Does a customer care about your corporate strategy?
August 7th, 2009 by Patrick StählerThe question what a good strategy is is difficult to answer. With hindsight it is easy: A good strategy is one that works. But in foresight? Many formulated, intended strategies are plain boring, generic and not customer centric, but focused on investors. Many business model innovators on the other hand have clear strategies that are focused on customers and on the value proposition.
Boring strategies
“We earn a premium on our cost of capital”
“We form the best team in industry”
“We help our customer to be more successful”
“We ensure sustainable development”
Have you found out which company has these pillars for its strategy?
Probably not. The strategy is so generic and interchangeable that it fits for almost any large company.
Are you attracted as a customer to this company?
Probably not, since so many companies claim to help customers to be more successful.
Does this spur emotions in you?
Definitely not! It is just plain boring!
How about this company: It claims that it is driven by “passion of success” that rests on “four cornerstones”: “superior brands”, “superior supply chain”, “superior talent in lean organizations”.
Do you know which company it is?
No, since it is so generic. It could stand for many companies in many industries. It is boring. It does not give the company any real purpose to exit.
Value centric strategies
So how about this:
“to organize the world’s information and make it universally accessible and useful.”
Do you think this is interesting for you?
Probably yes, if the company can fulfill its high aims.
Do you have any idea which company is behind this statement?
Probably, yes.
So how about this: “The [firms] Concept is based on offering a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.”
Interesting?
Yes, if you do not go for overpriced designer furniture.
Do you know the company behind it?
Yes!
All quotes are taken from the strategy section of the homepages of the corporations. So here is the solution.
Company 1 is BASF, one of the largest chemical companies of the world. Company 2 is Beiersdorf with its world-famous Nivea brand and with its daughter company tesa which produces the famous tesa tape (for Americans it is the European version of Scotch tape).
Company 3 you might have guessed is Google and Company 4 is IKEA.
You don’t win customers with your corporate strategy
Interestingly, all companies are well-know and have a record of success in their respective industry. But why did we think that the latter are inspiring and the former plain boring?
The latter are customer centric. These corporations put in their strategies customers first. Their business strategies focus on the value proposition to the customer. They describe what value they create for their customers and what makes them unique.
The former are corporate strategies that have an internal point of view and addresses investors and shareholders. The former are also good companies but their strategies are boring.
What can we learn from this?
- There are different layers of strategy in a corporation. All levels are important. Besides a corporate strategy, which explains which business the firm is in, business strategies must exist. In the business strategy it is where you explain your business model and try to find points that make you unique to your customers. Then the product strategies follow your business strategy. On top is the corporate strategy, then comes the business strategy and product strategy.
- It is the business strategy that makes you successful in the market place not the corporate strategy. You find customers not with the corporate strategy but with a great business model as the outcome of your business strategy! And remember Peter Drucker. For him the purpose of a business is to create profitable customers. A good business strategy is customer focused and explains the benefits in doing business with the corporation. A good strategy should not be generic but tangible for the customer. A good strategy explains your business model and what makes your business model unique for the customer.
Large corporations focused in the last years too much on their corporate strategies and forgot their business strategies. They entered new markets, bought new divisions with new businesses but too little focus was on the business aspect of the strategy of what makes the firm unique to their customers. In today’s recession the pendulum is back on business strategies since it is there where you earn money.
You hit a home run with this blog post. If a company is not doing something of high value and relevancy for customers, deploying skills that are hard to copy by competitors, the company will be stuck in commodity-like competition. And, the value promise must apply not just to one product, but to the business as a whole. Business model strategy gets ignored all to often by companies who do corporate strategy, and then think that success will come from product innovation. Products are too easy to copy these days for product innovation alone to drive attractive growth and earnings.
What did you think of the article in the WSJ today about UK grocers? Apparently all the players had unique value-promises (a good thing for industry profitability, but today, due to the recession, most are now competing on the same promise of lowest prices. it’s challenging: How do you keep your value promise and differentiation when it seems that customers only care about price?
You raised an interesting question what you should do with your business model if the economy changes. Here is the link to the article you mentioned.
I must admit that I don’t know too much about UK grocers so I am answering you more in general. The price fight is difficult to win for companies that have not a low-cost business model. If your value proposition is based on convenience and top quality, your cost structure can never compete with a low cost provider. Of course you can copy the budget company but you will fail since your cost structure is just higher regardless what you do. As the attacker you have to cut costs, for the low-cost provider it is daily business to HAVE low cost. It is an arms race you can’t win.
But of course, a business model is not insulated from the rest of the world. Your business model has to fit and has to be adapted to the market forces and trends. Otherwise you might have a unique business model nobody cares about. That is what happened with Karstadt or Woolworth that once had a great value proposition (everything under one roof) but the value promise turned boring when new competitors like shopping malls entered the market.
[...] I have argued in my last post, I think we use in strategy and in management in general too many generic and meaningless words. And [...]
I strongly agree with the ” Value Centric Strategy”. I have always stated that corporations should be think about viewing customers in the context of “Customer Equity” and ” Customer Centric” with a clear value proposition.
The goal of any business model is to be pure Customer Focused.
Hoi Karl,
could you please elaborate on your idea of customer equity. It sounds interesting, but I would love to understand the issue more in detail.
Patrick
Customer Equity is really about managing your customers as valuable assets. In principle the customer is a financial asset that companies and organization should measure,manage, and maximize just like any other asset. Such as using the 80/20 rule. The Empathy Map in Business Model Generation helps enhance this process through segmentation and profiles as part of the Customer LifeCycle.
I will go in to more detail on this next update.
Also this will be posted on the BMG Hub.
@Karl Looking forward to your post. Acutally, a firm’s value is its customer base since it the prime source of cash for the firm. All other assets are just additives to get a steady cash-flow stream from your customers. As Peter Drucker said: The purpose of your company is to create customers. Periode.