BEYOND THE FAMILIAR
LONG-TERM GROWTH THROUGH CUSTOMER FOCUS AND INNOVATION
PATRICK BARWISE AND SEÁN MEEHAN
JOSSEY-BASS www.josseybass.com 2012
PART 2
Chapter One: What Every CEO Wants
Every CEO wants sustained, profitable, organic growth. Even firms that grow mainly by acquisition – with its high failure rate – usually need to show that they can increase value through top-line growth of the combined business as well as through cost-cutting. Organic growth therefore lies at the heart of long-term shareholder value creation for almost all businesses.
We all know of companies like Procter & Gamble, Apple, Canon, IBM, Infosys, BestBuy, Oticon and Zara that seem to achieve this kind of profitable organic growth year after year. They go from strength to strength, from success to success. How do they do it?
Each has a different strategy and business model, but ultimately, they all succeed because they do a few obvious, fundamental things well, and they do them over and over again. Firms that achieve sustained, profitable organic growth have an open organization at their core. They exploit the critical advantages this brings to achieve four key imperatives:
v Offer and communicate a clear, relevant customer promise.
v Build customer trust and brand equity by reliably delivering that promise
v Drive the market by continuously improving the promise, while still reliably delivering it
v Get further ahead by occasionally innovating beyond the familiar
Although these ideas are familiar to everyone, putting them into practice is extremely difficult, which is why so few firms manage to deliver lasting organic growth. To hit the sweet spot, you need to get all of this right and in balance, as illustrated in the framework for this book (Figure 1.1).
Applying this framework requires firms to overcome a number of challenges. They must be more adept than their competitors at keeping in touch with customers’ needs – much easier to say than to do. They must overcome the tensions between the pressure for short-term profits (especially through cost-cutting) and the need to build long-term customer and shareholder value. They must tackle organizational arrogance, complacency, denial, boredom, and the tendency to get distracted by what’s new and exciting instead of what’s important. Worst of all – especially with today’s higher unemployment – they must reduce the corrosive, unacknowledged influence of fear, or at least deference, within the organization which prevents the open communication required to enable customer-focused improvement and innovation.
To introduce the issues, we first look at the twists and turns that have characterized the global market for mobile phone handsets since it came of age in the 1990s. There are many lessons to be drawn from the contrasting approaches and performance of Motorola and Nokia up to the launch of the Apple iPhone in 1997. Since then, the further lesson is how Nokia’s winning formula has, so far, fallen short in the new market conditions created by Apple and now Google. This case shows how achieving organic growth is a never-ending challenge. No-one knows which firm will enjoy most success over the coming years, but the winners will be those that successfully drive the market through relentless customer focus combined with innovation beyond the familiar.
Global Mobile Phone Handsets: How Nokia toppled Motorola only to lose its way
In April 1994, Fortune quoted a vice president of research at consulting firm AT Kearney as saying, ‘Motorola is the best-managed company in the world. Nobody else is even close’. Fortune described Motorola as a leader in innovation, total quality management (TQM), business process engineering, training, teamwork, and empowerment, and praised its ‘…candid internal debate that remains rare in corporate America’. In a shaky financial market, Motorola’s stock was trading at an all-time high, driven by record sales and profits.
Motorola’s flagship business was its market-leading cell phone division, with a global market share in 1994 of 45%, more than twice the 20% share of its closest competitor, Finland’s Nokia. But by 2000, all this had changed. Nokia was the clear market leader with a global share of 31%, while Motorola’s had collapsed to just 15%. Since then, Motorola’s problem-ridden handset business has suffered numerous losses, redundancies, new leaders, and strategy re-launches. There was a false dawn in 2004-6, driven by the success of the attractive RAZR phone, but by Q2 2010 Motorola’s market share had fallen to an all-time low of 2.8%, well behind Samsung’s 20.1%, LG’s 9%, and RIM and Sony Ericsson’s 3.4% each. Nokia, despite its poor performance in the high-growth smart phone segment, remained clear market leader with a 34.2% global market share.
How did a market leader described as the ‘best-managed company in the world’ stumble so badly, not just once, but again and again, while an obscure Finnish company left it for dust? While Nokia now faces serious challenges, which we’ll discuss, it achieved market leadership by being consistently better managed than Motorola for over 15 years.
Contrasting growth strategies
‘Offer and communicate a clear, relevant customer promise’
‘Build customer trust and brand equity by reliably delivering on that promise’
‘Drive the market by continuously improving on that promise, while still reliably delivering it’
‘Get further ahead by occasionally innovating beyond the familiar’
‘Put an open organization at the core’
After the iPhone: has Nokia lost it?
Three recurrent themes
In addition to the five elements of the framework, there are three other themes which recur throughout the book:
v Brand equity and customer experience
v Customer focus and insights
v Continuous improvement versus ‘heroic’ breakthrough innovation
Brand equity and customer experience
Customer focus and insights
Continuous improvement versus ‘heroic’ breakthrough innovation
Conclusion: The structure of the book and five killer questions
The other main chapters cover the five elements in the framework one by one:
v Your promise to the customer (Chapter 2)
v Delivering today’s promise better and better every day (Chapter 3)
v Driving the market by relentlessly improving the promise (Chapter 4)
v Innovating beyond the familiar (Chapter 5)
v Opening up: what leaders must do (Chapter 6)
To conclude this chapter, we offer five killer questions which every leader should ask. Each corresponds to one of the five elements in the framework and we’ll return to it as part of the relevant chapter. Of course, for each element, there are many other questions you could and should ask, but these five should help you see the potential for improvement, and where the biggest opportunities are likely to be:
v Can your middle managers accurately describe your customer promise?
v Can all members of your senior executive team name the three things that most undermine trust among your existing customers?
v Is your brand really the best option for customers? Will it continue to be next month and next year?
v Have you embraced any novel ideas that have produced significant innovations beyond the familiar during the past year?
v Have front-line staff asked you any uncomfortable questions or suggested any important improvements to your offering during the last three months?
If you believe the answer to all five questions is yes, there are two possibilities. One is that you’re right, in which case the prospects for your company are brilliant and you don’t have much to learn from this book. Alternatively, you’re mistaken, in which case you’re also unlikely to learn much from the book unless you do something technically easy but emotionally difficult, which is to gather objective evidence on each question.
For instance, you may think that your middle managers can accurately describe your customer promise (and they probably think so too) but have you asked them? Are their answers concise, consistent, convincing, and correct? If so, bravo! – your organization is in the small, excellent minority on this dimension. If, more likely, the honest answer is no, you’ve already identified an area for improvement. The same applies for all five elements of the framework.
We now turn to the first of these, how to offer and communicate a clear, relevant customer promise.