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When finance professionals encounter signs of asymmetrical disruptions—new competitors, alternative models, divergent paradigms—there’s a tendency to study the disruptors and ask, “How can we be more like them?” But this line of inquiry can take leaders down a rabbit hole.
Rather than study what disruptors do, we go to the source, our customers, to deepen our understanding of what matters to them—what causes our business to earn and sustain relevance. Essential questions to ask are:
- What do our customers want?
- What are their needs today and how are they changing?
- What can we effectively address for them?
- How can our competencies as a company contribute to solving both recognized and unrecognized needs?
- Are they willing to pay for what we have to offer?
The principle of Adaptive Disruption guides leaders to interpret asymmetrical threats as clues that customer needs, interests, and values—determinants of relevance—may be changing. (Organizational Relevance refers to the pertinence, meaningfulness, and importance customers ascribe to a business.) When relevance is strong, revenue rises; when it wanes, revenue falls.
While each business is different, most financial professionals have insight into common leading and lagging indicators of relevance with customers. For instance, they recognize changes in customer satisfaction trends or engagement measurements, increased complaints, unfavorable online and social media traffic, or pricing deterioration are leading indicators that their relevance may be in jeopardy. Customer attrition, decline in repeat customers, fewer new customers, decreasing average sales and margin deterioration are lagging indicators of diminishing relevance.
Revenue and Relevance
In my book, Leading from Zero: Seven Essential Elements of Earning Relevance, I speak to the need for balancing the resolve for relevance with results—the real world for finance professionals. In the realm of cause and effect, revenue is a result of earning relevance with stakeholders. Businesses that earn and sustain relevance are rewarded with valuable repeat customers, deeper relationships, referrals, positive word-of-mouth and recurring revenue. Those that overlook this essential metric see revenue deterioration, margin compression, decline and eventual demise.
Asymmetrical disruptors are prevalent in retail, delivery services, manufacturing, distribution, supply chain management and many technology verticals. Financial leaders have a powerful voice in helping their companies look beyond current conditions, while not overlooking today’s reality as they explore opportunities for Adaptive Disruption. That means asking what’s next for our business?
So how does your company define what’s next?
- Start with your customer – Capture candid input; this will help you deeply understand what customers expect today and anticipate what they’ll need tomorrow. Such input can also illuminate the value they place on what they want (specifically, their willingness to pay for it) and why they’d move away from your offering for an alternative.
A caution: Do not rationalize what you hear. Look for recognized needs as well as those that may not yet be recognized. Use these learnings to create a picture of the future state experience your organization will deliver. This picture can then be distilled into a roadmap to create your future state customer experience.
Example: McDonalds. Their Q1 2021 results reflected same-store sales up 13.6% over the prior quarter, driven by new menu offerings like Spicy Chicken McNuggets and the Crispy Chicken Sandwich as well as digital and delivery. McDonalds had listened to their customers, who expressed their want for new menu items, access and delivery choices. The company applied Adaptive Disruption as they saw changing expectations and growing importance of new ways of engaging with their customers (digital, delivery).
- Know what it takes to earn and re-earn your relevance – With clarity about customer expectations, take a fresh view of your business. Imagine you are on the outside, looking in at the needs to be addressed (the way external disruptors look at your business). If you were completely unattached to legacy approaches for serving customers’ needs, how would you navigate the business? How would you deliver what your customers need in the way they expect to experience it? How would you know what earns relevance for your company in the eyes of your customers?
This exercise can be a challenge due to the tendency to limit creativity by saying, “That idea won’t work because we tried it once before.” Don’t prematurely box your firm into a paradigm that a disruptor will bulldoze. Call in professional help to work through ideation with your team when necessary. Remember—relevance is experienced in the moment, through the eyes of the beholder (your stakeholders). You can build goodwill with customers and other stakeholders, but its shelf life is short, and must continually be re-earned through understanding and addressing needs. In the words of Janet Jackson, What Have You Done for Me Lately?
- Understand your organization’s competencies – You have competitive advantages and opportunities to build upon them. Identify them, articulate them, and use them as the foundation from which to grow before looking to the next new thing. Whether your firm’s greatest competencies are operational efficiency, innovation, customer experience, logistics, talent development, or something different, they should inform what’s next. From the place of competencies, working from the inside out, you will garner the most from Adaptive Disruption exploration. Conversely, looking for disruption windows solely from the outside in can camouflage strengths available for fortifying your competitive position. One of Tesla’s core competencies is battery pack technology applied to unique powertrains. Electric vehicles are not new but combining a long-range battery with a robust powertrain in cool vehicle designs sets the company apart. Time will tell how effectively Tesla practices Adaptive Disruption, however, clear definition of this competency is a great place from which to thrive.
- Own Change Leadership – Leaders define a vision and engage people to deliver it. With a clear picture of where your organization is going in the evolution of who you serve and how you deliver to customers, you are positioned to drive stakeholder engagement. Without broad engagement in creating your business’s future state, change efforts are doomed. We often hear leaders announce major change endeavors under the umbrella of an expense reduction program. Unfortunately, most change efforts fall short of expectations.
In fact, according to recent Gartner research, fewer than half (43%) of leaders achieve the level of savings they set out to attain in the first year of cost reduction. This is due in part to setting unrealistic cost reduction targets. Another contributing factor is making profitability a “math-first” exercise. Math-first discussions start with “We know the margins we need in our business; reducing expenses by 10% will get us there.” This approach falls short unless math elements are deconstructed into activities creating revenue and expenses—those that cause relevance with customers.
There is nothing wrong with math. Financial analysis is essential in diagnosing conditions. But the bigger question is: what activities (or lack thereof) created the conditions reflected in our financial results? Fundamental to effective change leadership is knowing which measures best reflect the root cause of results, and are most closely linked to earning and sustaining relevance with customers.
Disruption can be adaptive (seeing signs of change unfolding, then moving quickly to adjust activities), self-initiated (pre-emptive strategic adjustments), or reactive (other firms initiate disruption, forcing your company to react). Regardless of approach, financial professionals are in a perfect position to ask the right questions to navigate disruption.
Dave Coffaro is a strategic leadership advisor, executive coach, and author.