If you asked your employees, “How do we create value for our customers?” would you get a clear answer? And would three different people have the same view?
The question about a company’s way to create value for customers is probably one of the most fundamental elements of strategy. Which makes it all the more surprising that few organizations are able to answer it with certainty and clarity. Companies’ purpose and mission statements often don’t help, being as vague as “we want to be the company of choice for our customers” or “we are committed to delivering the highest quality and widest selection to our customers.”
We know, however, that companies with a strong identity — the kind that is backed up by the ability to deliver their promise — tend to win. In a recent survey of 720 executives, companies that were seen as having a stronger identity outperformed others by 25% (in terms of average annual TSR between 2010 and 2013).
Here’s what we mean when we talk about a company’s identity. It is what drives your entire organization to perform, what makes hiring top talent easier, and what gives you the framework by which to operate the company. Powerful identities are coherent — they connect three elements: the value proposition you offer your customers, the capabilities system that allows you to create that value, and the set of products and services that leverages those capabilities and delivers against your value proposition.
For examples of clear and very specific identities, consider IKEA and its aim “to create a better everyday life” by offering “a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.” Or Apple, which is “committed to bringing the best user experience to its customers through its innovative hardware, software and services.” Both companies back up their identities with distinctive capabilities. IKEA, for example, uses its price-conscious and stylish product design capability and its efficient and scalable supply chain to provide consumers around the world with low-price home furnishing. Apple leverages its unique ability to design and develop its own operating systems, hardware, application software, and services to provide its customers new products and solutions with superior ease of use, seamless integration, and innovative design.
So why is it that so many companies struggle to develop strong identities and the capabilities that enable them? Because most organizations, instead of answering the fundamental questions about how they create value for customers and deriving their strategic imperatives from there, try to keep up with the market by pursuing a multitude of generally disconnected growth avenues and organizational changes. The problem is one of incoherence: In their run for growth, companies often wind up serving so many different customer segments and so many different needs with disconnected product groups, capabilities, and strategies that it’s impossible to define what the company is really about. And although such companies may be OK at many things or may have been great at a point in their growth, their lack of focus creates a struggle to be truly excellent at anything in the long run.
Take Research in Motion. It grew successfully by offering clear value propositions to customers, but it had many different value propositions which challenged its ability to sustain success. Was it a communications device company, an enterprise security service provider, or something else? This ambiguity did not cost RIM as long as its competition was not too intense; but over time, rivals with clearer purpose invested in the right set of capabilities that allowed them to build devices that appealed more to a specific set of customers. RIM tried many strategic paths, but customers and investors never saw enough investment in any one identity.
To create the type of identity that drives success, step away from the current constraints of your portfolio and industry and assess how you can leverage what your company is great at to create differentiated value for customers. Some companies start by identifying the main ways in which value will be created in their market five years out; then determine for which of these value propositions their company has a right to win given its distinctive capabilities. They then focus the bulk of their company’s resources on building that identity by strengthening the capabilities that matter most and aligning their portfolio more tightly around their value proposition.
Defining a clear purpose in the world has been an age-old challenge — for individuals and organizations. But if companies can find the courage to declare what value they are able to create and for whom, they can commit themselves to a path of building greatness in that area. This has proven not only to be a winning strategy for financial results, but also an incredible motivator for employees, who perform at their best when they know how they fit into a larger objective.
(Harvard Business Review-By Paul Leinwand and Cesare Mainardi)