Value demand is “normal, healthy basic demand” that arises from customer needs (tasks, jobs to be done), to which the organisation responds by offering appropriate services and/or products. Failure demand is unnecessary additional demand that arises when customer needs have not been met, and the customer has to return to the service. Failure demand is a significant cause of inefficiency and cost escalation in organisations.

Value Demand

Value Demand describes a situation where customers have needs for which they seek products or services to help them achieve their desired outcome. Customer needs are tasks that customers want to accomplish (jobs to be done). Value demand is thus a situation where customer needs meet the services and/or products offered by the organisation.

If the organisation successfully responds to value demand in a way that meets the customer’s needs, that is, the outcome produced by the services and/or products benefits the customer, the customer feels they have had a good customer experience. Customer value is therefore the benefit, the added value that the customer feels they receive if the service and/or product meets their expectations. In other words, there is a benefit from the service and/or product, which can manifest in different forms. For example, the customer solves their problem or completes their task, or saves time if the use of the service and/or product speeds up the completion of their needs or tasks. The benefit can also be in the form of saved money, as the customer can complete their task more affordably.

Customer experience and customer value are based on the quality of the service and/or product. Quality determines the customer experience and the associated benefit perceived by the customer.

Value demand directs customer needs to the services and/or products offered by the organisation.

What, where, when – and why? It is important to understand what the customer needs, why they need it, where (the situation) they need it, and when they need it. This information is called customer insight, which is obtained by collecting information about the customer’s actions, asking about the customer’s needs and motives. Customer insight can be obtained utilizing service design and data analytics methods. In this sense, it is paramount to start from customer needs.

Customer need creates value demand. The organisation aims to respond to this demand with its services and smooth processes. From a holistic perspective, the organisation should strive to respond to demand, i.e., customer needs, and then tailor its services and operations to meet this demand. As a result of focusing on creating customer value, the organisation also generates business value.

From the organisation’s perspective, it is essential to focus not only on customer needs or expectations but also on service delivery, i.e., how the service process and employees function. It is worthwhile for the organisation to tune this operation to be as smooth as possible, following the Lean philosophy by maximizing flow velocity and minimizing unnecessary ‘waste,’ valueless activity. In this regard, the organisation can leverage technologies such as artificial intelligence (AI) and robotic process automation (RPA).

It is worth noting that satisfied employees serve customers well. The better the work environment, the more likely customers are to receive good service. In this sense, employee satisfaction contributes to customer satisfaction, meaning that employee experience affects customer experience.

To ensure smooth operation and the quality of value demand, it is recommended to proceed in the following order when changing or renewing operations:

• Identify customers/customer groups, as well as other stakeholders (using Stakeholder Map)
• Identify customer needs and customer journeys (using Service Blueprint).
• Identify services and/or products offered to customers for their needs, from which customers benefit.
• Identify organisational processes related to service delivery (and necessary information systems if needed).

Value demand creates value for the customer and is in line with the business model of the organisation.

Failure Demand

Avoidable unnecessary additional demand, failure demand, describes a situation where the outcome of the service does not meet the customer’s expectations. The customer has to return to the service with additional needs, either during or after the service process. Failure demand is the result of poor or unsuccessful service by the organisation. Therefore, both customer experience and employee experience are poor: the customer experiences unnecessary trouble, and the organisation faces unnecessary additional work and costs. Failure demand ‘disturbs’ smooth customer service and smooth business operations.

Failure demand is the result of failed or inadequate service by the organization, leading to a poor customer experience and causing unnecessary additional work for the organization.

Customer needs “mismatch”

The misalignment (gap) between customer needs and the organisation’s offerings, the “matching problem”, is a situation where there is no suitable service for customer needs in the organisation’s offering – or the appropriate service exists, but it is not available at the right time. If the need and supply are not met, it is a matching problem, which often results in failure demand.

The matching problem, or mismatch problem, occurs when an organisation’s offerings do not meet the customers’ needs.

“Failure to serve the customer results in the customer returning with additional demands. The customer becomes dissatisfied, the organisation becomes burdened, employees become tired, and costs rise. This phenomenon is called failure demand. It arises when the customer receives the wrong service, no service at all, or only partially the service they came for. The fault lies not with the customer but with the organisation. Failure demand is always a signal that the interaction between the organisation and the customer is not functioning.” [H. Hyytiälä]

“Failure demand is demand we don’t want. It’s demand that arises from the organisation’s inability to do something or do something right from the customer’s perspective. In other words, the service and the organisation providing it don’t function as expected, causing the customer to reach out again. The portion of failure demand may account for tens of percents of total demand, sometimes even over 50% (in social and healthcare services, as much as 80%!). Failure demand can be seen as customer contact that doesn’t add value. The customer isn’t willing to pay a penny more for the service provider to solve problems caused for the customer. The key is to understand demand from the customer’s perspective, rather than considering problem-solving as value creation.” [K. Liuksiala]

Failure demand is demand that we do not want.

What is the actual problem? Why is failure demand problematic, and why should it be addressed? Why not just acknowledge that such a phenomenon exists, occurring occasionally? Failure demand has consequences that are problematic for all parties involved (according to H. Hyytiälä):

1. Availability and Quality of Services Deteriorate: This reflects a quality issue, where unnecessary bouncing from one counter to another or repeatedly addressing the same issue causes customer frustration.
2. Increased Burden on Organisational Resources: This indicates a capacity problem, where the volume of unnecessary work detracts from value-producing activities, putting additional strain on organizational resources.
3. Rising Costs: This is an economic or cost issue, where unnecessary work leads to increased costs, both direct and indirect, such as additional time, raw materials, and other resources.

These issues are significant for customers, organisations, and, more broadly, for society and the economy as a whole. Therefore, it is crucial to address failure demand. Ideally, this should be done proactively to prevent or reduce its occurrence. Reducing failure demand is economically beneficial, as it enhances both customer and employee satisfaction. Fewer instances of failure demand lead to greater satisfaction and a better overall experience with the organization and its services.

Failure demand occurs when a customer must return to a service because the initial outcome did not meet their expectations.

Causes of Failure Demand

When the customer’s needs and the organisation’s offerings do not align, failure demand arises. Failure demand sets off a negative cycle that is harmful to the organisation, but above all, it is undesirable for the customer. The customer does not receive the best possible service, and their needs are not met as expected. The root causes of failure demand are 1) poor understanding of the customer’s needs and situation, and 2) ineffective service processes. Both are the organisation’s fault. Both are problems that the organisation has caused for itself, resulting in suffering for both the customer and the organisation. Neither the customer’s actions nor the organisation’s actions are well understood—they are poorly understood. Failure demand does not come as a surprise.

1. The primary cause of failure demand is often simply the poor understanding of the customer’s situation and needs: the service provider organisation does not know its customers and their needs well enough.
2. Additionally, the service process of the organisation is dysfunctional: it involves ambiguity, imprecision, uncertainty, and lack of systemization:
   • ambiguity about the customer’s situation,
   • imprecision regarding the customer’s needs,
   • uncertainty and data gaps in the progression of meeting the customer’s needs, resulting in ‘bouncing the customer around,’
   • inefficient and disorganized operations such as duplication, inconsistency, or inadequacy: incorrect information is requested from the customer at the wrong stage, or too little or too much, and meeting the customer’s needs does not succeed on the first attempt.

Failures cause inefficiency and a decline in flow efficiency, so their occurrence should be prevented in advance. Failure demand leads to an increase in valueless work, or Lean ‘waste’, in internal organisational operations. Typical causes of waste include:

1. waiting, delays (completion of tasks or catching people takes time, delayed diagnosis or treatment),
2. unnecessary movement of goods or information (includes unnecessary data queries, unnecessary forms, additional information, etc.),
3. overprocessing (overdesign, overly precise and detailed work, often an 8 out of 10 is sufficient and 80% completion is okay),
4. rework (re-entering the same information repeatedly or repeating work steps unnecessarily),
5. unnecessary inventory (tasks are done unnecessarily early or stocked unnecessarily),
6. unnecessary motion (people, objects, things),
7. service errors / failures, incorrect or wrong service or product, incorrect action, incorrect work output (fixing errors costs time, money, and ties up personnel),
8. overproduction (producing more than necessary, which is the worst waste; should be done just in time and only as needed, that is, sufficiently, just enough, and always start with the Minimum Viable Product (MVP), the smallest possible functional solution), and
9. underutilization of skills (lack of trust in people, often a result of leadership issues).

The root causes of failure demand are a) poor understanding of the customer’s needs and situation, and b) dysfunctionality in the service process.

The emergence of failure demand is related to the organisation of work, according to Hermanni Hyytiälä. Hyytiälä identifies the following reasons behind failure demand:

1. Efficiency and incentives are based on the quantity of work (following the model of manufacturing industry).
2. Hierarchy, professionalism, and power structure-centered organisation of work.
3. Formation of services aimed at standardization and centralization (‘one size fits all’ does not produce a good customer experience).
4. Separation of decision-making from operational activities, from everyday work (decisions are not made by content experts).
5. Division of work into front-end and back-end functions (separation of customer interface leads to resource-centricity in back-end functions).

Failure demand is often caused by problems in organizing work.

Failure demand:

• The customer does not receive the service they need and must return with additional requirements.
• The organisation incurs unnecessary extra work due to additional requirements.
• The customer experience is poor, and so is the employee experience.

Failure demand burdens the organisation

The additional work resulting from customers’ additional needs creates an illusion that the organisation is efficient because employees are busy and have a lot to do. This illusion of efficiency (efficiency paradox) arises from the idea that a well-functioning organisation would ideally have no spare capacity [N. Modig, P. Åhlström]. However, the truth may be that a significant portion of the work is unnecessary additional work. From the customer’s perspective, an organisation that appears to be resource-efficient and operates at full capacity may be slow and inefficient. The overload of capacity may simply be due to the unnecessary work caused by failure demand. While value demand creates meaningful work, failure demand creates unnecessary additional work.

“Is it possible that a significant portion of the work carried out in our organisations is simply waste? Perhaps we consider ourselves efficient as we handle thousands of tasks, but in reality, we are just squandering our resources. And on a broader scale: what implications does this have for how we use resources at the societal level?” [N. Modig, P. Åhlström, This is Lean, 2013]

Failure demand may be the reason for the organisation’s capacity overload.

How can the emergence of failure demand be prevented?

Failure demand stems from both a poor understanding of the customer’s needs and situation, and problems within the service process. Both are caused by the organisation, and the organisation can address both.

Addressing failure demand requires an understanding of the customer’s situation (context) and needs. It can be tackled by understanding the customer process or journey, along with the supporting service processes. Together, these form a comprehensive, holistic framework that encompasses both a) the customer perspective and b) the organisational perspective. Both must be understood.

Addressing failure demand requires an understanding of both customer and organisational behavior.

The customer journey (or service journey) is the entirety of what the customer does and experiences when interacting with the services offered by an organisation. The customer journey provides customer understanding, i.e., information about the customer’s situation (such as life situation). Through this understanding, the organisation can offer services that are as suitable as possible and at the right time. The organisation’s goal should be the right services and expertise at the right time.

Failure demand resolution starts with opening up the customer journey, which is linked to internal service processes within the organisation. These different perspectives converge and intersect at the service interface. The customer perspective examines the whole from the outside in, while the organisation perspective examines the same whole from the inside out. It is apparent that the most useful approach is to consider all of this holistically, taking into account both perspectives. This can be achieved through the Enterprise Design approach provided by the Intersection Group, which integrates both perspectives and their methods.

A Service Blueprint is a descriptive method where the customer journey intersects with the processes of service delivery, i.e., the organisation’s operations, through the service interface. In this sense, the Service Blueprint is a model that illustrates the interaction between the customer and the organisation, making it a useful tool for analyzing both value demand and failure demand. Below is an example of a Service Blueprint.

For more information about the service blueprint see Customer Journey and Service Blueprint.

When breaking down the customer journey into its components, analyzing customer feedback and process metrics provides a comprehensive overview. Following this, interventions can be made at individual customer touchpoints and process stages. The customer service journey and the supporting organisational service process are broken down into parts, identifying pain points for the customer as well as organisational issues, and addressing dysfunctional steps in the service process. Process optimization, following Lean philosophy, aids in improving flow efficiency.

Eliminating failure demand

To prevent failure demand, we can:

1. Enhance customer understanding by gaining better insight into both the customer’s situation and actions.
2. Focus on addressing pain points at the customer interface, such as identifying customer pain points and factors hindering a smooth service experience.
3. Understand the internal processes and roles underlying service delivery within the organisation: who does what.
4. Identify failures in the organisation’s service process (e.g., Lean ‘waste’), such as redundant activities, waiting times, errors, and unnecessary movement of people and/or items.
5. Improve the organisation’s service process(es) by leveraging principles from Lean philosophy:
   • minimize unnecessary ‘waste’, such as waiting and movement, and reduce errors through guidance and training.
   • The goal is to deliver the right service at the right time, executed correctly, to effectively address the customer’s needs promptly and efficiently. Corrections should be made collaboratively based on shared goals. At the frontline of service, there should be a wide-ranging and sufficiently deep expertise available to promptly and efficiently address customer needs—typically, individuals are either generalists or specialists, rarely both. In the case of digital services, leveraging artificial intelligence presents a significant opportunity to deliver highly tailored services from the initial contact onwards.
6. Shift the main focus to customer actions and needs by transitioning to a customer-centric operating model and managing customer journeys (according to Customer Journey Management approach).

In practice, it’s beneficial to describe the service ecosystem, which enables better understanding and facilitates easier modifications. A useful tool for this purpose is the service blueprint. In the context of failure demand, the issue ultimately boils down to what’s known as “matching optimization,” simply meaning that efforts are made to provide customers with the right service at the right time. This addresses the matching problem, ensuring that customer needs align with the organisation’s service offerings.

Understanding the customer’s situation and needs can be achieved through service design techniques, while understanding the organisation’s operations can be accomplished through business architecture. Together, these form the Enterprise Design approach, which comprehensively and humanely examines both customer activities and organisational business. Visualizing the entire process aids in forming a shared understanding. It’s advisable to describe things in a way that everyone understands and that is easy and quick to do. The description language of the Enterprise Design approach, known as EDGY, is simple and straightforward yet expressive enough. It allows for the depiction of both customer and organisational activities in a manner that facilitates discussions about necessary changes and the formation of a shared understanding of the overall picture.

To prevent failure demand, transitioning to a customer-centric approach through the management of customer journeys is essential.

Enterprise Design facilitates the holistic design of enterprises

Enterprise Design is a holistic and human-centered approach that combines both customer and organisational perspectives. It is based on the Facet Model, which helps in asking the right questions when designing services. The Enterprise Design Facet Model supports the switching of perspectives, allowing for the examination of the target area from different angles and considering all factors that impact the overall system.

Enterprise Design:

• Helps organisations a) understand the customer and b) shape their services to meet customer needs.
• Integrates both the customer perspective and the organisational perspective.
• Supports co-design, collaboration, and co-learning, where different experts and stakeholders from diverse disciplines collectively examine the design challenge or the target system for development and form a shared vision.

Enterprise Design starts with understanding the enterprise as a whole.
Such a holistic approach lets us look at the enterprise from all relevant perspectives, recognise and explore relevant dependencies, and find the biggest leverage points for change. For that reason, Enterprise Design brings together many different disciplines.

Source: What is Enterprise Design?

Such a holistic approach lets us look at the enterprise from all relevant perspectives, recognise and explore relevant dependencies, and find the biggest leverage points for change. For that reason, Enterprise Design brings together many different disciplines.

The Enterprise Design approach is supported by the EDGY description language, which is a simple high-level language that is easy to learn and understand. EDGY brings together different groups of experts when shaping and renewing services. EDGY is supported by various tools (such as Miro, Draw.io, PowerPoint, etc.).

Through the Enterprise Design approach and the EDGY description language, business can be examined comprehensively from various perspectives. This combines methods from service design and business-driven architecture for all expert groups through the common language of EDGY. This enables the formation of a shared understanding of how customers and organisations operate and how these aspects can be combined to deliver better services. This is for creating better organisations and better business – for the customers – for creating better enterprises!

Enterprise Design integrates both the customer perspective and the organisational perspective.

Enterprise Design approach can be used for the holistic service design covering both the customer perspective and the organisation perspective.

Overview

From the organisation’s point of view, it is essential to identify the causes of failure demand. Failure demand is the result of defects or flaws in the organisation’s operations, services, or processes.

There are several potential reasons for failure demand, including:

• The service does not meet customer needs: The organisation offers products and/or services that do not meet customer needs.
• The service and/or product is not relevant or useful to the customer.
• The service is not available when the customer needs it: The organisation’s service hours do not meet customer needs.
• The organisation does not offer its services at a suitable time for the customer, or there are no services available at all when the customer needs them.
• The service does not function properly:
  • The organisation’s service process does not work as intended.
  • The organisation’s employees do not perform their tasks correctly, or the service process is not smooth.
  • The service may be slow, or the quality of the service may be poor.
• The service is not accessible: The customer cannot access the organisation’s services. The customer may encounter obstacles such as geographical distance, lack of transportation, or other barriers.
• The service is difficult to use: The organisation’s services are difficult to use or understand. The customer may have difficulty using the service, understanding the service instructions, or finding the information they need to use the service.

Failure demand arises when the organisation fails to provide a suitable service to meet customer needs.

The systemic problem, the matching problem, must be addressed to eliminate failure demand. This requires identifying and understanding the causes of failure demand and then making the necessary changes to the organisation’s operations, services, and processes. The organisation must adapt its operations to better meet customer needs and eliminate obstacles that prevent customers from accessing and using its services.

By eliminating failure demand, the organisation can improve customer satisfaction, employee satisfaction, and operational efficiency. Customers receive better service, employees have fewer unnecessary tasks, and the organisation saves time and resources by not having to deal with unnecessary additional demand.

EDGY tools

The Enterprise Design language, EDGY, from the Intersection Group, enables people to design well-designed outcomes for better enterprises!

EDGY diagrams can be created with several tools, such as:

• Draw.io (available as Confluence plugin, which enables lots of features for combining diagrams, text and tables)
• Miro
• QualiWare
• BlueDolphin
• PowerPoint

More to come.

EDGY stencils (+ lots of information) can be found on the Intersection Group’s Enterprise Design with EDGY pages:

• Enterprise Design with EDGY
• EDGY Tools

References

[1] Intersection Group pages, https://intersection.group

[2] Enterprise Design with EDGY pages, https://enterprise.design/

[3] EDGY language foundations, book, 2023, (available as pdf), link

[4] EDGY 23 Language Foundations, Online course (4 weeks), Milan Guenther & Wolfgang Goebl, link

[5] Enterprise Design Patterns, Intersection Group book, 2020, (available as pdf), link

[6] EDGY 23 product release, launch on 29th March 2023, webinar recording, Milan Guenther & Wolfgang Goebl, link

— Eero Hosiaisluoma