The Innovative Lean Enterprise

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Chapter 3

Opportunity Identification

In Chapter 2 we learned how to create a visual representation of a current

strategy for a company using the visual management tools of Lean. This

was reflected in the 2-D map. We also learned how a company can define a

totally new strategy that is unique and offers a new and improved customer

experience. We saw by example that this new experience can come at a

lower cost by simply choosing alternate materials or lower-cost manufactur-

ing methods. In many cases, eliminating or reducing those offerings that do

not contribute to customer benefits (value) can reduce complexity and pro-

vide lower costs. Our example illustrated how ideas from different products

can be combined to create a new and unique product offering. Finally, we

analyzed the new business model by using the 2-D map to study the new

strategy in comparison with the strategy of the current industry.

In this chapter, the topic of identifying new opportunities will be dis-

cussed in detail. These discussions will work in combination with sub-

sequent chapters regarding the topics of finding new opportunities and

filtering the optimal or more value-added opportunities. Such a process will

minimize waste. By targeting large customer opportunities, companies add

value to their customers and to themselves. Thus, the topic of opportunity

identification is strongly linked to the principles of Lean.

Opportunity identification begins with the understanding of customer

value. Providing customers with value-added products or services results

in customer satisfaction. High levels of customer satisfaction lead to high

levels of customer loyalty. High levels of customer loyalty in turn lead to

steady streams of cash flow and lower transaction costs since the cost of

attracting customers is lower. Companies have learned that it costs more to

22  ◾  The Innovative Lean Enterprise

acquire a new customer than to keep an existing one. Customer satisfaction

reduces price elasticity, since satisfied customers are willing to pay more for

higher-quality products and services. Customers with high loyalty and low

price sensitivity are easy targets for acquiring additional sales (i.e., cross-

selling). These customers will also be easier to convince to trade up to more

premium products or services. Finally, loyal customers are more likely to

engage in free word-of-mouth advertising for your business.

Growth opportunities in any market can be gained through a better

understanding of the customer’s lifetime value. For example, in the ski indus-

try, the average customer spends approximately $700 per purchase. Typically,

these customers buy a new pair of skis every three years. That is about 15 to

20 pairs in a lifetime, leading to $10,500 to $14,000 of sales. This is why it is

beneficial to any company to strive to keep its customers satisfied.

Studies have also shown that customer loyalty differs substantially

depending on whether customers are very satisfied or just satisfied. These

studies have shown that on a scale of 1 to 5, where 5 is “very satisfied” and

4 is “satisfied,” customers are six times more likely to repurchase a prod-

uct when “very satisfied” than those who are just “satisfied.” Knowing that

moderate satisfaction does not have a high impact on customer loyalty,

companies need to exceed customers’ expectations and delight them on a

continual basis. Very satisfied customers lead to repeat sales, word-of-mouth

advertising, and the gain of new quality customers willing to pay more for a

company’s products or services.

Companies that possess high levels of customer satisfaction tend to have

increased market share compared to companies with lower levels of cus-

tomer satisfaction. Therefore, the question is how do companies achieve

high levels of customer satisfaction? Besides the methods of doing business

and other important operational details when dealing with customers, the

key to customer satisfaction is in the offerings companies provide customers.

This needs to be amplified. As stated in Chapter 1, companies must provide

customers those offerings that improve people’s lives. This can be accom-

plished by making buyers’ lives more productive, more efficient, more con-

venient, simpler, or even more fun in the various situations they experience

in their lifestyle. In addition, providing better or cheaper solutions to current

needs and wants is also beneficial to customers. This also includes the jobs

buyers need to perform and solving problems they typically encounter. If

the customer is a business-to-business customer, then these offerings must

provide the buyer and its direct customer solutions to their unmet needs or

wants, compared to the competition.