Creating a Superior Customer-Relating Capability

In most markets, there are one or two companies that outperform their rivals by staying more closely connected to their customers — Enterprise Rent-A-Car, Pioneer Hi-Bred Seeds, Fidelity Investments, Lexus and Intuit are prominent examples. Their advantage, however, does not have much to do with CRM tools and technologies. In fact, information technology is merely a necessary, but not sufficient, condition for achieving this advantage. On its own, as mounting evidence indicates, IT contributes little to creating better relationships with customers.1 Rather, superior customer-relating capability is a function of how a business builds and manages its organization. In particular, it results from a clear focus on, and deft orchestration of, three organizational components:

The first is an organizational orientation that makes customer retention a priority and gives employees, as part of an overall willingness to treat customers differently, wide latitude to satisfy them.

The second component is a configuration that includes the structure of the organization, its processes for personalizing product or service offerings, and its incentives for building relationships.

Information is the final component: information about customers that is in-depth, relevant and available through IT systems in all parts of the company.2

Although each of these components is, by itself, relatively straightforward, it is only when all three work in concert that a superior capability is created. My research has indicated that the most successful companies — those with the best connections to their customers — are those able to create and maintain that integrated focus on orientation, configuration and information. This finding held true for companies in all types of markets, whether they were growing fast or slowly, were extremely or moderately competitive, had many customers or few, or whether they were selling to businesses or to consumers. (See “About the Research.”)

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References

1. See, for example, B. Caulfield, “Facing Up to CRM,” Business 2.0, August 2001, 149–150; L. Yu, “Successful Customer-Relationship Management,” MIT Sloan Management Review 42 (summer 2001), 18–19; J. Taschek, “How To Avoid a CRM Failure,” e-Week, October 15, 2001; and L. Dignan, “Is CRM All It’s Cracked Up To Be?” Apr. 3, 2002, http://news.com.com.

2. These three components are also represented in the three factors of resources, processes and values used to define an organization’s set of capabilities by C.M. Christensen and M. Overdorf, “Meeting the Challenge of Disruptive Change,” Harvard Business Review 78 (March–April 2000): 67–76.

3. B. Fryer, “High Tech the Old-Fashioned Way,” Harvard Business Review 79 (March 2001): 119–125.

4. This case comparison is based on interviews with the management of Capital One and First USA, plus security analysts’ reports, public sources, and B. Anand, M.G. Rukstad and C.H. Paige, “Capital One Financial Corporation,” Harvard Business School case no. 9-700-124 (Boston: Harvard Business School Publishing, 2000).

5. G.S. Day, “Creating a Market-Driven Organization,” Sloan Management Review 41 (fall 1999): 11–22.

6. Other approaches to understanding customers’ experiences can be found in P.B. Seybold, “Get Inside the Lives of Your Customers,” Harvard Business Review 79 (May 2001): 80–91.

7. D. Rigby, F. Reichheld and P. Schefter, “Avoid the Four Perils of CRM,” Harvard Business Review 80 (February 2002): 101–109.

8. A. Reinhardt, “Nokia’s Next Act,” BusinessWeek, July 1, 2002, 56–58.

9. For another look at companies that are concerned with the customer’s entire experience, see L.L. Berry, L.P. Carbone and S.H. Haeckel, “Managing the Total Customer Experience,” MIT Sloan Management Review 43 (spring 2002): 85–89.