Designing the Customer-Centric Organization

A Guide to Strategy, Structure, and Process

Jay R. Galbraith

• Publisher: Jossey-Bass
• Year: 2011
• ISBN:
  9781118046869
• Edition: 1
• Topic: Business
• Subtopic: Decision Making
• Index: Business

Designing the Customer-Centric Organization offers todayâ??s business leaders a comprehensive customer-centric organizational model that clearly shows how to put in place an infrastructure that is organized around the demands of the customer. Written by Jay Galbraith (the foremost expert in the field of organizational design), this important book includes a tool that will help determine how customer-centric an organization is- light-level, medium-level, complete-level, or high-level- and it shows how to ascertain the appropriate level for a particular institution. Once the groundwork has been established, the author offers guidance for the process of implementing a customer-centric system throughout an organization. Designing the Customer-Centric Organization includes vital information about structure, management processes, reward and management systems, and people practices.

1

SURVIVING THE CUSTOMER REVOLUTION

In this chapter you will learn:

• That being customer-centric means literally organizing around the customer.

• The complete definition of organization (it’s more than just structure).

• The definition of a customer-centric organization and its contrast to a product-centric organization.

• How your organization compares to a complete customer-centric design.

• How customer-centric your organization really is.

For better or worse, one fact has become increasingly clear over the past ten years: the marketplace is customer driven. The days of customers chanting, “We’ll take what you offer,” have been replaced with an expectant, “Give us what we’d like, with a side order of customization.”

The power in the buyer-seller interaction has been moving systematically to the buyer. In many industries, global competition and industry overcapacity have given buyers more choice, and they are learning how to use it. Electronic commerce and information transparency have reduced seller knowledge advantages. Authors such as Patricia Seybold even see the Internet as starting a “customer revolution” (Seybold, 2001), with “customers . . . wresting control away from suppliers and dictating the new business practices for the digital age” (p. xv). The competitive game has clearly shifted to one of pleasing an increasingly more global, knowledgeable, and powerful customer.

The need for customer-centricity is not going away, and it is up to each company to determine the level of application—and hierarchical restructuring—required for success in this morphing marketplace.

The Status Quo Has to Go

The product-centric mind-set is an entrenched one and, like the pit bull, does not relinquish dominance easily. Because it has been the application of choice for so long, managers may even be fooled into believing they are leaving it behind in favor of customer-centric applications, when in fact product-centricity continues running the show with merely a cosmetic gloss of customer focus sprinkled around the edges.

The ideas presented in this book are challenging, particularly in the amount of reorganization they demand from the status quo product-centric corporation. While acknowledging the need for a new customer-centric capability, many companies, tensely watching their financial bottom line, may be tempted to apply a “fingertip” version of the capability to their current structure. It may seem to be the most prudent course of action to dabble in a cursory commitment or apply a cosmetic overlay that seems to do the job.

It cannot be stressed enough how detrimental this toe-in-the-water mind-set can be. A company that truly requires a customer-centric capability will not achieve its goals without its full integration. It is not fiscally prudent at all to go halfway, since it will almost certainly be funds wasted in their entirety. In fact, this approach may end up costing the company more than just its initial wasted investment; the harm done to the workings of the entire structure by an incomplete capability at this level of importance can be enormous, leaving a company bereft in areas well beyond its original need for customer-centricity. It will undoubtedly leave disappointed customers behind whose trust will be difficult to earn back.

The Bottom Line

The bottom line about your bottom line is that customer centricity pays off. For some time, academic studies and consultant studies have demonstrated that being market driven or customer loyalty focused results in higher profitability. The most complete discussion of customer-centered profitability is by Selden and Colvin (2003), who argue that superior results come from managing your business as a portfolio of customers. That means computing the profitability of customers, segmenting them on a profitability basis, and then organizing around those segments. They present a good process for getting started on a customer-centric strategy and the attendant financial systems. This book presents a complete guide to organization design to implement this path to superior economic performance.

Let’s Get Fiscal

Let us examine the financial ramifications. By satisfying a customer who wants to use relationships, the customer-centric firm becomes more profitable. Academic research, using the term market driven rather than customer-centric, shows strong relationships between being market-driven and profitability, sales growth, and new-product success (Narver and Slater, 1998).

Also, the company that implements a customer-centric capability is situated to steer commissions away from the previously required third-party process suppliers, not to mention winning business over other companies that have themselves already become competitively customer-centric.

The final coup may be the largest. Studies argue that the most profitable customer is the existing loyal customer (Reicheld, 1996; Seybold, 1998). Indeed, Seybold (2001) predicts that in the customer economy, investors will value companies based on the sum of the values of their customer relationships. Customer loyalty becomes incrementally more certain as customer-centricity is implemented. With the tight, customized relationships—the “virtuous circle”—established using applied customer solutions, repeat business becomes more and more dependable in an otherwise harshly competitive and fickle marketplace.

Mind over Mind-Set

When you have determined in Chapter Two the level of customer-centricity that your company requires, it is in your best interest to commit to that level and no less. Regardless of the level of application your firm requires, your managerial mind-sets require a high-level commitment; even if the implementation proceeds at the recommended level, it can be sabotaged in ways both subtle and blatant by a crew that has not gotten onboard.

Mind-set is important to successful customer-centrization. The manager whose thought processes are mired in the past is destined to venture forth halfheartedly, if at all. Not only is a clear and positive outlook essential to committing to the proper degree of application, a robust and eager anticipation is needed as implementation unfolds. This may sound like a recommendation to chant positive affirmations to compensate for a gloomy outlook. On the contrary, it is an invitation to discover exactly how promising this process is and how little downside is involved. Once the win-win nature of the capability becomes clear, a robust positivity should enter the psyche without effort.

The Customer-Centric Imperative

In this increasingly customer-driven environment, the call for a customer-centric capability rings out loud and clear. As the expectations and requirements of the customer become more pronounced and complex, the casual customer-focused behaviors of the past grind toward a forced obsolescence. What was once an option is now an imperative.

Consequently, there has been an increase in the strategic priority assigned to the customer dimension of the business, with many companies now organizing around the customer. Creating customer-facing organizational units is a challenge because these companies have structures that are still based predominantly on business units, countries, and functions. It is essential that companies not be tied to their past structures, to the detriment of their existing needs.

Product-Centric versus Customer-Centric

The best way to understand where we need to go is to get a clear picture of where we’ve been. The contrast between the productand customer-centric organizations is shown in Table 1.1.

As the table shows, a product-centric company tries to find as many uses and customers as possible for its product. In contrast, a customer-centric company tries to find as many products as possible for its customer, and it has to integrate those products.

From this basic strategic difference, other different organizational features flow. Product-centric companies are structured around product profit centers called business units. Information is collected around products. Business reviews focus discussions around product lines. The customer-centric company is structured around customer segments. Information is collected and profits measured around customer categories. Management discussions are focused on customers. There are similar contrasts around processes, performance measures, human resource policies, and management mind-sets.

Perhaps the most striking difference is that a customer-centric unit is on the side of the customer in a transaction. A server salesperson at IBM is on the side of the seller—the product-centric server business. However, the outsourcing and consulting people at IBM will suggest a Hewlett-Packard server if it makes more sense for the customer. In order to maintain credibility with the customer, the people from the customer-centric global services business must not be biased toward IBM equipment. They must be on the side of the customer in the buyer-seller transaction. More than any other feature, this bias creates a permanent tension between product and customer units.

The argument above has painted the extremes of product- and customer-centricity. Not every solution provider will require the extreme end of this organizational capability; the application can take many forms. It should be noted that the more complex a form is necessary, the greater is the accompanying lateral networking capability will be required to expedite functionality. Chapter Two delineates and helps readers define the level of customer-centric application they require; the requisite lateral networking capability is examined in Chapter Two as well.

Table 1.1 Product-Centric versus Cutomer-Centric

Source: This is a composite of points describing product and custome-centric companies taken from Peppers and Rogers (1993,1997,2001), Treacy and Wierema (1995), Seybold(1998,2001).

The balance of this chapter further delineates the customer-centric capability, pinpointing customer needs and desires and the methods to address them. It then provides a model for strategy and organization.

The Rise of the Customer Dimension

Motivated by the increasing buyer-power influence—and the correct thinking that this is where longevity, competitive edge, and financial profitability lie—most industries are addressing the increasing strategic importance of the customer. The specific factors causing this increase vary with the industry, but either individually or collectively, all businesses are experiencing these factors:

• The globalization of the customer

• The preference of customers for partnerships or relationships

• The rise of e-commerce

• The customer’s desire for solutions

Globalization

Since 1985, the process of globalization has been driven by increasing amounts of foreign direct investment. The result is that more companies, and therefore more customers, have a direct presence in more countries. Often these global customers—preferred customers in existing countries—object to receiving marginal treatment from a supplier’s subsidiary on entering a new country. These customers want a consistent and consistently high level of service in all countries where they are serviced. Indeed, one supplier was chastised by a customer who had been dealing with thirty-seven sales forces providing thirty-seven different standards of service.

The global customer is creating pressure on suppliers to coordinate across countries and businesses. This desire for cross-unit coordination can also be an advantage for the supplier. For example, ABB was an early mover into many countries, Eastern Europe in particular, and now uses its extensive presence to host and provide services to its customers as they enter new countries in which ABB is already present.

Customer Relationships

The pressure for coordination across existing structures is even greater when customers want partnerships or relationships with their suppliers. Professional services firms are finding that clients want one or two global advertising agencies, auditors, cash management banking suppliers, and outsourcers for information technology. In most industries, customers are preferring fewer suppliers in order to establish closer, longer-term relationships. For suppliers, these global partnerships mean a coordination of all countries in which the customer desires integrated services.

Electronic Commerce

E-commerce is another integrating force that can be used to focus on the customer. When a company with a single brand uses its Web site as its storefront, it presents a single face to the customer. The Web site should be designed around the customer’s needs, not around the supplier’s product capabilities. The site should be designed to do business the way the customer wants to do business. In order to appear as a single company to the customer, the company needs to integrate its businesses, subsidiaries, channels, and functions.

Another integrating force is the management of interactivity with customers. Electronic connectivity with customers allows the company to recognize and remember each customer, interact with them and remember more about them, and then customize the company’s offerings based on the knowledge of the customer. Most companies, however, have not mastered integrated customer interactions. Interactivity requires the management of dialogues and content across all media with which the company interacts with the customer: Web site, e-mail, call center, salespersons, service representatives, and so on. The dialogue needs to be managed over time. The last cont...