Article

Customer centricity

… and why it matters in your strategy process

"There are only two sources of competitive advantage, the ability to learn more about our customers faster than the competition and the ability to turn that learning into action faster than the competition" - Jack Welch, Former chairman and CEO of General Electric

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WHY customer centricity matters in your strategy process?

Customer centricity has become yet another buzzword for global executives. Customer demand and expectations are steeper and more diverse than ever. So in order to reach full commercial traction, companies need to create offerings from the outside-in. Starting from a customer perspective and a fact-based understanding of customer needs, prior to building their value proposition and supporting business model rather than the other way around.

Customer centricity is not hard to vouch for (…and definitely even harder to oppose). But as with most other managerial concepts, the real challenge is to translate theory into tangible actions. This is why other advisors contribute with maturity assessments and draft long lists of potential initiatives. However to ensure any real value creation, you must be able to translate ideas into industry specific and practical tests. The key is to identify existing decision-making that could (rather easily) be improved if reinforced by customer intervention.

Perspective from a thought leader

We recently had the opportunity to discuss the topic with thought leader, Mr B. Joseph Pine, who has gained recognition through his thoughts on the progression of economic value and how the next evolution of companies’ value offerings will be driven by the experience they give customers. His key argument is that each level of economic value offering will over time be commoditised if companies are not able to differentiate by offering the next level or mass customise their value proposition.

One prime example of Mr Pine is Starbucks©, which successfully takes high margins for a relatively homogenous good, because its real offering is not its coffee (or sugar-based beverage), but the experience of its stores. This is again a good example of how global competitors are able to quickly copy or outperform (even high CAPEX) how to win elements?

The progression of economic value

The main takeaway into our customer centricity agenda might be to constantly challenge internal perceptions of what our customers really value. Are we able to generate enough value (and can we prove it) to take a premium over competition?

For a manufacturer of building material with which we recently worked, one of the key processes is their product development. Their management team is convinced that their ability to compete would increase significantly, if they were able to adapt their products to specific market demand. So to enable the collection of sufficient data, the company has developed a strong segmentation model – including explicit customer groupings and a new way of logging customer behaviour. With the segment-specific data gathering, they are able to track and analyse shifts in demand, which is then utilised in quarterly production and supply chain meetings.

Mr Pine’s theory would, however, challenge that company to take the next step. Their ability to realise higher margin in the future is driven by the quality of the experience they offer their customers. Regardless of the quality and the level of innovation in their products, clients are only willing to pay for an authentic experience, which truly satisfies both known and unknown customer needs.

In the complex value chain of the construction industry, that experience must take place in touch points where the companies’ employees are most likely not physically present and thereby set strict requirements for the digital customer interface (or what Mr Pine calls the design tool) – the software that both supports customers in their ordering and inspires them to ensure a potential upsell. In other words, the touch point of ordering is critical for the company’s future success and should be prioritised for future investments.

WHAT can customer centricity do and how should it influence you’re Playing to Win process?

Thought leaders agree that in order to develop or even sustain a competitive advantage, companies must base decision-making on real customer insight. However to ensure any form of strategic value, executives must translate that high-level ambition into actual choices and take real action. At Implement, we challenge executives to develop clear-cut answers to 5 key questions – our Playing to Win process.

Companies should (at least) work with a series of concrete questions:

What is your winning aspiration?
  • Does your winning aspiration include the desired experience you want to give your customers?
  • Do you have fact-based insight into your current performance (from your customers perspective)?
Where to play?
  • Which customer segments should be your primary focus?
  • To what degree are you able to profitably offer customers a customised value proposition?
  • Which touch points are the most critical for you to influence customer perception?
How to win?
  • Is your competitive advantage anchored in tangible solutions to actual customer sacrifices?
  • How can you give customers a distinctive and authentic experience with your brand?
Which capabilities are most critical to realise your strategy?
  • Do you have the necessary capabilities in place to get the customer voice into your decision-making?
  • Who is responsible for insight gathering and ensuring sufficient insight?
Which management systems will support the new direction?
  • How do you track and evaluate performance based on your customer’s perception of your brand and/or customer sacrifices when evaluating your offering?

Customer centricity defined

Customer centricity literately means to put your paying consumers in the middle of your business, which is easy to say but very difficult to practise. However, the first key step could be to develop a company-wide, common understanding of what your customers truly value.

Think what would happen if:
  • A group of your best customers spend a whole day within your business. Would that increase or decrease their demand for your offerings?
  • Your customers were given full control of your product pipeline and were asked to adjust any offering as they see fit?
  • Your project portfolio was only prioritised based on your ability to give customers a truly authentic experience and ease of sacrifices they face when buying your solution to their needs?

HOW to get started? – Lean on insight and prototype

Most of the organisations we work with have no trouble “buying” the concept of customer centricity. The vast majority of stakeholders can even rather quickly pinpoint the challenges they are up against to become even more customer centric. However, few have a firm understanding of how they should change and what their organisation would look like with the new way of working.

At Implement, we challenge organisations to start with tangible, practical and often minor adjustments and then refine to fit their given situation or perhaps more precisely the taste of senior decision-makers. One way of doing so is the simplistic framework below.

The 3L model will likely seem simple. However, the implementation of these 3 key steps is often a rather significant adjustment of deeply rooted processes, which will require patience and relentless iterations to get it right. Here it is critical to time box the first couple of loops in order to get to “Limp In” as fast as possible, as many organisations struggle with significant investment in “Listen” and “Understand” phases and never really get around to the real value creation of new decision-making practice.

The 3L model

LISTEN
  • Invest in ways of understanding long-term customer needs
  • Build a fact-based understanding of the customer journey
  • Set up touch point mapping, understanding and evaluation
LEARN
  • Get the voice of the customer embedded into critical value creating activities and decision-making processes
  • Develop a common understanding of which tangible adjustments your company could make to change customer perception
LIMP IN
  • Consider mass customisation to satisfy customer-specific needs
  • Balance prototyping and business cases to ensure customer and company value creation

A case example is digital retail that works with prototypes of potential new offerings prior to allocating real investments. It sets up cost efficient ways to test new features with real traffic on an ongoing basis. In fact, leading players state that approximately 30% of their live user interface is always in pilot and subject to running A/B testing. Other industries should utilise the digital channel and look to gain valuable insight through actual customer behaviour rather than second-hand consumer data.