The Strategy Behind 3M, Ford and Apple’s Q1 Earnings

In my ebook, the Growth Zone (available at right), I detail the four major strategic directions available to companies that are seeking growth.

• Quadrant 1: the Optimization Zone – This is where a company improves effectiveness and efficiency of its core offerings — existing uses for your product by existing customers.
• Quadrant 2: the Growth Zone – This is the quadrant where companies find lead customers that pull them out of their niche and into new untapped areas — giving their existing customers new ways to use their products.
• Quadrant 3: the Red Zone - This zone is the toughest to win, it involves finding new customers to buy the existing offerings.
• Quadrant 4: the New-New  Zone – The new-new quadrant is the area of breakthrough, in which you are inventing both the product and market.

I’ve already written about how the end of the first quarter is a critical time from the point of view of calibrating your group’s internal strategy.

Now I want to look at what kind of results companies that use Growth Zone (quadrant two) concepts are getting based on earnings reports. Let’s look at how customer-oriented strategy and focus have paid off in a great first quarter.

Note: This is a post to highlight strategic approaches and any comments about future financial performance are made as illustrations only and should not be taken as investment advice.

3M: A titan of the Growth Zone

One of the most consistent innovators on our list 3M, who has one of the strongest internal systems for consistently looking to quadrant two projects. For the first quarter of this year, they’ve reported gains in sales, earnings and margin improvements: the trifecta of a great earnings report.

3M has long had very good customer-centered innovation processes and measurements in place for years. One of these that’s worth emulating is a tool that measures the freshness of sales from new products, called NPVI = new product vitality index (products introduced within the past five years, divided by total sales).

Notice that the graph on page 14 of this presentation this graph in the presentation has seven years of history and three years of forecast on it.  This shows that they not only are keeping very specific data, but using this for a core planning tool.

Whether in products as diverse as automotive, medical or safety, when you dig deeper you find the customer focussed methodologies of a true Growth Zone approach. This is amazing agility for a firm who has a market cap of $61B.

Ford: A stealth player in the Growth Zone

The report from Ford Motor Company was fascinating. While many of the automotive companies have improved, Ford is on a curve of 11 consecutive quarters of profit.

As you study their comeback you might be tempted to associate them with optimization and supply chain work, and no doubt those are factors. As you go deeper, though, you’ll see that they made some very shrewd investments in getting customer-focused.  Key examples of this are the early commitment to the voice-activated cockpit using SYNC™ , their sustainability initiative —  including hybrid power — and a pervasive use of higher-efficiency, more compact engines through their eco-boost efforts.

These investments in quadrant two have been well rewarded and by taking them across all the platforms have simplified their marketing approach, sales tools and multiplied their advertising spend.  Outcomes include best-ever sales levels for key models like the Fusion, Edge and F series in April.

Apple: Starting in the Growth Zone, then running the table

Lastly let’s look at the press’ favorite story: Apple.  Every key breakthrough from our friends at Apple has intense quadrant two customer focus.   The iPhone took the negative experience of integrated device users and built it into a very smoothly integrated user experience across voice and data. The iPad was a very well-executed rendering device that was born of early advances in touch screen technology married to the mobile iOS platform — a beautiful quadrant two play of giving existing customers new uses for their technology customizable with “apps.”

The ecosystem of these devices, all tied together with the iTunes platform has found a sweet spot in the market, and continues to drive way above-average financial results that have had real sustainability.

It’s easy to forget in this time of success that each of these positions involved a step function improvement over what the early entrants placed in the market.  This uncanny ability to integrate the customer view has allowed Apple to repeatedly take the top position in each category it has entered with its iOS-based iPod, iPhone, and iPad. Well-positioned iterative growth with a platform approach creates a very vibrant enterprise. We’re all awaiting the next part of the story.

The moral of the story: Follow the customer

These are firms lead by using long-wave thinking and intense tactical focus.  They took their learnings and put them back into their planning process to retarget their innovation.  They each took courageous steps in betting early on investments in hardware (Apple with gorilla glass), software (Ford’s SYNC™) and sustainability (Ford’s investment with Ecoboost and Hybrid technology).

There are a hours and hours of sweat and behind the scenes work in setting strategy, trendspotting, lead customer identification, surveys and testing.  Hardware and software is designed and honed.  Partnership agreements are negotiated.  Fulfillment systems are set up to deliver on the promise.

Customer-centered innovation is hard work, but we’re seeing real numbers that back it up. Turning your group into a need-seeking missile is the key to a vitality breakthrough.

When it all works together, as this quarter’s results show, the outcomes are profitable for stakeholders and provide vital, interesting places to work and invest.

If your company or group is stuck, there is no better starting point than finding the unarticulated needs of your leading edge customers and delivering to them. If you would like a fresh objective view, I’d love to help.

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