As part of my research for Connected!, I came across an interesting research study (1). The study shows that being customer centric can decrease financial performance by almost 23%. Wow! This research definitely got my attention. Especially in an age where everyone is singing how wonderful customer centricity is.
As I dug deeper, I found that the study brought out 3 key aspects:
- First, customer satisfaction increased with better and more focused attention
- Financial performance gains were 8% in cases where competitive activity was weak, and where competitors were not already customer centric
- Financial performance degraded by 23% where competitors were already customer centric
Apparently, there were 2 core drivers of the above results. First, organizational overhead or coordination increased significantly in a customer centric organization. Second, high levels of competitive activity showed that very little was to be gained by way of uncovering innovative approaches and meeting unaddressed needs.
There is no arguing with data. Ready to abandon being customer centric?
Not quite because I do have good news for you! Here goes.
- First, how customer centric you are cannot be determined solely by top level organizational structures and business divisions. Empirical data is always collected “after” such studies bring out these dramatic revelations. The catch-22 is that existing data does not always tell the whole story.
- Second, what may go on in an organization structured by customer segments is a lots of coordination and alignment of incentives against a largely standard product portfolio that doesn’t actually change much by customer segment. Most organizations hence are never really customer centric to begin with. They are just organized by customer segments.
- Finally, several organizations do have specific product offerings aligned by segments. And the claims of being ineffective in a strong competitive field are true only if we factor in the dominance of uniform and similar offerings from one organization to the next (banks, insurance, electronics, services, etc.). Such products compete on price, brand, and inertia.
Clearly brand plays a role in being distinctive and preferred. But the right kind of innovation and how we meet customer needs is an even more important factor. The innovation to evolve our ecosystems is often overlooked in customer centric story lines due to the catch-22 of data availability. A central premise of my upcoming book “Connected!” is that the world is getting connected (of course) across industry boundaries. Hence our traditional go to market by product lines is slowly being rendered inadequate. Instead, we need to define our go to market by cross-industry customer experiences. These experiences in turn must be defined by the overall purpose of our customers. Consequently, that purpose extends beyond our products alone. Everywhere we look, the market is evolving slowly towards that new model. But many of us are still looking inside-out, not outside-in.
Hence our customer centricity doesn’t yield results. Think of the following industry examples which show how the world is getting connected: Google Home, banks connecting with fitness centers, tech companies like Adobe & Salesforce expanding their portfolio, the evolution of chatbots, Apple Siri connecting with Uber, student education programs like uPromise, wells Fargo connecting with accounting programs, and the list goes on. These examples are still not 100% there, but serve as good indicators of the overall trend we can also term as the API economy.
So what can we do to meet this challenge of being customer centric? Here are the 3 mechanisms for executing and organizing in a connected world. They are part of the chapter innovatively named as “Execution” in the book. Execution is the fifth and final element of the Connected Company framework I lay out in “Connected!”
We all know about communities of Practice or Innovation. They have been tried in various forms and shapes in our organizations. Communities are people who have grouped themselves by the areas they are most interested in. They have been provided tools to collaborate, share knowledge and ideate. However, more often than not, the collaboration portals are deserted, and chat forums are listless, with spikes of activity every now and then. Moreover, innovation and research groups are often misaligned or unable to tangibly meet the constant ROI demands made of them. The innovators dilemma is a big factor in their ability to succeed.
Instead I recommend a design to achieve our customer centric efforts. The communities under this design must be created consciously with a focus on customer purpose. They must also be disjointed from a singular focus on our own product portfolio. These communities are not separate business units as also outlined in a discussion of ambidextrous organizations in this HBR article. Separate business units need a clear charter which is not often available at early stages of a changing market. Instead these new connected communities have a simpler charter – to span connected customer experiences. They operate much like an industry consortium and cut across industry lines. These communities must include partners from multiple industries to bring cross-company customer journeys to life. And then, looking outside in, create and pilot new CX programs within their organizations to stitch various product portfolios together.
Whether these Connected Communities should be new business divisions or informal teams is discussed in more detail in the book. But the key message is to create and gain momentum on a CX program from the outside in, and then use it to enhance and evolve the core, cash cow operations. Some examples are Google’s famous 20% policy, and a recent one is Citi Ventures. The next big hurdle is to operationalize these CX programs. The pillar on CX Focused Org design explains this.
CX Focused Org Design
We are all customer centric. Or at least we claim to be. We put the customer at the center of everything we do. But then, we turn around and divide our organization by products, businesses, and geographies. Next, we valiantly strive to realize the power of all our capabilities to serve the customer through layers of integration and coordination. This gives rise to the dismal results revealed by the research I referenced in the beginning. Obviously, this approach is missing an essential ingredient that causes the entire recipe to fall short of realizing its full potential.
Let’s consider the top level org structures to be superfluous (for reporting purposes only). Then there really are 2 basic go-to-market models. 1) brands or products going straight to customers, or 2) through an account or customer group often segmented by customer types. Both these models need to be augmented to compete for the connected future. In a CX focused design, this is done by including an overarching CX program layer. Designing for the future is about thinking very clearly about customer experiences in an ecosystem, not just in an independent corporate context. Hence, our top level products should be a combination of value propositions from the entire ecosystem that supports the customer experience. These value propositions will be an output of the Connected Communities. The Nike+ program, and the new Plenti loyalty program are broad examples of this approach. They signify an overall program, but also allow for individual products. Our challenge is to make this CX focused org design standard, not optional. One of the primary hurdles is explicit measurement and accountability. The next section addresses that.
We all know about the Balanced Scorecard and the associated tool called the Strategy Map, originally made famous by Dr. Robert Kaplan. Regardless of how extensively you use these tools, the concept is important to apply and understand, even at a high level. The strategy map alone gives tremendous food for thought. People and how they are motivated along the desired path are critical for a good org design. No amount of coaxing can accomplish what we don’t or can’t measure.
However, the effectiveness of any methodology depends on what we feed into it. In this case, the primary input is the strategy or the way to play. I’ve introduced a simple, easy-to-use Connected Scorecard as an input to existent management methodologies. This scorecard brings the outside-in perspective to the top of the food chain. It provides a simple way to measure how we are achieving the goals of meeting the needs of our customers in a connected world. There are only 2 measurement groups – ecosystem, and customer journeys. The first one measures how well we are including players in a cross industry fashion (coverage, relationship strength, competitive parity) . The second one measures the breadth (how many) and depth (how well, financial contribution) of the customer journeys we are enabling. The Connected Scorecard will hopefully mitigate the problems of isolated innovation, competitive inertia, and the issue of balancing the future with the present. It gives us a practical framework for driving and measuring our effectiveness in a connected world.
In summary, measuring the effectiveness of being customer centric can be viewed through the lens of finding unmet needs to leapfrog the competition. In order to do that, it is critical to actively address customer journeys in a world where industry boundaries are crumbling.
(1) The research study referenced can be found here.
(2) Image credit
Thanks for reading! Please do share your feedback and thoughts. This blog is based on my upcoming book Connected! – How #platforms of today will be apps of tomorrow. The book outlines how the platform story of today will evolve in the near future, and presents a “Connected Company” framework. One of the pillars of the framework is Execution (which we read about today). Read about the book here, and sign up to receive updates and launch discounts. Also visit my first book Dancing The Digital Tune which brings out 5 principles of customer engagement and creating a strategy for the digital world. It was of course, also the foundation for Connected!