Companies have tried to focus on customers all through the 1990s, often with little idea of what focus demands or even what customers want. The IT revolution makes it far easier for everyone to understand those wants; to create customer loyalty through continuous feedback; and to achieve the elusive 'customer focus'. IT has come to the fore in boardroom after boardroom as, consciously or not, top managements have reacted to fundamental, far-reaching change in their markets.
Reacting is one thing: acting another. Few companies are taking the decisive actions demanded by change - and those few will win in the Customer Age. Managerial mind-sets are still heavily conditioned by the Service Age, which saw the old production orientation give way to marketing. Now, before the imperatives of service excellence have been fully absorbed and applied, the customer is rapidly moving into the driver's seat. Customer focus is not a new buzz-phrase, but a practical and inevitable transition.
To focus on the customer can only mean orienting all business processes to customer wants. The driving force of the company becomes meeting those desires to the fullest possible extent in the most effective possible way. The definition sounds vague. What do 'fullest possible' and 'most effective possible' mean? Information technology is answering these questions with an unprecedented precision about customer-focused ends and means.
In the Industrial Age, and to a great extent the Service Age, the focus lay on internal processes. Customers came second to the wants of those inside the company. Boards were content to leave the choice and supervision of processes to operating management. That option is disappearing. If the company's focus is genuinely shifting to the customer, top management must change its own focus. Thw 'what' and 'why' of corporate strategy have become inseparable from the 'how' of execution.
Redirected focus at the top has profound consequences for the company as a whole and for information systems management in particular. The primary corporate task is to ensure that all functions (sales, marketing, manufacturing, service, even finance) and all line managements shift their focus from internal to external - with customer criteria as key success measures. Information specialists cannot be exempt from this imperative. Nor can other functions and other operations achieve their customer goals without intimate IT collaboration.
Leading-edge companies are using IT to achieve, not only future benefit, but a sharper customer focus now. That sharpness depends on proactive use of information resources to provide management, from the board downwards, with the ability to make better decisions and build operational superiority into the system by...
• obtaining detailed knowledge and understanding of their customer base
• manipulating the data to divide that base into meaningful segments
• 'informating' to achieve the effect of intimate customer relationships by remote means
• using information to provide customised products and services at prices that customers will happily pay
None of these four critical missions is IT-driven. Rather, top managements drive IT to obtain the support which is basic to strategic ambitions in the Customer Age. Some new developments are state-of-the-art, such as smart cards. In other applications, leaders are using IT to make easier what successful firms have always done: for example, exploiting the fact that a few customers contribute most of the turnover.
The technology is the key to understanding customers better: aiming to know everything about the customers and precisely what they want, and adjusting service to meet the customers' desires and delight and make the supplier's profit. That presupposes a depth of data acquisition and analysis which many firms surprisingly lack. Analysis of sales and financial performance by market and product may be sophisticated. Analysis by customer - in the same company - may be non-existent.
Two questions are basic. How much does each customer contribute to turnover? And to profit? The analysis may not produce the classic Pareto split: 20% contributing 80%. In fact, Jan Curry of MSP Associates found one white goods maker which derived 70% of sales from 0.3% of the customers. The results of analysing profit are even more startling: '20% of customers often generate 150% of the profit!'
The IT Management Programme's research has confirmed this finding. Were the companies concerned aware of this huge imbalance? To their astonishment, the researchers found many top businesses which 'do not know how many customers they have, let alone calculate the value of individual customers'. Perhaps they are swamped with incompatible customer data (a common dilemma in financial services): or perhaps they lack any useful 'identifiers' (like most retailers). Either way, the result is loss of opportunity and profit.
LOSS-MAKING CUSTOMERS
Applying suitable measures accurately reveals sales by customers or customer groups. Costs are harder to allocate with total accuracy: but intelligent approximation will highlight those customers who, prima facie, are making a loss. Do you drop them, grin and bear it, or seek to move the account into profit? Termination is sometimes the right option, though one which managements hesitate to take - though one plastics moulding firm, Nypro, did precisely that. It reduced its customers from hundreds to 30, each contributing at least $1 million to annual sales. Turnover trebled after the cutback, and profits soared. The terminations enabled Nypro to concentrate on providing the remaining customers with superlative service.
The issue isn't only current profitability. Dropping customers can be counter-productive if they contribute anything at all to overheads, or if dropped purchasers go on to make money for a rival. Identifying future customer profitability is an underused approach of great potential. It doesn't have to be underused. Many techniques for charting the gap, and then closing it, are available for managements that have the necessary will.
Changing the balance of costs and revenues is another winning strategy: leading companies focus on optimising the return from their most profitable customers, while gaining bigger bangs per buck from the unprofitable. Savings on sales and service are the key: low-cost sales channels and call centres are powerful, IT-enabled tools for bettering the economics of the business.
Although analysing customer profitability offers further rich pay-offs, it doesn't go far enough. Sharper customer focus means abandoning the mass-market mind-set and segmenting customers according to how they actually behave. The whole business can be restructured round the identified segments. In one case, instructively, segmentation studies had to be undertaken by the retail department because the IT function 'was focused on financial and operational issues' and was 'unresponsive' to marketing needs.
The benefits of identifying meaningful segments, and thus increasing marketing and sales effectiveness, are so great that few sizeable businesses, or their IT people, dare ignore segmentation. Rather, it should be a key dimension of strategies and planning. Modelling customer behaviour, using a variety of techniques, will define segments, microsegments and individual targets. Moreover, the barrier imposed by the cost of segmentation is lessening as IT advances make it cheaper to acquire data and to exploit the identified segments.
Direct mail and telesales are ideal media for achieving more precise, segmented sales pitches and marketing strategies. When the Internet came over the horizon, with interactive TV not far behind, it offered a vast extra dimension of capability. Differentiated marketing, however, gains enormously from having truly differentiated product/service offers to make. Product, position in the market, place of sale, and price (the famous '4Ps') can each and all be varied to satisfy different segments - very possibly with the help of new IT systems.
The object is to answer the key question: 'Why should this customer buy from me and not from somebody else?'. In the process of finding the answer, intimate customer relationships are in effect being achieved by remote methods: not only by call centres, but, even more, by the Internet and other interactive electronic media, such as multimedia kiosks. At these new levels of sophistication, customer and supplier can achieve a dialogue going beyond the dreams of yesterday's managers - and many of today's.
Tailoring the business and its processes to suit the customers has always been the foundation of great commercial success. Most companies lost sight of this principle as their customer bases swelled. Thanks to IP technology, they can now return to fundamentals. Even though the mode must still be mass-marketing, today's customers in the mass increasingly expect more individual treatment, while suppliers themselves, eager for differentiation, seek to treat mass customers individually.
IMPERSONAL RELATIONSHIPS
This obviously can't be achieved through personal relationships, but IT's substitution of impersonal contacts can be highly effective. Most people have used call centres by now: so managers know from personal experience that the centres are an excellent and fast-spreading example of improving customer relationships by remote techniques. What customers lose through impersonality, they more than regain in 24-hour availability and in better information and improved consistency - which they actually value more highly than personal contact.
Call centres and, to a still greater extent, new sales and delivery channels such as the Internet are the direct children of the IT revolution. Dynamic Websites and other interactive electronic media, such as multimedia kiosks, offer business new levels of sophistication. Customer and supplier can achieve a dialogue going beyond the dreams of yesterday's managers.
Different information strategies are needed to focus on rising intensities of customer focus. Are impersonal relationships enough? Or are personal ones obligatory? Is the customer so large and profitable that intimate relationships are essential? IT can enhance even those relationships that still require personal or intimate contact. The technology makes feasible and economic the otherwise impossible: like enabling customer and supplier to work in harness to create shared success.
Several of the new advances are already in wide use and making money for many users. This is the era of teamwork, not just within companies, but across the boundaries between supplier and customer. IT as facilitator for teamwork, and for interactions between teams, internal and cross-frontier, is indispensable. The end-result can be a unique and unbreakable relationship.
Airborne Express is a case in point. It provides customised express air services for business customers world-wide. For large-volume customers, Airborne developed bespoke systems. When Technicolor challenged a long-standing monopoly in Hollywood film distribution, Airborne and its subsidiary, Advanced Logistics Services, worked with Technicolor on a new system using two warehouses, an easy return airbill system and electronic links to customers. Development teams in each company interacted constantly to get the service operational in 1993. It rose to 40% of the market.
Mass customisation, another way to strengthen the customer relationship, is set to become the norm in many sectors. The idea of customised sales tactics is to choose, via a 'sales tactics system', the sales approach most likely to work for each individual customer or prospect. A potent example is 'event-oriented prospecting' or EOP. One US financial services company has identified nine 'life events' (out of a total of 29) that give it selling opportunities - for instance, a birth in the family.
In such ways, customisation can satisfy unique customer needs at costs which need no longer be prohibitive. IT is lowering the premium for mass customisation. Not surprisingly, the lower the premium, the greater the proportion of buyers who choose the customised product or service. IT systems have already proved their ability to...
• Reduce the costs of customised manufacture
• Reduce the costs of special operations
• Allow customers to customise the service for themselves
• Use feedback to improve the match between service and customer
Motorola, as an example, found it could afford to make one-off pagers -customers were able to choose from a million-plus combinations of features. A tailored Personal Pair of Levis jeans, costing only $15 extra, had obvious attractions for customers. Bank of Scotland's Personal Choice mortgage allowed them to vary payments - and write cheques on the mortgage account. There's a personalised US newspaper that adjusts content to the individual subscriber's expressed preferences. Websites offer similar customisation possibilities.
CUSTOMISING THE PRODUCT
Customisation can occur by assembly, integration or design - each with different implications for IT, on a rising scale of sophistication. Assembly means that the customer gets a combination of predetermined elements which don't interact, as when you buy composite home and car insurance from Norwich Union. That differs from integration, in which a PC, say, has alternative components and features that must work together. When the product is uniquely tailored to the individual customer - like Levi Strauss's jeans - that is customisation by design.
Managements dare not take it for granted that the changes necessary to turn potential gains into real wins are being made. Customer focus has deep implications for corporate strategy in general, and IT strategy in particular, and must be led from the top. Focused chief executives spend time with customers large and small, commission qualitative as well as quantitative studies of customer response, and ensure that customer issues are always on the board and executive committee agendas.
This behaviour is becoming less and less a matter of free choice. The customer is calling the tune. Once the passive focus of operations, the customer is becoming an active participant across the board. That presents a growing challenge to traditional ways of doing business. Mobilising all resources, including IT, behind true focus on the customer is the only way to meet the challenge proactively as customers stake out the new ground:
• Large businesses will expect to have intimate relationships with major suppliers who attend to their every whim. • Smaller businesses will demand customised services at mass-market prices. • Other businesses and consumers will call the tune by using agents - people, other businesses or even computer software - to handle their procurement.
The consequences for management are clear. In an age when highly competitive markets are the norm, businesses must go beyond customer satisfaction to gratification in order to defend and extend their positions in today's marketplace.
That won't be done with yesterday's information. The future will depend still more on new means of collecting, analysing and exploiting data. They are the foundation of the strategies and tactical operations, employing the full powers of IT, that are making customer focus a winning reality.
