More than a few people spend their lives pursuing wealth, status, and possessions. According to Aristotle, they are barking up the wrong tree. Happiness is an action, he said. We find it in the doing. Today, Aristotle might set up instead as a management guru. If he did, his advice to corporate executives would sound a similar note: don’t gauge your company’s market leadership in terms of revenue growth, brand recognition, market share, or capitalization. Pure hubris. If that’s all you aim at, you will go the way of the AT&Ts, the Enrons and, it increasingly appears, the United Airlines and General Motors.
Market leadership isn’t a position. It isn’t an organization structure, a point on a cost curve, a segmentation analysis, or a customer relationship management technology. It’s action. Market leadership comes of leading.
But, how? There is one essential habit of market leadership that is utterly lacking today: true strategic partnering and intimacy with customers and channel intermediaries. In a hyper networked, intensely competitive world market, genuine market leadership demands astute and – this will be especially hard to swallow – unselfish business relationships.
Surely, you groan, we have strategic relationships with key customers already. My response is, I doubt it. Maybe you meet quarterly to negotiate and coordinate with large accounts, but if your company is like most it doesn’t tango. Most companies obsess the industry standard tactics – “Where’s our order?” “When will the new product arrive?” “Can you give me another foot of shelf space?” “What’s my price break going to be this month?” That’s not the hard work of relationship management or partnering.
Here’s how to build more productive – and profitable – relationships with important customers and channel partners, and it may sound odd at first: Large corporations seeking to benefit from a relationship with each other need to work through strategic issues at the highest level of management. together in person
I learned something about this, the hard way. For too many years my colleagues and I in the management consulting business have designed growth strategies for a variety of manufacturers, distributors, and retailers with discouraging results. Despite unassailable analysis and the enthusiastic reception we typically enjoyed, our impact on the business too often was disappointing. Usually our clients admitted as much themselves. “I don’t get it. What do we do with this in the field? “How do we get our customers to cooperate?” How would it look day to day?” For them (and frankly, for us) the practical world of strategic relationships and partnering existed in a separate dimension from abstract market segmentations and Value Propositions.
Management consulting’s mistake? Basing recommendations on in-depth customer and end-user research conducted on behalf of – rather than by - their clients. The better solution, while not foolproof, is simplicity itself. Bring client and customer’s senior executives into the same room to address strategic needs together. Help them hold structured, facilitated, deeper dialogues. In brief, make it possible for them to act like partners and have a true relationship, rather than long-distance correspondence. Nothing mysterious, but it does run counter to executives’ natural impulse to delegate. It also grates against age-old patterns of corporate rangling over pricing, promotions, product specs, delivery dates, returns, and you name it.
Just witness a case where there’s a distinct lack of consumer happiness today: home remodeling projects. The Home Depot sells billions of dollars’ worth of home construction products every year, but depends on thousands of private installers across America to follow up on consumers’ requests for installation of fixtures, flooring, lighting, and so on. The subcontractors’ independence and lack of uniformity makes it all but impossible for The Home Depot to maintain an untarnished brand. For the consumer, it’s the successfully installed product that counts. Which means that for The Home Depot, wood flooring isn't simply a product category any more. It's become a product and service category.
A large vendor cannot dismiss this change as none of its concern. Several years ago, The Home Depot developed plans to reduce its fragmented network of regional flooring product suppliers from over twenty to just three national relationships. Like other national home center buyers, solving intractable installation challenges was at the top of their list of strategic issues. From Armstrong’s perspective, being in the core supplier group was essential. Should DBM or Shaw, strong rivals, do a better job of partnering with The Home Depot to resolve installation and other problems, Armstrong could wake up to find The Home Depot imposing requirements that might play against its strengths and raise its costs. And, because it didn’t contribute to the solution, Armstrong would likely be forced to cut its margins. Worst of all, the wood flooring industry in China was thriving, allowing The Home Depot plenty of opportunity to actively promote its lower priced house brand, Traffic Master if the business commoditized.
The real challenge in most industries, is that thinking hard and strategically about important customer issues – from the customer’s own perspective - is foreign to most suppliers. The farther upstream they operate, the more oblivious they tend to be. Still, there are exceptions. One of the most interesting is the German automotive manufacturer Robert Bosch. Bosch specializes in esoteric automotive components, notably fuel-injection systems and sundry electronics. Its biggest direct Original Equipment customers, the big Western car and heavy truck makers, are mostly financial wrecks just now. Yet Bosch not only sets steep prices, it also holds commanding share in its parts markets. Adding insult to injury, Bosch treats customers with notorious arrogance. That’s “imboschable” is a favorite way of referencing the company. You would think large customers would take their trade elsewhere. Yet why are they still giving most of their business to Bosch?
Feather-ruffling aside, Bosch turns out to be a master at customer relationships. It does so not by sweet talk or golf games, but by sitting down with large customers and tailoring its approach to fit what sets that specific auto or heavy truck maker apart. It might organize its capabilities to optimize fuel efficiency for one, fine-tune engine performance for another, and help design and fabricate vehicles more efficiently for a third. In each case, Bosch is going well beyond product to a total service solution that depends on an intimate customer rapport, built through face-to-face summits between their own managers and customer executives.
By the usual measures, Bosch the supplier and The Home Depot the retailer both lead their categories. But little guys should take heart. Weaker competitors – even upstarts and unknowns – could use the methods I describe just as easily as the big fish. Power isn’t a requirement. Money certainly is not. Time and outlays for a few top-to-top strategic meetings with large customers are a pittance next to, for instance, a cereal maker’s budget for supermarket promotion allowances or the cost of a Sunday night TV spot.
Well done, the impacts are broad, deep, and lasting. Vendors gain an inside track on competitors, target value adding areas that customers immediately relate to, and can often influence their customers’ business practices and structures to better match their competences. Best of all, it’s the only truly sustainable path to differentiation and improved margins. Retailers improve efficiency and differentiation. Supply chains come into tighter alignment and competitiveness improves. Original Equipment customers get more value.
Alternatively, suppliers and retailers can always stick to their old game, us-against-them, and see how it plays out in an era of growing economic uncertainties and accelerating global pace. I’m reminded of the remark by a U.S. Forest Service ranger on the Apostle Islands of Lake Superior, home to moose and packs of timber wolves. A moose’s defense when cornered by wolves is to back up against the nearest tree and lash out with its sharp hooves. As the ranger dryly commented to the Wall Street Journal: “It works every time ... except the last time.”
Better instead for senior executives to focus squarely on productive relationship management and active market leadership. Through real account-level strategy and momentum, not abstract corporate studies, schemes, and objectives. As global market power shifts inevitably toward larger customers and channel intermediaries, it is the single best way to lead.