Drucker’s essential question: What business are you in?
BACK TO SCHOOL
It’s November 2013 and Rajesh Chandy, Professor of Marketing, is teaching a class at London Business School. I’m sat with 30 other executives from all over the world, along with our very own Martin Bennett, who is less than 6 weeks away from taking over as CEO of HomeServe UK. Originally an accountant, Martin had previously been Group CFO and COO so he knew how to run operations, IT and finance departments. However, as he approached his new, broader role, Martin thought marketing was an area he needed to know more about.
Marketing was the one thing I did know. Previously a brand manager at Procter & Gamble, I had hands on experience of most aspects of marketing. I thought I was with Martin on the marketing course to keep him company and I honestly didn’t expect to learn anything new. This proved to be wildly wrong. I was learning a lot. Rajesh was challenging me and asking some very good questions. Slowly, long-held assumptions were slipping away. I came to realise I was asleep at the wheel without realising it. Rajesh called it Pike Syndrome. London Business School woke me up.
DRUCKER’S ESSENTIAL QUESTION
Rajesh asked us “do you even know what business you are in?” He reminded us of the importance of the classic Peter Drucker idea that “the customer rarely buys what the business thinks it sells him”.
The case studies are now well worn. Almost a cliché. Kodak were in the business of selling film. The record industry were in the business of selling recorded music. Digital start-ups came from nowhere to deliver the customer value in a new way and changed the rules of the game.
So what business are HomeServe in? The more I thought about it the less sure I was of the answer. Martin and I debated it until late in the hotel bar. Several weeks later I surveyed 100 managers in HomeServe and found out that actually nobody agreed on the answer. Out of 100 managers, only 11 of them agreed with each other that we are in the “insurance business”. Beyond that, the definitions were wildly inconsistent: Are we a “support services” business? A “general insurance” business? Are we in the business of “insurance intermediation”? Are we a “home emergency business”? Some thought we were a “claims handling business”. Others thought we were an “affinity marketing” business.
Basically, we had no consistent view , and this was a bit of a challenge!
MOST COMPANIES DIE
Here’s the thing: most companies die. In 1937 the average lifespan of an S&P 500 company was 75 years. In 2012 the life expectancy of the average company has fallen to 15 years. Since 1984 69% of the FTSE 100 have been taken over, gone bust or slipped out of the top 100. Yale University thinks that by 2030 75% of the S&P 500 will be companies you have never heard of.
And this effect is accelerating because of the technological revolution that we are living through today.
HomeServe are 20 years old, but why do we think we can survive the next 20?
The same set of dangerous business beliefs are often present in the boardrooms of businesses that get hit by digital disruption and don’t make it out of the other side. And they were present at HomeServe too.
We often thought that growth was about doing more of what we had always done. We saw technology as a threat, rather than as opportunity to create value for Customers. We thought change would be slow or could largely be controlled and we also took current consumer behaviour for granted. And most importantly we defined the business we were in by the product we sold (insurance policies), not by the value created for our Customers.
The management teams at Kodak and Blockbuster thought these things too. It didn’t end well.
So what business are we in? After much debate, and late night talks, we are at least now clear on this.
We are a home assistance business. And the way you we create value for our Customers is by providing effortless home assistance.
From the back of a napkin, this value proposition became the core of our new strategy we launched early in 2014. The success of HomeServe today lies in the fact that we then took our whole organisation through a paradigm shift about what we do. Now the whole organisation knows we are in the business of home assistance, and every one of us is engaged in the job of defining how good the Customer experience we deliver can be.
So what business are you in? Do you define your business by the product you sell, or by the value you create for your user?
