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Customer-Centric Strategies

 

Many customers want relationships with key suppliers. Customers
want close relationships through which they  can engage in dialogue
with suppliers for the purpose of detailing their customization desires.
These dialogues create opportunities for astute suppliers
to discover unmet customer needs and requirements, and can then
expand their offerings to include more products and services. More
important, these suppliers can develop packages of products and services
that create value for customers. These packages or solutions
make the customer more effective, and the more effective the customer
feels as a result, the more the customer will engage in dialogue with
and use the supplier.

Companies that follow a relationship strategy that leads to solutions
bundle their products together and add software and services.
These packages create more value than the customers can create for
themselves by buying only the stand-alone products. For the customer,
solutions constitute a limited form of outsourcing, which allows them
to focus on their core business.
For the suppliers, solutions constitute an alternative to products that
commoditize rapidly. The challenge to the supplier is to create an
organization that can package and deliver the solutions.
The organization that can deliver these solutions is one that fits
with the solutions strategy. There are four dimensions of solutions
strategy—two major and two minor—that appear to make a difference
to the organization. The major dimensions are the scale and scope of
solutions and the degree of integration of products and services;
the minor dimensions are the types of solutions and the percentage of
total revenue deriving from solutions.

A major dimension is the degree of integration between the components
that comprise a solution. Integration varies from a loose assortment of
products to a highly integrated combination. In between are combinations
that use modular architectures. Little integration is needed between products
supplied by agriculture firms to farmers. The firms try to bundle seeds,
herbicides, insecticides, and consulting. However, the farmer can easily buy
each as a stand-alone product from a different supplier.

An example all hardware and software components have to operate in an
integrated manner. (The services are somewhat more indepen-
dent.) But thanks to standards like the Java programming language,
components using Java can be substituted for other components.
For example, a customer could choose BEA’s middleware or IBM’s
Websphere and substitute it for Sun’s i-Planet middleware. There-
fore, components in the information technology industry must be
able to operate with other-branded components; by following stan-
dards, the customer has the choice of mixing and matching.
At the extreme are integral solutions in which the components
are unique but are designed specifically to work together. A simple
integral solution would be an antilock braking system (ABS) for an
auto manufacturer. Each ABS is unique to an automobile model.
Johnson Controls is a more complex example. The company de-
signs and manufactures interiors for Toyota, Chrysler, and other au-
automobile OEMs. Each Toyota model has a unique interior comprising unique
parts; these parts cannot be used on a Chrysler interior. The
significance of the integration dimension for the organization is the
coordination required. The organization reflects the solution. The
more interdependent the components are, the more interdependent
are the organizational units responsible for those components
and the larger the challenge is to rapidly mobilize them.

Of utmost importance to your company is the level of customer-
centricity that it should implement. Too little or too much could
prove significantly counterproductive, so ascertaining the proper
level is key.
The following lists have been compiled to help you determine
the level—low, medium, or high—that will give your corporation
or division optimal performance. Locate your company on each of
the lists for scale and scope and for integration. Pick the location on the
list that best describes the offerings of your company or division.
Scale and Scope
• My company has two to five similar products or services to sell
to the same customer.
• We offer five to ten mostly products and services.
• We have ten to fifteen products or services of different types to
sell to the same customer.
• We have fifteen to twenty variegated products or services to
sell to the same customer.

• We have more than twenty products or services of various
different types to sell to the same customer.
Integration
• My company provides stand-alone products to the same cus-
tomer with common invoice and billing (“one-stop shopping”).
• We have a set of minimally connected stand-alone products (like
a common brand, common experience, combined shipment).
• We have minimally packaged (themed) components that
need to work together for customer segments.
• We have modular components of products and services that
need to work tightly together as a system.
• We have very tightly integrated packages/bundles/full solu-
tions of products and services to offer the customer.
If your total from both lists is one to three, then you will bene-
fit most from the information for the light-level implementation of
the customer-centric application. Locations on the two lists total-
ing four to seven would require the midlevel implementation of the
application. A total of eight to ten means that your corporation will
gain the most benefit from the full, strong-level implementation of
customer-centricity.

To create multi-product solutions for global customers, a company
must work through lateral networks. A simple company with
a few local customers selling a single product can work through a
functional hierarchy. But a company with multiple product lines in
multiple countries using multiple functions must work less through
hierarchy and more through networks. Indeed, a company needs a
network for each strategically important dimension. Some compa-
nies, like Philips, have organized around global product lines called
business units. They have created country and functional networks
to coordinate across product lines. Other companies, like Nestlé,
have organized around country and regional profit centers. They have
created product (called strategic business units) and functional net-
works to coordinate across their geographical structure.

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There are different kinds of networks, and the organization design
challenge is to match the right kind of network with the strategic
importance of the customer dimension. Some networks are
informal, and others are formal with varying degrees of strength.
These formal networks vary in power and in the cost to coordinate
across the other dimensions. A list of these networks is shown in
Figure. This is an ordered list, with the simplest, cheapest, and
easiest to use listed first. The further up the list, the more powerful
the networks—and the more costly and difficult to employ them.
The designer should start at the bottom of the list and proceed up
until a network is found that matches the coordination requirements
of the customer dimension for their business. This list corresponds
to the score on the strategy locator. The bottom of the
lateral forms is for stand-alone products and the top for highly complex
plex solutions. The low and medium levels of complexity require
increasingly more powerful forms of lateral returnables.

 

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