Thinking Outside-In
The management guru Peter Drucker was fond of saying the purpose of a business is to create a customer. In other words, the purpose of a business is to create customer value, not shareholder value. This is not to say that shareholder value is not important. Quite the contrary, shareholder value is essential for the survival of companies because without sustained profits a business cannot survive. What we are saying is shareholder value is not the purpose, but rather the reward that companies receive when they deliver customer value.
For that reason, the best companies are customer-centric. Their people understand that they work for the customers, not the bosses or other stakeholders. Accordingly, they build strategies around what matters most to customers and design their processes to give delighting customers priority over pleasing other stakeholders. That’s why the most effective managers put the customer at the center of everything they do. It’s also why they think outside-in rather than inside-out.
Traditional managers tend to think inside-out. They view the outside world more as a conceptual market than a collection of human customers, and often assume that everything they need to know to be successful is contained inside the C-Suite. The most effective managers, on the other hand, usually think outside-in because they appreciate that they will never have everything they need to succeed within their four walls. They understand that market reality is subject to constant change and management’s first job is to continually align its strategies and products with what’s most important to their customers.
LEGO is a company that is thriving today because they learned the value of thinking outside-in a few years back when they responded in an unusual way to a security breach. In the late 1990s, four weeks after the release of the first version of LEGO’s Mindstorms kits, a student hacker cracked the software code for the new product and created a better version. Rather than defensively protecting its copyright and beefing up its security, LEGO realized that the hacker meant no harm. In fact, the student was a loyal LEGO enthusiast who was only interested in making the product better. So, LEGO’s managers decided to think differently by choosing to embrace rather than to fight the hacker and reaching out to all LEGO enthusiasts to invite them to co-create the next generation of Mindstorms kits. There’s no better way to understand what’s most important to customers than by inviting them to become voluntary co-creators, especially when they care about your products.
When organizations think outside-in, the focus of business is always on the customer experience. Thus, if customer values are at odds with management policy, the first step of managers is usually to reconsider the value of the policy. This is a lesson that companies like Budweiser, Target, and Fox News may need to consider. Each of these companies seem to have lost sight of what matters most to their customers and are paying for this failure with significant reductions in equity, profitability, and market share.
Giving priority to the values of board members, employees, or activist groups over what’s most important to customers is thinking inside-out. Thinking outside-in means putting the customer at the center of everything you do. When corporate cultures put a high value on understanding what’s most important to their customers, that value pays rich dividends because delighted customers rarely move to the competition.