Strategy: Forget The Customer and Focus on Purpose?

Is purpose the vital access to performance and the starting point of strategy?

What explains the variability in performance – revenues, profits, share prices – across firms who compete in the same industry? Why, for example, does IKEA do so well in the furniture industry when many other players struggle or have to accept modest performance?  Is the answer that IKEA is customer-centric and the other players are not?  Is it that IKEA delivers a superior customer experience?

Cynthia Montgomery in her book The Strategist explores this question and shares her answer.  She says:

Purpose is where performance differences start. Nothing else is more important to the survival and success of a firm than why it exists, and what otherwise unmet needs it intends to fill. It is the first and most important a strategist must answer. Every concept of strategy …… flows from purpose.

Will any kind of purpose do the job?  Is the purpose of making mountains of profit and enriching shareholders enough? Is the purpose of letting the lean folks loose so that all the processes can be streamlined and any joy, the comes with being social human beings, driven out of existence, enough?   Is it enough to simply be great at interacting with customers at the touchpoints that matter?  No, according to Cynthia Montgomery.

We hunger for purpose that lifts us up from the harshness and banality of the dog-eat-dog world of competition. And this includes the Tops:

Many of them want to feel that what they do matters in some context larger than themselves and larger even than their companies….

So is an inspiring, uplifting, purpose enough? Not according to Cynthia Montgomery. She says that purpose needs to do much more than inspire.

1. A good purpose ennobles 

You and I are are spiritual beings manifested in physical form. Whether we like it or not, in our quiet moments, we find ourselves called to answer questions concerned with meaning. What is life about? What is my life about? Am I leading a meaningful life?  Is this organisation and its mission worthy of me and all that I have to contribute?

In an age where 80% of employees are disengaged at work you can see the value of a noble purpose. A noble purpose inspires people in the organisation, it literally elevates and energizes.  Talking of IKEA, Cynthia Montgomery says:

The people at IKEA don’t believe they’re flogging cheap furniture. They believe they’re creating a “better everyday life” for the many people who can’t afford top-end furnishings.

Cynthia goes on to say that we should not overlook the vital role of purpose in calling forth and fostering the care and commitment that lead people to play full-out and generate good results.

I say that a good purpose ennobles more than the people inside your organisation. I say that a good purpose ennobles customers, ennobles distribution partners, ennobles suppliers, ennobles the community in which your organisation operates.

2. A good purpose forces choice and puts a stake in the ground

A good purpose forces choice: to stand for one set of values and not others; to do X and not Y; to be this and not be that.  Choosing is painful because it means letting go of some options. Choice is also critical because it enables focus. Here is what Cynthia says:

If your purpose does not preclude you from undertaking certain kinds of work, then it’s not a good purpose. Purpose, like strategy, is about choice, and real choice contains …… both positive (“We do this”) and negative )”By implication, then, we don’t do something else”) elements.

3. A good purpose sets you apart; it makes you distinct

A good purpose is not generic, it does not lead you to say “We are a training company” or “We are a telecommunications company” or “We are a marketing agency”.  A good purpose spells out the reasons for your existence, the people (customers) you have chosen to serve, the needs you have set out to meet, the contribution that you committed to making.  It is in these specifics that the purpose comes alive. Cynthia shares how IKEA describes its difference:

From the beginning, IKEA has taken a different path ….. It’s not difficult to manufacture expensive furniture. Just spend the money and let customers pay. To manufacture beautiful, durable furniture at low prices is not easy. It requires a different approach. Finding simple solutions, scrimping and saving in every direction. Except on ideas.

There is a lot of talk about innovation and how rare it is in larger organisations. Yet, IKEA continues to innovate. What does Cynthia say:

IKEA’s experience illustrates a key advantage of a good purpose. A clear sense of what a company is striving to do can serve as a focal point or a core organising principle around which a whole set of innovations and distinctive features can coalesce.

4. A good purpose sets the stage for creating and capturing value

Whilst I can and do come across as an idealist, I am also a pragmatist.  After all I qualified as a chartered accountant, as such I get the critical importance of profits and cash-flow. So does Cynthia, she writes:

Whatever your purpose, it must mean something to others in ways that produce good economic outcomes for you. What made IKEA’s purpose so powerful was not just that it was distinctive or well-defined, or that it made people feel part of something bigger and more important. It also drove IKEA’s superior performance in its industry.

The acid test, then of purpose is this: Will it give you a difference that matters in your industry?  Not all differences are equal. You need a difference with real consequences….. Even a legitimate difference such as “best-in-class quality” is often rendered meaningless by companies that trumpet the words but don’t make the investments or tough trade-offs such a goal requires.

And finally

If you are doing “Customer Experience” stuff ask yourself this question “This stuff that we are doing will this give us a difference that matters with our customers and in our industry?” I say that much of what is showing up under the Customer Experience banner fails this test. And I have been wrong many times before.

If you have any interest in strategy, purpose, and organisational effectiveness then I throughly recommend getting hold of a copy of Cynthia Montgomery’s book The Strategist. It is both easy to read and it is a great read.  I swear she is versed in existential philosophy as her book is imbued with existential tones: purpose, choice, courage, being and becoming….

Is this the access to profitable revenues, loyal customers and enduring success? (Part I)

Being a physics graduate I value an insightful theory that opens up new domains of enquiry and provides access to breakthroughs in performance.  Now and then I come across a business author who nails it, who provide such a theory.  It occurs to me that Clayton Christensen nails the essence of the customer-centric approach to doing business. And it just happens to be at the core of my consulting work.  Let’s start.

Do you have a deep understanding of what problems customers are trying to solve?

Let’s start with a truth that is so neglected. When I say neglected, I am not saying that you have not heard this truth.  I am clear that many of you will have heard of it – most likely it is a platitude.  And that is the very reason that this truth is not taken to heart, not lived, not given life in the world of business.  What truth?  This is what Clayton Christensen says in his marvellous book How Will You Measure Your Life?(bolding is my work):

“Many products fail because companies develop them from the wrong perspective.  Companies focus too much on what they want to sell their customers, rather than what those customers really need. What’s missing is empathy: a deep understanding of what problems customers are trying to solve.  The same is true of our relationships: we go into them thinking about what we want rather than what is important to the other person.  Changing your perspective is a powerful way to deepen your relationships.”

Why does this passage speak to me? It is my experience. Time after time in my consulting work I am struck by the truth of this understanding.  A lack of empathy and understanding for the customer as a human being who becomes a customer of the organisation in order to ‘hire’ that organisation – through its people and ‘products’ – to get a job that matters, done.

What can we learn from IKEA?

IKEA is an incredibly successful discount furniture retailer.  It has been in business for over 40 years, it has global revenues in excess of 25 billion euros and Ingvar Kamprad (the owner) is one of the richest men in the world.  The success of IKEA is not based on secret formulas, intellectual property, nor barriers to entry. So why is it that nobody has successfully copied IKEA?  This is what Clayton Christensen says (bolding is my work):

IKEA’s entire business model – the shopping experience, the layout of the store, the design of the products and the way they are packaged – is very different from the standard furniture store.  Most retailers are organised around a customer segment, or a type of product….

IKEA has taken a totally different approach. Rather than organising themselves around the characterisation of particular customers or products, IKEA is structured around a job that customers periodically need to get done.

The “job to be done” as a source of innovation, growth and competitive success?

Let’s continue listening to the wisdom of Clayton Christensen:

Through my research on innovation ….. my colleagues and I have developed a theory about this approach to marketing and product development, which we call the “job to be done”. The insight behind this way of thinking is that what causes us to buy a product or service is that we actually hire products to do jobs for us.

We don’t go through life conforming to particular demographic segments: nobody buys a product because he is an eighteen to thirty five year old white male getting a college degree. That may be correlated with a decision to buy this product instead of that one, but it doesn’t cause us to buy anything. Instead, periodically we find that some job has arisen in our lives that we need to do, and we then find some way to get it done.  If a company has developed a product or service to do the job well, we buy, or “hire” it, to do the job.

The mechanism that causes us to buy a product is “I have a job I need to get done, and this is going to help me do it.

So if you are going to segment your customers then segment them by the jobs that they “hire” you for. Here, I want to point out that you can use this “jobs to be done” approach for all customer touchpoints.  For example, what jobs do your customers hire your call-centre for?  What jobs do they hire your website for?  What do they hire your facebook page for?

Back to what we can learn from IKEA? 

Having set out his theory, Clayton Christensen returns to IKEA and explains the cause of its success as follows:

IKEA doesn’t focus on selling a particular type of furniture to any particular demographically defined group of consumers. Rather, it focuses on a job that many consumers confront quite often as they establish themselves and their families in new surroundings: I’ve got to get this place furnished tomorrow, because the next day I have to show up at work. Competitors can copy IKEA’s products. Competitors can even copy IKEA’s layout. But what nobody has done is copy the way IKEA has integrated its products and its layout.

This thoughtful combination allows shoppers to quickly get everything done at once….. In fact, because IKEA does the job so well, many of its customers have developed an intense loyalty to its products.

What is the lesson according to Clayton Christensen?

He sums it up well and find me in total agreement:

When a company understands the jobs that arise in people’s lives, and then develops products and the accompanying experiences required in purchasing and using the product to do the job perfectly, it causes customers to instinctively “pull” the product into their lives whenever the job arises. But when a company simply makes a product that other companies also can make – and is a product that can do lots of jobs but none of them well – it will find that customers are rarely loyal to one product versus another. They will switch in a heartbeat when an alternative goes on sale. 

I will continue the conversation around the ‘jobs to be done’ approach of doing business and creating superior value – for the customers and your business – in the next post in this series.

Why price matters and how it is tied up with marketing, service and customer experience

In a recent post, I wrote:

“Bob Thompson shared the results of research he had been involved in some years ago.  When customers were asked what constituted ‘customer-centricity’ they came up with:  product quality/fitness for purpose; customer service excellence; being treated fairly; and price.  Bob made a big play, as do others, about price only being fourth on the list.  I will be writing a post on the price myth soon.”

Can you count on customers to tell the ‘truth’?

Before we can grapple with the ‘price is not that important, other stuff is more importantmyth we have to grapple with the customer/market research myth.   Why?  Because the people who make customer related claims – including on the matter of price – almost always refer to the results of customer surveys and market research.

Research simply discloses how a specific bunch of people responded to/answered a set of questions given the way that these questions were worded/framed and how/when the research was conducted.  ‘That is it – that is all it tells you!  You cannot use it to make declarative statements of ‘truth’ about what matters to customers nor what they actually do when they are shopping in the real life shopping environment. Even if we assume that all bias has been stripped out of the surveying/research process we are confronted with this:  people deceive themselves whilst being convinced that they are espousing the truth – neuroscience suggest that this is a fundamental feature due to the design of the brain, which is really many brains in one.

Asking about price, and how much it matters or not, is like asking about sex.  Why?  Because the question is laden with meaning which puts one’s identity, self-esteem and ‘social face’ at stake.  If you are a woman and answer that you have had many partners and love sex then you are likely to be thought of as being ‘loose’ and looked down upon.  And you, the woman that is being asked that question know that and so you modulate your answer – you lie.  Now imagine that you are a man.  How likely are you to say that you have had no sex at all in the last three months?  I recently took part in a speed awareness course where only 2 people out of 23 claimed not to be ‘better than the average driver’  Was it because most of us in that room (including me) are deluded or is it some of us were not willing to admit that we are not good drivers in front of our fellows?  Possibly and most likely both.

First the price question will be answered differently by different segments and you cannot average it out – to some people it might matter a lot, to others not at all. Second, there will be a ‘right’ answer (socially desirable) given the current circumstances – have you noticed how thrift is in and conspicuous spending out?  Third, what people say (and even think they do and what matters to them) is often very different to what is so.  And even when you educate them on what is so they tend to ignore it – they were blind to it for a very good reason.

In short,the scientifically correct thing to do is to be skeptical about what people say: you simply cannot count on human beings to have accurate insights into themselves or their behaviour.  And you cannot count on them to tell the ‘truth’ as it shows up for them if their ‘social identity’ is at stake.

What is our relationship to price?

Take a look at what is happening on the high street. We go and try out products and get advice in stores and then go home and buy it online because we can get the same product cheaper.  Is this why so many stores have closed in the UK and why high streets are littered with empty or boarded up shops?  Remember Gateway?  The  online PC seller who opened stores and designed/delivered a great shopping experience?  It ended up closing the stores.  Why?  Consumers tuned up at the stores got great advice and then they went home and bought online from Dell because Dell was cheaper.  What was the fear with the internet?  Ease of finding/comparing prices.  Why?  Because it would enable buyers to buy from the cheapest seller.  Why do offline retailers fear smartphones?  Because they enable shoppers to compare prices and either buy it online (cheaper) or head for a store down the street that supplies the same product at a cheaper price.

Look at Ryanair and Easyjet – these low cost airlines exist because they have come up with a low price value proposition for air travel that speaks to people whose first and foremost requirement is price – cheap.   Look at IKEA – it had done the same for furniture.  Then there is WalMart in the USA and Matalan in the UK – doing very well by selling merchandise at value prices.  In short these players are doing well because they are playing the price card well.

Price can also be an indicator or quality and thus assuage our concerns about being swindled/making the wrong choice.  For example, experiments show that if you have a high end product and a low end product then you can do better by introducing a ‘in between product’ in terms of price.  When you do that what happens?  You make more money because you help people to buy.  Most people will buy the ‘in between’ priced product – these people fear buying the ‘cheap’ products (quality concerns) and are not up for buying the top priced product.  Note: it is essential that the shoppers is uncertain about the quality of the products for this behaviour to show up.

What is my point of view on Price?

I say that price does matter especially in the current economic climate.   We are all sensitive to price – our sensitivity depends on our sense of our financial well being.  It depends on current savings, current income and how we see the future. If our income/savings are low then we will be price sensitive.  Last summer I spent some time in the New Forest and in particular in a locale where only the rich can afford to live – property price are high.  Yet, I was shocked to see busy ‘cheap stores’ nestled in amongst the expensive stores. Then I got that there are plenty of old folks who have retire in this locale.  They have used their savings to buy their homes and their incomes are limited and so they use the ‘cheap’ stores.  Finally, the future matters, if the future looks bleak then we are more price sensitive than if the future looks bright.

I say that we will not willingly pay more than we have to for the same product if all things are equal.  A great example of this is insurance – most people buy on price as they assume that all companies, all policies are alike.   Only those that have made a claim, become wise to and factor in what the policy covers and the claims experience.  That means that if store A wants to charge us more than Store B  for an identical product then the people at store A have to invent differences and communicate these differences so that the customer can justify paying the higher price.

The central challenge of business continues to be inventing differences – real and imagined – so as to get the customer to pay a higher price than s/he would otherwise pay.  The factors that companies have to play with are: product and product development; marketing and the art/science of impression/perception management (notice the interest in neuroscience and neuromarketing); service (not the function called Customer Services) and in its broadest/modern sense Customer Experience; and business model design – what you charge for, how you charge….  Apple does it through great products.  Zappos does it through great service. Amazon does it through the ease of the purchasing process.  USAA does it through the ‘community’ and ‘integrity’ and ‘service’.  Zane’s Cycles does it through the customer experience and ‘community’………

Put differently, the justification for investments in marketing, in service, in the customer experience are based on counteracting the buyers propensity to buy on price if all things are equal.  That means that the purpose of marketing, service, customer experience is to ensure that all things are not equal in the minds of buyers.  Manipulating perceptions – the role of marketing – used to be enough because only marketer had access to media. Media exists to shape minds – always.  Marketing no longer works that well due to the democratisation of voice. Which is why there is pressure to actually be different: stand out products; stand out service; stand out customer experience. This requires a fundamental change in organisational behaviour: investments have to move from marketing (impression management) to the product and/or the operations that enable buyers to buy, own and use the product.  Few organisations have made that shift in priorities and spending.  Which is why so much customer talk is simply empty talk.  Now compare that with the companies that stand out in terms of product-service-customer experience: do you notice that they don’t spend anywhere near as much on marketing as their competitors?

What is the good news?  Whilst price matters it is not the only thing matters.  Our dignity matters to us – we are selves who are aware of ourselves and who are driven to relate to ourselves as worthy/important/as mattering.  And this need is as important as the need for a ‘good deal’.  As such this provides an opening for organisations who honour our need for validation, for dignity, for wanting to feel there are good guys out there and that we live in a ‘good’ world.  Which is why companies like Zappos and Zane’s Cycles are doing well – they charge premium prices in turn for honouring us ‘as the best of ourselves’ .  And enough of us are willing to pay the premium price and talk about these companies as if they are our friends.  Because they show up for as being our friends.  Amongst friends, price is not the most important thing, it is trust, it is looking after one another, it is acting equitably/fairly.  It is giving a helping hand now, in the full knowledge that our friend will be there when we need that hand in return.  As and when that expectation is violated by our friend/s then we speak out – think Netflix.


Everything I have learned about business, customer-centricity, customer experience and life

Whenever I struggled with a Physics problem my professor (a wise man) instructed me to go back to the fundamentals: the fundamental principles of Physics.  This post is written in that spirit.

A little about the value and limits of frameworks

So you want to lead your organisation to competitive success.  Great.  Without a framework – a point of view that you CREATE and IMPOSE on the messiness of reality – how are you going to get there?

Here is the framework that I use based on everything I have learned about business and customer-centricty – looking through the lens of the strategist rather than an expert in operational effectiveness/efficiency.  Before you read what I write, I am compelled to point out that everything that I share with you is NOT the truth.  It can NEVER be the TRUTH.  Why?  When you dive into it, really dive into depths, you will see for yourself that ultimately life is a mystery.

Frameworks are simply models.  Models are not an accurate depiction/representation of reality (what is so).  Models are useful because they simplify reality and thus allow us to act on it.  Frameworks are filters – they filter out that which is unnecessary.  The issue is that we can never know what is unnecessary.  The hidden manifests that which is visible.  If that is too esoteric, too zen for you then think about the fundamental finding of chaos theory: a infinitesimal change somewhere in the system (far far away in space-time) can have catastrophic impact over here now.  The popular version for this is the “butterfly flapping its wings in South America yesterday can change the weather over here in the USA/Europe today”. OK, with the context set let me share with you that which I promised to share with you.

This is everything that I have learned about business, customer-centricity and customer experience – as a strategist

–  He who does the best job of creating AND communicating the most value for the customer (through the customer’s eyes) wins;

–  A distinctive Value Proposition (that speaks to the target market) is at the heart of creating value for the customer – notice I used the term DISTINCTIVE, not better and not simply different;

–  That distinctive Value Proposition allows you to offer and get away with a ‘not so great customer experience’.  Yes it does!  Think about IKEA.  Think about Ryanair/Easyjet.  Think about early adopters of any new technology who put up with all kinds of ‘hassle’ simply to access and benefit from the Value Proposition.

–  If you do NOT have a distinctive Value Proposition you can focus on excelling at the Customer Experience and that excellence can become your Value Proposition.

–  Even if you have a distinctive Value Proposition you must continually improve the Customer Experience such that it AMPLIFIES your Value Proposition.

–  A distinctive Value Proposition and the appropriate Customer Experience – both pinned by the Value Chain and a continuous improvement culture – will allow you to dominate your industry and make bumper profits.

To create and deliver that Value Proposition and the associated Customer Experience you have to get your hands dirty designing, monitoring, changing, tuning the Value Chain – what you do not do (e.g. Zappos does not outsource Customer Service) matters as much as what you do. 

Create a context where you and your people are open to generating and using insights (wherever they arise) to improve your Value Chain, the Customer Experience – think twice before you make any significant change to the Value Proposition. 

Communication (listening, talking, discussing, imagining, sharing, debating) matters profoundly so communicate, communicate, communicate – if a tree falls down in the forest and there is no-one to record and share that falling then that tree did not fall, in fact it never existed!

One day a butterfly will flap its wings, change the ‘environment and the rules of the game’ rendering your Value Proposition irrelevant.  When that happens your customer-centricity, your Customer Experience – no matter how great – will not save you.   If you are ‘lucky’ you may end up reinventing yourself – like Apple, like IBM, like Starbucks did.  The more likely scenario is that you will die a slow death like Kodak.  No need to despair, the game goes on, just the player/s at the centre of the stage change.  Comfort yourself, know that we are all like guests in hotel rooms – temporary occupants in the game of business and life, the game goes on with and without us.  Ultimately it is all about the game itself – we come on the stage, play our part and then leave.  That applies to all of us – no exceptions.  That is our shared humanity.

Final Words

I thank you for listening, it is your listening that makes my speaking possible.  I wish you the very best in the game of business and in the game of life.  It’s just a game – don’t take yourself so damn seriously AND play the game full out.  Do not be like the old lady who died ‘clutching’ a note that read:

Never fulfilled my potential

NEVER fulfilled my potential

Make your life count, make your role count, make your team count, make your organisation count.  Make an awesome contribution – at least play the game of making an awesome contribution full out.  It is when you are standing in the clearing called ‘up for / committed to making an awesome contribution’ that you are most likely to come up with the Value Proposition (that makes a contribution to the lives of our fellow human beings) and the associated organisation that creates and delivers that Value Proposition.