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Posted by on Jun 30, 2014 in Business, Culture, Customer Service, Engagement, Featured, Inspirational, Leadership, Strategy | 3 comments

Stop Being A Customer-Centric Organization

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Do you know a single company that would dare pretend not to be customer-centric? By closely listening to customers, carefully studying market trends and taking their customer service at heart, companies get out of their way to exceed customer expectations, drive repeat business and boost brand recommendations. However, the effects of being customer-centric typically don’t endure, leading only to merely temporary improvements in their performances. The well-known 80/20 Pareto rule – where 80% of turnover originates from 20% of customers – has turned into 60/40 and is evolving towards 50/50, painfully showing that customer loyalty is in steep decline. From 1965 to 2011, the rates of return on invested capital have steadily shrunk from 6.2% to just 1.3%, demonstrating diminishing ‘returns on customer’. And current life expectancy of a Fortune 500 firm is less than 15 years, highlighting customers’ fickle behavior.

Customer Centricity As We Know It

Customer centricity as currently practiced by the majority of companies is problematic in different respects. First, customer-centric companies still sustain a kind of parent/child relationship with their customers, regarding them as entities to manipulate rather than a collection of connected and empowered human beings. Just think about the one-way mirror in customer focus groups, acting as an iron curtain between the company and the customer world. Applying uneven communication and hierarchy, the parent asks the questions and the child responds. While customer-centric companies stress the idea that customers are influential, the bottom line is that customers are also an easily moveable business facet with shareholders taking the priority lane.

Customer-centric companies still sustain a kind of parent/child relationship with their customers, regarding them as entities to manipulate rather than a collection of connected and empowered human beings.

Second, most customer-centric companies look at customers through the narrow lens of their own brands and products. Starting from their own internal expertise, they tend to give too much attention to whatever they are experts at, thus limiting the extent to which customers can help them think ‘out of the box’. Third, by dogmatically stating and reinforcing that ‘the customer is always right’, they run the risk of undermining their employees’ morale, giving them the impression that they can never get it right and that customers will always keep asking for more. Today’s well-informed and marketing-savvy customers are indeed right most of the time, but that does not mean your employees should blindly execute whatever customers are dictating. It will put you out of business before you know it.

By dogmatically stating and reinforcing that ‘the customer is always right’, they run the risk of undermining their employees’ morale, giving them the impression that they can never get it right and that customers will always keep asking for more.

Andy Warhol Was Right

All of this points at something deeper: the deficit of the once-sacred and perceived-to-be-timeless truths of 20th century management thinking, including the mental model we use when considering our customers. Globalization and the Internet changed everything, with everyone having the power the make a difference everywhere. It seems Andy Warhol was right when he stated in 1968 that “in the future everybody will be famous for fifteen minutes.” This quote predicted that, someday, the ‘hierarchy of subjects’ worthy to be represented would be abolished, with anybody and therefore everybody becoming famous at some point in time. We are in the middle of a Copernican management revolution, with increasingly more leaders understanding that customers rather than organizations are at the center of a new management paradigm, just like the Polish astronomer Nicolas Copernicus defended the idea that the sun is the center of our universe rather than the earth.

We are in the middle of a Copernican management revolution, with increasingly more leaders understanding that customers rather than organizations are at the center of a new management paradigm.

While it took Copernicus almost 300 years before the Church lifted its prohibitions towards his heliocentric view, this new management paradigm resulting from the revolutionary shift in power balance between companies and customers has been gathering momentum around the world for several decades. In a recent IBM report ‘The Customer-Activated Enterprise’, capturing the opinions of more than 4,000 C-suite leaders, 60% of the CEOs surveyed expect to see customer influence grow most in ‘business strategy development’ over the next 3 to 5 years. Business leaders are increasingly convinced they can build organizational resilience through customer empowerment, embracing connections with customers as key stakeholders and driving serendipity from that. By focusing less on making money and more on having people collaborate, these leaders realize they can make a lot more money than those who are focusing explicitly on making money. They know it will enable them to tap into a new kind of resilience that protects them better from economic storms and industry disrupters.

By focusing less on making money and more on having people collaborate, these leaders realize they can make a lot more money than those who are focusing explicitly on making money.

The Virtues of the Customer-Activated Enterprise

Customer-activated enterprises are different from customer-centric ones, in a sense that they actively bring customers into the heart of their businesses, potentially at the expense of short-term profitability. First, they consider all stakeholders to be equal, empowering customers to act as employees and employees to think as customers, having everyone learn from and collaborate with each other. They act as matchmakers facilitating parent-to-parent-like relationships between human beings who are thinking and acting independently. A great example is how H.J. Heinz Company recently had its marketers and customers play a game together, aimed at detecting new consumption occasions for ketchup. Second, they move from passive customer listening to active customer collaboration. According to a M.I.T. Sloan School of Management study, in the UK, consumers already spend more time and money on innovation than all consumer product firms combined, with initiatives such as Kickstarter increasingly gaining momentum. The people who were formerly known as customers have turned into contributors and volunteers, often labeled as ‘prosumers’, composing a world full of problem solvers who are creating billions of dollars’ worth in value without even being paid for it. Clever organizations understand there are more smart people outside than within their walls, capable of developing products by and for themselves.

The people who were formerly known as customers have turned into contributors and volunteers, often labeled as ‘prosumers’, composing a world full of problem solvers who are creating billions of dollars’ worth in value without even being paid for it.

They lift upon customers’ desire, enthusiasm and ability to collaborate with brands and create the necessary conditions for co-design, co-creation and co-ownership. Finally, customer-activated companies move away from ad hoc thinking and acting, instead building sustainable ecosystems of customer involvement minimizing waste. Such ecosystems typically start from problems instead of solutions. They derive value from ‘knowledge-in-use’ as opposed to stored knowledge, knowing the value of knowledge is decaying by the minute. They tap into crowds of people, becoming fixed institutions that are available on demand or provide support without even being asked for it.

Making the Shift

Making the shift to a customer-activated company requires guts, focus and perseverance. It demands a strong leadership culture with board members putting customer needs before profits and showing vulnerability by opening up to the outside world. It involves creating the necessary conditions to turn customers into collaborators by offering autonomy (‘I am free to do this or not’), building on competence (‘I am good at this’), creating relatedness (‘people like me do this’) and rewarding value (‘what I do is important’). It implies embracing new KPIs to determine progress and success. Think of Interbrand’s well-known top 100 list of Best Global Brands, ranking brands according to their brand value. This composite measure integrates market, brand, competitor and financial data and puts Apple at the top of the list with an estimated mind-blowing monetary brand value of $98 billion. But how sustainable is that value? In their soon to be published report on consumer collaboration, InSites Consulting introduces ‘brand collaboration power’ as a complementary way of looking at brand strength, measuring the extent to which customers are open to collaborate with a brand. IBM and Microsoft are almost equally powerful from a financial perspective, being ranked 4th vs 5th on Interbrand’s list. Yet IBM ranks 77th and Microsoft 7th when looking at brand collaboration power, suggesting the value of Microsoft’s brand is more sustainable as it can tap more easily into the collaborative power of customers.

Collaboration with customers is moving into mainstream and even if you don’t take advantage of it, your competitors surely will. Are you ready to stop being customer-centric?

 

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Image Credit: Jenn Calder, Creative Commons

Kristof De Wulf

Kristof De Wulf started his career at Vlerick Business School, obtaining a PhD in Applied Economic Sciences from Ghent University and later becoming Associate Marketing Professor and Partner at Vlerick Business School. Together with 3 Vlerick colleagues, Kristof co-founded InSites Consulting in 1997, acting as CEO of the company since 2012, providing strategic direction and energy to more than 130 team members in New York, London, Rotterdam, Ghent and Timisoara. With over 20 years of relevant experience with world leading FMCG brands, Kristof helps global brands to unlock the consulting potential that resides in ‘ordinary’ consumers. Kristof has published numerous articles in A-rated journals such as Journal of Marketing, International Journal of Research in Marketing, Journal of Retailing, Journal of Business Research, International Marketing Review, Services Management, Journal of Retailing and Consumer Services, Journal of Business Ethics, etc. He is co-author of the book ‘The Consumer Consulting Board’, has been awarded with the MOAward for Agency Researcher of the year 2010, and is a regular speaker at various research and marketing events worldwide. He is included in ‘The Ultimate List of Social CEOs on Twitter’, just a few places behind Oprah Winfrey, Richard Branson, Donald Trump and Rupert Murdoch ☺.

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  • jbewes

    Nicely said. I have a sneaking suspicion that the hierarchy of subjects within the corporate system will be challenged in the same way, as a bi-product of this power shift and rise of prosumerism. When this hits, it will be incredibly challenging for traditional enterprise cultures …but less so for our next generations who are increasingly self-adaptive and familiar with the concept of collaboration beyond formal hierarchy, from a very young age. Very interesting times indeed.

    • Kristof De Wulf

      You’re completely right, thanks for sharing. Indeed quite a challenge for more traditional, large-scale incumbents, but companies such as Zappos are setting the right examples, paving the way for others to join the collaboration revolution.

  • Olinda Turner

    Yes, nicely stated. Thank you.

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