Customers Are Critical to Transformation

By Faisal Hoque  |  Posted 2010-09-13

The customer remains king, and enterprises that engage in transformative strategies must always take customer needs and perceptions into consideration. Sears, the pioneer in catalog and retail department stores, provides the perfect examples of what happens when transformative strategies are applied well and poorly.

In the 1990s, Sears Canada created a state-of-the-art customer database that brought together, for the first time, each customer’s in-store and catalog activity. The catalog was Sears’ first presence in Canada. As sales grew, the company began building retail stores. 

The two channels were managed separately. While customers could order catalog items in the store, the catalog kiosks were placed in the far reaches of the buildings and were difficult to find. A study of the combined database found that customers who shopped both in the stores and through the catalog were spending twice as much as single-channel customers. Sears Canada consolidated management of both channels and made the in-store catalog kiosks easier to find. The result was a sales increase that amounted to adding another mid-size store to the chain – for practically no cost.

Conversely, Sears Holding Company, the parent of the retail chain, in 2007 decided to take advantage of the social networking wave rolling over the Internet. By creating a community of shoppers, Sears hoped to create viral buzz around its products and services, and increase sales. Unfortunately, a flaw in the system revealed customers’ purchasing habits to the entire world. It also revealed the intrusive level in which Sears was tracking customer activity. The result was a creation of extreme mistrust among consumers that forced Sears to modify its social networking ambitions to the point of where such initiatives are essentially irrelevant today. 

The contrasting Sears cases show how the goal of transformation must not be for transformation itself, but rather some objective that is found valuable by the end customer. In the age of blogging and rapid-fire social networks, customers on all levels—from large enterprises to individual consumers—are able to sniff out half-hearted attempts to feign transformation. This makes management’s development and use of a Strategic Enterprise Architecture (SEA) critically important in any transformative process.

Dealing with a Shift in Mindset

A transformed company is a new and different type of organization, one in which everything is constantly questioned. Even the metrics used to measure progress and success must be continuously questioned to ensure that management is measuring the right activities and getting the right output from them. And with every cycle of data collection and analysis, management should review the inputs, outputs and goals to make needed adjustments in the metrics. Some will say that metrics shouldn’t be adjusted so frequently - that doing so puts you at increased risk for a loss of trending data. That is true, but that shouldn’t prevent the inclusion of adjustments and new data sets to capture new intelligence as business and market conditions change.

Enterprises must pay particular attention to customer metrics. The customer – existing and potential – is at the heart of all successful transformation efforts. As Harvard University’s Clayton Christensen pointed out, simply continuing to please your current customers as you always have is a huge risk and leaves a company open to disruptive forces. Just as you do not want your company to become a white elephant, you do not want to find yourself mindlessly feeding white elephants, as comfortable as it may be.

The first step in avoiding such outcomes is to make a strategic determination of a company’s intentions toward its customers. Does it seek to grow the customer base, or shrink it by eliminating less profitable customers? Does it seek a different type of customer, geographically or demographically? And the metrics -- are customer satisfaction and market share sufficient? Are the customer relationship management (CRM) systems that many enterprises put their faith to manage how such information is gathered and utilized failing or succeeding because such data is not effectively handled in a manner that impacts the business?

These are all increasingly important questions. Questions that require immediate answers early on - before management is in caught in back-peddling and damage control mode. 

If there’s an organization that knows about transformative metrics, it is General Electric, an incubator of process management improvements and executive leadership. CEO Jeffrey Immelt continued the transformative philosophy launched by his predecessor, Jack Welch, who is often credited with saying “if it can’t be measured, it can’t be managed.” So it’s no surprise that Immelt is constantly looking for suitable metrics to help guide the company’s transformation efforts:

“Every initiative needs a metric," Immelt said. "To find the right one, we studied about 30 companies. We looked at the percentage of sales attributable to products introduced in the past three years and maybe 15 other things like that. But when we brought those metrics back inside our culture, they didn’t fit. They might work for other companies, but at GE the only things that move the culture are ones that show up on our income statement. It’s just the way we were raised. We finally came up with organic revenue growth as the only output function that goes straight into the ledger. We believe we can grow two to three times faster than world GDP. We made it in 2005, and we’re going to make it in 2006. It’s good to have aspirational goals in a company like GE.”

Understanding the customer need not involve just numbers; in fact, today it must be more. Some companies have learned to connect with their “lead users.” This is a concept developed by Eric von Hippel, professor and head of the Innovation and Entrepreneurship Group at the MIT Sloan School of Management. Lead users face needs today that will be widespread in the marketplace months or years down the road. They benefit significantly by finding solutions to their problems, and so they tinker with a product to improve it.

If a company can connect with these lead users, it can often incorporate these innovations in future versions of its product or service. Such action has often resulted in development of a better product, further efficient service, and more satisfied customer overall. Under ideal circumstances, a lead user would share his or her insights and needs with the company so it could improve the product.

A transformed company develops the necessary management capabilities to create a comprehensive picture of itself today and where it wants to be tomorrow, discovers the activities that no longer make sense, brings on board new ideas, and creates the structures, processes and information to achieve all of this.


Faisal Hoque is the founder and CEO of BTM Corporation. A former senior executive at GE and other multi-nationals, Faisal is an internationally known entrepreneur and thought leader. He has written five management books, established a non-profit institute, The BTM Institute, and become a leading authority on the issue of effective interaction between business and technology. © 2010 Faisal Hoque