‘A desk is a dangerous place from which to view the world’.
It is fundamentally wrong to think of strategy in terms of the competition. Strategy is about the customer and how to deliver value to him. Two key words stand out here: the customer and value. That is where I will like to begin this discourse.
The average business executive today claims that his organization is customer oriented. But many times the very word, customer has in recent times become one of the most ambiguous in management literature. But, clarity of understanding of who the customer really is defines the beginning of a successful strategy. All else is commentary. A working definition might be that your customers are the people or entities that buy your products and services and supply your revenue.
That includes any number of actors in a company’s value chain: consumers, whole¬salers, retailers, purchasing departments, and so forth. Some companies go as far as to label internal units as customers: Manufacturing is a customer of R&D, for instance, and both are customers of HR
But this definition doesn’t apply to every company. For example, the German global pharma giant defines its customers as research scientists in universities and laboratories around the world. Merck requires its researchers to act like university scientists by conducting basic research, publishing papers, and presenting results at conferences, all with the intent of discovering groundbreaking compounds that can then be commercialized by Merck’s marketing and sales group. As a result of this, Merck’s centralized R&D unit receives the bulk of organizational resources.
Consider social media giant, Facebook. Facebook offers a set of development tools and application programming interfaces to developers to help them create web and mobile apps for Facebook platform. When users purchase virtual and digital goods from the developer apps, Facebook receives a fee from the developers for the use of its payment infrastructure.
Facebook also offers advertising placements over its website and mobile apps to marketers to help them reach people on Facebook. In 2017, Facebook made $39, 942, 000, 000 from advertising placements and $711, 000, 000 from developer fee. Yet Facebook does not consider the developers or the advertisers as its primary customer. Facebook business model is not designed to please the developer or advertiser. It is rather designed to satisfy the Facebook user who brings in no revenue!
MySpace approach was different, the pressure to drive revenue led the company executives to accept $900 million for a three year advertising deal from Google. When they did their goal shifted from satisfying their over forty million unique monthly visitors to satisfying their advertisers of which Google was chief. They basically doubled the ads on their site which soon became an eyesore, and created a miserable experience for users. The result? The users headed to Facebook and the advertisers went with them!
The lesson is that a clear definition of the customer is the beginning of a successful strategy. And it is important to understand that your primary customer may not necessarily bring in the most revenue. He rather may be the one that unlocks the most value in your business. For some businesses, the primary customer will be the end user or consumer of the product or service. For others, an intermediary (such as a reseller or a broker) will be the critical customer to which organizational resources should be devoted.
The emphasis on beating the competition as the essence of strategy is a lousy approach that blinds executives. By failing to grasp this critical issue, too many executives today impose great anxiety on themselves and their subordinates, whose efforts end in failure and frustration. The second issue I will want to discuss is value. According to John le Care, ‘a desk is a dangerous place from which to view the world’. The purpose of every business is to deliver some sort of value but in business value is created and/or destroyed at the market place, not at the office or in strategy meetings. According to a 2004 survey by Strativity, a global research and consulting firm, 50% of salespeople don’t know what attributes justify the prices of the products and services they sell. If sales people don’t know what values they are really selling how can they deliver superior results at it?
So managers will need to explicitly define and adequately communicate the value they intend to deliver to their clearly defined customers. But again, what is value? How do you determine what value customers are willing to pay for? Within the same market and industry, different primary customers may value different things: Some demand the lowest possible price, others want a dedicated service relationship, and still others are looking for the best technology or brand or other specific attribute. It is the responsibility of the strategist to understand this, create it and communicate it.
Brian Reuben(@brianoreuben) is an advisor on strategy and leadership. He regularly conducts keynote presentations and senior executive workshops with companies around the world on strategy and leadership. He heads BusinessDay Training