Inside-out and outside-in thinking for banking industry: Some perspectives

By Dr. Samantha Rathnayake

If our thinking is inside-out, we tend to contemplate with an issue as we see it at first and then explore solutions within that initial mindset. Outside-in thinking, by contrast, tends to see the issue from multiple perspectives leading through external events or triggers. The Inside-out approach is guided by the belief that the inner strengths and capabilities of the organisation will make the institution prevail. The Outside-in approach is directed by the belief that customer value creation, customer orientation and customer experiences are the keys to a firm’s success. 

What needs to be clarified is the difference between these two approaches when looked at from a customer’s point of view. This article attempts to sheds some light on these two aspects, as their appropriateness will depend on the pluses and minuses of each of them. 

Inside-out thinking broadly sets our focus on processes, systems, tools, and products that are designed and implemented based on internal thinking and intuition. The customer’s needs, wants, tasks, and perspectives do not play a major role in this type of thinking. Herein, we make decisions because we think it is what is best more for the business/organisation, than for customer/user. We are pushed by the basic thinking that we know what is best for the customers. 

Conversely, outside-in thinking depicts that we look at our business from the customer’s perspective, and consequently, design processes, tools, and products and make decisions based on what is best for the customer, and what meets the customer’s needs. We make decisions because we know it is what is best for our target segments. The reason being that we are open to listen to them, and we make every attempt to understand them as well as the tasks we perform. 

Banks that adopt ISOA strategy need to observe their key capabilities by examining, what they are good at: making and/or servicing? Once these strengths are identified, the organisation makes these products and uses substantial marketing to convince users to buy them. Apple uses the popularly known as the ‘Golden Circle’ marketing method. As per Simon Sinek (2009) traditional marketing methods start with ‘What’ (activities) then followed by the ‘How’ (strategies/processes) and ending with the ‘Why’ (purpose). This process of Apple starts with ‘Why’: the central conviction of why the organisation exists. The development of such a powerful core-belief system is what attracts the unconventional practice. Once Apple was able to establish this powerful central message, they were able to sell more than just computers. They do not use customer surveys to develop products, and Steve Jobs, founder (1955-2011) once said that Alexander Bell did not conduct customer focused group-studies before he invented the telephone.

Outside-in Approach (OSIA) 

From an OSIA, long-term stakeholder value is a significant factor, namely, listening and providing value to customers and serving them get their jobs done better than the competition, while creating a continuous customer experience. The ideal organisational philosophy is market-and customer-oriented. The targeted customer segments – buyers as well as users – are the source of inspiration and development. There is also a strong acceptance that if the customers are not satisfied with the solutions offered, there will be issue for the business, and the shareholder value will weaken. The OSIA centres on knowledge and resources that reside outside the firm – such as customers, suppliers, competitors, and end-product market positions perspective, firms integrate knowledge and capabilities from external sources through an OSIA in developing successful innovations.

An OSIA enables businesses to achieve competitive advantage by anticipating market requirements ahead of rivals, thus establishing long-term relationships with the stakeholders. An OSIA also generates knowledge about communicated and underlying customer needs, as well as competitors’ capabilities, strategies, and products, while emphasising value for customers, the importance of the end-product’s market position, and the position’s direct relationship with future returns. In contrast to the ISOA, this perspective centres outside the firm, towards the markets in which it competes, suggesting that the resources arise from a firm’s interaction with entities in its external environment.

What Works versus What Doesn’t?

Strategy – A History book written by Lawrence Freedman (2013) set a fascinating insight for us to select either ISOA or OSIA. His impressive historical journey shows that strategy is not only about analysis, positioning, clever planning and effective implementation, but also about the experiences, convictions and beliefs of the people behind it. It is built on ideologies, belief systems, mental constructs, etc., as that govern the way goals are pursued to meet an end. Subsequently, binding to one ideology almost makes us immune to the arguments at the other end of the spectrum, and even immune to change. Elisabet Lagerstedt, the Founder, CEO, and Executive Consultant at Inquentia Group, proposes two simple questions one could ask to evaluate whether organisations lean more towards an ISOA or OSIA. 

Question one: Whether we know about our targeted customer segments, what needs and behaviours they have, how best to solve their relevant problems, and what kind of value you provide them? 

Question two: Whether there is a strong fit between our target segments’ needs, our value proposition, our overall business model, internal processes and a customer-oriented organisational culture, with focus on creating value for our customers? 

Do we feel that it is a fundamental necessity to run a successful business? As per this classification, if the answer is yes, there is a high probability that organisations lean towards an OSIA, whereas if the answer is no, it is more probable that organisations lean towards an ISOA.

Drucker (1985) proposes that the need for OSIA is predominantly important for knowledge-based innovation, such as those seen in most high-tech firms/industries. It may seem paradoxical, but knowledge-based innovation is more market-dependent than any other kind of innovation. Sharp analysis of the needs, and above all, the capabilities of the intended user are essential. Thus, OSIA is particularly important for high-tech firms, where the ISOA based on technology capability, that creates innovation in the first place, can take on a higher standing relative to that of the needed OSIA marketing competence. Such a preference can lead to rigidity, and be a barrier to innovation performance.

As per the nature of the banking industry it becomes clear that we need to play our game of choosing ISOA or OSIA. Let me keep it open to explore further. However, if we pay our attention on the HR strategy in an organisation, in essence, some firms create functions that are almost entirely internally focused on the HR function, while other firms attempt to have their focus out of the function and toward the people of the firm. Some organisations make the connections from the HR function, through the people, to the business. A few other organisations represent an unconventional shift in this perspective, rather than starting with HR, and linking forward to the business, they begin their process and thinking with the business, and that drives the HR strategy. Whether in HR or business strategy, it is compelling to follow OSIA as a better option for choosing corresponding strategies to add value to banks. Analysis of ISOA also, occupies a very strong footing in driving businesses. However, it is our belief system that governs to select what works and what does not. It is a contextual phenomenon. 

(The writer is a Faculty Member/Management Consultant, Postgraduate Institute of Management, University of Sri Jayewardenepura.)