Aligning Business with Critical Path
Recently I read a book. It resonates very well with me and inspires me to answer many business questions in my mind.
It’s called The Critical Path Manifesto, written by my business school professor Robert Kelley.
In this article, I want to share my learning from the book and my experience with B2B companies.
According to Prof. Kelley,
The critical path is the connection between what the customers want and want the company provides to them. The goal is to create the shortest, fastest, smartest, most effective, most profitable, best path to pleasing a large enough group of highly satisfied, highly profitable repeat customers who then help you bring in an increasing number of new profitable customers.
Of course, a company’s goal is to provide what customers want and earn a profit. However, it’s easier said than done.
For example, many B2B software companies claim to help customers do better business. However, to get the benefits of the software, customers need to spend days to months to set up the system, depending on their business size. Then end-users need to spend hours learning how to use the software, and IT spends another trunk of time maintaining the system periodically. Those software companies may still win customers because there are no better solutions in the market. But in a fast-changing business environment, a new solution can come up any time, and these businesses are at risk. Just like Blackberry lost their markets to iPhone.
That leads to my second learning from the book: the critical path starts from customers. So the first step is to know your customers. For a B2B company, getting to know your customers includes the following aspects:
- Macroeconomy: economy and policy in customers’ home country
- Industry: market size, growth, competition
- Customer profile: financial health, market position
- Customer needs: why do they purchase your product/service
- Decision making: why do they buy from you instead of competitors
- Influence power: what are buyers’ personas
- “Sacrifice gaps”: what are the unmet needs
There are so many aspects companies should learn about their customers. However, from cofounder, C-suite to the front line, very few of them know customers well. In general, the more diverse the customer base, the more challenging to know them well. For example, many electronics companies have their sales team work onsite with their customers, and news about customers’ product plan will get back to headquarter immediately.
It’s feasible for electronics companies to do so because companies in the middle of the supply chain sell to a limited number of customers. For SaaS companies, getting to know customers has to take a different approach. It’s clear that many companies haven’t figured out an effective way for the purpose and they don’t know much about their customers’ tech stack or needs, let alone providing the right solutions. Some companies are not structured around those needs either but structured for their convenience.
What’s worse, some SaaS companies are facing intense competition. Before long, they become competitor-oriented. Their marketing messages are often about why their products are better than competitors, instead of how they can fill the unmet needs in the market. As a result, they waste their marketing budget and lose the chance to communicate their real value to customers.
So how can companies align with the critical path? Prof. Kelley points out that the answer lies in organization design, which involves staff, performance evaluation system, reward system, culture, and organizational structure.
As the book demonstrates, each element is connected, and changes have to start from the top management. If a company hires people with a short-term focus and rewards them based on quarterly results, it will soon find out sales are busy closing easy-win deals that don’t contribute much to long-term growth. Besides leaving a lot of money on the table, the short-term vision can hinder the company’s long-term investment. For example, when the company grows bigger and its organizational structure has become unsuitable for its customer structure, it may hesitate to change because it’s doing well in the short term.
To summarize, The Critical Path Manifesto points out what the critical path is, how companies get on and get off it, and how to design organizations around it.
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