From Apple to IKEA, the one attribute that successful companies share is the ability to anticipate and then execute to deliver what their customers will want next, explained Paul Leinwand, a global managing director at PwC and co-author of a new book on strategy.
Strategy has to be one of the most over-used words in the business lexicon. The principal abuse of which is the inability of the person who uses it all the time to tell the difference between strategy and tactics; often referring to them as one and the same thing.
That’s why it was a refreshing change while chatting with Paul Leinwand of PwC to discover that the word “strategy” took second place to “execution” in our conversation.
‘The best companies focus not on just responding to the market but figuring out how they can create their own future’
– PAUL LEINWAND
Leinwand is PwC’s global managing director in charge of capabilities-driven strategy and growth. He is co-author, with Cesare Mainardi, of new book Strategy That Works, published by Harvard Business Review and edited by Art Kleiner.
The book aims to demystify the perennial question of why certain companies are so successful.
The book studies enterprises such as Apple, Ikea and Lego. It is full of useful insights such as how Apple adapted its Genius Bar design from the omnipresent Ritz-Carlton concierge desk or how Lego drew inspiration from the electronics industry to keep up with global supply of its successful toys.
Bridging the gap between strategy and execution
This prompts my first question and, mercifully, sole use of the word strategy: How do companies bridge the gap between strategy and execution?
“Lots of people admire Apple, for example, for its genius and insight in creating products people want. But what most people miss is the genius and insight that went into building incredible capabilities to execute on its vision.
‘Successful companies build rock-solid capabilities about what they do know. They then build capabilities to adapt to what they don’t know’
– PAUL LEINWAND
“Apple’s design capability is well developed. For years, Apple had been hiring designers from the fashion business, which is something most tech companies weren’t doing. Eventually, Apple created a chief design officer, they created the processes by which they design everything at Apple. It wasn’t just one team building the iPhone, everything comes together.
“When we look at success, we need to ask ourselves was it just a great idea or was there some fundamental advantage that a company had built over time and, for Apple, it was that design capability. But it took them a long time to develop that fundamental capability. It was a fantastic idea to create the iPhone, but it was also a fantastic idea to build the capabilities that allowed them to execute on a strategy that is different from others in the market.”
But what is on the minds of companies trying to turn around the battleships their organisations have become.
“The topic of change and being nimble is the number-one topic of the day for most management teams. What we learned from our research is that in what we describe as ‘the five great acts of leadership’ the most important one is ‘shape your future’.
“The best companies focus not on just responding to the market but figuring out how they can create their own future.
“They argue – and we would argue too – that it is actually quite difficult to predict change. And it is also harder, even if you can predict change, to move your company into a completely new area.”
This is important when you consider how Apple moved into a wholly new market with the iPhone in 2007 and followed it up again with the App Store in 2008; transforming old markets and embarking on new ones.
“If you are good at something, one product can come and go, but your strength is finding new or other areas to move into.”
Leinwand points to an interview he saw where Amazon CEO Jeff Bezos urged companies to build advantages from things that they know are going to stay the same but be open to change everywhere else.
“Capabilities can take a while to build, but you can’t 100pc predict how everything is going to work out. If you want to be good at something, that’s a competitive advantage. Companies are very agile around the things they know.”
Be vigilant for change
To counter what they don’t know, Leinwand says that the best companies in the world fill the void by creating or designing their own future around the insights they get from having a trusting relationship with customers.
“If you are uncertain or worried about where things are going, create your own version of the future in a way to serve your customers in a better way.
“Good businesses have what we describe in the book as ‘privileged access’ to customers. These are relationships that are quite unique and customers trust these companies in ways that others don’t. They then use that privileged access to think about the future for their customers. It is not only about market research, it goes beyond that.
“They watch for the problems that customers have. This can be true in a B2C and B2B environment. They then use their rock-solid capabilities – the things they do know – to come up with the products and services that customers may not be asking for yet.”
Leinwand gave the example of Ikea, which sends store managers to people’s homes to talk to people and see how they live their lives, witness issues people have in their homes and use that ‘privileged access’ to do some amazing product development.
“It is about trust. Not everybody is going to let you into their home.”
Leinwand said it is about always having an ear open, listening for problems that need to be solved or for product ideas that customers may not be asking for yet.
“I think Apple’s Genius Bar plays into how issues around digital life can be dealt with. I was in an Apple Store recently and I overheard a woman talking about her son’s divorce and how there was a lot of stuff on their MacBook that needed to be separated. That conversation alone provides insight for future products; there’s this human dynamic that companies can use.”
Leinwand also pointed to the example of global building materials company Cemex which works closely with local governments to learn about infrastructure products before their competitors.
“Successful companies build rock-solid capabilities about what they do know. They then build capabilities to adapt to what they don’t know. It is all a part of shaping the future and managing through change,” Leinwand concluded.
“The best companies are very good at developing their own answers around what that change could be.”