Six Steps to Becoming a
Market-Focused, Profit Generator That Delivers Customer Value
How do some CEOs get it right year-in-and-year-out while other CEOs never achieve more than mediocre performance? Is it all about leadership skills?
The answer is "no."
What we have learned from working with scores of clients and through a comprehensive review of 60 studies covering more than 7,600 companies and business units in 26 countries, is that organizational culture is more of a driver of successful business performance than the level of leadership skills displayed by the CEO. And the corporate culture that beats all other corporate cultures is called "market culture." Or, more precisely, "strong market culture."
How Much Market Culture Matters
All companies can be thought to have some element of market culture. The question is where they fall on a continuum from weak to strong.
Exhibit 1: Market Culture Spectrum
The research and our experience show that there are six steps to help your firm become a market-focused, profit generator that delivers customer value:
1. The Right Purpose
Employees and management of companies that deliver superior performance over time believe something different than what the pundits say about "maximizing shareholder value," "creating a customer" or "supplying goods and services at a price people can afford in a manner which makes the activity sustainable."
Successful companies share a belief that the ultimate purpose of their business is to create superior customer value, profitably. The word "profitably" is strategically placed at the end of the sentence because profitability is a lagging indicator of the value a company creates for customers.
This subtle difference in belief about the ultimate purpose of a business can have a major and positive effect on the bottom line.
Action Step: Repeatedly communicate to your organization that its ultimate purpose is to create superior customer value, profitably. Reward employees for thinking and acting in ways that demonstrate commitment to creating superior customer value, profitably.
2. Customer Insight
A strong market culture firm knows its target customers better than the customers know themselves. This means understanding current needs, expressed and unexpressed, as well as likely future needs. It includes an insight into future markets representing opportunities for which the firm should initiate action now.
There is no better evidence of this than in the telecommunications sector in which the traditional enterprises are compelled to transform themselves into communications and media companies. Telstra, the Australia-based telecommunications company, has won numerous awards around the world in 2007 as "best performing Telco" after CEO Sol Trujillo led its market-based transformation "…to understand its customers better than anyone else."
Action Step: Find out what your customer's needs really are. Dig deep. Engage in observation of and 'conversations' with customers supported by traditional market research. Distill and disseminate the acquired insight throughout your organization.
3. Competitor Awareness
Deep competitor awareness means that one understands the short-term strengths and weaknesses and long-term capabilities and strategies of both current and potential competitors. James Hardie Industries, the Australia-based building supplies manufacturer with highly profitable divisions in the US and Asia-Pacific, continuously tracks competitors' strategies around the world and can predict their moves and impacts on their business. Over the past 10 years James Hardie Industries has outperformed Dow Jones Building Materials & Fixtures Industry Index by a factor of more than three.
Action Step: Systematize competitive intelligence and distill into meaningful evaluations your competitors' strategies and tactics. Scan for external changes to evaluate their impact on your future competitive environment. Disseminate the acquired insight throughout your organization.
4. Collaborative Approach
There are two components to achieving a successful collaborative approach to your business:
a) Internal Cross-Function Teaming
Research shows that when one presents a problem to a team made up of diverse talents the consensus decision is almost always better than a decision made by any single individual.
This was used to spectacular effect by Carlos Ghosn, Nissan's first non-Japanese COO. In Ghosn's first month at Nissan, he established nine cross-functional teams, gave them access to all company information, tasked them each with the improvement of a major function (such as manufacturing, marketing, and business development) and had them report directly to the executive committee. This led to the development of the "Nissan Revival Plan" and one of the greatest turnarounds in corporate history. Within 18 months the company was showing a profit that has lasted to this day.
b) External - Value-creation networks
These networks are developed between individuals and teams inside a business with individuals and teams outside the company. Traditionally these networks have been established with partners, whether suppliers or channel partners, joint ventures with competitors, or (less frequently) collaborative developments with customers. A rapidly emerging force for this type of collaboration is the blog and its many variants. As the blogosphere expands exponentially it is becoming an important means of creating powerful, more broadly encompassing, market cultures using collaborative networks with customers.
Large companies, like Proctor and Gamble and IBM, have developed effective online collaborative networks with customers as a means of jointly developing and evaluating new products and services to meet their needs.
Action Step: Encourage and expand internal and external collaborative teams that focus their attention on creation of customer value, profitably. Share Customer Insight and Competitor Awareness data widely. Harness external interest groups to assist in the evaluation and improvement of your firm's value creation activities.
5. Decision Criteria
A company with a strong market culture will have a longer term and profit perspective on business decisions. More than 25 years ago Toyota changed its primary goal from being number one in market share to number one in customer satisfaction. This was a strategic commitment to a longer term and profitability perspective in its decision-making. It built its entire business around creating superior value for customers and dealers. This focus on longer term profitability has positioned it as customer-value leader, profit leader, and share leader in its industry.
Over the past several years the jewelry retailer Tiffany & Company has been deemphasizing its popular lower-price line of sterling-silver jewelry because it was diluting its brand image as the jeweler to the rich and famous. Despite the decision to deliberately reduce sales on lower priced jewelry, Tiffany has outperformed its peers in the Dow Jones Specialty Retailers Index over the past one, two, and three years.
Action Step: Establish clear guidelines and criteria for emphasis on longer-term, profit-oriented decision-making.
6. CEO Leadership
The CEO plays the all-important role of developing a shared vision and shaping a strong market culture from his/her decisions, actions and behaviors. As the earlier examples confirm, C-level leaders have a decisive role in the level of market culture achieved by the organization.
Carlos Ghosn's transformation of Nissan was only possible through strong commitment and leadership. And, as the numerous awards attest, Sol Trujillo, CEO of Telstra is in the process of 1) turning his firm around through a relentless drive to know the customer better than competitors, 2) benchmarking customer's perceived value from Telstra versus competitors, 3) investing for the long-term while still achieving short-term goals, 4) tearing down the firm's old silo mentality, and 5) driving collaboration across the organization and with external resources.
Action Step: Develop an internal strategy to strengthen your company's market culture that demonstrates commitment and involvement from the top. Demonstrate your commitment through behavior, decision-making, and how you reward your employees.
Many more articles in Creative Leadership in The CEO Refresher Archives