Beruflich Dokumente
Kultur Dokumente
GeorgeS.Day TheWhartonSchool
Firmsarebeingpulledbytheirstrategiesandpushedbyincreasinglyassertivecustomers
1 toorganizearoundcustomergroups. Theinevitableupheavalisfurtherjustifiedbyvisible
successstoriessuchasFidelityInvestments,IBM,CumminsIndia,andImation,andendorsedby
2 organizationalspecialistswhoapplaudsmaller,marketresponsiveunits.
AnewstrategywasbehindtheJanuary2005announcementthatIntelwouldreorganize intofivemarketfocusedunits:corporatecomputing,thedigitalhome,mobilecomputing,health
3 care,andchannelproducts. Nolongerwouldthefirmrelyonthedesignofdiscretechipsand
expectcustomerstoadoptthem.Instead,thefocuswouldbeon thebundlingof processes, ancillarychips,andintegratingsoftwareintoplatformstailoredtoeachcustomersegment. Althoughthemarketlogicofthisstrategywascompelling,therewerenoillusionsthatimposing suchamanagementstructureacrossthecompanywouldbeeasyinthefaceofasuccessfulbut engrainedproductcenteredculture. Therehasbeenaseeminglysteadyevolutionoforganizationstowardcloseralignment withtheirmarkets.Thefirststageofthisevolutionistheemergenceofinformalcoordinationto overcomethefamiliardeficienciesofproductorfunctionalsilos.Ifthisisntsufficient,then integratingfunctionssuchaskeyaccountmanagersandsegmenttaskforcesareadded.Fuller structuralalignmentisachievedbystrengtheningthecustomerdimensionoftheorganization
4 matrixwithsegmentmanagersorcustomerbasedfrontendunits.
Fromthesestoriesofsuccess,failure,andbacktracking,wehavedrawnthree implementationlessons: 1. Keepeveryonefocusedonthecustomerstotalexperience, 2. Adjustthepaceofthealignmentprocesstotheanticipatedobstacles,and 3. Keeprealigningtostayaheadofmarketchanges. Manyorganizationscannot,shouldnot,andwillnotaimforcompleteorganizational alignmentwiththeirmarkets.ManysuccessfulcompanieslikeSamsung,Toyota,andUnilever remainresolutelyproductfocusedandarenotdisposedtomovebeyondmodestcoordinating mechanisms.Thosefirmsaimingforaverytightalignmentshouldnotembarkonamultiyear journeytoimplementthisdesignunlessthereissubstantialleadershipcommitment.
StageTwo:InformalLateralCoordination Anearlysignofdifficultyismountingtension betweenthesalesandmarketing functions.Bothgroupsshouldbeworkinginparalleltowardshortandlongtermgoals.Problems firstsurfacewheneachfunctionblamestheotherforitsownfailings,andareexacerbatedbya lackofrespectfortheothersrole.Salesmaythinkofmarketingasshortrunsalesprospecting andprogramsupport.Marketingthinksofitselfasidentifyingattractivegroupsofprospective customersandfindingwaystoattractandkeepthemoverthelongrun.Theviewthatprevails dependsonwhichfunctionhasthemostpowerandthemostcredibleadvocates. Therearevariouswaystodefuseandchanneltheseconflictsandmisunderstandings towardmoreproductiveends.Welltrainedandproperlyincentedproductmanagerscanserve informallyasbridgesandcoordinators.Italsohelpsifthereisconsciouscrosspollinationby rotatingpeoplethrough eachfunctiontogainsharedunderstandingandcreatespanning networks.Jointparticipationinplanningmeetingsisessential.Theintroductionofcompany widecustomerrelationshipmanagement(CRM)systemsissometimesuseful,byrequiring
standardizedcommunicationsandsharedaccesstocustomerinformation.However,thesemoves aremuchmoresuccessfulwhendoneintandemwiththenextstageofevolution.
StageThree:PartialAlignmentviaIntegratingFunctions Themostsignificantandenduringshiftintheorganizationofmarketinghasbeenthe
6 introductionoftheboundaryspanningroleofmarketsegmentand/orkeyaccountmanagers.
Theseareinstalledtoovercomeafunctionallypartitionedviewofthecustomer,therebyhelping toidentifyunmetoremergingneedsandimprovethecoordinationofmarketingandsales.These internalcustomeradvocatesusetheirknowledgeandpersuasiveabilitytogaininfluencesince they rarelyhavedirectcontroloverresourcesorincentives.Theaim istoimprovethe coordinationofallcustomercontactactivities.Thus,keyaccountmanagersareoftenresponsible forlargemultifunctionalteamswithmany pointsofcontacttodifferentfunctionsandlevels withineachlargecustomer. Inthewakeoftheseshiftsmarketingactivitiesareincreasinglydispersedandassignedto teamsledbysales,ortocrossfunctionalprocessteamsresponsibleforcustomerserviceor logistics.Sometimesseparateorganizationalunitsareformedtodealwithcustomerrelationship management,customerservice,orworldwidebrandingissuesthatwereoncethesoleprovince ofthemarketingfunction.
thencustomerneedsandpreferencesandopportunitiesforcompetitiveadvantagetakepriorityin
decisionmaking.Thus,aU.K.publishingcompanywithaportfoliooflifestylemagazinessetup anumberofsmall,decentralizedSBUs,eachaddressingadifferentreadersegment.Therewas littlesharingofservicesbetweentheseSBUs. ThestandaloneSBUdesignrequiresstablemarketsegmentsthat overlapminimallywith themarketsofotherSBUs.IftheSBUsshareproducts,services,orcapabilities,then coordinationbecomesdifficult,theunderstandingofthecustomerbecomesfragmented,and resourcesforservingcustomersareinefficientlyallocated.Inresponsetotheseproblems, organizationdesignersareevolvingtowardfront/backhybridmodelsormatricesthatadda customersegmentdimension. Thefront/backhybriddesignhasstrongcustomerfocusedfrontendunitsthatoffer integratedsolutions(seeFigureTwo)andproductbusinessunitsthatprovidethemodular
8 elementstocombineintosolutions. WithinIBM,theoriginalbusinessunitsforpersonal
computers,servers,software,andtechnicalserviceareinternalbackendsupplierstothe solutionunitswhilealsosellingdirectlytocustomers.Thisdesignflourisheswhen customers wantsolutionsthatarecustomizedtotheirindividualizedneeds,anddeliveredthroughasingle customercontactpoint.Theotherrequisitesforsuccessareastrongcorporatecentertomediate theconflictingdemandsofthetwounits,andastrategywithsolutionsasthecentralthrust. FidelityInvestmentshasevolvedtothefront/backhybridmodeltomeetthechallengeof discountbrokersononesideandindependentfinancialadvisorsontheother.Their organizationaltransformationfromasolelyproductfocusedcompanybeganwithastrategythat emphasizedcredibleadviceandinvestmentsolutionstailoredtotheindividualinvestors situation.Thismeantpickingthecustomersegmentstonurture,andcreatingdedicatedgroupsto serveeachofthesesegmentswithpersonalizedguidanceandservicelevelsappropriatetothe
Themaindriveristheemphasisofthestrategyonrelationalvalueasinsolution strategiessuchasIBMsGlobalServicesorGeneralElectricsPowerSystems.Thesestrategies prevailwhenthereisawidediversityintherequirementsandattractivenessofthecustomer base,andsomeofthebestcustomersseevaluefrombuyinganintegratedbundleofproductsand servicesfromonesource. Thisrequiresengagingincloseinteractionsfarbeyondthetraditional buysellrelationship.Conversely,apricevaluestrategythatemphasizesleveragingeconomiesof scaleandscope,tocompeteinareasonablyhomogeneousmarketwithastandardizedoffering, doesnotusually requiremorethanaStage Twostructure. TemperingthedecisiontoproceedallthewaytoaStageFour structurewithfuller structuralalignmentare:(1)alackofinformationon thepurchasebehaviorandprofitabilityof individualcustomersorsegments,(2)alowtoleranceforthecomplexitiesoftransferpricing
GETTINGCLOSERTOCUSTOMERS (The) integration of front office functions that touch the marketplacecanproducesignificantbenefits,buttheintegrationmust be executed superbly or the benefits will be decimated by the parochial 9 interestsofindividualunits. ThisquotationfromLouGerstner,drawingonhisexperiencewiththeturnaroundof IBM,capturesthestakesandrisksofimplementingacustomerbasedfrontenddesign.To identifythemainbenefitsandpitfalls,weinterviewedseniormanagersoffifteenfirmsthathad undertakenalargescaleredesigninanefforttogainacloseralignmentwiththeirmarkets. Ourmethodwastofollowuponpreviouslypublicizedreportsorannouncementsofa firmrealigningitsorganizationaroundmarketsegments,andaskthefollowingquestions: 1. Whywastheorganizationalchangeundertaken?Whatwerethetriggers? 2. Howwasthedesignchosen?Whatalternativeswereconsidered? 3. Whatwerethebiggestimplementationchallenges?Howdidtheorganizationget behindthechangeandcommittomakingithappen? 4. Whatweretheperformanceresults?Wastheredesignconsideredasuccess? Thefifteenfirmsinourstudy wereclassifiedbydegreeofsuccess(seeExhibit One),usingthejudgmentsofthosewhowerefamiliarwiththehistoryoftherealignment process.Onlyfourwereunqualified,sustainedsuccesses.Twomorewerejudgedtobesuccesses
RationalesforReorganization ThereasongivenforamajorreorganizationofMotorola,launchedbythenewCEO,
10 EdwardJ.Zander,inlate2004,wouldhaveresonatedwitheachofthefirmsinourstudy. The
intentwastodismantleMotorolasdebilitatingbureaucracyandendacultureofrivalryamong productdivisionswhobehavedlikewarringtribes. Thiswasnecessarytohelpexecuteastrategyofseamlessmobility,andmakeiteasy forconsumerstotransportanydigitalinformation music,video,email,phonecallsfromthe housetothecartotheworkplace.Zanderplannedtoabandonadivisionalstructurebasedon products,suchasmobilephonesandbroadbandgear,andreorganizearoundcustomermarkets suchasthedigitalhomeandlargeenterprises.Toovercomeresistance,Zanderhasmade cooperationakeyfactorindeterminingraisesandbonuses. Theprimacyofstrategy.Themanagerswetalkedwithconsistentlysaidtherehadtobea compellingstrategicrationaleforarealignmentaroundmarketsbeforetheorganizationcould
8 3 3 0 1 15
3 7 1 4 2 17
CumminsIndiabegantheirevolutiontoa StageFoursolutionsstrategy withaungainly groupofseparatejointventuresformakingandsellingengines,generatorsetsandrelated equipment,alongwithaseparateserviceentity.Thetriggersforchangewerethethreatoflossof theirdominantshare,plusdeterioratingmarginsastheIndianeconomyopenedtocompetition, andtheconsolidationofcontroloverthejointventuressotheycouldbeoperatedasoneentity. HavingaservicebusinesswasviewedasgoodfortunebecauseithelpedCumminslearnabout theongoingneedsoftheircustomers,andshowedthatthemarginsoncustomservicebundles weremuchsuperiortoproducts. ThenewheadofCumminsIndiawastheobviousownerofthesolutionsstrategy,which wasimplementedthroughthreefrontendsubsidiarieseachfocusingonaparticularsolution.
Assubsidiariestheywereshieldedfromtheexistingsystemsandcultureofthebackendunits thatmadetheenginesandgenerators.Akeymovewastomakethethreesubsidiariesproduct agnostic,sotheycouldoffercompetitorsproductswhentheywerebettersuitedtothesolution. Initiallytherewasinternal skepticism,compoundedbylackofknowledgeoftheneedsoftheend userbuyingthesolution.Theneedofpowersystemcustomersforuninterruptedpowerdepended onmuchmorethanareliabledieselengine.TomeetthatneedCumminshadtosourcenew componentsfromoutsidethecompany,analyzethecustomereconomicsindepthtotailortheir offering,andprovideextensivemaintenanceandtestingprograms.Overalltherealignmentis viewedasasuccess,withmarketshareandrevenueslightlyincreased.Meanwhilesalesofthe coreproductbusinessofenginesandgeneratorsdroppedby30percent. SolutionsstrategiesaremostsuitableforservicecompaniessuchasFidelityInvestments orsystemsmanufacturerslikeIBMabletoprovideasignificantservicewrappertoaugment theirproductorfirmsinconvergencemarkets.ThusThermoElectron,thegloballeaderin analyticalinstrumentation,hasbeenmovingtoaStage Threerealignmentwithkeyaccount managerstorepresenttheirwholelineofbundledlabinstruments,augmentedwithfinancialand maintenanceservices,andlabinformationsystemsusingintegratedsoftwareplatforms.Theyare fixingadeeplyflawedandfragmentedbusinessmodelinwhich24subsidiariessoldtheir individualproductstothesamecustomerasothersubsidiarieswithmuch duplicationofeffort andaggravation ofcustomers.Oneofthelegaciesofthisbalkanizedstructurewasthatkey accountmanagersfromproductdivisionspreferredsellingtheproductstheyknew,andwereless interestedinsellingsolutions.Toovercomethisproblem,ThermoElectron beganhiringpeople fromtheircustomersforthisintegratedsellingjob.Aspartoftheirjourneytocloseralignment withmarketstheyhaveaddedmarketsegmentmanagersforeachtypeoflaboratory.Itistheir
10
jobtoknoweverythingabouttheirsegmentandsupportthesalesforcebypullingresourcesfrom theproductgroups. Gettingclosertothemarket.Whilethiswasseldomthemainreasonforrealigning aroundmarketstheadvantagesof,gettingclosertocustomers,gainingdeeperinsightsinto segments, orbreakingawayfromproductorientation,wereseenasstrongsupportingreasons. Furtherimpetuscamewhenthecustomerstiredofhavingmultiplesalespeoplefromthesame companyvisiting,anddemandedasinglepointofcontacttocoordinatesalesactivitiesacrossall businesses. AstrongproponentofthestrategicvalueofamarketorientationwasWilliamMonahan, theChairmanandCEOofImationwhosaid,Ifwhatyoudodoesnotleadtocustomers,then youshouldbedoingsomethingelse.Imationwasspunoutfrom3Minthemidninetiesasa collectionofsevenproductfocusedbusinessesinrapidlycommoditizingmarkets. Thefirstmove wastodivestfivenoncorebusinessesandconcentrateondatastoragemediaanddevices.Even thoughImationdoesnotselldirectly,theychosetorealigntheirorganizationaroundfourend usersegments:personalstorage,entrylevel,midrange(highlevelofnetworking)andenterprise. ForeachendusersegmentImation createdabusinessteam,ledbyproductmanagement, whoareexpertsinassessingcustomerrequirementsanddesigningtheImationoffering.Thisisa standardmatrixdesignwithaproductdimension responsiblefordatastorageproductsthatcan beusedbymultiplesegments,andamarketsegmentdimensionhousingthebusinessteams responsibleforthesegments.Salesaremadebykeyaccountmanagerswhocallonlargeretailers suchasBestBuy,andlargeOEMaccounts. Each accountmanagerisalsoamemberof a businessteam.Imationisnotsellingsolutionstheiradvantagecomesfromdeepercustomer knowledgethatstrengthenstheirtieswiththeirdistributorsandretailers.Otherbenefitsarea
11
muchmoreaggressiveculture(theirterm)withastrongerproductivitymentality.Bysetting clearerstrategicprioritiesImation reducedtheirSG&Acostsbytwopercent. Pursuingsegmentgrowthopportunities.BothSony NorthAmericaandNokiarealigned themselvesaroundmarketsegmentsbecausetheiruncoordinatedandproductcentered organizationsweremissinggrowthopportunities,andmarketingeffortswerebeingdiluted acrosstoomanycategories.Bybundlingproductstomeetsegmentneedstheywerefollowing JackWelchsnotion,Ifyouhavedominantshareinthemarket,makethesandboxbigger. SonyElectronics,NorthAmericahadmirroredtheparentsorganizationwithfive autonomousproductdivisions(e.g.homeentertainment,digitalimaging,personalmobileandso
12 on)withseparateprofitandlossstatements. Becauseeachproductlinehaditsowntarget
12
successaremuchimprovedifthereisacompellingstrategicrationaleandourthree implementationlessonsarefollowed.
LessonOne:KeepEveryoneFocusedontheCustomersTotalExperience Thebenefitsofamorecustomerfocusedorganizationarefirstrealizedthroughclearer accountabilityfortherelationshipswiththebestcustomers.Functionalandproductdominant structuresarenotablypooreratcomprehendingthetotalexperienceofthecustomerswiththe companyandsolvingcrossfunctionalproblems.Nooneislookingatthecompanythroughthe customerseyesandaskinghowprocessescanbeimprovedtoreducetheirfrustration,how productscanbeintegratedacrossunits,orwhatnewrequirementscouldbesatisfiedwithan augmentedoffering.Withoutclearaccountabilitynoonemayberesponsiblefortracking customerdefectionsandlaunchingwinbackinitiatives. Acorollaryofabalkanizedviewofthecustomeristhatsystemsandcontrolsdesigned formeasuringproductprofitabilitycantmeasuretheprofitabilityofindividualcustomersor segments.Yettheabilitytotreatdifferentcustomersdifferentlyaccordingtotheirlifetimevalue isattheheartofcustomerrelationshipmanagement.Improvingaccountabilityrequiresa combinationofsystemchanges,customerfocusedmetrics,andincentivestiedtocustomer segmentperformance. Anecessaryearlystepisunifiedcustomerinformation thatisfilteredthroughlinked databases,anddeliveredinacoordinatedandmeaningfulwaytocustomers.Thenthecompany
13
presentsasinglefacetothecustomer.Whenindividualproductandgeographicgroupshave theirowninformationsystems,includingorderingandfulfilment,thefirmisunableto
16 coordinateitsoffering. Theconsolidationofinformationatthepointofcustomercontactalso
makesiteasiertoseparatethefrontendcustomersolutionunitsfromthebackendproduct infrastructure. Furtherreinforcementofacustomerfocusedstructurecomesfromthejudiciouschoice of performancemetrics.Thischoiceshouldbeguidedbybothstrategyandobjectives.Most firmswetalkedwithheldtheircustomerfacingunitsaccountableforsegmentrevenueand profitability.Butthesemeasuresareshortondiagnosticvalue,andareusuallynotinthedirect lineofsightofindividualcontributorsorteams.Theyneedtobeaugmentedwithadashboardor scorecardusingmetricsthatilluminatethestrategyandhaveatestedconnectionwithfinancial performance.Thesedifferbyfirmandindustry.Whilecustomerretentionisoftenadriverof growthandprofitsitissuspectasameasurewhentherearehighswitchingcosts. Similarly, customersatisfaction canbeausefuldiagnosticmeasurewhenitisaskedaboutthecomponents oftheoffer(serviceversusproductforexample),butitisalsocumbersomeandunreliable. Thebestmetricssupportthestrategy,aremeaningfultoemployees,andareleading indicatorsofperformance.EnterpriseRentACarcanranktheir5000brancheswithtwo customersurveyquestions,oneaboutitsqualityoftheirrentalexperienceandtheotheraboutthe likelihoodtheywouldrentfromthecompanyagain.Amoregeneralizedversionofthese
17 questions isHowlikelyisitthatyouwouldrecommend[companyX]toafriendor
14
customers,andthatpoorperformancewascausedbyvariabilityinmeetingdeliverypromises. Bothearlyandlatedeliverycausedproblems.TheyusedtheirwellhonedSix Sigmadiscipline tomeasureandmanagedeliveryspan.Thiswasthevariationindeliverydatearoundthe promiseddate.Bytyingincentivestoprogressinnarrowingthisspan,andfollowingthis progressclosely,theyassuredaccountabilitywhereitmattered. Theclearestsignalthataccountabilityforsegmentperformancemattersiswhen incentivesandperformancereviewsaredirectlylinkedtothesegmentmetrics.Thus,SquareD altereditsincentivesystemsothatthenewmarketsegmentunitsweremeasuredandrewarded forthenumberofcustomersacquiredandkept,ratherthannumberofunitssold,andonthe operatingprofitmargin.Incentivesarealsousefulforsignalingdesiredbehaviour.Thus, ThermoElectronrewardedsalespeopleforsharingcustomerleadswithothermarketsegment groups. Implementationcaveats.Agoodgeneralruleisthatemployeesonlywillinglyaccepta newaccountabilitywhentheyfeeltheycantrust themetricanditwiththeiractions.Thisruleis often violated.Thefirstproblemisthatemployeesoftenlackconfidencein themeasures.For example,segmentlevelsalesdataisoftenhardtoobtain.Proxymeasuresofrevenuebasedon surveysmaybegoodenoughfordecisionmaking,butnotforincentivecompensation.Also, accountingsystemsconfiguredforproductcostingaregenerallycluelesswhenitcomesto measuringthecostsofservingcustomers.Complexestimatesofthesecostsarelikelytoarouse suspicion.Measuresofcustomersatisfactionandretentionaresimilarlyvulnerable. Anotherproblemariseswhenemployeeslearntheycangamethemetrics.Thewell
18 knownmanipulation ofcustomersatisfactionscoresbyautodealerscertainlycompromisesthe
valueofthismetric.
15
LessonTwo:AdjustPaceofAlignmentProcesstoAnticipatedObstacles Reorganizationsinvariablytakelongerthanexpected.Sometimesachangeinleadership undercutstheenergyandcommitmenttothechange.Becauseittakeslongertoreorganizethan toplanachangeinstrategy,thereisanunrealisticexpectationabouthowquicklyitcanbe accomplished.Systemschangesandupgradesareoftenaratelimitingstopintheprocess. FidelityInvestmentsmanagersestimatethatittookthematleastthreeyearstoaccomplish60 percentoftheirreorganizationgoalsmainlybecauseofsystemsconstraints. Overall,wefoundthebiggestimpedimenttothetimelycompletionofareorganization wasaninabilitytoanticipateandovercomeobstacles.Fewfirmsviolatedthisimperativeto worseeffectthanXerox.Therewasaclearstrategicrationaleforaproposedfrontendalignment
19 aroundcustomers.Asearlyas1992thethenCEO,PaulAllaire, sawthatashiftoftheXerox
16
Toovercometherigidityofanextremelyfunctionalorganization,andpresentasingle facetothecustomer,thesalesandservespeoplewerefirstorganizedintogeographiccustomer operationsdivisions.ThisstructureservedthecompanywellthroughtheNineties.Thengrowth slowedandanoutsiderRickThoman camefromIBMtotakeoverasCEO.Hesoonconcluded thatthenextlogicalstepwastoassignthesalesforceawayfromtheirgeographicresponsibilities toindustrygroupstoselldocumentsolutions.Thiswouldseemtoreinforcethedirectionsetby AllaireandmeetintensifyingcompetitionfromHPandCanon.Becausethechangewassobadly botched,noneof itsbenefitswererealizedandXeroxwasseriouslydamaged.Soonafter, Thomanlosthisjob. Ourinterviewsandotherautopsiesfoundamixofstrategicmisjudgmentsandserious implementationmisstepsbyXerox.Inretrospectnotallindustrysegmentswantedadocument solution.Ahybridmodelwouldhaveservedthembetterwiththesolution approachlimitedto industryverticalmarketslikeLawOfficesorPharmaceuticalswheredocumentmanagementwas crucial.Thentherewereunrealisticexpectationsabouttheabilitiesofthesalesforce.Whilethey wereverygoodatsellingboxestoofficeadministratorsandpurchasingagentswithlarge contracts,itbecamepainfullyobviouswhentheycalledonsystemsorITpeoplethatthey didnt knowenough aboutnetworkingortheirassignedindustry. Xeroxmanagementdidntproperlytrainthesalesforceintheirnewassignmentsnor weretheircustomersadequatelypreparedtounderstandthechanges.Salespeoplecomplained aboutlosinglongstandingclientrelationships,andbeingpulledintotimeconsumingmeeting andtaskteamswhilestillbeingjudgedoncustomercallsandsalesresults.Thefalloutwasvery damagingthesalescyclelengthened,aggrievedcustomersslowedtheirpayments,andathirdof thesalesforceleftthecompany.
17
Theculturalimperative.Afirmsculturecaneithergiveordenypermissiontoproceed witharealignmentaroundmarkets.BothNokiaandCapitalOnebenefitedfromsupportive cultures.Nokiagrewupwithaflexibleculturethatencouragedinformalnetworkingandcross businesstaskforces.Thismadeiteasierforsmallprojectteamstoevolveintoseparate businessesservingdistinctmarkets. CapitalOnealsoleverageditsculturetomovefromaconventionalfunctional organizationthattookacentralizedcreditviewoftheircustomers,tobusinessteamsorganized aroundmarketssuchassuperprimeorsubprimecustomers.Eachteamhadallmarketingand customeracquisitionandretentionactivities,andwasresponsibleforcreditanalysisandrating. Thiswasabigdeparturefrompractice,thatbegunwiththehighlyvisiblesuccessofacreditcard forcollegestudentswithoutcredithistories.AnanalyticalcultureofshowmetheNPVcould seethepossibilitiesofthisearlywin,andwithanaverageemployeeageoflessthan30years, mostpeoplewerenotstronglyweddedtothetraditionalorganization. Obstaclesarisewhenthiscultureismatureandhasabsorbeddysfunctionalbeliefssuch as:thesalesforceownsthecustomers,orwellselltowhoeverwillbuy,orcustomersdont knowwhattheywant.ThiswastheenvironmentthatLouGestnerforcedwhenhejoinedIBM, andcontributedtoXeroxsplight. Culturalobstaclesareamongthemostdifferenttoanticipateandmayonlysurfacelater assubtleresistanceoranunwillingnesstoshareinformation.Oneprovenwaytodealwiththem isthroughsuccessstories.This,SquareDwasdividedintocoreandnoncoremarkets(thelatter weremostlyaboutnewopportunities).Marketsegmentmanagementbeganinthenoncore marketsbecausetheydidnthavestronglegacyculturestoovercome.Oncetheleadersofthe
18
noncoremarketsdemonstratedthepayofffromtheirrealignment,theyweretransferredintothe coremarketsaschangeagents. ImplementationCaveats.Mismatchedcapabilities,fragmentedinformationsystemsand inadequateexecutioncanallunderminetherealignmentprocess.Forthemostpartthefirmswe studiedanticipatedanddealtwiththeseobstacles,becausetheyareafamiliarfeatureofall organizations.Theyweremorelikelytomisstwolessfamiliarobstaclestorealignmentsaround marketsthatstemfromcustomerresistanceandexacerbationoflongsimmeringfunctional tensions. Acommoneconomicrationaleforrealignmentsaroundcustomersisthatdifferent customersaretreateddifferentlyaccordingtotheircosttoserveandlifetimevalue.Butlong standingandloyalcustomersusuallyresentbeingrelegatedtoalowerstatus,suchasbeing servedbydistributors,whentheyhadalwaysbeenserveddirectly.Thesecustomerswillhave friendsandadvocateswithinseniormanagementandthesalesforcewhomaytaketheirside.A carefulmigrationpathforthesecustomershastobedesignedinanticipationofthisobstacleto avoidjeopardizingthewholeprogram. Finally,anorganizationalrealignmentoftenexacerbateslongstandingconflicts, notablybetweenmarketingandsales.Whenfieldsales,telesales,retailers,andcustomerservice allinteractdirectlywiththesameaccount,andmarketmanagersdevisestrategiesforthese accountsthatarenotcloselycoordinatedwithsales,theobjectiveisseamlessexecution,butthe resultsareoftenexpensiveduplications,infightingandapoorcustomerexperience.These adverseresultsconstituteaverysizeabletransitioncostoftheneworganization andadeterrent toambitiousreorganizationplans.
LessonThree:KeepRealigningtoKeepAheadofMarketChanges
19
Organizationscontinuallyslipoutofalignmentwiththeirmarketsbecausemarketsare increasinglydynamicandstrategiesmustkeeppace.Indeedmanagersmustbracethemselvesfor anacceleratingpaceofrealignment.Theycanonlyhopetherateofchangeisslowerthantheir abilitytocompletethepreviouschange.Thisisfarfromasurethingbecauseoftheinherentdrag ofsystemlegacies,cultureandotherobstacles. Onereasonforcontinuouschangeisthatanyorganizationthathighlightsthecustomer dimensionconfrontsthequestionofwhichcustomertoserve.Thestrategiclogicdoesnotpermit theluxuryofservingallsegmentsequallywell.Dowewantahighshareofafewaccounts,ora smallershareofalargenumberofaccounts?Buttherosterofhighvalueaccountskeeps changing,soteamsmustbeabletocontinuouslyformandreformasnewsegmentopportunities emerge. Second,thereisthependulumphenomenon.Anorganizationintransitiononlystopsat thetopofapendulumswingandthenmovesmostquicklywhenitreachesthebottomofthe swing,whichwastheintendeddestination.Becauseofthismomentumitiseasytoovershoot andoveralign,sosavvymanagersexpecttoadjustandcorrecttheircourse.Thisisallpartofthe learningprocess.WhenPhilipsSemiconductorsshiftedentirelytoglobalaccountteams,aspart ofatightercollaborationwithcustomersontechnology,service,andlogisticswiththeirbiggest globalaccounts,theyencounteredanumberofproblems.Somewerethenaturalfalloutof managingteamsacrossmanytimezones,andtheresistanceofsomecountryculturestonot havingalocalastheirboss.Theyalsofoundtheycouldntfullycustomizetheirentireservice organization.Nordidallaccountswantahighlylinkedcollaborativerelationship,thatlooked likeavirtualjointventure.Nowtheyaremovingtoahybridorganizationwithglobalteamsfor thetop70percentoftheircustomers.Theotherswillbeservedwithregionalteams.
20
CompetitiveRealities.Alignmentwithamarketmeansbeingresponsivetobothcustomer opportunitiesandcompetitivecostpressures.Intougheconomictimesthecustomerdimension maybesubordinated,aswefoundwithtwofirmsthatreemphasizedtheproductdimension. Until1993,SquareD,themakerofindustrialcontrolandelectronicdistributionsystems, wasorganizedaroundthreemainproducts,andcouldntseemtogrowanyfasterthanthe underlyingmarkets.Atthesametimetheirlargemanufacturingcustomers,suchastheBigThree automakers,wereglobalizingandwantedintegratedsolutions.Togetclosertothesecustomers theyreorganizedaroundfourmainmarketsindustrial,residential,construction,andoriginal equipmentmanufacturing.Theremainingfunctionswerethenreorganizedtosupportthese divisionswith centralizedmanufacturing. ThiscustomerfocusedmodelwasjustrightfortheNineties,butstruggledwhenthe economyslowedandcustomersstartedmovingproductionoverseasinsearchoflowercosts.As theheadofsalesandmarketingnoted,Ourcustomerfocusedorganizations,withproductand customersegmentsidesofthematrixequallybalanced,serveduswell throughoutthe19942000 period.... IfIrateourperformancethenatA,thelasttwoyearswouldamuchlowerrating.Asa resultwearenow strengtheningtheproductsideofthematrix.Withinthecrossfunctional teamsthatservesegments,theproductorganizationisbeingmademoreaccountable theirrole isbeingevaluated,theircompensationplansarebeingchangedtheproductsidewillbe mainlyresponsiblefortheP&L,andthetradeoffsthatarenecessarybetweenrevenuesand costs.Theyfounditwaseasiertoimplementcostmeasurementsandcostallocationstothe productsideandholdthemaccountableforcostsavings.Inthisway theyhaveconvergedto the familiarhybridstructurewherethefrontendisalignedaroundmarketsandtherestofthe organizationisstructuredaroundproducts.
21
solutionstodistinctcustomersegments:internetserviceproviders,enterprises,andsmallto mediumsizedbusinesses.Withthisstructuretheyrodetheexplosivegrowthoftheindustryto salesof$22.3Billionin2001from$6.4Billionin1997. The2001technologyslumpexposedthefaultlinesofthisstructure.Becauseeach segmentfacingLOBdevelopedandbuilttheirownproducts,therewasagreatdealof redundancyinengineeringandinnovation.Concurrently,thecustomersegmentswere convergingintheirtechnologicalsophisticationandrequirements,lowcostcompetitorslike HuaweifromChinaweresellinglowerpricedversionsofCicscosequipment,andoverall demandwasfallingquickly.Underthisburden,netincomecollapsedfrom$2.7Billionin2000 toa$1Billionlossin2001. Tosqueezeoutthecostlyredundancies,all relatedtechnologieswerecentralizedinto eleventechnologygroupsunderaChiefDevelopmentOfficer.Acentralmarketingorganization housedsolutionsengineeringteamsthatcouldmixandmatchthesetechnologies.Therisksof buildingtechnologysiloswaswellrecognized.Wemovedtheinflectionpointbacktowards engineering.Thisallowsthetechnologytobeusedinmultiplecustomersegments,butitdoes putengineersfurtherawayfromthecustomersAmazingly,thisentirerealignmentwas implementedwithinthreemonths,withoutlayoffsorphysicalrelocationformostengineers, whichmadeiteasiertothemtokeepconnectedwithothertechnologygroups.Bytheendof 2003theywereseeingthebenefitsofthecostefficiencies,withoutapparentdeteriorationin customersatisfaction,andnetincomewas$3.6Billion.
22
FindingtheStructuralSweetSpot Organizationstructuresaredestinedtostayinfluxbecausetheyarejustameanstoan end,whichistherealizationofacompetitivestrategy.Arethinkingorredirectionofthisstrategy istantamounttoaredesignoftheenablingstructureandsupportingelements.BothSquareDand CiscoSystemshadriddentheirfullcustomerfocusedorganizationstorapidgrowthduringthe nineties,butfoundtheywereoveralignedwhenmarketgrowthslowedandlowcostcompetitors challengedtheircostbase.Bothsettledonahybridfrontbackdesign.Perhapsthisisthesweet spotforpursuingasolutionstrategy. Inbothcasestherealignmentwaseasedbytheirstronglymarketdrivencultures.Close observersoftheCiscoreorganizationconcludedthatthehighvalueplacedoncustomer advocacywassoembeddedintheculturalDNAthatitwasunaffectedbythechangestothe formalstructure.Insummary,organizationsareaboutmorethanboxes,arrows,andlines,but structuredoessignalstrategicintent.Althoughthebalanceofaccountabilityandpowerofeach dimensionwillstayinflux,thereisnodoubtthatsomeformofalignmentwithmarketshasvalue eveninthemostcostconstrainedanddemandingmarkets.
23
AppendixA AbouttheResearch Arepresentativesampleofseniormarketing,sales,andMISmanagersandexecutives wasdrawnusingadatabasecombininginformationfromDun&BradstreetandMarketPlace. SICcodeswereselectedfromthemanufacturing,transportation,publicutilities,wholesaleand retailtrade,finance,insurance,andrealestatesectors.Companieslocatedinall50stateswith morethan500employeeswereincludedinthesample. Thequestionnairewasmailedtothemostseniorpersonwhowasknowledgeableabout thecompetitivestrategyperformanceofthefirm.Twoweeksafterthemailing,followup telephonecallswereusedtoremindpeopletocompletethesurvey,andsurveyswereremailedif requested.1,100surveysweresentoutinthefirstmailing,andasecondwavewassentoutabout fourweekslaterto900newcontacts.Thetwomailingshadsimilarresponseratesandthefinal responseratewas17percent.Datacollectionwascompletedin March2002. Therewerenosignificantdifferencesbetweenthefirmsthatrespondedcomparedtothe sampleframeintermsoftheirindustry,numberofemployees,andgeographiclocation.Early respondentsdidnotdiffersignificantlyfromlaterrespondents,whichfurtherconfirmsthat representativenessofthedata. Respondentswereasked:Howareyouorganizednow?andHowdoyouthinkyou willbeorganizedin3years?toestablishtheprevalenceofthefivemajororganizational dimensions:
Howareyou organizednow? Productservicelines Customergroups Processteams Functions Geographics .61 .32 .22 .50 .48 2.13 in3years? .50 .52 .33 .26 .36 2.37
24
25
FOOTNOTES
1
SeeJ.R.Galbraith,DesigningOrganizations:AnExecutiveGuidetoStrategy,Structureand Process,SanFrancisco:JosseyBass,2002,ChapterSevenN.W.Foote,J.Galbraith,Q.Hope andD.Miller,MakingSolutionstheAnswer,TheMcKinseyQuarterly,3,2001,893D.K. Rigby,F.F.ReichheldandP.Schefter,AvoidtheFourPerilsofCRM,HarvardBusiness Review,February2002,101109andG.S.Day,CreatingaSuperiorCustomerRelating Capability,SloanManagementReview,44(Spring),2003),7783. H.E.Aldrich,OrganizationsEvolving,ThousandOaks,CA:Sage,1999,andJ.ChildandR.G. McGrath,OrganizationsUnfettered:OrganizationalForminanInformationIntensive Economy,AcademyofManagementJournal,44,2001,11351148. ForbackgroundonIntelsreorganization,seeC.Edwards,ShakingupIntelsInsides, BusinessWeek(January21,2005),p.35IntelsRightHandTurn,TheEconomist(May14, 2005),pp.6566,andA.Lashinsky,IsThistheRightManforIntel?Fortune(April18, 2005),pp.110120.
TheseshiftswereidentifiedanddocumentedinC.Homburg,J.P.WorkmanJr.andO.Jensen, FundamentalChangesinMarketingOrganization:TheMovementTowardaCustomer FocusedOrganizationalStructure,JournaloftheAcademyofMarketingScience,28(Fall), 2000,459478. M.GouldandA.Campbell,DesigningEffectiveOrganizations:HowtoCreateStructured Networks.SanFrancisco,CA:JosseyBass,2002. ThisdescriptiondrawsheavilyfromGalbraith(2002),op.cit., ChapterEightandfromFoote, Galbraith,HopeandMiller(2001),op.cit. Thestreamofresearchdescribedinthischapter alsoconfirmstheevolutiontowardcustomerfocusedorganizations.
10
11
26
12
D.Sharma,C.LucierandR.Molloy,FromSolutionstoSymbolism:Blendingwithyour Customers,StrategyandBusiness,27,3948. ThetradeoffbetweenspecializationandcoordinationwasfirstidentifiedbyP.Lawrenceand J.Lorsch,OrganizationandtheEnvironment,Cambridge,MA:HarvardUniversityPress, 1967. S.GhoshalandNiFinNohria,HorsesforCourses:OrganizationalFormsforMultinational Corporations,SloanManagementReview.(Winter1993),2335. J.K.Kotter, LeadingChange, CambridgeMA,HarvardBusinessSchoolPress,1996. M.SawhneypresentsasimilarnotioninDontHomogenize,Synchronize.HarvardBusiness Review,(JulyAugust2001),101108. Henotesthemostdifficultchallengeisgettingtheback endproductgroupstoviewtheinternalcustomerfacingunitsastheirprimarycustomer,rather thantheexternalendusers. M.SawhneypresentsasimilarnotioninDontHomogenize,Synchronize.HarvardBusiness Review,(JulyAugust2001),101108. Henotesthemostdifficultchallengeisgettingtheback endproductgroupstoviewtheinternalcustomerfacingunitsastheirprimarycustomer,rather thantheexternalendusers. F.Reichheld,TheOneNumberYouneedtoGrow,HarvardBusinessReview,(December 2003),4654. Reichheld,op.cit,page49. ThisdescriptionoftheCiscoreorganizationisbasedonRanjayGulatiandPhanishPuranam, OrganizationalInconsistenciesAfterReorganization:GoodforPerformance?London BusinessSchool,unpublishedworkingpaper,2005.
13
14
15
16
17
18
19
20
27
ExhibitOne ClassificationofCompaniesInterviewed
(Successisbasedonmanagementjudgmentplusobjectivemeasuresofperformanceimprovement.)
Initialsuccess followedbyshifting emphasisbackto productdimension 13. SquareD 14. Cisco
Sustained success
1 1.IBM (interviews indepthwith Systems Group) 2.Fidelity Investments 2 3.CapitalOne 4.Imation
Redesignin progress 7. Nokia 8. IntelSat 9. Qwest Communication 10. Thermo 4 Electron 5 11.SonyUSA 12.Philips Semiconductors
LouisV.Gerstner,WhoSaysElephantsCantDance?InsideIBMsHistoricTurnaround.New York:HarperBusiness,2002,p.248. Gerstnerwasanimportantsourceofinsightintothe strategiclogicofaligningtheIBMcompanyForwardsolutions. 2 ThiscaseisdescribedinG.S.Day,TheMarketDrivenOrganization.NewYork:FreePress, 1999,andthefindingswereconfirmedinfollowupinterviewstwoyearslater. 3 ThiscaseisdescribedinG.S.Day,op.cit. 4 BasedonaspeechanddiscussionbyDr.MarynDekkers,CEOofThermoElectron Corp.at theCMOSummitat theHarvardBusinessSchoolinOctober2004. 5 AdescriptionoftheSonyUSAorganizationalredesigncanbefoundintheMarketing LeadershipCouncil,DrivingCustomerFocusedDecisioinMaking,Washington,D.C.,2002,p. 248.
FigureOne StagesofEvolutionForwardCustomerFocusedOrganizations
KeyAccount Managers
Industry/ Customerbased Customer FrontEndUnits focusedSBUs Matrixwith Customer Segment Teams Champions Segment Global Managers/ Accounts Coordinator Advocates
Segment Productfocused Taskforces SBU(Product ManagerCoordination) Functional Stage1 Functional silos Stage2 Informal coordination Stage3 Formal coordination viaintegrating functions
Stageof Evolution
29
FigureTwo CustomerBasedFrontEndUnits
SeniorManagement strongcentertomediate
Commonaccount planningandmetrics
CustomerBased FrontEndUnits
ProductCustomers
Standardizeandmodularizesolution readyproducts Tailorproducts Collaborateonaccountplans,product specs,salespriorities,andpricing
Source:AdaptedfromFoote,Galbraith,HopeandMiller(2001)
SolutionsCustomers
P&Lresponsibilitiesforsegments Configureteamsaroundopportunities Sourcefromoutsideasnecessary
30
FigureThree TransformingFidelityInvestments
TransformingFidelityInvestments
Organize FrontEnd bySegment
Dedicatedgroups Segmentedofferings andservicemodels MatchCSRswith customer
Repositioning
Segmentation
Results 19952003
Fidelityprovides HighValue affluentinvestorsa $2million+ completerangeof $500kto$2 innovativeinvest million mentsolutions $100kto500k tailoredtomeettheir Core financialgoals, Mature deliveredwith Boomers exceptionalservice, Young ontheirownterms. professionals ActiveTraders
31