How to Set Your Company's Business Strategy From the Outside In
The two most important questions for entrepreneurs looking to take their business to the next level? “How can we play our current hands of cards better” and “How is the world changing around us and why?”
Both questions are essential for identifying a successful business strategy and eventually need to be tightly integrated. But where you start may influence greatly where you end up.
Let me explain: The first question represents an inside-out approach to strategy since it starts with your own strengths and weaknesses. Naturally, it's good to know this, but if you focus too much on your own internal issues, you could miss the bigger picture--along with any chance of fostering radical innovation and disruptive strategies.
So, in addition to that question, the second question is even more important since it forces you to look outside your business. That outside-in approach has the advantage of making you scan wider and not prejudge whether some external changes are good or bad. Here are two ways to adopt outside-in strategies.
Start with outward focused questions
In traditional planning sessions, a company’s leader may ask “how can we serve our customers better” or “how should we improve our products?” Both are highly relevant questions, but they're not the best ones to start with. Instead, save them until the end of your meetings, since these questions bring the discussion back to yourself and help close the loop.
At the start, it is better to ask “why are many customers not buying from us” or “in which ways do our competitors offer superior products?” These questions force you look at your company from the outside in.
Research shows that an external market-driven orientation leads to superior results because it overcomes such common human tendencies as myopia and confirmation bias. By asking why customers don’t always favor you, the team puts itself in your customer’s shoes.
The answers won’t be about product features, relative costs or capacity utilization. Instead words like "trust," "long-run relationships," "superior benefits," "solutions," and "valuable partner" may come to the fore. Your team will be thinking about the changing needs of your customers as well as your competitor’s intentions and capabilities.
Bake the policy into your strategy sessions
Jeff Bezos, founder and CEO of Amazon.com, showcased the outside-in business philosophy when he said, “…rather than ask what we are good at…you ask who are our customers? What else do they need? And then you say we are going to give that to them regardless of whether we have the skills to do so…"
Your company may already have practiced outside-in thinking by “stapling yourself to a customer order” (to imagine what they experience), or role-playing your toughest competitor or undertaking a review of lost sales. Most likely, however, these are only occasional forays into the customer’s world, rather than practices deeply baked into your company’s mind-set.
Some firms can sustain themselves with inside-out thinking for long time, especially if competitors think the same way or if they have a very good hand of cards to play. But this is not a safe approach in turbulent markets where new competitors are challenging conventional wisdom, offshore entrants are arriving with deeply discounted prices or technological changes disrupt the business model.
Effective responses demand fresh outside-in thinking that understands the turbulence better. Eventually, the outside-in questions must be connected to the inside-out ones as well in order to become actionable. Just make sure you start with the outside-in approach since internal organizational forces usually pull the discussion inward anyway.
PAUL SCHOEMAKER | Research Director, Wharton School
Paul J. H. Schoemaker is the founder and chairman of Decision Strategies International. A speaker, professor, and entrepreneur, Schoemaker is research director at the Mack Institute for Innovation Management at Wharton, where he teaches strategic decision making. His latest book is Winning the Long Game: How Strategic Leaders Shape the Future.