Principle one: Focus on customer value and adaptability
Focus on what your Customers Value and learn how to Adapt to a continuously uncertain world.
At Rangle, we call this principle CVA. It’s the first, and perhaps most important principle of The Better Way. It may also be the hardest to master, but it’s the most important component of a coherent digital transformation strategy because it’s the most effective way to align both strategy and execution around a common purpose.
As management guru Peter Drucker wrote back in 1954, “The purpose of a business is to create a customer”.
Many of the world’s leading companies by market capitalization also believe that value for customers is the number one priority. At Amazon, customer obsession is the name of the game. Jeff Bezos once wrote:
“We have an unshakeable conviction that the long-term interests of shareowners are perfectly aligned with the interests of customers.”
That quote originated from an annual shareholder letter that Bezos wrote in 2010, at a time when Amazon’s stock price was approximately $185 dollars. As it turns out, Bezos just might have been on to something… Ten years later, Amazon’s stock would hit an all-time high of $3541.45, representing an increase of approximately 1800%.
Beyond Amazon, there are many other notable companies that have also found success by embracing customer value as its core ethos, including Apple, Walmart, Cisco, IKEA and Johnson & Johnson, to name a few.
But in order to stay relevant and remain competitive, knowing what customers value is only one side of the coin. The other side is adaptability: Viewing the world from the outside-in and continually questioning how customer needs and the market may evolve over time.
Here again, Bezos provides strong direction on how to work from the outside-in, using an approach that he calls working backward:
“We start with the customer and we work backward. We learn whatever skills we need to service the customer. We build whatever technology we need to service the customer. The second thing is, we are inventors, so you won’t see us focusing on “me too” areas. We like to go down unexplored alleys and see what’s at the end. Sometimes they’re dead ends. Sometimes they open up into broad avenues and we find something really exciting. And then the third thing is, we’re willing to be long-term-oriented, which I think is one of the rarest characteristics. If you look at the corporate world, a genuine focus on the long term is not that common. But a lot of the most important things we’ve done have taken a long time.”
Note: In principle two, we’ll explain how to enable CVA by aligning the technology function to the business strategy.
Going a step further, the CVA principle not only provides a strong sense of purpose and direction, (i.e. customers and capabilities), but it also creates a powerful way for organizations to free up capital and resources by eliminating unaligned initiatives that do not ladder up to the broader goals of the organization. CVA also helps set the desired mindset for developing future initiatives.
It also ensures that the core competencies (strategy, product, experience, engineering and data) are always focused on customer outcomes that create business impact, rather than simply attaining functional excellence or improving performance against a plan. This is important because while the former tends to substantially improve business results, the latter tends to diminish them.
Despite the obvious benefits, making the shift to CVA can be difficult for organizations, because customer value is often seen by leaders as less tangible than traditional measures of success, like ROI.
The good news is that organizations don’t have to choose a side. They simply need to prioritize the measures differently. This means taking a leap of faith that amplifying customer value will ultimately amplify business value. In other words, CVA plays the leading role, while ROI plays the supporting role, acting as ballast to ensure each initiative in the organization's portfolio is financially sustainable.
CVA is a measured outcome that only works if an organization’s operating model and culture is based on customer-centric teams. Otherwise, organizational permission and friction tend to make CVA ‘someone else's’ responsibility. We use ‘culture’ here instead of environment, because it emerges from permission, capabilities, ambition, and shared goals and responsibilities. The word ‘environment’ doesn’t seem to do this justice. Refusing to compromise on CVA requires significant enablement and changes to how you work (the essence of why transformation is needed) and this can’t be found in just any design thinking or strategy process. Goals without change are wishful thinking intended to avoid the hard work of creating customer-obsessed teams that are enabled to create customer value.
In summary, the CVA principle enables transforming organizations in three ways:
CVA creates a single point of focus for both the business strategy and operating model
CVA and outside-in thinking enables organizations to discover new opportunities
CVA paves the way for new mental models to take root (customers, capabilities, outcomes and impact) vs. performance against a plan
Next, we’ll break down the CVA principle and show how it can be applied in practice. We’ll also provide a few examples to demonstrate what good looks like, as well define some of the most common failure modes.