SPRING 2004 VOL.45 NO.

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SMR133

MITSloan

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Management Review

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Sandra Vandermerwe

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Achieving Deep
Customer Focus
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No
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Please note that gray areas reflect artwork that has

been intentionally removed. The substantive content
of the article appears as originally published.
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Achieving Deep

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Customer Focus
Customer-focused

transformation is

producing long-term,

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sustainable growth
oday’s managers acknowledge the importance of customer focus for grow-
through a systemic,

tested process.
T ing a business and competing.1 Yet the often costly customer efforts they
have implemented have not led to the expected gains. The reason: a superfi-
cial understanding of what customer focus really means. Fortunately, a few
organizations are going beyond thinking up new technologies, products and services
The approach gets and, through comprehensive organizational change, are achieving the deep customer
op
focus that is nearly impossible to imitate.
all employees Deep customer focus is not about buying customer-relationship-management soft-
ware that tracks customers’ purchases. It is not about designing sophisticated new prod-
collaborating to ucts like mobile phones or iPods — or even about processes that allow a car to be built
with customer-requested features. It’s about an attitude that gets deep inside a company
identify the outcomes
into what it is, what it does and what it prides itself on.
Many observers have suggested what needs to be done to create organizational
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that customers need —

change, but no one has spelled out how to get there, particularly how to make the
and to help them changes that lead to a customer focus deep enough to become part of the lifeblood of an
organization.2
get there.
Becoming Indispensable to Customers
Because companies with deep customer focus are constantly thinking about better,
Sandra Vandermerwe quicker, easier ways of doing things that customers need, they ultimately become indis-
No

pensable. Whatever customers need to do (say, use information to make critical decisions
differently, ensure employees’ lifetime well-being, manage energy or do on-demand
computing), the company with deep customer focus excels at offering the outcomes each
customer seeks. Through constant innovation, customer feedback and the use of knowl-
edge, the enterprise becomes indispensable. And as the relationship intensifies, truly sus-
tainable gains ensue. No product or service on its own can accomplish all that.
The company’s activities become so interwoven with its customers’ activities that
clients end up spending more money with the company on a greater variety of offerings
Do

over longer periods. Thus customers reward the enterprise, giving it many opportunities
for profitable growth.3
Think about being the customer. Would you rather have, say, a new health plan with
new features or would you rather have a relationship with a health-insurance company
Sandra Vandermerwe, a professor of international marketing and services at Tanaka Business
School, Imperial College, University of London, specializes in customer focus transformation strate-
gies. Contact her at [email protected].

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has shown these breakthroughs to be remarkably consistent across
enterprises and industries. (See “About the Research,” p. 28.)

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Breakthrough 1: Create Strategic Excitement
The first breakthrough occurs when a sufficient number of the
correct people within an organization become uncomfortable
because they realize that the company must find new ways of

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doing things for customers or risk either being sidelined or miss-
ing out on new wealth and opportunities.
But people have to be helped to see and feel that. That’s easy
enough when the enterprise has reached a crisis point or key
numbers have slackened. What’s both more difficult and more
rewarding is to instill excitement about a new direction before
crisis stage, so people feel inspired rather than fearful. That’s

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what Bill Pardue, then president and CEO of U.S. Corporate
and Federal Markets, a unit of LexisNexis Group, did when cus-
tomers (now able to access publications on the Web, often for
free) began to reduce what they would pay for LexisNexis
archives.
Previously, LexisNexis would have focused on cutting costs
and finding innovative content. But Pardue instinctively felt
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that the old approach would neither secure market position
long term nor produce wealth from new sources. Determined to
make his division indispensable to customers, he came up with
a hypothesis worthy of testing and got his senior team excited
that is committed to solving pretty much all your health and about it. The hypothesis was that professionals who had to
safety problems — an organization that not only provides insur- make decisions carrying a high degree of risk or reward — say,
ance coverage but, for example, also helps with your health- and law enforcement officers tracking down criminals, patent offi-
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safety-related concerns so that problems are caught before they cials assessing a patent application, lawyers litigating a case or
happen and don’t get unnecessarily serious or costly even as you scientists developing a drug — would pay for information that
get older? That’s the kind of company Denmark’s International helped them make better, quicker decisions. Pardue and his
Health Insurance (IHI), operating in 150 countries, became. But team implemented what was needed to help professional cus-
it was able to reinvent itself only after managers understood the tomers make decisions, and within three years his division had
breakthrough process and tools through which deep customer outpaced competitors, boosted customer spending and
focus is achieved. increased profits.
No

And other successful companies have learned as well. IBM

Corp. might not call its approach deep customer focus, but IBM Breakthrough 2: Enlist “Points of Light”
did more than turn to services when mainframes weren’t selling Once executives have generated excitement about a new direc-
and PCs were commoditizing: It embedded in its culture a tion, they need people at all levels to lead the way. But both
worker mind-set focused on outcomes for customers. That’s how companies and academic literature have overemphasized gain-
it keeps developing innovations that help customers adapt to ing broad consensus first. Including too many of the wrong
constantly changing environments. people means having to waste time and effort on individuals
Companies need a systematic process to activate deep cus- who obstinately resist anything new until they see it demon-
Do

tomer focus that shapes priorities, behavior and systems. Com- strated in action.
mitment is critical. Limp acceptance is lethal for any change Because deep customer focus requires new ways of doing
initiative, but especially for deep customer focus that embraces things rather than just listening to customers and reacting, a
the entire organization. It is not solely the marketing group’s company needs people who are open and prepared to break with
sphere. the past and to move ahead even under the unnerving scenario of
The process can be mapped into 10 critical breakthroughs that having no hard facts.
help delineate the stages the company must go through. Research Such people are a company’s “points of light.” These leaders,

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in addition to being first to accept new ideas, also energize col- Defining the market space focuses the implementation effort
leagues through their actions and conviction.4 Eventually, their on the customer outcome. It enables people in discrete product

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enthusiasm permeates the organization, but initially, they are silos and disciplines to visualize how they might fit into an offer-
the only ones who see both how the future must be different ing that involves contributions from all departments. Employees
from the past and why. at LexisNexis, for example, used to think of themselves as work-
ing for one particular database or unit. They had no sense of par-
Breakthrough 3: Articulate the New Market Space ticipating in a market space to enable professionals to make

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Many organizations rely heavily on market research, but market better decisions, quicker or in a “high-level decision-support
research is little help in creating a future that customers have yet management” market space, the term the company finally chose.
to imagine. “You can’t research your way into the future” is how Naming the space in terms of a customer outcome gives employ-
one executive puts it. Instead, a company must define a new ees clarity, direction and a common purpose.
market space — relying partly on research but more on intelli- But doing market research and asking customers to define
gent hypothesis.5 outcomes will not work because new ways of doing things often

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About the Research
This article derives from ongoing STAGE 1 be used as a strategic tool to find and fill
research spanning nearly 20 years on cus- From 1986 to 1995 at IMD Switzerland, value gaps and then build new offerings
tomer-focused transformation in indus- the market-space construct and cus- and the structures, technology, skills and
tries such as airlines; automotive; tomer-activity-cycle tool were developed partnering to deliver them.
banking and financial services; building to enable executives to identify and artic-
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and construction; chemicals; children’s ulate the value they need to offer to STAGE 3
toys and entertainment; computers and become customer-focused. To date, this Building on the findings in stage 2, the
IT services; consumer electronics; con- tool has been activated in more than 100 next step was to identify the specific
sulting; energy and oil; engineering; fash- public and private enterprises worldwide. breakthrough actions needed to imple-
ion and footwear; fast-moving consumer ment deep-customer-focused transfor-
goods; health care and medical supplies; STAGE 2 mation in one systematic process. It had
packaging; paints; pharmaceuticals; pub- In the four years that followed at the become clear that although the theorists
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lic sector and not-for-profits; publishing; Tanaka Business School, Imperial College, and practitioners increasingly acknowl-
retail; telecommunications; and utilities. University of London, a research project edged that customer focus was critical
The research uses an action-based was undertaken to test the hypothesis to growth and sustained success, full-
methodology, founded on inquiry, analy- that there were common challenges and scale and lasting implementation was
sis and testing. It aims to articulate best approaches in making the transition from still elusive.
practices as companies deal with situa- a product focus to a customer focus and A 10-step process to depict the stages
tions that are still evolving and don’t yet that these could be articulated and used and the means by which implementation
have solutions. From the literature, case to get better business results and poten- is achieved was developed from previous
No

writing and hands-on experience with tial for increasing returns. work, the recent literature (in fields such
corporations, models and tools are In-depth interviews were used as well as customer focus, innovation growth
developed and refined in a reiterative as a comprehensive questionnaire given strategies and change management) and
process of application, testing and adap- to a sample of companies that had been ongoing personal learning from enter-
tation. Then through feedback from through such a transformation. The prises in action. The 10-step process was
classroom discussions, executive forums companies were identified from the liter- tested with a select group of companies,
and interviews with senior executives ature, from observation and from per- adapted and then applied more broadly.
involved in the applications, common sonal interaction. Additionally, data were The research is drawn from that work
denominators are identified and used gathered through continued close work- and from feedback that was revealed
Do

to build theory and make the concepts, ing relationships as well as from writing during subsequent one-on-one inter-
tools and successful methods generic case studies on industry leaders and new views (continuing through January 2004)
enough so they can be transferred to entrants. with senior executives from companies
practicing managers. The result was a set of critical success representing collective best practices
The research has progressed in three factors and a better body of knowledge and amenable to having their experi-
overlapping stages: on how the customer-activity cycle could ences published.

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os
“You can’t research your way into the future,” says one executive. A company must define
a new market space – relying partly on research but more on intelligent hypothesis.

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conflict with previous habits and orthodoxies. Until the country and environmental management.” The idea was to offer truck-
manager of Baxter Healthcare Corp. Germany got employees to ers a new way of buying and using energy to reduce costs and
start thinking of themselves as doing postoperative “home-recov- harmful emissions. Through the customer-activity-cycle tool,
ery enhancement” instead of merely providing postoperative BP’s team discovered that in the during stage, when truckers
nutritional products to hospitals, the norm was to keep patients were transporting goods, their drivers kept the engines running
in the hospital for rehabilitation. When patients returned home, for warmth while they slept. Engine idling cost the hauling

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the company supplied only the basics, such as nursing care or companies 5% of fuel costs and 20% of nitrogen oxide and
wheelchairs. Once a market space was articulated, however, a new other noxious emissions — and exacerbated vehicle wear and
direction could be clearly communicated to doctors, hospitals, tear, which equaled 10% of overall fuel expenditures. Finding a
patients, Baxter headquarters — and partners. Ultimately, the new way to let drivers keep warm while sleeping saved the com-
division and some partners created an innovative, lucrative busi- pany expense and created a multimillion-dollar business
ness called Home Supply and Care (HSC). opportunity for BP and partners.

Breakthrough 4: Identify the Value Opportunities Breakthrough 5: Build a Compelling Case

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Executives who have successfully implemented deep customer The customer-activity cycle not only identifies the value proposi-
focus find that the next step, identifying the value opportunities, tions that can make a company indispensable, it also lets the com-
calls for a small team comprising only the best brains, “not just pany build detail-rich stories to promote the offerings both
those that can be spared,” as one interviewee put it. The CEO or internally and externally. Stories are more powerful than business
the head of the division, country or business unit should lead or plans and more beneficial to enterprises going through a deep-cus-
sponsor the team and ensure that it has sufficient resources, time tomer-focus change process. People often react anxiously or defen-
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and people (usually two or three). Extra members may move in sively to business plans, whereas a credible narrative can present an
and out as needed, but it is essential to have a leader working the exciting picture and appeal on both the rational and emotional lev-
next stages, says an executive, as “a day rather than a night job.” els. Stories also show how the whole enterprise can contribute to
It is not surprising that at the stage that identifies value for the the market space, whereas business plans typically set out discrete
customer — and ultimately for the company — executives report agendas from different parts of the organization and aggregate
feeling the most enthusiastic and energized and the concept them. They neither offer a customer outcome or destination, nor
begins to take hold. suggest how to reach one or why employees should care.
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The tool that supports the value-identifying stage is the cus- Consider International Health Insurance (IHI), which serves
tomer-activity cycle.6 Using it, a team is able to look methodically expatriates as well as corporations that have significant overseas
at the activities customers go through to achieve an outcome, activities. In 2000, led by CEO Per Bay Jørgensen, IHI moved
uncover the gaps (the activities customers could or should go from producing increasingly sophisticated health policies into
through) and fill those gaps with whatever will lead to the desired the “lifetime health and personal safety” market space.
customer outcome. The country manager at Baxter Healthcare Redefined as an enterprise devoted to customer wellness
Germany successfully defined a new market space, but it was only (health and safety), instead of merely insurance-policy sales and
when the customer-activity cycle revealed precisely what patients claims processing, IHI saw a 20% annual growth rate while most
Do

needed pre, during and post surgery that Baxter could specify competitors foundered. The compelling story IHI presented to
what services it would have to offer patients and who would pro- corporate clients showed how an investment in wellness could
vide each service. prevent employee health problems 70% of the time, increasing
The lucrative opportunities are in the details of the cus- productivity and lowering costs. It included the rich details that
tomer’s activity cycle. The commercial-transport unit of BP Plc, emerged from using the customer-activity cycle.
for example, wanted to become indispensable to hauling com- Thanks to that tool, IHI knew exactly where customers had
panies in its newly articulated market space, “integrated energy value gaps that the company could fill with offerings: health

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Some companies regard modeling as an investment. Because spawning knowledge and
expertise for eventual scaling up is also important, they use it as a laboratory for learning.

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assessments and policy recommendations; voluntary wellness than to have customers become part of the action and participate
action plans for employees; monitoring of employee health; sug- in early wins. Modeling is different from testing in the level of
gestions for interventions; and recommendations on the appro- resources used. With sufficient resources, the company can get
priate doctor or hospital wherever in the world employees the concept right. Then confidence surges internally and exter-
happened to be. Then, to reduce the expensive failure rates of nally, and positive energy accelerates adoption of the concept —
overseas job assignments, IHI incorporated advice on matching in the enterprise, out in the market and back into the enterprise

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people to countries, and education and support for individuals — in a push-pull, buy-in loop.
(on issues such as jet lag, allergies, floods and terrorism). IHI also Note that this is not a timid toe in the water. Too often, com-
could help a company measure the wellness approach’s returns to panies do a pilot test with a representative population and delib-
the bottom line. And when a healthier employee reduced his or erately give it a low profile so that if it fails, the concept can be
her company’s insurance claims, IHI rewarded the company with quickly abandoned. Modeling means taking a concept or new
bonus points that could be traded for rebates. way of doing things (rather than a single product or service) and
making it work. It thus involves the best in-house resources and
Breakthrough 6: Size the Prize
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a small but select group of customers — the customer points of
The next breakthrough occurs when deep-customer-focus com- light who “get it.”
panies like LexisNexis see how much they can improve their Modeling begins with a workshop done with customers in the
numbers. The customer-activity cycle helped LexisNexis gauge spirit of research — not promotion. A full-blown demonstration
the size of the gaps it could fill if customers could have up-to-the- of the customer-activity cycle gives customers a chance to validate
minute databases that LexisNexis built, fed into customer rou- the value propositions and indicate what they see as “hot spots,”
tines, updated and maintained to allow users to ask better or critical areas. Experience shows that having the presenting
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questions and get better answers instead of using slow manual or company’s sponsoring senior executive at these workshops helps
electronic-imaging sources. Customers could, for example, look customers engage with the concept enough to proceed.
at patent applications, not just patent acceptances, and be better Demonstrating proof of concept with customers takes from
equipped to decide if their own innovations justified applying for three to eight months, sometimes longer. Some companies — for
a patent. The opportunity amounted to 88% more than what example, BP — have felt sufficiently confident about being able
LexisNexis had made from its core patent publications. to start delivering value immediately during modeling that they
Sizing the prize also involves understanding that customers charge customers or reach an agreement to share any gains. In
No

who buy new offerings build stronger working relationships with modeling its fuel-savings concept, BP worked with key manufac-
a company and often increase their purchases of existing offer- turing customers to help them use, convert and reuse their energy
ings. Longer, wider, more diverse and deeper revenue streams in ways that reduced their overall energy bills and emission prob-
translate into more wealth. lems. The customers shared their savings with BP.
However, managers must be on guard against an ingrained Some companies, however, regard modeling as an investment.
corporate tendency to demand proof upfront. The only realistic Because spawning knowledge and expertise for eventual scaling
way to evaluate deep-customer-focus benefits is over time, the up is also important, they use it as a laboratory for learning. IHI,
way other corporate assets are evaluated. Companies that prefer for example, modeled its health-assessment and consulting com-
Do

intricate detail can use sophisticated net-present cash-flow calcu- ponent by taking it to an international airline and collaborating
lations.7 But enterprises that see an opportunity big enough to to develop ways to measure the impact of a well-being program
justify moving forward will be content with looser calculations. on the bottom line. The learning investment paid off. The collab-
oration not only benefited the airline, it gave IHI a technique it
Breakthrough 7: Model the Concept could adapt and roll out to clients in other markets. Similarly, IHI
In the next stage, companies must give customers and employees collaborated with a group of expatriate couples to perfect its
proof that the concept works. And what better way to do that online health tool.

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Breakthrough 8: Get People Working Together been built around the merchandise — say, clothing, books, fur-
Executives always say that the most challenging and perplexing nishings or financial services. Then teams began to consider

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part of the process is getting colleagues inside the organization, themselves responsible for a “customer-lifestyle outcome.” The
preoccupied with business as usual, to engage in a new concept difference, as one executive says, is “between delivering the per-
seriously — infinitely more difficult, they insist, than finding fect Christmas for a family, and putting perfect Christmas
outside partners. Yet colleagues must ultimately coexist, cooper- turkeys on the shelves.”
ate and coproduce. Closed, silolike structures, mentalities and Also helpful in getting people working together is to celebrate

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behaviors cannot produce the desired customer outcomes. success. When a group at LexisNexis successfully modeled a con-
Enlisting colleagues entails appealing to both their reason and cept designed to help e-business customers make instant deci-
their emotions. BP had always been renowned for its silo-based sions on whether to transact with someone visiting their Web
working mode. Once the enterprise decided to attempt deep cus- sites, all of LexisNexis celebrated the group’s accomplishment.
tomer focus, the sponsoring business units invited “points of That recognition accelerated companywide customer focus and
light” from other units to collaborate early on. The invitees felt unleashed a myriad of initiatives.
more involved and less threatened than would otherwise have

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been the case, and the sponsors discovered that outreach acceler- Breakthrough 9: Get Critical Mass
ates engagement. When enough customers respond to a company’s deep customer
The sponsors were able to demonstrate that no unit would focus (“enough” might be 10 customers or 50 million, depending
lose. Even if a deeply customer-focused BP gave a customer on the circumstances), the company begins to enjoy the hoped-
advice on how to shrink its total energy bill, the customer would for sustainable benefits.
end up giving BP a bigger share of its energy spending. How do companies accelerate the transition from modeling
Note that customer-focused internal cooperation is not the the concept to acquiring enough customers to reach a critical
op
same as cross-selling. The silos must be mixed and merged to mass? One way is to make it easy for customers to say yes. Con-
produce a genuinely unified customer experience. Consider sider a public-sector example. The U.K. government’s phar-
U.K.-based Marks & Spencer. This famous, centenarian retailer macy-reform initiative makes pharmacists more responsible for
rebuilt itself by providing a lifestyle experience for customers managing patients’ medicine (thereby easing waiting and waste
and saved itself from the brink of disaster. In the past, silos had in the National Health Service). The initiative has taken off in
part because neither patients nor pharmacists
risk being penalized by saying yes. Patients who
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Ten Breakthroughs Lead to Exponential Growth

still need to go to their physicians get rapid
access. Pharmacists, more involved in their com-
Through a systematic process that is similar across industries, companies are
munities and good at identifying symptoms
taking customer focus to a new and deeper level that competitors cannot
among certain groups — predispositions, say, to
easily copy. Time taken to accomplish each of the 10 breakthroughs differs,
and overall implementation takes from 18 months to 5 years, depending on asthma or diabetes — benefit, too. As pharma-
circumstances. As the company models the concept, becomes indispensable cists work to prevent disease and help people use
medications properly or pursue a healthful
No

to select customers and then obtains a critical mass, investments begin to

pay off. Revenues go up and costs go down. lifestyle, they may earn less from filling prescrip-
tions. However, they gain consulting fees from
ac
e ” the government and are supported with training
Sp ie s
t t n it er
e n
rk e
or
t u
e ge
t h and contract agreements to eliminate the admin-
em t” Ma pp as To ss
x c it h “ O C t g a istrative hassles of getting paid.
E L ig ew e llin
g ep k in lM tu
m
g ic t s o f eN a lu pe nc or ic a en
r a te i n e th h eV o m r iz e e Co l e W
C r it o m Another way to speed up customer acceptance
eS
t
“P
o
la t yt C eP th op a rM
at i st i cu n t if i l da e th d el t Pe t a in t he and the rewards to the company is to make the ini-
e l t e z o b
Cr En Ar Id Bu Si M Ge O Ga
tiative easy on customers’ finances. HSC, for exam-
Do

ple, doesn’t charge when checking to see whether

patients have the necessary facilities and emotional
Payoffs support for postoperative home care. If a patient’s
home setup is lacking, HSC advises on what is
needed. Similarly, IBM ensures that on-demand
Months Years computing is affordable enough for customers to
Time
take it up — they pay only when they actually use

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the service, just as they do for utilities such as electricity or water.
A third way is to quantify both the financial and nonfinancial

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benefits to customers. That requires collecting “before” and
“after” baseline statistics, as well as gathering statements from
customers verbalizing the intangible benefits they seek. Lexis-
Nexis asked one customer group, insurance-claims assessors,
“What do you consider success?” and found out that success

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meant increasing the number of frauds detected and the amount
of money recovered. LexisNexis used those performance criteria
to measure and communicate its worth to customers.
The market needs to be created and educated all at once. If the
company fails to make the new approach indispensable to key
customers, it will struggle to attain “enough” and reach the criti-
cal mass. Witness Monsanto Co.’s continuing uphill battle to get

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bioengineered crops understood and accepted in Europe.
Old-fashioned marketing techniques with their short-term
focus cannot help a concept gain critical mass. The company
must make a genuine investment. IHI invested in creating a
well-being university to educate both individuals and corpora-
tions on the tangible benefits of wellness. And to broaden
understanding and acceptance of the concept, IHI invests in
op
collaboration with leading global corporations and health
experts on research, forums and publications, benefiting cus-
tomers and company alike.
Such investments fill gaps in the customer-activity cycle,
enabling quicker, better results. Says an executive from IBM, “We
can see a clear correlation between investments that are lined up
behind specific business values for a customer rather than those
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that we make across the board. The returns are not only larger,
but also more predictable.”
Investments should be made as early as possible, to prevent
competitors from getting a foothold. HSC invests in assessments
at a patient’s home, LexisNexis in its initial consulting. IBM made
a considerable investment by acquiring the consulting arm of
PricewaterhouseCoopers (PwC). With the insights of 3,000 PwC
No

researchers, IBM is better able to predict future developments in

technology and how they will affect client organizations.

Breakthrough 10: Gather Momentum

As customers seeking a certain outcome begin to find the com-
pany indispensable to that end, they influence other potential
customers. That’s when the anticipated financial rewards begin
to flow, and an enterprise realizes the payback from deep cus-
Do

tomer focus. (See “Ten Breakthroughs Lead to Exponential

Growth,” p. 31.)
Significantly, because most investments that create customer
value are intangible (skills, information, knowledge, expertise,
partnering), they can be used over and over without any depreci-
ation. In fact, the cost of use decreases. Knowledge, once accu-
mulated, can be adapted quickly and scaled up to allow an

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Deep Customer Focus Success Factors

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Executives initiating the transformation need to pursue specific actions to make the breakthroughs that lead to implementation of
true customer focus.

You know you Actions needed to This leads to

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have this break- get this breakthrough implementation
BREAKTHROUGH through when: include: because it:

1 The correct people ■ Show difference between thinking ■ Triggers excitement and enthusiasm
Create Strategic see the urgent need about products and thinking about ■ Raises level of consciousness
Excitement to change to the customers ■ Gets both rational and emotional appeal
new concept ■ Communicate risks and opportunities ■ Instills passion and positive energy
■ Set new, exciting direction
■ Cement indispensability goal

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2 A small group rallies ■ Resist trying to get consensus ■ Aligns perspectives and spirit
Enlist Employees who see the “how” ■ Concentrate on positive energizers ■ Builds a common language and under-
Who Are “Points and” why” and want ■ Formulate a hypothesis standing
of Light” change to happen ■ Encourage use of creativity as well ■ Encourages companywide concept to be
as discipline explored jointly

3 Agreement is ■ Express market space across company ■ Makes the direction concrete and easy to
Articulate reached on aspira- ■ Use research to substantiate hypothesis communicate
the New tions, articulated as ■ Influences through involvement
Market Space a customer outcome ■ Turns positive feelings to action
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4 Specific values ■ Choose major markets ■ Structure boosts confidence and credibility
Identify are uncovered that ■ Use customer-activity cycle to present ■ Takes ideas from the abstract to concrete
the Value become the poten- holistic view of customer ■ Fosters both creativity and imagination
Opportunities tial for new wealth ■ Uncover value gaps ■ Builds traction that accelerates adoption
creation ■ Define new value opportunities

5 A story around cus- ■ Substitute story for business plan ■ Makes visual and cognitive impact
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Build a tomers unfolds and ■ Build enterprisewide picture around ■ Embeds language and concepts into culture
Compelling is communicated customer outcome ■ Allows people to see where they fit
Case ■ Mirror this in a new core purpose ■ Gives concept meaning and relevance

6 The numbers reveal ■ Show size of new opportunity ■ Stimulates confidence and trust
Size the Prize returns to warrant ■ Motivate investment in customers ■ Attracts resources and budget
the investment ■ Calculate returns on the basis of more ■ Lines up thinking and investments behind
new business plus reduced costs customer value

7 Key customers vali- ■ Select key customers ■ Gets credibility and energy
No

Model the date the concept ■ Test, refine ideas and develop knowl- ■ Gets customers to influence others
Concept and buy into getting edge and expertise ■ Profiles successes to bolster buy-in
it right ■ Get proof of concept and early wins

8 Silos and partners ■ Merge silos and include partners ■ Turns motivation to commitment
Get People start to support ■ Use best resources ■ Encourages familiarity and use of concepts
Working the concept and ■ Demonstrate gains all around ■ Develops new expertise and skills
Together work jointly and ■ Showcase and celebrate victories ■ Enhances customer experience and value
actively

9 There is compound- ■ Make genuine customer investments ■ Converts insiders and outsiders
Get Critical ing adoption as the ■ Quantify customer benefits ■ Gets more partners/developers to join
Do

Mass concept becomes ■ Intensify marketing ■ Compounds enthusiasm and demand

contagious

10 Rewards begin to ■ Regard customers as assets ■ Makes new concept the new standard
Gather appear with visible ■ Factor in intangible gains ■ Demonstrates connection between deep
Momentum success and a sus- ■ Demonstrate progress and success customer focus and performance
tainable lead ■ Leverage know-how to stay ahead ■ Reinforces deep customer focus
■ Attracts more investment allocation

SPRING 2004 MIT SLOAN MANAGEMENT REVIEW 33

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enterprise to expand into new markets and geographic areas at Thomas, “Customer Equity: Building and Managing Relationships as
low cost. That differs from traditional assets. Valuable Assets” (Boston: Harvard Business School Press, 2001);

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C.M. Christensen and M.E. Raynor, “The Innovator’s Solution: Creat-
The investments that foster customer focus also differ in being ing and Sustaining Successful Growth” (Boston: Harvard Business
expandable. The initial outlay for, say, technological infrastruc- School Press, 2003); F.R. Reichheld, “The Loyalty Effect: The Hidden
ture is only a baseline cost requiring occasional refreshment. Force Behind Growth, Profits and Lasting Value” (Boston: Harvard
Business School Press, 2001); and A.J. Slywotzky and R. Wise, “The
Deep-customer-focus investments do not require the expense Growth Crisis — And How To Escape It,” Harvard Business Review 80
companies pour into upgrading or replacing capital assets such as (July 2002): 72-84. Discussions of customer interactions include G.S.
Day, “Creating a Superior Customer-Relating Capability,” MIT Sloan

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buildings, stores, factories or oil rigs.
Management Review 44 (spring 2003): 77-82; and M. Vandenbosch
The result? Real potential for an exponential reward. With and N. Dawar, “Beyond Better Products: Capturing Value in Customer
knowledge as the main ingredient in customer value, the enter- Interactions,” MIT Sloan Management Review 43 (summer 2002): 35-
42. Major works on customer experience include B.J. Pine II and J.
prise can keep ahead of competitors. Thus, in the gather-momen-
Gilmore, “The Experience Economy: Work Is Theatre and Every Busi-
tum stage of the process, the key concern of executives should not ness a Stage” (Boston: Harvard Business School Press, 1999); C.K.
be, “Do we own ‘it’?” but rather, “Do we understand how to do Prahalad and V. Ramaswamy, “The Future of Competition: Co-Creat-
ing Unique Value With Customers” (Boston: Harvard Business School
‘it’?” and, “Are we using, reusing and updating our knowledge?” Press, 2003).

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The trick is to capture knowledge gleaned from behavior or
2. Organizational transformation continues as a critical area of study,
encounters unique to an individual customer and then reuse it by but to date, the literature in change management has not explicitly
consolidating the findings and transferring the relevant pieces to dealt with how to use the principles and practice to achieve a cus-
tomer focus successfully. A notable work on change management is
other customers. LexisNexis, for one, continuously observes cus- J.P. Kotter and D.S. Cohen, “The Heart of Change: Real-Life Stories
tomer behavior to track how users link information in their deci- of How People Change Their Organizations” (Boston: Harvard Busi-
sion-making processes. The company then aggregates what it ness School Press, 2002). For related work on the public sector, see
W. Chan Kim and R.A. Mauborgne, “Tipping Point Leadership,” Har-
learns into new value for other customers. vard Business Review 81 (April 2003): 66-75.
op
Equally important is collecting knowledge gained in the field 3. S. Vandermerwe, “How Increasing Value to Customers Improves
from internal colleagues to create best and future practices. Thus Business Results,” Sloan Management Review 42 (fall 2000): 27-37.
HSC seeks to understand in minute detail which region is getting 4. For an example of recent research on the importance of energizers
the best results — which nurse is getting the best results with in evoking emotional reactions that lead to improved organizational
performance, see R. Cross, W. Baker and A. Parker, “What Creates
which patient, why and how? The best practices are then dissem- Energy in Organizations?” MIT Sloan Management Review 44 (sum-
inated across the enterprise and constantly updated, allowing mer 2003): 51-56.
HSC to maintain its lead as the standard in the market.
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5. A market space is defined as a desired customer outcome. It

extends boundaries beyond core products and services but also
frames the new competitive arena for the enterprise. See S. Vander-
Making Customer Focus Stick merwe, “New Competitive Spaces: Jointly Investing in New Customer
No one would call becoming truly customer focused easy. But it Logic,” Columbia Journal of World Business 31 (winter 1996): 80-102;
is the only way to outpace others, both newcomers who appear and S. Vandermerwe, “Customer Capitalism: Getting Increasing
Returns in New ‘Market Spaces’” (London: Nicholas Brealey, 1999).
out of nowhere to seize the limelight and new wealth and those
6. The customer-activity cycle has three phases: pre, during and
incumbents who persist in using short-term tactics and strategies post, and maps the entire experience needed to get a customer out-
to compete. When an enterprise has made the breakthroughs and
No

come. Each phase has subcycles, sub-subcycles, sub-sub-subcycles

customer focus gets deep into its essence, the concept will take and so forth to get to the level of detail that uncovers the opportuni-
ties. See S. Vandermerwe, “Jumping Into the Customer’s Activity
root in behavior and shape all subsequent innovative actions. Cycle: A New Role for Customer Services in the 1990s,” Columbia
(See “Deep Customer Focus Success Factors,” p. 33.) Journal of World Business 28 (summer 1993): 46-66. For the experi-
At that point, customer focus sticks and becomes a permanent ences of corporations using the tool as they make the transformation
from products to customers, see S. Vandermerwe, “The Eleventh
imprint in the culture. Employees become programmed to cre- Commandment: Transforming To ‘Own’ Customers” (London: John
atively and constantly innovate to keep the enterprise indispen- Wiley & Sons, 1996).
sable to customers. Successes can be repeated, and enterprises can 7. For an example of how scholars calculate the lifetime value of cus-
continue renewing themselves in their quest for profitable tomers, see E. Ofek, “Customer Profitability and Lifetime Value,” Har-
vard Business School case no. 9-503-019 (Boston: Harvard Business
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growth in futures they themselves may have to invent. School Publishing, 2002); R. Rust, V. Zeithaml and K. Lemon, “Driving
Customer Equity: How Customer Lifetime Value Is Reshaping Corpo-
rate Strategy” (New York: Free Press, 2000); and R.K. Srivastava, T.A.
REFERENCES Shervani and L. Fahey, “Market-Based Assets and Shareholder Value:
A Framework for Analysis,” Journal of Marketing 62, no. 1 (1998): 2-18.
1. A strong body of research has evolved around the importance of
customer focus in innovation and strategic growth, and the importance
of interacting with customers and delivering a unique experience to Reprint 45307. For ordering information, see page 1.
them. For recent relevant works, see R.C. Blattberg, G. Getz and J.S. Copyright  Massachusetts Institute of Technology, 2004. All rights reserved.

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