ABOUT TWENTY-FIVE YEARS ago, Audi of America hired a new president to turn around its sagging fortunes. For Markus Huber (not his real name),1 this was a career highlight. Markus had worked his way up the marketing ranks to become VP of a competing German carmaker before finally getting tapped to head Audi.2
This anecdote illustrates the challenges and payoffs of getting strategy right.
While Markus knew he was joining a troubled company, the depths of Audi’s problems did not become fully apparent until he settled into his new job. Audi’s sales in the U.S. market had plummeted six years earlier when 60 Minutes aired a segment detailing the alleged tendency of Audi’s flagship model to exhibit unintended acceleration. The results were frightening and sometimes tragic, particularly as told by a devastated mother sharing the nightmare of running over and killing her six-year-old son. The segment included footage of the accelerator pedal of an Audi 5000 model moving on its own, propelling the driverless car forward, as graphic evidence of the car’s fatal design flaw.
However, an exhaustive investigation by the U.S. National Highway Traffic Safety Administration subsequently concluded that Audi’s uncontrolled acceleration resulted from driver error, not a design flaw.3 In the tragic accident cases, drivers mistakenly pressed the accelerator rather than the brake pedal when trying to stop. Eventually, 60 Minutes was forced to acknowledge that an air pump had been concealed in the test car to mechanically move the accelerator for a dramatic camera effect.4
But despite its total exoneration, Audi’s image had been tarnished and sales remained deeply depressed. By the time Markus assumed his leadership role in 1993, Audi was selling about twelve thousand cars annually in the United States, nearly 85 percent below its sales rate prior to the damning 60 Minutes broadcast. The company was losing over $60 million per year, with no realistic prospects for a near-term turnaround.
Playing the Hand You’ve Been Dealt
Having worked with Markus earlier in his career, I arranged a meeting to brainstorm how to improve Audi’s business performance. Markus agreed to fund a short consulting assignment, in which my team would evaluate Audi’s market and competitive situation and recommend a way forward. While we were focusing on Audi’s strategic response, Markus had his hands full with tactical and cost-cutting priorities.
In order to understand our findings and recommendations, a brief review of Audi’s background is in order.
Audi, a subsidiary of Volkswagen AG, is one of the German “Big Three,” along with BMW and Mercedes-Benz, representing the best-selling luxury automakers in the world. In the 1980s, Audi competed in the shadow of its more prestigious brethren, selling compact and midsize front-wheel-drive (FWD) sedans in the United States at lower prices than the luxury rear-wheel-drive models from BMW and Mercedes-Benz. Audi’s cars at the time were generally considered as somewhat undistinguished: they suffered spotty quality, conservative styling, and spartan interiors and appealed primarily to budget-conscious customers seeking the prestige of German automotive engineering at a relatively low price.
The exceptions in Audi’s lineup were its Quattro models, incorporating a unique all-wheel-drive (AWD) design that had achieved remarkable success on the European rally racing circuit since its introduction in 1980. Quattro models featured a unique technology, which continuously adjusted the amount of power delivered to both front and back wheels, depending on the optimal traction required for varying driving conditions.
Audi first launched Quattro technology in the United States in 1983, bundled with luxury features that carried a considerably higher price tag than its higher-volume FWD models. Quattro models sold in limited numbers to automotive enthusiasts, inspired by the superior performance and road handling.5 Through the early 1990s, the Quattro continued to build a stellar technology reputation, untarnished by Audi’s broader image woes in the U.S. market. Quattro models remained unchallenged by BMW and Mercedes-Benz, neither of whom would introduce comparable technology for another seven years (and even then, in extremely small numbers). With Quattro, Audi truly had a crown jewel in its midst.
Even though Audi’s overall U.S. sales collapsed following the 60 Minutes report in 1986, Quattro sales continued to grow, reaching 18 percent of Audi’s twelve thousand unit sales total in 1993. But Audi could not stem the decline in its FWD car sales, despite steep discounts that reduced prices well below the company’s costs. In essence, while Audi’s traditional sedans had always been considered a notch below the prestige of BMW and Mercedes-Benz models, its FWD cars had become virtually sale-proof by the early 1990s.
In the fall of 1993, my consulting team completed its extensive analysis of market data, reaffirming that Audi was holding a losing hand in the United States. At Markus’s request, I delivered a summary of our findings and recommendations at a private meeting in his office.
The report was short and to the point. The opening page, reproduced in the text box below, starkly concluded that the company would probably not survive another year, barring sweeping changes in its U.S. market strategy. This was followed by numerous market analyses characterizing Audi’s untenable market position. Every measure—brand awareness, consideration, purchase intent, customer satisfaction, owner loyalty, image strength, product quality, dealer profitability, advertising share of voice, price realization and financial performance—pointed to a continued exodus of current Audi owners trading for competing makes, coupled with an inability to attract enough new customers (even with financially ruinous discounts) to reverse sales declines.
The presentation concluded with the recommendation that Audi should rebuild its entire brand persona around Quattro models, while discontinuing its money-losing FWD model range. By focusing entirely on Quattro, I argued that Audi could successfully penetrate a defensible segment of the market with uniquely appealing products that could command profit-generating prices. I predicted that, over time, Quattro’s technology advantages would fuel growth that would restore Audi as a legitimate Big Three contender in the U.S. luxury car market.
Audi Situational Assessment—1993
Audi’s deteriorating U.S. market and competitive position has brought the company to a strategic crossroads.
• Audi suffers from untenably weak consumer awareness and its ill-defined image has been further weakened by the lingering effects of the unintended acceleration crisis.
• Aggressive and strengthening competition from traditional and new players in Audi’s price segment is eroding Audi’s market share.
• As a result, sales have declined over 80 percent in the past five years to around twelve thousand units, despite heavy discounting…below critical mass to sustain a national brand.
• Neither Audi nor most of its dealers are profitable, and prospects to reach breakeven on the current course are remote.
• Barring a fundamental shift in its current strategy, Audi is unlikely to survive in the U.S. market beyond the next year.
Through much of this presentation, Markus listened quietly and attentively, interjecting only to clarify a few points. But when I was done, he became more agitated: “Did I understand correctly that you are suggesting I stop selling FWD models? Are you crazy?! This company has lost 80 percent of its sales over the last five years and here you are suggesting I walk away from products accounting for 80 percent of what little sales I have left. That’s ridiculous!”
“Well,” I responded, “you can phase out your FWD models over a couple of years as you ramp up the Quattro line. And with increased emphasis on Quattro at more competitive prices than you currently charge, we expect rapid growth will make up for lost FWD sales. By implementing this strategy, you can rebuild around Audi’s strength, rather than letting crippling weaknesses kill the brand. So, yes, that is exactly what I am suggesting.”
After a long silence, Markus concluded our meeting with a disingenuous promise to give some more thought to our conversation. No follow-up action was discussed or planned.
I have shared this anecdote with several of my MBA classes at Columbia Business School over the years to stimulate class discussion about strategy formulation and consulting practice protocols. At this juncture of the story, I typically ask my students which of the following actions Markus should have taken after receiving my consulting report, that in essence had delivered a death sentence to his company.
Management Next Steps
If you were president of Audi of America presented with such a consultant report, what would be your next step(s)?
1. Request additional data to substantiate conclusions and recommendations.
2. Convene a follow-up meeting with direct reports to review and debate findings.
3. Brief superiors at German HQ and seek their involvement in next steps.
4. All of the above.
5. None of the above…go to lunch and forget this meeting ever happened.
Most of my students opt for the prudent fourth response. But last semester, one bold MBA student voted for number five, suggesting that Markus should go to lunch and forget our meeting had ever happened! When I asked this student to share her reasoning with the class, she said
It’s not that I think Markus should blow off your meeting, but I think that’s what he probably did. The strategy you recommended would likely face strong resistance from his staff and probably from his superiors in [the] German headquarters as well. It’s not clear to me that Markus would have the conviction, political capital, or courage to press forward with such a bold plan. Better to lay low for a while and hope for a miracle.
This student’s assessment was spot on, as Markus did indeed pick the last option, willfully disregarding my stark conclusions and my recommendations for a turnaround strategy. In the weeks that followed, I tried to arrange a follow-up meeting to discuss next steps but received no response to repeated correspondence and phone calls. During our last encounter, Markus had not rebutted any of the facts or conclusions presented, nor shared any reasons why the recommended strategy was incorrect or impractical. But from his final outburst and subsequent silence, the message was clear: as far as Markus was concerned, our conversation was over.
This turn of events often precipitates another active debate in my class in response to the question, “What would you do next if you were in my shoes?” Many of my MBA students plan to pursue a career in consulting, so this question has particular relevance. It is not at all unusual for consultants to reach conclusions that push beyond their client’s comfort zone. What is unusual is to be precipitously shut off from any meaningful dialogue on an appropriate strategic response when the client’s near-term survival is so clearly at risk.
Each semester, some of my students with a non-confrontational bent suggest that I should have licked my wounds, accepted the dead-end outcome, and moved on to the next consulting assignment. Others suggest that I should have looked for a more open-minded subordinate on Markus’s staff who might be enlisted to press their boss for another meeting with me.
As it turned out, I decided against both these options, the first because I couldn’t ignore my fervent conviction that Audi could be saved, and the second because I didn’t want to put a subordinate employee in an awkward position with his recalcitrant boss. Instead, I wrote to the CEO of Audi AG in Ingolstadt, Germany, recounting the substance of my findings, conclusions, and recommendations and the resulting tacit rejection by the president of his U.S. division. I recognized that I was unilaterally end-running my client but justified the action given the urgency of the situation and Markus’s lack of professional courtesy responding to it.
To my surprise, I was immediately invited to fly to Ingolstadt to present my consulting report to Audi AG’s management board. When I was ushered into the boardroom, I found myself facing fourteen unknown Audi senior executives sitting around a large conference table, and one familiar face—Markus Huber—sitting alone in a chair against the back wall.
After being introduced by the CEO, I launched into the presentation. There were several polite questions and generally supportive comments, before the CEO concluded the meeting by expressing his support for the substance of my recommendations. At this point, Markus leapt to his feet, proclaiming, “I would like to personally thank the board for its support. Dr. Sherman and I have been working closely on this initiative for the past three months and I will follow up shortly with more detailed proposals to move our recommendation forward!”
Coda and Lessons Learned
The Audi story represents a classic case of “shrink-to-grow” strategy. When a company finds itself in severe distress, often the best corrective course of action is to strip away the broken core to rebuild around an initially smaller but more defensible and profitable business segment. By analogy, if a large, old building is teetering on a shaky foundation, it makes little sense to continue renovating the top floors. Better to demolish the building and rebuild on a new solid foundation.
Several large companies have successfully pursued a shrink-to-grow strategy over the years, including Thomson Corporation, General Motors, and Apple.
Thomson Corporation, once one of the largest newspaper chains in the world, presciently foresaw the declining business outlook for print journalism and the promising growth of specialized information services. Starting in the 1970s, Thomson began divesting most of its newspaper holdings, including the London Times, the Scotsman, and over fifty others and invested the proceeds in a number of specialized (and eventually digital) information services, including First Call, Westlaw, and Physician’s Desk Reference. During its thirty-year shrink-to-grow transition, Thomson grew in value from $500 million to over $29 billion.6
General Motors, after resisting a shrink-to-grow strategy for years, emerged from bankruptcy in 2009 with five fewer brands than it had owned five years earlier. Although GM is now a smaller company than it was prior to declaring Chapter 11, the company has restored profitable growth from a stronger and more focused brand portfolio.7
Perhaps the most dramatic shrink-to-grow strategy was engineered by Steve Jobs when he returned as CEO of Apple in February 1997. At the time, most industry observers believed that Apple was just a few months away from bankruptcy. Apple’s dwindling share of the personal computer market had dropped below 4 percent and annual losses exceeded one billion dollars. Three CEOs had come and gone in a decade, and board members had tried to sell the company but found no takers. At a tech industry symposium in October 1997, Michael Dell opined that if he ran Apple, he’d “shut it down and give the money back to shareholders.”8
But Steve Jobs was determined to deliver on his founding vision of creating transformative consumer technologies. Upon his return, Jobs’s first priority was to discontinue underperforming product lines that weakened Apple’s brand image and management focus. At the annual Macworld Expo in August 1997, Jobs told Apple software developers and corporate partners, “If we want to move forward and see Apple healthy and prospering again, we have to let go of a few things.”9
By the end of that year, Apple discontinued several products, including the Apple Newton personal digital assistant, the Pippin game console, the QuickTake digital camera, the Color LaserWriter and the eMate schoolroom touchpad. Jobs then focused the freed-up engineering resources on developing a series of transformative products. Starting in 1999, Apple launched the products— the iMac, iPod, MacBook, iPhone, and iPad—that reversed the company’s fortunes. Shareholders should be gratified that Steve Jobs was at Apple’s helm, not Michael Dell. Apple’s market capitalization went from $3 billion at the start of 1997 to over $600 billion by the end of 2015.
In Audi’s case, within three years of my meeting at corporate headquarters, Audi had converted its entire U.S. product range to Quattro models. With its new focus, Audi reconfigured its standard and optional feature mix to improve price competitiveness and completely realigned its marketing and distribution strategy to emphasize Quattro’s unique performance advantages over the competition. Audi’s image, sales, price realization, and profitability rapidly improved, allowing the company to extend its Quattro product range to new models, including roadsters, SUVs, coupes, and convertibles. By 2015, Audi sales in the United States had grown to nearly two hundred thousand vehicles and the company enjoyed strong profitability, customer satisfaction, and luxury cachet.
There are six lessons learned from Audi’s strategic turnaround that can be more generally applied to effective strategy formulation.
1. Strategy is context sensitive.
2. The CEO must own the strategy.
3. Meaningful differentiation lies at the heart of successful strategy.
4. Leading strategic change takes courage.
5. The company must go all-in to completely support its strategy.
6. Continuous innovation is essential in sustaining superior performance.
Strategy Is Context Sensitive
Formulating the right strategy depends on the hand you’ve been dealt. For example, the appropriate focus for a profitable market leader should differ from the strategic imperatives of a weaker competitor struggling to survive.
One way to quickly establish a company’s current business context in order to guide strategic priorities is to evaluate competitive performance characteristics. Figure 6.1 depicts a simple framework to accomplish this.10 In this exercise, the horizontal axis measures market share relative to the market leader.
Figure 6.1 Business context and strategic priorities
The vertical axis depicts a measure of profits relative to resources employed, which could be total assets, invested capital, or equity. This information is admittedly difficult to find for privately held companies, but rough estimates will suit the purpose.
After placing each of the competitors within a given industry on this business-performance map, an individual company will find itself in one of four quadrants, each with clear implications for the appropriate strategic focus.
Industry leaders are arrayed in the upper right-hand quadrant. These players enjoy the largest market share and profit levels, often with distinct advantages in image strength, distribution breadth, and economies of scale. Current examples include Apple, Nike, and Costco. The strategic priority for industry leaders should be to exploit their current marketplace advantages, while reinvesting in new products and technologies to preempt disruptive competition.
At the opposite extreme, industry followers have low market shares and returns, and often this disadvantaged position is a sign of weak products, poor image, or high costs. Audi was clearly in this position when I had my first meeting with Markus Huber, as was Nokia prior to its sale to Microsoft and Kodak prior to its bankruptcy. For such companies, the only logical strategic response is radical repositioning in pursuit of a significantly different consumer value proposition. Incremental tweaks to a follower’s extant strategy are unlikely to close the gap against industry leaders and will further consume what little time a follower may have left to survive.
In the upper left quadrant of figure 6.1, some competitors are in the overperformer category, with relatively low market share, but high levels of profitability. This is a characteristic of niche specialists whose well-designed products appeal to a distinct consumer segment. Examples include Porsche, Blackberry prior to the introduction of Apple’s iPhone, and Coors before the 1980s. Because of their extremely attractive returns, overperformers need to anticipate aggressive attacks from traditional and new competitors. Overperformers should commit to continuous product innovation to retain best-in-class performance or to a strategic exit for the benefit of shareholders. For example, Porsche has been able to retain its overperformer position in the automotive industry, whereas Blackberry failed to innovate and suffered disastrous consequences. Some overperformers may perceive ahead of the market that their product category will face inevitable commoditization, and choose to exit at a high acquisition premium for the benefit of shareholders.
Companies in the lower right quadrant are profit laggards, who suffer low profitability despite relatively high market share. The root causes can often be traced to high costs, weak products requiring steep discounts, poor product mix focused on inherently unprofitable market segments, or a combination of all of the above. Recent examples of laggards include General Motors, IBM, Hewlett-Packard, and Yahoo. The appropriate strategic response is often to shrink to grow, refocusing the company around defensible and profitable product categories. For example, IBM has done so by selling its high-cost personal computer, server, and printer businesses to concentrate on future growth opportunities in software, analytics, consulting, and cloud services.
Laggards and followers often replace their CEOs in search of a new winning strategy. While the appointment of a new top executive represents an obvious checkpoint to reassess a company’s basic strategic direction, all companies should continuously monitor whether changes in their competitive environment warrant rethinking strategic priorities. In Audi’s case, Markus ultimately had no choice other than radically repositioning the business to save it. Now, Audi can focus its U.S. strategy on maintaining a luxury segment leadership position, with continuous investment in innovative new technologies and ongoing initiatives to strengthen customer and dealer satisfaction.
The CEO Needs to Own the Strategy
Shortly after arriving as the new president of Audi of America, Markus solicited input from each of his business-unit heads on business priorities. Predictably, he received conflicting advice, shaped by the tactical focus of each business unit. His sales director and dealers wanted a new round of price discounts to stimulate customer demand, which was opposed by his finance director, already struggling to cope with below-cost pricing. The marketing department was clamoring for increases in their advertising budget to launch a new seasonal campaign, while the manufacturing liaison pushed for higher production runs with lower product complexity. These are legitimate inputs from executives dutifully doing their defined job. What about Markus?
In reflecting on the role of a CEO, Peter Drucker has identified four key tasks that only the top executive can perform:11
1. Define the meaningful outside, that is, a realistic, accurate, and evolving understanding of the market and competitive environment.
2. Decisively decide what business you are (and are not) in.
3. Balance the present and future in allocating human and financial capital.
4. Shape corporate values and standards to establish and nurture a culture strongly aligned with strategic priorities.
With a persistent push from his consulting advisors and strong support from his parent organization, Markus ultimately met the challenge of becoming an effective leader and succeeded in turning Audi of America around.
Chief executive officers can choose to get more or less involved in a variety of corporate activities, be it hands-on oversight of engineering, design, marketing, or partner development, reflecting their personal interests. Some CEOs are reflexively micromanagers; others are motivational delegators. But at the end of the day, it is the CEO’s job alone to take ownership of each of the four tasks noted above to establish and guide a winning strategy.
Meaningful Differentiation Lies at the Heart of Successful Strategy
In the first chapter, I referred to the ongoing debate between two schools of thought, one advocating a customer-focused, outside-in perspective driving effective business strategy, and the other arguing that effective strategy should build on a company’s advantaged internal capabilities. Either approach (or more likely, a hybrid of the two) can be the basis of a winning strategy, provided they end up in the same place: continuously delivering meaningfully differentiated products that are recognized and valued by consumers in the marketplace.
Meaningful differentiation should be a company’s consummate strategic objective. No business can succeed long-term unless it maintains a compelling consumer value proposition. In Audi’s case, the ability to deliver meaningful product differentiation was readily at hand: in its AWD technology. All companies need to find the crown jewels in their product portfolio.
Leading Strategic Change Takes Courage
In retrospect, the critical decision driving Audi’s turnaround in the U.S. market—to focus exclusively on AWD vehicles—seems fairly self-evident. So what held Markus back?
The simple answer is fear. Leading a strategic transformation that significantly departs from company tradition and industry norms may fail, perhaps even catastrophically. And once a CEO puts a strategic change initiative in motion, he or she owns it. By definition, putting meaningful differentiation at the center of your company’s strategy means you’ve committed to a path less traveled.
That’s not to say there aren’t business tools and tactics to help mitigate business risks. Companies can and do rely on reams of market research and consumer feedback in designing, beta testing, and piloting new product launches. New businesses can often be implemented in manageable phases. Software and web-based products have the added advantage of shorter time frames to build, pilot, and refine designs with the help of A/B testing.12 But the reality is, strategies committed to continuous product innovation and clear market differentiation are inherently risky, requiring a resource that is often in short supply: CEO courage.
A Company Must Go All-In to Support Its Strategy
To succeed, it’s not enough for companies to clearly articulate a market-differentiating strategy; they must go all-in to ensure corporate capabilities are properly aligned. In Audi’s case, not only did the company change its product lineup to achieve market differentiation, but it also fundamentally changed every aspect of its supporting business operations: marketing, pricing, sales, and customer support.
Consider Swatch as an exemplar of CEO vision and courage. When low-price Asian imports and new digital technologies threatened to decimate SMH,13 one of Switzerland’s largest watchmakers in the 1980s, CEO Nicolas Hayek committed to launch a new division—Swatch—that would not only compete with low-cost entrants but would also fundamentally change how its products would be perceived in the market. Implementing Swatch’s business strategy required a number of bold and unconventional steps that significantly repositioned its product range as more of a fashion accessory than a watch:
• Bold, bright-colored designs with plastic casings—a first for the normally staid Swiss watch industry.
• Frequent new entries from noted designers to create market buzz, stimulating fashion-conscious consumers to buy multiple versions for their wardrobe.
• Simple pricing—initially $40 per watch—which remained unchanged for a decade even for the most popular models. At these attractive price levels, many consumers acquired Swatches as an impulse purchase.
• Dedicated, exclusive retail outlets to clearly differentiate Swatch from other watch brands.
• Brash, highly theatrical product launches, often using guerilla-marketing tactics to spike consumer interest. For example, to announce its entry into the German market, Swatch erected a five-hundred-foot working model of a Swatch on Frankfurt’s tallest building.
• Ambitious global expansion, even when market receptivity was uncertain. For example, after a successful European launch, Hayek pushed forward with Swatch’s U.S. market entry despite weak pilot results, arguing that the planned bold launch tactics could not be properly assessed in a limited market trial. Hayek proved to be right, as the United States emerged as Swatch’s largest national market.
The bottom line is that successful strategy requires decisive action in both concept and execution. The CEO must ensure that the entire organization is motivated and incentivized to support the company’s strategic direction.
Continuous Innovation Is Essential to Sustain Superior Performance
Successfully defining and implementing a market-differentiating business strategy earns a company the ephemeral right to reap financial rewards while preparing to respond to the inevitable changes in the market.
All of the companies profiled in the business cases I have been using in my strategy course at Columbia Business School have experienced significant changes in their market and competitive environment in recent years. For example, Swatch’s parent corporation, which initially survived an existential threat with its brilliant Swatch strategy, now faces a decrease in demand as a result of widespread smartphone ownership, and an onslaught of smart watches, which may once again profoundly redefine marketplace dynamics. Delta Airlines, initially an example of a high-cost, poorly managed company under siege from low-cost carriers, has since emerged from bankruptcy, a major acquisition, and with new management to become a strong performer in the airline industry. Starbucks lost its way in the mid 2000s with an ill-considered expansion binge that undermined the company’s brand character and eroded profitability, before the founder returned as CEO to restore brand cachet and profitable growth. Every business case seems to require a new chapter every year. Every company must constantly write its own next chapter.
What Can You Do if Your Company’s Strategy Is Broken?
In this chapter, I have highlighted the challenges and payoffs of getting strategy right. Most of my commentary has been oriented toward the CEO, as he or she is uniquely positioned to define and guide successful business strategy implementation.
Many of the cited cases provide inspirational examples of creative and courageous leadership, driven by CEOs who live by the credo “no guts, no glory” in personally driving winning business strategies. But what are the implications for MBA graduates, or mid-career, mid-level executives? They are generally not in a position to exert courageous leadership. Or are they?
A recent guest speaker in my class—entrepreneur, author, and blogger Seth Godin—urged my students to approach their first (and every) job with the mindset to “make a ruckus” and “not be afraid to be fired.”14 Godin was channeling themes from my course in very personal terms. Customer centricity and playing to win (as opposed to playing not to lose) are not just mantras for corporate leaders but should be a code for every manager to live by.
Of course, it’s easy for financially secure elders like Godin or me to proselytize a message of personal leadership that involves rocking the boat. But what if you’re just feeling your way around a new job in a company whose paycheck is critical for repairing your post-MBA balance sheet or supporting a growing family on a tight budget? How and where do you draw the line between pushing for constructive strategic change and being a solid team player in support of your company’s current business direction?
My short answer to this question is there is no hard line; the extent to which an employee chooses to proactively offer feedback on management policies is a decidedly personal decision. But I do advise my students that under no circumstances should they be dishonest with themselves about what they choose to do and why.
It’s quite natural for MBA graduates to approach their first job with a combination of optimism and excitement. But once on board, what would you do if you were concerned your company was headed in the wrong direction? Arguably, you have three choices:
1. Persistently push (as hard as you feel comfortable) to make the case for constructive change.
2. Leave and find a more enlightened employer or start up your own company.
3. Ignore your misgivings and embrace the corporate doctrine in the hope of kudos, bonuses, and promotion down the road.
If you’re inclined toward option three, you might want to rethink whether an environment that may not respect or address your concerns—or in any event appears headed in the wrong direction—is a place you want to work over the long term. Ignoring your instincts or being dishonest with yourself may be a Faustian bargain.
Consider this hypothetical situation. Suppose you believe in the premise that strategy should be formulated from an “outside-in” perspective—that is, the highest priority is to create and consistently deliver compelling consumer value. Logically, you also believe that internal capabilities, incentives, and corporate policies should be aligned and managed to this end.
That all sounds reasonable, but the reality is that companies vary widely in their genuine commitment to operate in such a fashion. The key is to watch what companies do, not what they say. Every company says that they value their customers, but there is a wide variance in perceived customer satisfaction across industries that suggests otherwise.
For example, figure 6.2 displays 2015 results from ACSI, a spinout from the University of Michigan, for customer satisfaction by industry on a 0–100 index.15
Figure 6.2 Customer satisfaction scores by industry
It shouldn’t come as a surprise to see that companies at the bottom of the list—Internet service providers (like Comcast), subscription television services (like Time Warner), health insurance providers (like Cigna), and airlines (like United) score quite poorly in delivering an appealing customer experience. There are a few bright spots among these industry groups (like JetBlue), but by and large, companies in these industries have knowingly implemented business practices to extract revenue in ways that aggravate customers.
Now suppose that you, with your freshly minted MBA degree, were hired to manage strategy and policy assessment for the customer service group of one of the poorer-performing companies in this group. After a few months on the job, with due diligence under your belt from proprietary company surveys, audits of customer service calls, and interviews with colleagues, you are asked to report your initial findings to your boss.
To begin, you confidently summarize what you believe to be the root causes of your company’s chronically poor customer satisfaction performance:
• Multiple, hidden fees and penalties.
• Deliberately confusing prices, rate plans, and ever-changing promotions.
• Inflexible service plans designed to lock consumers into long-term contracts.
• Bundled offerings forcing consumers to buy services they don’t want or value.
• Unresponsive and inflexible customer service, handled by representatives with limited authority to deviate from restrictive scripts and incentives to shorten customer contact time at the expense of effective problem resolution.
Before you go any further, your boss interrupts to suggest limiting your discussion to the last item on the list. “We have no control over the business policies of the company,” she says, “so let’s just focus on what we can control in this department regarding the customer contact center.”
With MBA case studies on the business practices of truly customer-centric companies still fresh in your mind, you object, noting that focusing only on post-transaction customer complaints is inherently self-limiting and will ultimately reduce lifetime customer value. But your boss stands her ground, noting that “corporate management is well aware of the frequency and cause of customer complaints, and they’ve done their homework to determine our profit-maximizing business model.”
You’re tempted to press further—questioning the time frame of the company’s analysis and whether the impact of customer churn has been considered—but your boss’s stern look signals that this conversation is over, at least for now.
Now what? You recognize that you’ve essentially been asked to put lipstick on a pig whose behavior is largely outside your control.
Perhaps you will get the opportunity to revisit your company’s broader business strategy after having had more time to gather evidence and get savvier about internal politics. But the possibility—and likelihood, given your current position in the company—is that you will not be able to instigate a personally satisfying course correction. Let’s say you’ve been at it for sixteen months, and it’s time to revisit the options depicted in figure 6.3.
Figure 6.3 Personal choices
Which door will you choose?
