Business strategy is how an organization generates value better than its competitors in a given market through:
- A strategic customer vision,
- Performance objectives aligned with the vision, and
- An efficient and repeatable operating model.
Strategic customer vision
A customer vision is a representation of what success looks like. It’s inspiring. It excites people. It’s aspirational and attainable at the same time. But how is a customer vision developed? To answer this question, I will share an example of a recent retail client.
[RetailCo] is one of two dominant players in the space — let’s call the competitor [CompetitorCo]. In fact, through primary research we learned that 93% of the market shops primarily at one (or both) of these top two players for their category needs. We also learned that only about 20% of the market is loyal to one store or the other, meaning there is a large pool of “swing votes” that [RetailCo] has an opportunity to win over. As you might expect, a small portion of the swing voters spend a majority of money in the category, supporting our decision that the biggest opportunity for [RetailCo] is to appeal to the most category-engaged swing voters (defined by spend) — i.e., not CompetitorCo loyalists — in the market. We studied category-engaged swing voters to understand consumers' logic when deciding when to go to either store, assessed brand strength in those dimensions most important to consumer decision making, and built a segmentation scheme based on that decision-making criteria.
The result is a differentiated value proposition for core consumer market segments and an associated customer vision for the most attractive segments.
Simply put, a customer-centric organization must have customer performance objectives and measurable data to support the vision. The ultimate scenario would be individual consumer-level P&L, but in a mass-market world, the more practical scenario includes segment- or microsegment-level P&L. This includes the following metrics, which are individual-/household-/business-level metrics, but should also be contemplated by segment.
- Metrics that the entire organization rallies around: revenue, margin, gross new customers, netcustomers, lost customers, lifetime value (actual and expected).
- Financial metrics across the lifecycle: acquisition rate and cost, cross sell rate and cost, retention rate and cost, conversion rates and timing at different points in the funnel.
- Tactical/Execution-oriented metrics tied to the strategy: brand performance, individual media and channel performance, product performance. The key is that these metrics must be tied to segment performance.
You get what you measure, so manage performance using metrics that support your customer strategy.
An operating model is the way an organization does business to support its strategy. This includes the processes, organizational model and infrastructure needed to deliver on the strategy and the associated performance metrics. To illustrate, I will refer to an insurance client of mine.
- Processes are the activities and task needed to achieve a specific outcome. They are typically classified into management processes (e.g. governance, benefits realization planning), operational processes (e.g. marketing, sales, service) and supporting processes (e.g. accounting, HR). Our focus at [InsuranceCo] is on Connected CRM processes – customer portfolio optimization, segment strategy, program strategy, program development and execution, and measurement, attribution, budgeting and forecasting.
- Organization refers to the people needed to support processes, how they are structured and managed in terms of incentives and management to empower behavior that maximizes customer value, how they interact to deliver on the process model. Another area, one of my favorites, is the customer centric culture – the rituals, routines, stories, and symbols that emphasize the importance of the customer. For this, [InsuranceCo] has a fully dedicated vice president of segments and segment strategy to sit across the table from the VP of product.
- Technical infrastructure is the platform to support people and processes – to enable data to be gathered, insight to be mined, and differentiated treatments applied across the enterprise. It’s efficacy is only as good as those business processes used to define the technical requirements.
Without an operating model, a customer vision is not sustainable.
The success of a business strategy depends at least in part on the combined and individual strength of its components. If the vision is realistically aspirational, the objectives measurably aligned with that vision, and the underlying operations model efficient enough to sustain it all, the organization has a better chance of realizing those lofty goals.