Back in the carefree days before 2007, companies looked at growth as their major challenge. In those days, obtaining a 15% increase on yearly growth seemed to be the most important thing for them to achieve, to keep their stockholders happy. Since then, with the collapse of firms such as Bear Stearns and Lehman Brothers, survival has become the key element to business. In Reorganize for Resilience, Ranjay Gulati shows some of the things that resilient companies do, both in good times and in bad, to ensure that they don’t end up being a case study on what companies shouldn’t have done.
Management, leadership, strategy, strategic management, corporate strategy, customer centricity, customer service, strategic business unit, sustainable competitive advantage, product innovation, corporate culture.
The book shows that one of the main things companies should do is to break through the internal barriers that often impede action, and also ensure that there are no warring divisions within the company, so that they are fighting more against themselves, rather than the competition. The book is based on over ten years of research. It has the usual companies, such as Starbucks, Best Buy, and Cisco, but it is also refreshing to see French companies, like Lafarge, are also quoted as well.
According to Gulati, only 60% of companies survive through deep depression or drastic downturns. The ones that do survive have built what the author calls an “outside in” mindset. Rather than making products and then pushing them onto the marketplace, they begin with the consumer and try to decide what they actually really need and what they really want, in terms of products or services. This sounds good in theory, but in practice, of course, it is quite difficult to do.
“Of course,” says the author, “most managers realize that they need to be resilient and they need to adapt to the customer. However, most of them don’t realize the huge organizational barriers that stop them from doing so.”
The book looks at 9 companies: 3 in B2C – Harley-Davidson, Starbucks, and Target; 3 in B2C and B2B- Tribune, Best Buy, and Cisco; and 3 in B2B- Jones Lang LaSalle, Lafarge, and GE Healthcare. This gives a broader, overall perspective on different types of businesses.
The work is also interesting in that it generally deals with one particular aspect of company organization and one company per chapter. Of course, this may seem a little more complex in the real world of business, but it allows the reader to get hold of the main theme that is being developed. The author himself is quite clear about some of the difficulties. “Outside in” thinking does not blindly mean following what the customer tells you to do.
In fact, Steve Jobs once said, “customers don’t know what they really want, until you actually give it to them.”
It does give one very good example of how a company, by working with its customers, totally changed its business model. Best Buy, an electronics store, realized that in fact they had different types of customers. Until they started working with them, they thought that most purchases were made by men. In fact, they found, women purchased 55% of all consumer
electronics, and also influenced approximately 75% of all purchases. Best Buy changed its policy, towards talking to its customers. Having worked with the customer, the company also needs to develop cooperation. Cisco is seen as being a good example of this, in that it has broken down all the barriers and silos that exist within the company. Employees, when they are hired, are expected to embrace the no-technology religion approach and be agnostic to all forms of platforms and standards, and keep an open mindset. Annual bonuses are then based on the level of customer satisfaction, revealed in one question: “What is your overall satisfaction with Cisco?”
Having established cooperation, then it isn’t necessary to build what the author calls clout or power structures within the company. Companies should raise the visibility in recognition of people who work across boundaries, and in different departments, and it should strengthen their influence. From there, greater capabilities will be made, through coordination and a stronger corporate culture. Building a powerful set of capabilities can be a critical aspect of an “outside-in” company model. Since they are not going to arise spontaneously, they must be developed in a systematic fashion. Once this has been done, a company must actively seek to create connections, both inside and outside the company. The author gives the example of Apple, which offers only a small number of applications for itself, simply because its partners can offer thousands more. Indeed, an IndustryWeek survey of manufacturers showed that 80% of companies say they have made significant progress towards world-class operations, and thereby operate with a significant number of partners. The book even gives one excellent example of Bharti Airtel, in his leading wireless phone company, that did reverse outsourcing by signing off its telecommunications network to Ericcson, Siemens, and Nokia. It was a difficult process, but was a very successful one in the end for the Indian company.
Reorganize for Resilience, emphasizes the need to create a journey towards the integration of different best practices that will help a company create an “outside in” mentality. It is not, as the author said, something that can be plotted on a MapQuest. Since markets, competition, and technologies will change, customer needs will change as well and, to stay in business, companies will need to reinvent themselves and the way they organize within.
Why Ranjay Gulati wrote the book?
Interesting quotes from the book:
Managers everywhere face the most turbulent market conditions since the Great Depression. Global competition has accelerated, and excess capacity worldwide will likely persist as desperate competitors slug it out for increasingly demanding customers who treat goods and services as commodities where price is the only differentiator.
Customer-driven companies were significantly more successful than shareholder-driven ones, providing a 36 percent advantage in shareholder returns.
Most managers understand why they need to be resilient, and many have figured out what customers want and what their companies should offer, but few appreciate the huge organizational barriers that prevent them from delivering on the suppleness they so fervently desire.
Since the 1980s, bagged salad—that staple of every grocery store’s produce section—has risen from nonexistence to a $2.5 billion-a-year industry.
Outside-in thinking does not mean blindly following what customers tell a company to do. Customers themselves may not be able to articulate their needs precisely.
CEO of Cisco John Chambers will keep anyone waiting for an internal meeting, even the board, if he is working with a customer to resolve an issue.
Effective cross-silo collaboration almost invariably involves modifying the power structure by assigning formal authority, bottom-line accountability, and valuable resources to existing business units and newly formed silo-busting or –bridging divisions or roles.
How to bridge and bust organizational silos
Empowering key individuals and groups to take actions – including encouraging disparate silos to make mutual customer-focused internal adjustments even at their own or others’ expense – creates the company – customer synergies that characterize truly outside-in organizations.
One service-provider executive told me a story about a manager who measured everything by how much she controlled and by how many people worked for her. The manager “could not get her head around the idea of influence versus command and control.” She ultimately left the firm.
Building a powerful set of capabilities among your people is thus an absolutely critical aspect of an aligned, outside-in company model. New capabilities are not going to arise spontaneously or through a general mandate; rather, organizations must develop them systematically.
Apple alone offers a small number of applications for its iPhone, but because of its partners, it can offer thousands of applications!
It’s a rare one that’s performed completely in-house anymore – from logistics and procurement (an estimated $179 billion global outsourcing business), to information technology ($90 billion), customer care ($41 billion), and human resources ($13 billion).
From 1996 to 2001, U.S. companies announced fifty seven thousand alliances, a rate of over one partnership per hour.
Honda provides top management at its suppliers with a monthly report card that details the supplier’s performance based on Honda’s metric targets.
P&G rewards sales managers for enhancing the profits of both P&G and its retailer partners like Wal-Mart.
One researcher found that Toyota, the most highly trusted auto manufacturer, had transaction costs that were about 20 percent of those at GM, the least trusted automaker.
Mastering the elements of systemic integration is not an end in itself. This is not a journey that can be plotted on MapQuest – so many hours to get there, so many miles to go.
Other Book Reviews
John Clements: “According to Ranjay Gulati, a professor at Harvard Business School and author of the book (Re)Organize for Resilience, the problem does not lie in being aware of the need to focus on the customer, but rather in taking the necessary steps towards solving the customers’ problems.”
Ranjay Gulati blog: “Becoming customer-centric means looking at an enterprise from the outside-in rather than the inside-out — that is, through the lens of the customer rather than the producer. It’s about understanding what problems customers face in their lives and then providing mutually advantageous solutions.”
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