Customer led growth - an un-natural impossibility or the route to success that lasts?

Summary of discussion from The Foundation Forum, 4 March 2015

Why does anyone start an organisation – a business, a political party, a charity?

They might want fame and fortune, or indeed they might not, but they all start with a belief they can change the world, altering what people think, feel and do in some specific way. Often this audience could be described as customers of some kind. In order to succeed, to grow the organisation’s influence, size and prosperity in ways that take it closer to its goal, the management needs to align with their customers so that both sides win.

This is where the trouble starts. Because people in the organisation are surrounded by other people in the organisation, not by customers. They focus on what they want to achieve and imagine the world with their organisation at its heart, an entirely normal way for human beings to carry on. They set themselves targets for sales (or votes) and devise plans to achieve them, pushing their teams to sell what their factories or shops or manifestos are committed to.

We call this way of working inside-out and it is as natural as breathing.

To grow in ways that fit with what customers want, teams also need to look from the outside in, seeing the world from where their customers stand, understanding the problems they really want to solve and where their organisation’s agenda comes in their priorities (often not high). It means really knowing what customers value, as opposed to what you produce, and then finding new and better ways of creating it.

This is un-natural. Customers are distant and their views can be inconvenient for a business in a hurry.

Despite this some succeed, resisting the inside-out gravitational pull.

To help us get a better understanding of what it takes to be customer-led we heard from three individuals who have worked in organisations where the customer has been vital to success.

The individuals were Tim Mason, ex CMO of Tesco, Alexander Hoare, a family owner and ex CEO of Hoare’s Bank, and Andrew Haldenby, co-founder and Director of Reform, a respected independent political think-tank, with input from contributing facilitator Charlie Dawson, Partner at The Foundation

The discussion has been summarised by Simon Caulkin, former management editor of The Observer.

‘Customer-led growth’. At first blush the idea that you would grow by giving customers what they want sounds yawn-inducingly obvious – yeah, OK, next problem? But anyone who felt that would have been comprehensively disabused at a remarkable March Foundation Forum. As the event unfolded, the idea of customer-led-ness became nearly as complicated as advanced cosmology. As participants discovered, the perils of being too much customer led (banks and clients’ tax avoidance, political parties and the chase for votes via focus groups) are as great as too little (almost everyone else). In any case, who is the real customer? What kind of growth? As well as graphically cataloguing the internal difficulties for an organisation in really focusing on customers (facing the right way, keeping focused, doing it rather than just adopting the trappings), the Forum eventually brought blushing into the open the biggest question of all, mostly hidden in plain sight: is being customer led even possible in the long term under today’s brand of shareholder capitalism?

The questions started piling up from the start. ‘What the hell have you been doing, why don’t you own India?’ barked a disbelieving American who had been listening to 11th-generation Alexander Hoare of C. Hoare and Co outlining the leisurely 343-year history of the UK’s most venerable, and resolutely tiny, private bank. Because, replied Hoare, the partners had always seen their mission as the perpetuation of a profitable family business, and to remain true to its purpose it had adopted some unusual (some said insane) business principles: unlimited liability, a predilection for staying small and simplicity. As a result, instead of India, the bank now possessed a capital of ￡250 million – an underperformance against the market, confesses Hoare happily, of some trillions of pounds over the period concerned.

On the other hand, in a small, simple and independent bank there was ‘a glimmer of a chance that we can hand a legacy to the next generation that they actually want to inherit, something that they can manage and is enjoyable to work in.’ The bank is not anti-growth, but the latter is independent of the size of the customer base which has remained largely unchanged from year to year and contains a significant quotient of family and friends, another risk mitigant, since such a clientele is pretty quick to signal when something’s wrong. Lack of pressing growth ambition, particularly after the 18th century South Sea Bubble, when the Partners ‘had made out like bandits then got distracted by fox hunting for a hundred years, missing the industrial revolution’, had the accidental benefit that in the period of consolidation following the formation of the joint stock banks in the 19th century, Hoare remained small, unnoticed and independent, all of which suits customers as well as Partners just fine. Says Hoare: ‘We don’t have to grow the amount of work we do and the number of customers we work for. But we have to get cleverer and go up the value chain growing the value of each customer relationship.’

At the other end of the commercial spectrum is retail giant Tesco, which in the space of 30 years from the early 1980s went from ‘music-hall joke’ to one of the most successful and innovative retailers in the world – and then, if not returning all the way, at least succumbed to a spectacular pratfall. The question for Tesco, still endlessly rehashed, is, how could such thing happen to a company that in its pomp was legendarily customer-led?

To answer that, says Tim Mason, who as ex-Tesco marketing director and long-time creative foil to CEO Terry Leahy is well placed to know, you have to retrace how you got to be customer led in the first place. Simplifying, in the first entrepreneurial phase, he proposes, a company pursues a vision, and if it catches on, not surprisingly, works it for dear life. When, as at some point it always does, the pace drops, you reach for the megaphone (he called his talk ‘The Megaphone Paradox’) and shout the message louder. This brings diminishing returns, but accidentally (if you’re lucky), you put the megaphone to the ear rather than the mouth and start hearing strange sounds that eventually cause reassessment and change, and things look up.

‘So you say, hang on, I'm going to do some more of this, but what you realise then is that you have to design the organisation to receive loads of input and distil it into something that it is meaningful’. And that, not to put too fine a point on it, is what is known as ‘a right pain in the arse’, because it means upending the organisation from top to bottom. What’s more, it screws up the P&L, which displeases shareholders, to the point where the CEO may be in the firing line. Internally, bureaucracies are working hard to protect themselves, so the forces lined up against, and distorting, the message both inside and outside the organisation are strong. ‘What you get, I think, is the very worst of all worlds, which is you get the trappings and pomp and expense of listening and don’t actually do anything with it. It’s awful, but I think that is the gravitational pull for organisations’.

Being customer led, concludes Mason, is a continual, unforgiving process of destruction and reinvention that has to be repeated without fail by each managerial generation. An instant of inattention – an economic crisis or a change of management – and beliefs that people have spent whole working lives embedding are gone in a puff of smoke.. ‘So my point is that it’s incredibly difficult to do and extremely hard to sustain.’

There’s also such a thing as the wrong kind of customer led. As chair and Foundation founder Charlie Dawson notes, being customer led is not the same thing as asking customers what you should do. It might look like being customer led, but while customers know all about their problems and what they care about, someone else needs to work out what should be done about it then take it to market, solving their problems in new and better ways. Usually what customers value doesn’t change much – going faster, staying warm, having technology that works simply and well. But it takes exceptional focus and skill to avoid the distractions of easier to solve problems or trying to be different rather than better, and then to genuinely develop better ways of achieving these ends. Hence Apple and their famed lack of interest in customer research, yet their huge success as a business that provides customer value

This is the pitfall that mainstream politicians have fallen into, thinks Andrew Haldenby, co-founder of the think-tank Reform, with close connections both to the political world and voters who use public services. In their efforts to win votes they have become, superficially, more customer led. He explains how the main political parties have become heavy spenders on increasingly sophisticated polling and focus-group research. But the net result is that they just get better at replaying what specific marginal sub-groups of supporters want to hear. The outcome is a curiously transactional, a retail kind of politics in which the parties talk past each other like two armies fighting separate battles and never actually engaging, speaking only to the converted.

That this is an unsatisfactory form of politics is plain from a telling comparison of their share of the vote: between them Conservatives and Labour polled 97 per cent of voters in 1951 but just 65 per cent in 2010 – a remarkable change. What seems to have happened, says Haldenby, is that in trying to be customer led, the parties have lost sight of ‘the truth and integrity of themselves as they try to do it’ – hence the constant voter refrain of not knowing what they stand for or being able to distinguish between them. By contrast no voter has much difficulty knowing what Greens, SNP and UKIP stand for, even when they disagree; the upstarts’ willingness ‘to say what they think’, even their gaffes, make them seem refreshingly authentic by comparison. Interestingly, the ‘more authentic’ parties ‘have come forward and actually are doing pretty well’ in the run-up to the election. Unlike the main parties, they are on the front foot.

In the end there’s a paradox in the idea of being customer led, because is seems to imply a strategy of following. But in fact it is more about a deeper, more lasting understanding and then a boldness and skill in responding with imagination and conviction, staying aware of feedback but not continually altering course as a result

As the experience of Hoare, Tesco and the political parties in their different ways all confirm, this means it can only be practised with a special kind of leadership.

Hoare has decided not to take on certain kinds of customer (‘no Russians, no potentates’), however wealthy. When fixity of purpose slipped at the top of Tesco, the company took a tumble. Political parties are learning (or not) the hard way that, as the Apple example above, market research can only take you so far; finding the principles that underpin policies or products and leading on those is what takes you forward. (As Simon Sintek never tires of repeating, people buy what you believe, not what you make.)

Forum participants homed in gratefully on Mason’s suggestion that what really mattered was customer intimacy, in which ‘you spend so much time talking to customers, talking to staff that you can develop their thoughts for them’. The snag, though, is that this runs up against the constant need, for large companies in particular, to show short-term revenue and profits growth whatever the circumstances – a likely factor in Tesco’s recent profit overstatement. Hoare takes it further: ‘I feel a bit sorry for Fred Goodwin. His shareholders demanded unsustainable returns and that’s what he gave them. If he hadn’t, someone else would have. So the problem of contemporary capitalism is really shareholders, backed up by economics which sees profit maximising as a good thing’.

As John Kay observed in his book Obliquity, starting with the source of value, customers, and concentrating on creating value for them in a competitive way is likely to make more money for shareholders over time than directly aiming to maximise the share price. He cites ICI as an example, moving from a grand vision around the responsible application of chemistry to the specific objective of creating shareholder value from narrowly focused operations. The share price peaked in 1998, soon after the new strategy was announced. The decline since then has been relentless. After two successive dividend cuts the company was ejected in early 2003 from the FTSE 100 index, the transition from industrial giant to mid-cap corporation had taken only 12 years.

There may be an equivalent in politics; in overestimating the importance of the score (numbers of votes), Haldenby suggests, politicians are making the classic mistake of confusing ends and means.

What being customer led means is startlingly different from organisation to organisation, and so are the means for keeping it on the straight and narrow. But purpose and measures that show the degree to which that purpose is being fulfilled are part of it. Growth for growth’s sake is not.

The Foundation’s View

Three of the most important headlines that emerged for us, which overlap with much of the above but which may be usefully succinct, were these:

1. What does being customer led really mean?

There is a common mis-conception that it is about chasing customer opinion, but this can be distracting or even directly unhelpful

Being customer led means having a tight grip on what customers truly value, and understanding where their alternatives leave them eager for more

Henry Ford understood that essentially customers want to travel fast. The horse could only be made to go so quickly. He didn’t need market research to tell him to invent mass production, he needed the drive to give customers something better and to transform the world. By making cars affordable he gave customers what they truly valued, including compromises they were happy to make like only being able to buy in black

Apple is similar – famously averse to market research they know that technology needs to work beautifully and look beautiful. No more asking required. Their own assessment against those goals is enough

Politics on the other hand is suffering and it stems from this misjudgement. The main political parties have lost sight of our desire for strong and authentic leadership. Instead they reflect what market research tells them will win backing from marginal voters. The SNP, UKIP and Green Party have stepped in with strong views, and even though their opinions are on what used to be the fringes, they have amassed huge support

1. The way you define success is crucial

If you merely count outputs, either money in business or votes in politics, then you will increasingly miss what causes those results to improve

For an organisation to focus on what its customers care about, giving their employees the best chance of creating something that compels them to want more, it is helpful to have a purpose to pursue

Success needs to be measured first against this purpose. The financials or the seats in Parliament show how well this is being translated into action against the alternatives

By being more purposeful, organisations give themselves a better chance of spotting disruptions and taking early action rather than getting sucked into a spiral of supporting increasingly unsustainable revenue and profit growth

1. Accountability to the purpose is tough to establish and is ideally ‘built-in’

If the purpose can be part of the fabric of the way the organisation works then it stands a better chance of staying on track over the long term.

Hoare’s bank, for example, ensures owners and leaders stay true to their ideals not through exhortation but by continuing to be an unlimited liability partnership. This means their personal economic viability depends on prioritising quality over profit

About The Foundation

The Foundation was established in 1999 and is a Customer Led Growth Consultancy. We help businesses grow more quickly, into new areas, or fend off threats to their top line. Our approach is built on the insight that clients find this hard. Why? Because to succeed, they need to see the world differently, from the ‘outside in.’ That means getting very clear about what customers value, as opposed to what the business produces, and thinking laterally about new ways to deliver that value by looking outside the sector for inspiration. We help our clients see their world differently, from this outside in perspective, and act on what they find through our border-crossing team. The borders they cross divide customer and business understanding, strategy and implementation, creativity and analysis, and these contrasts need to be combined in devising a strong response. Our work is across a broad range of clients including HSBC, Jaguar Land Rover, Visa, Tesco, M&S, O2, Harvey Nichols, The Co-op, Eurostar, TSB, British Gas, Save the Children, JustGiving and Volkswagen/Audi.

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