MARCH 10, 2005
Should businesses concentrate on their own strengths or identify customer needs and stress meeting them? Answer: Both
Which comes first: The product or the need? Do you focus on what you're really good at as a company and try to be leaner and meaner than competitors? Or do you start with the needs of the customer and assemble your resources around them? For some companies wholly focused on one path or the other, that's not even a question to consider. For others, it's the central paradox of existence, confusing efforts to create a clear market approach.
What's fascinating is that the paradox is very real, even though many companies don't even recognize it exists. For most, the ebb and flow of popular management trends –- concentrating on the customer one moment, and internal processes the next –- has little consistency, other than the familiar landscape of gurus and bestselling books. But if you look carefully at the history of management trends, you can see a clear and deep divide that has lasted decades among business and management strategists.
DO THE RIGHT THING? In the ivory towers of business academics, the two sides of the debate are labeled the "Positional Strategy" and the "Resource-Based Strategy." The former emphasizes your ability to shape yourself to serve customer demand, looking outward to understand market needs. The latter focuses instead on your strength in maximizing core competencies better than the competition does, looking inward to improve business processes.
The argument over which strategy to pursue often has been boiled down to whether it's better to strive to do the right things, or to do things right -- whether to emphasize effectiveness or efficiency.
Hundreds of business strategists, consultants, and academics have spent their careers arguing one side or the other of this debate -- from unknown business-school professors to bestselling gurus. Their arguments are coded into the DNA of just about every mainstream business concept and framework you've ever heard of: Value Proposition, Core Competency, Value Discipline, Total Quality Management, One-to-One Marketing. The list is just too long.
MARKETING VS. MANAGEMENT. But the discussion is more than just academic. It underlies some of the deepest fissures within the typical business organization, especially the relationship between marketing and management. In many ways, in fact, this is ground zero of the debate.
Marketing has traditionally represented the viewpoint of the customer, an external focus that requires a business to be smart and flexible in responding to market conditions. Management has traditionally represented an internal point of view, emphasizing the efficient development of resources and core competencies that differentiate the company from competitors.
Any turbulence in the economy, advances in technology, or changes in the marketplace heat up the business strategy discussion, often centering on this fundamental division. Consider the following frontline issues:
Increasing competition in the marketplace and ubiquitous Web access are shifting power to the customer. What does this mean? Companies need to pursue a more external orientation that is responsive to customers.
Increasing competition in the marketplace and access to cheap labor and materials are driving down prices. What does this mean? Companies need to pursue a more internal orientation that streamlines business processes and pares things down to the core competencies.
LULLED INTO BLINDNESS. The debate over efficiency vs. effectiveness, internal vs. external orientation, rages all around us, yet most people remain completely unaware of it. What's the connection between Total Quality Management and the Balanced Scorecard? What's the link between a Value Proposition and Customer Lifetime Value? Who knows?
The dangers that arise from not understanding the background context of business strategy are manifold. For starters, the clarity of language we need just to communicate strategy concepts is lost. Take the idea of "brand" for example. You can find as many different definitions as you can find gurus to define it, and each definition is colored by the strategy orientation of its author.
While the strengths of internal and external orientations are potent, the weaknesses of each are often unnecessarily perilous. The current hot trend of Balanced Scorecards, for example, is a phenomenal step forward in linking corporate strategy to execution. It's also solidly in the camp of internally focused strategy. While executives will be dazzled by its model for streamlining processes, they'll be lulled into blindness to the complexities of marketing effectiveness by its cartoon of marketing theory.
BALANCED STRATEGY. On the flip side, the current trend in customer-centric organizations includes some valuable insights into the changing dynamics of consumer markets. This trend is also solidly in the camp of externally focused strategy. While marketers are electrified by its redefinition of customer intimacy and integration, they fail to grasp that it's still a different language than that being spoken in the boardroom.
The danger for both executives and marketers alike is that unless we shine a beacon on what is, at its heart, a groundless debate over internal and external orientation, over effectiveness and efficiency –- ideas that can and should be integrated –- we'll continue to be swept by the tide of trends, preventing us from finding the right balance of strategy to both serve customers effectively and create an efficient organization.