Last week I was fortunate to be at one of Mike Harris’ ICONIC SHIFT mentoring events. It was motivating to be with an inspiring bunch of entrepreneurs covering industries from healthcare, pensions, financial services, fashion, food and business services; especially when each entrepreneur is aiming to challenge the way things are done in their industry and turn their business into a game changer that that delights customers and disrupts an industry.
Mike shared with us his model of high performance leadership drawing on his experience of creating game changing businesses in current account banking with First Direct, fixed line phones at Mercury Telecoms, credit cards at Egg and internet security at Garlik.
Like all the best ideas, you get a lot from them the first time but then you get more on the second, third and fourth time of hearing them.
But the real reason for this blog is that during the event it finally dawned what really bugs me, and I want to do something about.
Setting goals and purpose
Business owners and business leaders want to maximise shareholder value. It is an explicit goal of all public and of many private businesses. But the irony is if the leader makes this the primary goal they will be less successful at achieving it than if they start with a bigger purpose that helps customers in some way. Why is this true?
Value Adders vs Value Extractors
Starting with a focus on creating shareholder value will lead you to what I call value extractor strategies. These strategies are effective at maximising the short term revenue extracted from customers. They are tempting, it appears a much faster way to hit this yera’s profit targets. But in the process you engage in a stressful relationship with customers.
The value extractor tends to view their customers in the same way this cowboy regards his cattle. They are there to deliver a source of income and to be reined in with the lasoo.
So for example, customer acquisition is done with value incentives and offers which lead to contracts that trap customers into buying more than they need. Mobile phone companies and utilities are expert at this. Energy firms leave us stranded on inefficient tariffs, mobile phone operators use tariff complexity to confuse customers into buying services they don’t need.
In consumer product and food companies it is a lot easier to shave a bit of quality and bank a £m on the bottom line than to perusade the finance director that the product quality improvements will deliver more revenue by attracting customers. So business leaders are tempted to shave product quality to save money in the short term.
There is another way that delivers better results than this.
Value adders continually improve the product and service and find ways to go beyond what customers want because they know this will attract more customers in the long term. By going beyond what customers want and they stay ahead of their customers and competitors.
I always think value adders are more like this cartoon character fitting the last piece of the jigsaw to make things just right. they are supplying something that solves a problem for their customers and design it to fit.
Leaders who deploy these strategies know that if they offer something attractive to customers that really helps them, then they will come back for more and even more importantly tell their friends about it.
Value adders also create businesses that are more fun to work in as well as delivering better value to customers. Value adders believe businesses must engage all the participants not just the shareholders. They must engage the customers, the employees, the management and the local community as well. And we have seen many examples of this.
- Hotel du Chocolat transformed chocolate retailing with superior product quality and design whilst Thornton’s value engineered themselves into an empty market space between their high street stores and value products in supermarkets.
- Galaxy reshaped chocolate products in the Middle East by bringing superior quality and design to everyday supermarket products
- The most over-used example is Apple who reinvented mobile communications whilst Nokia made lower cost mobile phones using the technology they already had.
- Miracle Gro has entered new market categories through it’s determination to make products that make gardening easier for everyone.
- P&G have taken the excess margins out of skin care whilst delivering superior products with Olay.
What distinguishes these firms was a purpose beyond shareholder value
These firms created a purpose beyond money and this created better shareholder value than the ones that start with maximising shareholder value as the goal. This is still business not a community or some higher purpose or campaign. It is simply about helping improve people’s lives in a small but practical way.
These businesses also end up as the most rewarding to work in, deliver great shareholder returns and always experience the most growth. They deploy VALUE ADDER strategies that help customers, improve the products, enhance the customer experience and as a result grow by attracting more customers.
I know this idea has been discussed in many places such as by Jim Collins in Good to Great. Collins talks about this from the perspective of the CEO and the mission. But my take on this is that the principle can be adopted for every brand development, every growth strategy and every business. What frustrates me is how many people still don’t seem to “get it”.
So every time I experience a value extractor business whether as a consultant, manager, advisor or as a customer, a voice inside me pipes up and questions why do they do this? Don’t they realise there is a better way? I don’t like it when people are not doing the best thing for their business. It is bad for customers, bad for staff and bad for shareholders, bad for growth.
SO WHAT NEXT – I will be less frustrated and take action!
I realised this week, I need to stop moaning about this and stop getting frustrated. I should do something about it.
My whole consulting service is devoted to helping value adders. So I need to work with more of them to create more examples of how this strategy works. I have seen that value adders want to turn their products and services into things people love to buy. That is what we do at Differentiate, so we can help.
So I set my own 10 year goal to help 10-20 business leaders transform 20 products and services into something that helps to make customers lives a little better. It is much more satisfying to make customers smile than to extract money from them. And I need these examples to get the message out there that value extraction is not best strategy for anyone, certainly not for customers, but not for staff and shareholders as well.
It is an immense relief to have clarified my purpose and know the reason to build Differentiate in the next 10 years. I plan to share the bumpy road of experiences through this blog, my Google+ and my email list.
If you like this journey and want to explore it with me, please subscribe for blog updates (top right) or stay on my email list or sign up for email updates on the Differentiate website. You can also follow me on Google+ and Twitter.
If you are even more interested in this, I am creating a group who will meet every two months to shape and develop this path and ensure we succeed. Call it a non exec role, an advisory board. If you are interested, please do get in touch? More on that later.