Good thoughts on business strategy

I agree with what Chris Zook, head of Bain Capital’s strategy practice, had to say about business strategy on a recent Harvard Ideacast.

His advice (in my own words):

  1. Know why customers choose your product.
  2. Make sure everyone in your organization knows why customers choose your product.
  3. Make sure your organization can learn and respond to what your customers want.

I’ve dealt with a number of business managers who think they know why customers choose their products, but are dead wrong and they make disastrous business decisions and often lose their jobs because of it. Then they go to the next organization and repeat.

Such organizations tend to be bureaucratic and set up to follow the leaders’ commands and satisfy the leaders’ egos instead of learning what satisfies customers. These organizations are the vast majority of companies.

In an organization that does well on the three principles above, you’ll tend to see decentralized management and an environment that encourages lots of little experiments with the customers. Customer response drives which of these rise and expand. McDonald’s and Starbucks are a couple of good examples.

Zook used Enterprise Rent-a-Car as an example. Each Enterprise location is rated and ranked each week against each other on one simple metric: what percentage of customers would recommend Enterprise. This is the “Ultimate Question” that Fred Reichheld developed. It’s simple and telling. Customers won’t recommend your business unless you satisfy them.

The branches review their scores and rankings and try to learn from their better ranked locations what they can do to improve their scores. This is a good example of decentralized management.

In bureaucratic organizations, you’ll see more centralized control with the “troops” executing the new-fangled and untested strategy designed by the bureaucrats and their consultants. Little experiments will languish and innovation resources will be directed at the whim of the bureaucrats to satisfy whatever they think sounds good — until they’re fired.

Discovering why customers choose your product can be tricky. We tend to over simplify and over complicate these reasons. More on that in a future post.

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One thought on “Good thoughts on business strategy

  1. Pingback: The Business Cycle | Our Dinner Table

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