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library / libec1f03b0feae5914

Designing the Customer-Centric Organization

Jay R. Galbraith · 2005

In a sentence

A guide to how companies can truly organize around the customer by aligning strategy, structure, processes, rewards, and people to deliver integrated solutions rather than stand-alone products.

In an era where products commoditize rapidly and profits collapse, the customer relationship has become the new foundation of profitability. Jay Galbraith argues that most companies that believe they are 'customer-focused' are still fundamentally product-centric, and that true customer-centricity requires literally organizing around the customer—not merely placing customers prominently on the radar screen. Using his Star Model (strategy, structure, processes, rewards, people) and a practical 'strategy locator' that scores companies on the scale/scope and integration of their solutions, Galbraith shows how to determine exactly how much customer-centricity a firm needs and how to build the requisite lateral networking capability. Through detailed case studies of Degussa, an investment bank, IBM, Nokia, Procter & Gamble, Citibank, and a semiconductor company, the book demonstrates the low-, medium-, and high-level applications of customer-centric design, culminating in the front-back hybrid organization. It is a comprehensive, evidence-grounded handbook for executives navigating the customer revolution.

The four lenses

Science
Statistics
Systems
Strategy

The model

A causal framework linking solutions strategy and organizational design levers (lateral networks, aligned Star Model dimensions, leadership) through psychological and behavioral states (customer knowledge, coordination, customer relationships) to outcomes such as customer loyalty, integrated solutions delivery, and profitability.

Solutions Scale and Scopedesign lever

The number of products and the number of different kinds of products that are combined into a solution offered to the same customer, ranging from a few similar products to more than twenty variegated products and services.

Degree of Solutions Integrationdesign lever

The degree to which the components comprising a solution must work together, ranging from loosely assorted stand-alone products with common billing to tightly integrated bundles and full solutions that operate as a system.

Lateral Networking Capabilitydesign lever

The strength of cross-unit coordination mechanisms deployed to link business units, countries, and functions around the customer, ranging from informal networks and e-coordination through formal teams, integrators, matrix, to separate customer line organizations.

Star Model Alignmentdesign lever

The degree to which structure, processes, reward systems, and people/human-resource policies are consistent among themselves and aligned with the strategy at the top of the model, forming a coherent customer-centric design.

Leadership Through Management Processesdesign lever

Strong top-down leadership exercised through management processes such as strategic reconciliation, portfolio planning, solutions development, and opportunity management to confront resistance and resolve inherent front-back conflicts.

In-Depth Customer Knowledgepsychological state

The accumulated understanding of a customer's business, needs, and situation developed through frequent interactions and close relationships, enabling identification of valuable solutions and customization.

Cross-Unit Coordinationbehavioral pattern

The behavioral pattern of business units, countries, and functions working together and integrating their activities around customer opportunities and solutions delivery.

Integrated Solutions Deliverybehavioral pattern

The behavioral capability to package and deliver combinations of products and services as integrated solutions that create value the customer cannot easily create alone.

Consistent Single Face to the Customerbehavioral pattern

The behavioral state in which the company presents a coordinated, consistent brand experience and position across all touch points, integrating contacts and remembering prior interactions.

Customer Relationship Strengthpsychological state

The depth and durability of long-term relationships with the most valuable customers, characterized by ongoing dialogue, trust, and preference for the supplier.

Customer Loyalty and Retentionoutcome metric

The outcome of customers repeatedly doing business with and remaining committed to the supplier over the long term, yielding the most profitable customer relationships.

Profitability and Economic Performanceoutcome metric

The ultimate financial outcome of superior performance, including profitability, sales growth, and shareholder value derived from managing the business as a portfolio of loyal, profitable customers.

Durable Competitive Advantageoutcome metric

The sustainable edge gained by mastering the complexity of delivering integrated solutions better than competitors, which is difficult for others to match or replicate.

Customer and Solution Selectioncontextual condition

The contextual condition of choosing which solutions to offer (based on competitive advantage) and which customers to serve (based on comparative advantage and desire for solutions).

How they connect

solutions strategy scale scope → predicts lateral networking capability
solutions integration → predicts lateral networking capability
lateral networking capability → predicts cross unit coordination
cross unit coordination → predicts integrated solutions delivery
cross unit coordination → predicts single face to customer
in depth customer knowledge → predicts integrated solutions delivery
in depth customer knowledge → influences customer relationship strength
integrated solutions delivery → predicts customer relationship strength
single face to customer → influences customer relationship strength
customer relationship strength → predicts customer loyalty retention
customer loyalty retention → predicts profitability
integrated solutions delivery → predicts competitive advantage
competitive advantage → influences profitability
star model alignment → moderates integrated solutions delivery
leadership through processes → moderates cross unit coordination
customer selection → moderates integrated solutions delivery

The story

The reader An executive or organization designer at a product-centric company who wants to build lasting, profitable customer relationships and compete in a customer-driven marketplace.

External problem

Products and services commoditize rapidly, collapsing profit margins, while customers demand integrated solutions and consistent relationships across all touch points.

Internal problem

The reader feels they are already customer-focused yet senses they are leaving money on the table and losing to more integrated competitors, and is anxious about the scale of reorganization required.

Philosophical problem

Keeping it simple for management while making it hard for the customer is just plain wrong when the customer now owns the relationship.

The plan

Understand the true difference between product-centric and customer-centric organization.
Use the strategy locator to score your scale/scope and integration and determine your required level.
Select the matching lateral networking capability (informal, teams, integrator, matrix, or line unit).
Align all five Star Model dimensions—strategy, structure, processes, rewards, people—with the chosen level.
Drive the change incrementally and lead through management processes that resolve front-back conflicts.

Success

The company forms long-term relationships with its most valuable customers and captures the value of integrated solutions.
It presents a single, consistent face to the customer across all touch points.
It builds a durable competitive advantage that competitors find hard to match.
It becomes more profitable by pricing to value and eliminating third-party integrators.

At stake

Products commoditize and margins collapse.
Customers do the integrating themselves or hand the value to third parties.
Half-hearted CRM and cosmetic customer focus waste investment and damage customer relationships.
Early-moving competitors capture the loyal, profitable customers first.

Questions this book answers

What does it truly mean to be customer-centric versus product-centric?
How much customer-centricity does a given company actually need?
How do you align strategy, structure, processes, rewards, and people to deliver solutions?
What lateral networking capabilities are required at each level of customer-centricity?
How do you manage the change process and the inherent conflicts of a front-back organization?

Glossary

Solutions Scale and Scope: The breadth of a solution defined by the number and variety of products and services combined and sold to the same customer.
Degree of Solutions Integration: The extent to which components of a solution must operate together, from loosely assorted stand-alone products to tightly integrated systems.
Lateral Networking Capability: The strength and type of cross-unit coordination mechanisms deployed to organize around the customer.
Star Model Alignment: The internal consistency of structure, processes, rewards, and people policies with each other and with strategy.
Leadership Through Management Processes: The exercise of strong top-down leadership via management processes to confront resistance and resolve front-back conflicts.
In-Depth Customer Knowledge: The accumulated, relationship-based understanding of a customer's business, needs, and situation.
Cross-Unit Coordination: The degree to which business units, countries, and functions work together around customer opportunities.
Integrated Solutions Delivery: The capability to package and deliver product-service combinations as integrated solutions creating value the customer cannot easily create alone.