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Friday, October 21, 2005

Business Growth: The Five Rules that Goliath Forgot

Most big businesses are less agile than their smaller counterparts. Often, it’s smaller, nimble companies that spot the opportunity in the market. The big corporation lumbers along a couple of years later. By that time, the opportunity has vanished or it’s been locked up.

But there’s an irony here. And it’s this. Most large companies don’t just pop into existence. They are small businesses that have survived and thrived. So, for at least part of their history, they knew what it took to grow and to change – to create and dominate markets.

As companies mature, they concentrate on being big. They put processes and procedures in place. They form committees to create policy. They appoint planning task groups. They forget how they used to think and behave.

And as a result, they slow down. They become less innovative and more defensive. They find growth harder to come by. And their core markets are threatened by changing consumer demands, by new business approaches, and by niche competitors.

Consider these two businesses. Goliath Worldwide has good people, huge budgets, and decades of experience. It launched a series of successful brands in the 1950s and 1960s, and then went international in the 1970s. In the 1990s, they cut costs and returned to the core. Now it’s struggling, even in the markets it helped to create.

The newcomer -- David Inc -- is growing the market and taking share. Four years ago, they launched a range of products called ‘Dinc’. At first they sold through specialist outlets; last year they began selling through major retailers; now Dinc is growing its segment at the premium end of the market, and it’s seen as a ‘must-have’ brand by the retailers.

Somewhere along the line, while Goliath was growing so successfully, it was also losing sight of the things which made it work. What has Goliath forgotten that David is doing right -– and can Goliath learn to be agile again?

Forgotten Rule One. Spend extraordinary amounts of time with your customers.

Goliath Limited conducts plenty of market research.
Their agency filters the results and presents them to the marketing team each month. The marketing team selectively publishes research results via email on a quarterly basis. Most of the emails are unread.

David Inc's managers just spend time with their customers, at least half a day each week, whether it’s watching them in stores, shadowing them in everyday life, or observing them in focus groups.

You may believe that David’s approach is unproductive. But what could be more unproductive than working without a deep knowledge of what your ultimate customer wants?

Here’s an example. Michele Ferrero, the late boss of Ferrero (one of the largest confectionery businesses in the world) used to spend two days every week just watching shoppers. He created a steady stream of hugely successful new products (including Ferrero Rocher, Tic Tac and the Kinder Egg) which have perfectly met the needs of consumers.

And here’s another. Terry Leahy, the boss of Tesco, spends a day a week in his stores, talking to customers and staff. Is he wasting his time? Well, Tesco is the largest retailer in Britain, and it’s pulling away from its competitors.

Forgotten Rule Two. Get under the skin of your competitors.

Goliath Limited has a specialist competitor intelligence desk.
Every two years, the desk produces profiles of all major players in the marketplace. Pages of data, charts and analysis. Yet Goliath continually underestimates its competitors. For years, the sales forecasts have assumed that Goliath will grow faster than their market, which means taking share from competitors. But they never say which competitor, or how.

David Inc is rather less formal. It has polled its own employees about Goliath’s strengths and weaknesses, and has made a guess at its likely strategic priorities. In fact, Goliath won’t start writing next year’s plan until September, but David has already intuited two-thirds of the sales and marketing activities that Goliath will come up with! So they can get on with pre-empting them right now.

Sales and marketing professionals know that they have to stand in their customers’ shoes. It’s exactly the same with competitors. The best way to understand your competitors is to stand in their shoes. That means looking at the market from their perspective and figuring out what you would do if you were them.

Here’s an anonymous example. (Companies who successfully outsmart their competitors don’t want to publicise their methods.) I worked with a major UK business to understand a dangerous new competitor. We put ourselves in their boots and effectively plotted our own downfall. Then we turned it around and figured out how to pre-empt them.

Three months later, this competitor published a trade ad which set out its four strategic priorities. We had predicted them all correctly, and the sales and marketing campaigns to beat them were already under way...

Forgotten Rule Three. Build your business on insights.

Goliath Limited has a sprawling annual strategic planning process, run at Goliath HQ.
It begins in April and the plan is eventually issued (to selected senior managers) just before starting work on the operating plan in September. A lot of experienced managers contribute to the process, but Goliath is aware that the plan never really comes to life in the business.

By contrast, David Inc’s strategy looks chaotic. Conversations are regularly held with people across the business, particularly with people at the outside edge of the business -– people who work with customers and suppliers. In the ‘cockpit’ at their open plan office, the directors write up every single idea on the wall and solicit comments and further thoughts.

They build -- and rebuild -- their whole business on insights. An insight is hard to define, but you’ll know one when you see it! It’s a high value nugget of information that helps you see things in a different way.

If you look at successful innovative products, you can often see the insight that lies at the heart of them. The iPod (and its equivalents): “I don’t want to carry around a pile of CDs, particularly as I only like two or three songs on each.” Bratz (the dolls that gave Barbie a slap): “I like the sassy attitude of female celebrities -- it’s part of their glamour.” The Smart car (the Swatch on wheels): “why should I -– or my business -– give up my individuality when I buy a small city car?”

Most big businesses are rightly concerned with Knowledge Management. But managing insights is even more fundamental. It takes courage and energy to DO something about an insight, rather than saying “that’s interesting” and letting it drop.

Forgotten Rule Four. Have a purpose you’d risk your house for.

Goliath Worldwide has a vision statement -– “to provide superior returns to shareholders”, and a profit share plan.
If the company beats its consolidated profit target, managers can earn a bonus of up to 8% of their annual salary. Sometimes they do, sometimes they don’t. It depends more on the target and the economic climate than on what the managers do.

The directors of David Inc took out mortgages to start the business. If they don’t meet their profit target, they could literally lose their homes! But they’re not worrying about that, because they have an overriding sense of purpose. And it’s not “to provide superior returns to shareholders.” They know that they’re making products they’re really proud of. They’re genuinely making their customers’ lives better, and they feel that they’re making the world a better place.

Big companies set great store by a vision and mission. Here’s a fairly typical vision statement. “The Gillette Company’s Vision is to build Total Brand Value by innovating to deliver consumer value and customer leadership faster, better and more completely than our competition.”

Now this isn’t wrong, or misguided. It’s just not very interesting. It won’t create a buzz. Nobody’s going to take a bullet in the chest for it. A vision and mission are fine. But a well-thought-through purpose, on the other hand, is bold, clear, maybe impudent, certainly inspiring. It provokes a response.

Take Apple. When Steve Jobs was reappointed CEO of Apple, a reporter asked him “Can you turn Apple around?” His answer: “The goal is not to turn Apple around. The goal is not to move back into profit. The goal is to make the best computers in the world.”

Forgotten Rule Five. Treat business as a journey, and involve everyone.

Goliath Worldwide has a massive formal quarterly briefing process,
which cascades through the organisation. Part one of the briefing is about the future –- about aspirations; part two is about the recent past -– about financial results. It is fair to say that the two parts are not linked, and that strategy is not tracked. Directors brief senior managers, who brief junior managers, who brief non-managers. Very few reactions are passed back up the chain, and when they are the response is defensive.

David Inc’s three owners go round the company briefing everyone themselves. They describe their business as a journey. They talk about what’s working and what’s not working. They have a scorecard –- a set of a dozen metrics that they always use –- to tell the story of the company’s progress. Sessions are informal. Wine is taken. Questions and suggestions and challenges are welcome. Valuable insights come out of the discussions.

Many successful business leaders describe business as a journey – Jack Welch, Bill Gates, Richard Branson. But only a few companies take that idea forward and involve all their employees in the journey.

One way to do this is to create and publish a ‘balanced scorecard’ -– the concept developed by David Norton and Professor Robert Kaplan. This is a set of linked measures which tell the story of what a business is trying to do.

Another way is to create a cockpit, with details of the journey charted on the walls (e.g. the strategic direction, a map of the marketplace, ‘engines’ such as brands or technologies, and measures of progress).

If these ideas are well implemented, and pushed widely around the business, they make strategy a continuous process owned by everyone.

Conclusion and tips

These are the lessons that big businesses once knew but have forgotten.
All of them can be re-learned and put into practice.

If you can’t change your whole business, then focus on your unit or branch or division or team. Or on yourself.

“Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young.” Henry Ford

So how do these lessons also apply to individuals?

Spend time with your customers.
Start by booking a couple of hours to visit your own personal customers, whether they’re inside the company or outside. Ask them how they use your services. Ask them what they really need. Ask them what they like and what they don’t like. Ask them how you could improve what you do. Is there anything you could stop doing? Look for opportunities to make things easier for both of you. Most of all, find out what they love.

Climb into your competitor’s boots. Look at your services from a competitor’s point of view. (If you don’t have a competitor, lucky you; try imagining that a seriously impressive colleague of yours IS a competitor.) What would they say are the rules of the game in your field? What do you have to do to be world-class? What do you have to do to take your game to the next level?

Build your business on insights. As you talk to people, get them to tell stories about using your services. Note down the positives – their hopes and ideals – and the negatives – their frustrations and compromises. These unwitting moments are how people give you insights.

Define a purpose that makes you feel proud. Choose one of those insights that most resonates with you, and set about bringing it to life in your work. A great way to be fulfilled in your work is to make your customers’ lives even a little bit better.

Lay out your journey and measure your success. Goal-setters achieve more than people who drift. But goal-setting can be a dry activity. By thinking of your life and career as a journey, with milestones on the way, you can make it more interesting. And the journey will be shaped by what you now know about your customers, your competitors, your insights and your purpose.

Bon voyage!

© 2005 Charles Kingsmill. You are free to use material from this article in whole or in part, as long as you include complete attribution, including live web site link. Please also notify Charles Kingsmill where the material will appear. The attribution should read: "By Charles Kingsmill. Please visit Charles’s web site at http://www.StrategyXL5.com for additional information and resources on growing your business." (Make sure the link is live if placed in an eZine or in a web site.)

Charles Kingsmill works with medium and large businesses who have set themselves challenging growth targets. His services include Strategy Action Teams and Competitor Wargaming. Visit Charles’s website at http://www.StrategyXL5.com where you can download a growth questionnaire and free workbooks, as well as subscribing to his e-zine “Mission Control.”

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