Customer Focus: Making It Happen - Boston Consulting Group · Customer Focus: Making It Happen With their profits coming under increasing pressure, most industrial goods companies

Opportunities for Action in Industrial Goods

Customer Focus: Making It Happen

customer focus 09/01 9/26/01 3:19 PM Page 1

Customer Focus: Making It Happen

With their profits coming under increasing pressure,most industrial goods companies are focusing onshort-term operational goals: cutting costs, boostingasset utilization, and gaining access to cheaper capac-ity. This approach is necessary but insufficient. Ascompetition intensifies, managers need to think bothoperationally and strategically—honing current per-formance and seeking opportunities for growth. Andthe best way to uncover opportunities for growth is tobecome a truly customer-focused organization.

This, of course, is not news. The benefits of focusingon customers have been known for some time. Butactually embedding customer-focus principles andactions at all levels of an organization can be verychallenging—particularly for companies that are ac-customed to focusing primarily on their own opera-tions. Many find that it requires fundamental changesin how they think and act. The Boston ConsultingGroup’s experience suggests that companies can takea few simple actions to achieve those changes.

The rewards are likely to be well worth the effort.Companies that focus on customers effectively—suchas Cemex, Cisco Systems, and General Electric—ac-quire an extraordinary ability to innovate. They do soby going to great lengths to understand the needs, dis-satisfactions, and value propositions of their custom-ers—and of their customers’ customers. Then theyuse this knowledge to segment customers and createproducts and services tailored to each segment. Theseproducts and services in turn allow the companies tocollect significant price premiums and to form lastingwin-win partnerships with key strategic customers.


Cemex, for example, has achieved a 5 to 7 percentprice premium in a commodity business by providinghigh-value-added services in areas like training, as wellas loyalty programs that allow customers to earnpoints toward valuable equipment. Cisco claims thatincreased customer satisfaction has led to a leadershipposition in 16 of 17 key markets. And GE’s lightingdivision has built a very large, profitable, and growingservice business by taking its customers’ pulse andentering the business of energy management (that is,designing and installing the right lighting systems andthen replacing bulbs at the right times).

From our experience working with leading suppliercompanies, we have identified four practical actionsyou can take to instill customer focus in your organi-zation: define your company’s performance throughyour customers’ eyes; lead by example; invest in customer-focus capabilities; and align your organiza-tion with your customers.

Define Your Company’s PerformanceThrough Your Customers’ Eyes

The first step in building strong relationships withyour customers is winning their trust by meeting their basic needs. Until you fully understand thoseneeds and how to satisfy them, there is no point inimplementing a complex customer-relationship-management program.

Begin by asking your customers how they measureyour performance in areas such as the timeliness ofdeliveries. Do you measure your performance thesame way? Suppliers often define on-time delivery muchmore liberally than their customers do. For example,


a supplier company may define delivery time as thetime when a shipment leaves its dock, whereas itscustomers may define it as the time when the ship-ment arrives at their dock. Some companies considertheir deliveries to be on time if they fall within athree-day window (from one day before to two daysafter the promised date), whereas their customersconsider on time to mean falling within a few hours ofthe promised time.

Similar discrepancies are common in the area of qual-ity. Suppliers may measure quality in terms of the per-centage of good parts delivered, whereas customerstalk in terms of bad parts per million received.

A truly customer-focused company sits down with itscustomers, learns what they mean by on-time deliveryand high quality, and aligns its internal measures ac-cordingly. Once a company has developed a customer-defined performance measure, it will need a processfor keeping tabs on how well it is doing. For example,Cisco uses a single companywide customer-satisfactionmeasure. The measure is derived from frequent sur-veys in which customers are asked whether they aresatisfied with the company’s performance. EveryCisco employee’s bonus is tied to the measure, andevery employee knows that customer satisfaction ispart of his or her job. This practice ensures that all ofCisco’s internal measures and processes are alignedwith customers’ needs.

To make sure that you are defining your company’sperformance through your customers’ eyes, ask your-self the following questions:

• Do we know how our customers evaluate our per-formance?


• Do our internal measures reflect our customers’assessment of our performance?

• How does our performance compare with that ofour competitors from our customers’ perspective?

• How are our customers performing in the eyes oftheir customers? What are we doing to help or hurtour customers’ performance?

Lead by Example

The best way to focus your organization on customers isby having your senior managers lead by example. First,emphasize customers in your formal management proc-esses and top management meetings. During perfor-mance reviews, for instance, senior managers should asktheir direct reports specific questions about customers:Are they satisfied with our service? What are their big-gest problems? How are they expecting to grow? Are wesupporting them on their next-generation products?

Second, and most critical, managers must “walk thetalk.” They must reinforce the notion that everyone—no matter how high or low in the organization—isresponsible for customer satisfaction. Senior man-agers must get to know their customers not by review-ing spreadsheets but by spending time in the field.Personal contact builds the kind of valuable relation-ships that give rise to candid conversations about per-formance, as well as about future products and ser-vices. To ensure this kind of contact, some leadingcompanies are making sure that each senior executiveis responsible for one or more major customer ac-counts. The executives meet with their customers tounderstand their needs, their views about the relation-ship, and their goals for the future.


To determine whether your company’s senior man-agers are leading from the front, ask yourself the fol-lowing questions:

• How much time did we spend on customers’ issuesin our last planning meeting?

• Did at least one of our senior executives visit asenior executive at each of our 30 most valuablecustomers last year?

• Does each of our executives feel responsible forthe senior-level relationship with at least one of our customers?

• Would our employees say that focusing on cus-tomers is one of senior management’s highest priorities?

Invest in Customer-Focus Capabilities

If you believe that price is just about the only thingthat matters to your customers, it’s time to do someinvesting in your marketing and sales capabilities.When was the last time you segmented your custom-ers? Are you offering virtually the same bundles ofproducts and services to everyone? When did you lastrethink your product line and pricing strategy? If theanswer is that it’s been a while, you are likely overserv-ing some customers, who are paying less than yourproducts and services are worth, and underservingothers, who would willingly pay more to get more ifonly you would let them.

Customer focus is not about being all things to all cus-tomers. The goal is to understand the needs of differ-ent segments and to provide tailored offerings that


precisely meet those needs—while earning above-average returns. To accomplish that goal, you mayhave to increase your investment in training and re-cruiting for both marketing and sales staffs. In manycompanies, recent cost-cutting initiatives have paredthose groups down to the bone—to the point wherecore skills have been lost.

In addition, industrial goods companies often pro-mote skilled asset managers over equally skilled salesand marketing managers, sending a strong signal tothe latter that they do not value them as highly. Toattract, retain, and develop your sales and marketingstaff, you need to ensure that these functions enjoythe same status as your operational departments.

To ensure that you are investing in sales and market-ing, ask yourself the following questions:

• How robust is our marketing strategy? How strongis our sales and marketing skill base?

• How many of our senior executives have significantsales and marketing experience?

• What is the retention rate in our sales and market-ing organizations?

Align Your Organization with YourCustomers

Many industrial goods companies organize their busi-ness units around assets. Such a structure can meanthat several divisions serve the same customers—oftenwithout any formal organizational mechanism tocoordinate their efforts. Without explicit coordina-


tion, the various divisions will inevitably view custom-ers from their own perspectives rather than from ashared, companywide point of view.

This fragmented way of interacting with customerscan cost the company innumerable opportunities tocross-sell products and services to current accounts. Italso means that each division makes ad hoc, oftenshortsighted decisions about pricing, investment,capacity usage, and service levels—decisions that arebased on each customer’s importance to that divisionrather than to the entire organization. The result canbe frustrating for customers, as well as costly to thesupplier company.

We are not suggesting that companies scrap their current organizational structures or even the way they interact with customers. Some customers mayprefer to deal with each division individually, whereasothers may want to work with a combined entity.Ideally, customers should have a choice. At a mini-mum, they should be able to expect consistent in-teractions when dealing with different parts of anorganization.

Rather than changing their structures, supplier com-panies should develop organizational mechanisms to coordinate customer-related activities across divi-sions. Most companies need some form of market- or customer-based structure overlaying their currentasset- or process-based organizations. The marketingfunction, meanwhile, should support this structure bydeveloping companywide policies for interacting withcustomers.

BCG helped a large industrial-products company thatis organized around assets to form a set of market-


focused, companywide teams led by very senior man-agers (senior vice presidents or above). Each team wasresponsible for coming up with action-oriented plansfor developing additional business with specific cus-tomers or markets. The team members then madesure that the plans were incorporated into the strate-gies of their respective divisions. When the teamslooked at their current and potential offerings, theyfound that they could supply far more value to theircustomers—and significantly boost earnings—by com-bining their product offerings into assembled compo-nents. The company now looks for growth oppor-tunities in two ways: on a divisional basis and on amarket-by-market basis.

To determine whether your organization is alignedwith your markets and customers, ask yourself the fol-lowing questions:

• Does our company have multiple divisions sellingto the same customers?

• Are there formal or informal processes that coor-dinate companywide policies for interacting withcustomers?

• Can we easily get complete information about allthe products and services that we are selling to asingle customer?

• Are we seizing every opportunity to offer customersour company’s full range of products and services?

* * *

To compete successfully today and well into the future,companies need to maintain both operational excel-lence, which ensures efficiency and effectiveness, and


a dedicated focus on customers, which cements rela-tionships and sparks innovation. Companies that doboth will not only ensure their survival but also createopportunities for breakaway growth.

James P. AndrewPaige K. Price Neil Kohlberg

James P. Andrew is a vice president in the Chicago office ofThe Boston Consulting Group. Paige K. Price is a manager,and Neil Kohlberg a project leader, in the Chicago office.

You may contact the authors by e-mail at:[email protected]@[email protected]

© The Boston Consulting Group, Inc. 2001. All rights reserved.


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Customer Focus: Making It Happen - Boston Consulting Group · Customer Focus: Making It Happen With their profits coming under increasing pressure, most industrial goods companies