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Interview: Professor Adrian Payne on 'The Strategy Development Process'

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6th Nov 2006
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By Jeremy Cox, Contributing Editor

Introduction

Professor Adrian Payne of Cranfield School of Management is a leading authority on CRM and strategic marketing, and frequent contributor to the Customer Management Community.

In 2006 he published The Handbook of CRM – Achieving Excellence in Customer Management (available to CMC members at a 10% discount). We are also providing a free download of Chapter 1, A strategic Framework for CRM, which is the subject of the first of 6 interviews we will be having with Professor Payne over the coming months.

JC:

In the first chapter you introduced a strategic framework for CRM covering five generic processes:
 

  • Strategy development
     
  • Value creation
     
  • Multi-channel integration
     
  • Information management
     
  • Performance assessment

Logically you start with the strategy development process, and you identify two main elements - business strategy and customer strategy. Which should come first or take precedence?

AP: In theory, business strategy should always precede customer strategy but in fact in many organisations it’s a much more iterative process. So, in order to think about it logically, it is helpful to start with the overall business strategy, whether your organisation is established or a start up.

JC: What do you say to firms which have already embarked on CRM initiatives but were less logical or methodical in their approach?

AP: I'd say this is a very good opportunity to take stock and review where they are in the market place at this moment and make some judgements on how the market is evolving and how these initiatives support these changing circumstances. In the book I put together a very comprehensive CRM audit broken down into a series of categories and the first part of this is the strategy development process audit. It consists of a total of twenty issues which you can rate in terms of how important is this factor or issue to my organisation, and how well are we doing? This is a good starting point, a checklist for virtually any organisation to see how well its initiatives fit into the overall picture.
JC: What are the dangers of not revisiting strategy?

AP: I think that is pretty obvious because you can go off at a tangent you can perhaps be investing in an area that doesn’t have the potential and you may be missing opportunities elsewhere. There is a tendency to focus on problems without thinking about some of the broader issues. This is a topic that has been addressed in some detail by academics and consultants like Gary Hamel and C.K. Prahalad.

JC: You talk in terms of business strategy and customer strategy, who should be responsible for either of these? Which part of the organisation?

AP: Generally the business strategy is the responsibility of the board, the chief executive officer, often with the support of a strategy department, whereas customer strategy is often the responsibility of the chief customer officer or marketing director. It is very important that these two areas are aligned. Strategy done on the 20th floor and marketing done on the 5th floor where none of the people ever meet does not support this alignment.

Developing a good vision

JC: In the strategy development process you outline, you start with the overall business vision. What does a good one look like?

AP: The easiest way to describe this is at three levels. The first of these is the purpose of the organisation - What are we here for? The second is - What’s our vision, our long term destination, and thirdly - What are our values? What beliefs and behaviours are going to guard us on the journey to achieve the purpose and vision? A good example of this is Goldman Sachs a very impressive organisation with a high emphasis on perfection in everything they do.

Their overall purpose is to provide excellent investment advice to the largest corporations around the world. Their vision is to be the world's premier investment bank in every sector that they serve in, and the values associated with this is always putting the interests of their clients first and a really high level of teamwork. Many firms go through the rhetoric but Goldman Sachs is an example of a firm that actually lives those values. These are not platitudes but essential to the way the firm works and serves its clients.

JC: So that would explain why values are such an essential element of the overall vision?

AP: Absolutely.

Understanding the competitive landscape

JC: The next thing you focus on as part of the business strategy development process is developing an understanding of the industry and competitive environment. What methods or approaches would you recommend?

AP: An approach that has been around for quite a long time is the industry analysis framework that has been highlighted by various people - Harvard Business School; notably people like Mike Porter with the five forces model. I think these five forces are an interesting starting point in developing a comprehensive view of an industry.

We need to look at potential entrants, buyer power, industry rivalries, supplier power and so on, but also we need to consider our other issues as well. We need to think about what is the role of co-opetition? Sometimes we compete sometime we cooperate.

I'm struck by the conversations I have had over the past couple of years with a whole range of technology companies which in one particular client situation they are deeply competitive and going hammer and tongs at each other and five minutes later they are in another situation they are co-operating and working as an integrated team on a CRM project, so I think increasingly the way companies compete is going to vary and they will learn to adopt these difference stances and recognise the importance of networks is growing.

So, one of the issues is how organisations can operate within a network in a systematic way. This is very important because often a client is on the receiving end of one of these networks and someone comes along one day and says 'I've got this deep relationship with all these partners who are integrated in a particular way, and we work very closely with these people'. And maybe a week later they get a proposal from another firm who has got three or four of these people partnering with them.

Going for gold – the three market leader disciplines

JC: You also mention the three market leader disciplines:
 

  • Product leadership
     
  • Operational excellence and
     
  • Customer intimacy

If we start with the first one, product leadership, is this now a dead duck in most industries?

AP: No, I don’t think it is. The general idea behind these value disciplines is that you need to be very good at all three of them but you need to think about which one you really want to excel in?

I like to describe it is a bit like the Olympics. Which discipline do you want to go for gold in? You should seek to ideally get on the Olympic team with all of them but what do you want to go for gold in? Many organisations historically have focused on product leadership yet increasingly product quality overall is improving and differentiation of the core product is becoming very difficult.

More organisations are placing a much greater emphasis on customer intimacy.

JC: If we look at operational excellence and customer intimacy where do you think most organisations are focusing their attention? Is there a trend?

AP: I would say the general trend across industries is that more organisations are placing greater emphasis on customer intimacy; however it’s very important that we get our operational excellence up to standard.

At an industry level this will vary considerably, for example if we take one industry I’ve been working with recently – logistics and transportation, if you are shipping large quantities of goods around for Tesco or Sainsbury’s or a major media organisation that has a large volume of newspapers or periodicals and so on, obviously you’ve got to get your operational excellence bedded down really well. You can’t have any screw-ups along the way.

But the largest few companies within this sector are all very good at operational excellence, and the thing that lets some of them down in my view is the customer intimacy.

The organisations that have this customer intimacy and who can respond incredibly quickly ultimately will be the ones who will be the winners. And I have had quite deep discussions with members of the board of directors of one of these companies, who are coming to the conclusion that they want to be outstandingly good in operational excellence, however what they want to go for a gold medal in, is customer intimacy.

Developing the customer strategy

JC: Once the business strategy is in place, you then turn your attention to the customer strategy. What are the key elements that should go into a customer strategy?

AP: The first issue they need to decide is 'who is the customer?' For example, many companies have a range of different customer groups with whom they interact. So if we think about the manufacturer of washing machines or refrigerators, they typically deal through a series of distributors, and they in turn deal with a series of retailers which ultimately deal with consumers. In some cases some of these links may be taken out by some sort of Internet Company that may deal with consumers in a much more direct way and may engineer one of the members in the chain out.

Now if we think about the manufacturer, they need to take a decision about how much effort and work needs to be done with each of these groups. How much should be invested with the distributor, how much with the retailer and how much invested directly with the final consumer. I‘ve found that often organisations don’t get this balance right but play to one of these groups at the expense of another.

One company I worked with a leading manufacturer of branded electrical appliances in Scandinavia was placing far too much emphasis on trade marketing and was not focused on developing enough impact on the final consumer, and they suffered as a result.

One of the world’s best known branded consumer products – FMCG products company, started to place a great deal of emphasis and took a large amount of the marketing budget away from trade marketing to develop al sorts of initiatives with consumer markets and as result trade relationships suffered and the consumer initiatives back-fired and they lost a lot of money on this. It didn’t damage consumer relationships but competitors were able to take advantage of this weakness in their trade relationships which had suffered. So that's the first question – who is the customer?

Segmentation issues

The second question or second issue is, having decided which customer groups to place the emphasis on is, how are we to segment them? Segmentation is clearly one of the most important aspects of a customer strategy and in particular making judgements about - when is a macro approach appropriate, where do we need to move to a micro segmentation approach and when is it appropriate to move to a 1:1 segment approach?

JC: That was one of the questions I had in my mind. If CRM enables this 1:1 marketing is segmentation really necessary anymore?

AP: Well, I see 1:1 as a particular form of segmentation. But I think it depends very much on the company context. If you are a pure play internet company it may be possible to use that personalisation approach and deal on a 1:1 basis.

If you are a large international corporate business-to-business, with a large sales force it’s possible through key account management to operate on a 1:1 basis. But if you are operating in a retail environment where you often don’t know the customer, operating on this basis is very difficult... So it depends a lot on whether you’re online or offline and what the distribution channel is and whether or not you have got a multi-channel approach.

JC: There is a lot of talk about customer and business intelligence enabled by technology what part do these play in segmentation?

AP: I think they can have a really important role to play because they can help us understand characteristics and buying behaviour of individual segments, however there is a need for caution because increasingly certain customers are crossing different segment boundaries.

To illustrate this, take the airline industry. I like many people have a whole range of different frequent flyer cards, and an analysis of my behaviour from airline, based on one card is not going to give very much detail of what my flying behaviours are. Because if I laid out all my tickets on a table for the last three years, there would be first class tickets, business class, premium economy, cheap no frills airline tickets like Easyjet and so on. No amount of analysis, even if the airline had all this data, would tell them what drove this behaviour.

A friend of mine is a consultant who often travels first or business class with clients, but also plays football for a local football team and they fly the cheapest way possible. He is at the same time a member of a business, social and family communities. So customer or business intelligence systems won’t necessarily give you the right answers.

JC: So there is a need to augment internal information with external sources?

AP: Absolutely. If you like it’s a distinction between customer segmentation and market segmentation.

Aligning business and customer strategies

JC: You state the need for firms to align business and customer strategy. In your experience, do most firms do that?

AP: There is a lot of variation on this particular dimension. I worked with a large international company and I joined them on the Wednesday and the previous day, they’d had the group head of strategy who’d given them a four hour presentation. So when I saw them on Wednesday I said,"you are obviously up to date with the business strategy" and they looked at me in amazement. One country head said, "the business strategy they spoke about yesterday had absolutely no relevance to our customer strategy in our country. I only recognised it was our company from the logo."

JC: And have you seen anyone do this particularly well?

AP: There are some good exemplars out there. Tesco has to be an outstanding example of one which has aligned business and customer strategies. One of the companies I’ve been studying recently is T-Mobile which has got a very clear sense of direction, in business strategy and ability to execute and what I consider to be a very robust marketing strategy and I think this is proving itself in the market place with what they are achieving currently.

JC: When do you think firms should review their business and customer strategies – how often?

AP: There is no set rule but I would say that there should be a deep review of business strategy every two to three years with a regular annual review.

Customer strategy should be an ongoing process. Not a one off. A bank I know does a strategic planning exercise and they send out a whole lot of forms to divisions always at an inconvenient time of year, and with little time to complete them. They then come back and one of two things happens. The centre covers the form in red ink and tells the division that it doesn’t know its market and these are what the figures should be, or it’s buried away in some filing cabinet or database never to be seen again.

JC: So the customer strategy needs more revolutions more often than the longer term business strategy?

AP: Absolutely. In a recent book on strategic marketing written with my colleague Malcolm McDonald, we can tell pretty quickly which one has the right approach. When we ask for the marketing plan some will dig out a plan from a filing cabinet and dust it off, whereas others are able to pull it out of their briefcase covered in post-it notes and you can tell that it’s being continually updated.

JC: Thank you Adrian. In our next interview we will be looking at the value creation process and how to improve a firm’s ability to create and deliver value to its customers.

By Jeremy Cox
Contributing Editor

[email protected]

The Handbook of CRM by Professor Adrian PayneThe Handbook of CRM is published by Elsevier.

Elsevier are offering a 10% discount on this book to CMC members. To take advantage of this offer click on the link below.

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Replies (2)

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By Jeremy Cox
09th Nov 2006 14:27

Graham this is only the second of 6 interviews and was focused on the broad issue of aligning business and customer strategies.
The lovely stuff you are on about - creating value comes out hopefully in the next couple of interviews - first on customer value creation and the second on multichannel integration, which contributes to the whole customer experience.

Delta Model may be old hat to you, but it is not a bad stratospheric view of main challenges facing many businesses. They are often very product centric, fixated on shoring up their basic operational capabilities (no doubt using the promise of Six Sigma and other incremental disciplines). And few have grasped the nettle in terms of customer intimacy/insight etc.

Not sure where you get the idea that Prof Payne was advocating anything being set in stone, in fact his last comment was that strategy is a continuous process, not a one-off- stick-it-in-the-draw and then execute it come what may.

Finally, there is often a tendancy to look for the new silver bullet, or new fad. Our industry is the worst for this. The fact is that some of the old stuff still has value, and is perhaps augmented rather than deposed by the new.

Indeed your point about 'strategy is about building a portfolio of business options' is actually quite old but none the worst for that - See the Art of the Long View 1991 Peter Schwartz - something the Oil industry has been playing around with for donkey's years, and still very valuable..

I hope the next interrview will be less troubling and I'm sure you will put me right if it isn't. :)

all the best

Jeremy

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Dr. Graham Hill
By Dr. Graham Hill
09th Nov 2006 09:20

Jeremy

An interesting if troubling interview.

I recognise the traditional view of business & customer strategy as was taught at business schools 10 years ago. But I do not find any reference to the resource-advantage through capabilities approach as taught at the vast majority of business schools today.

Our understanding of what constitutes effective business and customer strategy has changed as we have better understand the dynamics of business competitiveness. This means that whilst, e.g. PEST Analysis and Five-Forces are still useful tools to understand the political economy and within-industry competition, they are no longer enough for developing strategy in today's hyper-competitive environment. Neither is the tired Delta Model as popularised by Treacy & Wiersema.

Strategy today is about building a portfolio of business options that can be exercised as conditions change, not about carving an immutable direction in stone that quickly becomes obsolete.

This requires a detailed understanding of a business' capabilities (the ability to do things that create value for customers and by implication for shareholders), of how combinations of these capabilities actually create value and of how this will play in the markets in which the company will do business.

But all of this resource-advantage through capabilities thinking is missing in the interview. Knowing Adrian and having read some of his recent papers on CRM and customer-co-creation, I know he thinks extensively about CRM capabilities. Why did this not come out in the interview? Capability building is after all, at the very heart of customer business.

Graham Hill
Independent CRM Consultant

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