“Outside-In” strategies – how putting ‘Customers first’ shapes the CxOs planning
When it comes to strategy planning, many companies usually tend to put forth steps based on what they can do with the resources they have internally. Companies which have been existence for quite a while, especially tend to develop a culture of their own and some “core” competencies. The management then starts formulating strategies on how to replicate the earlier success, or how to do things based on what is available internally. This is usually called the “inside-out” strategy.
While this may be practical in a few scenarios, this approach sometimes constrains the company from keeping up with competition during tough times. Going usually gets tough when competition intensifies and the market is getting more fragmented, or when the market by itself is shrinking – like during recessionary periods.
When it comes to developing growth or turn-around strategies or surviving tough times, “outside-in” strategies tend to be more relevant and yield better results. There’s been a lot of research in this space and most recently, Wharton marketing Professor George Day and Christine Moorman from the Fuqua School of Business at Duke University describe this approach in their new book called “Strategy from the Outside In: Profiting from Customer Value”.
One example that I personally liked and would like to discuss about is the example of McDonalds turnaround.
In 2003 McD’s had its worst period in the entire 52 year history. McDonald’s reported its first-ever quarterly loss in Q-4 ’02 and its stock price hit a low of $12 by mid-March of 2003. Operations were seriously affected and franchisees were losing money. Worse still, CEO Jack Greenberg, had just been fired by the board.
Usually, there is a solid co-relation between market orientation and profitability. So by carefully evaluating the results of research and survey, McDonald’s was able to pin-point that its strategies were not focussed on where the problems were.
The main focus at that time had been on adding more and more outlets – almost like one every 4.5 hrs round the world! More time and effort was being spent on real estate rather than the customers’s issues. While at the same time, menu was getting uninteresting, service was not up to expectations, customer satisfaction levels going down.
“We had lost our focus. We had taken our eyes off the fries.”
McDonald’s CEO James Skinner, in Business Week, Feb 07
Soon McDonald’s started applying all this research info into carefully formulated strategies which yielded tremendous results. They ensured that they’d slow the rate of new stores opening, and rather focus on growing sales within each outlet. Very soon almost 40% of the outlets were open 24hrs up from just 0.5%.
The product devlopment process had also been improved to ensure attractiveness to customers and not just for the profitability or ease of preparation. This was a key step, because as part of the survey one feedback was that many mothers would bring their kids along and buy them lunch, but they themselves wouldnt be eating anything the outlet because they didnt find anything quite interesting on the menu!
The “outside-in” – focus helped turn the company around, and by 2006 the net income had quadrpled to $3.5billion and stock price zoomed to $45. The market share also grew to almost 3 times more than the nearest competitors (Burger King or Wendy’s).
With the rise of digital media and social marketing, there has been a tremendous proliferation in the number of channels by which customers are being reached out. And markets are also splintering, which makes it more important to look at things from ‘outside in’.
Essentially, market forecasting is a highly time bound activity, but as market places are too dynamic in today’s world, it is important to see patterns outside and react swiftly.
