GUEST COLUMN

A journey of four steps

It takes a clear line of sight to achieve true customer focus.
Editors note: Insights in this article are adapted from the Harvard Business Review article Bringing the Customer Into the Organization, April 2005, co-authored with James B. Oldroyd. he Chinese philosopher, Lao-tzu, is famously credited with saying that a journey of a thousand miles begins with a single step. While Lao-tzu was making an analogy about lifenot thinking about commercial enterprisesthe classic statement also applies to the journey all businesses must take to achieve customer focus. For without customers, businesses cease to exist. My belief is that while many enterprises talk about customer focus, few have actually realized their full potential and sustainable advantage. Several factors have come together to create urgency behind the powerful concept of fully achieving customer focus: > The globalization of competition makes it very difficult, if not impossible, for enterprises to compete on cost. > Customers, in many cases, are as savvy about an enterprises competition as the enterprise itself. by Ranjay Gulati > It has become more and more difficult to compete based on product differentiation. Thus, despite the fact that data and information tools are more available than ever before, the conversations about how we can get closer to our customers are also more pressing than ever before.

Improving customer focus is not a final destination, but rather a process that takes ongoing commitment. There are four essential steps in this journey that provide both IT and business executives with a powerful line of sight to achieving sustainable customerfocused culture, growth and profitability. Is this venture for every enterprise? No. Some companies have succeeded with their only value proposition as offering the lowest price, and they will probably want to continue in that mode. But for everyone else, it turns out that this journey, in its most fundamental elements, is the same. Details are, of course, specific to each enterprise; for example, an airlines concerns about scheduling are different than those of a medical supply companys. It also turns out that each step is a building block for the next. Trying to skip ahead or leapfrog doesnt work. Whats more, essential to the success of each step is coordination and the appropriate supporting organizational structure (see figure 1, pg. 12).

Illustration by Darren Hopes

Attaining customer focus first requires collecting and standardizing customer

PAGE 1 | Reprinted with permission | Teradata Magazine | December 2006 | 2006 NCR Corporation | EB-5047

GUEST

information, which will serve as the foundation for all the later steps. While it is not complex, it can be political, since IT and business must work together to release customer information into one enterprisewide data warehouse. Information is power, and power is difficult to relinquish. This step requires answering the deceptively simple question: Who is the customer? In the case of a pharmaceutical company, the answer could be doctors, patients or insurance companies. But ultimately, one answerone definition of the customer, based on the customer information collectedmust be agreed upon. This step can take years, and it requires a significant investment in the right technology, such as a data warehouse. Communal coordination between a neutral information owner and the holder, or source, of customer information is necessary here. This process is most effective when owned by a corporate-level, neutral information owner, such as IT. This entity pools, or gathers, customer information from all business units and departments.

This step essentially looks back at Step One in order to answer this key question: How can we best leverage this information? Answers to this question include: > Analysis to answer this question is usually started by marketing analysts. Data warehousing is a key enabler of this analysis. > Marketing analysts distribute analysis answers to the key questionto line organizations (specific business units). > Business units decide: Do we act on this analysis? If so, when? And how? Step Two requires serial coordination that is, as one group works on its tasks, its gathering information and insight from other groups, while simultaneously analyzing data for insights based on past customer behavior. This work is usually done first within the marketing organization by a neutral group of people, who then pass along their insights to business units. These people then decide on

whether and how to act on those insights. As many as two-thirds of enterprises stop at this stage. They get stuck for various reasons: > Organizational structure may not reward many enterprises for this effort. > Technological barriers can get in the way. > Political in-fighting, as in Step One.

The third phase focuses on looking forward how the enterprise regards itself and the organizational changes that enable the entire enterprise to work together. This looking forward requires a symbiosis between the neutral collator of information, analytic experts and line organizations. In fact, organizational restructuring around customer segments rather than the traditional IT/sales and marketing/product development structure may be required. Such dramatic organizational change and communication is necessary, though, for the enterprise to create predictive models of future customer behavior and understand how enterprise actions impact them. It is at

Figure 1

Four steps on the customer-focused journey

Defining the coordination requirements and supporting organizational structure that must be in place to support the four steps to a successful customer-focused business.

PAGE 2 | Reprinted with permission | Teradata Magazine | December 2006 | 2006 NCR Corporation | EB-5047

this stage that data warehousing enables the modeling tools necessary to increase their decision-making flexibility.

enterprises divisions, geographies and other boundaries is integral to coordinating this step.

Focusing on real-time responsiveness to customer needs is the goal of Step Fourand few enterprises have reached this stage. Some companies I greatly admire for having achieved this high level of focus are known for their proactive responsiveness toand also their loyalty fromcustomers. But the kind of responsiveness that leads to this intense focus on customers requires the right methodology and technologies such as data warehousing, modeling, forecasting and analysis tools. Part of the aim of Step Four is to take lessons learned in previous stages and ensure they have been properly implemented, such as that data warehousing technology. Organizationally, enterprise-wide culture, training and employee incentives must be in place at every level of the enterprise (see figure 2, below). Coordination among all employees across the

In executive teachings at the Kellogg School of Management, Northwestern University, my colleagues and I first began to see this four-step pattern unfold. We found that across the globe and multiple industries, a common theme emerged in support of developing the organizational capacity to leverage information. I am now into a two-year in-depth research discovery that includes numerous interviews with executives worldwide. I have carefully studied leading organizations that seemed to have broken down organizational barriers in order to achieve customer focusand use that focus to drive business decisions. We have created surveys and analyzed more than 300 responses. What we learned confirmed our view that the quest for true customer focus follows this four-step journeyand that sophisticated use of customer information results in significant performance advantages.

Figure 2

Proactive customer responsiveness methodology

Companies better at integrating information across their enterprises were also better at providing employees with access to necessary and more accurate information. These companies were also better at using the information to make better quality decisions. In fact, based on our executive interviews and business cases, enterprises which embarked on this journeyboth technologically and organizationally achieved, on average, a 20% return on investment (ROI). Less tangibly, but equally importantly, our research indicated that enterprises committed to this four-step journey also achieve greater customer loyalty, more efficient resource allocation and quicker, nimbler learning across the enterprise. Our research shows that each step of the customer-focus journey can result in significant value for the enterprise. We have discovered powerful ideas on the innovative reuse of information within organizations that have progressed on this journey, which we hope to make available in the near future. The quest for improved customer focus and thus, competitive differentiationis one without a true end for any enterprise, no matter how far it is on this journey. But then, the customer-focus journey, with all its surprising insights and creative twists and turns, is far more excitingand profitablethan any preset destination could possibly be. T Ranjay Gulati is a distinguished professor at the Kellogg School of Management, Northwestern University, where he is a specialist on strategic and organizational issues in firms. He is also an author, speaker, researcher and advisor. Professor Gulatis new book, Silo Busting: Transcending Barriers to Build High-Growth Organizations will soon be published by Harvard Business School Press. He can be reached at r-gulati@kellogg.northwestern.edu.

To achieve a customer-focused enterprise, the organization must collect, model, forecast and analyze customer information in a continuous loop. This requires enterprise-wide organizational involvement from the underlying IT infrastructure to the front-line employees.

PAGE 3 | Reprinted with permission | Teradata Magazine | December 2006 | 2006 NCR Corporation | EB-5047