Thursday, December 14, 2006

Making the Change to Customer Centricity

When I raised the question yesterday of how to apply customer-centric principles in a product-centric company, you may have thought I was being cute and already had an answer. Sorry. Even after thinking about it on the long trip home, I haven’t come up with a solution. The best I can give is some thoughts that seem promising.

I suppose there’s a preliminary question of whether customer-centricity is a goal worth pursuing. It’s surely not a goal in itself. Businesses exist to create value for their stakeholders, which you can define narrowly as the owners or more broadly as owners, workers, customers, neighbors, and larger community. Either way, the only reason to be customer-centric is because it creates value—or, more precisely, because it creates more value than other organizations. I’m willing to argue that is indeed true, at least if the alternative is a traditional product-based structure. But I’ll also argue that if some other approach creates just as much value, or you can get the benefits of customer centricity without actually being customer-centric, that’s just as good.

This is worth keeping in mind because it leads to the notion of “simulating” a customer centric organization. By this, I mean creating an organization that acts as if it’s customer centric, even if it truly isn’t. I know we’re headed into religious territory if we have to worry about what is “truly” customer-centric, and don’t want to go in that direction. But I bring up the notion of simulation because one potential transition strategy is to develop metrics that would apply to a customer-centric organization, even if the organization itself hasn’t changed. This should be technically possible and would certainly give managers a way to view things from the customer-centric perspective.

With luck, the metrics would highlight opportunities for improvement and management would want to pursue them. But it’s important to recognize that the metrics won’t have much motivational value if they are not tied to compensation plans, and that it’s bad practice to tie compensation to things people can’t affect. So simply compensating people on customer-centric metrics without changing the organization so they are able to affect those metrics would be a bad idea. On the other hand, just introducing the metrics could be a useful educational measure and part of a larger transition strategy. Nor is it unheard of to base some compensation on such metrics. Some companies already do this by tying compensation to customer satisfaction scores.

Another notion is to work within the product-based structure but incent some individuals to work in customer-centric ways. Perhaps you create a “customer advocate” within each product team who is compensated on cross-sales of other products. (These would be sales of other products made during the sales or service process of the original or parent product.) The customer advocate would be motivated to seek out cross sale opportunities, which would naturally lead to a broader examination of customer needs than is required to sell the parent product itself. The customer advocate position might eventually break free of specific products and exist as an independent function dedicated to promoting cross-sales in general. Since the customer advocate has an inherently customer-centric outlook, this could be a transition step towards a true customer-based organization.

A second notion, still without fundamental changes to the existing organization, might be a “customer experience manager” (or, less glamorously, “segment manager”) who is assigned to increase business from a particular customer segment. BestBuy did something along these lines with well-publicized success. (Click here for a press release.) The experience manager would develop programs that reconfigure or supplement existing activities to appeal to her target customers. Giving each experience manager a budget for testing, and then financing roll-outs based on test results, would provide the necessary mechanisms for customer-centric programs to grow naturally within the usual business processes. A variation of this approach is to start with a single segment—presumably high value customers—and see what can be done for them in particular.

Of these three notions, metrics is probably the easiest for a marketer to deploy: it’s only numbers and doesn’t require organization or incentive changes. But it’s also the easiest approach to ignore. Customer advocates and experience managers are more likely to yield hard proof for the value of customer-centricity, but they require senior management commitment even for a trial. Still, an initial trial could be quite small—maybe just a project rather than a position—so marketers could possibly sell it on that basis. The point is that real organizational change will happen only if it is shown to create real financial value, so you have to generate evidence one way or another.

I know this entry is already too long but I wanted to quickly jot down a couple of other notions that occurred to me as I was preparing it. (That’s what happens when you’re stuck on a plane.) One is that the three major stages in the purchase cycle—marketing (acquisition), sales (purchase) and service (use)—each have different natural organizations. Marketing is naturally oriented to customer segments and media; sales is naturally oriented to products and channels; service is naturally oriented to individual customers and products. Since most companies are driven by sales, it makes sense that product-based organizations is dominant. This also explains why the push for customer-centricity comes primarily from marketing and to a lesser extent from customer service. I suspect this insight has additional implications to help manage the transition to customer-centricity, but haven’t worked them out. (It was only a two hour flight.)

The other notion is that needs are the connection point between products and customers. That is, customers have needs that products fill. I suppose we already knew that, but it seems to imply that the transition from product- to customer-based organizations could have an intermediate stage of being a needs-based organization. Quite honestly I don’t know what that would look like, but I’m mentioning it here in case it sparks a flash of insight for someone else. If it helps any, I think a more correct statement of the model is that most products meet a single primary need; several different products might meet the same need; customers have many needs; and different customers have different needs. When I diagram that, it reminds me a neural network. Again, how or even if whether this is of use, I really don’t know. But it strikes me as kind of interesting.

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