INTRODUCTION WHY SHOULD I BELIEVE YOU?

There are many ways to center a business. Yon can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality.

Jeff Bezos, CEO, Amazon Letter to Shareholders, April 2017'

Earning lifelong relationships, one customer at a time, is fundamental to achieving our vision.

John Stumpf, Chairman and CEO, Wells Fargo Letter to Shareholders, February 20162

While the words sound the same, the realities are very different. In his April 2017 letter to shareholders, Bezos conveys a vivid picture of what being customer-led looks like and what it takes. Stumpf, in his 2016 letter, also says all the right things: ‘We are on our customer’s side.’ And, for a casual observer at the time, this might have suggested Wells Fargo was as customer-led as Amazon.

Yet eight months later, in October 2016, Stumpf was forced to resign in the wake of a scandal revealing the bank had opened as many as 2 million accounts without the knowledge or approval of its customers, unfairly taking advantage of customer relationships to meet sales targets. Whatever he said or thought, the reality on the ground was the antithesis of being on the customer’s side.

What leaders say (and perhaps think) their company does and what it actually does can often be at odds. There is a saying/doing gap. We shouldn’t take customer-first exaltations at face value. They are common. But true customer-led success is not.

To understand what we mean, we need to get beyond soundbites and into reality. Timpson, a family-owned UK retail business that has experienced significant ups and downs since its launch in 1865, has become a shining example of customer-led success in the last two decades.

Crucially, Timpson is also a commercial success, growing from 300 branches, 970 colleagues, £40 million in sales and £3.3 million in profit in 1998 to 2,120 branches, 5,800 colleagues, £330 million in sales and £30 million in profit by 2018.

The work Timpson employees do is far from glamorous. Timpson’s core offer is in shoe repairs and key cutting. They also mend locks. And the group has grown into dry cleaning and photographic printing, not industries others are rushing into.

Timpson’s breakthrough into customer-led thinking followed a tough spell in the 1970s and ‘80s when the business, having been sold to a pic, was led based on targets. If a target was missed one week, then it was adjusted the next, usually by putting up prices a little to make the number appear possible while all else remained the same. Most times, this meant the situation got worse. In John Timpson’s (now chairman) view, it was missing the point of the business. So, in 1983, he with the backing of Candover, a venture capitalist, bought back the shoe sales and repair businesses - the original core of the family business. They were tough times. He thought he might lose it all and be the family member who failed to keep Timpson afloat after over 120 years of trading. Facing falling sales, he sold the shoe shop business and was left with just shoe repairs. Shoe repairing was a declining market and competition was intense - anyone could fix shoes from a small space on the high street.

Gradually a way of running the company came together, built by paying attention to one shop at a time, looking at what worked and encouraging it to spread. Cutting keys emerged as a strong complementary offer - when they put keys in the window, stores sold more.

But the key to the business’s exceptional customer-led growth was less literal - it was John Timpson’s realisation that success depended on the way they served their customers. The people working at the front-of-house counter and the relationships they built fed the shoe repair and key-cutting business.

The next realisation was that Timpson could make this customer service exceptional. In 1998, the business made a decisive change and introduced upside-down management,’ which it borrowed from Nordstrom. This meant the business had to do three things:

  • 1. Find exceptional, friendly people to work in its stores.
  • 2. Give them complete freedom to do what they feel is right for customers.
  • 3. Support them in every possible way so they can be at their best.

These words are easy to say but acting on them goes against all sorts of conventional business wisdom. How did Timpson make such an unlikely recipe work so well across a national business?

The critical component in being customer-led is a shared, explicit, unambiguous belief that creating customer value in new and better ways is the guiding principle that defines ‘the way we do things around here.’ This is what we call an outside-in belief system - one that takes a perspective that starts outside the business - with customers - and looks back in to work out how the business might respond. As Zook and Allen explain in The Founder’s Mentality, this is not uncommon among early stage companies. Incredibly focused, they behave as insurgents, leading the charge on an industry on behalf of customers, minimising bureaucracy, obsessing about customers and making sure the front line has every possible support to serve them in new and better ways.3

The corollary is inside-out, starting with you and what matters to your business then pushing it onto the outside world. Inside-out perspectives are common; outside-in perspectives and beliefs are, unsurprisingly, rare. ‘Unsurprisingly’ because it is clear the dominant paradigm has been that of the ‘shareholder first.’ Ever since Jensen and Meckling’s much cited rebuke of managerial capitalism and promotion of shareholder value capitalism, the latter has, with rare exceptions, driven managerial decision-making and shareholder short-termism.4

The Business Roundtable (which represents 181 CEOs of some of the largest companies in the US) had been a prominent and explicit advocate of the shareholder-first approach. However, in 2019, in calling for a more inclusive approach, it acknowledged the negative societal impact of shareholder-first thinking and to considerable fanfare advocated a multistakeholder approach: deliver value to customers, invest in employees, deal fairly and ethically with suppliers, support the community and generate long-term value for shareholders.

Each of our stakeholders is essential. We commit to delivering value for them, for the future success of our companies, our communities and our country.5

While all stakeholders are self-evidently essential and committing to delivering value for all of them is laudable, this is rather ambiguous and, therefore, problematic guidance. Being customer-led is about putting customers first - not first among equals. It’s not a new idea - Drucker argued for it in 1954. Roger Martin similarly pointed out the futility of seeking multiple objectives simultaneously and argued persuasively for the primacy of customers among other stakeholders. His elegant recommendation:

... companies should seek to maximize customer satisfaction while ensuring that shareholders earn an acceptable risk-adjusted return on their equity.6

Notwithstanding the prominent and credible advocacy of the Business Roundtable, its collective belief in a multi-stakeholder approach is likely to take time to become the norm, if indeed it gains traction at all. Drucker and Martin’s ideas have had plenty of time - since 1954 in Drucker’s case - so greater advocacy and something to trigger a breakthrough are likely to be needed for such beliefs to become mainstream. Everyday horror stories of poor customer experiences, as well as too many examples of some managers’ downright unacceptable means of prioritising shareholder returns over delivering on customer commitments, means they have yet to catch on.

Whereas today we take the solar system as a given, Nicolaus Copernicus’ thesis that the Earth and the other planets orbited the Sun rather than it all being centred on the Earth was met with incredulity. It went against not just popular belief but also the Church. Such was the scale of this issue that he diplomatically dedicated the book he had written to set out his ideas - De revolutionibus orbium coelestium - to Pope Paul III, and he also added a note that acknowledged the book’s theory was unusual and proposed that if it helped astronomers with their calculations, then it perhaps did not matter whether the theory behind it was really true.

When and whether a customer-led, outside-in belief system will ever decisively replace the prevailing inside-out shareholder-first set of beliefs is impossible to know. Our aim though in publishing The Customer Copernicus is to support this movement, embracing this Copernican shift and taking the conversation up another step. We want to show how to create a truly customer-led business, a business that sees the customer as central and itself on the periphery from the customer’s perspective. We explain why this is a good perspective to hold, what the pitfalls are with adopting it and how to avoid them.

Creating and maintaining outside-in beliefs is a significant challenge because the default is the opposite - to be guided by what we call inside- out beliefs. Inside-out beliefs mean putting the classic metrics like sales growth, market share and profitability of the business first, prioritising hitting sales targets and obsessing over short-term profitability as the driving motivation.

We have learned that the ONLY thing that changes a business from being inside-out to outside-in is a succession of what we call ‘Moments of Belief.’ These are specific, bold, customer-led initiatives or decisions that on the surface look costly and risky. The expenditure needed is clear, the value to the customer is clear, but the immediate benefit to the business is not. In many conventional businesses to press ahead would appear naively optimistic. It turns out, however, that when the initiative is taken, it benefits the business significantly too. It signals to the organisation that this kind of action can work well commercially, well enough to sustain a healthy business, and that ‘this is the way we do things around here,’ this is what we believe, this is crucially what customer-led success looks like.

Timpson has just such a succession of Moments of Belief- tangible ways of doing things that challenge conventional wisdom and yet work very well, both for customers and the business. For example, the price list is only treated as a guide and branch colleagues are encouraged to give discounts if they think it is the right thing to do. There is no national direction on what is promoted and how it is displayed. These are up to each local Timpson team. Gouy Hamilton-Fisher, Timpson’s director for colleagues and support, described a recent store visit led by a temporary ‘mobile manager’ as the store manager was on holiday. A customer came in with a locket to be engraved. The £30 estimate was more than she could pay, so she thanked the man and turned to walk out. Gouy stopped her and asked her what she wanted to pay. ‘£10-£1S,’ she said. He looked to the manager, who offered to engrave her locket for £12.50, much to the customer’s delight. Everyone in store has the power to make choices in areas that most businesses simply wouldn’t allow.

Chairman John Timpson and chief executive James Timpson (his son) try to visit at least 15 stores every week, and such visits are part of the routine of all management colleagues. Gouy revealed that a recent store visit didn’t feel right, so they asked the area manager an open question to find out what was going on. It turned out the local store manager was going through a divorce. ‘I’ll get up there,’ said the area manager. Gouy reckons more than half of Timpson’s job is social work, offering interest- free loans if colleagues get in trouble with money, time off to sort things out at home, or the chance to apply for a fund to realise a long-held dream.

We interpret the steady flow of Moments of Belief in Timpson’s as a testament to how well outside-in beliefs are embedded. To be customer-led, care needs to be given to the people and their beliefs as well as the systems and processes that are more visible.

Darren Brown, an area manager at Timpson, told us how deeply the beliefs are embedded. ‘The beliefs are strongly held - if you have the right people as colleagues, great at customer care and they feel fully supported and are given freedom, then it all works.’ Another area manager, Kyle Ballard, helped us appreciate why this is so critical. ‘We work hard to recruit the right people. In photographic developing, it can be hard to say ‘the customer is always right’ - sometimes they make mistakes. But our job even then is to make them feel like they are right. So, we recruit for personality.’7

And beyond such Moments of Belief, there are unusual and tangible

ways Timpson operates, an important part of the system that shows everyone ‘this is how we do things around here.’ For example:

  • • Timpson’s unusual recruitment policy does not rely on formal tests, panels and CVs. Applicants need only supply a name and phone number. Then it’s about getting a sense of the applicants - the look in their eyes, the readiness of their smiles, whether they are driven and ambitious in some way so they have energy. People rated as a 9/10 or 10/10 will be offered a position. It’s an informal scale that measures friendliness, positivity and warmth. The belief is that Timpson lives or dies by having truly Timpson people who can (and must) be given full freedom and authority.
  • • There are just two rules for people working in stores: look the part and be 100% honest. Everything else is flexible. Timpson name badges are designed to encourage everyone to talk regardless of hierarchy. They bear the person’s first name, when they joined and an outside interest or hobby.
  • • Every store colleague has a £500 allowance to spend on their own initiative to settle a complaint. Requests by nervous area managers to be consulted before a pay-out is made are firmly discouraged as undermining the potential for providing memorable service.
  • • The only formal review process is the April Happy Index. One sheet of paper is given to everyone in the business. They are asked to rate the support from their area manager on a scale of 1 to 10. Most areas get close to a 100% feedback from stores, with ratings for every area manager. Many get 10/10 from everyone they work with, but this process can also spell the end of some area managers’ careers with Timpson.
  • • Since there are no conventional sales targets for keys cut or shoes repaired, people are rewarded for a job well done in a customer-centric rather than sales-centric way with a simple weekly bonus shared between the people in the store. The weekly target is 4.5 times the wages paid out in that shop during that particular week. Colleagues share 15% of all sales above the target. This gives everyone involved immediate feedback on how they are doing.

According to area manager Sid Hubbard:

Too good to be true? Sounds like it, but it is true. Timpson knows that how the front line takes care of customers every day is what matters, so they go beyond the normal in supporting the team and giving them freedom.8

Getting to this point has been a relentless battle. John Timpson describes a ‘strong rubber band pulling us to be like everyone else. People joining from the outside don’t understand that we give total freedom to the people who serve the customers and that they are not allowed to issue orders. They have to work out how to look after the team to help them be the best they can.’ According to Janet Leighton who has the uncommon title of director of happiness and whose role is to ‘push the culture,’ this is now the established and well-shared belief and practice.9

We will return to all these themes later, but our overall aim is to explain why this is all so much harder than it looks.

In fact, The Customer Copernicus sets out to answer two connected questions:

  • 1. Given that customer-led success can be extremely rewarding AND tends to look obvious in case studies, why is it so rarely achieved?
  • 2. And once a company does manage this unusual feat, why doesn’t the success last forever?

This is an area where it is easy to talk at cross-purposes. When we say ‘customer-led’ we don’t mean just asking customers what they want and then doing it. That’s not what Timpson does. Or Amazon. We mean understanding what customers value - the problems they are really trying to solve or the outcomes they want - and then finding new and better ways to create this value, solve their problems or achieve the results they want. It looks like leading in a market, not following, like inventing, not benchmarking, and it creates tremendous value in all sorts of ways.

When companies do this well, their customers do well - they, or we, get a better quality of life, better solutions, lower costs of all kinds - financial but also effort, time, emotional pain, attention and so on. Think Deliveroo versus a traditional takeaway or Sky against a handful of broadcast channels. It’s not just the customers that benefit; the companies do well too - reaping significant and lucrative rewards. Customer- led success can be extreme, e.g. catapulting 02 from laggard to market leadership in telecoms, tripling easyjet’s profits in the competitive airline business, taking Tesco from third in the UK retail supermarket league to third in the world.

So, it’s obvious, it’s valuable, it’s talked about by everyone and yet ...

We have been working in this field, wrestling with this question, for more than 20 years. But in the process of writing this book, we realised that what goes on in organisations that’s visible is not the full story, just as symptoms do not always easily reveal their cause. When we are in a social environment like a workplace, we are guided by an invisible hand - the shared beliefs of the group, or the discourse, to give it its anthropologically more accurate name. What do people believe success looks like? How do people believe success is achieved? Two questions that are answered not by asking but by observing, i.e. finding clues in how people speak, what gets their time, how offices are arranged, what earns a pat on the back and what gets ignored. This all resides in the organisational subconscious and yet, as anyone who has worked in an organisation for any time realises, we all feel the forces at work, we formulate beliefs about what is valued, and critically, we find ways to fit in. We recognise and live the shared beliefs of the organisation. Then, on top of this recognition, we saw two competing belief systems that are pivotal to answering our questions about the rarity and fleetingness of success - inside-out beliefs and outside-in beliefs.

Looking inside-out is natural - you sit every day inside the organisation with your colleagues close, customers distant, and you make assumptions about the way things are done that don’t get challenged. This is not customer-led.

Looking outside-in is not natural. In fact, it’s downright odd. It means finding ways to stand in the shoes of customers, seeing the bigger picture of their problems and all of the solutions - not just competing ranges of supermarket ready meals, but alternatives including going out to eat or ordering a takeaway or having a snack and using the money to go to the cinema. And then it means being utterly determined to find new and better solutions, unlimited by preconceptions of a defined market and the obvious competition.

It’s unnatural for other reasons too, reasons we will explore in depth. But before we explain, let us share some evidence we have gathered to show what’s being described here is real.

We asked over 400 CEOs and executive team members of large companies how they viewed the drivers of performance in their companies.10 We first asked them to name the top three contributors to performance from a list of 12 factors that were suggested to us during in-depth interviews with 50 executives.11 Four were mentioned significantly more than the others - customer understanding and response, people, operational excellence and innovation (see Figure 1.1).

Further, the most common combination of three priorities were customer understanding and response, operational excellence and people (47 respondents reported this combination).

Fiowever, our survey suggests that while people say being customer- led is important, few make it happen. In practice, customers lose out to other more influential stakeholder groups and other priorities. While 62% of businesses claim being customer-led is one of the main drivers of their success, our data suggests only 24% behave in accordance with this belief and as a result enjoy superior results. Many who claim they are acting in a customer-led way are, in reality, making different choices and doing different things. There is a saying/doing gap. The bottom line is that executives

Performance drivers

Figure 1.1 Performance drivers: Espoused beliefs. (Source: Charlie Dawson, Sean Meehan & Karine Avagyan. 2017. The Belief Trade-Off: Customers or Efficiency First? Lausanne: IMD Business School.) https://www.imd.org/contentassets/ e60e4c757a6e49ddbf86daa6302f9348/imd_article_thebelieftradeoff_ v2.pdf frequently say (and often believe) they are customer-led when in fact they are not.

With further modelling12 it became clear that executives pursue one of two overall approaches, or sets of beliefs, in their quest for competitive superiority - an efficiency approach or a customer value approach.

The analysis also showed that only the customer-value approach is positively associated with superior competitive performance. So, this reinforces the need to understand what’s going on - being customer-led seems to make things better for businesses, not just for the customers they serve.

These models also showed ways in which customer-led companies are different. They have an employee focus on customer-value creation, have a shared understanding of their key customers, make an effort to satisfy clearly identified customer segments, are good at bringing customer propositions to the market, and they have a high level of employee engagement. Crucially, and maybe less intuitively, they are also ‘focused on the numbers.’

The group believing in the efficiency route to success, while still declaring customers to be one of their top three priorities, did not experience superior business performance.

Being customer-led is rewarding, it delivers results for all kinds of companies from all kinds of industries - from retail to telecoms, financial services and media - and because it is far from commonplace, it represents an opportunity. It is interesting because it runs against the natural order of things, and it is truly challenging to implement and - as Zook and Allen explain - sustain against the inevitable pressures that come with success. The erosion of the insurgent beliefs - Zook and Allen’s equivalent of our outside-in beliefs - is what usually follows.13

To help management teams understand the challenge of becoming customer-led and to help them take concrete steps to transform their businesses, The Customer Copernicus is organised around insights derived from our decades of practice and research in this area.

Chapter 1 explains why being customer-led matters by telling a story about the whole customer-led journey through the example of Tesco, from being inside-out to achieving rare success by becoming resolutely customer-led and outside-in through a series of Moments of Belief. It shows how this leads to growth in a core market, broadens to new markets, then eventually to a natural weakening of customer-led resolve and the loss of outside-in conviction as other stakeholders become more influential. There is a painful return to the more common inside-out belief system alongside a decline in business and customer success. We then outline our proposition and introduce our framework.

Chapter 2 reviews what good looks like - the visible, crucial activities and leadership style of a customer-led business. There are six activities that especially matter - making clear choices about which customers to serve and which needs to meet, developing guiding insights that give the business an edge, creating innovative propositions, empowering colleagues, using approaches that encourage rapid learning, and having a customerplanning process. The leadership style that works has three components: being genuinely outward-looking, being clearly committed to the customer internally and being assertive externally and, therefore, prepared to lead in the market. Although this kind of formula is well established, leadership teams generally struggle to embrace the complete set.

In Chapter 3, we describe what good feels like. The importance and power of the prevailing shared beliefs is recognised and the way they guide everyday behaviour and critical decision-making, providing a lens through which colleagues in a business make sense of the world around them. Recognised in anthropology, the study of group human behaviour - and, as already mentioned, more formally labelled discourse - includes not only the language but also the range of other observable manifestations of deeper, unspoken, shared assumptions about the way the world works, what success is and how success is achieved.

Having highlighted the pivotal role of shared beliefs, we explore how organisations create these beliefs in the first place in Chapter 4. We show how they can be changed from the conventional inside-out to the remarkable outside-in. We argue that having an outside-in belief system is rare because it is unnatural and very hard to create. This would explain why so many who profess to be or intend to be customer-led never achieve it. We observe that efforts are frustrated if they don’t break free from the strong gravitational forces relentlessly pulling mature organisations back to the more natural inside-out belief system. They are missing an essential ingredient, a kind of rocket fuel providing thrust and momentum - Moments of Belief, which are customer-led actions or initiatives that are good for customers but risky for the business. When they work, they show people across the organisation, for real, that customer-led success can be achieved. When people en masse see the results in their own organisations, they start to believe that being customer-led ‘might just work around here.’ Repeated Moments of Belief solidify the belief that this is what we are all about, this is what we must do more of to really succeed. Simple, but not easy ...

In Chapter S, we explore the inevitability of losing customer-led beliefs. Why, even when a business has transitioned into a customer-led success, it remains unnatural and therefore difficult to sustain over the long term. We show how time extracts a price by diminishing the strength of belief in the group of individuals who first established it, and how the people who joined in the formative years come to take it for granted. We also show how growth brings increasing complexity, scale and distance from the world outside. These forces, akin to a kind of organisational gravity, continually pull the belief system back down to earth. Without a special kind of defence, the business eventually reverts to the more natural inside-out way of working. Often this descent is painful - a crash landing rather than a gentle touchdown. Only deliberate action to nurture shared outside-in beliefs will keep you aloft, something even more unusual than the actions that fostered the outside-in-ness in the first place.

In Chapter 6, we show how you can protect these customer-led beliefs. What’s needed are three things. First, paying attention to your belief system, an unusual activity in most organisations where it is mostly unspoken; second, ensuring Moments of Belief flow continually to show everyone what matters around here is just as unusual as it’s always been; and third, being boldest when challenged most, protecting the trailblazing customer- led ethos, not the business model that expressed it but which is now challenged. In these ways, despite being unnatural, the North Star of the customer stays front and centre, and the business continues creating customer value in new and better ways to attract, retain and grow the value of its customer relationships.

In our Conclusion, we provide more insight into why this is so difficult, and why so few organisations sustain a successful customer-led approach in the long run. The problem is that inconvenient actions, like challenging your own business model because a better alternative is emerging, are painful. To become customer-led in the first place, to take action that is outside-in and therefore risky, requires a pre-condition, one we call ‘burningness.’ This emerges from one of three things pain, fear or ambition. The first is unarguable because something is going wrong now (the burning platform). The second is less effective as a stimulus because the temptation is to wait and see (maybe the worst won’t happen). The third is least common because it requires having so much ambition that you’re prepared to risk the current, perfectly adequate status quo to pursue it. Once you have become a customer-led success, you’re not in pain. You have to summon up from within yourself the ambition, or maybe amplify a distant fear, to the degree needed to continue to pull up trees on behalf of the customer. Tough.

In summary, this book explains why so much hot air is wasted eulogising customers to so little effect. It seeks to demystify customer-centricity.’ It illustrates why so many companies have not backed up their words with effective action in their pursuit of customer-led success. It describes what it takes to become a genuine customer champion and how to sustain it.

Above all it challenges you to ask, ‘what do I truly believe success is, and how do I believe that success can be achieved?’ The question everyone else will rightly ask, why should we believe you?

Notes

  • 1 www.sec.g0v/Archives/edgar/data/1018724/000119312517120198/d37336 8dex991.htm
  • 2 wwwo8.wellsfargomedia.com/assets/pdf/about/investor-relations/annual -reports/2015-annual-rep0rt.pdf
  • 3 Zook, Chris & James Allen. 2016. The Founder’s Mentality: How to Overcome the Predictable Crises of Growth. Boston, MA: Harvard Business Review Press.
  • 4 Jensen, Michael C. & William H. Meckling. 1976. ‘The Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.’ Journal of Financial Economics, 3 (4): 305-360.
  • 5 Business Roundtable. 19 August 2019. ‘Business Roundtable Redefines the Purpose of a Corporation to Promote “An Economy That Serves All Americans’” Business Roundtable. Retrieved from www.businessrou ndtable.org/business-roundtable-redefines-the-purpose-of-a-corporation -to-promote-an-economy-that-serves-all-americans
  • 6 Martin, Roger. 2010. ‘The Age of Customer Capitalism.’ Harvard Business Review, 88 (1): 58-65.
  • 7 Interview with authors, 9 and 12 December 2019.
  • 8 Interview with authors, 9 December 2019.
  • 9 Interview with authors, ю December 2019.
  • 10 The survey was sent to 8,000 IMD alumni and other executives from over 4,500 companies in 134 countries in late 2016. The 454 respondents (a response rate of 5.7%) comprise CEOs (41%) and executives with responsibility for business development (n.5%), marketing (10.5%), finance (8.5%), HR (5%), production (4.5%) and ‘other’ (19%).
  • 11 We conducted in-depth interviews with a convenience sample of 50 senior executives exploring how customers are treated as stakeholders in their companies.
  • 12 We examined more closely whether and how beliefs drive business performance, using structural equation models (SEM). The best-fitting model included two latent variables (we labelled them as Efficiency Lever and Customer Value Lever), which were negatively correlated. Only the Customer Value Lever had direct positive effect on Performance.
  • 13 Zook, Chris & James Allen. 2016. The Founder's Mentality.

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