Notes

[MUSIC]
Welcome back to module two.
Just to review in module one we looked at
traditional ways of
doing business, particularly for a
strategy
associated with Performance superiority or
operational excellence.
and we looked at the different
characteristics of businesses that do
that kind of thing, which of course I
called product centricity.
We discussed why product centricity isn't
quite as great as it used to be,
and started touching on businesses that
turn in a
different direction, customer centricity,
but we haven't defined it yet.
We've given a number of examples of
companies that we'd
say are, or at least have been, highly
customer centric, IBM,
Harrods, Tesco, as well as a number of
companies that are terrific companies,
companies like Walmart, Apple, Starbucks,
Nordstrom, but don't
qualify as necessarily being over the
hurdle,
but are making great strides towards
customer centricity.
So what about your business, or what about
these businesses around me here on South
street?
How do we determine whether a business
really is or isn't customer centric?
In other words, what is the definition of
customer centricity?
So what I like to ask my students to do is
to write that down.
So how do you define customer centricity,
based on what we've discussed so far,
based on the examples that we've looked
at?
So in fact, I'd like you to take a minute
and just jot down whether it's
a full sentence, or even just a few
words that you would associate with
customer centricity.
Take a minute and do that, and then I'll,
then I'll
give you my perspective, my definition on
what customer centricity is.
Okay, so you gave me your definition of
customer centricity.
I'm going to show you mine.
But before I put the words on the screen,
because a lot of it's just going to be
words on a screen.
I, I want you to look at these words, and
think about them a little bit differently.
I want you to think about how this
definition of customer centricity, and
what it implies, just how radically
different
it is from conventional product-centric
business practices.
In fact, I want you to look at these words
and tell me, if you were
to start doing exactly these kinds of
tactics,
if your company was to start having these
kinds
of perspectives, why you'd be fired?
In other words, there are fireable
offenses in
this definition over here, and what are
they?
Okay, if you look at it, there's a lot of
things that might make sense.
It all fits together, sounds nice.
Hopefully, it's well-aligned with your own
definition of customer centricity, but
I really do want to emphasize just how
different it is.
So for instance, what are, what are the
fireable offenses here?
One of
them would be this idea of select set of
customers.
In the product-centric world, you can't
have a select set of customers.
In the product centric world, we're so
dependent
on generating as much volume as possible,
on
the selling as much stuff as we can, that
we can't really afford to be selective.
It's going to be hard to keep our costs
down if we're selective.
So the whole idea of having and
emphasizing a
select set of customers, very much runs
against the grain of, of many businesses.
Another would be the bottom line on this
definition.
The idea of really focusing on maximizing
the
long-term financial value of certain kinds
of customers.
In most situations it's hard for a company
to do that.
Given the pressures of Wall Street, and
just the conventional ways we look at
business.
We're so short-term
oriented, we got to the hit the quarterly
numbers.
Whereas in the customer-centric world, and
going back to many of the
examples that I mentioned before, we want
to invest in the right customers.
We're willing to, to recommend products
and services
that we're not going to make any money off
of.
For instance, going back to the IBM
example, there was a
case where a company was willing to
recommend other products and services.
So IBM was
actually losing opportunities.
But locking in customers for the long run,
being seen as
a trusted adviser in some cases can be
worth it, that the
long run profits that we can get from
customers can be greater
than just trying to get them to buy
another thing right now.
So again that's a radically different way
of doing business.
Another part, higher up in this
definition, is the idea
of aligning our research and development
activities around our customers.
The way it usually works is, we go to the
R and D people and we
say, hey R and D guys, gals, come up with
the next block buster for us.
You've been so good at, at coming up with
these terrific products and services.
What's the next big thing that you have
for us?
But here we're talking about something
different.
Here we're saying, hey R and D guys
and gals, here are really valuable
customers over here.
Let's come up with something for them,
something that's going to make them even
more locked in, something that's going to
create greater long-run value for them,
and something that's going to help us
recruit even more customers like them.
R and D folks, come up with something for
them.
It's a tot, totally different way of doing
business.
Now, if you think about that last point,
it's not quite as radical as
it might sound because, after all, what
made our valuable customers so valuable?
The fact is,
they like the products and services that
we develop,
and so if we leave it up to the
R and D people, whatever they come up with
next our, our customers will probably love
it anyway.
But it's the mindset, it's the idea of
going to
R and D and putting these valuable
customers front and center.
It's, it's the way, just changes the
conversation, and perhaps the design,
within the organization.
That's what starts making it
customer-centric.
So that's my definition of customer
centricity.
But again, those are just words on a page,
what
we really want to think about is what this
means?
See, there's a lot of companies that might
adopt
that definition or something else like it,
and then
put a big banner on the lunchroom wall for
all the employees saying we are now
customer centric.
Well, it's not that easy.
There's a lot of challenges in actually
bringing this definition and this mindset
to life.
And so I want to think now about
some of those challenges as well as some
of those opportunities.
So we can see in the rest of the
slide over here about what customer
centricity really implies.
And I want to give you a few examples
about that.
So again, thinking about the fact that
customer centricity requires us to be
forward-looking.
We're looking at not which customers have
been
valuable, but which customers will be
valuable using
the data, the models, the technology that
we have available to us.
So what does that mean?
So here's a very specific example.
So many companies have some kind of
salesperson of
the month incentive and they tend to be
backwards looking.
We're going to reward salespeople based on
how much
stuff they sold last month or quarter or
year.
I want it to be forward looking.
Think about it this way If you have that
kind of backwards-looking program,
you're encouraging, you're incenting your
salespeople to try
to close sales that were going to happen
anyway.
Like, you know, hey, I've got to get this
one
done before the month ends so I can get my
bonus.
That's not necessarily helping the company
in the long run.
In order to have real long-run benefits,
you have to be future-looking.
So here's the way a salesperson of the
month incentive should work.
I want a company to calculate the lifetime
value of each and
every customer.
And let's do that at the beginning of the
month, or the quarter, or whatever.
And then do it at the end of the month or
the quarter.
And let's ask ourselves, not, not just how
much stuff we sold
to the customer, but how much did we
elevate their lifetime value?
So instead of us going to customers who
are going to buy things anyway, and just
watch them buy things they were going to
buy, let's try to build relationships with
customers.
Maybe they weren't
inclined to buy, and you know what?
Maybe they didn't, by the end of the
month.
Well, we're closer to making this sale.
We've impro, we've improved the
relationship.
We've lengthened and maybe deepened the
relationship.
That we think in the long run we've, we
will create much more value that wouldn't
have been there.
That's how I want to reward the sales
people.
Okay?
On future value that they're sowing the
seeds to create.
Now, that's risky.
That requires some faith.
It requires some data.
It requires some models.
But if you can do it, and I'm aware of a
number of firms
that have in a variety of different
businesses, then you're actually much
better off.
Think about it from the salesperson's
perspective.
Instead of just rewarding them based on
what they've done.
You want to encourage them to build
relationships.
You don't want to just close sales.
You want to build long
lasting relationships.
You want them to invest in the customers,
even
if they're not getting anything out of it
right away.
I mean, after all, that's what sales
people want to do.
They want to build and strengthen
relationships.
They don't want to just close sales and
move on.
So, if you have this kind of forward
looking perspective,
not only might it be better your
shareholders in the
long run, because of the profits you'll
create, but it's
even better for the sales people, because
it lets them do
what they're really good at.
And again, I can point to examples of
companies, I'm, I'm thinking of a
particular pharmaceutical company
that changed its sales person incentive
program to
be forward-looking instead of
backward-looking, and wonderful things
happened.
The salespeople were happier, the company
made
more money, and the salespeople actually
looked
to the marketing people to say hey, can
you help me identify other good
prospects that I should be going after?
So instead of just trying to, you know,
shake down customers, to just
make sales right away, that kind of
relationship building is good for
absolutely everybody.
These kinds of forward looking incentives
work in other ways as well.
Think about airlines, think about MBA
students.
I spend a lot of time thinking about MBA
students.
What happens to our Wharton students when
they come to school?
So they were working in industry before,
spending a lot of time flying.
Now what happens for the two or so years,
that they're at Wharton?
Their status with the airline drops, and
then when they start on
a new job after graduation, they have to
start all over again.
If the airlines were really forward
looking,
they would recognize that some of these
students,
are going to take a temporary hit on their
travel.
But after they graduate, they're going to
be traveling
even more, far more than they ever did
before.
So if the airlines were smart, they would
go to our
students, the day they were admitted, and
so you know what?
We're going to put you in the Presidents
Gold
Medal Chairman's Red Carpet Club for the
next five years.
Because we recognize, based on what we
know
about you, that you're going to be a
really
good customer in the future, and even if
you're not going
to be a great customer tomorrow it's worth
the investment for us.
That's what I'm talking about, and that's
what we don't see a lot of.
Customer centricity requires us to look
ahead, figure
out who the valuable customers will be and
do things for them to help them recognize
that we have their best interests in mind.
That's the kind of investment that I'm
looking for.
Those are the
kinds of incentive structures that I want
and
some of the organizational designs
associated with it.
That's what customer centricity should be
all about.
[MUSIC]