Surely this one thing about your organisation is settled – your industry. Real life for high-performing executives is not so simple. As markets change, the organisation matures and as you develop in your role, this annoying question becomes more important, and may lead to the breakthrough that ensures your survival.
I had a friend raise an issue over coffee that, on the surface, was straightforward. His CEO was a hard-charging entrepreneur with an amazing talent for putting deals together in an exciting technological niche. The company was wildly successful and growing faster than its competitors.
But there was a problem. The culture was acidic and people just weren’t enjoying themselves any more. This is an early sign that something will go wrong – you’ll lose talent, stop innovating, make mistakes or start losing customers. Toxic cultures don’t fall apart immediately, but the problems they create are hard to reverse.
It’s not their fault
As we talked, it became clear that the people themselves weren’t to blame although there was a lot of mutual blaming in the business. The CEO wasn’t perfect but was doing the best he could. After all, his approach had been successful so far. He had talented people all over the business; but they argued a lot, if they talked at all. So what was the source, the root cause of the issues my friend could see surfacing?
To understand the situation better, I asked a simple question: ‘what industry are you in?’ He gave me his first, easy answer, almost with a sigh. However, I could immediately tell that his answer was not enough, based only on what he had told me about the company’s customers and offerings. While he went to the loo, I quickly put together a matrix that would help him figure this out.
You’re in more than one industry (if you’re any good).
You see, even businesses that make things are in two industries, if they are any good. They make a basic profit from some making kind of useful object, but usually the high-profit activity, and the one that locks in customers, is service. That team’s answer to ‘what industry are you in?’ is ‘Professional Services’ – and they are more like members of a professional partnership than employees of a company. They think this way, interact with each other this way, take pride in their professionalism and even dress more like their counterparts in the profession than their colleagues in the business.
Don’t blunder through.
This has consequences, particularly if you ignore the fact and plough on assuming everyone in the business, and every process, is in your core industry. One consequence, if you just blunder through, is conflict between people who are excellent performers but motivated in different directions and with a different attitude to customers.
This line of enquiry usually causes me a headache. The question ‘what industry are you in?’ can sound like a dumb, time-wasting question if you’re supposed to know your client. It also annoys my clients because it doesn’t sound like we will solve anything by philosophising. Who cares, anyway? The ‘problem’ is surely ‘culture’ (or ‘process’ or ‘systems’ or ‘the market’ or ‘my underperforming CFO’).
It’s not such a dumb question
Sure, it’s a dumb question, but bear with me. Here are some of the follow-up questions I asked. Answering just these four secondary questions started to open things up. As soon as we got into it, my friend started to see how the issues in the business could be traced to these differences. There are others that really twist the knife, but we don’t have room to discuss them here. (Call me and I’ll run you through them.)
- Who exactly is the key customer? (The customer’s CEO and COO/ their whole Marketing team).
- What is the industry lifecycle? (New physical products take two years to develop/ Services built their last new offering in 3 months).
- What attracts people to work in the industry? (Quality of product/ helping customers innovate)
- What is the customer’s prime motivation? (Having a reliable, efficient machine/ bringing Services into customer team to help drive innovation)
When you answer these and other industry-level questions honestly, the differences start to add up. You begin to see that where the industries have different answers, you have responded by making one answer dominant, which means you recruit people, create IT systems, issue marketing statements, even build new offices, based on an incomplete set of assumptions. These assumptions are not true for your other industry and may even make it impossible to function properly.
Why this matters
So what? You have to set priorities and you have to focus, so why does all of this matter?
It matters because the world is changing so fast. For my friend, arriving into the organisation with fresh eyes, it was obvious that the CEO was missing a massive problem that would destroy all his good work. He was investing in more production technology, but ignoring the need for world-class consulting capabilities to back it up, so that customers could get value out of the machines. The profit from Services was beginning to subsidise Operations, yet the people in Services weren’t being rewarded as professionals. Over time, the market had shifted and Services rather than product reliability had become more important.
One immediate consequence of this insight was a series of conversations with the people in Services. Exploratory, facilitated conversations to find out how they felt, what was important to them and how they saw the future.
This averted one crisis immediately. Three key people confided to the survey team that they were about to resign and create their own small consulting firm. They felt forced out, but once they felt heard and could see changes put in place, they were persuaded to stay. This prevented crucial know-how from becoming available to the competition. The CEO approved a new compensation scheme that recognised Service’s real profit contribution, although this change had to overcome some political pushback from the rest of the business.
The big kick came when an innovation process was put in place that brought together the insights of the Services division with the technical expertise of Operations. That blend of different perspectives, with a strong innovation process to guide it, produced a stream of new initiatives that set the company further ahead of its competition, within 18 months.
Other outcomes I’ve seen include:
- Selling all the manufacturing activity and becoming the lead new product developer supplying the industry. (Manufacturing/Research)
- Creating a new company that was able to generate profits from working across the whole industry. (Software niche/SaaS)
- Selling a division that was just too different and putting the resources into a tighter focus on the core activity. (Retail banking/investment banking)
- Splitting the IT system into two that led to massive productivity increases across the business. (Business-to-business consulting/business to individual advisory services)
- Creating an Innovation Zone that produced new products, accelerated the training of technical talent and became a leadership development opportunity. (Government policy implementation/Strategic research)
Grasp this annoying question firmly.
What happens when you dig into this question for your business? Are you secretly operating within three or four industries? Is this causing chaos or opportunity?
I know it’s an annoying question because I usually have to push through pretty hard when we get to this point in executive development programs. At first it looks like honest answers will create losers out of winners and stir up the politics. But within an hour or so of decent abstract thinking a CEO and executive team can set in motion a decade of concrete results.
This one question also goes to the core of an executive’s role. You are there to design the organisation, not just run it, so understanding the answer to this question will help you do that better.