John Seifert, worldwide CEO and chairman of Ogilvy, is stewarding the iconic advertising agency through a major evolution called Next Chapter. “What’s remarkable is that almost every chief executive I speak with is navigating or contemplating a significant transformation too,” notes Seifert. So, what is going on?
Seifert puts it this way, “It’s bigger than just technology-driven evolution. The common root cause driving these tectonic shifts is that the ‘Organizing Principle’ of business is changing to client outcomes.”
Every company needs an Organizing Principle. It is the single most important management tool any company can have as it dictates how a company is run and provides cohesion throughout the organization. Examples of organizing principles include revenues, products (common in tech/pharma), and large assets (think cruise ships). An organizing principle defines organizational structures and incentives. It trumps other important things and drives decision-making and conflict resolution, the statement, “we are a sales-driven culture,” reflects a common organizing principle.
Two reasons explain why Outcomes will become the new Organizing Principle.
- The increasing ability of customers, employees and other stakeholders to accurately assess their alternatives, and
- It’s what matters most to them.
It’s as if the finish line of business has abruptly been extended and now ends at customer outcomes versus at the sale. This necessitates a different race strategy. And the urgency to pivot to outcomes as the Organizing Principle is going to accelerate due to:
- Increases in transparency. As Tim Davis, one of the very first sales leaders at software juggernaut Workday puts it, “It’s now about demonstrating one thing- verifiable ROI. We’ve entered the reputation economy.”
- At-risk customer contracts. Healthcare reimbursement is already partially tied to outcomes and patient satisfaction. Financial services are close behind, as evidenced by Charles Schwab’s recent move to institute a broad customer satisfaction guarantee.
- Competition. The competitor who can deliver the best outcomes will accelerate outcomes-based pricing, increasing market share and forcing others to scramble to follow suit to remain competitive. Omar Ishrak, CEO of Medtronic, wants all revenues at the world’s largest medical device producer tied to some form of outcomes measurement!
- Investors will begin valuing businesses based on outcomes. When that happens, management compensation will follow. While the new compensation plan of Elon Musk at Tesla may be extreme, it’s rooted in outcomes. Regulators will eventually embrace the outcomes mega-trend, making them table stakes across many industries.
Successfully Making the Transition- CBRE Group
CBRE Group has adopted Outcomes as their Organizing Principle. This is particularly noteworthy in an industry long organized around properties and related transactions. CBRE’s results since refocusing around outcomes speak for themselves–their stock price has roughly doubled during the past two years. A recent research analyst report puts it succinctly,“Exceeding Guidance, Again”.
Here’s what CBRE is doing. First, CEO Bob Sulentic asked a senior executive, Tony Long, to step outside the direct line of business leadership to head a unit called Client Care. “Initially this role was a real challenge, but now I think I have the best job in the Firm,” reflected Long. Second, CBRE committed to listening for and measuring client outcomes across business units (they use NPS as a common metric). Third, they are tying executive compensation to client outcomes. “With unflinching support at the highest levels of our organization, these changes are challenging but doable,” observes Long.
Adds Tom Pellegrini, a managing director in Client Care, “Our ultimate goal is to evolve Client Care from a discrete unit that listens for and analyzes outcomes at the end of a process to something that informs every aspect of our business.” In short, the Organizing Principle.
Getting buy in: data plus listening
Because CBRE invested in measuring outcomes, they now have the data to show that good client outcomes correlate with significant increases in renewals, margins, share of wallet, and referrals. “The numbers are really compelling” adds Long. This clear connection between outcomes and performance underscores why company valuation multiples will someday be driven by outcomes data (see: How Mobile Behavior Is About to Change Your Company’s Valuation). Ogilvy’s Seifert adds, “It is essential that our people and all stakeholders see our Next Chapter transformation as not only great for our clients but also for their outcomes too.” Getting input from employees during every step of the transformation is key to the success of any change management initiative. Seifert has made listening and acting on employee feedback an integral part of Ogilvy’s transformation: “As we continue to transform, our organization and its leaders are committed to listening to, responding to and acting upon colleague feedback – faster and more often. We want to create a culture that listens to our people, which we know will ultimately drive better business outcomes for both our agency and clients. Our people are what make Ogilvy great and we need to listen to them and together define our Next Chapter”
Leaders will face organizational rejection if they fail to clearly connect outcomes to profits and don’t listen to the people closest to the customer. You can’t have good client outcomes without good employee outcomes.
It is prudent for leaders to appreciate the short-term dislocation and costs inherent in the transition to outcomes. Like any good thing, it’s also possible to over-do it. The focus on outcomes cannot be to the detriment of a sustainable business model. But organizing around outcomes is already the key to out-performance, and longer-term there won’t be a viable alternative. The good news is that demonstrable outcomes will increasingly be reflected in valuations, which will “front-load” the benefits of the transformation. And while managing change is always difficult, the best part about outcomes becoming the Organizing Principle of business is that the transition will ultimately be positive for customers, employees and society at large.
NPS® is a registered trademark of Bain & Company, Inc., Satmetrix Systems, Inc.,
and Fred Reichheld.