argue over percentages 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 trusting environment Networks both give new ideas a chance to bloom but have a darker side you are known by the company you keep Be wary of pirates in partner suits Start small and then grow. Dont attempt to solve world hunger at the start.

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Key insights from Victor Saliterman

Member Case History:

ADPs Strategies to Accelerate Sales Growth


Victor Saliterman
Senior Vice President, Marketing ADP Employer Services
www.ADPemploymentreport.com victor_saliterman@adp.com

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Key insights from Victor Saliterman

Our business

Best known for our outsourced payroll services, the lions 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 Moodys. Our financial growth is fueled by new clients, the success of beyond payroll products, and growth initiatives. Were seeking other markets for organic growth. 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 assetse.g.additional services for 24 million recipients of ADP payroll checks. Worksite Marketing ADP National Employment Report based on our massive database.

Our focused growth portfolio

Did we have a specific innovation framework?


No. Our ideas were spawned by working directly with clients.
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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Victor Saliterman

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 5 years experience Lead sharing represents over 30% of TotalSources dollar sales / new clients Stronger competitive positioning; improved customer retention Observations / Lessons Learned: Grass Roots Strategy offered: Non-threatening environmentshare 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 up a key account program without enlisting TotalSource assistance.
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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Victor Saliterman

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 industrysolve 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Victor Saliterman

Growth innovation: Worksite Marketing


Background: ADPs 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; must establish 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 pointpaychecks 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 issuee.g. HBSC, Liberty Mutual Customer experience critical; its imperative to correct launch problems quickly
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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Victor Saliterman

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 ADPs 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Jeffrey Fox

Annual Members Banquet address:

Driving Your Personal Growth:


The Secrets of Great Rainmakers Jeffrey J. Fox
Founder and President Fox & Company, Inc.
jfox@foxandcompany.com

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

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Jeffrey Fox

Your companys 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 unique value 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Jeffrey Fox

"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 our relationship?' They don't know. If you do, you won't lose them."
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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Jeffrey Fox

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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from John H. Jacko Jr.

Member Case History:

Mobilizing the Brand for Growth


John H. Jacko, Jr.
Vice President, Chief Marketing Officer Flowserve Corporation
jjacko@flowserve.com

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from John H. Jacko Jr.

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 than 50 acquisitions since the companys 1872 founding. The respective pumps, valves, and seals businesses constitute three strong silos were trying to integrate. As we expand, into key markets such as China, we try to go in as the Flowserve brand, a unified brand approach which is not part of our legacy.

Our desired shift, using internal branding as a lever of change


Acquisitions sometimes dont hew to policy. Employees show little loyalty to the new owners brand.

Graphics 2006 Flowserve Corporation

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

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from John H. Jacko Jr.

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 Flowserve as nothing but a name and a holding company of brands. 35% of customer unable or unwilling to cite Flowserve strengths. Companys heritage brands known for good products, but the Flowserve name itself was an empty vessel. 30% of customers could not cite company weaknesses; they didnt 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. Because our different units tend to sell to the same customers, we decided to be a branded house promising a 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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Brand strategy development, beginning Feb. 2003

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from John H. Jacko Jr.

Culture change has taken longer than we expected. Launched the Spirit of Flowserve incentive recognition program for living the values of Flowserve as well as making 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. Youll 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from John H. Jacko Jr.

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. Weve been doing a lot of work to bring distributors into the processdistributor councils, Web site, etc.and were just finishing a channel management study. Its a tricky issue; you cant change the channel too quickly without losing sales. We are implementing quick response centers, now 50 around the world, for customers which will impinge on distributors. 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Mark Maxwell

Member Case History:

Two-Brand Strategy:
Xiameter & Dow Corning Mark Maxwell
Global Marketing Communications Director Core Products Business Dow Corning Corporation
mark.maxwell@dowcorning.com

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Mark Maxwell

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 diverse global 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 dont need high levels of support. A revelation to us, a company built on technology and innovation. We had to learn that some customers dont 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B Value propositions based on customer needs-based segmentation for value

Key insights from Mark Maxwell

The result: a new strategy and new corporate brandXiameter


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 cant 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 needsexactly.

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Mark Maxwell

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 its 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 dont force customers one way or the other.

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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Mark Maxwell

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 needsInnovation 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 were Dow Corning customers. We tapped a new market we hadnt 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 Cornings 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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2006 Annual Members Meeting Driving Profitable Growth: B-to-B

Key insights from Mark Maxwell

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 and competition. Competition has been surprised. It could meet our prices, but not our cost efficiencies, back-office capabilities and ordering ease. Its 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 didnt 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 havent done a lot of that; most customers go to one brand or another. We dont want to give the middle ground away. Because silicon is a commodity, you might see Xiameter spot prices exceed long-term contractual Dow Corning prices for a short period of time. Customers tend to understand that when they play the spot market game. Weve 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 its different than weve 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 didnt happen. I give all the credit to our senior leaders.
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