The Customer Centred Strategy: Thinking. Strategically About Your Customers. Mark Jenkins Prentice Hall, 1997 ISBN: , 224 pages

Transcription

1 : Thinking Strategically About Your Customers Mark Jenkins Prentice Hall, 1997 ISBN: , 224 pages Theme of the Book This book sets out to enable managers to think strategically about their customers. It encourages managers to ask themselves thought provoking and challenging questions on how they perceive their customers. It uses different techniques to inspire managers to review how customers should be considered, it does not give one right answer, and hence is applicable to all managers in all contexts. The book is positioned in three parts: Challenging the way in which customers are viewed Tools and frameworks for exploring customers nature Illustrative case studies to show how the ideas in the book work in an organisational context.

2 Key Learning Points Customers should be seen as strategic stakeholders, not just a means to an end. A strategy is only realised when delivered to customers, ergo it must be centred around them. To think strategically, managers should challenge their previously held assumptions, and they should ask themselves why am I thinking this ; this can lead to new ways of understanding customers. Develop a clear definition of who the customers are, understand their diversity, complexity and needs. The difference between analytical thinking and strategic thinking is synthesis: it makes cohesive all the individual elements, via interpretation and connection, to give a clear basis upon which to act. Managers must not only consider today s customers, but also those who will be important in the future. Scenario planning absorbs managers in the issues of the future and into more challenging, strategic, ways of thinking. It alerts managers to how events may unfold, giving them the opportunity to begin developing ideas of how their organisation could act in response. For the development of a sustainable competitive advantage, a synthesis needs to be created between how managers understand their strategic customer and the unique competences of the organisation. Knowledge Interchange Book Summaries Page 2

3 Contents 1. Why are customers strategic? 2. What is strategic thinking? 3. Identifying and selecting customers. 4. Choosing and defining customer strategies. 5. Matching customers to competences. 6. Making it all happen the customer-focused organisation. 7. Reflections on the process. Knowledge Interchange Book Summaries Page 3

4 Why are Customers Strategic? It seems somewhat obvious to question whether customers are strategic, as without them no organisation (profit or non-profit) would exist. However, although most managers are aware of their importance, often they are viewed as a means to an end and not considered in the daily operations of the organisation. The customer should be valued as a strategic stakeholder because they significantly impact on: Revenue stream: which changes with demand, and affects cash flow. Market valuation: this exists in the form of brand value, but in reality is the value of the relationship between the organisation and its customers. Competitive advantage: a competitive advantage is created by either uniquely differentiating a product that the customer perceives as different from competitors, or from cost leadership where customers are price sensitive. If an organisation has a competitive advantage it will earn better returns compared with its competitors. If these can be sustained over the long term it is known as a sustainable competitive advantage. Learning and change: meeting customers needs and changing to do so, to ensure the organisation has, and maintains, a relationship with them. Not-for-profit: if the organisation cannot fulfil its customers needs, there is no purpose to its being. Managers often overlook the importance of customers as they focus on: Market share: where boundaries to define markets are continuously shifting. despite the fundamental role customers play in the strategic success of businesses, there is much that can be done to improve the way customers feature in the strategic thinking of organisations. Knowledge Interchange Book Summaries Page 4

5 Product-led view of the market: the product is the interaction managers have with the market; they do not get interaction with the customers. If managers think in terms of the product, not customers, they cannot conceive new forms of product to satisfy customers needs. Each customer is an individual, and unless they are regarded as such, instead of simply as a market, then managers We need to have a clear understanding of the nature and dynamics of the customer will fail to ask the important questions side of the market in order to effectively about how customers make decisions consider and define strategy. to, for example, buy the product or not, or what needs are being fulfilled, or why managers require a process which they sometimes prefer competitors enables them to create the detail and reality of the customers perspective, but products. Therefore customers are not at the same time allows them to deal with sufficiently represented in the strategy broad issues and the cohesive strategic decisions of the organisation. process. Knowledge Interchange Book Summaries Page 5

6 What is Strategic Thinking? Via the use of the following figure, the author explains that this is how managers need to be thinking about their customers strategically. Challenging the commonsense view Competitors Markets Understanding how we need to respond Process What is strategic thinking? Content Customers Learning Sensing and interpreting Considering responses Acting Ability to continually learn and adapt Open and creative view of the organisational environment Ability to consider and explore a number of potential directions Ability to connect strategic concepts with everyday routines and actions To think strategically managers must challenge and understand what they regard to be common sense: whatever ways the manager currently believes they understand the customer should be dissected and analysed. The conclusions from this are: the need to be synthesised to link them with the responses and abilities of the organisation. To achieve this, managers must not only think about their customers, but they must reflect on their own thinking process, because this is the key to enhancing the development of new ideas about the customer. This is accomplished by understanding and considering the strategic thinking process. It is in understanding this process that managers can say I m thinking like this because of x, y, z, so let s turn that around. Knowledge Interchange Book Summaries Page 6

7 The application of this process (see figure below) helps to free up the current mindset and challenge assumptions: Attention Stimuli 1 Sensing and interpreting 2 Considering responses 3 Deciding and acting Memory Feedback loop 4 Learning 1. Interpreting and sensing Managers receive stimuli from the environment; this could be any type of information, for example market research findings. These stimuli are filtered based on the attentive state, so what the manager is concentrating on at the time, for example coming in under budget, can blind managers from seeing new information. Interpreting stimuli is also strongly influenced by what is in the memory. Hence, new information is viewed by drawing on old information, and as a result, managers are most likely to stick to what they know and have done before, especially if it was successful. As this information can have wide-ranging and long term implications, but is often dynamic, ambiguous, and complicated in form, managers must identify that which is strategically significant to business and challenge it, be open to new things, and continually reinterpret old assumptions. Knowledge Interchange Book Summaries Page 7

8 2. Considering responses In attempting to determine how the organisation will respond to the identified stimuli, managers often return to what worked in the past. This is obviously a problem because they are responding with yesterday s solution, not today s or even tomorrow s, critically this also means that they are not considering all the possible alternatives. New ways to respond must be conceived because firms in some industries will all respond to stimuli in the same way, for example lowering price. Yet, it can be in thinking differently about how the customer would interpret the stimuli, that managers can create a response significantly different from their competitors. 3. Deciding and acting Actions should not be undertaken as a discrete stage which follows interpretation, but linked together. Too much analysis without acting on findings, can inhibit strategic thinking. This linkage between action and interpretation can be achieved by ensuring a match between the understanding of the environmental stimuli and the capabilities of the organisation, and what it wants to accomplish. What is required to think strategically is a combination of myopia (to have focus and aim) and divergence (to bring new creativity). 4. Learning The final stage in the thinking process is the feedback loop. This presents managers with an indication of the outcomes of their actions, and also allows for the interpretation of new stimuli in a novel light. The implications of the actions the organisation has taken must be reviewed, with even successful the notion of strategic thinking should provide a basis for questioning stimuli results being challenged. Otherwise and energising the organisation if nothing else. Knowledge Interchange Book Summaries Page 8

9 managers can fall in to the trap of resting on their laurels. Identifying Customers The author puts the identification of customers as being central to the focus of the organisation. Many managers do not realise that different groups in the organisation may perceive the same customers differently. These perceptions must be surfaced and a common, consistent understanding of the customer reached. An organisation can serve several completely diverse customer groups, with one individual being two different types of customer. For example with an airline an executive can be a business passenger when visiting client sites, and also a leisure flyer when travelling with family, at each time the customer will have different needs and expectations, all of which must be understood. Managers should ask themselves the following sorts of questions to identify their customers: Who provides the revenue? This might not be the customer, for example parents buying for their children, or the Government funding Hospitals. Who makes the decision to use the product? Who benefits from the product? Do the organisation s customers sell the product on to their own customers? If so needs further down the supply chain than the organisation s customers must be recognised. From this position the customer context should be identified, to facilitate an understanding of their requirements from the product. It is at this stage managers can concentrate on those customers which are of most strategic importance. To access this, some factors should be considered: Proportion of revenue generated: map the market to determine if there are future growth opportunities from customers customers. Knowledge Interchange Book Summaries Page 9

10 Does the customer influence other customers who could also be targeted? Stability: how sustainable are the customers, both financially and in terms of their durability for the product demand. Intensity of the competition for the customer: in the battle with competitors to attract the customers are there other customers being overlooked or under-served? Opportunities to add unique value: which customers will appreciate the differentiating elements of the product. Opportunities to save cost: some customer groups are more costly to serve, whereas others are price-sensitive. Considering the Future Managers must not limit themselves to thinking of today s customers, but instead must investigate how they will change, and which customers will be of importance in the future. In thinking of future customers managers must be mindful not to base their thinking on the past. To look to the future scenario planning (a creative, future-facing technique) can be performed: 1. Identify customer groups and drivers for change: this process needs to be repeated for all customer groups, what may affect the customers in the future, or alter how and why the customer would buy the product. 2. Organise drivers: which are certain outcomes, for example increasing population, and which are uncertain outcomes. 3. Rank the drivers: which are the most important and influential in changing the customer group. 4. Create scenarios: what are the causes and effects of each of the drivers, see example in figure below, which illustrates a causal map. It indicates a theme linked by cause and effect, and elaborates how different interactions and possibilities, may impact upon each other. Knowledge Interchange Book Summaries Page 10

11 Need for written guarantees Risk of litigation Measurable outcomes to interventions Greater accountability Autonomy of senior management reducing Increased shareholder power Demand for higher standards of business ethics Scenario planning alerts managers to triggers that might cause events to unfold. It means that ideas can be generated to determine how to act if the scenario unfolds. It allows the manager to build and test a view of the future to generate ideas and consolidate strategy. The process of scenario thinking absorbs managers into the future context and, therefore, into considering more challenging perspectives. Knowledge Interchange Book Summaries Page 11

12 Direction of Customer Strategies There are four strategies by which an organisation can grow based on different relationships with its customers: Products and/or services Existing New Existing Customer loyalty Customer extension Customers New Customer acquisition Customer diversification Customer loyalty strategies: increase customer loyalty to sustain competitive advantage, to build a relationship with the customer. Customer extension strategies: used in conjunction with customer loyalty strategies, maintain relationships but offer new products and services. Customer acquisition: identify more appropriate customers, this is also useful if the existing customers can attract new customers, for example by making something seem cool. Customer diversification: develop businesses for new customers with new products. This is only really feasible if following an opportunity, as it can be risky because the organisation may have had no experience with the customer base before. Knowledge Interchange Book Summaries Page 12

13 Positioning of Customer Strategy: The Customer Mix To bring the individuallity of the customer into the strategy process, a Strategic customer profile must be created. need to consider each individual to maximise the value This promotes a view of the optimal customer we offer throughout the organisation. The customer groups are described in context to give clarity to strategic thinking. When the description of the customer is understood, the customer matrix (shown in the figure below) can be used to position them. PERCEIVED USE VALUE HIGH AVERAGE LOW LOW AVERAGE HIGH PERCEIVED PRICE This encourages managers to ask themselves fundamental questions about how their product is seen by the customers, on two dimensions: Perceived use value: the value the customer gets from using the product. Perceived price: the price the customer perceives the product to cost, not the actual price. The customer matrix allows managers to plot the market, while establishing a clear sense of who the customer is and how they respond. If managers plot their competitors too, they can compare all the offerings in the market. Knowledge Interchange Book Summaries Page 13

14 Although managers can undertake this exercise they must be aware that as it is based on their own judgements, it is ideal to get the customer to plot the industry. Through this tool, managers can determine: 1. On what basis customers assess value: so for example a logistics firm may be valued for safe arrival of goods, the guarantees, speed of delivery. The organisation s actions should be based upon this value. 2. Assess how customers perceive relationships with competitors, for example managers can see if they are viewed as adding less value but costing more. 3. Can identify directions for growth when seeing customer. The customer matrix can be taken further to identify rankings and weights, on the valued elements, so managers can gauge comparisons more precisely. In the figure, product A is perceived as being the worst performer on the elements of most importance. High 5 4 Product C Rating Product B Low 0 Consistency of supply (30) Consistency of product (25) Innovation (20) Packaging (15) Product A Food Safety (10) Most Important DIMENSIONS OF PERCEIVED USE VALUE Least Important Note: (30) weighting of PUV dimensions As an organisation can have different customer groups, it must be completed for all of them. For example a household customer of a logistics firm may value safe delivery, but its business customer may prefer speedy service. Knowledge Interchange Book Summaries Page 14

15 The customer matrix shows managers where they should be positioned to achieve competitive advantage. Where do customers perceive value and price? By looking at what customers value, managers can question what can be altered in their organisation or with their product in order to make them more attractive. It allows managers to take the business in the direction of importance to the customer. Matching Customers to Competences Once the customer has been identified and understood, they must be matched with the abilities of the firm, with the aim of establishing a sustainable competitive advantage. The author argues that these three elements are key to building sustainable competitive advantage: Competences: these are the capabilities of the organisation, what it is good at. These stem from the way organisational resources are uniquely combined, see figure below for example. Financial Physical Human Organisational Debt/equity ratio Reserves Cash Plant and equipment Building Location Experience Knowledge Judgement Training Relationships History Data Systems Structure Knowledge Interchange Book Summaries Page 15

16 The capabilities must be thought of in terms of how they give value to the customer or reduce the price of the product. Rarity: once the competences are identified, need to determine if they are rare or simply something that everyone in the industry has. To do this the analysis must have depth to it, hence its not enough to say the organisation is good at innovation, managers must identify the details, for example is it a creative room, or the culture. Sustainability: is the competence difficult to copy or could anyone do it, for example any firm could copy Disney s Magic Kingdom, but it would be virtually impossible to copy the Disney essence. The findings from the customer matrix need to be aligned with the identified competences. This highlights whether the organisation is delivering what customers value. If it is not, then managers should question why the activity is being performed or consider if there are customers to be served from moving in that direction. Conversely, opportunities should not be followed if they are far removed from the competency base of the organisation, unless it is prepared to change to fulfil this need. The Customer Focused Organisation Finally, managers should assess what organisational issues could inhibit or advance the adoption of customer-orientated strategy? These issues will, predominately be linked to mindsets; the shared beliefs and assumptions, which lead everyone to think and act in similar ways. Mindsets can be at the level of: Industry: where radical change highlights a break to the mindset, such as when Dell sold directly to the customer. Organisational: these assumptions and values pervade the organisation and influence how people think and behave. Functional: departments will each think differently. Knowledge Interchange Book Summaries Page 16

17 If the mindset is in line with customers needs then it can facilitate the focus of the organisation. However if it is not, then managers must take steps to incorporate the essence of the strategic customer profile into the shared assumptions of the business, into the whole organisational mindset, and across every aspect of employee thinking and behaving. Organisation Culture The organisation culture is the fabric of the organisation, which, when shifted, can facilitate a transformation of the whole organisational mindset. To do this the author recommends using the cultural web: Rituals and Routines Symbols Organisation Structure MINDSET Power Measures and Controls Myths and Stories These six elements bind together and support the mindset, so managers need to understand them to be able to change them: Power: which are the individuals involved in the decision making, who are the catalysts or blockers for change, these people may not be at the top of the organisation, which groups can influence change. Organisation structure: does a formal structure or an informal network hold more influence? Knowledge Interchange Book Summaries Page 17

18 Measure and Control: the measures which determine performance, for example are people told to build relationships, but measured on cost savings? Ritual and Routine: routines are the visible elements of behaviour, these can lead people to stopping seeking alternatives, as they become stuck in their daily activities. The ritual elements are shown as right of passage, for example appraisals or meetings. Myths and Stories: who are the heroes and villains in the organisation; will the villains stop change in the organisation? Symbols: how the offices look, the language used, for example calling patients in hospitals trolley weights. Managers must question if the strategic customer profile is central to the organisational mindset. If it is not then they should consider what the outer elements of the cultural web would be if the customer was in the middle-this indicates what changes must occur in the organisation for it to have a real focus on the customer. Knowledge Interchange Book Summaries Page 18

19 Author MARK JENKINS is Professor of Business Strategy and Director of Graduate Programmes at Cranfield School of Management. Prior to joining Cranfield he held positions at Nottingham University Business School, Massey Ferguson Ltd and the Lex Service Group. His teaching and consulting activities focus on the areas of competitive strategy, knowledge management, teamwork and innovation. He is author of a number of books on strategic management, has published numerous journal articles, is on many journal editorial boards, and is the Chairman of the European Case Clearing House. He is currently researching the role of knowledge and innovation in the development of Formula 1 motorsport. Knowledge Interchange Book Summaries Page 19

20 Cranfield School of Management Produced by the Learning Services Team Cranfield School of Management Cranfield University 2008