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