Spend a Day in the Life of Your Customers by Francis J.Gouillart and Frederick D.Sturdivant Harvard Business review Reprint 94103
Spend a Day in the Life of Your Customers by Francis J. Gouillart and Frederick D. Sturdivant Reprint 94103 Harvard Business Review
At industrial companies,there is no substitute for senior managers'personal sense of the market. Spend a Day in the Life of Your Customers by Francis J.Gouillart and Frederick D.Sturdivant Every successful business is built on superior company's strategic posture.Bill Gates,Akio Mori- senses-of timing,opportunity,responsibility,and, ta,Sam Walton,and others brought this ability to not infrequently,humor.None,however,is more the enterprises they founded.Without it,their ven- critical than the ability to sense the market.A se- tures might have been short-lived or at least far less nior executive's instinctive capacity to empathize successful. with and gain insights from customers is the single Paying attention to the customer is certainly not most important skill he or she can use to direct a new idea.But many top-level managers,particu- technologies,product and service offerings,com- larly those at industrial companies,consider cus- munications programs,indeed,all elements of a tomer contact the bailiwick of sales and market- Copyright @1993 by the President and Fellows of Harvard College.All rights reserved. DRAWINGS BY PAUL MEISEL
Copyright 1993 by the President and Fellows of Harvard College. All rights reserved. DRAWINGS BY PAUL MEISEL Every successful business is built on superior senses – of timing, opportunity, responsibility, and, not infrequently, humor. None, however, is more critical than the ability to sense the market. A senior executive’s instinctive capacity to empathize with and gain insights from customers is the single most important skill he or she can use to direct technologies, product and service offerings, communications programs, indeed, all elements of a company’s strategic posture. Bill Gates, Akio Morita, Sam Walton, and others brought this ability to the enterprises they founded. Without it, their ventures might have been short-lived or at least far less successful. Paying attention to the customer is certainly not a new idea. But many top-level managers, particularly those at industrial companies, consider customer contact the bailiwick of sales and marketAt industrial companies, there is no substitute for senior managers’ personal sense of the market. Spend a Day in the Life of Your Customers by Francis J. Gouillart and Frederick D. Sturdivant
ing staff.And even if they do believe that market tomer relates to the next or how customers view focus is a priority,most retain only limited contact competing products or services.Managers faced with consumers as their organizations grow,rely- with too much general information tend to average ing instead on subordinates'reports-second-or results,blur boundaries,and miss distinct,seg- third-hand information-to define and sense the mented market opportunities. market for them. Finally,unless senior executives make market fo- Such approaches are dangerous for several rea- cus a personal,strategic priority,they will not initi- sons.First,customer input and market data are use- ate organizational change,even if all data indicate ful only if they're coming from the right sources. that such change is warranted.Most top-level man- Most industrial companies define "customer"as agers routinely spend time visiting customers.But the next entity in the distribution channel and stop all too often,these visits are superficial;the man- there,routinely gathering all their marketing infor- agers don't invest the effort needed to understand mation accordingly.This is a serious mistake.Each and empathize with the customer.They may have link in the chain right down to the end user is as im- preconceived ideas about a client's situation and,as portant as the next.Only market data that reflects a result,may not ask imaginative,probing ques- desires and needs at every step can give senior man- tions or separate significant kernels of information agers the kind of comprehensive picture they need from the overall picture. to make informed,accurate decisions about new This failure to listen carefully to all customers,to services,product positioning,and the like.For con- empathize with their needs and desires,results in sumer goods companies like Coca-Cola,Gillette, reduced service levels,streamlined product lines, and Nike,the chain is short,so even information and uniform product designs.It inadvertently fa- that doesn't reflect all steps will probably be on or vors cost reduction at the expense of individuality, near target.But for industrial concerns,several even when market needs point toward greater cus- steps removed from the end users of a finished prod- uct,such an error can result in a grossly inaccurate Francis J.Gouillart and Frederick D.Sturdivant are se- portrayal of the market. nior vice presidents at Gemini Consulting.This article is Sturdivant's sixth contribution to HBR.The authors Another danger is that most managers do not un- wish to acknowledge the profound influence that the derstand the distinction between information and work of Michael I.Lanning of Atlanta,Georgia,and knowledge.Even if they include information from Dr.Lynn W.Phillips of Woodside,California,has had on all points on the distribution channel,most general the ideas discussed in these pages.Lanning and Phillips market data do not show a manager how each cus- are principals of Lanning,Phillips and Associates. HARVARD BUSINESS REVIEW January-February 1994 117
HARVARD BUSINESS REVIEW January-February 1994 117 ing staff. And even if they do believe that market focus is a priority, most retain only limited contact with consumers as their organizations grow, relying instead on subordinates’ reports – second- or third-hand information – to define and sense the market for them. Such approaches are dangerous for several reasons. First, customer input and market data are useful only if they’re coming from the right sources. Most industrial companies define “customer” as the next entity in the distribution channel and stop there, routinely gathering all their marketing information accordingly. This is a serious mistake. Each link in the chain right down to the end user is as important as the next. Only market data that reflects desires and needs at every step can give senior managers the kind of comprehensive picture they need to make informed, accurate decisions about new services, product positioning, and the like. For consumer goods companies like Coca-Cola, Gillette, and Nike, the chain is short, so even information that doesn’t reflect all steps will probably be on or near target. But for industrial concerns, several steps removed from the end users of a finished product, such an error can result in a grossly inaccurate portrayal of the market. Another danger is that most managers do not understand the distinction between information and knowledge. Even if they include information from all points on the distribution channel, most general market data do not show a manager how each customer relates to the next or how customers view competing products or services. Managers faced with too much general information tend to average results, blur boundaries, and miss distinct, segmented market opportunities. Finally, unless senior executives make market focus a personal, strategic priority, they will not initiate organizational change, even if all data indicate that such change is warranted. Most top-level managers routinely spend time visiting customers. But all too often, these visits are superficial; the managers don’t invest the effort needed to understand and empathize with the customer. They may have preconceived ideas about a client’s situation and, as a result, may not ask imaginative, probing questions or separate significant kernels of information from the overall picture. This failure to listen carefully to all customers, to empathize with their needs and desires, results in reduced service levels, streamlined product lines, and uniform product designs. It inadvertently favors cost reduction at the expense of individuality, even when market needs point toward greater cusFrancis J. Gouillart and Frederick D. Sturdivant are senior vice presidents at Gemini Consulting. This article is Sturdivant’s sixth contribution to HBR. The authors wish to acknowledge the profound influence that the work of Michael J. Lanning of Atlanta, Georgia, and Dr. Lynn W. Phillips of Woodside, California, has had on the ideas discussed in these pages. Lanning and Phillips are principals of Lanning, Phillips and Associates
A DAY WITH THE CUSTOMER tomization.What's more,managers who are not Woodbridge sales manager."I'm thinking of switch- market focused often come to the conclusion that ing companies." there is really no fundamental difference between The Woodbridge sales manager did not reply but their offering and that of their competitors.Com- thought to himself,"We could deliver in a week, moditization,the natural outgrowth of all competi- too,if we had to.But we couldn't do it routinely." Woodbridge's lead time was four weeks,and it was hard enough to If all competitors fight with meet that schedule. The minor irritation grew into a the same weapons,the natural full-blown headache when Wood- bridge's CEO saw a key customer, result is commoditization and a soup manufacturer,a few weeks later on his yearly "Meet the Cus- declining profit margins. tomers"trip. "We find Mountain View Papers can save us when we run out of pack- tors fighting with the same weapons,becomes a ages during promotions,"the soup manufacturer self-fulfilling prophecy.And commoditization is told the CEO and sales manager."As a matter of why so many industrial companies that embraced fact,we have decided to switch about 40%of our time-based competition or reengineering may have business over to them."A gulp could be heard from realized short-term gains but have ended up de- the Woodbridge delegation. stroying their industries'profit margins. "Let's Counterattack."Upon his return,Wood- Top-level managers need to spend a day in the life bridge's CEO immediately called a senior staff of key customers in their distribution chains.There meeting.Something had to be done.But what?The is no substitute for managers'instincts,imagina- tension was as thick as the pea soup that Wood- tion,and personal knowledge of the market.It bridge helped package. should be the essence of corporate strategy.Only in Marketing and sales attacked manufacturing's that context can analytical devices like customer- inability to bring the order-to-delivery cycle time satisfaction indices,market-share data,and bench- below four weeks.The manufacturing manager marking results become servants rather than mas- struck back."Yes,it takes four weeks to go from ters.And only with market-focused leadership can order to delivery,"he agreed."But have you ever companies continuously and quickly reinvent them- examined what you are doing to us by constantly selves to meet new market needs. adding new products?At last count,we had 440 Consider the following fable as an illustration items in our catalogue.I'll bet Mountain View and of how senior executives'commitment to market- Hyde Park Papers have half that many." focused management makes a critical difference. "Mountain View has about 140 items in their catalogue,Hyde Park around 240,"the market re- The Tale of Woodbridge Papers search director proudly announced."This should legitimize market research for a good six months," Once upon a time in a New Hampshire valley, he thought. there was a proud manufacturer of specialty papers The head of manufacturing pursued the offen- called the Woodbridge Company.Woodbridge made sive."If we didn't have all these shiny vermilion colored packaging paper used by the food industry and shamrock green papers to manufacture,we'd be for soup,ketchup,and junk food.It dominated its all set,"he said."These papers run two or three market.(Hyde Park Papers and Mountain View Pa- times a year at most and in puny quantities.But the pers,its closest competitors,had long ranked sec- color stays in the machines for three days and,as ond and third,respectively.)Woodbridge made its a result,setup costs have skyrocketed.I'll bet our customers happy,from the printers who bought pa- competitors don't have shiny vermilion or sham- per from the company to the food companies who rock green." bought labels from the printers. The CEO considered all the comments,then One day,however,Mountain View Papers began went to work.He set up a steering committee made displaying an abundance of new-found energy.A up of department heads from manufacturing,sales, loyal customer-a printer from Chicago-informed marketing,finance,customer service,and informa- Woodbridge of the threat."Mountain View is now tion technology.He also created a working task able to deliver in a week,the Chicago rep told the force of high performers.The two groups learned 118 HARVARD BUSINESS REVIEW January-February 1994
A DAY WITH THE CUSTOMER 118 HARVARD BUSINESS REVIEW January-February 1994 tomization. What’s more, managers who are not market focused often come to the conclusion that there is really no fundamental difference between their offering and that of their competitors. Commoditization, the natural outgrowth of all competitors fighting with the same weapons, becomes a self-fulfilling prophecy. And commoditization is why so many industrial companies that embraced time-based competition or reengineering may have realized short-term gains but have ended up destroying their industries’ profit margins. Top-level managers need to spend a day in the life of key customers in their distribution chains. There is no substitute for managers’ instincts, imagination, and personal knowledge of the market. It should be the essence of corporate strategy. Only in that context can analytical devices like customersatisfaction indices, market-share data, and benchmarking results become servants rather than masters. And only with market-focused leadership can companies continuously and quickly reinvent themselves to meet new market needs. Consider the following fable as an illustration of how senior executives’ commitment to marketfocused management makes a critical difference. The Tale of Woodbridge Papers Once upon a time in a New Hampshire valley, there was a proud manufacturer of specialty papers called the Woodbridge Company. Woodbridge made colored packaging paper used by the food industry for soup, ketchup, and junk food. It dominated its market. (Hyde Park Papers and Mountain View Papers, its closest competitors, had long ranked second and third, respectively.) Woodbridge made its customers happy, from the printers who bought paper from the company to the food companies who bought labels from the printers. One day, however, Mountain View Papers began displaying an abundance of new-found energy. A loyal customer – a printer from Chicago – informed Woodbridge of the threat. “Mountain View is now able to deliver in a week,” the Chicago rep told the Woodbridge sales manager. “I’m thinking of switching companies.” The Woodbridge sales manager did not reply but thought to himself, “We could deliver in a week, too, if we had to. But we couldn’t do it routinely.” Woodbridge’s lead time was four weeks, and it was hard enough to meet that schedule. The minor irritation grew into a full-blown headache when Woodbridge’s CEO saw a key customer, a soup manufacturer, a few weeks later on his yearly “Meet the Customers” trip. “We find Mountain View Papers can save us when we run out of packages during promotions,” the soup manufacturer told the CEO and sales manager. “As a matter of fact, we have decided to switch about 40% of our business over to them.” A gulp could be heard from the Woodbridge delegation. “Let’s Counterattack.” Upon his return, Woodbridge’s CEO immediately called a senior staff meeting. Something had to be done. But what? The tension was as thick as the pea soup that Woodbridge helped package. Marketing and sales attacked manufacturing’s inability to bring the order-to-delivery cycle time below four weeks. The manufacturing manager struck back. “Yes, it takes four weeks to go from order to delivery,” he agreed. “But have you ever examined what you are doing to us by constantly adding new products? At last count, we had 440 items in our catalogue. I’ll bet Mountain View and Hyde Park Papers have half that many.” “Mountain View has about 140 items in their catalogue, Hyde Park around 240,” the market research director proudly announced. “This should legitimize market research for a good six months,” he thought. The head of manufacturing pursued the offensive. “If we didn’t have all these shiny vermilion and shamrock green papers to manufacture, we’d be all set,” he said. “These papers run two or three times a year at most and in puny quantities. But the color stays in the machines for three days and, as a result, setup costs have skyrocketed. I’ll bet our competitors don’t have shiny vermilion or shamrock green.” The CEO considered all the comments, then went to work. He set up a steering committee made up of department heads from manufacturing, sales, marketing, finance, customer service, and information technology. He also created a working task force of high performers. The two groups learned If all competitors fight with the same weapons, the natural result is commoditization and declining profit margins
about empowerment and becoming agents of creasingly alike after successive waves of pruning change.They became an encyclopedia of continu- by Woodbridge.In quality and service,the three ous improvement,reengineering,process redesign, competitors consistently ranked on a par with one and business transformation methods.The groups another in customer surveys.Their benchmarking mapped out the order-fulfillment process,from or- had been so effective that they looked identical. der entry to delivery at the customers'dock and The term commodity raised its ugly head.Mar- billing.They challenged assumptions,weighed or- keting people again accused manufacturing people ganizational options,studied how information of evil behavior,informing them that narrowing technology could help.They set up a war room to the product line had taken a heavy toll.There was track results.Close to 300 people devoted time not much they could do to better Mountain View to the effort. Papers or Hyde Park."Price is all that we've got," Within three months,Woodbridge had made sev- they moaned. eral important discoveries.The manufacturing cy- Seven years later,the colored-packaging-paper cle was in fact only two days long,a far cry from the industry had gone the way of the steel industry. four weeks allotted for the full order-to-delivery cy- Woodbridge-like Mountain View and Hyde Park- cle.Queuing,paper shuffling,and setup took up the hadhad one profitable year over the last five.Col- rest of the time.After identifying the weak spots, lectively,the companies had laid off 30,000 people the groups began to streamline the process. across five states. An activity-based costing analysis of profitability What Really Happened.We have seen this sce- showed that 35%-about 150-of the manufactured nario played out in the real world all too many items were destroying around 40%of the profits. times.But consider another ending based on the ac- These items were the lowest volume articles in the tual experiences of a U.S.paper company that suc- catalogue.Good-bye,shiny vermilion and sham- cessfully repositioned itself and is now one of the rock green! most profitable paper manufacturers in the world. After another three months of implementation, Rewind the tape to the first management meeting. the order-fulfillment cycle was down to nearly one- Woodbridge's senior staff is trying to find a way to and-one-half weeks.Woodbridge had reduced its in- respond to Mountain View's newly reduced deliv- ventory-control staff by 50%.And the angry phone ery time.Here's what really happened: calls from distributors had stopped.Market share, In the midst of all the yelling,the CEO's voice which had been dropping at the rate of about 1%per broke through,"Why don't we invite the unhappy month for six months,stabilized.Everybody cele- soup manufacturer and the Chicago printer to come brated.The marketing,sales,and manufacturing talk to us about their concerns?" managers toasted their unwavering partnership. "But we have a lot of customer data,"the market- Encouraged by its success,Woodbridge applied ing vice president protested,offended that his boss for the Malcolm Baldrige National Quality Award. would suggest that there was still something to It sent people on benchmarking missions to Japan. learn about his customers."What about our sur- Sony became its standard for new product introduc- veys,our focus groups?" tion,L.L.Bean for distribution,Procter Gamble The CEO ignored him and told the vice president for marketing.Woodbridge even benchmarked its of planning to organize the event.The marketing benchmarking process,choosing Xerox as best vice president sulked for a day. practice.The cafeteria staff began to strive for world-class status. A year later,Woodbridge became Like Woodbridge,industrials the proud recipient of the Baldrige Award.The whole valley rejoiced. can reposition themselves to End of story?Well,not quite... The Unhappy Ending.Within a avoid commoditization. year,a frightening new marketplace pattern emerged:prices steadily de- clined.Every bid required heavy discounting.The The meeting took place a month later.The soup three paper companies met one another's prices as a manufacturer's delegation included the product matter of policy.Each of the three took turns initi- manager,the packaging buyer,and the soup plant ating a price cut,always blaming the others. superintendent.The Chicago printer was repre- Lead time was now the same for all players in- sented by its CEO.Woodbridge had a delegation of volved:about one week.Product lines looked in- ten people,led by the vice president of planning.To HARVARD BUSINESS REVIEW January-February 1994 119
HARVARD BUSINESS REVIEW January-February 1994 119 about empowerment and becoming agents of change. They became an encyclopedia of continuous improvement, reengineering, process redesign, and business transformation methods. The groups mapped out the order-fulfillment process, from order entry to delivery at the customers’ dock and billing. They challenged assumptions, weighed organizational options, studied how information technology could help. They set up a war room to track results. Close to 300 people devoted time to the effort. Within three months, Woodbridge had made several important discoveries. The manufacturing cycle was in fact only two days long, a far cry from the four weeks allotted for the full order-to-delivery cycle. Queuing, paper shuffling, and setup took up the rest of the time. After identifying the weak spots, the groups began to streamline the process. An activity-based costing analysis of profitability showed that 35% – about 150 – of the manufactured items were destroying around 40% of the profits. These items were the lowest volume articles in the catalogue. Good-bye, shiny vermilion and shamrock green! After another three months of implementation, the order-fulfillment cycle was down to nearly oneand-one-half weeks. Woodbridge had reduced its inventory-control staff by 50%. And the angry phone calls from distributors had stopped. Market share, which had been dropping at the rate of about 1% per month for six months, stabilized. Everybody celebrated. The marketing, sales, and manufacturing managers toasted their unwavering partnership. Encouraged by its success, Woodbridge applied for the Malcolm Baldrige National Quality Award. It sent people on benchmarking missions to Japan. Sony became its standard for new product introduction, L.L. Bean for distribution, Procter & Gamble for marketing. Woodbridge even benchmarked its benchmarking process, choosing Xerox as best practice. The cafeteria staff began to strive for world-class status. A year later, Woodbridge became the proud recipient of the Baldrige Award. The whole valley rejoiced. End of story? Well, not quite… The Unhappy Ending. Within a year, a frightening new marketplace pattern emerged: prices steadily declined. Every bid required heavy discounting. The three paper companies met one another’s prices as a matter of policy. Each of the three took turns initiating a price cut, always blaming the others. Lead time was now the same for all players involved: about one week. Product lines looked increasingly alike after successive waves of pruning by Woodbridge. In quality and service, the three competitors consistently ranked on a par with one another in customer surveys. Their benchmarking had been so effective that they looked identical. The term commodity raised its ugly head. Marketing people again accused manufacturing people of evil behavior, informing them that narrowing the product line had taken a heavy toll. There was not much they could do to better Mountain View Papers or Hyde Park. “Price is all that we’ve got,” they moaned. Seven years later, the colored-packaging-paper industry had gone the way of the steel industry. Woodbridge – like Mountain View and Hyde Park – had had one profitable year over the last five. Collectively, the companies had laid off 30,000 people across five states. What Really Happened. We have seen this scenario played out in the real world all too many times. But consider another ending based on the actual experiences of a U.S. paper company that successfully repositioned itself and is now one of the most profitable paper manufacturers in the world. Rewind the tape to the first management meeting. Woodbridge’s senior staff is trying to find a way to respond to Mountain View’s newly reduced delivery time. Here’s what really happened: In the midst of all the yelling, the CEO’s voice broke through, “Why don’t we invite the unhappy soup manufacturer and the Chicago printer to come talk to us about their concerns?” “But we have a lot of customer data,” the marketing vice president protested, offended that his boss would suggest that there was still something to learn about his customers. “What about our surveys, our focus groups?” The CEO ignored him and told the vice president of planning to organize the event. The marketing vice president sulked for a day. The meeting took place a month later. The soup manufacturer’s delegation included the product manager, the packaging buyer, and the soup plant superintendent. The Chicago printer was represented by its CEO. Woodbridge had a delegation of ten people, led by the vice president of planning. To Like Woodbridge, industrials can reposition themselves to avoid commoditization
A DAY WITH THE CUSTOMER the surprise of the soup contingent,the first battery paper in 100-inch rolls.My printing press is 95 of questions didn't touch on paper or printing.In- inches wide.The first thing I do is chop off 5 inches stead,the Woodbridge delegation asked questions of product,which creates a lot of scrap and an addi- that focused on soup manufacturing and market- tional labor operation.I've been complaining about ing:problems they had,issues they faced,how they this for years." could increase their own profit. "That's news to me,"said Woodbridge's manu- "One of our problems is in handling promo- facturing vice president,glaring at the sales rep.It tions,"the product manager volunteered,although seemed that communication gaps also existed at she really was not sure why she was baring her soul Woodbridge. in front of a supplier she didn't deal with directly. "It would be worth studying the engineering to "We never know how successful we'll be until the see if we could align the width of our machine with product hits the grocery store shelves.When the yours,"the Woodbridge engineering services man- promotion is successful,we stock out.This costs ager said."Our machine,as far as Iknow,works on- big money in lost sales and profit margin,not to ly for printing and packaging applications,and mention wasted advertising dollars." most of your colleagues must have similar presses. "You often forget to notify us,your colleagues, The only reason we made the paper as wide as we when you run a promotion,"the soup plant super- did is that it is generally accepted in the industry intendent suggested sheepishly."If you don't let us that the wider the machine,the cheaper it can make the product." "If the engineering study works The soup manufacturer needed out,we could charge you by the us- brightly colored,hard-to-make able square yard rather than by the pound as we do today,"the market- ing vice president suggested. paper for its export market. “I would like that,”the Chicago printer said,beaming."I sell square inches of printed stuff,not pounds." know,our manufacturing schedule is blindsided." The two sketched out the rough parameters of the The superintendent and product manager seemed engineering,the new economics of the redesigned to be discussing the topic for the first time. paper machine,and the associated pricing. "But the problem is further compounded by the Late in the day,the soup manufacturer's team re- fact that no printer can print packages fast enough vealed even more about its industry."The key to to avoid stock outs,"the product manager contin- our business is taste,taste,and taste,"the product ued explaining. manager said."But the other trick is to make our "That's true,"the Chicago printer conceded. soup stand out on the shelf.Hello,pick me,I'm "But we aren't the problem.The problem rests with your soup.'Well,the business is increasingly com- the paper manufacturer and its three to four weeks plex.We need to tailor our recipes and packages of lead time.We have old printing presses we could more to regional tastes through the distribution activate if we could get the paper faster." system.For example,they like gazpacho spicy in "Is that why you like Mountain View's one-week the Southwest,bland in New England.We've also lead time?"asked Woodbridge's vice president of found that brightly colored packaging helps in the manufacturing. export market.Holland likes red cans.France,on "You got it,"the printer and the soup manufac- the other hand,loves a picture of a vegetable garden turer answered in unison. on a dark green background." At the break,Woodbridge's manufacturing vice "Dealing with this fragmentation is a night- president approached the Chicago printer."You mare,"the soup plant superintendent confirmed. know,we have an old paper machine we don't use "France is typically a six-hour run every six anymore.It is neither the fastest nor the cheapest months,Holland a two-hour run.Every time,we machine on the block.But it could help us in these have to change the setup,reformulate the recipe, stock-out situations."They sketched out on a nap- locate the packaging,run the order,and clean up." kin how the integrated system would work. "The complexity you describe applies to us as There were to be still other surprises.In the mid- well,"said the Woodbridge manufacturing vice dle of the afternoon,the Chicago printer told the president."Our shiny vermilion,which must be for Woodbridge team,"One of the most irritating the Dutch market,is very hard to make.The same things for me is the fact that you keep delivering is true for the shamrock green." 120 HARVARD BUSINESS REVIEW January-February 1994
A DAY WITH THE CUSTOMER 120 HARVARD BUSINESS REVIEW January-February 1994 the surprise of the soup contingent, the first battery of questions didn’t touch on paper or printing. Instead, the Woodbridge delegation asked questions that focused on soup manufacturing and marketing: problems they had, issues they faced, how they could increase their own profit. “One of our problems is in handling promotions,” the product manager volunteered, although she really was not sure why she was baring her soul in front of a supplier she didn’t deal with directly. “We never know how successful we’ll be until the product hits the grocery store shelves. When the promotion is successful, we stock out. This costs big money in lost sales and profit margin, not to mention wasted advertising dollars.” “You often forget to notify us, your colleagues, when you run a promotion,” the soup plant superintendent suggested sheepishly. “If you don’t let us know, our manufacturing schedule is blindsided.” The superintendent and product manager seemed to be discussing the topic for the first time. “But the problem is further compounded by the fact that no printer can print packages fast enough to avoid stock outs,” the product manager continued explaining. “That’s true,” the Chicago printer conceded. “But we aren’t the problem. The problem rests with the paper manufacturer and its three to four weeks of lead time. We have old printing presses we could activate if we could get the paper faster.” “Is that why you like Mountain View’s one-week lead time?” asked Woodbridge’s vice president of manufacturing. “You got it,” the printer and the soup manufacturer answered in unison. At the break, Woodbridge’s manufacturing vice president approached the Chicago printer. “You know, we have an old paper machine we don’t use anymore. It is neither the fastest nor the cheapest machine on the block. But it could help us in these stock-out situations.” They sketched out on a napkin how the integrated system would work. There were to be still other surprises. In the middle of the afternoon, the Chicago printer told the Woodbridge team, “One of the most irritating things for me is the fact that you keep delivering paper in 100-inch rolls. My printing press is 95 inches wide. The first thing I do is chop off 5 inches of product, which creates a lot of scrap and an additional labor operation. I’ve been complaining about this for years.” “That’s news to me,” said Woodbridge’s manufacturing vice president, glaring at the sales rep. It seemed that communication gaps also existed at Woodbridge. “It would be worth studying the engineering to see if we could align the width of our machine with yours,” the Woodbridge engineering services manager said. “Our machine, as far as I know, works only for printing and packaging applications, and most of your colleagues must have similar presses. The only reason we made the paper as wide as we did is that it is generally accepted in the industry that the wider the machine, the cheaper it can make the product.” “If the engineering study works out, we could charge you by the usable square yard rather than by the pound as we do today,” the marketing vice president suggested. “I would like that,” the Chicago printer said, beaming. “I sell square inches of printed stuff, not pounds.” The two sketched out the rough parameters of the engineering, the new economics of the redesigned paper machine, and the associated pricing. Late in the day, the soup manufacturer’s team revealed even more about its industry. “The key to our business is taste, taste, and taste,” the product manager said. “But the other trick is to make our soup stand out on the shelf. ‘Hello, pick me, I’m your soup.’ Well, the business is increasingly complex. We need to tailor our recipes and packages more to regional tastes through the distribution system. For example, they like gazpacho spicy in the Southwest, bland in New England. We’ve also found that brightly colored packaging helps in the export market. Holland likes red cans. France, on the other hand, loves a picture of a vegetable garden on a dark green background.” “Dealing with this fragmentation is a nightmare,” the soup plant superintendent confirmed. “France is typically a six-hour run every six months, Holland a two-hour run. Every time, we have to change the setup, reformulate the recipe, locate the packaging, run the order, and clean up.” “The complexity you describe applies to us as well,” said the Woodbridge manufacturing vice president. “Our shiny vermilion, which must be for the Dutch market, is very hard to make. The same is true for the shamrock green.” The soup manufacturer needed brightly colored, hard-to-make paper for its export market
Wireline:Identifying the Need for Segmented Services When senior managers spend a day in the life of large,deep-well,complex applications.They gathered their customers,the rewards are twofold.First,the ex- helpful information about how they could provide bet- perience generates new insights into business oppor- ter service.Punctuality was one issue,"Schlumberger tunities,reawakening managers'instincts and chal- arrogance"another,unnecessary tests a third.There lenging their senses.It also becomes the catalyst for were no groundbreaking discoveries,but Wireline action.Rather than looking at their customers identified and took to heart a series of incremental im- through a one-way mirror,market-focused managers provements.And,by and large,these companies val- feel their customers'stresses,joys,disappointments, ued Wireline's technological leadership. and rewards.From this personal involvement comes Wireline's managers found a different story in an- the conviction needed to drive organizational change. other market segment.Close to 40%of Wireline's Consider the Wireline division of Schlumberger,a market was in shallow well and smaller property major player in the petroleum services industry.Wire work.These properties were owned by individuals line helps owners of oil properties assess the con- like a San Antonio dentist and a Tyler cattle rancher, figuration of the oil reservoirs on their properties. not by major corporations.Most properties were Simply stated,Wireline easy to canvas;their is in the business of owners didn't need helping owners maxi- Wireline's full range of mize the yield from technological skills or their petroleum assets. want to pay for unnec- To do so,Wireline essary expertise if they brings together geologi- could get someone else cal,mechanical,and to do the job for less. electronic engineering Competitors had iden- skills.The company's tified and targeted engineers drill holes Wireline's vulnerabil- several thousand feet ity,and Wireline was into the ground and losing market share. analyze what they find. Wireline's managers They lower electronic responded by creating a sensors underground special division focused and interpret the signals they pick up.When they find on the needs of shallow-well and smaller property great potential for recovery,they build a three-dimen- owners.They designed a simpler,cheaper version sional model of the oil reservoir,using one of the most of the truck,downsizing its electronic and mechan- complex computer applications known to man.The ical capability.They used their technology to im- symbol of Wireline's expertise is the large truck that prove operating efficiency,which in turn reduced employees drive to land-based projects;it is fully project cost.They set up a separate business plan equipped with mechanical and electronic gear-Wire- with different profit expectations and management. line's latest technologies-and ready to solve any As a result,the company regained its lost market reservoir definition problem. share and then some. The company has long encouraged pride and un- Wireline's managers might have spotted the need abashed elitism.Wireline's engineers are selected for segmented services by analyzing the company's from leading engineering programs around the world. market in a traditional way.But it is very difficult for The organization encourages a global attitude;most of a large,established corporation,especially one with a its engineers will move from Nigeria to Alaska at the fixed culture like Wireline's,to commit to significant drop of a hat,and many speak several languages. organizational change when that change involves a But back in the early 1980s,Wireline's general man- down-market move.As Wireline's general manager ager noticed that market share was slipping.Confi- put it,only the direct experience of spending a day dent that the company's reputation as the technologi- with the San Antonio dentist,from a morning at the cal leader was solid,the general manager wondered office fixing cavities to an afternoon walk in the oil what was going wrong.He sent himself and his direct patch,compelled Wireline to redesign its truck and reports to spend a day in their customers'shoes."I move beyond its elitist mind-set to compete in the want us to feel their pain,"he said. smaller property segment.One of the field managers They started with their stronghold:companies like expressed it best,saying,"After sweating with the guy Exxon,Mobil,and Shell that generally commissioned for a whole day,I felt like I had to help him out." PHOTO BY LARRY PAYNE 121
PHOTO BY LARRY PAYNE 121 Wireline: Identifying the Need for Segmented Services When senior managers spend a day in the life of their customers, the rewards are twofold. First, the experience generates new insights into business opportunities, reawakening managers’ instincts and challenging their senses. It also becomes the catalyst for action. Rather than looking at their customers through a one-way mirror, market-focused managers feel their customers’ stresses, joys, disappointments, and rewards. From this personal involvement comes the conviction needed to drive organizational change. Consider the Wireline division of Schlumberger, a major player in the petroleum services industry. Wireline helps owners of oil properties assess the configuration of the oil reservoirs on their properties. Simply stated, Wireline is in the business of helping owners maximize the yield from their petroleum assets. To do so, Wireline brings together geological, mechanical, and electronic engineering skills. The company’s engineers drill holes several thousand feet into the ground and analyze what they find. They lower electronic sensors underground and interpret the signals they pick up. When they find great potential for recovery, they build a three-dimensional model of the oil reservoir, using one of the most complex computer applications known to man. The symbol of Wireline’s expertise is the large truck that employees drive to land-based projects; it is fully equipped with mechanical and electronic gear – Wireline’s latest technologies – and ready to solve any reservoir definition problem. The company has long encouraged pride and unabashed elitism. Wireline’s engineers are selected from leading engineering programs around the world. The organization encourages a global attitude; most of its engineers will move from Nigeria to Alaska at the drop of a hat, and many speak several languages. But back in the early 1980s, Wireline’s general manager noticed that market share was slipping. Confident that the company’s reputation as the technological leader was solid, the general manager wondered what was going wrong. He sent himself and his direct reports to spend a day in their customers’ shoes. “I want us to feel their pain,” he said. They started with their stronghold: companies like Exxon, Mobil, and Shell that generally commissioned large, deep-well, complex applications. They gathered helpful information about how they could provide better service. Punctuality was one issue, “Schlumberger arrogance” another, unnecessary tests a third. There were no groundbreaking discoveries, but Wireline identified and took to heart a series of incremental improvements. And, by and large, these companies valued Wireline’s technological leadership. Wireline’s managers found a different story in another market segment. Close to 40% of Wireline’s market was in shallow well and smaller property work. These properties were owned by individuals like a San Antonio dentist and a Tyler cattle rancher, not by major corporations. Most properties were easy to canvas; their owners didn’t need Wireline’s full range of technological skills or want to pay for unnecessary expertise if they could get someone else to do the job for less. Competitors had identified and targeted Wireline’s vulnerability, and Wireline was losing market share. Wireline’s managers responded by creating a special division focused on the needs of shallow-well and smaller property owners. They designed a simpler, cheaper version of the truck, downsizing its electronic and mechanical capability. They used their technology to improve operating efficiency, which in turn reduced project cost. They set up a separate business plan with different profit expectations and management. As a result, the company regained its lost market share and then some. Wireline’s managers might have spotted the need for segmented services by analyzing the company’s market in a traditional way. But it is very difficult for a large, established corporation, especially one with a fixed culture like Wireline’s, to commit to significant organizational change when that change involves a down-market move. As Wireline’s general manager put it, only the direct experience of spending a day with the San Antonio dentist, from a morning at the office fixing cavities to an afternoon walk in the oil patch, compelled Wireline to redesign its truck and move beyond its elitist mind-set to compete in the smaller property segment. One of the field managers expressed it best, saying, “After sweating with the guy for a whole day, I felt like I had to help him out
A DAY WITH THE CUSTOMER "Actually,we're thinking of dropping those prod- along the distribution chain,producing an annual ucts,"the Woodbridge controller said,prompting working capital savings of $300 million. an under-the-table kick from his marketing col- Three years later,Mountain View Papers an- league."We're losing our shirt on them." nounced that it was selling its colored-packaging- "If you do that,you'll be like every other suppli- paper business.Woodbridge had successfully er,"the soup maker's packaging buyer warned."In stripped Mountain View Papers of its only weapon- that case,we might as well buy from anybody,at a shorter order-to-delivery cycle time-by focusing the lowest price we can get." its "big-gun"machines on a set of streamlined, "Maybe we could review prices for these low-vol- high-volume products.At the same time,Wood- ume items and make them profitable for you,"the bridge outflanked Mountain View with its product soup product manager suggested.The packaging proliferation strategy-by now,Woodbridge had 520 buyer turned shiny vermilion and shamrock green, items instead of the original 440.Woodbridge had but took it silently. matched the soup market's fragmentation with a Over the next month,Woodbridge managers or- proliferation of paper types.As a result,Woodbridge ganized similar workshops with other food manu- not only prospered but also,thanks to its strong facturers and printers and tested the tentative con- partnership with key customers,made itself invul- clusions they had reached with the soup maker. nerable to competitor attacks Woodbridge found that not all of its channel part- ners and customers sought the same benefits.But Becoming Market Focused: there were clear patterns.And within two months, a Few Rules the company was able to redesign its entire manu- facturing system around its core customers're- Four simple rules can help managers practice quirements. market-focused management. First,it revived the old paper machine for rush 1.Recognize that 'customer'means more than jobs,aligned it with the printer's "in-times-of-trou- the next step in the distribution chain.An impor- ble"printing press,and fully integrated rush tant corollary:do not think of your marketplace of- scheduling all the way down to the soup manufac- fering as a commodity. turer.All those involved agreed that prices would Consider the experience of Chevron's natural gas be at a premium for such situations.This became division and one of its complex delivery chains. the rush-order system. The links in this chain are as follows:Chevron Second,Woodbridge dedicated one of its smaller uses a pipeline company to carry gas to a local dis- machines to making paper for the export market in tribution company(LDC).The LDC pipes the gas to addition to other small volume orders.These pa- a chemical company,which uses it to manufacture a leaching agent.The chemical com- pany then sells this agent to a Col- The first step to being market orado gold mine,where it is used to extract gold. focused:recognize that your Through a series of workshops with the chemical company,the customer is more than the next Chevron division's senior managers learned several significant things step in the distribution chain. about their delivery chain and their ultimate customer,the mining com- pany.For example,they found that pers would be made to inventory on a case-by-base the gas delivered to the chemical manufacturer basis.Woodbridge dubbed this process the hard-to- picked up impurities in the common carrier pipe- make system. lines.Working with impure gas made the leaching Finally,Woodbridge dedicated the rest of its ma- agent more expensive to produce and lowered the chines to large-volume items.These machines now manufacturing yield.They also found that the peo- ran in tandem,for example,with the Chicago print- ple at the gold mine were afraid of handling the er's large-volume,high-speed printing presses and toxic leaching agent,particularly during transpor- the soup manufacturer's automated packaging tation from the chemical company. plants.Such streamlining allowed Woodbridge to The result?Several viable proposals for action drop its lead time from four weeks to two,which in and for increased profits.One Chevron engineer has turn allowed a fourfold reduction in inventory suggested that the chemical company create its 122 HARVARD BUSINESS REVIEW January-February 1994
A DAY WITH THE CUSTOMER 122 HARVARD BUSINESS REVIEW January-February 1994 “Actually, we’re thinking of dropping those products,” the Woodbridge controller said, prompting an under-the-table kick from his marketing colleague. “We’re losing our shirt on them.” “If you do that, you’ll be like every other supplier,” the soup maker’s packaging buyer warned. “In that case, we might as well buy from anybody, at the lowest price we can get.” “Maybe we could review prices for these low-volume items and make them profitable for you,” the soup product manager suggested. The packaging buyer turned shiny vermilion and shamrock green, but took it silently. Over the next month, Woodbridge managers organized similar workshops with other food manufacturers and printers and tested the tentative conclusions they had reached with the soup maker. Woodbridge found that not all of its channel partners and customers sought the same benefits. But there were clear patterns. And within two months, the company was able to redesign its entire manufacturing system around its core customers’ requirements. First, it revived the old paper machine for rush jobs, aligned it with the printer’s “in-times-of-trouble” printing press, and fully integrated rush scheduling all the way down to the soup manufacturer. All those involved agreed that prices would be at a premium for such situations. This became the rush-order system. Second, Woodbridge dedicated one of its smaller machines to making paper for the export market in addition to other small volume orders. These papers would be made to inventory on a case-by-base basis. Woodbridge dubbed this process the hard-tomake system. Finally, Woodbridge dedicated the rest of its machines to large-volume items. These machines now ran in tandem, for example, with the Chicago printer’s large-volume, high-speed printing presses and the soup manufacturer’s automated packaging plants. Such streamlining allowed Woodbridge to drop its lead time from four weeks to two, which in turn allowed a fourfold reduction in inventory along the distribution chain, producing an annual working capital savings of $300 million. Three years later, Mountain View Papers announced that it was selling its colored-packagingpaper business. Woodbridge had successfully stripped Mountain View Papers of its only weapon – a shorter order-to-delivery cycle time – by focusing its “big-gun” machines on a set of streamlined, high-volume products. At the same time, Woodbridge outflanked Mountain View with its product proliferation strategy – by now, Woodbridge had 520 items instead of the original 440. Woodbridge had matched the soup market’s fragmentation with a proliferation of paper types. As a result, Woodbridge not only prospered but also, thanks to its strong partnership with key customers, made itself invulnerable to competitor attacks. Becoming Market Focused: a Few Rules Four simple rules can help managers practice market-focused management. 1. Recognize that ‘customer’ means more than the next step in the distribution chain. An important corollary: do not think of your marketplace offering as a commodity. Consider the experience of Chevron’s natural gas division and one of its complex delivery chains. The links in this chain are as follows: Chevron uses a pipeline company to carry gas to a local distribution company (LDC). The LDC pipes the gas to a chemical company, which uses it to manufacture a leaching agent. The chemical company then sells this agent to a Colorado gold mine, where it is used to extract gold. Through a series of workshops with the chemical company, the Chevron division’s senior managers learned several significant things about their delivery chain and their ultimate customer, the mining company. For example, they found that the gas delivered to the chemical manufacturer picked up impurities in the common carrier pipelines. Working with impure gas made the leaching agent more expensive to produce and lowered the manufacturing yield. They also found that the people at the gold mine were afraid of handling the toxic leaching agent, particularly during transportation from the chemical company. The result? Several viable proposals for action and for increased profits. One Chevron engineer has suggested that the chemical company create its The first step to being market focused: recognize that your customer is more than the next step in the distribution chain
own pure-gas pipeline,bypassing the common car- Customers can describe their experiences and de- rier lines altogether.An alternative option involves fine their immediate needs.But only you can inter- a joint effort between Chevron and the chemical pret their data and help them solve their problems. company-or Chevron,the LDC,and the chemical Being market focused is about your own creativity company-to install a gas cleaning unit at the chemical company's gas access point.An even more radical Creative managers must bring proposition entails producing the leaching agent right at the gold mine. insights and expertise to their By pulling a gas line all the way to the gold mine,Chevron could solve customers'problems. both the manufacturing yield and the hazardous transportation issues. Without the personal involvement and interest uncovering and solving your customers'problems. of senior management,it is unlikely that these op Nalco Chemical and Betz Laboratories,two high- tions would have surfaced.From a practical stand- ly successful chemical companies based in Illi- point,they look like much too big an investment to nois and Pennsylvania,respectively,illustrate what serve the needs of just one customer.And think of happens when creative strategies are rooted in the leverage needed to advocate and nurture such market-focused insights.These companies provide radical options through the existing Chevron struc- chemical water-treatment services for such large ture.Isn't it the stuff of which career-ending moves industrial operations as steel mills,oil refineries, are made?But if the benefits for the mining compa- and paper mills.Both companies'financial perfor- ny,the chemical company,and Chevron are large mances are spectacular by all standards,but they enough,any such investment can justify itself in are particularly impressive when one compares short order.And that's just one chain. them with other chemical companies.(See the ex- Chevron is still investigating its options in this hibit,"Market Focus:Higher Profits,Greater Value area,and its plans currently remain confidential. to Investors.") But imagine the degree of strategic freedom created Originally,both Nalco and Betz thought of them- for the company by these senior level insights. selves simply as manufacturers and distributors of Chevron has moved away from the win-lose game chemical products that were used in water-treat- of commodity negotiation and entered the win-win ment processes.Like many such companies,they world of differentiation. dropped bags and drums of chemicals at receiving 2.Count on your customers for information,not docks and charged by the pound.They competed on for insight the basis of price,service,and quality of products. Market-Focus:Higher Profits,Greater Value to Investors 9:1 Value Created by Selected Companies in the 8:1 Standard and Poors Index as of June 30,1993 是 7:1 6:1 Allied Signal ●Nucor OAT&T 5:1 Motorola Intel文Od Martin Marietta -Nalco 4:1 Fluor Corp Illinois Tool Works General Electric 3:1 Du Pont Honeywell Cummins Engine 2:1 Deere Co. Raytheon Occidental Petroleum 1 ☐Less Market Focused ☐More Market Focused 0 0 1:1 2:1 3:1 4:1 earnings performance return-on-equity:cost-of-equity ratio HARVARD BUSINESS REVIEW January-February 1994 123
HARVARD BUSINESS REVIEW January-February 1994 123 own pure-gas pipeline, bypassing the common carrier lines altogether. An alternative option involves a joint effort between Chevron and the chemical company – or Chevron, the LDC, and the chemical company – to install a gas cleaning unit at the chemical company’s gas access point. An even more radical proposition entails producing the leaching agent right at the gold mine. By pulling a gas line all the way to the gold mine, Chevron could solve both the manufacturing yield and the hazardous transportation issues. Without the personal involvement and interest of senior management, it is unlikely that these options would have surfaced. From a practical standpoint, they look like much too big an investment to serve the needs of just one customer. And think of the leverage needed to advocate and nurture such radical options through the existing Chevron structure. Isn’t it the stuff of which career-ending moves are made? But if the benefits for the mining company, the chemical company, and Chevron are large enough, any such investment can justify itself in short order. And that’s just one chain. Chevron is still investigating its options in this area, and its plans currently remain confidential. But imagine the degree of strategic freedom created for the company by these senior level insights. Chevron has moved away from the win-lose game of commodity negotiation and entered the win-win world of differentiation. 2. Count on your customers for information, not for insight. Customers can describe their experiences and define their immediate needs. But only you can interpret their data and help them solve their problems. Being market focused is about your own creativity uncovering and solving your customers’ problems. Nalco Chemical and Betz Laboratories, two highly successful chemical companies based in Illinois and Pennsylvania, respectively, illustrate what happens when creative strategies are rooted in market-focused insights. These companies provide chemical water-treatment services for such large industrial operations as steel mills, oil refineries, and paper mills. Both companies’ financial performances are spectacular by all standards, but they are particularly impressive when one compares them with other chemical companies. (See the exhibit, “Market Focus: Higher Profits, Greater Value to Investors.”) Originally, both Nalco and Betz thought of themselves simply as manufacturers and distributors of chemical products that were used in water-treatment processes. Like many such companies, they dropped bags and drums of chemicals at receiving docks and charged by the pound. They competed on the basis of price, service, and quality of products. premium com manded by the stock earnings performance market value:book value ratio 9:1 8:1 7:1 6:1 5:1 4:1 3:1 2:1 1:1 Less Market Focused More Market Focused 0 Occidental Petroleum Deere & Co. Du Pont Fluor Corp Raytheon Honeywell Illinois Tool Works Motorola Nucor Intel Allied Signal Nalco Betz General Electric Cummins Engine AT&T Ma tin Marietta r 0 1:1 3:1 2:1 4:1 Value Created by Selected Companies in the Standard and Poors Index as of June 30, 1993 ’ return-on-equity:cost-of-equity ratio Market-Focus: Higher Profits, Greater Value to Investors Creative managers must bring insights and expertise to their customers’ problems
A DAY WITH THE CUSTOMER Fortunately,Nalco and Betz both had cultures low Pages advertising had increased over 30%na- that encouraged senior managers and sales repre- tionally during that same period. sentatives to spend a lot of time in the field listen- Kaufman and his team immediately began to fo- ing to customers.As a result,top-level executives cus on the market.They spent hours observing ad- became more intimately familiar with their cus- vertisers in their day-to-day activities.They discov- tomers'needs.And it became clear that industrial ered that salespeople spent only one-third of their users did not want to deal with water-treatment time in front of customers,with the remaining problems.Maintenance department personnel,for time dedicated to paperwork and travel.They un- earthed a dramatic misalignment be- Nalco and Betz encouraged tween the company's publishing schedule and the canvassing sched- ule of the sales force,resulting in managers to spend time broken promises and many listing inaccuracies. investigating customer needs. The company also saw for the first time the key role played by the cus- tomer-service center.On the posi- example,wanted to focus on boiler and steam prob- tive side,telemarketing service reps handled 50% lems,the core of their duties.They did not want to more business than the field sales representatives. go to water-treatment conferences.Nor did they On the negative side,customers who had been un- have time to read the manuals on the subiect. able to resolve their complaints satisfactorily one Over time,both companies concluded that tak- year were twice as likely to cancel their ads the ing over the water-treatment process themselves next year. would result in benefits all around.So they each Kaufman and his colleagues heard many con- developed service businesses.For a monthly fee, structive ideas,which led to insights about reposi- Nalco and Betz offered to become the industrial tioning Southwestern Bell's sales pitch.Customers facilities'on-site partners,guaranteeing the best educated the Southwestern Bell team on the true available handling of all water-treatment issues. advantages of Yellow Pages over other forms of Customers could focus on their core businesses. advertising.Southwestern Bell's message had long Betz and Nalco would provide not only the chemi- focused on how its customers could build name cals but also highly valued technical services. awareness by placing an ad.But,as the custom- Did customers approach Nalco and Betz manage- ers quickly pointed out,that's not why they con- ment and say,"We wish you would take over our water treatment?" No.It had never occurred to them As Southwestern Bell Yellow that a supplier could eliminate their frustrations.Nalco's and Betz's man- Pages discovered,small agers,by focusing on their custom- ers'problems,saw the potential operational shifts can add up to benefit themselves.In fact,the idea wasn't accepted by all customers significant improvements. right away.Both companies spent several years convincing customers to give up their water-treatment functions.But the tracted with the Yellow Pages.Most used direct new businesses they created turned out to be im- mail to build name awareness and relied on the mensely profitable. Yellow Pages to persuade customers to make con- 3.Don't expect brilliant insights each time you tact with the store in person or over the phone. study a customer.Small operational shifts made The Yellow Pages were also the most convenient from a market-focused perspective can also add up place to run an ad. to significant improvements. Armed with this information,Kaufman reposi- When Michael Kaufman became chief executive tioned the company's entire operation.First,his officer of Southwestern Bell Yellow Pages,he inher- team addressed the issue of customer retention by ited a revenue curve resembling a ski slope.From empowering service representatives to adjust dis- 1985 to 1988,the year Kaufman arrived,revenues satisfied advertisers'bills by up to $1000.Old-time had dropped by about $250 million.In contrast,Yel- supervisors reacted with horror,convinced that the 124 HARVARD BUSINESS REVIEW January-February 1994
A DAY WITH THE CUSTOMER 124 HARVARD BUSINESS REVIEW January-February 1994 Fortunately, Nalco and Betz both had cultures that encouraged senior managers and sales representatives to spend a lot of time in the field listening to customers. As a result, top-level executives became more intimately familiar with their customers’ needs. And it became clear that industrial users did not want to deal with water-treatment problems. Maintenance department personnel, for example, wanted to focus on boiler and steam problems, the core of their duties. They did not want to go to water-treatment conferences. Nor did they have time to read the manuals on the subject. Over time, both companies concluded that taking over the water-treatment process themselves would result in benefits all around. So they each developed service businesses. For a monthly fee, Nalco and Betz offered to become the industrial facilities’ on-site partners, guaranteeing the best available handling of all water-treatment issues. Customers could focus on their core businesses. Betz and Nalco would provide not only the chemicals but also highly valued technical services. Did customers approach Nalco and Betz management and say, “We wish you would take over our water treatment?” No. It had never occurred to them that a supplier could eliminate their frustrations. Nalco’s and Betz’s managers, by focusing on their customers’ problems, saw the potential benefit themselves. In fact, the idea wasn’t accepted by all customers right away. Both companies spent several years convincing customers to give up their water-treatment functions. But the new businesses they created turned out to be immensely profitable. 3. Don’t expect brilliant insights each time you study a customer. Small operational shifts made from a market-focused perspective can also add up to significant improvements. When Michael Kaufman became chief executive officer of Southwestern Bell Yellow Pages, he inherited a revenue curve resembling a ski slope. From 1985 to 1988, the year Kaufman arrived, revenues had dropped by about $250 million. In contrast, Yellow Pages advertising had increased over 30% nationally during that same period. Kaufman and his team immediately began to focus on the market. They spent hours observing advertisers in their day-to-day activities. They discovered that salespeople spent only one-third of their time in front of customers, with the remaining time dedicated to paperwork and travel. They unearthed a dramatic misalignment between the company’s publishing schedule and the canvassing schedule of the sales force, resulting in broken promises and many listing inaccuracies. The company also saw for the first time the key role played by the customer-service center. On the positive side, telemarketing service reps handled 50% more business than the field sales representatives. On the negative side, customers who had been unable to resolve their complaints satisfactorily one year were twice as likely to cancel their ads the next year. Kaufman and his colleagues heard many constructive ideas, which led to insights about repositioning Southwestern Bell’s sales pitch. Customers educated the Southwestern Bell team on the true advantages of Yellow Pages over other forms of advertising. Southwestern Bell’s message had long focused on how its customers could build name awareness by placing an ad. But, as the customers quickly pointed out, that’s not why they contracted with the Yellow Pages. Most used direct mail to build name awareness and relied on the Yellow Pages to persuade customers to make contact with the store in person or over the phone. The Yellow Pages were also the most convenient place to run an ad. Armed with this information, Kaufman repositioned the company’s entire operation. First, his team addressed the issue of customer retention by empowering service representatives to adjust dissatisfied advertisers’ bills by up to $1000. Old-time supervisors reacted with horror, convinced that the Nalco and Betz encouraged managers to spend time investigating customer needs. As Southwestern Bell Yellow Pages discovered, small operational shifts can add up to significant improvements