IMD’s Martin Hilti Professor of Marketing and Change Management, Seán Meehan, and Charlie Dawson, founder of the pioneering customer-led consultancy, The Foundation spent years researching how some companies become customer-led, why they are so rare, and why it is so difficult to sustain. They reveal their findings in the book, The Customer Copernicus.
A customer-led organization is one that understands what customers value, and innovate accordingly. This requires an organization to really search for new ways to solve customer problems and look at the outcomes customers want rather than the product or service customers are buying. They create value through new and better innovations, not what’s established as the competitive battleground in the market. Companies that do this are trailblazers and change whole markets to better serve the customer.
Although the majority of executives acknowledge that customer-prioritization should be their ultimate goal, very few actually successfully do this. The reason behind this comes down to the shared beliefs within an organization. People’s shared beliefs about success are those unspoken assumptions within groups about what is valued and rewarded within the organization, in other words what will get you a pat on the back versus what will get you in trouble.
Customer-led organizations have widely shared outside-in beliefs. They see their purpose in terms of their service to customers, they view everything from the customer’s point of view – outside-in. This perspective is entirely unnatural.
The natural perspective is to see things from your own point of view, from the inside-out. Beliefs are formed with reference to people and experiences close to you. Executives with a lot of layers between them and the customer, procedures and significant internal responsibilities are preoccupied with what’s close. Unlike early days in a smaller organization, customers are increasingly distant and abstract. Inside-out organizations are prone to see success in terms they can more easily control – “hitting the numbers” (often expressed in pure volume or financial terms) or some version of that. It is common to see such targets increasing gradually over time, rewarding people rewards for hitting them and punishing people in some way for missing them. This is a very natural way of doing business and it tends to work in the short term, but it tends not to work in the long term.
Outside-in initiatives are customer led initiatives which usually involve some very bold policies. A good example is the one-in-front queuing system Tesco developed where they promised to open a new checkout any time there was a queue of more than two people. The company knew this was going to cost 60 million pounds a year (in 1994, this represented 10% of pre-tax profits), but beyond believing this would make the customer experience better, they had no way of knowing whether there would be any financial pay-back. With outside-in initiatives, you can’t research the result, you just have to have the belief or conviction to take the risk.
Meehan and Dawson identified four key factors required for organizations to transform from an inside-out perspective to a customer-led outside-in belief system.
- The company must experience burningness. Burningness is a state of mind that means action is required – the status quo is unacceptable.
“If you feel like your business is on fire, it flips your risk calculations,” explains Dawson.
Normally, the safest thing to do in business is to keep doing roughly what you’ve been doing and the dangerous thing is to try something bold or something different. But if your business model is on fire, making a bold change becomes necessary.
Because outside-in initiatives tend to have definite costs and somewhat uncertain benefits companies usually need a burningness before the organization will really get into action. This burningness comes from pain, fear or ambition.
- There must be a series of instances that become what we call moments of a belief. When burningness compels a company to take a bold step, the first moment of belief comes when stakeholders see an outside-in initiative work.
“For a moment of belief two things have to happen. You have to know it’s working, but then the organization has to see it working, for both the customer and the organization,” says Meehan.
After one success, then people try another outside-in initiative, until there have been many of these moments of belief.
- Gradually the belief system needs to become systematic throughout the organization
- Eventually systems need to become purposeful and there is a deep-rooted belief the organization exists to serve customers first.
When a company moves through these steps, it can shift to a total outside-in belief system but even with success in this transformation, many businesses are pulled back to inside-out, more natural ways over time because as they grow they become more careful, conventional and more protective of the status quo – they are comfortable.
The customer-led beliefs can also be challenged by new people come in without the same experiences and perspectives. When faced with crises such as the GFC or the Pandemic customer-led beliefs can be threatened as financial pressures grow and managers reach for convenient levers to “make the numbers work”. with all of these we see a loss belief. Becoming customer-led is hard work – harder still to sustain it over time.
If you would like to learn more about becoming and remaining customer-led, check out the book, The Customer Copernicus.