I wrote a book last year entitled Strategy from the Outside In: Profiting from Customer Value. The central premise of the book is that companies are often managed with a focus on priorities other than customers. A range of reasons rooted in “insight-out thinking” include satisfying the stock market, lowering costs, or extracting all the value from existing capabilities. Companies that approach strategy from the outside in begin and end with the customer. In the words of Stephen Haeckel, these companies manage using “sense and respond,” not “make and sell.”
The CMO Survey asks a series of questions that reflect this focus on managing from the outside in. Specifically, it asks six questions across a range of strategy activities. Top marketers rate the following items based on the lead “Information about customers and competitors”:
- Is collected on a regular basis
- Is shared vertically across different levels of the firm and business unit
- Is shared horizontally across different functions and business units
- Shapes the design of firm strategies
- Influences the implementation of firm strategies
- Impacts the evaluation of firm strategies
These ratings are performed on a 7-point Likert scale where 1 is “not at all” and 7 is “very frequently.” Overall, companies report to be just slightly above the scale average on these measures. As you can see from the figure, means from the August 2011 survey range from a high of 5.3 for information collection to a low of 4.6 for vertical and horizontal information sharing. What I found interesting is that these company averages have clearly risen during the downturn. Between February 2011 and August 2011, the figure shows all of the indicators are up. In comparison, during the prior year from February 2010 to February 2011, there was very little change. During what many consider to be the deepest trough in the economic downturn, companies punched up how much they focus on managing from the outside in.
Not all companies invested equally in using market information to drive strategy. B2C-Service companies have the highest scores on all measures while B2B-Services companies have the lowest scores. Both B2B-Product and B2C-Product companies are between these two extremes. Other factors, such as firm size or percentage of sales from the Internet do not influence performance on these indicators.
Why improve these outside-in indicators during the economic downturn? There may be many reasons. However, I speculate that these tough economic times challenge managers to rethink priorities and to focus on the raison d’être of their existence—customers. It is easy during boom times to pretend that other factors are more important. However, tough times force managers to break free of any delusions and to remember who pays the bills.
How do firms focus on managing from the outside? In research for the book and in other published work on the topic, it is clear that top management must commit to focusing on customers. It is also important that the firm build a structure that is based on customer, not on the products or services it sells. Finally, the organization has to set up informal and formal processes for acquiring, sharing, and using information from the market in its strategy.