Aligning With the Market: Focusing on 'The Customer's Total Experience'

By No Analyst or Consultant

June 21, 2006 — CSO —

When Lou Gerstner became chief executive of IBM in the early 1990s, Big Blue was on a course to be broken up into smaller companies, each responsible for separate IBM business units such as PCs, software and the like. But Gerstner concluded the strategy was "wrong-headed" because it was contrary to the wishes of customers, according to Wharton marketing professor George Day. Rather than assemble their computer systems from a variety of vendorsor even separate business units within IBMcustomers wanted help putting everything together.

So IBM embarked on a multiyear journey to align its organization with the marketplace, trying to create a company that was so responsive to the needs of customers that it would be hard for purchasers to go elsewhere. The bet was that movement away from a product-focused organization to one centered on customers would boost profits.

For IBM, the journey was successful. But in a forthcoming paper titled "Aligning the Organization with the Market," Day reports on a survey that found only mixed results among 347 medium- to large-size firms that attempted customer-focused reorganizations.

The companies reported significant improvements in everything from accountability for customer relationships to information sharing. Reorganized companies were easier for customers to do business with and better at responding to customer problems. But reorganizations often didn't translate into superior financial performance.

To better understand why, Day looked closely at 15 high-profile reorganizations around customers. Only IBM and three othersFidelity Investments, Capital One and Imationwere unqualified sustained successes, he says, while two others, including Cummins India and Astra-Merck, were deemed regional successes. "There were a number of companies that had mixed successes and others where it was too early to tellbecause it takes years to put this in place properly," Day notes. "A couple of companies said, 'Being really customer focused is all well and good, but that was for a different time and place. Now we're much more cost focused.'"

Shaking Things Up at Motorola and Intel

Aligning with the market works when firms keep a tight focus on the customer's total experience, Day says. Firms must adjust the pace of reorganization to match anticipated obstacles, and they must continue realigning as the market changeseven if that means moving the organizational structure somewhat away from a complete customer focus. The guidance is timely, since Day's research indicates that a growing number of companies are either in the process of, or soon will be, attempting customer-focused reorganizations.

Motorola, for example, decided in late 2004 that it would scrap an existing bureaucracy based on distinct product lines so that the company could instead be organized around customer markets such as the digital home, Day says. The hope is that the new Motorola will be better able to sell products that let consumers transport digital information from the house to the car to the workplace. In January 2005, Intel announced a similar reorganization. Departing from the old strategy of designing discrete chips and expecting customers to adopt them, Intel decided it would bundle processes, chips and software into platforms tailored to customer segments, such as mobile computing. It's too early to say whether either reorganization will be successful, Day says.

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