‘Outside In’ working Written by Ian Pringle

14th January 2016

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So there I was in a restaurant in London with my daughter. After a pleasant meal we were going our separate ways and decided on two taxis. The rain was pouring down and the thought of standing outside trying to hail a black cab in competition with everyone else was not inspiring. My daughter had her phone in her hand, as usual, and told me that two cabs were on their way, while we waited inside in the dry for them to arrive. Uber.  And it was cheaper than I expected.

No wonder the black cab drivers are up in arms.

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This little story emphasises the point that businesses only exist to serve a customer need but if that need changes or there are better alternatives and the business doesn’t adapt to them it will face a very uncertain future. This means they have to be very adept at spotting changes in their customer needs and the competitive environment in which they operate and to be willing to change their business model or operating procedures quickly to stay ahead.

This is nothing new, the concept of the sigmoid curve, which plots the birth, growth, plateau and (if nothing is done) eventual death of a company or product has been around for a good many years. Most business people would recognise this model and agree with it conceptually. But the really difficult question is how do you know what part of the curve you are currently on? Some companies, such as IBM and Wells Fargo seem to have managed this very well and reinvented themselves successfully. Others like Kodak, Blockbuster and more recently the major UK grocers seem to have failed to do this.

Were they just lucky and committed to a transformational change in their business at the right time; or was there something more fundamental going on? Some research carried out by Mark Bertolini, David Duncan and Andrew Waldeck and published in the December edition of the Harvard Business Review suggests that successful companies do not rely on luck. They have processes in place to look outside the business and interpret changes that might look relatively small but would ultimately cause huge ripples in the industries of which they were a part. The leadership teams of these businesses have a strong external focus and are not afraid to challenge themselves to understand how these small changes would impact their current status and change their businesses accordingly. This is ‘outside in’ working.

Unfortunately there are many obstacles to such thinking. The essence of the sigmoid curve is that businesses should reinvent themselves before they hit the plateau, that is, when times are good and the business model is working and producing good results. To embark on a transformational change program at such a time would be a brave move. Employees would be concerned and perhaps cynical of the reasons for change, existing customers could easily be confused and the financial markets would at best be uncertain about the future direction and strategy of the enterprise. So it is a big bet on the future. But then so is the status quo.

The research carried out by Bertolini et al, who faced the same problem with their business, suggests that there are what they called ‘Fault Lines’ that can be identified that point to the sustainability of a business or point to the “ground beneath a company being more unstable than it may appear”.

These Fault Lines focus on 5 key areas for questioning;

  1. Is the business serving the right set of customers in the right way?
  2. Is it using the right set of performance metrics?
  3. Is it positioned properly in its ecosystem?
  4. Is it deploying the right business model?
  5. Do its employees and partners have the necessary capabilities?

This seems to be a pretty good list of questions. As in all things it is the quality and perspective of the questions that adds the insight and value. Bertolini et al provide a check list of the questions they would ask and what is noticeable about these is that they are all future orientated and concerned with what is missing not what is currently in place.

As an example of this, a company I worked for early in my career conducted some customer research, but what was different is that the CEO wanted the majority of the research effort to be focused on potential customers who should have been buying from us but were not. He had a pretty good grasp about our current customers but wanted to know what was preventing non customers from buying. The results of that research were far more enlightening than the usual customer satisfaction surveys and opened up opportunities for growth.

The 5 Fault lines not only help to plot the position on the curve but also, through the gap analysis, provide a clearer vision of the future and an agenda for change. It will inform the work of the sales and marketing teams, provide a context for the operations and finance functions and inform the HR function of future capability requirements.

As Ginni Rometty, Chairman, President and CEO of IBM said; “reinvention is not about protecting your past; we did hardware for 60 years. Don’t protect your past and don’t define yourself as a product”.

Well, it’s time to end this blog as I need to be somewhere else. Now where is that Uber app?….

Our research (‘8 Leadership Team Foundations to Thrive in Today’s Dynamic World’) revealed the key challenges of leadership teams faced with the pace and unpredictability of change and the impact this is having on strategy execution and business performance. We set out the foundations we believe are required to provide organisational leadership that effectively sustains business competitiveness.

Outside In Working‘ is the sixth in our series of blogs, as we look further into each of the 8 foundations.

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