Method in the Madness : Put Your Customers Ahead of Your Capabilities

Dears,

There is a method in this madness of saying “Put Your Customers Ahead of
Your Capabilities”. You will understand as you read through this
article.

Toyota and Dell both did it for a while but then stopped. American Express, Cisco, GE, Tesco, Trader Joe's and Godrej, among others, all kept at it, and have continued to reap the benefits. "It" refers to the adoption of an “Customer Ahead” strategy that calls on companies to start with their market when they design their strategy, rather than limit themselves by asking what they can do with existing resources.

Companies that have adopted an 'customer ahead” strategy are those with a focus on creating and keeping customers by delivering superior customer value. They do that by standing in the customer's shoes and viewing everything the company does through the customer's eyes. Think of customer value as the lens on the strategy.
"Insidethinking", on the other hand, begins by asking, 'What are we good at? What are our capabilities and products? How can we use our resources more efficiently?' It's a resource-based view of the firm that is inherently limiting because it means the company is slow to respond to major changes in the market. we look at a number of companies that began with an 'outside in' lens but then became myopic, falling into 'inside out' vision -- companies like Toyota and Dell for example.
Strategies are especially stressed during a recession, when companies must align their cost base with rapidly shrinking revenues in order to protect earnings. The management team focuses almost entirely on internal processes -- improving productivity, downsizing and so forth. This response is appropriate when your goal is to drive short-run earnings. But if it becomes the predominant point of view on strategy, you are highly vulnerable to shifts in the market, new technologies, new channels or the entrance of new competitors, so an 'inside out' myopia ends up making you vulnerable.
American Express is an example of a company that didn't fall into that trap. It was able to sustain an 'outside in' approach during the recession when a lot of companies were trying to manage earnings by cutting back everything that moved, including core R&D and new product launches. Amex and others said, 'We are going to take an earnings hit anyway, and the last place we want to cut back is innovation. So we will continuously invest in learning about our customer and use this as an opportunity to gain an advantage by improving our value proposition.' Indeed, research going back 30 years suggests that the best time to gain market share is during recessionary upheavals.
Why do companies become inward looking? Many that at one time had been 'outside in' become 'inside out' mainly because they get positive reinforcement in the short run. If you focus on improving efficiency, you get results -- for a while. That's what happens in a recession. A second reason: Strategy theorists argue that resources exist to be used and the task of managers is to improve and fully exploit then. This is certainly a worthwhile aim but, on its own, it is an inherently limiting and unbalanced approach.
We talk a lot about Amazon as a paragon of 'outside in' thinking. It started with an online bookstore, then went beyond books and asked, 'What do our customers really want?' They are now a big provider of cloud computing and web services for their channel partners, and of course there is the Kindle. So [Amazon CEO Jeff] Bezos would say, 'Hey, rather than ask what are we good at, ask who our customers are and what they need. We will figure out how to give it to them.' By shifting the focus so significantly, you open up a much broader array of opportunities.
Toyota is an example of a company that began to focus on the wrong metrics. It became obsessed, not with what the customer needed, but with beating General Motors and becoming big. The company became too internally focused, tried to grow way too fast and lost sight of quality. It became too much of a 'how fast can we drive this growth" approach. As we know, they ran into quality problems.
Procter & Gamble has for years required every one of its executives to visit customers three times a year. Another company is India-based Godrej -- a conglomerate that is involved in industries ranging from appliances and consumer goods to health care and security. India has 26 states representing 26 different markets. Each member of the C-suite owns a state, right down to the company's secretary, and has to be out there in that state four to five times a year to understand what is happening with customers, competitors and channels. This means that every state, in effect, has its own advocate.
In many markets, the distinction is made between consumers -- you and me, the final buyer -- and customers, which would be channels and channel intermediaries. We chose not to worry about that distinction but to go with the more generic term "customers," which includes both. It can refer to anyone who is making a choice based upon comparative value propositions.
The customer buys the expectation of benefits. They are going to patronize the company that delivers the best package of benefits at the most reasonable total cost. In B2B markets, customers win by getting better solutions and by absorbing less risk. A successful company will offer solutions that help the customer make money. GE Wind Power is an example. GE entered this industry in 2003 after buying the remnants of the Enron wind power business. It was a small operation but it gave GE the chance to learn about, and gain insight into, the wind power market. The biggest market at the time was Germany, mainly because the German government provided very substantial subsidies. The market back then was very fragmented, and the belief was that you had to have different sizes of wind power turbines to meet different property specifications. At one point, Siemens offered eight or nine different sizes tailored to a specific location.
The industry had essentially lost sight of the market. Companies never looked at the world through the customer lens and figured out that reliability -- the percentage of time the machinery is working -- and efficiency -- the ability to convert the wind into energy -- were the real keys to making money. So GE Wind Power invested in understanding customer requirements, and based on that, decided to challenge the whole industry model. They built only one size of wind turbine, but they made it extremely reliable. Plus the company used its existing expertise in jet engine turbines to make the most efficient motors anybody has.
The key story here is that GE's insights into their customers gave them a strong sense of where to put their R&D dollars. Subsequent to that, they offered a service guarantee that their turbines would be working 98% of the time.
An 'outside in or customer ahead' strategy means looking at the world as a positive sum game. A lot of the strategy literature, especially the competitive forces approach, is all about intensity of competition. The world is seen as a zero sum game, i.e., "If the customer has more power, we lose." That's not a good mindset. It doesn't help. You need to go into a collaborative conversation with the customer.

Good Luck

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