Sometimes it is hard to tell the difference between customer-focused and customer-centric thinking. Many companies argue that because they design their products and services around the wants conveyed by specific customer segments, they are customer-centric organizations.
However, when you peer into their internal processes, KPIs and other operating metrics, a different reality often emerges. What you discover when you look under the hood is that many companies mistake their customer-focused culture for a customer-centric one.
Customer-focused companies care about WANTS.
Customer-centric companies care about NEEDS.
Because they are focused on delivering on customer wants, a customer-focused company’s processes are often designed to accomplish little more than deliver a widget that scratches a customer itch while driving greater margin contribution and increased market share in a particular segment. Their customer interactions are targeted on selling more stuff.
Managers in these kinds of companies understand the costs associated with producing, marketing, and delivering a widget to their customer but they don’t always understand the value of the customer relationship beyond a measure of revenue. This inside-out perspective is the hallmark of a customer-focused organization.
Being customer-focused isn't necessarily a bad thing. It's just that organizations that are able to look at the world from the outside-in are more likely to build deeper, longer lasting, and more profitable customer partnerships.
Reaching a state of customer-centric nirvana goes beyond delivering what your customer wants. It requires that you get deep into understanding their fundamental needs as part of your relationship management efforts. Organizations that are aligned around their customers seek to understand the world through their eyes. Companies that strive for, and achieve this level of engagement see greater results and bring more innovative products and services to the market.
It can be difficult for companies and their teams to make the transition to a customer-centric operating model because it can often challenge deeply held beliefs about how business is done and what constitutes success. But trust me, it is worth the effort.
So, how do we become more customer-centric? According to Jay Galbraith’s work, in order to become a truly customer-centric organization we should focus on five core elements of organizational design.
Strategy represents the overall commitment to develop solutions that solve a customer's need and focus on the profitable, loyal customers.
Structure refers to the organizational concept that incorporates customer segments, customer teams, and customer profit & loss.
There are several layers to this onion:
Personnel approach: Power resides with the people who know the most about the customer and are rewarded accordingly.
Mental model: Focus on convergent, instead of divergent thinking. Ask, “What combination of products is best for this customer?" instead of, “How much product can I sell to this customer?”
Sales bias: The bias should be toward the buyers side of the transaction; everyone in the company should always be an advocate for the customer.
Culture: A company’s culture should be a relationship culture, which constantly searches for more customer needs to satisfy.
Process incorporates all the things a company does to make its products and manage its relationships.
Rewards are the measures that influence motivation, including customer satisfaction, share of customer, lifetime value, and customer equity.
Putting theory into practice
For a playbook on how to successfully implement these five elements we need look no further than Ranjay Gulati’s book, Reorganize for Resilience. In it he shows how companies prosper in good times and bad by immersing themselves in the lives of their customers. He demonstrates that rather than force-feeding their offerings on customers, customer-centric firms work from the outside-in to identify current and potential customer problems and then provide seamlessly integrated products and services that address them.
One example Gulati cites, which nicely showcases Galbraith’s elements of customer-centricity, is the reorganization efforts of Best Buy, circa 2009. Gulati’s account demonstrates that customer-centric organizations rely on internal teams to manage the process but they also depend on customer participation, even when they are unaware of their involvement.
He tells of a situation where customer teams were watching video surveillance footage of shoppers leaving a Best Buy store without making a purchase. Instead of taking the customer-focused approach and just asking, "How many customers left without buying anything?" the customer-centric team focused on deeper questions such as, "Why didn't those customers buy anything?” and “What did they come here looking for and did not find?"
By asking the question from a customer-centric perspective, the Best Buy team soon learned that many of their current and prospective customers were busy mothers who were looking for complete solutions, not just stand-alone gadgets. Their wants directly clashed with Best Buy’s sales model.
Traditionally, Best Buy’s salespeople focused on educating customers on the technical specifications of their products. That approach works well on someone who is interested in, or has time to learn about, all the bells and whistles packed into a particular product. But busy moms who, according to Best Buy’s own data represent 55 percent of consumer electronics purchases, couldn't care less about tech specs. They want a quality product that will take nice pictures, play DVD’s, or stream music throughout the house.
By seeing the world through the lens of their customer, Best Buy realized that its stores were geared toward their male customers and were a turn-off for their female clientele. In response to this discovery, Best Buy worked with merchandising, and its store layout designers to re-engineer the Best Buy aesthetic. Then, they trained their employees to be more consultative and inquisitive. Lastly, they empowered their employees to suggest and make additional changes when and where they felt they could be impactful.
Best Buy was able to implement common-sense strategic solutions once it understood the issues affecting the buy / don’t buy decision of their customer segments. Although initially viewed by many insiders as risky, the dramatic changes to the organization that were brought about by the rollout of their improved store format was a home run. The early results showed that stores with the customer-centric approach were performing nine percent better than the traditional product-centric format.
Today, related products are bundled together and in most stores, kids have a place to go horse around with gadgets and video games while their moms and dads browse. To help customers deal with installation, the company acquired Geek Squad, which has been a perennial hit. Despite tough competition from online retailers, Best Buy has been able to survive where others have failed by staying true to its customer-centric ways.
As demonstrated by the Best Buy example, in customer-centric organizations, customer inputs – direct and indirect – define how companies interact with customers at every level. These interactions, informed by an outside-in customer vantage point, then determine everything from the kind of processes that are put in place to manage customer relationships to the very "what" and "why" behind the products and services customer-centric organizations create.