Why it's up to CIOs to ensure that their companies are focused on external customers-one at a time
How leading companies generate revenue has evolved over the past 20 years: from managing markets to managing market segments to managing customers. This shift creates significant issues for the board of directors and the entire executive team, including the CIO. If this change in strategy hasn't affected your company and industry, you are in a distinct minority.
For the average CIO today, external customers are not a primary concern. Yet the CIO is uniquely positioned to help the executive team address customer management, for two reasons. First, the CIO is usually one of the most senior executives with a broad process view of the corporation. It is the role of information systems to span functional, geographical and hierarchical boundaries. Second, the way information is collected, stored and delivered can either help or hinder the corporation in managing customers. The CIO is best placed among executives to understand what these information needs are and to ensure that data systems can deliver the information needed by the company to support this marketing requirement.
The Right Way to Focus on Your Customers
The traditional belief that simply increasing market share translates directly into higher profitability has been proven false in our current economy. You need look no further than the US airline and automotive industries to note that market share leaders are not the most profitable companies.
Deciding who to serve is a critical decision for any organization. One of the world's experts on this topic, Harvard Business School Professor Das Narayandas, says: "Who we are affects who we can serve, and who we serve affects who we will be." In today's business world, a company's customer set defines what products and services it will offer.
Another of a company's most important decisions is identifying who should be excluded from the customer list. Serving a specific customer can sometimes pre-empt your ability to serve others. The most obvious example is working with one large customer on a proprietary component for its product, which may require an agreement to not provide similar technology for its competitors, thereby excluding other potential customers. Sending unprofitable customers to your competitors can sometimes actually contribute to your comparative advantage.
Although executives usually acknowledge the importance of customer targeting, in many companies salespeople are left to develop a de facto marketing strategy at the customer level. As Narayanda points out, since a salesperson's behaviour is directly affected by compensation schemes, letting salespeople determine whom to sell to is one sure way to get into trouble. Segmenting and prioritizing customers must be an executive-level decision.
Narayandas outlines four steps for customer management:
- Develop a clear vision of the customers to serve and not serve.
- Develop and manage a portfolio of customer relationships - the set of activities that serve the customers.
- Monitor the health of customer relationships - understand whether customers are satisfied with the activities designed for them.
- Link the customer management effort to economic rewards - that is, the benefits to the company and its employees for successful management of customer relationships.
Marketing Information Systems
As we transition from the Industrial Age to the Service Economy, customer retention and loyalty have become better predictors of profitability than have traditional measures of market share. Scale is still important, but it must be attained with an increased focus on customer selection and management that facilitates the design of an efficient product/service delivery system.
Understanding which customers are profitable is a matter of studying what it costs to serve each customer and the price of the products or services they buy. Surprisingly, in most companies there is little analysis done of the cost-to-serve and prices, and frequently no relationship between them.
Obviously, when prices or the cost-to-serve is too high, the situation is not sustainable. Success, then, comes from building a portfolio of customer relationships in which customers pay a fair price for goods or services developed at a profitable cost-to-serve for the corporation. This portfolio is built through a delicate combination of product development, service, sales incentives - and information management.
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