Sector 1.0: The Sector-Specialization Imperative

Many companies’ websites suggest that they are already well positioned to deliver sector insights. Often, though, the reality is quite different—a case of good marketing verging on wishful thinking. Just because your company has served an airline, you don’t necessarily have a “transportation sector group” with deep domain expertise that is able to deliver the full breadth of your organization’s capability and the resulting differentiated insights. The fact is, turning experience into insights requires a collective effort. It takes intention, resources, energy, and commitment to integrate the perspectives of multiple contributors into a nuanced, customized point of view.

Let’s look at it from the customer’s perspective (always a good idea!). Why do customers want a sector-focused approach? The answers range from the substantive to the symbolic, as shown in Figure 7-2.

The left side of Figure 7-2 begins with the most substantive reason: customers need a product or service that is customized enough to meet their specific requirements. When it comes to consumer sentiment about climate change, for instance, the ramifications are obviously very different for companies in the fashion business versus those in the dairy sector. You need to provide a strong evidence- or experience-backed point of view on what it means for your customer’s specific industry.

What else? Customers, like GlobalTech’s, expect their vendors to be a source of market intelligence and specialized know-how. They ask, How are data privacy laws in Europe or Asia going to affect US retailers? How can cloud technology better secure data in government agencies and small companies? Your customer knows that you have experts who are picking up sector-level intelligence. Well, no surprise: they expect you to bring that intelligence to bear—proactively—to help them succeed.

FIGURE 7-2

Why do customers want a sector-focused approach?

Customers also value sector customization because it signals quality. Generally speaking, the more intangible your company’s output, the more you should tailor that output. Research shows that the harder it is for buyers to understand the inherent quality of your service, the more likely they are to make judgments based on customization.¹ In professional services, for example, it’s often hard to project an initiative’s exact value—because it’s hard to quantify the “what would have happened otherwise” scenarios.² Customers therefore assess a proposal based on the perceived quality—partly as a function of it customization.

Language and terminology also matter. If one of your salespeople meets a hospital executive and talks about “customer satisfaction” rather than “patient outcomes,” they will instantly lose credibility. “You need to know the lexicon, or you’re dead,” as the global head of sectors at a Big Four accounting firm recently told us. And this isn’t merely good etiquette. Being fluent in their language means you really understand their business and what’s important to them. It also means you can deliver insights in a way that they will understand. The general counsel at a pharma company elaborated: “Nine of ten of our ExCo members are MDs; you have to be able to speak ‘doctorish,’ not ‘lawyerish,’ to them. If you deliver your inputs to me in legal jargon, then I have to do the translation.”

Finally, out on the symbolic end of Figure 7.2’s spectrum, we arrive at relationship-building. An architect with a thriving practice built his business serving tech companies looking for a completely new work environment. “I’m always watching how people interact with their environment—in the park, on the train, and in the office,” he told us. But that’s only one small part of his market research. For example, he also subscribes to Warehouse, Wired, and MIT Technology Review. Why? “Clients are thrilled when I can talk about tech trends in their industry. I can point to several commissions we’ve won because we understood how future technology translates into spaces that would excite them.”

A Holistic and Aligned Approach to Sectors

What’s the appropriate response to these challenges? As Garcia’s comments suggest, companies need to develop a clear sector-based engagement strategy, and then assess their structure, culture, and leadership to see if they are fostering or impeding collaborative customer service. Alignment across these elements is key. See Figure 7-3.³

Not surprisingly, strategy is at the top of the pyramid, because everything else flows from that strategy. The next layer consists of the supporting structures: processes and organizational design that provide the scaffolding to support the strategy. But you can’t simply structure your way into day-to-day behaviors; people’s ongoing decisions and actions have to be shaped by a collaborative culture. And finally, the whole edifice rests on collaborative leadership. After all, the leaders set the tone at the top, role-model collaboration through their own behaviors, determine which stories to tell—collaborative success stories, or the same old individual-hero yarns?—and, ideally, lead at the client coalface.

FIGURE 7-3

Organizational alignment for sector-based success

Building a Sector Strategy

How do you build a sector strategy that will necessarily draw in business units across silos? Start by adopting a relentless focus on the client. After all, they consider themselves not as a “purchaser of accounting software” or a “consumer of PR services” but rather as a manager in a financial institution or a hospitality group. It bears repeating here: the industry sector is a key driver for collaboration, because it allows your leaders from different parts of your business to integrate their diverse expertise to collectively solve your customers’ most complex, cross-disciplinary problems.

Analyze and prioritize the customer segments where collaboration will have the biggest bang for the buck:

• Size versus growth. For example, software may be the largest segment within the technology sector, but is it fast growing? Consider the emerging verticals that have the fastest projected growth rates over the next five years. Your firm may be working with only a couple of autonomous vehicle startups, for example, but collaboration across your business lines could generate the sort of novel insights that give you a toehold in the fast-growth sector.
• Will to win. How hard will you fight to prevail in a given sector? For example, geography matters: you can’t be a legitimate player in certain sectors unless you’re part of that sector’s hubs—meaning, for example, Boston for biotech and Paris or New York City for fashion. Hubs tend to be expensive and hyper-competitive. Will you commit to that level of investment, and can you sustain collaboration across a wider footprint?
• Competitive dynamics. How strong are your competitors in each industry sector? How do they differentiate themselves? Where can you create a competitive advantage? A fintech leader explained his company’s rapid growth: “We ended up calling it the Seven Dwarfs Strategy. We started with Sleepy: the segment that no one was paying attention to, which was treasury departments in the corporate sector. After building our capabilities, we tackled Dopey: the much larger insurance segment that was dominated by a few large competitors who had legacy, uninspiring technology. So far, we’re avoiding Bully: the mutual-fund sector, where pricing is aggressive and massive scale is critical.”

Ultimately, your sectors need to be focused enough so that customers can credibly see themselves within the grouping, but broad enough that you don’t end up with dozens of sector teams. Fostering cross-silo collaboration in any sector grouping takes hard work, so savvy companies limit the number of sectors; a good rule of thumb is somewhere between three and seven—even for very large organizations.

Supporting Structures

If the top of the pyramid in Figure 7-3 is like the brains of the organization, then the next level down—supporting structures—is its bones: the strong skeleton that supports how you put your strategy into action. In some cases, you may need to completely rethink existing structures or processes, but much of the work is likely to involve shifts to make it easier for people to collaborate across functions, departments, and units along a sector. We’ll focus here on financial reporting, governance, organizational design, metrics, and budgets, which are the “big bones” in our metaphorical skeleton. And, of course, we’ll be X-raying them through the lens of collaboration.

First, you need a financial view of your sectors. We almost always see financial reporting based on division, product, or geography—but surprisingly, the industry segment view is often missing. Unless your customers are tagged to a sector with something like Standard Industrial Classification (SIC) codes, it’s impossible to get a clear view of sector performance, which then limits how effectively you can include them in the kind of collaboration-based performance management system we talk about in Chapter 6.

But because sector boundaries tend to evolve, effective governance is crucial. Does Tesla belong in automotive or technology? Is Alibaba a retailer, tech company, or financial services company? GlobalTech’s leaders experienced continuing tensions when it came to serving a customer that cut across sectors. “In the worst cases,” Sarah Fitzpatrick told us ruefully, “we sent competing salespeople.” Our best advice: don’t split the customer—collaborate, relying on good governance to make the tough calls like who’s working on each account. If customers want a single point of contact, then one sector has to lead the relationship, but that doesn’t mean they “own” it to the exclusion of other groups. Complex customers inevitably present multiple business lines that cut across your sectors. Your teams need to deliver joint insights and solutions, which demands strong governance, most likely involving your executives a level or two up from those teams.

Communication is key. The account lead within the sector should set the strategy for the customer by bringing together all the interested parties across sectors. Then, align on the engagement strategy. Consider the Amazon example again. Who is calling on the head of Amazon Web Services? Whole Foods? Audible? PillPack? One person (or a pair) needs to own the most senior Amazon relationship, but it’s surely not the same person calling on each highly differentiated sub-business. The others need to communicate, with the account lead and with each other, to identify opportunities and ensure a joined-up face to the customer.

You may not need a wholesale organizational redesign. If you have solid governance, clear accountability, and strong leadership, you probably don’t need to rearchitect your functional and geographic structure. What matters is that people feel committed both to building their industry-specific expertise and to supporting the sector efforts. Each sector head should be the hub who rallies divisions and functions to come together to support the customers. Don’t think of “sector” as simply another dimension of the matrix, because that risks condemning it to the “complicated and bureaucratic” basket. Think of it instead as an agile, dynamic way to coalesce above the formal hierarchy. In some very large companies, sector heads do own some resources that are 100 percent allocated, but that’s not necessary to make the sector approach work.

The gold standard is having subteams within each support function that are aligned by sector, so they can bring their specialized disciplinary expertise to bear on the unique requirements of a sector. For example, the HR professional who engages with the tough questions—questions like, “What challenges are our tech clients wrestling with as regulators consider whether to classify gig workers as employees?”—can inform the scripts of reps who are out there on the front lines.

As you introduce new expectations for sector leaders, your systems need to keep up so that you can adequately measure and reward their success along the new dimensions. If you continue to incentivize the same old behavior, sector leaders won’t invest the time and energy it takes to build the sector. There’s no way around it: you must align growth targets, team goals, and individual goals to sector performance (again, see Chapter 6 for specific recommendations).

Look for ways to give the sector-focused, go-to-market approach some teeth. For example, consider giving sector leaders the “second pen” in compensation decisions, providing input on a person’s contributions to sector efforts such as writing thought-leadership articles and supporting customer events.

In the same spirit, successful firms shift their budgets to underpin their sector priorities. They reallocate money from nonstrategic areas so that they can make major investments in the industries where they have placed their bets. As one GlobalTech leader told us,

We had to totally rethink the conferences we put on. For decades, we’d hosted multiple product-oriented events—one for our risk software, another for research, and so on. We blew that up, which was painful. Now we host a conference for the insurance sector and bring all the products together to showcase our integrated offerings. The customers are far more jazzed to be with their peers and hear about trends and capabilities that are really relevant for them.

Also consider how best to source experts from outside. Private equity firms have mastered this approach by cultivating a rich network of senior advisers: highly experienced executives from a specific industry who are looking to move into a “portfolio career.” In writing this chapter, we spoke with the retired president of a global life-sciences company, the about-to-step-down CEO of an insurance company, and a very senior regulator, each of whom was in the process of signing a contract with a private equity firm. At the very apex of the gig-worker pyramid, these advisers can bring sophisticated industry understanding and an unparalleled network to mine for potential customers and publicity.

Leadership and Culture

To revive our “living pyramid” metaphor: collaborative leadership and culture—the bottom levels of Figure 7-3—are like the heart and cardiovascular system that pump life throughout your company. They ensure that the strategy (brain) and supporting structures (skeleton) are nourished and can thrive.

Your senior leaders need to continually endorse the sector strategy, both internally and externally. They also need to actively clear hurdles, allocate and align resources to sectors, and educate themselves to speak with customers this way.

Within that team, you need a sector champion at the highest level of your company who is personally accountable for the success of the sector program. At the global law firm of Orrick, Herrington & Sutcliffe, that champion was Chairman Mitch Zuklie, who posed a three-sector-based strategy: technology, energy, and infrastructure. The firm opened new offices in those sectors’ hubs (Silicon Valley for technology and Houston for energy), and closed other offices, even profitable ones, that fell outside those key sector geographies. As Zuklie told us,

This did not come out of some HBS [Harvard Business School] study or consultation with McKinsey, but from listening to clients. General counsels tell us they really want someone who understands their business, who can speak their parlance. They want to know what other companies in their industry are thinking and what they don’t know. The simple act of defining yourself in terms of a client’s business orients you around solving the client’s problems rather than staying in the comfort area of your expertise.⁴

The overriding imperative is to choose sector leaders who are respected, capable, and passionate about their sector—not those who simply want a title. This is not necessarily the person who generates the most sales. Instead, it might be, for example, a thought leader who can be immediately visible and credible in revamped marketing efforts. And don’t underestimate the power of passion. One account executive whose biggest client is Starbucks told us, “I wake up every day and smell the coffee! For the last eight years, every one of my vacations has been to a coffee-producing country. I’ve visited coffee farms in Ethiopia, Colombia—you name it!”

At GlobalTech, significant change began when chief operating officer Garcia took responsibility for bringing the sector program to life. To launch their pilot, Garcia’s team hired Linda Wilkins, a government partner in a Big Four firm, as the new global head of their public sector. To signal the importance of her role, GlobalTech created subteams within key functions (product marketing, tech development, and client services) aligned with Wilkins and the public sector. A second tier of functions, including Sarah Fitzpatrick’s sector-focused sales force, were wholly aligned to sectors. A third tier (risk and compliance, legal, and HR) were not sector aligned, because their processes were deemed not specialized.

So how did that work? Wilkins’s kick-off meeting included all her sector-focused functional colleagues. Everyone had performance goals aligned to the success of the sector, regardless of their reporting line structure. And Wilkins had input on performance and compensation for everyone at the table. It was only a start—but it was a strong start.

Remember that culture is what ultimately determines whether people behave collaboratively. Unfortunately, you can’t simply “process” your way into collaboration. As one account rep at a global company recounted to us, “Leaders created a RACI chart for each sector saying who was responsible, accountable, consulted, informed—and it turned into a box-ticking exercise. All that happened was a fifteen-minute monthly call with no action afterwards.”

Sodexo exemplifies the opposite: customer service infused with and informed by long-held corporate values. Denis Machuel, Sodexo’s former CEO, told us,

The company’s founder started it [in 1966] as a community of its clients, shareholders, and employees. Still today we have a strongly purpose-driven culture with very clear mission around improving the quality of life for people we serve. We are truly consumer-centric because our purpose is to listen to the clients we serve. Because we have shared values, people feel shared accountability for the clients and collaborate more naturally.⁵

Again, structure alone won’t cut it. You need people at all levels to think and act like leaders—regardless of whether they have formal positions or titles. This often takes the shape of getting the company to quickly pivot to face the market, turning their attention outward, to deliver customer value.

We studied one professional services firm early in the implementation of its sector strategy and again eighteen months later, and found marked differences in the activities of highly successful versus less successful sector leaders (Figure 7-4).

FIGURE 7-4

Sector group evolution: Where to focus and when to pivot?

In the first six months or so, the startup stage for all sector groups focused heavily on creating a vision for the group, setting strategy, identifying target clients, and bringing people on board. Soon after that, some leaders began pivoting to externally oriented activities: working with clients, pursuing new prospects, and publishing thought-leadership work to enhance credibility and advance their reputation. By the time we analyzed the data, those groups that had made the pivot had won more business from new and existing clients and significantly improved their client-satisfaction scores.

Let’s return one last time to the GlobalTech story. Under global public sector head Wilkins’s purposeful direction, GlobalTech focused its messaging and picked a few areas where it could significantly integrate its product offerings, specifically tailored to public transportation agencies. Wilkins also launched a public-sector conference, where GlobalTech could showcase its latest thought leadership. The conference gave GlobalTech’s divisional heads a concrete effort to collaborate on, then gave them the opportunity to rub elbows with industry leaders.

After racking up early sales wins in the North American public sector, GlobalTech rolled out the pilot to the same sector in Europe, the Middle East, and Africa, then replicated it sector by sector across the company. Ultimately, it put the sector strategy on hold in Asia-Pacific until it had critical mass to launch it there properly—one of a number of strategic decisions governing priorities and resources. But overall, it worked. “One tremendous side benefit is that for people involved in the sector efforts, employee engagement scores have spiked two years in a row,” Garcia reported to us. “Now they have much closer links to their clients, and can see tangible results of their efforts.”

Taking It to the Next Level: Sectors 2.0 and 3.0

In Sector 2.0, you work across traditional sectors so that you can integrate expertise from multiple sectors. This is not merely a coordination challenge, where you ensure that multiple sales reps don’t call on the same complex customer. Instead, gather market intelligence and other know-how across sectors to generate novel insights, and even truly breakthrough ideas.

When is that required? A common example is when one of your customers launches or buys a business outside its sector. But the need for cross-sector collaboration is not just event-driven: every day, we see a convergence of sectors (fintech, autonomous vehicles, brick-and-mortar retailers to online) that requires integrative, cross-sector thinking. Even more broadly, we see trends that affect multiple sectors—issues like environmental, social, and governance (ESG) ones, where providers can make great strides by taking their learning from one forward-thinking sector to others. For example, one global consultant is working with an energy producer to evolve its business model toward sustainable energy production, and with an investment manager to develop mutual funds focused on ESG themes. Because ESG themes cut across their clients’ sectors, the consultants are able to collaborate and reapply insights from one sector to another—like sharing insights with the energy company about what information the fund managers want before investing.

When companies take their approach to the highest level, Sector 3.0, they not only understand industry trends and competitive dynamics and integrate thinking across sectors but also collectively help shape the industries their customers work in. That same global consultant also works with government regulators to define ESG reporting requirements in company disclosures, and is able to share insights between the energy company, the fund manager, and the regulator to shape solutions that meet all their needs.

How do you make it happen? Revisit the alignment pyramid we introduced earlier (see Figure 7-3) to make sure that your evolving sector strategy is fully underpinned by the right structures, culture, and leadership.