The Evolution of Strategy: From Competition to Customers to Employees
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In the 1980s, business strategy was dominated by competition. Michael Porter introduced the concept of competitive advantage. Strategists and business leaders became obsessed with differentiating their business from the competition by taking market share and becoming, as General Electric famously was, number one or number two in their industry.
Then, in the mid-1990s, something changed. Amazon was founded, rapidly scaled, and became the poster child for a new perspective. Jeff Bezos said, “If you’re competitor-focused, you have to wait until there is a competitor to do something. Being customer-focused allows you to be more pioneering.”
This mindset became the dominant logic. Winning started to depend on deep customer insights and responsiveness to needs.
I believe we’re about to enter a new paradigm. Companies have shifted the focus from competition to customers and now to employees. Several business experts I’ve spoken to have alluded to this.
Dave Ulrich, the father of modern-day human resources, pointed out on the Outthinkers Podcast that while companies have developed sophisticated methods over many decades to segment and target customers, companies apply almost none of those practices to employees. We sell all employees the same standard package. We still follow Henry Ford’s approach where he said the customer could have any color Model T they want, as long as it’s black.
Stephan Meier, Columbia Professor and author of a new book, The Employee Advantage: How Putting Workers First Helps Business Thrive (coming October 2024 and available for pre-order now), shows that the same trends that push customers to the center of focus are now pushing employees to that center.
Click here to check out a video I recorded on this topic.
Four Reasons for the Shift to Employee-Centricity
I interviewed Meier for an upcoming podcast episode, and he offered four reasons why the shift to employee-centricity is happening. They are:
Competition and innovation: Your competitors are starting to offer employees more attractive, innovative options than traditional job descriptions. They might include things like unlimited vacation, flexible scheduling, part-time work for new parents, customized compensation packages, and more.
Transparency: When Bezos introduced customer-centricity, he said that if you fail a customer in a brick-and-mortar environment, they might tell six people. But if you fail them in a digital environment, they may tell 6,000 people. The same thing is becoming true for workers. Using platforms like Glassdoor, your employees can now complain about or praise the work “product” you are giving them.
Data: Amazon rose during a period in which the amount of data about customers was surging. Today, we see that same proliferation of data around the employee. Tools like Officevibe and 15Five allow employees to provide continuous feedback, track goals, and give recognition in real time. Managers receive instant insights into team dynamics, and they can address issues promptly rather than waiting for an annual performance survey. Platforms like Lattice and Culture Amp enable ongoing performance reviews and feedback. Managers can set goals, track progress, and give feedback continuously. Workplace communication tools like Slack or Microsoft Teams have integrated feedback mechanisms to give and receive feedback instantly. We have project management software like Asana and Trello, which also provide real-time data on when and how quickly things get done. Just as customers became “digital customers,” employees are becoming “digital employees.”
Preferences: Employee preferences have changed. Experience, purpose, and meaning have become more important to workers. Consider the value stick model often taught at Harvard Business School. There’s a great example in Felix Oberholzer-Gee's book Better, Simpler Strategy. You increase a customer’s “willingness to pay” (WTP) by offering ever more attractive products. At the same time, you decrease your supplier’s “willingness to sell” (WTS) by becoming ever more attractive as a partner. In our example, your employees are your suppliers. If you can give them a better experience, they would be willing to work for less. That doesn’t mean that you necessarily pay them less. It also means they will give you more productivity for what you pay them. They might come in earlier. They’ll probably be willing to work harder. They’ll be more creative and look for ideas to improve the company.
As Peter Drucker concluded, the purpose of a corporation should be to enable ordinary people to do extraordinary things. Your value proposition to your employees is as important as your value proposition to your customers.
Employee Lifetime Value
The truth is most companies are terrible at thinking about their employee value proposition. They create friction in trying to make things easier for customers and end up making their employees' lives more complicated. Tiffani Bova breaks this down in her book The Experience Mindset: Changing the Way You Think About Growth. She says what we need to start doing is measuring and managing employee lifetime value (ELV), just as so many companies have done with customer lifetime value (CLV).
CLV is a simple but powerful concept. You take each customer and ask, how much does it cost to acquire this customer? How many times will they transact with you? How profitable will those transactions be? How long will they stay? And how many other valuable customers will they refer? Then, you can do a net present value (NPV) calculation and value each customer.
Ask if a company looks at employee lifetime value and they’ll probably look at you like you’re crazy. If a company does talk about ELV, all they’re doing is taking their total profit, dividing it by the number of employees (that’s profit per employee), and then multiplying that by the number of years employees tend to stay. That’s like doing a Net Promoter Score but not measuring “P” – how much people are promoting. It's like measuring CLV not on an individual customer basis or by customer segments, but by just piling all the customers into one bucket and measuring their collective value. What’s the use of that? As a company, you’re measuring how well you’re doing by treating everyone the same.
Understanding Employee Motivators
What we should be doing is looking at the unique needs of each employee, or at least each type of employee. For example, self-determination theory proposes there are four primary motivators:
Purpose
Autonomy
Competence
Relatedness/connection
While all of these may be important to each of us, we each have different priorities. Some of us care more about a sense of purpose. Some value autonomy – having the trust to do it their own way. Some want competence to build new skills and improve themselves. Others value relatedness, a sense of belonging, and connection.
If we were talking about customers and these were identified as the primary motivators for why they buy, we would automatically figure out the rank order of these things for different types of people. Then we would segment the ones that are similar together and we would customize our product to perform well on what matters most to each segment. That’s called an attribute map.
Companies don’t even think about doing that for our employees. What would it look like if you treated employees like you did customers? What if you were selling a job?
Personalizing the Employee Experience
For the person who wants autonomy, you might create a situation in which they can work from wherever, whenever they want without any in-person contact. What about the person who is doing the exact same job but what they care about is connection? You could give them a job where they come into the office, work in open spaces, and interact with others. For the person who cares about competence, you might give them no freedom of where and when to work but give them one demanding project after another so they build skills along the way.
The question should not be, “Should we work from home or from the office?” or “Should we work in teams or on our own?” or “Should we allow people to work on the same thing or change what they do all the time?”
That is like asking, “Should we make a car that is safe or fast? Luxurious or economical?” You don’t sell cars that way. You segment and personalize. Before 1920, car companies pretty much sold the same type of car to any customer they came across.
Then one car company revolutionized the automotive market by designing cars for different customer segments. That was General Motors. Alfred P. Sloan, who became president of GM in the 1920s, introduced the concept of "a car for every purse and purpose,” positioning different brands under the GM company brand to cater to various market segments. That is what is going to happen with employee-centricity.
The Future of Employee-Centricity
One company is going to eventually emerge and truly personalize the job product that they offer to employees. Just as GM did for cars and Amazon did for customer-centricity, that company will prove that employees really are the new customer. They will start attracting the best talent. They will start thriving and get ahead. They will be the outthinkers. As history predicts, other companies will resist at first. Then they’re going to struggle. Finally, they will wake up to the fact that the employee is the next customer.
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