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Most important book on business strategy in over 30 years.
on August 3, 2010
SUMMARY: Strategy from the Outside In is an exceptionally important and very readable new book. The authors have distilled and reconceptualized cutting-edge research into what separates consistently top performing firms from inferior performers. In the process they have greatly advanced the art and science of business strategy. The approach advocated by the authors may be subtle, but the improvement in business performance is significant. At the heart of the Outside-In strategy is what the authors call the four customer value imperatives: 1) Be a customer value leader, 2) Innovate new value for customers, 3) Capitalize on the customer as an asset, and 4) Capitalize on the brand as an asset. Of course, the devil is always in the details. Fortunately, the authors clearly explain these imperatives and provide numerous real-world examples that illustrate how to bring them to life. Strategy from the Outside In is the most important book on business strategy in over 30 years.
Is there really a need for another book on business strategy?
Michael Porter has been the preeminent thinker and writer on business strategy for the last three decades. His book, Competitive Strategy, is nearing its 60th printing in English. His book Competitive Advantage was described by Financial Times as "The most influential management book of the past quarter century."
According to the publisher of Competitive Strategy, "More than a million managers in both large and small companies, investment analysts, consultants, students, and scholars throughout the world have internalized Porter's ideas and applied them to assess industries, understand competitors, and choose competitive positions."
Unfortunately, as Porter's influence has grown, US business performance has steadily declined. Since Competitive Strategy was first published in 1980, US economy-wide Return on Assets (ROA) of publically traded firms have steadily declined more than 70%. (Source: "Shift Index: Industry Metrics and Perspectives," Deloitte LLP Center for the Edge, November 2009, p. 92). In another study, an international review of 1,854 large public companies, found that, between 1988 and 1998, 87% of them did not even earn back their cost of capital (Source: Chris Zook with James Allan, Profit from the Core: Growth Strategy in an Era of Turbulence
[Boston: Harvard Business School Press, 2001], p. 11).
Clearly, there is a significant need for a new approach to how leaders think about business strategy. Many have tried and fallen short. Fortunately, George Day and Christine Moorman (the authors) of Strategy from the Outside In have written a powerful yet easy-to-read book that should influence business strategy for decades.
What makes Strategy from the Outside In different?
First, it is built on well established, peer reviewed, research into what separates consistently top performing firms from inferior performers. This research is made up of more than 3,500 journal articles and books that have come out in the past 15 years on market orientation. This research unfortunately has not migrated from academia to executive leadership because of its abstract nature and scholarly jargon. Day and Moorman do a great job translating the research into actionable strategic ideas for executives. And it is very enjoyable and easy to read.
The book also references contemporary business insights from great books like Blue Ocean Strategy and others. The authors distill the insights from these sources into a new, coherent, and easy to understand approach to strategy, with great examples.
What are the key points?
The authors' convincingly argue that popular strategy theories encourage executives to focus on the firm rather than customers. Six sigma, core competence, right sizing, re-engineering the corporation, and capabilities- or resource-based views of the firm are all internally focused management fads that have left corporations less profitable (on average) today than 20 years ago. In the authors' views, these are inside-out mental models that unconsciously shape the countless decisions made everyday in a company. Unfortunately, these mental models encourage decisions that paradoxically destroy both customer and shareholder value.
Day and Moorman's Strategy from the Outside In model requires executives to make subtle but important shifts in thinking. Inside-Out thinkers believe that customers buy performance features. Outside-In thinkers believe customers buy the expectation of value. Inside-Out thinkers believe that expanding the customer base is crucial. Outside-In thinkers believe customer loyalty is the key to profitability.
The authors' research reveals that consistently profitable firms deeply understand market dynamics. These include a deep understanding of customers, competitors and other elements of the outside world. It is this knowledge that drives all business decisions using what Day and Moorman call the Four Customer Value Imperatives. The imperatives are as follows:
1) Be a customer value leader with a distinct and compelling customer value proposition.
2) Innovate new value for customers.
3) Capitalize on the customer as an asset.
4) Capitalize on the brand as an asset.
Of course, the devil is always in the details. Fortunately, Day and Moorman clearly explain these imperatives and provide numerous real-world examples that illustrate how to bring them to life.
Who should read this book?
First and foremost CEOs must read this book and internalize its insights. Setting strategy and guiding a firm's culture are key responsibilities for all CEOs. Second, each member of the C-suite must read and internalize its insights. Either a firm is fully market-driven or its not. That means Operations, R&D, Finance, HR, Marketing, and all other functions must adopt the outside in mindset. Finally, all middle managers and individual contributors who wish to positively contribute to creating profitable growth. Employees make countless decisions everyday that either move the firm towards its goals or away from it. Reading this book will help them improve their firm's customer value offering and profitability.
Why should it be read?
Though Day and Moorman do not dwell on the metrics of how Outside-In companies outperform their rivals, I am familiar with what the academic research has revealed. Outside-In firms out perform their rivals across the board, including profit growth, innovation, stock price, ROA, ROE, ROCE, customer satisfaction and retention, employee satisfaction and engagement, cost efficiency, and on and on. Read this book because Porter's theory of business strategy has failed. Read it because you need and want to build a consistently top performing company. Read it because your employees and their families rely on your decisions regarding how to successfully run a business. Read it because your firm's shareholders will thank you for bringing the key ideas to life in your business.
I have a couple of disagreements with the authors:
First, the authors suggest that the Chief Marketing Officer (CMO) should be accountable for the Four Imperatives. I disagree. Though there are many brilliant CMOs, most are too tactical and short-term focused. By and large they lack the perspective and political clout to take on this role. In my opinion it must be the CEO's responsibility. The CEO can delegate, but if he/she is not the driver of the Four Imperatives, the strategy will flounder. The CEO must own it.
Second, the author's do not adequately address the critical role of organizational culture in bringing the Outside-In strategy to life. Its been said by others that organizational culture eats strategy for breakfast. I agree. The authors dedicate part of one chapter to this critical topic.
Neither of these short-comings materially effect the value of Strategy from the Outside In. It is a brilliant book that executives will be able to put to good use immediately. Buy it. Read it. Lead it.
Note: The author of this review has not and will not receive compensation for writing this review.