Executive Thought Leadership

Q & A with George Day

Achieving the right customer focus involves an intimate understanding of customers, competitors, and channels. Using these insights companies can improve their market strategies and gain competitive advantage.

George S. Day is the Geoffrey T. Boisi Professor, Professor of Marketing, and Co-Director of the Mack Center for Technological Innovation at the Wharton School of the University of Pennsylvania. His current research projects include Competitive Strategies in Emerging Markets, including how firms survive shake-outs; How Innovative Organizations Choose Their Growth Directions; Building Market-Driven Organizations; and Competing for Customer Relationships. He has authored several books, including The Market Driven Organization (Free Press, 1999) and Market-Driven Strategy (Free Press, 1999), and co-edited Wharton on Managing Emerging Technologies (Wiley & Sons, 2000). Articles on Day's research can be found at Knowledge@Wharton .

Cisco: What do you think of the statement that this is the “decade of the customer”?

Day: I have mixed feelings about it. First, customer focus has always been an issue for leading companies. Recently, the struggling economy has put pressure on companies to focus on these questions, in particular realizing that cost management alone will not deliver sustained profitability. My perspective is to use a market orientation to gain an advantage. Being market driven is more than just being customer centered. It’s also about understanding and trying to gain an advantage over your competitors. You have to understand your market intimately, by which I include not only customers but also competitors and channels. You use those insights, bring them into the organization, and use them to improve your strategies.

Cisco: How have you seen this kind of insight used successfully?

Day: What I have seen, particularly during the 1990s, is companies with a strong innovation orientation adopting the notion of being market driven or customer centered. They recognize that their ability to exploit technology is unbalanced if they don’t also consider the market opportunity. How do we integrate deep insights into market opportunity and anticipate them, while bringing our technology possibilities into those opportunities?

I saw a great deal of interest in this in the 1990s in the technology sector, often triggered by companies trying to understand the potential of the Internet. They wanted a rich sense of how customers are using the Internet, how they used it with other ways of going to market. They also had examples of companies such as personal software maker Intuit, an extraordinarily market-driven organization. It works hard to understand customers’ latent needs. It lives with its customers. Each person in the Intuit organization adopts a few customers and visits them and watches how they use the personal financial software. As a result, Intuit excels at building customer-friendly software and anticipating emerging markets.

Cisco: That seems to point to cultural or organizational requirements.

Day: I have broken down the elements of a market orientation into three areas: 1) culture; 2) capabilities (superior skills for market learning, customer connecting); and 3) configuration (structure, incentives, controls, metrics). If you ask senior managers “What’s the one that has the most leverage?” they all point to culture. Without a strong culture, you can’t support, for example, a customer connecting capability. You’re not going to be able to put the databases in and keep them up to date and persuade people to use them. Configuration plays a strong supporting role—making sure people are clearly accountable for things like customer relationships or segments.

If you want to change an organization, it’s probably best to start with configuration, because cultures are so resistant to change. Then, if the configuration successfully guides behavior in the desired direction, the culture will incorporate it.

Cisco: What do you think about the use of incentives and the impact of incentives on changing a culture?

Day: It’s a huge opportunity. It is important to realize that there are two kinds of incentives. First are those that are based on achieving believable metrics, and I put a lot of emphasis on the believable part. If the organization does not trust the metrics, they’re not going to respond to the incentives. But if you create incentives around defensible measures of customer loyalty, or customer satisfaction, or response to customer queries, that has a huge steering effect.

The second kind of incentive is the motivation you get from seeing real successes occur, and celebrating these successes. Effective market-driven organizations put in “hot-house” experiments or tests. They try out different programs and initiatives on part of the organization. They create a success, and then they roll it out through the company.

Cisco: Can you give us an example of the success incentive?

Day: I often use the case of Tesco—a first class supermarket retailer in the UK with about 550 stores. Tesco creates test situations for five or 10 stores. It experiments with all sorts of things in order to deliver better quality experiences to its target market. Then it celebrates the results and encourages everyone to adopt it. That’s a kind of incentive in my mind, not as direct as a scorecard kind of incentive where metrics are tied to monetary incentives. I like to use both.

Cisco: You’ve pointed out the importance of connecting the company with the organizations between them and the customer, the channels. But there are also the organizations on the other side, the supply chain.

Day: That’s absolutely true, and there are two important issues. You have to understand channel partners as well as you understand your own customers. When you are talking about channels (VARs, distributors, retailers), you have to begin with the premise that they view themselves as purchasing agents for their customers. Their objective and interests are going to be different and sometimes divergent from yours. So you have to really understand them, go out and live with the channel members, understand their perspective, see how you can help them, collaborate with them, and so forth. That’s why I use a market-driven approach, because you have to take the same mindset and develop the same understanding of channels as you do understanding your competitors and customers.

Cisco: What role has the Internet played in connecting customers and partners?

Day: The Internet has opened up an enormous channel of communication with the customer. As a result of the Internet companies now have perhaps six or seven points of contact with a customer. The challenge is to synchronize multiple views of the customer. Presenting a seamless face to the customer is important.

The other big problem is how to use all the data that flows in from these various sources. This is where customer relationship management (CRM) is a challenge. How do we come up with a unified picture of the customer? I’m finding that customers are not all happy with the experience they are having. We have this bizarre situation where the number of points of contact is increasing, the number of choices customers have is increasing (more models, more features), and their satisfaction is dropping.

Cisco: Brad Boston of Cisco warns that “the customers wanted it” can easily become an excuse for bad choices.

Day: Yes, that’s part of the story. He’s getting at something extremely important that we can trip on pretty quickly. I prefer the term “customer compelled” to describe being inappropriately responsive to customers. Being customer compelled means always giving the customers what they want. If they want this feature, or that package style, or they want it delivered in exactly this way, we’ll give it to them. There’s no recognition of cost and this approach is totally reactive.

One company I worked with said, “In our medical products group, we gave the surgeons exactly what they wanted. The net effect was we proliferated our SKUs and lost our focus on our core technology.” The point of customer focus is not to respond to every customer. Not every customer is created equal. You have to understand which of these requests is grounded on deep differences in needs, which customers are really valuable to you. You can’t afford to pursue every customer with equal enthusiasm. You may want to back away from some customers and serve them in a low cost way. Fidelity has 17 different segments for their approximately 8 million financial services customers, and each segment has a different level of service based on the customer’s lifetime value.

Cisco: This seems to be an important issue—moderating the assertion that “the customer is always right.”

Day: From the customers’ standpoint they are right. The question is do we want to respond to that? Do they understand fully the possibilities, and is it worthwhile for us to do this? How do we compete to advantage?

The opportunity is to find those customers for whom you can do an outstanding job, and then charge them appropriately. You make your money on focus, on getting a price premium, or at least avoiding excessive discounting, and building loyalty so you don’t have the high acquisition costs.

Cisco: You mentioned CRM earlier. How does this type of application affect an organization’s capability for customer focus?

Day: A lot of the issue of customer focus is coalesced around CRM, for better or for worse. I think we’re now beginning to understand why CRM works or doesn’t work. It works well when you have a market-driven organization with a market-driven strategy. Strategy is extremely important. You’ve got to have an organization in place, and a strategic direction that is consistent with CRM.

Where we get into trouble is when CRM is done on a reactive basis. A competitor is doing it and we have to match them. There is no way to get an advantage out of that mindset. The approach I find most problematic is where CRM becomes an IT initiative. It may be because top management says we have to do CRM, and it delegates the task to IT who then treat it as a database, data mining, or CRM software question, without real connection to the fundamental strategy or the rest of the organization.

Those last two reactive approaches will almost invariably fail. And the failure rate of CRM initiatives is very high—probably running 50 percent or more. I think where a market-driven organization can excel is by understanding what CRM is all about and implementing it much better, because they have the organization in place and the right mindset. If it’s not important to the organization to collect the data, use it to create a seamless picture of the customer, and share information, it’s very difficult to implement CRM effectively.

The real payoff comes in capturing and retaining your most valuable customers, and then implementing programs like CRM or new technologies better and faster than the competition, because you’ve been able to anticipate how the market will respond, and you have an organization that’s aligned to doing that.