HBR: Building the Customer-Centric Organization

According to an article in the April Harvard Business Review, the two most important elements in establishing a customer-centric organization are an enterprise database and a workforce that can both willingly share information and make a willing commitment to customers, rather than to products or organizational fiefdoms. It is a long, hard slog to become -- and maintain -- a customer-centric organization, but the result is a much more profitable brand.

Based on a two year study of Continental Airlines, Royal Bank of Canada (RBC), telecommunications giant SBC, casino Harrah's and 13 other firms, "The Quest for Customer Focus," by Ranjay Gulati and James B. Oldroyd, outlines four steps necessary to become a customer-centric organization. One key conclusion: it is the organization, and not the marketing department, that shapes and drives the brand: "Getting close to customers is not so much a problem the IT or marketing department needs to solve as a journey that the whole organization needs to make," the authors wrote.

The case studies are remarkable. RBC, Canada's largest financial institution, first made the all-too-common mistake of "positioning" itself as the leader in convenience. Its "position" even led it to build expensive new branches and
introduce products that were unprofitable. "But, to the company's surprise, a survey of more than 2,000 customers revealed that people didn't choose a bank on the basis of how convenient it was," the article noted. "Instead, what customers wanted was a bank that demonstrably cared about them, valued their business, and recognized them as the same individuals no matter what part of the bank they did business with."

The survey nine years ago was a wake-up call. RBC then dedicated itself to moving from a product-oriented organization toward one focused on customer (not brand) equity. "The results are telling. Dividends swelled from 68 cents per share in 1996 to $1.72 per share in 2003, driven by a 20% increase in high-value customers and a 13% rise in average customer profitability between 1997 and 2001. Between 2000 and 2004, the percentage of customers that purchased the bank's high-margin packages of bundled products and services doubled, from 35% to 70%, and the success rate of sales leads driven from promotion events rose to 45%," said the authors.

Other successes were just as noteworthy. Because it understands the flying behavior of its most profitable customers, Continental now focuses on maximizing the profitability of its entire network rather than each segment. SBC reduced defection rates among profitable DSL customers, without significant marketing expense. Harrah's is able to identify profitable characteristics in seemingly less-profitable customers, and so now focuses its marketing on increasing those profitable behaviors.

The difficult journey to a customer-centric organization consists of four steps:

1. Communal coordination: A central, enterprisewide database is key. This is a two-part process. The first involves retrieving and standardizing information from all customer touchpoints. It sounds easy and logical, but the technical and cultural challenges are immense. It took Continental four years of dedicated work to achieve this goal; almost a year was spent on data standardization alone. Harrah's took six years.
2. Serial coordination: Essentially, this step consists of creating business analytical capabilities that leverage the customer information repository. The business analysts then pass the analyses to the appropriate unit. Sounds easy on paper, but the authors point out that "serial coordination is not spontaneous and is fraught with obstacles. Traditional roles and structures create natural barriers to spreading information and lessons learned.  Some changes to a company's social and organizational structure will be required to overcome them."
3. Symbiotic coordination: Now the task grows even harder - from analyzing past customer data to predicting future customer behavior. This requires a two-way flow of information among the analysts and multiple business units. They collaboratively participate in four activities: "creating models to predict customer behavior; experimenting with various interventions designed to alter customer behavior; measuring the results of these interventions; and using feedback from the front line to improve the models and subsequent campaigns."
4. Integral coordination: In this stage, the organization can use customer information in daily interactions with customers, aided by employees who do more than pay lip service to customer service. One example: a flight attendant apologized to a customer for a flight delay he had experienced earlier that day. Continuous training is key. SBC conducts almost continuous training programs while Harrah's is putting more money into an enterprisewide marketing training program. Changing incentive programs helps. Harrah's spent $40 million in 2004 rewarding employees who demonstrated a customer focus, while SBC changed its compensation structure to encourage cross-unit cooperation.

Undoubtedly, it is difficult to make the organization the brand and center activities around profitable customers. It takes 
much more than incorporating a few buzzwords into a mission statement or even buying a CRM system. As 
RBC, Continental and other leading companies illustrate, "the customer focus journey takes years, not months,
but there are rewards all along the way, and for those organizations that have gone the distance, the payoff is remarkable."