Musings on Strategic Investigation, Performance Improvement, and Rhetoric

What makes a market leader? (7/7)

In the last three posts in this series, we covered the common and unique characteristics of market leading companies in our research that enabled them to make breakthroughs in performance and cope with rapid growth without losing momentum or focus. In this final post of the series, we describe the characteristic shared by only the market leaders that stayed ahead – the ability to stay uncomfortable.

Participants highlighted two big areas of concern once they were ahead of the field.

The first concern was being exposed to changes in customer demand: with a large share of the market, you inevitably rise and fall with it.

The second concern was complacency: once ahead, companies faced temptations to concentrate on reaping the financial benefits of their strong position, and to stick with winning ways. But the dangers of this “defend and reap” attitude were considered by leaders to be enormous: from outside due to targeting and copying by competitors, and from inside due to the departure of ambitious people lacking new challenges. Indeed one PLC leader attributed its slow demise to the spawning of competitors from within the company.

The most consistent solution that successful leaders gave to both big concerns was to stay uncomfortable and deliberately take the business to the next challenge.

Staying uncomfortable

This wasn’t about asking for more of the same, which is demanding without being challenging at all. It was about challenging where and how the company did business. To achieve this was difficult and needed discipline, and as with previous themes, different organisations achieved it in different ways. For example:

Raising the stakes by increasing the size of the arena the company played in, for example one payroll services company designed its next generation of further services to address the broader challenge of improving the workplace and the productivity of clients’ employees

Moving a local business into dominant positions in new geographical areas

Incorporating a challenge of “Is it brave? Is it original?” in relation to all market-facing and planning activity

Sustaining the challenge by splitting the business into smaller, more focused components every time it became too unwieldy

Establishing restless, constant change as a deliberate policy driven from the top


There was no common individual solution, other than the underlying requirement to stay on the edge of management’s comfort zone.

The common theme however was deliberately to raise the bar rather than to look back and focus on defending an established position, even though this often meant losing key members of the original senior team, who weren’t willing to get back on the tightrope.


So, in summary, we have now covered the common characteristics of market leading companies from Latitude research that were missing in their more mediocre counterparts.

First, relentless focus on a cause based on a combination of passion for that cause and a firm grip of market and commercial reality.

Second, tough action to get the right team in place, based on the right attitude, even at the expense of talented or experienced team members who aren’t up for the challenge.

Third, creation of breathing space so that management can concentrate on important actions for the business and are not continually distracted by urgent firefighting.

Fourth, clear, tangible behaviour boundaries, inside which there is room to perform, but the crossing of which is simply not tolerated.

Fifth, and finally, the continuing challenge from the senior team to keep the business on the edge of its comfort zone in terms of where and how it does business.

These aren’t rationalised steps to success. Rather they are a series of characteristics that should look obvious to experienced managers of high-performing businesses. By presenting them here, our hope is that they provide a nudge to make a decision that the manager already knows he should be making anyway.


Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

For the full text of this series email steve@latitude.co.uk
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What makes a market leader? (6/7)

In our last two posts we covered the most critical actions that market leaders from our research took in order to achieve a performance breakthrough. In this and the next post, we will describe the two characteristics that determined whether these same companies continued to thrive, or if they saw their leadership positions fall away.

CEOs of companies that made performance breakthroughs described an interesting challenge that will be familiar to anyone from a fast-growth company. With a breakthrough in performance, came rapid growth and an influx of talented people. The challenge facing a CEO in this situation was how to maintain direction and momentum, and avoid dilution or chaos, whilst giving new people space to act with minimal needless constraint. In our research, we expected strategic planning to be the answer to this problem. But every company we talked to, good and bad, used strategic planning, and this didn’t distinguish the higher performers

The answer to this challenge from the CEOs of successful, sustained market leaders was to employ very clear behavioural boundaries. If people stayed within these boundaries they were given responsibility and room to perform. Stepping outside them, i.e. behaving in a way that was not acceptable to the company’s culture was never tolerated.

A clear “our way” of behaving with uncompromising boundaries

Leaders were very clear that the setting of behavioural boundaries was the key that enabled them to get the most out of people, to generate growth in their team and their business, but at the same time maintaining clear focus and discipline. This delegation of responsibility with clear conditions meant that senior people had space to look forward and focus on important decisions, rather than becoming caught in an operational bottleneck; it also meant that capable junior people took responsibility for solving their own problems and as a result developed and stayed with the business.

There was no universally applicable code of behaviour that distinguished the successful from the unsuccessful companies – there were no magic behaviours. Indeed, behaviour codes were very different in equally successful companies: the absolute requirement to “mix it” in the locker room style of one leading computer games company was essential for people in that business; but this would have been totally unacceptable in the conservative environment of a market leading recruitment consultancy that emphasised respect and professionalism as an essential part of its behaviour code. What was common to the successful companies was that the behaviour code was very clear, very simple, was right for them and was something that the CEO could describe with countless real examples of good and bad. To give a common example, whereas a follower might state “integrity” as a defining value (as did about three-quarters of our sample), a leader would say “we keep our promises”. Simple.

There was also no common pattern to how successful companies in our study came up with these behaviour codes in the first place. There was no magic exercise. Some went through very inclusive approaches, some pushed things down from a strong and inspirational leadership team, for others it was just obvious and there was no discovery exercise at all. What was universally consistent in the leaders was the strength of dissemination of the behaviour code – in particular how the “way of behaving” wove its way into the day-to-day expressions and language of the business.

Of course, there is another side to the behaviour boundary coin – for our leading companies not behaving appropriately was fatal. CEOs described this in very dispassionate terms – “if they don’t behave our way then they’re out” – as simple as that.

In our next and final post of this series, we cover the final characteristic of market leading companies, and probably the most important factor in staying on top – the ability to stay uncomfortable.



Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

For the full text of this series email steve@latitude.co.uk
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What makes a market leader? (5/7)

In our last post, we covered the first action market leaders from our research took to make a performance improvement - tough decisions to get the right team in place. In this post, we cover the second activity required to make a breakthrough: creation of breathing space.

Every company that made a breakthrough found a way to create breathing space so that management could get away from piles of day-to-day matters and take time to reflect properly on the business. The leaders emphasised how criticalit was for their senior people to be able to spend time thinking about important, but non-urgent issues without distractions and the need to engage in permanent fire-fighting.

Dominant external factors that stole managers’ attention and intruded upon proper breathing space were cash flow pressures and customer servicing demands.

Deliberate and successful means of dealing with the distraction of cash flow issues were varied. The two most prevalent that didn’t rely on rich parents were, firstly, tough internal decisions to take the costs of the business below ongoing revenues; and secondly focusing deliberately on generating continual rather than one-off revenue streams, which could mean taking a lower margin to buy revenue continuity.

Customer servicing demands were also an unhealthily large day-to-day management distraction for companies struggling to break through. When entering into relationships with clients, leaders consciously took care not to overstretch themselves. For example one leader limited the number of new clients it engaged with every year because the additional servicing needs of new clients could affect performance with existing clients. Another leader used a series of financial and non-financial pre-contract tests upon which it needed to be satisfied before accepting new business.

Though finance and customer service were the biggest external assailants of breathing space, most problems were essentially self-inflicted. As one MD said: "we were the arsonists as well as the firefighters".

MDs of successful companies talked of ways of achieving breathing space that were simply means of ring-fencing time for managers to take their attention beyond the day-to-day. These included simplifying management structures so that responsibilities were clear; giving managers enough time and ownership to work out how to achieve their objectives before interfering; hiring personal assistants; and taking regular team away days. It was always simple stuff that gave managers room and a separate time to work on the important as opposed to the urgent.

Creation of breathing space was the second critical step that our breakthrough performers took. After breakthrough to leadership positions, our market leaders faced some new challenges that required new disciplines to address them. We'll cover these two disciplines in our next two posts.


Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

For the full text of this series email steve@latitude.co.uk
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What makes a market leader? (4/7)

In this fourth post of the series we cover the most critical and painful step taken by all the market leaders in our research - getting the right team in place.

Every company that made a breakthrough in performance ascribed it to making significant changes to the team, at the top level and at the level below it. This did not necessarily mean wholesale changes, and all companies emphasised the importance of retaining experience, but it did mean changes in important management positions.

A typical story involved losing one or two senior people who were strong, talented individuals who nevertheless caused problems in the team. For smaller companies this was often the original entrepreneurs, for bigger organisations it was senior directors and managers.

In many circumstances CEOs perceived a high level of risk in losing an individual, such as the fact that they were high performers or that losing them might mean losing other people that respected them or worked for them.

However, although the decision was always a tough one, it was invariably seen as an obvious one. In fact the biggest regret that successful companies had was not making changes to the team more quickly.

And this is not wisdom in retrospect. Everyone we spoke to who made changes to the team said that at the time they knew what they should do but delayed taking the painful step.

In contrast to some established theories we did not see a clear pattern of “first who, then what”. The new team did make changes but never to the cause. All of the companies who made a breakthrough had the same basic and underlying cause before and after the team was in place. The changes that came with the new team were primarily in the culture and capability of the business. Changes to the product or service on offer were about focusing and refinement rather than fundamental redirection.

Finally, the right team did not always mean a completely balanced team. We saw a clear pattern among the leaders of skewing attitudes and skills of senior people towards what was distinctive about each company. For example, one successful software business deliberately skewed its team towards developers and away from marketers. And in many cases it was deliberately left to the support people to supply the capabilities to balance their leaders’ skill gaps and deficiencies. The common and essential precondition for the team was its alignment to the cause.

In our next post, the other major action market leaders took to make a performance breakthrough - creation of breathing space.

Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

For the full text of this series email steve@latitude.co.uk
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What makes a market leader? (3/7)

In this series we cover the characteristics of market leading companies, actions and practices that distinguish them from their more mediocre counterparts. This is determined from direct research with CEOs of more than 100 companies.

In this post we look in more detail at the first of these characteristics: relentless focus on the cause.

The most striking common characteristic that distinguished the leaders in our research was their almost religious focus on the purpose of the company, or the "cause". The cause was something the leaders were passionate about, what they knew they were good at and it was always simple, specific and easily described.

This wasn’t a blind following of faith. These leaders were very sensitive to and aware of customer needs, and many researched and responded to customer needs very actively, but only within the confines of the cause. The commitment didn’t waver but was informed by rational testing and ego-free listening. We like to make a comparison here with the (now maligned theory of the) two sides of the brain. A person (read business) is only able to fulfill her potential if she uses the full capability of her brain (read senior team): she needs to engage both the right (passionate, creative) side and the left (analytic, rational) side. Right-only may deliver short term buzz but is unsustainable and leads to disaster; left only leads to sustainable mediocrity, which is probably worse.

One popular management theory is that success comes from listening closely to the needs of one tightly-defined customer group and designing an offer that serves those needs. Our findings were very different on two counts. First, the successful companies started by establishing what they stood for, then found who valued it, and what they valued about it. Secondly, though some leaders had one tightly defined customer group, many others had a variety of customers that differed greatly from one another.

In explaining their propositions, leaders described what was distinctive and beneficial, rather than what was better. Indeed, comparison with and paranoia about competitors was more the preoccupation of the followers. Leaders were conscious of competitors but only as a prompt to keep their thinking “edgy” and to look for the next challenge. No leader described itself unprompted as “best” or “world class”.

Every market leader surveyed had made mistakes and strayed from their cause at some stage. Reasons were always understandable (providing add-on services for a special customer, pet projects of vital people), but straying was always regretted no matter what the reason; leaders learned the lesson quickly and got back on track.

There was no common pattern of how leaders came to define their cause and focus upon it in the first place. This varied from building on personal hobbies and previous experience, through packaging for general use a successful one-off service that the company came across by chance, to more formal market analyses. However, even the leaders that had performed a sophisticated analysis used the emotional (what turns us on) when deciding where to look, before the scientific testing (what is the opportunity and does the business case stack up).

A final word on what focus really means - leaders could tell they were genuinely focused when they were turning away attractive, profitable opportunities – discarding the unattractive is easy; the challenge is turning away attractive business that is outside the focus.

In our next post, we cover the big step people took to make a breakthrough in performance: tough action to get the right team in place.


Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

For the full text of this series email steve@latitude.co.uk
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What makes a market leader? (2/7)

In this seven-post series, based on direct research with more than 100 companies, we review five distinctive characteristics of market leading companies and the common steps they took to get to leadership positions. In this post, we summarise these five characteristics and share some unexpected findings.

All the market leading companies shared an enduring theme that existed at the time they made breakthroughs to leadership and remained thereafter - "Relentless focus on the cause"

Relentless focus on the cause

“Focus” is a cliché that is often taken to mean the dedication of services to one tightly-defined customer group; but for our survey leaders, focus was about what we call “the cause” – the essential function of the company, what it is good at and excited about; literally what the company is for. For Metro, it is digestible news for urbanites; for Innocent, it is tasty, healthy drinks. It needs to be something for which the company has a passion but at the same time can challenge and justify rationally and commercially in the cold light of day.

We think of the cause like the (now maligned) description of the two sides of the brain. It needs a passionate, creative (right) side and a rational, analytic (left) side. Without the rational, the company is destined for disaster, even if it enjoys a flurry of success; without the passion, it is destined for mediocrity.

Leaders have relentless focus on this cause, in that they will sacrifice anything which is irrelevant to it. Every one of them could point to profitable business that they turned away because it wasn't part of the cause.


When asked about the time they made a breakthrough to leadership, our market-leading CEOs described two strong themes: "tough action to get the right team in place" and "creation of breathing space.

Tough action to get the right team in place

When asked for the most memorable action they took just before a major performance breakthrough, one answer came through consistently: "we changed the team". No company in our sample made a sustained breakthrough in performance without changing at least one member of its senior team. In fact, the change was generally two or three people from the senior team, often the CEO himself, and an equivalent proportion from the level below. The team changes had two further common characteristics. First, changes were based on attitude (are we in it together) and not aptitude (are you experienced); second, every CEO regretted not making the change earlier.

Creation of breathing space

The second action successful companies took to make a performance breakthrough, was to find a way to remove the day-to-day financial and time pressure so that management was not continually fire fighting. This was one area where there was a distinctive difference between smaller companies, where lack of breathing space was commonly about cash and customer servicing, and larger ones, where it was commonly about complexity of systems and reporting. In the vast majority of cases, however, lack of breathing space had been self-imposed.

Once companies had made a performance breakthrough, two characteristics were shared by those who sustained it: "clear, uncompromising behaviour boundaries" and "staying uncomfortable".

Clear, uncompromising behaviour boundaries

With a breakthrough in performance, comes growth and an influx of talented new people. To retain control of the business, but still give a larger group of people room to perform, our market leaders employed very clear behaviour boundaries – inside the behavioural boundary people were given room to develop, perform and make decisions, but stepping outside the boundary was, literally, not tolerated.

Staying uncomfortable

Our successful, sustained market leaders perceived their greatest single threat to be complacency. They were conscious of the competitive danger of standing still, but also of the need to provide interest and challenges to their talented middle management. CEOs took it as a personal mission to put their team back on the tightrope and keep challenging the business.

So there we have it, five common characteristics of market leading companies, that we will expand on in turn in the remaining five posts of this series.

Before we finish this post however, it is worth looking at at some findings of the study that we didn't expect, and which are inconsistent with some received wisdom.

1. Listening to customers was vital but it followed, not led, the cause - none of our market leaders worked up their cause by starting with a big customer research exercise. They all took great pains to test market demand for their services, but they only tested the things they were already passionate about
2. Rationality went hand-in-hand with faith. In fact, rationality seemed to be much more dominant in the companies that had always been followers or had seen leadership slip away
3. Leaders were easily understood, sometimes so simple that we thought we'd missed something; followers were more hazy and complex
4. All the leaders made big mistakes along the way and readily acknowledged that they would likely continue making mistakes
5. Everyone performed strategic planning, but leaders went about it in a consistently different way, by being challenging about the future rather than the classic share growth approach adopted by followers
6. MDs of successful companies came across as much less egotistic than their less successful counterparts. We actually counted the mentions of "I" in early interviews, until the pattern became obvious of humility of the leading company CEOs versus almost defensive egotism in the followers.

In our next post, more on the common thread of all of our market leading companies - "relentless focus on the cause".


Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

For the full text of this series email steve@latitude.co.uk
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What makes a market leader? (1/7)

Market leaders make a lot more money than followers. The average return on investment for a company with five per cent market share is 10%, with twenty per cent share this grows to 27%, at forty per cent share RoI is almost 40% (source: PIMS survey of 3,000 US businesses). The personal and career benefits of creating or running a market leading company are equally clear, and go without saying.

Given the attractiveness of market leadership, a number of questions come to mind:

Are there any consistent characteristics that distinguish market leaders from followers?

What do leaders typically do to break through and become the obvious provider in their market?

What big problems do leaders need to overcome along the way?

Once they become leaders, what new problems do they face and what do they do about them?

In this 7-post series, we will answer these questions, based on a two-year piece of direct insider-research with MDs and CEOs of more than 100 companies. Companies include impressive but rarely-covered household names such as Innocent, Expedia and Metro, and cover the full range of sizes, performance and stage of development.

Most of the market leaders we researched had moved from being followers to being leaders or had started from scratch to become the leader in their sector. We therefore captured the changes needed to make the transition. We also covered the other side of the coin: companies that had not managed to make the leap and companies that had seen their previous leadership position start to fall away. The characteristics which distinguished these various groups one from another gave us confidence that the leaders had not simply been lucky.

The output of this research challenges established views about what it takes to succeed, and lays out what is central to success, and what is peripheral. In this series we outline the findings, which dispel some management myths and uncover some surprising new themes.

In our next post: the five common characteristics present in all market leaders that were missing in followers.


Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

For the full text of this series email steve@latitude.co.uk
Comments