The contrast of an inside-out belief system
Sky’s story demonstrates how outside-in beliefs propel a company to longterm success, even when short-term initiatives that focus on customers may appear difficult, expensive and risky at the time. In this world, success is genuinely creating more value for customers, pioneering on their behalf, and success is achieved by leading a market in this direction in a way that is also commercially sustainable.
At this point it’s helpful to contrast what an inside-out belief system looks like and how it might lead to a different business outcome. As a reminder, an inside-out belief system tends to feel more natural for a company. Success is defined primarily in financial terms, as sales or profit, and success is achieved by setting increasingly stretching sales targets, rewarding through bonuses and punishing for failure. These sales targets mean that customer value is not a primary concern.
As we covered earlier in the chapter, inside-out beliefs are natural, although they may eventually be unhelpful. In contrast, outside-in beliefs are difficult to establish. They require faith that the costs will eventually be justified by a future return.
Let’s return to the metaphor we introduced in Chapter 1 that we find helpful in characterising the relationship between inside-out and outside- in beliefs. It describes the organisation as a planet and the pull of ‘gravity’ making it hard to escape from inside-out forces. It describes the way these forces get stronger as the size of the planet grows, what it takes to lift off, establishing outside-in beliefs to begin with, then how falling back is remarkably easy unless something deliberate is done to prevent it.
A start-up company is tiny. Like a small planet, it has hardly any gravitational pull and it is easy for all involved to escape the natural perspective to see their world the way customers see it; outside-in with a clear view of their competitors and alternatives.
But an established business is huge, and the bigger it gets, just like a larger planet, the stronger the pull of gravity holding everyone in place. To escape takes serious effort, and like the challenge of getting a satellite into orbit from Earth, you need a powerful rocket with a number of stages to propel you fast enough and far enough to break free. Burningness provides the fuel and then our rocket stages are Moments of Belief, each one propelling the beliefs of the business and its people’s perspective to be progressively more external. Eventually, after enough Moments of Belief are seen for real and appreciated by all, the business and its beliefs are flying high, circling the planet, taking a view that is outside looking in.
Having made it this far, the battle is far from over - gravity is a relentless force. A satellite over time and without intervention slowly loses speed, starts to descend and eventually crashes back to Earth. So it is with outside- in beliefs. Only taking a particular kind of action can maintain them, a stream of Moments of Belief and paying attention to where the beliefs really are.
The ease with which organisations can fall back to inside-out thinking and actions can be seen with a closer look at the global banking industry.
Inside-out for real: A natural disaster waiting to happen
The Australian banking sector has been exposed as an industry that abused customers and took them for granted. A relentless pursuit of profit diverted Australia’s five biggest banks from considering how they could simultaneously create value for customers. A Banking Royal Commission established in December 2017 by the Australian government looked at National Australia Bank (NAB), Commonwealth Bank (CBA), Australia and New Zealand Banking Group (ANZ), Westpac (WBC) and AMR These five banks control more than three-quarters of the domestic market. The five biggest financial institutions have had to refund customers to the tune of AUS$222.3 million for failing to offer advice while charging ongoing advice fees.39
AMP, a 170-year-old institution, was under investigation following evidence that the bank misled regulators on at least 20 occasions and systematically charged customers fees without providing the service they were paying for. Its chief executive Craig Meller was forced to quit.
Meanwhile, NAB admitted in May 2018 that its staff routinely falsely witnessed client forms, describing the practice as a ‘social norm’ in the bank (a neat description of shared, inside-out beliefs). CBA, the country’s biggest bank by assets, confessed to charging customers fees for services it never provided as well as charging clients who were deceased - in one case for up to a decade. CBA is under investigation for more than 50,000 alleged breaches of money laundering and counter-terrorism laws, to which the bank has partially admitted, resulting in the departure of its chief executive Ian Narev and a revamp of its board. According to Mark Johnson, a former deputy chairman of Macquarie, an Australian bank:
What has shocked people the most is the extent to which banks have become indifferent to their customers, all the way through to engaging in dishonest behaviour.-*0
The problem lies with the culture. Justin O’Brien, a professor at Monash University said that the banks’ historic strong reported performance promoted, ‘light-touch regulation and the emergence of a banking culture which prioritises profits and shareholders over customers.’41
This is not an Australian problem. The reputation of the global banking industry is in shreds with repeated, extensive bad behaviour towards customers. Wells Fargo was fined SI billion in the wake of a US investigation which found that thousands of colleagues signed up customers for bank accounts without their knowledge in order to meet impossible sales targets - the stated inside-out aim was eight products or accounts per customer.
Wells Fargo rose from a San Francisco headquartered regional bank to one of the top four US banks via a number of mergers. It had traditionally been a locally oriented bank very engaged in and supportive of local communities. Its business model was simple - buy low, sell high. It eschewed investment banking, preferring to generate funds from its customers while at the same time earning a reputation for fair pricing, never chasing business by low-balling terms.
Cross-selling was at the heart of its strategy championed first by CEO Dick Kovacevich and continued by his successor John Stumpf. The data was impressive. Wells Fargo outperformed all its major competitors in terms of total shareholder returns. It was able to demonstrate to analysts that 52% of its customers had more than eight products and that profits per customer rose dramatically in line with the numbers of products held. Customers with eight products were five times more profitable that those with three products.42
In August 2018, in a section of a 173-page securities filing, ‘Additional Efforts to Rebuild Trust,’ the San Francisco bank admitted that due to a computer glitch, more than 600 customers who might have qualified for easier terms on their mortgages did not get them. Of those, around 400 went on to lose their homes. This technical glitch went undiscovered for five years.
And the issue with Wells Fargo, as with many other inside-out organisations, is that an inside-out belief system is tough to change. Erik Gordon, a professor at the University of Michigan’s Ross School of Business told the Financial Times that many of Wells Fargo’s 260,000 or so employees thrived in the old culture, or at least got used to it. ‘You’re mostly working with people who built their careers based on doing things the old way,’ he said.43
A former personal banker at Wells Fargo, Mike T, who worked in a branch outside Philadelphia, told the Financial Times that he left the bank because he was dismayed by how many colleagues who bent the rules to meet aggressive sales targets were promoted ahead of him. A district manager ordered him to target (mostly Mexican) construction workers who were refurbishing a shopping mall across the street. Whenever a worker tried to cash his pay cheque at the branch, he was made to sit down with a banker to discuss opening a new set of accounts before being given the money.
To hit the sales targets, it was easier, indeed it was only possible, if people acted in a pushy, hard-sell way, fundamentally inside-out. Putting customers first would never hit the numbers in a given month - only something much bigger, that created a significantly more attractive offer, would have a chance of doing that.
In most organisations, outside-in thinking feels unnatural and requires a constant stream of Moments of Belief to change people’s beliefs. The success of Zalando, the European online fashion retailer, shows this well.