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Strategy outside of business

Strategy from the Outside In

Growing is a creative game. It doesn’t require a degree or a license. It requires curiosity, imagination, and emotional energy-qualities that exist, and even abound,among the people working in most companies today.

They may not be visible, but enormous amounts of dormant creative
potential flower in the companies we see-once the leadership frees them up.
A sustainable growth strategy starts with understanding the difference between what you make and what people need-which often turn out not to be the same thing. Tapping your sources of energy and imagination, you look at your company from the perspective of your once and future customers, and asking endless questions about what’s going on in
the real world. What’s happening in your marketplace? How are needs changing?What’s causing the changes? Where are the resulting opportunities?
Having stepped outside of your business, you then work backward to ask such questions as: What needs do we satisfy now? What needs could we satisfy now? In the future? What’s the gap between them and what we do now, and how do we bridge it? What advantages do we have? What advantages do we need to create? What old competencies do we need to deemphasize?
That’s called looking from the outside in. Sound simple and obvious? Then probably your company is doing it already. The fact is, it’s human nature to look from the inside out. Astonishingly few companies ever try to see themselves as others see them.
In what we call an inside-out company, people typically look at their business environment through the lens of their internal products and
processes. They look at what they make, and try to figure out how they can sell more of it. If there’s no way to sell more, they look for something to sell that’s visibly in higher demand. These companies and their people are trapped in their own past and experience. Looking from the inside out, they see mainly that they are stuck in industries and core competencies that have limited prospects.
In the outside-in company, the key word is need,not product. Its people are not focusing on getting half a point of market share; they’re totally immersed in the minds of their customers, looking for ways to expand demand. Their business plans and value propositions derive from the marketplace, based on knowledge gathered at ground level.
Often, the needs they define haven’t yet been identified by the customers themselves.
This is real world strategic thinking. It is both imaginative and highly disciplined. And it has never been more important than now. In this era of unparalleled change and opportunity, the profitable growth will go to the companies whose leaders can see the possibilities beyond their traditional served markets. In the remaining chapters of Part I you’ll see how
outside-in thinking transforms businesses that are mature,” “commoditized,” or otherwise supposedly without growth prospects.
People in outside-in companies think expansively. They are, in phrase we use regularly, broadening the ponds they fish in.
They focus not on how much they’re improving, but on what portion of wealth creation they’re missing, and how they can enlarge the market itself. They want an ever bigger share of each customer’s wallet; they look for ways to offer the customer more (and more profitable) products and retain the
customer longer.

The process is circular: growth energizes people. If you are fighting for gains on the right side of the decimal point-the tiny increments that seem to be your only opportunities for growth–it’s hard to be imaginative and energetic. In fact, it’s hard to feel really good about what you do. To how many people at a cocktail party would you say,”I work for a mature business…”?
What energizes people is the broader horizon, the excitement of new challenges and big opportunities. When their leaders offer this excitement, people come alive.

Changing the Genetic code
Your outside-in strategy will bring a whole new way of looking at your business-a new mindset. But the mindset doesn’t flow automatically out of the strategy. You must first set your mind to host certain patterns
of thinking and behavior. If you’ve been focusing on restructuring, cost cutting, trench warfare over market share, and all the rest, you have precisely the wrong mindset for enlarging ponds. So do all of your people.
You must be ready to articulate a new point of view that you can teach to the others.
We cannot overstate the importance of confronting this issue headon. People tend to be heavily invested in the past; it has determined their rewards, their career paths, even their identities. Left untouched, old reflexive behaviors will defy any new direction imposed from above. You could call these embedded behaviors part of a companys culture. This term includes all of the well-known intangibles that powerfully shape organizational behavior: basic assumptions, expectations, values, myths, and the like. But how do you get your hands on the levers that change them? For the past decade, companies have launched thousands of cultural change initiatives, most to little avail.
We view culture as a dependent variable, and we use the concept of the genetic code as a way of focusing on the underlying determinant.
The concept draws on the “nature versus nurture” debate long argued in the biological and behavioral sciences. Cultural change, promulgated through training, coaching, and workshops, represents a nurture intervention designed to reshape an organization’s behaviors. But the genetic code is nature, and-in organizations, at least-it is the more powerful determinant. It shapes corporate culture at the most fundamental level,
because it specifically decrees how people make decisions and bow they work together.
The code originates with the organization’s leaders-their thinking and behavior send signals and cues that set the pattern for everyone else. In time, these become the organizational genetic code. And this
code is all-pervasive. As in a biological organism, the genetic code’s signals direct what the body does, no matter how the brain might try to contradict them. They influence how people think and behave in all areas of their working lives, from how they look at opportunities to what kinds of working relationships they form with other people. They determine which ideas fly and which ones sink; who gets promoted and
who gets ignored. In the end, they determine whether the corporation succeeds or fails.
So real and lasting change can come only from fundamentally reengineering the genetic code. Doing so is just as important as devising your growth strategy. In fact, it’s part of the strategy, because it determines what the strategy will be and whether it will work.

The Critical Role of the Leader
Changing the genetic code is a major challenge for an organization’s
leaders. The old code embodies the thinking of past leadership, and its inertia is amazingly powerful. The new code has to be consciously created by leaders who aim to transform their organizations. This will require either new leaders, such as Larry Bossidy at AlliedSignal Eckhard Pfeiffer at Compaq, and Dave Holmes at Reynolds and Reynolds or strong leaders who can fundamentally change the definition of the organizations, as Jack Which did recently in defining GE as a global service company.

When Alex Trotman launched his plan for transforming Ford, it was no accident that he focused on leadership. His goal was to create, at all levels, leaders who could change the embedded beliefs and spread the new ones throughout the entire organization. Jacques Nasser, president of Ford Automotive Operations, took charge of training the top 200 leaders in his organization to think differently about growth and about
creating shareholder value -and to train, in turn, the 5,000 managers below them. In 1998, Ford’s top 1,000 leaders were made responsible for teaching the same ideas and values to all 53,000″ of the company’s
salaried employees.
Noel Tichy wrote, in his book The Leadersbip Engine: “Winning companies win because they have good leaders who nurture the development of other leaders at all levels of the organization.” Good leaders possess a teachable point of view, which includes:
1. ldeas based on clear knowledge of what it takes to win in the marketplace and how the organization should operate.
2. Values that support the business ideas and that everyone in the organization understands and lives up to.
3. Emotional energy that drives the leaders themselves and is actively communicated to create positive emotional energy in others.
4. Edge, the leader’s ability to face reality and to champion tough
decisions about products,investments,and people.

In growth companies, the leaders’ teachable points of view revolve around grasping opportunity and creating value. These become the genetic code of the organization, once they are shared and deeply ingrained among the critical mass of leaders at all levels.
Leaders aiming to transform their companies into growth engines may have to start by changing their own points of view. Alex Trotman had to shed some long-held beliefs about growth. Those beliefs were born of hard experience in an industry where expansion inevitably led to overproduction, cyclical collapses, and huge financial losses and layoffs. To his immense credit, he was able to look beyond the conventional wisdom of his industry and see creative new possibilities for growth.

A lot of people don’t have that kind of vision. Often, a company’s top leaders and designated successors are so trapped in the old genetic code that new leaders have to be imported–leaders whose fresh insights and perspectives will make change possible.
Some organizations have found great potential leaders in unexpected places. Jack Which at GE, Roberto Goizueta at Coca-Cola, and Eckhard Pfeiffer at Compaq were rogue genes in terms of their companies’ old genetic codes. Which was in the plastics business, away from the mainstream; Goizueta was a Cuban immigrant who rose through the technical side of a company historically headed by marketers; and Pfeiffer came from Compaq’s European operations.
Developing Your Own Teachable Polnt of View Growth company leaders are people like you. They face and struggle with the same challenges and opportunities, and they put their careers on the line to transform their organizations. We can’t repeat this often enough: They are leaders at all levels. Like Goizueta, they have teachable points of view-earned wisdom that they can impart so that others can develop their own teachable points of view.
They may not use the genetic code metaphor (though more and more are starting to do so), but they intuitively understand its usefulness. Through their teachable points of view, they transform the genetic code into a replica of their own mental architecture. You’ll notice that, whenever possible, we try to avoid talking about what “companies” do. We talk about what leaders do, and what people do. This is no small distinction. Organizations don’t do things, people do. We always admired the old British practice of referring to companies as “they,” not “it” (as in“Glaxo have raised their earnings…”), for this seemed to us to implicitly recognize the distinction. Alas, in recent years, the British seem to have adopted American anthropomorphism; Glaxo, Grand Met, and all the rest are now “its,” like GM or IBM. We would have preferred the other way around.
In fact, we think that the common practice of personifying the organization is positively dangerous. It feeds into the victim mentality: “It’s not me, it’s the system.” We’ve never heard Andy Grove or Jack Welch or Eckhard Pfeiffer talk about being victims of the system. Real leaders, at any level in an organization, control their own destiny. They use their teachable points of view to change the system, i.e., the genetic code.
After you read this blog, we want you to come away from it a leader able to develop your own teachable point of view. This means learning from the experience of others, taking ownership of it, and using it to help others to lead. We want you to have clearly aticulated ideas that you can communicate to people in your own company and in outside companies. Your customers, suppliers, and shareholders–and their proxies the securities analysts-need to hear your point of view. So do the people you want to hire. A persuasive and realistic growth story is the key to attracting and energizing the best employees.
The ideas, principles, and practices explained here run the gamut from identifying marketplace needs to developing incentive systemns. All are field-tested; other executives and managers are using them to build powerful growth companies. (Your closest competitor may be among those already using them.) They’re flexible-you can adapt them to your own requirements. And as you come to understand them, you will doubtless invent some of your own.
Some are new, others are familiar. It’s the viewpoint that’s radical the framework that links them and synchronizes them to energize people, change their focus, and realign their thinking and behavior. Used together, they give you the power to do things you’ve never done before.
You’ll see some unfamiliar words and phrases. People applying any new management concept such as reengineering develop a specific language to pinpoint what’s different and to give immediacy to ideas. For example, growth companies focus their thinking about growing the market with such phrases as “broadening the pond” or “getting a bigger share of the customer’s wallet.” (Conversely, if they talk about a “mature” market, it’s with a derisive curl of the lip.) We’ve borrowed some of the language of growth from companies where it’s in common use; other vocabulary we have created ourselves.
We hope that as you read this book you will say repeatedly: “Aha! That’s simple. That’s obvious.” The simple is not always simple, and the obvious is not obvious until it hits you. Any good idea can be stated plainly. But simplicity, like common sense, gets short shrift in the organizational world. Too often, an insight or truth is veiled in so much complexity that nobody can see it. A convoluted presentation is some times deliberate; people are afraid that, in being simple, they will seem simpleminded.
Aim for simplicity and clarity in your own efforts to lead change, but be aware that understanding complexity and making it simple is hard work. You’ll be most successful in getting new ideas across to your associates if you can peel away the outer layers and serve up the clear truth in the center. Making things simple is one of the great strengths of a true leader. As AlliedSignal CEO Larry Bossidy puts it: “Complexity is not the sign of an intellectual gift. Making things simple is.
One final note: People don’t live happily ever after unless they keep working at it. New problems arise, systems and approaches that worked in the past pump out red ink, and suddenly yesterday’s king of the hill is today’s dinosaur.
In 1981, when Coca-Cola was awakening to infinite possibilities, PepsiCo was the company to beat. For four decades, PepsiCo led the FORTUNE 500 in top-line growth, setting an unequaled record. But PepsiCo lost its way in recent years, and CEO Roger Enrico is struggling to get it back on track. In later chapters, we’ll give examples of companies that got into trouble when leaders who had done the right thing for years took their hands off the steering wheel.
Frankly, there’s no guarantee that the companies we hold up as shining examples today will continue to ascend. Just as no market is permanent, no strategy is immune to becoming obsolete or irrelevant. Any company’s genetic code has to encourage continual questioning of the status quo, constant challenges to existing assumptions.

And no strategy will succeed without good execution. Chapter Six describes how Eckhardt Pfeiffer transformed Compaq from a failing company into one of the most powerful players in its industry. His strategy was undeniably brilliant. Yet in March of 1999, Pfeiffer was forced out after Compaq’s earnings plunged-because his strategic ambitions had gotten ahead of the company’s ability to execute. You can start to challenge your own assumptions right now. Are you proud of your dominant market share? If so, wipe the smile off your face and rethink your opportunities. Change your organization’s point of view. What is the bigger pond of which your share is minuscule? AT&T, for
example, has nearly 50 percent of the American long-distance telephone
market’, but is that its pond? Or is its pond the global market for voice, data, and video transmission and other related services?Chase is the biggest measured by assets10, and a merged NationsBank and
Bank of America would be the biggest in terms of depositsl, but what does that mean?Are banks fishing in the banking industry, or is their pond the global market for financial services?
The ultimate secret of sustainable growth is the secret of life itself permanent change and constant adaptation to the ever-chang
ing external environment. Don’t forget it for a moment.
The change begins in these pages. This book gives you the power to look from the outside in, and expand your horizons, opportunities, and capabilities. You are holding in your hands the ideas, tools, and techniques for making your company grow profitably. This is the most exciting transformation you can imagine. Unlike cost-cutting, which is most often defensive, growth is energizing. As you grow, your people will grow-and they are the ultimate competitive advantage.

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