Two items of business news have caught my eye recently: Tesco’s latest results, cementing their place as the number one online retailer in the world and number one food retailer in the UK; and the start of the latest Stelios venture, easyCruise. Now there may not seem to be much to connect these two stories but there is, something that is of critical importance to the success of all organizations.
Tesco has been building on its successes for some time now with a relentless commitment to offering what customers want – value, choice, availability. Did you know that Tesco is the world’s number one online retailer? You won’t find much emphasis on groceries when you listen to Sir Terry Leahy talking about his business. It’s about lifestyle. He wants to be able to offer Tesco customers what they want, when and where they want it, at the right price. There’s nothing radical in this desire to please, but some organisations are much more successful at this than their rivals.
EasyCruise is a fascinating addition to the cruise market. Now this idea may have come from a detailed analysis of the holiday market in general and cruising in particular but I don’t think so.
The approach of the easyGroup to date has been to understand what people want and to work out how to do it, even if that means turning industry norms upside down. To many people cruising is expensive, takes up a lot of time, and is quite formal in its style and structure. For the younger holidaymaker brought up on independent travel, and with the belief that holidaying is a time to let your hair down rather than put it up, cruising doesn’t have a lot going for it. Unless you could stay in a port for as long as you liked and pick up the next passing ship when you were ready; and there was clubbing on board; and you could dress how you wanted; and it was cheap. Bingo. A traditional company might say that that’s not cruising. Stelios would say, who cares if that’s what the customers want.
OK so you’ve probably spotted the link between these stories – commitment to the customer. That’s old hat, I hear you say; we all have that. But the truth is that most organisations are not doing this at all well. So is there something we can distil from the companies that are doing it right? In many cases the successful organizations have stumbled on ways of working that help them to do what they want to do. There is no obvious pattern that can be repeated at will in any business, so I believe that we have to look at behaviours - behaviours that can be absorbed and translated into the sort of focus that can transform a business.
Another organisation that has been able to forge real success from a commitment to customers is Capital One. A rapidly growing credit card operation, Capital One tells a very good story about how it has transformed an already successful business - their case study is an article in its own right. The key points will give some sense of what the management there have learned:
• an analysis of the business showed that they were doing things right, and they were making continuous efforts to improve. They characterize this perspective as being an “inside-out” view of their own organisation;
• the turning point came when they took a customer view (“outside-in”) of how they did business. They realised that they could do more of the right things. This meant a move away from traditional performance measures such as call volumes, processing times and basic customer satisfaction;
• in their place Capital One started to measure the revenue being added, cost reductions achieved and service improvements for customers;
• crucially it was these measures that determined how staff would be rewarded.
Even in a short summary of what is a fascinating case study we can see some of the challenges that organisations face in transforming how they do business, and I will come to those a little later. I want to look first at the changes that Capital One made and why I think they are so important.
Capital One was doing very well by measuring activity and improving performance where possible. The real leap it made was when it started to measure the impact of what it was doing – what I call Successful Customer Outcomes (SCOs). Not only did they measure SCOs, they linked staff rewards directly to SCO delivery. This is the only way to embed changed behaviours in an organization. If you can link behaviours to your objectives and drive the right behaviours through your reward system then you can achieve pretty much whatever you want.
So the big question to go and ask the senior people in any organization is: how are you rewarded for what you do? The vast majority will have a system whereby rewards are linked to the successful delivery of a range of tasks and activities based on the corporate objectives. Until now this sounded like the right answer, but it’s fundamentally flawed. The introduction of SCOs as a measure of real customer-oriented performance will cut across many of these task-led objectives and therefore the reward system. Any company trying to operate like this will never achieve what it is trying to do.
Here’s another example. Let’s compare how a traditional major airline and, say, easyJet approach corporate objectives and performance measures. A major airline looks to deliver a quality air transport service, cost effectively. This translates into a bunch of objectives which are cascaded through the hierarchical structure via performance targets and associated rewards. At easyJet, from the top man down, the focus is on putting bums on seats. So everyone can ask themselves every day, what am I doing to get more bums on seats? And they will ask that, because a large chunk of their salary is dependent on it.
If you work in an organisation that has aligned itself to Successful Customer Outcomes and 40% of your pay is linked to delivering them, then you will absolutely want to deliver them. And the first question you will ask? What the heck are our successful customer outcomes? Good management will give you the answers clearly, and before you know it everyone is lined up behind clear customer-related objectives - focused and motivated. In this context initiatives like CRM implementations stop being islands of technology and become widely appreciated tools for helping deliver performance and rewards.
I said I would come back to the big problems facing many businesses as they face up to the challenge of aligning themselves to SCOs. To do this I need to run through a potted history of organised work. Simplifying this enormous subject a little, I’ll just talk about the key periods, or ages. Firstly there was the Agrarian age, farming based on individual labour. This was followed by the Industrial age where mechanisation and large scale organization took over. More recently we have seen the Information age emerge quickly, promising rapid change across many industries. This heritage of working methods explains why we work the way we do now. Hierarchies evolved to meet the challenge of organising large numbers of people carrying out set tasks and activities. The “management pyramid” underpins many of today’s working practices, our understanding of how to make labour efficient, and most theories about leadership. It has served us well but the world is changing, driven by globalization, and as customers we have quite a different set of requirements now.
The challenge for organizations is to be more agile, flexible, and responsive to these changing customer needs. Companies across the world have indulged in restructuring that has focussed on moving chairs around, while avoiding the issue that the structures they are trying to apply aren’t fit for purpose in the new world. And this new world isn’t limited to the much discussed corporate/customer relationship: the provision of public services to citizens, all business to business activity, in fact every relationship between people and organisations is in need of an overhaul.
John Maynard Keynes (English economist, journalist, and financier) once said “The difficulty lies, not in the new ideas, but in escaping the old ones”. This quote may be decades old but it has real resonance today. Outdated mindsets are the single biggest obstacle to an organization’s ability to align to Successful Customer Outcomes. In the same way that the early Information age companies clung for too long to an Industrial age view of doing business, with their organized banks of computers set out like factory spaces, today’s organizations are clinging to the rigid hierarchies that were needed to make Industrial age production operations work. The need to reassess and fundamentally realign structures and priorities is paramount – any organization that can’t make the leap must face the prospect of being left behind in this new age.
About the Author
Steve Towers, Co-founder and Chair of BP Group (www.bpgroup.org), is an expert on process and performance transformation. Steve founded the first community focused on business process management in 1992.
Steve has bases in Europe (UK), New York and Colorado.
