by Larry Pendergrass, Principal
In my previous blog, Ten Tenets of Strategy –Tenet #3, I encouraged you, as a company leader, to make the hard choices and argued that deciding what you will not do is as important as deciding what you will do. The cost of not making these hard calls is often hidden: it is found in the cost of lost opportunities and in the lack of alignment in the organization. It can result in confused customers and in ways for the competition to gain a foothold in your most important areas.
Through this blog I offer Ten Tenets of Strategy, gained through years of personal experience and discussions with key thought leaders. These Ten Tenets are offered as guidance for the development of your strategy.
- Your core competency is not your strategy.
- Compete on core capabilities, your set of business processes integrated throughout your value chain.
- Make hard choices. Decide what you will not do.
- Focus on customer outcomes. Design your strategy through the customers’ eyes.
- Analyze and design for the industry forces.
- Understand and analyze the landscape of possible customer outcomes..
- Know your competitors and their strategies profoundly.
- Diversify around your core capabilities.
- Balance the stakeholders.
- Strategy is dynamic. Adjust as necessary, but with caution.
Here is more detail on the fourth of these Tenets:
Tenet #4: Focus on customer outcomes. Design your strategy through the customers’ eyes.
The only attributes that really produce long-term success for any business are those that result in visible and valuable differences to its customers. Your strategy is defined by the unique customer outcome you are trying to deliver through your set of business processes. This strategy should be defensible, it should set you apart from your competition, and most of all, it must be of value to your customers. From this strategy, the rest of your objectives, activities and value delivery plans should flow. Other methods for building a business exist and may work for a while. But to build a sustainable business, you must formulate your strategy through your customers’ perception of your value to them.
In any industry, there are various ways to please a customer. Customers in all industries have minimum sets of requirements that must be achieved by any of their successful suppliers. It is beyond this minimum set where differentiation takes place, and sustainable businesses are built. As I will discuss in a later blog (Tenet #5), it is essential that you profoundly understand the forces that drive your industry (ala Michael Porter’s 5 industry forces) and the evolution of those forces in order to design a winning strategy .
In order to better understand what it means to shape your strategy through choosing a unique and valuable customer outcome, let’s use a specific example from a high-tech industry. For this industry, I have itemized the key competition, and identified the customer outcomes for which they have optimized, and also those for which they have de-optimized. These are real companies with real customer outcomes. See the table below:
Differentiation by Choice of Customer Outcomes
The customer gets…
The customer may not get…
- Service for my specific application (and hence specific segments of the market) better than others
- A high level of application assistance
- Excellent customer service, even for smaller customers
- A willingness to do more custom work
- A willingness to modify product roadmaps to align with key customer
- A faster new product development engine for small change requests
- A large portfolio… customers may have to shop in other places for their full solution
- High ability to discount prices
- Many fresh product offerings, fewer new product releases per year
- A full and complete product portfolio (for mainstream needs)… no reason to go anywhere else
- Great service and support, if you buy everything from them
- Great prices/discounts for bundled and large deals
- A brand with credibility, reputation, reach, and longevity
- First to market products with new capabilities
- Much depth of knowledge in sales force for specific applications
- Coverage for small and niche needs, covers mainstream
- Frequent customized solutions (provided reluctantly and only for big deals)
- Access early, first with latest technology
- A regular cadence of new products
- The highest performance products in industry, but it will cost you
- A wide offering, serving completely many but not all applications
- A great reputation in some regions, but less geographic reach
- Stable and trustworthy sales and service
- Lowest cost, very little discounting
- Service in all global regions with same availability of products and services
- Products for certain applications
Each of these 3 companies in the industry have found a way to give something of value to certain customers and hence to dominate a segment of the market. They have built up processes and value chain capabilities to deliver the customer outcomes they have promised.
This approach is in contrast to internally-focused approaches such as the “core competency driven” approach discussed in a previous blog, or the “going after my passion” approach, or the “next bench design philosophy” (what the person on the next bench needs) approach. The use of these approaches to drive your strategy will work for a while in the right circumstances - for example, when the industry is too new for the customers to know what they want, and when the key thought leaders in the industry are all working for your firm. But in general, for a sustainable business, you must design your strategy with the customer outcomes first and foremost in mind.
Prof. Sayan Chatterjee of Case Western Reserve University has written extensively on this topic. (See for example his book Failsafe Strategies.) He uses the acronym COAR to remind the business leader of the proper order of thought in building their business processes:
- C: Customer outcomes
- O: core Objectives
- A: key Activities
- R: critical Resources
Taken in that order, one should flow naturally from the rest.
Design your strategy with the unique customer outcome in mind. As we will see in future blogs, it will be essential to understand the industry, itemize the many ways to produce a unique and valuable customer outcome, and know your competitions’ choices.
In my next blog I will discuss Tenet #5: the need to understand the industry forces in designing your strategy.