Authors: Frances Frey, Anne Morris
Source: "Empowering Leadership", excerpted and published by CITIC Publishing Group, Lingjiao Workshop (ID: ClecChina).
Introduction: The most successful leaders are constantly making trade-offs, and their day-to-day work can be described as "brutal prioritization." These leaders believe they can only do part of the job well. Therefore, they choose to do the most important.
In the absence of direct and practical leadership, good strategy can empower the organization by teaching employees how to deploy existing resources such as time, energy, and capital. To be able to lead absentees at a certain scale, employees must fully understand the strategy and make decisions accordingly. In our experience, in many companies, only the top leadership is clear about the strategy, but the subordinates are confused, and the organization is held back. In other words, if you get rid of communication constraints, strategy can guide employees to make decisions freely.
We don't subscribe to the idea that strategy is just a series of technical decisions. We believe that strategy is a direct extension of who you are as a leader. Strategy embeds your values and beliefs into every move of your organization and spreads them to all corners of the company. You can't do this on your own without strategy. We challenge you to use the superpowers of strategy to unleash everyone's potential.
01
What is the strategy?
At the end of the day, strategy describes how an organization will win. The specifics of your strategy vary from industry to industry, but in general, you should focus on your customers, competitors, and suppliers, and the decisions of these external stakeholders make the difference between success and failure. To be clear, we've made a controversial decision to include your subordinates in the aforementioned demographic.
As a strategist, outperforming your competitors in what matters most to your customers is your top priority. As simple as it sounds, the problem is that in most cases, it means that you have to do worse than your opponent when it comes to other (less important) things. After 10 years of research on service companies, we have learned an important lesson. The lesson is that some organizations don't admit defeat and try to do everything well, but often end up with "exhausted mediocrity." Familiar?
So, you might as well change your mind. As an absent leader, one of your primary responsibilities is to empower employees to allocate their own resources without your oversight. Similarly, employees should be able to allocate resources (i.e., potential competitive advantage). However, we also recommend that you help them strategically. To emphasize, we recommend that you concentrate on resolving the main contradictions, invest less in the least important places in order to free up resources, and invest more where they matter most.
In this regard, Heb Kelleher, the veteran co-founder and CEO of Southwest Airlines, has done a great job of breaking the stereotype that "airlines are bound to lose money and customers are bound to be disappointed".
In Figure 1, the vertical axis is a strategy that Southwest Airlines' target customers care about, and its importance decreases from top to bottom. For the sake of clarity, we refer to this strategic map as the "Attribute Map". As shown in Figure 1, Kelleher believes that "affordability" is the most important thing for Southwest's target market, followed by "service friendliness." At the bottom are "extensive network coverage" and "well-equipped in-flight facilities", which are the least important.
▲Figure 1 Southwest Airlines attribute map
资料来源：Frances Frei and Anne Morriss，Uncommon Service：How to Win by Putting Customers at the Core of Your Business(Harvard Business Review Press, 2012)。
Kelleher has led Southwest Airlines to the top of the industry when it comes to the attributes that matter most to customers, precisely because the company has abandoned the least important aspects for customers. None of the airports operated by Southwest are conveniently located, but that means the company can not only save costs, but also attract price-sensitive customers. In exchange for cheaper tickets, these customers are happy to sacrifice convenience.
In addition, Southwest doesn't offer comfort in any sense (not even seat selection), but the move speeds up the plane's transfer at the gate. As a result, Southwest is gaining more flight time from expensive aviation assets than its rivals, freeing up more room to lower prices, which are what customers want most.
It does take courage to make such decisions, especially for leaders who are unwilling to let anyone down.
Kelleher once received a letter of complaint. An angry grandmother complained about Southwest's policies. Her request was simple, she just wanted to transfer her luggage to another airline's plane, and she was going to take that plane to visit her grandson. The matter was so famous that Kelleher disseminated it widely and applied it to organizational training. In his reply, Kelleher noted that if the policy is repealed, Southwest's business model will also come to an end. The reason for this is that the other airline has all the complexities and uncertainties. If aircraft slows down and turns to these challenges, Southwest's high-speed turnaround advantage will disappear. As a result, Kelleher wrote that while he's very sorry, Southwest won't be transferring any baggage.
We liked this story so much that we quote it here. Behind this grandmother are countless well-founded customers who have been disappointed by Southwest's unusual policies. Imagine how difficult it is to say "no" to these legitimate demands! To some extent, it is really torturous to adhere to strategic principles and refuse to provide the basic services that every ruthless competitor provides. However, with this principle, Kelleher has built one of the most successful airlines in history.
02
Dare to do poorly: the leader version
When we teach, we say that some companies don't perform well in some areas in order to be the best in others. Every time we hear this, the question is the same: does this logic work when it comes to people? Our answer is very short: it definitely works.
The most successful leaders make similar trade-offs over and over again, and their day-to-day work can be described as "brutal prioritization." These leaders believe they can only do part of the job well. Therefore, they choose to do the most important.
At the age of 33, Patti Azarello became HP's youngest general manager, at 35, she ran a $1 billion software business, and at 38, she became CEO. Reflecting on his remarkable career and the model of the effective leaders around him, Azarello commented: "The most successful people don't try to do everything. In Azarelo's words, these people succeeded by exercising "brutal priorities". Others, however, are known only because they "work hard, not because they specialize in something important or bring value".
Nowhere is the potential reward of the "dare to do bad" mentality more concrete than in one-on-one relationships.
Here's a little exercise: pick someone in your life and build stronger relationships with them. This person can be your boss, partner, or a loved one. You need to make the following trade-offs: What would happen if you were superbly good at what was most important to the person and mediocre or even disappointing at the least important to them? How would your relationship change?
What we are describing here is the personal and professional trade-offs that are required to lead well. One thing that hasn't gotten much attention in the discussion about leadership is the frank admission that it takes a lot of energy to be a good leader. Leadership is challenged to build trust, maintain standards, and dedicate to unlocking the potential of greater diversity. If you want to make a difference in these areas, please listen to us and do something worse.
03
More value is created than is captured
If you learn to create value through strategic trade-offs, it's time to capture some of that value and build your business. Price is the core mechanism of this process, and it is also the knife you use to cut the value cake with your customers. So, your next strategic challenge is to price your strategic designs that have the characteristics of "dare to do poor", "multi-attribute fusion", and "product and service in one".
For the sake of simplicity, we'll refer to it as your "product".
Pricing is more effective if you can understand the customer's highest willingness to pay for the product. Pricing should be somewhere between cost and maximum willingness to pay to attract customers and grow your business. If the price is higher than the maximum willingness to pay, even a penny more can lead to customer churn. If the pricing is lower than the cost, you will lose money even if it is only a penny cheaper, threatening the lifeline of your company. With this in mind, we recommend that you build a continuum like the one shown in Figure 2 and visualize your pricing decisions. Any product that is above the list price and below the maximum willingness to pay benefits the customer, so this range is called the "customer satisfaction zone". Anything that is below pricing and above cost benefits the company, hence the term "corporate profit zone" (aka "CFO satisfaction zone").
▲Figure 2 Scope of strategic value
Where do you divide your pricing in? Typically, there is a insistence that pricing is as close to the highest willingness to pay as possible in order to maximize profits and maintain the viability of the company. This was followed by more moderate voices advocating a price that is set right in the middle of the highest willingness to pay and cost. The last thing that jumps out is the customer first. They are reasonable, impassioned, and set lower prices (usually higher than costs, but not too much) to attract customers, with the intention of making up for the profit gap with sales.
Since there is no universally correct answer, such debates tend to be intense. Profit maximization may be self-explanatory. However, it's also a good idea to leave enough room within the value range to please a loyal, larger customer base. Apple's pricing strategy is a good example of this. The highest willingness to pay of Apple users is almost sky-high. The company deliberately made the price of the product lower than the maximum willingness to pay (but still well above the cost), and succeeded in generating almost fanatical loyal customers. While buyers pay a hefty premium by industry standards, almost everyone feels like they've made money when they leave the store. At the same time, Apple's profits are surging.
Our practical advice is to follow Apple's lead and target the middle of the strategic value spectrum map, even if the market you're currently competing for isn't particularly price-sensitive. Lasting interest relationships result in high-quality products. In this relationship, the company accompanies the customer and thus reaps more and more rewards. Leaving value to customers is equivalent to paying them for their contributions. While it may sound counterintuitive, trust, love, and a sense of belonging are all woven into the key processes of the transaction.
We appreciate a leadership rule that creates more value than it captures. This philosophy is at the heart of this principle. For decades, legendary entrepreneur and open source pioneer Tim O'Reilly has put tech companies to the test with this code. We also believe that all organization builders and leaders need to be clear about this principle.
In other words, price is not only a loss-avoiding-oriented technical decision made by you and your strategy team, but also a synonym for "working for the customer". You're on the same page as your customers, and your pricing should reflect that relationship.
From a value perspective, a leader's responsibility is to create value for others. Of course, you also want to capture value for yourself, but capturing value does not fall under the category of leadership, but is related to the pursuit of survival, security, and wealth creation. We do not trace the reasons for these pursuits, which, in fact, are necessary. However, you have to distinguish between creating and capturing. As a leader, you create value, and as an individual, you capture some of the value you create. With this in mind, we've refined O'Reilly's words as follows: Go farther, create much more value than you capture.
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