How Customer-Centricity Drives Profits

Ask your typical CEO if their company is customer-centric and only the bravest will say 'No'. But ask them if they can tell you what 'customer-centricity' actually means or what they are doing to become customer-centric and many will struggle. They will waffle-on about listening to customers, superior customer experiences and increasing customer satisfaction. And ask them if they can quantify the economic value of customer-centricity and if you are lucky, they will thrust a copy of the Annual Report in your hands before rushing off in a hurry to their next meeting.

Understanding what customer-centricity is, how to make it work and how to make it pay back are very important issues for CEOs today. Perhaps doubly so now that a 'groundswell' of customers are getting involved with companies, talking about them to their friends, and serving themselves and others on the Internet.

So what is customer-centricity and what is it worth to your company? Rather than create another long, wordy definition of customer-centricity, it makes more sense to describe customer-centricity in simple terms and to show the capabilities you need to put in place to become customer-centric. Then to show how this has enabled one household name, Adidas, to create economic value.

Perhaps the simplest definition of customer-centricity is

Co-creating value with customers

It captures the fact that it is a collaborative thing together with customers. It also captures the fact that it is about mutual value creation for customers and the company. But it doesn't capture what you need to do to become customer-centric and how it co-creates value with customers. That requires that we look at the five core capabilities which together provide a foundation for customer-centricity. And that may even provide you with a temporary competitive advantage in a corporate world struggling with the move away from product-centricity.

1. Deep understanding of customer outcomes – It goes without saying that customer-centricity requires a deep understanding of customers' needs, wants and expectations. But these insights are notoriously difficult to get and even more difficult to apply. Fortunately, there is a better way. As Tony Ulwick and Chris Lawer have shown, customer-centricity only requires that you understand what 'jobs' customers are trying to do and what 'outcomes' they are looking to get done. And what better way to get them than through engaging with customers directly in customer-driven innovation. Customers who are pushing the boundaries of what your products were originally intended for are often surprisingly willing to engage with business, particularly in co-creation. And as innovation giant 3M has shown, engaging with lead-customers in this way often produces better products, that are easier to make and are more profitable than internally-developed ones. These customer-driven insights provide the starting point with which to start on the journey towards customer-centricity.
2. Mass customisation of products, services and experiences – Customers tend to want exactly what they want. Nothing more and nothing less. That can be difficult if your products aren't exactly right. One way round this impasse is to adopt a mass-customisation approach to products. Rather than specify the final product in the usual take-it-or-leave-it way, each of the individual components which make it up and how they can be fitted together dynamically to make the final product are specified instead. With the right configuration system, customers can customise products just how they want them from a catalogue of components and automatically price the final product. This is the approach taken by Turkey's Garanti bank, which allows customers to adjust up to 20 different options when creating their own custom credit card.
3. Dynamically, reconfigurable delivery system – Not only do customers want exactly what they want, but they are forever changing their minds too. Companies need to be able to reconfigure their delivery systems dynamically to respond to customers’ changing needs. Or to structural changes in the business environment. As Richard Rumelt described long ago, this requires not only that you look at a company as a collection of capabilities, but also, that you dynamically reconfigure them as things change. As Stephen Haeckel describes in his book ‘Sense and Respond’, this enables the company to sense, adapt and respond to changes before competitors can do. Just think of the slowness of the major airlines to respond to the threat of low-cost carriers and you can see how important this is. Southwest airlines now has a higher market value than all the US majors combined.
4. Lean business support systems – All of this sounds expensive. But it needn’t be if you adopt a lean approach to capability building. That means building business support systems that enable customers to control product delivery exactly as they want it, where they want and when they want it, rather than producing products for stock. This not only reduces increases satisfaction all round, as customers are in charge of their own destiny, it also reduces non-value-adding waste to a minimum. This can be as much as 40% of all activities in most companies. Industries from manufacturing, through telecoms, to healthcare are all profiting from applying lean thinking to their business support systems.
5. Customer value management across the customer portfolio – As George Orwell might have said about CRM, “all customers are equal, but some customers are more equal than others”. This applies to customer-centricity too. Customers with a high-value should be managed differently to customers with a lower value. That doesn’t mean treating low-value customers badly (anyone from Sprint listening?), but it does mean giving them different mass-customisation options and charging for them accordingly. But managing customers individually by their value isn’t enough. Customer-centricity also means managing the portfolio of customers for value as a whole. And balancing business activities to maximise the value of the whole portfolio of customers, not just the obvious high-value ones.

There are many companies who have adopted this approach to customer-centricity; from BMW, to Lego to Threadless. Another is sports equipment company Adidas. It has brought together all of these capabilities in its 'mi adidas' portal. Not for the cost-conscious customer, mi adidas allows customers to mass-customise a range of high-performance sports shoes to their own specifications. And this co-creation doesn’t stop there. Adidas continuously learns from its customers as they use their shoes and feedback their changing requirements to the company, creating a sticky ‘learning relationship’ with their most demanding customers. With high-performance athletes getting through sports shoes at a rate of one pair every two to three months, this is a learning relationship that serves both Adidas and its customers well.

So there you have it. We do know what customer-centricity is, how to make it work and that it is worth it. Both for customers and for the companies that adopt it.

The $64,000 question is, “What are you doing to become more customer-centric?”.

Post a comment and get the conversation going.

Graham Hill
Independent CRM Consultant
Interim CRM Manager

Further Reading:

Charlene Li & Josh Bernoff on The Groundswell
http://blogs.forrester.com/charleneli/

Chris Lawer on Outcome-driven Innovation
http://www.theomcgroup.com/

Eric von Hippel on Breakthroughs to Order at 3M
http://web.mit.edu/evhippel/www/papers/3M%20Breakthrough%20Art.pdf

Springwise on Ultra Personalised Banking
http://www.springwise.com/financial_services/ultrapersonalized_banking/

McKinsey Quarterley’s Interview with Richard Rumelt
http://www.mckinseyquarterly.com/PDFDownload.aspx?L2=21&L3=37&ar=2039

Stephen Haeckel on Sense and Respond
http://senseandrespond.com/

Womack & Jones on Lean Solutions
www.tqm.be/downloads/LEAN%20consumption.pdf

Graham Hill on Lean CRM at Toyota
http://www.customerthink.com/article/lean_crm_toyota_strategy_that_works

Johnson & Selnes on Customer Portfolio Management
http://faculty.bus.olemiss.edu/snoble/BUS668%20readings/readings/week%206-CRM%20Metrics/Johnson%20and%20Selnes%20(2004),.pdf

Frank Piller on The Personal Touch
www.mass-customization.de/download/pil2005-3.pdf

mi adidas portal
http://www.adidas.com/campaigns/miadidas_teaser/content/index.asp?strCou...