Copernicus, Customers and Companies – how to be customer-led
The Foundation Forum. Thursday 24th June. Written up with the help of Simon Caulkin.
Our second Forum of 2021 was also our first book launch in a 21+ year history of The Foundation.
The title in question is The Customer Copernicus. Copernicus showed us that the Earth is not at the centre of everything but peripheral to the sun and there’s a direct business analogy. The natural way to see things is self-centred, the business and its aims the starting point, with customers or the market out there somewhere as a source of demand. The CEO ends up being treated as a kind of spiritual leader and shareholders a bit like gods.
It is less common to see customers and their decisions as having the power. This starting point makes customers central and has companies circling around them, vying for their attention.
Just as Copernicus found, the challenge with this way of thinking is that it goes against accepted wisdom, running contrary to widespread beliefs. That makes it hard to establish the ideas and even harder for businesses to work like this, putting customers first, even though when they do, the business does very well indeed.
To bring the reality of this thinking to life, we spent the evening with people who have first-hand knowledge of customer-led success, adding vivid stories and visceral experience to words on a page.
We had…
Tim Mason, who saw the whole Tesco story, from relative rags when he joined in 1982 through to customer-led riches in the ‘90s and ‘00s when he became Deputy CEO, and then to the wheels coming off as he left the business in 2012. He shared how it felt and what really happened – true customer-led success and why it doesn’t last forever.
Deborah Corless, who shared an O2 perspective from two stints in the business – 2003-07 when O2 found its customer-led mojo and then her return for a year across 2012 and 2013 when it was becoming a more conventional business again. She described how it felt as a manager in a business that achieved exceptional customer-led success and then how easy it was for normality to set in once again.
Mikael Sørensen, who as CEO of Handelsbanken in the UK described the extremely unusual customer-led way that this 150-year-old bank does things, or has done for the last 50 years. Plus, crucially, what they do to stay there, keeping their unusual beliefs and ways of working despite the continual pull of self-centred gravity.
And we had Charlie Dawson and Seán Meehan, as the co-writers who took 7 years to go from first idea over dinner to there actually being a book, as of 17 May this year. They first met in the mid-90s as Seán worked on his PhD at London Business School and Charlie talked to the MBA class about Daewoo, a customer-led story that inspired The Foundation. Sean joined IMD (the leading business school based in Lausanne, Switzerland) in 1997 and is Martin Hilti Professor of Marketing and Change Management.
The aim was to bring these revolutionary ideas and customer-led beliefs to life. What do they look like in the real world, in real organisations who defy the odds to win big by being customer-led and then struggle to stay there? The evening’s discussion, summed up by Simon Caulkin, follows.
‘The purpose of business is to create and keep a customer’. Thus Peter Drucker in 1954. Like many of the dicta of the man who is still management’s most profound thinker, this one at first seems banal. Yes, obvs – and? Until you start thinking about it and the questions crowd in, the most obvious being: what does to ‘create and keep a customer’ actually mean? And if it’s so obvious, how come it’s so rare and hard to sustain?
These questions were at the heart of the second Foundation Forum of 2021 – and also of the book the launch of which it was convened to celebrate, namely, The Customer Copernicus: How to be Customer-Led, written by none other than Foundation founder Charlie Dawson, and Seán Meehan, Professor of Marketing and Change Management at IMD.
It marked the end of a quest that began as a conversation in a restaurant on a rainy London evening seven years before. As Meehan notes, ‘We wanted to help people understand what customer centricity really meant, and also to address this issue of people taking it lightly, saying, ‘Yes, of course, that’s obvious, let’s just do it’”. You have to ask yourself why, when the examples of success seem so obvious and so commercially attractive, is it so rare? And then, when a company is a precious shining example of a customer-led success, why it so often stops? Because it does.’
From their research, several things emerged as critical. First, and most important; being customer-led is against organisational nature. Firms are naturally self-centred, looking at the world from the inside-out. Adopting the customer’s viewpoint, outside-in, takes a conscious effort, and the drag of organisational gravity is always back to the centre, where the spirit of the organisation lives. Hence the idea of customer-led as a Copernican shift, from an organisation-centric to a customer-centric worldview, as important for our understanding of the business universe as the astronomical discovery was for cosmology.
Since putting yourself in the customer’s shoes is unnatural, it takes a shock to jolt companies into a different orbit. Dawson describes this as ‘burningness’. ‘Normally it's safe to keep doing business as usual and more dangerous to try something new,’ he says. ‘But if you're on fire it's mad to carry on as you are, and the only option is to try something quite different.’ Taking a first bold initiative and experiencing a ‘moment of belief’, as they christened it, is only the first step. Building on that to do more and establish a pattern is a second. Taking measures to protect the new beliefs is another again – and very often the point when gravity reasserts itself, focus and momentum are lost, and the organisation slides back into the previous ways of doing things.
All these story elements figured in presentations by the evening’s three panellists, whose companies also feature prominently in the book. Thus, reflecting on the ups and downs in Tesco’s modern-day history – professionalisation in the 1980s matching that of Britain under Thatcher, having a customer-led breakthrough in the early 1990s, gathering momentum through into the 2000s only to mislay the mojo by 2012, Tim Mason, marketing director in the glory days, singled out ‘customer connection’ as the key to the group’s fortunes in both good times and bad. When it was there Tesco thrived. When it waned, so did the group.
At its best, Tesco embodied what it means to be customer-led, understanding what customers valued and focusing relentlessly on finding new and better ways to provide it, until the process became self-reinforcing. Successes became a cascade of ‘moments of belief’ that fortified the conviction that it was on the right path, feeding further growth and bolder initiatives – perhaps best exemplified by the introduction of Clubcard in 1995. Clubcard represented an investment of £100m, 20 per cent of net profit at the time – and the payback came not directly from sales but from the customer insights the card yielded.
Tesco loves and thrives on ‘the numbers’. Yet data, insists Mason, is only the half of it. ‘We had an expression, “There's one thing worse than not knowing, and that's knowing and not doing”.' The emphasis on doing, he adds, ‘is probably the greatest insight into what it's like to be Tesco. We created an operating model called DIAL. Data is useless unless it becomes Insight, which is useless unless you Act on it, which is useless unless it leads to more Loyal behaviour.’ Yet data is absolutely essential: ‘You only gain the right and time to put customers at the centre of the business and make connections with them by doing the numbers, and if you don’t, that’s when the wheels come off.’
Deb Corless recalls her stint as head of retention at mobile operator O2 after it had been spun out of BT in 2003 as a stand-out period of her career, replete with learnings ‘that I still apply today’. Part of the exhilaration was learning to break the rules in an organisation that as fusty BT Cellnet had exemplified all the conventional industry operating principles that got in the way of being customer-led (including some that she put in place herself).
Having spent some time getting branding and execution together, O2 launched its rocket ride to customer centricity with two almost theatrically symbolic gestures. First, it restructured not to save money but to redistribute it from head office to customers and the service they received – ‘a shock to many people, but also a very much applauded measure’. It was O2’s first ‘moment of belief’, rapidly followed by a second: the complementary announcement of a company-wide £1,000 bonus if the company met its bold customer-satisfaction goal for the first year of the new strategy.
What the two measures did was a) convince people that the organisation was serious (hence a moment of belief); and b) trigger a flood of direct feedback from the front line on what they needed to do to meet the goals (what happens when people believe you’re serious).
Although initially quite chaotic, this was a liberation, ‘opening up a dialogue throughout the organisation that helped us get a much clearer focus on the big customer pain points that we needed to resolve. There were lots of watershed moments in the journey. It sounds common sense now... but we made it a big habit to identify rules about usage limits and upgrades and look for ways to break them. And that made it a really exhilarating place to work as well. Because at heart, I think we all want to do great things for customers, for the people we serve, and work in an organisation that can say, 'Yes, this is what we're here to do, so if you have great ideas, we'll try and find a way to make them work.'
Corless saw the results close up in the retention channel. Within a year, she says, instead of calling to say, ‘I'm leaving, I want a better deal’, customers were going, 'Hey, I want to renew, O2 is cool!’ ‘In this way, the beliefs of the staff and the way we treated the customer meant that we were cutting more profitable deals – and that's what led to the success.’
Both O2 and Tesco knew they were on a winner. O2 rewrote the rules of a mobile industry that had focused almost exclusively on recruiting new users funded by the existing ones paying more when their deals ran out, ignoring the idea of keeping existing customers happy. Tesco’s hard-headed customer drive saw it ascend to a position of market leadership in the UK and third largest retailer in the world.
Yet their subsequent arc shows how hard it is to avoid reversion to the business mean. In both cases the unexpected played a part, the 2008 financial crisis panicking shareholders and sharply diminishing appetite for risk. In Tesco’s case this was compounded by the public distractions of its flatlining US venture, amid fears that it had spread itself too thin. At O2, ‘We didn't suddenly become rubbish,’ says Corless, likening it rather to a top-level athlete losing that final edge of desire as the motives of their backer, in this case shareholder Telefonica, changed.
Particularly poignant for Corless, and a compelling example of what happens when bosses and customer-facing organisations are in different orbits, was the decision to sell and outsource O2’s front-line stores and call-centres in the mistaken belief that a third party could live in the customer’s shoes. ‘To Tim's point about the numbers, while we did a lot of things for customers that felt right and probably did create value, we didn't have numbers to back it up. So they were easy to cut when we were under pressure to find ways to monetise the customer base... It just reflects how obsessive about these things you have to be to keep your leading position’. Or how important it is that beliefs about customer-led business practice being good business commercially are shared from top to bottom, because inside-out business-led arguments are easier to make. A cost cut is a definite saving. The effect on a customer’s decision months down the line when their experience has worsened is, in the moment, invisible.
A number of companies manage to escape this tug of organisational inside-out gravity for a period before relapsing, like Tesco and O2. Those that resist, staying high in a customer-led orbit for decades, are vanishingly rare.
One of them is the 150-year-old Swedish bank Handelsbanken, which for the last 48 years, including the financial crisis and the last plague year, has fulfilled its goal of higher profitability than its peers, achieved through lower costs and superior customer satisfaction. As explained by Mikael Sørensen, the bank’s current UK CEO, the achievement rests on disarmingly simple foundations. Handelsbanken had its formative experience of burningness in the late 1960s, when a chase to become Sweden’s biggest bank nearly brought it down and a new CEO recruited. Jan Wallander. He was not a banker but an academic and an acute student of human nature. He firmly believed that people were naturally disposed to make good decisions, and the worst thing you could do was to interfere with this natural motivation.
It followed from this human-scale view that the bank would be radically decentralised with branches fully responsible for their own small geographical area and individuals mandated to make their own decisions within it. The people in the branch are closest to their customers. They are best placed to make judgements about whether to lend, what the risk is, and so what to charge. A devolved model, Handelsbanken believes, is a very good way to be a customer bank, building long term relationships based on what customers value and what is sensible for the bank, and not a volume bank, creating products centrally and selling them through its customer-facing channels.
Handelsbanken doesn’t do budgets, incentives or sales targets. There is a profit share, not bonuses, distributed identically among colleagues if the bank meets its profitability goal vis-à-vis its peers, which it has done for almost a half century. ‘And that’s how simple our business model is,’ sums up Sørensen – adding that the major part of his job is batting back ever-present pressure to slip back into conventional ways or follow current industry trends. The devolving spirit goes as far as pushing problems back to people even when their solution differs from what you would have done – ‘otherwise they will never make another decision again’. Or preventing branches benchmarking themselves on anything except the single cost-income ratio because over time people start tracking other things like product sales because, in the moment, it seems like common sense. However simply and unusually achieved, Handelsbanken’s results brook no argument.
Perhaps here in plain sight lies the clue for companies seriously seeking ‘to create and keep a customer’. From all the testimonies, it is clear that ‘getting’ the meaning of being customer-led is a kind of Rubicon. Once on the other side, people see a better world and don’t want to come back. Why? Because it chimes with basic human motivations.
Asked what to do in a struggling organisation with a management resisting customer insights, Mason, no softie, is forthright. ‘Leave,’ he says simply. ’We’re three panellists who I think really do believe in our hearts that this is the right way to create value. I worked for a short period for a turnaround private equity company that didn’t believe in customer value at all. It was awful – the worst period of my career.’
Corless notes that while it doesn’t make for an easy life, ‘I do genuinely believe that if you do the right thing for customers, they'll buy more stuff from you, they'll be happier and stay longer. And you'll create a lovely place for people to work. It's a circular opportunity for value generation.’ If your heart isn’t in it, why would anyone take risks, break rules, go out on a limb for a customer?
When Amazon eventually comes a cropper, which as the book records, Bezos believes it will, it won’t be because the head gets it wrong, but the heart. The outside-in beliefs will dissipate because the burningness subsides. Success makes you comfortable and human nature sees the inconvenience of changing your approach outweighing the continual reinvention needed to keep on solving your customers’ problems better than anyone else.
At Amazon, the Bezos ‘Day 1’ mantra is their powerful surrogate for burningness. At Handelsbanken it is something less disruptive-sounding but no less strongly held. ‘We believe in the benefits of being a customer-led business,’ says the very different Sørensen. ‘But our business model is really founded on something deeper than that – a set of strong values based on human nature. Being customer-led is really a natural consequence of that’.
The Foundation’s view
For us at The Foundation this is a huge and hugely important subject, so at the risk of creating a write-up that is approaching the length of a small book, we want to share our views on the discussion in two parts:
First describing the framework around what a customer-led success is and how an organisation becomes one, the central learning that came out of the 7 years work leading to the book
And then what our guests said that brought these ideas to life
The Customer Copernicus Framework – How To Be Customer-Led
Some companies are great for customers – not only do they care but they change whole markets to work better for the customers they serve. Think of Amazon, easyJet and Sky. They make things easier and improve what really matters – obvious, surely? They have also enjoyed huge business success, growing and making plenty of money.
The Customer Copernicus answers the question that follows – if it’s obvious and attractive why is it so rare? And then it answers a second question, because Tesco, O2 and Wells Fargo were like this once. Why, having mastered it, would you ever stop? Because all three did, and two ended up in court.
In The Customer Copernicus book we explain how to become and how to stay customer-led, making things better for customers by going first, into uncharted territory. We tell the stories of 18 different organisations who have each become what we call customer pioneers, a shorthand description of the kinds of customer-led successes at the heart of our work.
The first thing we learned was that the crucial element explaining it all is belief – people’s shared belief about what matters inside an organisation, not a clever measurement technique or a magical structure. It is cultural but more precise than just ‘a customer-led culture’. Building the relevant beliefs takes a particular kind of leadership, helping people across an organisation change deeply held shared-but-unspoken assumptions…
From a starting point that is natural but not customer-led, based on looking from the inside-out, prioritising the organisation’s success, targets and agenda over that of customers
To a belief system that is not natural, where success is defined by making things better for customers having understood what matters most to them, beliefs that presume doing well for them will also work out well for the organisation. These beliefs are outside-in
We learned that the journey from inside-out to outside-in goes through four stages
Burningness. Organisations only start this journey when the people involved feel burningness – the current situation is on fire, conventional action untenable if they are to succeed. Burningness has three possible causes – pain, fear or ambition, and that is in descending order of effectiveness. Pain is most commonly good at creating these conditions because things are going wrong, visibly, viscerally, now. No one can argue that action must be taken that is bold. Fear is a step less convincing because things are fine now, it’s just that they are clearly going to get worse at some point in the future. Ambition is the least likely cause of burningness to work, not because it is weak – far from it – but because ambition has to come entirely from within. There is no crisis visible and instead the leader or the leading team has a burning desire to reach somewhere further on, somewhere seriously stretching.
A first Moment of Belief. Stories and the like don’t change people’s shared beliefs. Only seeing something real that succeeds, clearly contradicting the prevailing assumptions, is strong enough to start the process. In this case it means seeing a customer-led initiative, obviously good for customers but clearly costly and risky for the organisation, actually work. Only the presence of burningness got them to try it in the first place. Seeing it not just benefit customers but also work for the organisation is convincing and challenges current shared belief. We call this a Moment of Belief, like a moment of truth but with the effect of shifting at least some individuals’ unspoken assumptions.
A flow of Moments of Belief. Having seen something counterintuitive work once, confidence grows that something similar might work again. So a second initiative is tried with a little more confidence. When that works the third follows and so on, eventually broadening the scope of customer-led activity. People across the organisation see a pattern emerging – ‘every time we do something great for customers it works for us too’. It becomes the way to earn approval, get a pat on the back or promotion
Sustaining the Outside-In belief system. Once the organisation is a customer-led success the shared beliefs still need attention. It remains unnatural to have widely shared assumptions that customers really do come first, ahead of hitting the quarterly numbers. So the leaders need to pay attention to their organisation’s belief system and its health, and ensure a continual flow of Moments of Belief to keep showing people ‘this is the way we do things around here.’
What our guests said that brought this to life – the headlines we took from the conversation
1. Tim Mason talked about Tesco’s journey in a way that brought the first two steps to life – Burningness and Moments of Belief. Tesco was not a relaxed place to be. It was driven. Obsessed about customers, paranoid about competitors, as Tim put it. He described the decision to invest in Clubcard, an idea whose principal value would be to tell the business more about what its customers did. Nice to have you might think – and the cost was £100m a year, one fifth of Tesco’s profits at the time. The rationale was based on the belief that MUCH better customer information couldn’t fail but to lead to a much more effective business. That’s a lot of money to spend on a largely unproven idea, but not if your ambition to lead by being better for customers is burning.
He also told a story that provided a Moment of Belief relating to the eventual value that Clubcard provided. Tesco was early to launch a range of Free From food products, and sales were disappointing. But that was as judged by looking only at Free From products. Clubcard gave them another way to see what was going on, and it showed that there were two types of Free From buyer. One was new to Tesco and they bought other things too. The other was already with Tesco but even they started to spend more than they had done before. On a customer basis, Free From was adding tremendous value, something visible only to a business capable of seeing customers not just products. Belief that this was a good way of doing things deepened another notch as Tesco’s business performance continued to go from strength to strength..
2. Deb Corless described what it felt like to run a crucial customer-facing part of the O2 business on two occasions – once when the business was at its customer-led best, the other when it had succumbed to natural inside-out pressures and become normal again. Her team in the first phase was responsible for retention. In a traditional mobile business, as O2 was for a while early on in its journey, they fielded calls from customers trying to leave, and they gave them offers not available normally to persuade them to stay. Customers hated the practice and O2, to its massive credit, bit the bullet and led on changing the model, promising existing customers they would always get the same deals as those who were new. This made running the retention team’s call centre a dream. Customers loved it and colleagues felt they could go to work and do the right thing all day. Hugely motivating. The business flourished as the bet more than paid off.
Deb left to work for another mobile business, 3, and returned five years later. What she found was very different. The global financial crisis had hit Telefonica, O2’s owners, hard. They had to prioritise short term financial performance and were considering selling O2, giving a further need to push profitability. The call centres were outsourced to South Africa and both the approach and performance suffered. Deb could see how it had come about – it wasn’t as simple as greed or hubris. It was natural, but it was also clearly intensely disappointing and shows how hard it is to retain a customer-led ethos through commonplace business ups and downs.
3. Mikael Sørensen brought to life what being CEO at Handelsbanken in the UK looks like, maintaining customer-led beliefs that have been in place for 48 years in a row so far. He is well aware of the need to be constantly active to retain the firm’s highly unusual ways of working. Customer relationships are managed by branches, close to customers, which means decisions including whether to lend and what prices to charge are made by the branch. All sales targets have been removed and teams look instead to offer customers the best possible advice for them, even if it’s not best for the bank in the short term.
This sounds clear enough, but the shared beliefs of people in the business only come from what’s done every day, not just reading words like these. Two examples made what this means clear. One strong Handelsbanken principle is decentralisation, and that means making decisions as close to customers as possible. Mikael described what happens if someone asks him to make a decision for them. He says no and asks them for their view. And whatever it is, that’s what they go with, no matter whether it’s a good one or one that’s terrible. If he over-ruled someone using his position he would be acting counter to Handelsbanken’s beliefs, and those beliefs would change to fit reality not theory. The second example related to sales targets and someone in a branch starting to keep track of sales, not just judging performance solely by the cost/income ratio that is the business’s only quantitative goal. He saw it and stopped it immediately – as he said, you have to, otherwise something like that will spread. The enemy in this case is just common sense and second nature. Keeping track of sales seems sensible and maybe it plays to our competitive spirit. So the CEO’s role is to keep the firm’s beliefs on track in the face of such natural enemies.