BUSINESS STRATEGIES, OR MANAGEMENT FADS?

BUSINESS STRATEGIES, OR MANAGEMENT FADS?

Exactly 10 years ago this month ( in our previous incarnation as FutureScan), we published an item on the (then) revolutionary concepts of mass customization and consumer relationship marketing. We declared “segment of one” marketing to he the consumer strategy of the future. We included a synopsis of The One-to-One Future, by Don Peppers and Martha Rogers, condensing their underlying principles thusly:

* The new way of thinking: building relationships one customer at a time (manage your customers, not just your products).

* The big idea: don’t sell a single product to as many customers as possible – sell a single customer as many products as possible, over a long period of time and across different product lines (economies of scope, not scale).

* Goal: to establish an ongoing connection with individual consumers so as to promote loyalty, repeat purchases and promising referrals (take products to customers, not customers to products).

* Object: profitability and healthy margins, due to the fact that it is far more profitable to retain a current customer than to recruit a new one, especially over time.

* The most indispensable element: dialogue with, feedback from, and information about, each customer (collaborate with your customers).

* Measure of success: not market share but share of customer – the percentage of business in your category each of your customers does only with you.

* The technologies that make it possible: database marketing, massive computing capabilities and individually addressable media (but protect privacy, don’t threaten it).

* The necessary organizational change: reconfigure your business for individualization and customization (make your company consumer-centric), and do this in philosophy, strategy, operation and compensation.

Today, Peppers & Rogers Group is a management consulting firm recognized as the world’s leading authority on customer-based business strategy. [For a description of what it means to be a consumer-centric company, see Growth Strategies #962 (February 2004).] We have been citing and quoting Peppers and Rogers in these pages for 10 years. In a recent issue of their inside 1 to 1 newsletter, company president Steve Skinner writes on the topic of business strategies vs. management fads. Writes Skinner:

First, let’s examine the architecture of a business fad. According to a 2002 Harvard Business Review study, business and management fads “erupt on the scene, enjoy a period of prominence and then are supplanted.” Among the characteristics of business fads according to the report: they’re simple, prescriptive, falsely encouraging and easy to duplicate.

I’d like to add to that list of characteristics. Fads invite rationalization instead of a demand for rigorous thinking and analysis. They encourage companies to rush adoption instead of patiently developing and executing a strategy. If they have goals and metrics attached they are often unreasonably high. Solid strategies have a chance to grow and succeed in a company; fads are set up to fail. Strategies are a touchstone for growth; fads are an event marked by regret.

The guiding principle to use in reviewing new ideas, Skinner continues, is value to the customer. Without it, there is no value to the company. While this is a pretty simple principle, it is violated all the time. Some examples:

Mergers and Acquisitions. Acquisition (let’s face it, there are no true mergers) is a tactic dominated by blind focus. A mantra of “growth at any costs” leads to growing the top line of a company without regard for how the newly combined enterprise will serve its customers. It is well known that the majority of acquisitions fail to earn cost of capital.

Consider AT&T’s acquisition of NCR in 1991. The idea was that the synergy would allow the combined company to give customers an edge as communications and computing converged; it didn’t. Perhaps if AT&T had thought about better serving its customers rather than financial engineering, it wouldn’t be the nearly irrelevant has-been that it is today. AT&T market cap has fallen 93% since 1991 versus a 72% rise for the S&P500.

Customer Relationship Management. CRM is a good concept that, unfortunately, has become a fad. Gartner Group reported in 2002 that more than 50% of CRM implementations fail to deliver expected results. Given the way that many companies approached CRM without regard for customer value – that’s not terribly surprising.

Many companies have in fact figured out how to get customer strategy to work for their : customers, and for their company. But the term CRM has become tainted by business fad junkies and software vendors.

Self-Service. Consumers prefer well-designed and well-executed self-service solutions (kiosks, telephone and/or computer connections, etc.) because they are convenient, fast, accurate and anonymous. Honda reports that more than 85% of the pre-purchase research by its customers is now done through self-service applications. Delta Air Lines reports that 7.4 million of its customers used kiosks in 2002 to save time on check-ins.

Self-service applications can add value to the customer equation, presenting a more satisfying and valuable customer experience for a wide array of situations. But when poorly planned or poorly executed, self-service can be disastrous.

Outsourcing and “right’shoring.” Companies are outsourcing many functions, especially IT functions and customer contact centers. Cost savings enabled by cheap bandwidth and low-cost, English-speaking labor can be compelling. But companies should take a holistic, customer-centric perspective here.

Do customers receive greater value through an offshore contact center? Or are they pushed away by the experience of dealing with unprepared agents handling key customer-facing functions? J.P. Morgan recently pulled back key customer contact applications from an outsourcing vendor. Keeping customer value and experience at the center of such decisions is crucial.

Growth Strategies Implications

There is usually at least a kernel of value within most new concepts that manage to gain a following, concludes Skinner. The key is to not follow blindly, but to let your customers lead you toward “true north.” The trick is to figure out what works both for customers and for the company. A powerful customer franchise is the most important and valuable asset any business can develop.

Copyright FutureScan Oct 2004

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