by Peter A. Arthur-Smith, Leadership Solutions, Inc.®

“Do you know the difference between an ‘Inside-out’ and an ‘Outside-in’ organization?”

Frederick W. Taylor (1865-1915) is at least partly to blame for the likely fact that millions of organizations are “inside-out” entities today. By that we mean they are more preoccupied with what’s happening within their organizations than what’s occurring within their marketplace or regarding their customers’ needs and wants. Their in-house thoughts are particularly focused on what Taylor advocated as efficiency thinking but he called scientific management.

There’s probably every reason to believe that his input was warranted at the time, as the raging industrial revolution had created a great deal of societal chaos and disruption. So many entities were likely not terribly well organized as they felt their way into a new era and there were presumably many globs of inefficiency in the utilization of resources. Much the same happens even today with start-ups or enterprises entering a growth spurt, where all-hands are just trying to meet the demand and are less concerned about efficiency.

It’s reasonable to assume that successful start-ups and growth enterprises are “outside-in” oriented, since that’s when their customers are enthusiastically buying their offerings. Outside-in organizations, which are unfortunately somewhat few and far between, are ones preoccupied with their customers’ wants and needs. They are obsessed as to the precise nature of what their potential buyers are looking for and then focusing on how to make it available to them.

Providing that specific desired product or service is much tougher than what appears on the surface, since many prospective buyers often don’t know what they want. They only know what they want when they see it.  Consequently, providers have to be closet-psychologists; although they can only play that role if they are obsessively interested in their potential purchasers. Hence customer attuned organizations are obsessively outside-in oriented. Unfortunately, the reality is that it’s virtually impossible for organizations to be obsessively interested in their potential purchasers, if they are also primarily obsessively interested in themselves – a la inside-out oriented.

Most successful start-ups or enterprises are required to be outside-in oriented, otherwise they wouldn’t be attuned enough to make progress. Regrettably, at some point, internal events occur that switch them into becoming inside-out junkies. This author has noted one particular moment in an organization’s growth cycle when this switch occurs. It’s when an entrepreneurial leader feels somewhat overwhelmed by events and he/she becomes fed-up with their accountant-advisor harping on about growing expense levels.

Invariably at this point, the weary entrepreneur surrenders to promoting or hiring a Chief Operating Officer (COO) – a pretty natural thing to do. Someone who will bring order to the chaos and root out unnecessary spending…the entrepreneur now gets the accountant-advisor off their case. Now everyone within the organization starts examining everything occurring within their domain…and customers suddenly start becoming a sideshow, since it’s impossible for people to obsessively focus on two things at once.

Done effectively by the COO, these efficiency activities begin to pay off. Profitability improves and streamlining measures seem to make things flow better. Owners get more money into their pockets and the chaos seems to quieten down. So now the addiction to efficiency thinking takes off; inside-out thinking becomes the norm; growth slows down, and bureaucracy begins to make its stealthy in-roads. This is why Taylor was a sensation in his time, even though he only lived 50 years, and he has been a behind-the-scenes player ever since the industrial age and beyond. Accountants and governments ought to be eternally grateful to him.

Why say governments, too? Because Taylor’s brand of scientific management pursued a rational approach for recording everything that goes on within an organization. He equipped organizations with ledgers, accounting books and systems to notate by numbers what was occurring so as to pinpoint remedial initiatives and make things more transparent. Those transparent documents could then be used by governments to assess taxes on profits. About the time Taylor passed away much of the western world was embroiled in a costly world war. Hence their governments’ appetite for taxes increased in leaps and bounds, and they have just built upon that ever since. That’s when America’s taxation approach really took off, too; for better or for worse.

There are still many modern systems that owe their existence to Taylor’s efficiency and scientific management movement – like process management, workflow synthesis and even “nudge management” as practiced by some of today’s high-tech companies. And so this author sees Taylor as the father or godfather of the inside-out organization phenomenon. The challenge is: so many organizations don’t know how to release themselves from this deadly command & control trap. Deadly because, when you extrapolate to the end game of efficiency, it will ultimately kill your organization unless it’s held in check.

On the contrary, there’s no doubt that those organizations which have enjoyed phenomenal growth have been consistently outside-in oriented. They have developed a pathway through their marketplace maze and really capitalized on their opportunities. That temptation to become an inside-out organization is enormous for all the reasons stated so far and because, too often, outside-in thinking goes hand in glove with a certain amount of chaos and inefficiency. But that’s where true leaders have to make those trade-off decisions, rather than succumb to our human failing of “wanting our cake and eat it,” too.

Since it’s tough to recommend a one-size-fits-all approach for mitigating against an inside-out focus, consider the following pointers before pursuing your best strategy:

» How important is it for you to pursue “reasonable” versus absolute profit in your growth?

» Do you have a capable leadership team in place to avoid the need for a COO to be sandwiched between you and your executives? Such set-ups are limited in duration before it provokes fall-out.

» If it’s essential for you to tamp down inefficiency, can you impose a time limit on such a strategy; so as to avoid endemic inside-out behavior that kills the ‘golden goose’ ?

» If you are forced into utilizing an efficiency – inside-out – czar, can you also invoke an equally powerful effectiveness – outside-in – czar to optimize the effect of both  approaches? And you will need to referee.

» How many options can you think of for reinforcing the importance of focusing primarily on customer and market needs within your organization, despite some need for efficiency?

To find out more about evolving an Outside-In approach, talk with: