MIT Sloan Management Review

For many product-oriented companies, establishing a corporate consultancy can be a good first step toward a more solutions-based orientation. As Ericsson, Shell and AT&T, among others, illustrate, the consulting unit can take a number of forms dictated by its key knowledge base and its relation to the product businesses‘ value chain. The challenge is to determine how similar the consulting unit should be to the parent company in identity, mission and structure.

Why do your customers choose to buy from you rather than from your competition? The authors surveyed more than 1,500 senior executives in a vast range of industries and most cited the crucial importance of customer interaction. As the main drivers of customer choice, the executives named cost-oriented factors such as convenience, ease of doing business, product support and risk-oriented factors such as trust, confidence and the strength of relationships. The authors illustrate five different strategies that some companies are using to build a sustainable advantage through their approach to customers.

The quality initiative Six Sigma, says the author, is not a panacea. It uses statistical, analytic tools to uncover flaws in the execution of an existing process without asking whether the process itself is flawed. Some companies, which the author calls process enterprises (Caterpillar, Johnson & Johnson, Merck, Progressive Casualty Insurance, Bombardier and IBM), have found more success redesigning whole processes. The author explains how fitting Six Sigma into a process-management framework allows organizations to deploy it appropriately.

In an attempt to offer custom products, many companies lose sight of the customer. They wind up forecasting demand incorrectly, missing potential sales or winding up with excess inventory. Attempts to offset this by optimizing pieces of the value chain can backfire by degrading other parts of the chain. The authors say the solution is a truly customer-centric, build-to-order strategy, in which managers systematically improve the value chain‘s flexibility in three areas: process, product and volume.

If the open-source software movement is any harbinger of future trends, companies in many industries need to be concerned not only about what they produce, but also about what their customers might produce without them. Aided by the Internet to support collaboration and distribution, the power and pervasiveness of innovation and development communities will have to be factored into the strategic equation. The author identifies the conditions that favor user innovation and explores how circumstances evolve — sometimes to include commercial manufacturers and sometimes not.

In an unprecedented study, the authors found that U.S. suppliers to the automotive industry performed at much higher levels when supplying Japanese automakers in North America than when supplying the Big Three U.S. automakers. Why? The Japanese companies worked with the suppliers in a give-and-take partnership, leveling their own production schedules to avoid big spikes in demand, creating a disciplined system of delivery “time windows,” and developing lean transportation systems to handle mixed-load, small-lot, just-in time deliveries.

Can you have your cake and eat it too? When it comes to combining a high level of customer service with a lean and efficient supply chain, few companies can match Saturn Corporation’s after-sales service business. Saturn’s success in that area is a wake-up call; its approach should serve as a model for any industry [...]

Congested parking lots, out-of-stock merchandise, interminable checkout lines, indifferent sales help or no help at all—once these were facts of life that retail customers reluctantly tolerated. Now customers enjoy more retail alternatives than ever before, from one-stop superstores to the Internet. Driven by time pressures, they value quick-and-easy shopping excursions. They expect retailers to meet [...]

Evidence indicates that satisfied customers defect at a high rate in many industries. Because satisfaction alone does not translate linearly into outcomes such as loyalty in terms of purchases, businesses must strive for 100 percent, or total, customer satisfaction and even delight to achieve the kind of loyalty they desire. The authors propose a complementary needs-based model for service businesses that assumes customer delight and outrage originate with the handling of three basic human needs — security, justice, and self-esteem. By recasting a situation as one that has violated any of a customer’s fundamental needs, the deeper emotional outcome (e.g., outrage) does not seem incongruous. The authors describe each need and offer specific managerial tactics for avoiding outrage and creating delight.

Effective service recovery is vital to maintaining customer and employee satisfaction and loyalty, which contribute significantly to a company’s revenues and profitability. Yet most customers are dissatisfied with the way companies resolve their complaints, and most companies do not take advantage of the learning opportunities afforded by service failures. The authors provide a research-based approach for helping managers develop a comprehensive service recovery system.