The Inside-Out approach is guided by the belief that the inner strengths and capabilities of the organization will produce a sustainable future.
The Outside-In approach is instead guided by the belief that customer value creation is the key to success.
As a passionate Customer Insight Strategist, I tend to prefer the Outside-in approach to business looking at your customers’ latent or hidden needs and translating them into solutions that will serve them.
However, I must say that I am intrigued with companies that do what they believe in and stay close to what they know best.
An Inside-Out approach to business
First, let’s have a look at the Inside-Out way of doing business.
A nice example is Schorem. It’s an old-school men-only barbershop in the heart of the working-class city of Rotterdam. The shop specializes in the classic cuts that have proven themselves over the decades and are famous in and outside of The Netherlands.
So what’s so Inside-out about this barbershop? It’s the people (they call themselves scumbags but don’t worry they are very polite) that work there… They are passionate, and professional, living the culture of “old times” and offering this experience to their customers. There are no women allowed in the barbershop and when you enter it feels like you have been taken back to the past.
This approach starts with what one first possesses before looking at anything else. It raises questions such as what one’s organization has in terms of core competencies, talent, resources, customer relationships, and networks and how these could be leveraged.
Typically, an inside-out organization asks itself questions such as:
- How have we progressed or regressed over the last few years?
- What are we good at?
- What do we love to do? What are we passionate about?
- What do we represent?
- How do we leverage our strengths and compensate or eliminate our weaknesses?
Research has shown that very few organizations know why they do what they do.
Why does the organization exist? Why should the CEO get out of bed in the morning? But until an organization identifies its central belief and message, it will most likely continue to communicate in a mediocre way.
If I asked you to name one of the most innovative and ingenious technology companies of the last ten years, chances are, Apple would be one of the first to come to mind. No one can argue with the power that Apple has to get millions of people standing in line for hours in the bitter cold just to buy a phone.
Apple uses the (Inside-Out) “Golden Circle” Marketing method.
Traditional marketing methods start with “what” then followed by the “how” and end with the “why”.
The Golden Circle Marketing process used by Apple starts with “Why”: the central belief of why the organization or movement exists.
The development of such a powerful core belief system is what attracts the following. Once Apple was able to establish this powerful central message, they were able to sell more than just computers.
Schorem these days is more than just a barbershop. They opened up an international barber school and organize several events related to the Schorem belief system, lifestyle, and brand.
Inside-Out + customer instinct = Success
I believe that’s part of their success as they are able to combine their Inside-Out strategy with a good understanding of their customers’ needs, challenges and lifestyles.
Companies that are Inside-Out and don’t have a good sense of Customer Instinct tend to follow the competition.
Toyota is a company that fell into this trap.
After impressive years of success, the company's focus shifted away from meeting customer needs toward the internal goal of beating General Motors and maximizing growth. This caused Toyota to lose sight of customers and consequently quality suffered. At its worst, inside-out thinking distracts companies from their true purpose of driving customer value.
So how does that work? How do you develop Customer Instinct (without questioning or surveying them)? Well, it’s to do with the fact that “discovering what customers want and asking isn’t the same thing”.
There are new methodologies such as ethnographic research and private online (insight & co-creation) communities that can bring you insight into your customer's journeys and hidden needs without you asking them questions about improvements and innovations.
Next to that, some people like Steve Jobs, are just born with a good sense of what people want, able to observe people’s “jobs-to-be-done” in such a way that they can be translated into new innovative solutions like the iPad.
Another great example is Henry Ford: "If I would ask people what they want they would come back to me with a faster horse.” The horse is people’s reference point which makes the answer very logical and therefore not very innovative.
So does it mean that you cannot get good insights by talking to customers? Well, it means you cannot just ask customers directly what they want as most people don’t know what they want until you show it to them. It means you need to do things differently and more creatively through e.g. observation and projective techniques.
So stop doing traditional (time-consuming and expensive) market research to gain insights and explore new methods and tools that enable you to observe, learn, and get inspired… faster, better, and cheaper.
Different studies have shown that 40-90% of innovations fail. Studies have also shown that innovation processes involving customers, especially lead users, are more likely to succeed in the marketplace since they just have better and more creative ideas than internal product developers.
An Outside-In approach to business
In the outside-in business, as opposed to the inside-out one, the key word is "need", not product. Their people think expansively. They're totally immersed in the minds of their customers, looking for ways to expand demand.
Their business plans and value propositions derive from the marketplace, based on the knowledge gathered at ground level. Often, the needs they define haven't yet been identified by the customers themselves.
A sustainable growth strategy of an outside-in company "starts with understanding the difference between what you make and what people need” – which often turns out not to be the same thing. Tapping your resources of energy and imagination, you look at your company from the perspective of your once and future customers, exploring what's going on in the real world.
Having stepped outside of your business, then work backward to ask questions about your business to find out how you can pursue the market opportunities identified.
Typically, an outside-in organization questions itself on the following:
- Where are the growth markets available for our business?
- How can we tap into an opportunity that is available?
- What are the trends and how should we meet them?
- How can we better serve the needs of the market?
With its focus on the external world, such an organization is less mindful of its limitations compared to the first. Some companies have succeeded in achieving the outside-in perspective and have achieved success as a result.
Some companies that had once been outside-in successes later failed to maintain good outside-in habits and faltered.
One example is Tesco – the Outside-in approach transformed the U.K. grocery chain from a mediocre performer that was losing market share each year to the leading grocery retailer in the country, known for its strong focus on customers. However, they were not able to keep their success story running and are currently losing market share to Waitrose, Aldi, and Lidl who are doing a better job at the consumer level.
Dell Computer built its initial marketplace success with a strong outside-in perspective. Conventional wisdom says that big, powerful customers provide lower profit margins precisely because they are so big and powerful. But Dell earned higher margins from its large "relationship" customers—because it used an outside-in perspective so well. Dell later ran into trouble. It didn’t adapt well as customers and technologies changed—and it certainly did not anticipate to those changes.
Maintaining an outside-in perspective seems to be especially difficult for successful companies. A reason for it can be that they use too many conventional and traditional consumer research methodologies as e.g. surveys and interviews that deliver conventional information with not enough rigor and context. So they miss out on the “wow” insights around trends and hidden/latent customer needs.
Next to that Insight activation is as important as Insight generation and if a company does not spend enough time in activation insights (sharing and acting on customer/market understanding gained from research) in marketing, R&D, and innovation platforms it will fail to respond to market opportunities and threats.
So what is the better strategy? In the first place, the real world isn’t that simple. Most organizations will fall somewhere in between inside-out and outside-in thinking.
While outward-facing functions like marketing, sales, business development, and customer experience management would need to adopt outside-in thinking, management roles like HR, finance, planning, and operations would need to consider both inside-out and outside-in strategies.
The best organizations skillfully employ both approaches. They are mindful of where their strengths and gaps are while using their organizational “radars” to detect opportunities or threats. Such organizations know that the most effective business strategies need to consider both internal practicalities and external shifts loosely coupled.