CHAPTER 8
Look at Your Company from the Outside In
by Graham Kenny
I was once appointed CEO of a company in need of a turnaround. We made trusses and frames for houses. One morning, after I’d been on the job about three months, I found myself staring out my window, watching the trucks and forklifts below, and I thought: What am I doing here? Can I, on the fingers of one hand, list the ingredients of success in this industry?
In the weeks and months that followed, the senior management team and I made a number of major decisions about the company’s future. As a team, I observed, we were busy doing things and making changes, all of which made sense to us as managers. But as time progressed, I returned to these questions, over and over: How well do we know what our customers want? How well do we know what our suppliers and employees expect? What would it take to meet those needs better than our competitors could?
In short, I’d begun to think in a way that I’d now call “strategic.” Up until that point, most of my focus had been on saving the company from ruin, which had led largely to “operational” thinking—worrying about the proper staffing numbers, the ratio of overhead costs to direct costs, the prices we were paying for supplies, how machinery was utilized in the plant, the overstocking and obsolescence of products used in manufacturing, the cash flow for the business, that sort of thing.
It was after I left that job and started working as a consultant that the penny finally dropped: I realized I’d been looking at the business from the inside out. From that perspective, all I could see was the activity that consumed my day. I also realized that customers and other stakeholders have the opposite perspective. Their view is outside-in—and that’s what makes them good strategists.
Think about it: As a customer, how often do you ask yourself, “Why don’t they . . . ?” When you go to a department store, do you note which products should be added or removed? If you could have your way with the store’s presentation, would you change the layout, the lighting, and perhaps the color scheme? How about the service? No shortage of suggestions there, right? So it goes with airlines, telephone companies, banks, every organization you deal with: You’re continually redesigning strategic factors such as product range, presentation, and customer service. We all do it.
Now try doing that for own your organization. Suddenly it’s much harder, because it requires an outside-in view. Here are my suggestions for making it easier.
Tap Your Stakeholders
If your company’s two-day offsite involves a group of senior executives getting together to develop a strategic plan, and they do so right there and then, my guess is it’s not a strategic plan at all. It’s an operational plan. Your management team is most likely looking inside-out, and it surely doesn’t have all the answers. It probably hasn’t even asked the right questions.
Effective leaders listen. They observe. And they translate what they learn into strategy. Hubris has no place in outside-in thinking and effective strategy development. You have customers and other stakeholders who are dying to share their ideas about how you should change your company in ways that will make them even greater supporters. So empower them to do that. (The box “Five Questions to Identify Key Stakeholders” will help you create a focused list.)
FIVE QUESTIONS TO IDENTIFY KEY STAKEHOLDERS
Suppose you’re meeting to determine who your key stakeholders are. People will submit their ideas, and in no time at all you’ll have a large list—and potentially a nightmare. If you don’t focus on the relationships that matter most, management and staff will be running in all directions, not meeting anyone’s needs very well.
To produce a shorter, more coherent list, answer the following questions about each contender you’ve identified in your brainstorming session.
1.Does the stakeholder have a fundamental impact on your organization’s performance? (Required response: Yes.)
Example: A manufacturer of trusses and frames for houses decided, on reflection, that a local council wasn’t a key stakeholder. Though the council set regulations that the company had to follow, those rules didn’t have much of an effect on sales or profits the way, for instance, customers did.
2.Can you clearly identify what you want from the stakeholder? (Required response: Yes.)
Example: Members of a law firm’s strategic planning team knew they wanted revenue from clients, productivity and innovation from employees, and continued funding from partners—yet they couldn’t specify what they wanted from the community. That relationship wasn’t deemed key.
3.Is the relationship dynamic—that is, do you want it to grow? (Required response: Yes.)
Example: A company that ran 17 retirement villages had a dynamic, strategic relationship with current and potential residents. It wanted increased occupancy and more fees for services used. The company’s relationship with a university, by contrast, was static and operationally focused. It involved only a fixed amount of research funding and co-branding each year. Though the co-branding generated broader awareness and may have indirectly yielded more residents and revenue, the university itself didn’t achieve key stakeholder status.
4.Can you exist without or easily replace the stakeholder? (Required response: No.)
Example: A professional services firm in HR that had taken out a loan initially listed the bank as a stakeholder. But ultimately, that relationship didn’t qualify as key, because the loan could be easily refinanced through another source.
5.Has the stakeholder already been identified through another relationship? (Required response: No.)
Example: A government department involved in planning and infrastructure listed both employees and unions as key stakeholders. But this amounted to double counting: The unions represented employees’ interests, and the organization’s primary relationship was with its employees.
After you’ve applied the above criteria, your list will certainly be shorter, but it may still feel a bit unwieldy. If that’s the case, try to combine categories. By clustering stakeholders according to common needs, you’ll whittle your list down to a more manageable length, increasing the efficiency and impact of your efforts to meet the right groups’ needs.
Conduct interviews to understand your stakeholders’ needs. You want to hear, for example, how customers decided to buy from you or from the competition. You want to find out how employees committed to join your organization or decided to leave to work somewhere else, how suppliers agreed to enter into contracts to provide you with goods or services when they had a choice, and how partners signed up to sponsor your events when there were plenty of other options to consider. You’re looking for insight into their “journey” with the organization, to put this in marketing terms. On the criteria that emerge from their stories, you want to know how your organization performs—and what suggestions people have for improving your competitiveness.
Each interview should take place soon after the customer’s shopping trip, the supplier’s experience with your company, and so on. Wait too long, and people will forget important details and convey only vague impressions.
Go Beyond Your Current Customers
Interview potential stakeholders, too. That includes customers and others who are currently dealing with your competitors—but also those who interact with neither you nor your rivals. In the wine industry, you would talk to people who don’t drink wine—beer and cocktail consumers, for example—in order to appreciate why they prefer these other beverages, understand fully any objections they might have to wine, develop ways to eliminate any barriers to purchase, and figure out how to appeal to them in order to disrupt their pattern of choice. This is how you glean insights into new areas of competitive advantage.
Listening to your stakeholders—both current and potential—will give you a new perspective on your organization and what you’re offering. By looking at your organization from the outside in, you can adjust your company’s positions on the factors that matter.
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Graham Kenny is the Managing Director of Strategic Factors, a Sydney, Australia–based consultancy that specializes in strategic planning and performance measurement, and the president of Reinvent Australia. He is the author of Crack Strategy’s Code: Build and Sustain Your Competitive Edge and Strategic Performance Measurement: Boost Your Organization’s Performance—By Measuring It.
Adapted from “Customers Are Better Strategists Than Managers” on hbr.org, September 23, 2014 (product #H010B8); and “Five Questions to Identify Key Stakeholders” on hbr.org, March 6, 2014 (product #H00PH9).