Refocusing business from the outside-in

A theme running across many of our leadership development programmes is accelerating an “outside-in” focus, turning external business trends and stakeholder expectations into internal actions. There are industry-specific aspects, but all industries are being pulled in this direction.

While change is nothing new, I think we can agree the world now operates differently and the underlying pattern of change has shifted. As John Seely Brown points out, we’ve moved from a world that followed a pattern of S-curve changes (disruptive jumps followed by long periods of stability) to constant disequilibrium, characterized by continuous, rapid, disruptive changes with little stability in between. This macro shift is causing us to rethink and reframe strategy, our relationship with customers, and what we need to do as leaders.

In the old world, corporations shaped the marketplace by leveraging their assets and capabilities. These were considered the sources of distinctiveness and advantage. This core idea, coupled with the ability to improve organizational performance and scale efficiently, were the starting points of a winning strategy and shaped our view of customers.

With the emergence of new economies and global competition, pervasive digital technology and social media, plus customization rather than scale as the new norm, the half-life of our distinctive assets and capabilities continues to shrink as customer expectations escalate.

In response, most companies are elevating their focus on customers. But are we going fast enough and have we shed the vestige of the traditional winning formula, and the associated “inside-out” perspective? Roger Martin coins this “the new age of consumer capitalism” (HBR, February 2010), ushering in a rebalancing of power between companies and customers; it’s time to make creating customer value, not shareowner value, the firm’s overarching goal.

This requires a step change in the customer-centricity journey. As Harvard Business School Professor Ranjay Gulati (The Outside-In  Approach to Customer Service, Sarah Gilbert, February 2010) points out, moving to outside-in means the focus migrates from thinking about customers as segments into which we sell products, towards a deeper understanding of, and commitment to, creating value by solving customers’ problems. This requires going beyond listening and responsiveness to deeper understanding of the challenges facing customers and the trends shaping their businesses.

As leaders, the shift we have to make is more significant than filling data or knowledge gaps. Shedding the “inside-out” orthodoxy requires shifting our defaults and rewiring our thinking. As Duke Business School Professor Christine Moorman explains (Strategy and Leadership, Christine Moorman and George Day, 2013, vol. 41), the change begins with a shift in our beliefs about how we win. What would we change if we truly believed customer orientation, customer experience, and our ability to create more value for customers, were the keys to success?

We must do a range of things to be true catalysts driving this new mindset throughout the business. I’ll mention three. First, we need to widen our lenses by instilling routines to scan the landscape and pick up on trends affecting our own, and our customers’, businesses. Second, we need to be better networked, particularly externally, to enable more diverse thinking about the problem and the ability to bring a broader set of capabilities to solve it. The third thing is more subtle but equally important. Jack Hidary, (Power of Pull, John Hegel III and John Seely Brown, 2012) asks: “How many surface areas do you have exposed?” drawing an analogy from the glycaemic index. Foods with a higher glycaemic index have more surface areas exposed to stomach acids, so deliver sugar faster. He asserts that if we limit our points of contact with the external world, we slow growth and limit our ability to adapt, reducing our impact.

It appears Darwin’s theory endures: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one most adaptable to change.”

How many surfaces are you exposing to the external world?

 

Michael Canning is Chief Executive of Duke Corporate Education.