There are strategies that companies adopt--and don't question--simply because the strategy sounds so simple, so clear, and so right. One of these is becoming customer focused. Why wouldn't you want to organize your company so that your employees are doing everything possible to listen to customers more and serve them better? Just doesn't seem worth the energy to question it--certainly the media and the consulting community don't seem to think so, given the number of articles and books devoted to celebrating the strategy.

Thankfully, George Day, an academic at the Wharton School of Business, thought it was worthwhile. And the results of his study on the fortunes of market-driven companies (a term Day is said to have coined back in the 80s) shows that the effort--and the attendant shift in IT strategy that it demands--may not always be worth the sacrifices that need to be made to get there.

First, know that this customer-facing stuff has already transitioned from hype to doctrine. Day's study of 347 medium-to-large companies found that in 2002 when the study began, companies were organized according to product, functions and geography respectively with customers a distant fourth. Respondents expected that in three years they would be organized primarily by customer, followed closely by product and geography a distant third. Though it's not clear how many of those companies have made the transition, the change in intent was dramatic.

And there are real benefits to making the transition, according to Day:

1. Better accountability for customer relationships

2. More information sharing

3. Easier to do business with

4. Improved problem and query resolution

However, the study showed that another assumption we make about the customer-focused strategy--that it will somehow automatically translate into better company performance--is just another leap of logic without basis in fact. Day says the results are mixed.

The transition to market focused is not trivial, according to Day. It requires big, disruptive reorganizations. Selling all products under a single umbrella or answering all a customer's questions on the first call requires coordination--first informal, then formal and finally structural--across the company. Besides the short-term disruptions, there are long-term coordination costs--not the least of which is the one that falls to the CIO: Line up customer data dispersed across the organization in functional silos and make it accessible to the new, more customer-focused manifestation of the organization.

In dismissing these costs we make another assumption about the customer-centric era, that everything that came before was a mess of bureaucratic bungling organized by inefficient, insulated functional silos. But that assumption ignores a powerful organizing principle that has served companies well and continues to be a powerful way to keep customers happy: product. Indeed, the customer-centric strategy is not a zero-sum game; it needs to be balanced against the emphasis on product. You always have to have something the customer wants to buy, regardless of how good your service may be. Simply becoming minimally customer-centric is an option if customers love your product. It may just mean some informal coordination among sales representatives to keep from annoying the customer with too many phone calls, rather than doing a deep transformation of the organization.

Good products may be all a company ever needs, unless the markets for those products become unstable (perhaps a cheaper, similar product from a competitor, for example), or start to overlap. In that case, customer service can suffer (redundant calls and bills, incomplete product understanding, etc.), according to Day.

The highest order of market-focused company in Day's research has created an independent customer management unit that cherry picks packages of products from the various SBUs inside the company. Customers that go to the integrated unit are those that are looking for unique combinations of multiple products while also requiring (and providing enough business to justify) integrated selling, billing and fulfillment processes.

Interestingly, these customer management units don't seem to be replacements for the SBUs' own sales forces--at least in Day's examples. The SBUs still have their own revenue goals to meet, so they continue to sell direct to customers, too. Day cautions that these companies are going to need a strong corporate function to parse customers between the integrated customer unit and the individual SBUs--in other words, corporate is going to really need to demonstrate a commitment to the integrated solution strategy to prevent the SBUs from going to war with the customer management unit.

The caveat to embarking on this kind of structural shift is one that CEOs--optimistic, action-oriented people by nature--tend to overlook or dismiss outright: Information complexity. This is why CIOs don't always last long in companies trying to become more market focused. The customer battle cry is compelling and the organizational implications, though daunting, can be resolved as soon as the new commission structure is in place and the monetary rewards begin to flow. But the information complexity does not have a handy lever. While the organizational and process side of the change is mostly a matter of redirecting existing capabilities, the information necessary to support the change may not exist anywhere inside the company and getting it may require skills and systems that IT does not possess.

This complicating factor underpins three major roadblocks to the market-focused organization that Day highlights:

1. A lack of information on the purchase behavior and profitability of individual customers or segments

2. A low tolerance for the complexities of transfer pricing mechanisms and activity-based costing

3. The difficulty of overcoming inertia and reforming legacy systems.

Day doesn't go into detail on the IT work necessary to address these three issues, but he doesn't have to--the complexity oozes out between the lines.

Figuring out the profitability and purchasing behavior of customers, or coming up with complex pricing algorithms treads territory that application vendors have only recently begun exploring. It's not just a question of whether you can find the information you need inside the company; it's a question whether vendors have addressed the particular question you have with anyone yet. The issue of inertia and legacy systems flow directly from this issue. If the systems you have can't get the information you need to be a market-focused organization, then becoming a market focused organization suddenly becomes a very expensive--perhaps even impossible--proposition.

Day warns that in this regard, the strategy cannot get out ahead of reality--even though CEOs often see "doing the impossible" as their duty as leaders. He writes: "These countervailing pressures are a warning that while the evolution toward closer [customer] alignment is directionally correct, it is not sufficient to support robust prescriptions. The appropriate structure is guided as much by implementation realities as the strategic imperative to get closer to the customer."

There are some baseline information requirements for making it as a market-focused organization, according to Day. First, all customer information has to be integrated inside the company and integrated and coordinated in its delivery to customers. That information also needs to be capable of providing insight with big consequences. As Day writes: "The ability to treat different customers differently according to their lifetime value is at the heart of customer relationship management."

Second, to drive the right service to customers, there needs to be a unified system of metrics that prioritizes the things that customers value most and makes sense to employees--percentage of on-time delivery, for example, or willingness to recommend the service to a friend.

It's reasonable to conclude from Day's research that the shift to a market-focused organization can't happen without an enterprise IT strategy. That means a CIO that reports to the CEO, a centralized IT group that has accountability and responsibility for working across functions and business units, and an enterprise integration strategy.

Given that the primary hurdles to becoming a market-focused organization are informational, the prerequisite for making the move is having an IT strategy for carrying it out. Yet this seems to be the piece that companies leave out whenever they announce plans to get closer to the customer. What do you think?

You do not have flash or javascript support.

Average (0 votes)

Reply
Digg this
Slashdot
Reddit
LinkedIn