A Guide to Strategy, Structure, and Process

Designing theCustomer-

CentricOrganization

A Guide to StrategyStructure and Process

Galbraithffirs 3105 916 AM Page v

C1jpg

Galbraithffirs 3105 916 AM Page ii

Galbraithffirs 3105 916 AM Page i


Designing the Customer-Centric

Organization

Galbraithffirs 3105 916 AM Page iii

Jay R Galbraith

Galbraithffirs 3105 916 AM Page iv


CentricOrganization



Copyright copy 2005 by Jay R Galbraith

Published by Jossey-BassA Wiley Imprint989 Market Street San Francisco CA 94103-1741 wwwjosseybasscom

No part of this publication may be reproduced stored in a retrieval system or transmitted inany form or by any means electronic mechanical photocopying recording scanning orotherwise except as permitted under Section 107 or 108 of the 1976 United States CopyrightAct without either the prior written permission of the Publisher or authorization throughpayment of the appropriate per-copy fee to the Copyright Clearance Center Inc 222Rosewood Drive Danvers MA 01923 978-750-8400 fax 978-750-4470 or on the web atwwwcopyrightcom Requests to the Publisher for permission should be addressed to thePermissions Department John Wiley amp Sons Inc 111 River Street Hoboken NJ 07030201-748-6011 fax 201-748-6008 e-mail permcoordinatorwileycom

Jossey-Bass books and products are available through most bookstores To contact Jossey-Bassdirectly call our Customer Care Department within the US at 800-956-7739 outside theUS at 317-572-3986 or fax 317-572-4002

Jossey-Bass also publishes its books in a variety of electronic formats Some content thatappears in print may not be available in electronic books

Library of Congress Cataloging-in-Publication Data

Galbraith Jay RDesigning the customer-centric organization a guide to strategy structure and process

Jay R Galbraithp cmmdash(The Jossey-Bass business amp management series)

Includes bibliographical references and indexISBN 0-7879-7919-8 (alk paper)

1 Customer relationsmdashManagementmdashHandbooks manuals etc 2 Strategic planningmdashHandbooks manuals etc I Title II Series

HF54155G345 20056588rsquo12mdashdc22

2005001675

Printed in the United States of AmericaFIRST EDITION

HB Printing 10 9 8 7 6 5 4 3 2 1

Galbraithffirs 3105 916 AM Page vi

The Jossey-Bass

Business amp Management Series

Galbraithffirs 3105 916 AM Page vii

Galbraithffirs 3105 916 AM Page viii

ix

Contents

Preface xi

The Author xv

Introduction 1

1 Surviving the Customer Revolution 5The Status Quo Has to Go

The Customer-Centric Imperative

The Rise of the Customer Dimension

Strategy and Organization Model

Conclusion

2 Customer-Centricity How Much Is Enough 25Customer Relationship Strategies

The Strategy Locator

Creating a Lateral Networking Capability

Conclusion

3 Light-Level Application 43Customer Lite

Degussa Automotive Catalysts Division

Learnings and Salient Features

4 Medium-Level Application 61The Global Investment Bank Case

Lessons from IBank

Galbraithftoc 3105 941 AM Page ix

x CONTENTS

5 Complete-Level Application 87Complex Solutions and Customer-Centric Organizations

IBM

Lessons Learned

6 Alternate High-Level Solutions Companies 119Nokia Networks

Procter amp Gamble

The Capability That Citibank Built

How to Manage the Change Process

Conclusion

7 Designing a Customer-Centric Organization 145The Semiconductor Company

Learnings and Salient Points

8 Leading Through Management Processes 163Leading Strategic Change

Linking Processes

Reconciling Strategies

Portfolio Planning and Solutions Development

Opportunity Management Process

Conclusion

References 173

Index 175

Galbraithftoc 3105 941 AM Page x

xi

Preface

This book is the result of several testy arguments that arose withsome long-term clients When similarly contentious argumentsbegan cropping up in executive development programs I had to re-flect on what was happening In every case I was diagnosing a com-pany to be product-centric and not customer-centricmdashwhich I wassuggesting that it become The clients took offense because in theirminds they were customer-centric they had been working for yearsto understand and please their customers I was accusing them ofbeing product-centric and they respectfully objected When I per-sisted they testily objected The content of this book is the result ofmy attempts to help these clients become truly customer-centricmdashparticularly when they think they already are

A historical perspective gave me a better understanding of myclientsrsquo objections Companies in the 1960s and rsquo70smdashespousingclicheacutes like ldquoThe customer is always rightrdquomdashalso believed that theypaid attention to the customer This perception was first shatteredby customer preference for higher-quality Japanese products andthen by the appearance of In Search of Excellence (1981) whose au-thors Peters and Waterman showed that excellent companies wereldquoclose to the customerrdquo and articulated in detail how excellentcompanies got that way with practices that far exceeded those ofmost companies

Companies now began in earnest to put the customer at the topof their priority list They defined quality as the customer definedit They used focus groups to better understand customer prefer-ences They designed products to be more customer-friendly They

Galbraithfpref 3105 917 AM Page xi

xii PREFACE

tracked their progress by continually measuring customer satisfac-tion A language developed around becoming ldquoclose to the cus-tomerrdquo and ldquocustomer-focusedrdquo By the end of the 1980s and earlyrsquo90s many companies believed that they were market-orientedcustomer-focused or customer-driven This is the belief that I en-countered in my sea of contentious confrontations The clients feltthat they had been working for over a decade on putting the cus-tomer center stage ldquoHow could we not be customer-centricrdquo theyasked Well let us count the ways

The capabilities required for true customer-centricity go far be-yond just placing the customer prominently on the company radarscreen They incorporate the work that most companies have under-taken for the past ten to fifteen years to become customer-focusedand build on them in specific and sometimes foundation-shakingmeans This book represents the hard work the challenges and theultimate successes involved in bringing my product-centric clientsinto their optimal levels of customer-centricity

While these discussions with my clients were taking place I ranacross Nathaniel Foote who was leading McKinseyrsquos organizationdesign practice He was working with Russ Eisenstat from the Cen-ter for Organizational Fitness They were interested in the customerdimension of organization but from the point of view of adding an-other dimension to an already complex structure Their project wascalled ldquoManaging Multiple Dimensionsrdquo Many of McKinseyrsquosclients were experiencing the moves to customer-centricity and theconsulting teams were asking for help I joined them along withDanny Miller Quentin Hope and Charles Heckscher in a researcheffort to understand the challenges of managing customers productlines geographies and functions under one corporate umbrella

My part of the effort was to conduct data collection in the formof case studies I conducted fourteen studies of companies that wereenhancing the customer dimension of their organizations (In thelanguage of this book they were creating a customer-centric capa-bility and adding it to their existing structures) This book is a direct

Galbraithfpref 3105 917 AM Page xii

response to conducting these case studies and the clarifications thatcame from follow-up discussions with the research team My thanksto Nathaniel Foote now with the Center for Organizational Fit-ness and McKinsey for their support during that period

Breckenridge Colorado Jay R GalbraithFebruary 2005

PREFACE xiii

Galbraithfpref 3105 917 AM Page xiii

Galbraithfpref 3105 917 AM Page xiv

xv

The Author

Jay Galbraith an internationally recognized expert on organizationdesign helps major global corporations create capability for com-peting His work focuses on organizational design change and de-velopment strategy and organization at the corporate businessunit and international levels and international partnering arrange-ments including joint ventures and network-type organizations Heis currently examining organizational units that are rapidly recon-figurable to suit quickly changing demands of customers and mar-kets across multinational boundaries Galbraith consults regularlywith international clients in the United States Europe Asia SouthAfrica and South America

Galbraith is a senior research scientist at the Center for Effec-tive Organizations at the University of Southern California (USC)and professor emeritus at the International Institute for Manage-ment Development in Lausanne Switzerland Prior to joining thefaculty at USC he directed his own management consulting firmHe has previously been on the faculty of the Wharton School at theUniversity of Pennsylvania and the Sloan School of Managementat MIT

Galbraith has written numerous articles for professional jour-nals handbooks and research collections His recently revisedbook Designing Organizations An Executive Guide to Strategy Struc-ture and Process (Jossey-Bass 2002) is a balanced perspective of or-ganization design principles structures and processes written forthe executive manager Galbraith along with Diane Downey andAmy Kates has produced a very practical workbook for organization

Galbraithflast 3105 916 AM Page xv

xvi THE AUTHOR

designers Designing Dynamic Organizations (Amacom 2002) Hisbook Designing the Global Corporation (Jossey-Bass 2000) describeshow leading multinational corporations address the demands of theirincreasingly global customers to provide solutions not just productsTomorrowrsquos Organization Crafting Winning Capabilities in a DynamicWorld (Jossey-Bass 1998) was a cooperative project with SueMohrman Edward E Lawler III and the Center for Effective Orga-nizations It is a solution-oriented guidebook for creating organiza-tions capable of competing in the next century Competing withFlexible Lateral Organizations (Addison-Wesley 1994) explores man-agement through less hierarchical team structures Galbraithrsquosaward-winning Organizing for the Future (Jossey-Bass 1993) is acompilation of ten years of research done by the Center for Effec-tive Organizations Prior publications include Strategy Implementa-tion The Role of Structure and Process (with Rob Kazanjian WestPublishing 1986) ldquoDesigning the Innovative Organizationrdquo in Or-ganization Dynamics (Winter 1982) ldquoHuman Resources and Orga-nization Planningrdquo in Human Resource Management DesigningComplex Organizations (Addison-Wesley 1973) and OrganizationDesign (Addison-Wesley 1977) Galbraithrsquos recent working papersinclude ldquoManaging the New Complexityrdquo ldquoThe Front-Back Orga-nization A New Organizational Hybridrdquo ldquoDesigning a Reconfig-urable Organizationrdquo and ldquoOrganizing Around the Customerrdquo

Galbraithflast 3105 916 AM Page xvi


Organization

Galbraithflast 3105 916 AM Page xvii

Galbraithflast 3105 916 AM Page xviii

1

INTRODUCTION

In order to be a successful and viable firm in the twenty-first cen-tury a company must have a customer-centric capability The earlymovers will gain a competitive advantage while stragglers willscramble for a competitive necessity

In most industries today it is difficult to make money by justselling products and services to customers Stand-alone productsand services commoditize rapidly and collapse profit margins Thenew foundation of profitability is the customer relationship Indeedsome suggest that Wall Street will be evaluating companies basedon the total value of their customer relationships (Seybold 2001Selden and Colvin 2003) This thinking results from studies thatshow that sales to existing customers are more profitable than salesto new customers It costs more to acquire new customers and theyare more likely to switch Most desirable is a loyal long-term cus-tomer who has a relationship with the company But to be effectivecustomer loyalty and relationships have to be managed companiesneed to organize around these loyal customers

Today nobody owns the customer The customer owns you Thecustomer may want to talk to the salesperson or to the distributorThe customer may want to talk directly to the service department Heor she may want to deal face-to-face or by telephone fax or e-mailAnd a customer who poses a question or complaint by e-mail expectsthe salesperson to provide an answer to the query during their nextface-to-face meeting If the salesperson cannot answer the questionthe customer sees no relationship To have a relationship the com-pany needs to be able to do business the way the customer wishes

Galbraithcintro 3105 915 AM

2 DESIGNING THE CUSTOMER-CENTRIC ORGANIZATION

Different customers want to do business differently and beingprofitable today means having the capabilities that allow for mal-leability It means forming long-term relationships with the mostvaluable customers It means interacting with these customersacross multiple points of contact and integrating the results of thesecontacts into a consistent company position for the customer Itmeans learning from the contacts to customize the companyrsquos of-ferings for different customer segments It means learning aboutnew customer needs and expanding the companyrsquos offering to meetthem It means using knowledge of customers to package productsand services into solutions that create value for the customers

And doesnrsquot that sound like a lot of work Many firms are reluc-tant or unwilling to make the organizational changes necessary tobuild a customer-centric capability the preference thus far has beento keep it simple and create simple autonomous business units thatcontrol their resources and can be accountable for their perfor-mance In other words keep it simple for management

But that kind of simplicity means making it difficult for the cus-tomer It is then up to the customer or some third party to do the in-tegrating and capture the value of serving the customer Keeping itsimple for management leaves money on the table for more complexorganizations to capture By implementing a customer-centric capa-bility the company can now keep it simple for the customer elimi-nating third-party solutions and redirecting that errant cash flow

Why would firms hesitate to create a more profitable organiza-tion by building customer-centricity Beyond fiscal myopia whichmotivates companies to ignore implementation altogether it ap-pears to be a combination of two factors One is an underestimationof the changes needed to implement customer-centric systems suchas customer relationship management (CRM) software Manage-ment cannot simply insert a CRM system into a product-centric or-ganization and expect to capitalize on customer relationships Earlyreturns show that half of all CRM implementations fail to achievethe expected results and one in five actually damages customer re-lationships (Kehoe 2002) Once again we have to relearn the fact

Galbraithcintro 3105 915 AM Page 2

that organizations are complex human systems into which newtechnology must be painstakingly introduced

The second factor that limits the time and energy invested bymanagement is the belief that they are already customer-centricFor the past ten or fifteen years these firms have been working hardto become ldquoclose to the customerrdquo or ldquocustomer focusedrdquo While ac-knowledging that this work has been necessary and useful it doesnot make the company customer-centric To be customer-centric afirm must literally organize around the customer

The purpose of this book is to articulate what it means to becustomer-centric and to illustrate how to organize accordinglyChapter One addresses the inherent differences between customer-centric and product-centric capabilities It also explores the reasonsthe customer dimension has come to such prominence and exam-ines the structures and philosophies involved in implementing acustomer-centric application as well as addressing the frequentaversion to implementation

Chapter Two details the different types of customer relationshipstrategies and provides a strategy locator to determine the level ofcustomer-centricitymdashif anymdashthat would best serve your companyThe capability can be broken down into low medium and highlevels of implementation with tools offered to ascertain the appro-priate level Finally lateral relationships with an overview of in-formal groups versus the more complex forms of management arediscussed

Now that the groundwork has been established Chapter Threebegins the process of implementation The specific elements re-quired for applying the lightest version of the capability are intro-duced making sure the reader understands that all of these elementsplus others will be necessary for companies that require medium- orhigh-level applications In addition two case studies are provided ofcompanies that required this level of implementation

Chapter Four details the next more-intensive level and the ele-ments that must be added for its implementation A case study of atarget medium-level corporation is provided

INTRODUCTION 3


Chapter Five gives an in-depth look at IBM considered by many(including me) to be the best success story of customer-centricapplication Both the tribulations and the triumphs of this flourish-ing giant are examined to provide readers with illumination and in-spiration as they trudge the sometimes rocky road of corporatereinvention

Chapter Six gives three more successful examples of companiesthat have made a successful transition along with their changeprocesses

Chapter Seven is a case study of a semiconductor company thatmoves from a completely product-centric organization to an orga-nization with a customer-centric solutions unit It provides a gooddiscussion of the process for designing a solutions organization

Chapter Eight completes the book with a description of themanagement processes through which strong leadership is exercised



5

1

SURVIVING THE CUSTOMERREVOLUTION

For better or worse one fact has become increasingly clear over thepast ten years the marketplace is customer driven The days of cus-tomers chanting ldquoWersquoll take what you offerrdquo have been replacedwith an expectant ldquoGive us what wersquod like with a side order ofcustomizationrdquo

The power in the buyer-seller interaction has been moving sys-tematically to the buyer In many industries global competition andindustry overcapacity have given buyers more choice and they arelearning how to use it Electronic commerce and information trans-parency have reduced seller knowledge advantages Authors suchas Patricia Seybold even see the Internet as starting a ldquocustomerrevolutionrdquo (Seybold 2001) with ldquocustomers wresting control

In this chapter you will learn

bull That being customer-centric means literally organizing aroundthe customer

bull The complete definition of organization (itrsquos more than juststructure)

bull The definition of a customer-centric organization and itscontrast to a product-centric organization

bull How your organization compares to a complete customer-centric design

bull How customer-centric your organization really is

Galbraithc01 3105 912 AM Page 5


away from suppliers and dictating the new business practices for thedigital agerdquo (p xv) The competitive game has clearly shifted to oneof pleasing an increasingly more global knowledgeable and pow-erful customer

The need for customer-centricity is not going away and it is up toeach company to determine the level of applicationmdashand hierarchi-cal restructuringmdashrequired for success in this morphing marketplace

The Status Quo Has to Go

The product-centric mind-set is an entrenched one and like the pitbull does not relinquish dominance easily Because it has been theapplication of choice for so long managers may even be fooled intobelieving they are leaving it behind in favor of customer-centric ap-plications when in fact product-centricity continues running theshow with merely a cosmetic gloss of customer focus sprinkledaround the edges

The ideas presented in this book are challenging particularly inthe amount of reorganization they demand from the status quoproduct-centric corporation While acknowledging the need for anew customer-centric capability many companies tensely watch-ing their financial bottom line may be tempted to apply a ldquofinger-tiprdquo version of the capability to their current structure It may seemto be the most prudent course of action to dabble in a cursory com-mitment or apply a cosmetic overlay that seems to do the job

It cannot be stressed enough how detrimental this toe-in-the-water mind-set can be A company that truly requires a customer-centric capability will not achieve its goals without its full integrationIt is not fiscally prudent at all to go halfway since it will almost cer-tainly be funds wasted in their entirety In fact this approach mayend up costing the company more than just its initial wasted in-vestment the harm done to the workings of the entire structure byan incomplete capability at this level of importance can be enor-mous leaving a company bereft in areas well beyond its originalneed for customer-centricity It will undoubtedly leave disappointedcustomers behind whose trust will be difficult to earn back


The Bottom Line

The bottom line about your bottom line is that customer centricitypays off For some time academic studies and consultant studieshave demonstrated that being market driven or customer loyalty fo-cused results in higher profitability The most complete discussionof customer-centered profitability is by Selden and Colvin (2003)who argue that superior results come from managing your businessas a portfolio of customers That means computing the profitabilityof customers segmenting them on a profitability basis and then or-ganizing around those segments They present a good process forgetting started on a customer-centric strategy and the attendant fi-nancial systems This book presents a complete guide to organizationdesign to implement this path to superior economic performance

Letrsquos Get Fiscal

Let us examine the financial ramifications By satisfying a customerwho wants to use relationships the customer-centric firm becomesmore profitable Academic research using the term market drivenrather than customer-centric shows strong relationships betweenbeing market-driven and profitability sales growth and new-productsuccess (Narver and Slater 1998)

Also the company that implements a customer-centric capa-bility is situated to steer commissions away from the previouslyrequired third-party process suppliers not to mention winningbusiness over other companies that have themselves already be-come competitively customer-centric

The final coup may be the largest Studies argue that the mostprofitable customer is the existing loyal customer (Reicheld 1996Seybold 1998) Indeed Seybold (2001) predicts that in the cus-tomer economy investors will value companies based on the sum ofthe values of their customer relationships Customer loyalty be-comes incrementally more certain as customer-centricity is imple-mented With the tight customized relationshipsmdashthe ldquovirtuouscirclerdquomdashestablished using applied customer solutions repeat business

SURVIVING THE CUSTOMER REVOLUTION 7


becomes more and more dependable in an otherwise harshly com-petitive and fickle marketplace

Mind over Mind-Set

When you have determined in Chapter Two the level of customer-centricity that your company requires it is in your best interest tocommit to that level and no less Regardless of the level of applica-tion your firm requires your managerial mind-sets require a high-level commitment even if the implementation proceeds at therecommended level it can be sabotaged in ways both subtle andblatant by a crew that has not gotten onboard

Mind-set is important to successful customer-centrization Themanager whose thought processes are mired in the past is destinedto venture forth halfheartedly if at all Not only is a clear and pos-itive outlook essential to committing to the proper degree of appli-cation a robust and eager anticipation is needed as implementationunfolds This may sound like a recommendation to chant positiveaffirmations to compensate for a gloomy outlook On the contraryit is an invitation to discover exactly how promising this process isand how little downside is involved Once the win-win nature ofthe capability becomes clear a robust positivity should enter thepsyche without effort


In this increasingly customer-driven environment the call for acustomer-centric capability rings out loud and clear As the expec-tations and requirements of the customer become more pronouncedand complex the casual customer-focused behaviors of the pastgrind toward a forced obsolescence What was once an option isnow an imperative

Consequently there has been an increase in the strategic prior-ity assigned to the customer dimension of the business with manycompanies now organizing around the customer Creating customer-facing organizational units is a challenge because these companies



have structures that are still based predominantly on business unitscountries and functions It is essential that companies not be tiedto their past structures to the detriment of their existing needs

Product-Centric versus Customer-Centric

The best way to understand where we need to go is to get a clearpicture of where wersquove been The contrast between the product-and customer-centric organizations is shown in Table 11

As the table shows a product-centric company tries to find asmany uses and customers as possible for its product In contrast acustomer-centric company tries to find as many products as possiblefor its customer and it has to integrate those products

From this basic strategic difference other different organiza-tional features flow Product-centric companies are structured aroundproduct profit centers called business units Information is collectedaround products Business reviews focus discussions around productlines The customer-centric company is structured around customersegments Information is collected and profits measured around cus-tomer categories Management discussions are focused on customersThere are similar contrasts around processes performance measureshuman resource policies and management mind-sets

Perhaps the most striking difference is that a customer-centricunit is on the side of the customer in a transaction A server sales-person at IBM is on the side of the sellermdashthe product-centricserver business However the outsourcing and consulting people atIBM will suggest a Hewlett-Packard server if it makes more sensefor the customer In order to maintain credibility with the customerthe people from the customer-centric global services business mustnot be biased toward IBM equipment They must be on the side ofthe customer in the buyer-seller transaction More than any otherfeature this bias creates a permanent tension between product andcustomer units

The argument above has painted the extremes of product- andcustomer-centricity Not every solution provider will require the ex-treme end of this organizational capability the application can take



Tabl

e 11

Prod

uct-

Cent

ric

vers

us C

usto

mer

-Cen

tric

Prod

uct-

Cen

tric

Com

pany

Cus

tom

er-C

entr

ic C

ompa

ny

Stra

tegy

Goa

lB

est p

rodu

ct fo

r cus

tom

erB

est s

olut

ion

for c

usto

mer

Mai

n of

feri

ngN

ew p

rodu

cts

Pers

onal

ized

pac

kage

s of p

rodu

cts

serv

ice

supp

ort

educ

atio

n c

onsu

ltin

gV

alue

cre

atio

n ro

ute

Cut

ting

-edg

e pr

oduc

ts u

sefu

l fea

ture

sC

usto

miz

ing

for b

est t

otal

solu

tion

new

app

licat

ions

Mos

t im

port

ant c

usto

mer

Mos

t adv

ance

d cu

stom

erM

ost p

rofit

able

loy

al c

usto

mer

Prio

rity

-set

ting

bas

isPo

rtfo

lio o

f pro

duct

sPo

rtfo

lio o

f cus

tom

ersmdash

cust

omer

pro

fitab

ility

Pric

ing

Pric

e to

mar

ket

Pric

e fo

r val

ue r

isk

Stru

ctur

eO

rgan

izat

iona

l con

cept

Prod

uct p

rofit

cen

ters

pro

duct

revi

ews

Cus

tom

er se

gmen

ts c

usto

mer

team

spr

oduc

t tea

ms

cust

omer

Pamp

Ls

Proc

esse

sM

ost i

mpo

rtan

t pro

cess

New

pro

duct

dev

elop

men

tC

usto

mer

rela

tion

ship

man

agem

ent a

ndso

luti

ons d

evel

opm

ent

Rew

ards

Mea

sure

sbull

Num

ber o

f new

pro

duct

sbull

Cus

tom

er sh

are

of m

ost v

alua

ble

cust

omer

bullPe

rcen

tage

of r

even

ue fr

om p

rodu

cts l

ess

bullC

usto

mer

sati

sfac

tion

than

two

year

s old

bullLi

feti

me

valu

e of

a c

usto

mer

bullM

arke

t sha

rebull

Cus

tom

er re

tent

ion

Peop

leA

ppro

ach

to p

erso

nnel

Pow

er to

peo

ple

who

dev

elop

pro

duct

sPo

wer

to p

eopl

e w

ith

in-d

epth

kno

wle

dge

ofbull

Hig

hest

rew

ard

is w

orki

ng o

n ne

xt m

ost

cust

omer

rsquos bu

sine

ssch

alle

ngin

g pr

oduc

tbull

Hig

hest

rew

ards

to re

lati

onsh

ip m

anag

ers

bullM

anag

e cr

eati

ve p

eopl

e th

roug

h ch

alle

nges

who

save

the

cust

omer

rsquos bu

sine

ssw

ith

a de

adlin

eM

enta

l pro

cess

Div

erge

nt th

inki

ng H

ow m

any

poss

ible

use

sC

onve

rgen

t thi

nkin

g W

hat c

ombi

natio

n of

of th

is pr

oduc

tpr

oduc

ts is

bes

t for

this

cust

omer

Sa

les b

ias

On

the

side

of t

he se

ller i

n a

tran

sact

ion

On

the

side

of t

he b

uyer

in a

tran

sact

ion

Cul

ture

New

pro

duct

cul

ture

ope

n to

new

idea

sR

elat

ions

hip

man

agem

ent c

ultu

re s

earc

hing

expe

rim

enta

tion

for m

ore

cust

omer

nee

ds to

sati

sfy

Sour

ce

Thi

s tab

le is

a c

ompo

site

of p

oint

s des

crib

ing

prod

uct-

and

cus

tom

er-c

entr

ic c

ompa

nies

take

n fr

om P

eppe

rs a

nd R

oger

s (19

93 1

997

200

1)

Trea

cy a

nd W

iers

ema

(199

5) S

eybo

ld (

1998

200

1)


many forms It should be noted that the more complex a form isnecessary the greater is the accompanying lateral networking ca-pability will be required to expedite functionality Chapter Two de-lineates and helps readers define the level of customer-centricapplication they require the requisite lateral networking capabilityis examined in Chapter Two as well

The balance of this chapter further delineates the customer-centric capability pinpointing customer needs and desires and themethods to address them It then provides a model for strategy andorganization


Motivated by the increasing buyer-power influencemdashand the correctthinking that this is where longevity competitive edge and financialprofitability liemdashmost industries are addressing the increasing strate-gic importance of the customer The specific factors causing this in-crease vary with the industry but either individually or collectivelyall businesses are experiencing these factors

bull The globalization of the customer

bull The preference of customers for partnerships or relationships

bull The rise of e-commerce

bull The customerrsquos desire for solutions

Globalization

Since 1985 the process of globalization has been driven by in-creasing amounts of foreign direct investment The result is thatmore companies and therefore more customers have a direct pres-ence in more countries Often these global customersmdashpreferredcustomers in existing countriesmdashobject to receiving marginal treat-ment from a supplierrsquos subsidiary on entering a new country Thesecustomers want a consistent and consistently high level of servicein all countries where they are serviced Indeed one supplier was



chastised by a customer who had been dealing with thirty-sevensales forces providing thirty-seven different standards of service

The global customer is creating pressure on suppliers to coordi-nate across countries and businesses This desire for cross-unit co-ordination can also be an advantage for the supplier For exampleABB was an early mover into many countries Eastern Europe inparticular and now uses its extensive presence to host and provideservices to its customers as they enter new countries in which ABBis already present

Customer Relationships

The pressure for coordination across existing structures is even greaterwhen customers want partnerships or relationships with their suppli-ers Professional services firms are finding that clients want one or twoglobal advertising agencies auditors cash management bankingsuppliers and outsourcers for information technology In most indus-tries customers are preferring fewer suppliers in order to establish closerlonger-term relationships For suppliers these global partnerships meana coordination of all countries in which the customer desires inte-grated services

Electronic Commerce

E-commerce is another integrating force that can be used to focus onthe customer When a company with a single brand uses its Web siteas its storefront it presents a single face to the customer The Website should be designed around the customerrsquos needs not around thesupplierrsquos product capabilities The site should be designed to dobusiness the way the customer wants to do business In order to ap-pear as a single company to the customer the company needs to inte-grate its businesses subsidiaries channels and functions

Another integrating force is the management of interactivity withcustomers Electronic connectivity with customers allows the com-pany to recognize and remember each customer interact with them



and remember more about them and then customize the companyrsquosofferings based on the knowledge of the customer Most companieshowever have not mastered integrated customer interactions In-teractivity requires the management of dialogues and content acrossall media with which the company interacts with the customerWeb site e-mail call center salespersons service representativesand so on The dialogue needs to be managed over time The lastcontact with the customer needs to be remembered along with thelast issue of concern and how it was resolved The resolution needsto be recorded and the next dialogue must commence from thereAll contacts and issues are to be remembered The idea of interac-tivity is to collect and integrate all data across all functions sub-sidiaries and product lines in order to get a complete picture ofeach customerrsquos value and needs Only then can the company reactas a single company and be seen by the customer as a single com-pany The customer then receives a consistent brand experienceacross all the touch points with the company

Solutions

Perhaps the driving factor now facing suppliers is the growing cus-tomer preference for solutions or systems instead of stand-aloneproducts To be sure customers still order truckloads of desktopsfrom computer manufacturers but they are also ordering tradingrooms or call centers At IBM these solutions require the integra-tion of multiple business units in multiple countries with multipleoutside suppliers These solutions are not simply multiple stand-alone products that are bundled together and offered at a discountThe preferred solutions create value for the customers by packagingproducts and services in ways that the customers cannot easily dofor themselves

Solutions therefore require an in-depth knowledge of the cus-tomer in order to identify the solutions that will be perceived asvaluable and an ability to integrate product lines In-depth cus-tomer knowledge is needed to identify the solutions that the customer



will see as valuable Then the supplier will need the ability to coor-dinate multiple profit centers from both inside and outside the com-pany to create the value Neither of these capabilities comes easilyReal estate agencies and banks have been searching for years for amortgage solution for time-challenged home buyers that wouldcombine the home loan appraisal title title insurance home in-surance and everything else into a single sign-once package Mostof us are still waiting

In addition to creating solutions suppliers are trying to cus-tomize them When everyone pursues the most profitable customersthey compete away the profits One approach to holding onto valu-able customers is to customize the solutions Customization requiresyet more in-depth knowledge of the customer and additional capa-bility to integrate products and services into unique solutions

So integral are solutions to the customer-centric capability thata large section of Chapter Two is devoted to an examination of thestrategies necessary to achieve them


One of the primary barriers to converting to customer-centric or-ganization is the belief that a company is already customer-centricwhen it is not Most companies have spent the past twenty yearsgetting closer to the customer using focus groups and measuring cus-tomer satisfaction But just placing customers more prominently onthe companyrsquos radar screen does not make the company customer-centric That transition requires that the company literally organizearound the customer The next section defines what is meant by or-ganization (it is more than structure) and then what is meant by acustomer-centric organization Readers can then judge for them-selves how customer-centric their companies really are They willthen be able to judge how far their companies need to go in orderto make the transition

A model for linking different strategies to different organiza-tions is shown in Figure 11 (Galbraith 2002) It depicts an organi-zation as consisting of five dimensions



bull Strategy which determines direction

bull Structure which determines the location of decision-makingpower

bull Processes which have to do with the flow of information (theyare the means of responding to information technologies)

bull Reward systems which influence the motivation of people toperform and address organizational goals

bull People (human resource) policies which influence and fre-quently define employeesrsquo mind-sets and skills

The message of the star model is that all five dimensions mustbe consistent among themselves and the four below must be par-ticularly consistent with strategy at the top of the model When thedifferent combinations of organizational dimensions that charac-terize the more customer-centric capabilities are used different so-lutions strategies can be identified and implemented

Strategy

The differences begin with the elements that make up the strategy(Table 12) The product-centric company strives to have the bestor leading products achieved through a continuous flow of new


Strategy

Structure

Processes

People

Rewards

Figure 11 The Star Model


Tabl

e 1

2St

rate

gy P

rodu

ct-C

entr

ic v

ersu

s Cu

stom

er-C

entr

ic

Prod

uct-

Cen

tric

Com

pany

Cus

tom

er-C

entr

ic C

ompa

ny

Stra

tegy

Goa

lB

est p

rodu

ct fo

r cus

tom

erB

est s

olut

ion

for c

usto

mer

Mai

n of

feri

ngN

ew p

rodu

cts

Pers

onal

ized

pac

kage

s of p

rodu

cts

serv

ice

supp

ort

educ

atio

n c

onsu

ltin

gV

alue

cre

atio

n ro

ute

Cut

ting

-edg

e pr

oduc

ts u

sefu

l fea

ture

sC

usto

miz

ing

for b

est t

otal

solu

tion

new

app

licat

ions

Mos

t im

port

ant c

usto

mer

Mos

t adv

ance

d cu

stom

erM

ost p

rofit

able

loy

al c

usto

mer

Prio

rity

-set

ting

bas

isPo

rtfo

lio o

f pro

duct

sPo

rtfo

lio o

f cus

tom

ersmdash

cust

omer

pro

fitab

ility

Pric

ing

Pric

e to

mar

ket

Pric

e fo

r val

ue r

isk


offerings The company remains at the cutting edge by adding newfeatures that open the market to new applications and new cus-tomers In contrast the customer-centric company strives to providethe best solution for the customerrsquos needs This solution may or maynot include the best products the best solution will involve a cus-tomized and personalized package of reliable products services sup-port education and consulting to make the customer more effective

The most important customer for the product-centric companyis the highly advanced customer This customer challenges thecompany to stay on the cutting edge and develop new and im-proved products which are priced on the basis of the market andcompeting offerings The customer-centric company likes the ad-vanced customer as well but it is the most loyal and profitable cus-tomer that is the most important the customer relationship is thevalued asset Based on this relationship the customer-centric firmprices its offerings on the basis of the value it creates for the cus-tomer That is a solution is priced not on the sum of the prices ofthe products and services that constitute the solution but on thesavings and improvements that the customer experiences

An example is the recent trend at business schools offering cus-tom courses to companies These courses were initially offered asproducts like a one-week course in supply-chain management Forthirty to forty people the price would be $150000 If the companywanted customized cases and materials it paid for the faculty timeto develop these materials at $5000 per faculty day Now insteadof charging per week and per day some schools are pricing to valueThat is they charge the company 5 percent of the savings that re-sult from improvements to the supply chain generated by the pro-gram If the company documents $100 million in savings theschool gets $5 million for the program Value pricing shares therisks as well as the rewards if there are no savings the school getsnothing

Pricing to value aligns the interests of the customer and the sup-plier It also requires the supplier to have an in-depth knowledge ofthe customerrsquos situation In the example the business school would



need to know a great deal about supply-chain management andabout the customerrsquos unique version of supply If the company wereUnilever the business school would need to know about frozenfood supply chains as well as those that operate at ambient temper-atures This in-depth knowledge is best developed over timethrough working relationships

Structure and Processes

Decision making at the product-centric firm revolves around prior-ity setting for a portfolio of products (Table 13) These decisionsare facilitated by an organizational structure based on product lineprofit centers The business plans and reviews are focused on prod-ucts When management reviews a business the discussion is aboutproductsmdashcompetitorsrsquo products and new products The entire ori-entation is different at the customer-centric company The leadersthere manage customer or customer segment profit centers Theplans information systems and business reviews revolve aroundcustomers the company sets priorities around a portfolio of cus-tomers These structures conversations and information systemsshape the mind-sets of the leaders of these companies

The management processes of planning and budgeting are ori-ented primarily around either products or customers Likewise thekey business processes and measures of performance will be differ-ent The most important process in a product-centric company isthe new-product-development process product-oriented compa-nies like Sony and Hewlett-Packard devote a great deal of energy todesigning and improving their processes for developing new prod-ucts The customer-centric company also develops products but themost important processes are customer relationship management(CRM) and solutions development and product portfolio processes

A customer-oriented company will invest heavily in a CRMprocess that captures customer interactions at all touch points forthe most profitable customers And in addition to a product devel-opment process it will have a solutions development process to



Tabl

e 1

3St

ruct

ure

and

Proc

esse

s P

rodu

ct-C

entr

ic v

ersu

s Cu

stom

er-C

entr

ic

Prod

uct-

Cen

tric

Com

pany

Cus

tom

er-C

entr

ic C

ompa

ny

Stru

ctur

eO

rgan

izat

iona

l con

cept

Prod

uct p

rofit

cen

ters

pro

duct

revi

ews

Cus

tom

er se

gmen

ts c

usto

mer

team

s cu

stom

erpr

oduc

t tea

ms

PampLs

Proc

esse

sM

ost i

mpo

rtan

t pro

cess

New

pro

duct

dev

elop

men

tC

usto

mer

rela

tion

ship

man

agem

ent a

ndso

luti

ons d

evel

opm

ent


combine products and services to create value for the customersUsually the customer-centric firm will invest along with partners increating a replicable solutions platform when supplying a solutionto the initial customer And finally a solutions provider must havea process for planning the entire product portfolio Thus when acomputer company like IBM develops a new high-end server it alsoneeds a new high-end storage product to complement it The soft-ware business needs to introduce a complementary operating sys-tem and an updated version of database software Global servicesneeds to introduce new courses from its education business updatedpractice areas from its consulting and systems integration units andnew-customer service contracts All of these business units need tohave the same set of priorities A storage business at a product-centric company would introduce the best product to exceed EMCrsquoslatest product The companies therefore measure themselves differ-ently the product-centric company uses market share measures aswell as targets for the percentage of revenue coming from new prod-ucts the customer-centric company measures success by the shareof customer spending in the business area as well as customer satis-faction and retention measures

Rewards and People

The measures employed also become the basis for rewarding em-ployees (Table 14) Product-centric companies reward salespeopleand managers with commissions or bonuses based on market shareand technical people have as their highest reward being assigned tothe most challenging next product A customer-centric companylike Siebel Systems uses commissions as well but the commission ispaid to the salesperson one year after the sale and is proportional tothe customerrsquos satisfaction with the software system purchased (SeeTable 14)

The most powerful people at a product-centric company arethose who develop products The product development function isthe most powerful organizational unit with people known by the



Tabl

e 1

4Re

war

ds a

nd P

eopl

e P

rodu

ct-C

entr

ic v

ersu

s Cu

stom

er-C

entr

ic

Prod

uct-

Cen

tric

Com

pany

Cus

tom

er-C

entr

ic C

ompa

ny

Rew

ards

Mea

sure

sbull

Num

ber o

f new

pro

duct

sbull

Cus

tom

er sh

are

of m

ost v

alua

ble

cust

omer

bullPe

rcen

tage

of r

even

ue fr

om p

rodu

cts l

ess

bullC

usto

mer

sati

sfac

tion

than

two

year

s old

bullLi

feti

me

valu

e of

a c

usto

mer

bullM

arke

t sha

rebull

Cus

tom

er re

tent

ion

Peop

leA

ppro

ach

to p

erso

nnel

Pow

er to

peo

ple

who

dev

elop

pro

duct

sPo

wer

to p

eopl

e w

ith

in-d

epth

kno

wle

dge

ofbull

Hig

hest

rew

ard

is w

orki

ng o

n ne

xt m

ost

cust

omer

rsquos bu

sine

ssch

alle

ngin

g pr

oduc

tbull

Hig

hest

rew

ards

to re

lati

onsh

ip m

anag

ers

bullM

anag

e cr

eati

ve p

eopl

e th

roug

h ch

alle

nges

who

save

the

cust

omer

rsquos bu

sine

ssw

ith

a de

adlin

eM

enta

l pro

cess

Div

erge

nt th

inki

ng H

ow m

any

poss

ible

use

sC

onve

rgen

t thi

nkin

g W

hat c

ombi

natio

n of

of th

is pr

oduc

tpr

oduc

ts is

bes

t for

this

cust

omer

Sa

les b

ias

On

the

side

of t

he se

ller i

n a

tran

sact

ion

On

the

side

of t

he b

uyer

in a

tran

sact

ion

Cul

ture

New

pro

duct

cul

ture

ope

n to

new

idea

sR

elat

ions

hip

man

agem

ent c

ultu

re s

earc

hing

expe

rim

enta

tion

for m

ore

cust

omer

nee

ds to

sati

sfy


products they develop everyone at 3M knows Art Fry and the storybehind his development of Post-It Notes Product-centric companiesselect and develop innovative types with in-depth product knowledgeThe most powerful people at a customer-centric company are the re-lationship managers serving the most important customers Thesecompanies work to develop general managers for an account notsalespeople for a product The account managers have an in-depthknowledge of the customer and the customerrsquos business and are skilledat building customer relationships Whereas product-centric sales-people are transaction oriented those who are customer-centric haverelationship skill sets intended to generate repeat business

Culture

All of these elements create a new-product culture or customer-re-lationship culture While the mind-sets at product-centric compa-nies are focused on creating as many possible uses of the product aspossible customer-centric mind-sets search for the best combinationof products for the customer and ways to expand the portion of thecustomer need set that they can serve The greatest difference be-tween the two cultures is their allegiance in a transaction a product-centric company like Sony is on the side of the seller while thecustomer-centric consulting systems integration and outsourcingbusinesses at IBM are on the side of the buyer

One corporation may find its subsidiaries on opposite sides of theculture The branch personnel at Chase Manhattan Bank are on theside of the seller promoting Chase credit cards and Chase mortgagesfor which they will receive a commission But the relationship man-agers at Chase Private Bank (for their high-net-worth customers) areon the customerrsquos side suggesting the best investmentsmdashwhich mayor may not be Chase mutual funds or the stocks issued by Chasersquos in-vestment bankers The success of relationship managers is measuredby customer satisfaction retention and asset growth

Organizing around the customer involves adopting solutionsstrategies customer profit centers CRM processes and customer-



share and -retention reward systems and selecting and developingrelationship managers These practices create a relationship and asolutions culture

A Word of Caution

It is possible to be customer-centric to a fault For example Japanesesoftware companies are usually accused of being dominated by theircustomers (ldquoBreaking the Keiretsurdquo 2001) If a Japanese softwarecompany has two hundred customers it will create two hundred ver-sions of every software product that it offers These companies havebeen unable to get scale and expand outside of Japan

Another issue is becoming too focused on your best existingcustomers New disruptive technologies are often adopted by dif-ferent customers first (Christensen 1997) Then as the technologyimproves customers eventually move to the new disruptive tech-nology You lose your best customers because initially they were un-interested in the new technology When they become interested itis too late for you to change Christensenrsquos solution is to alwayshave a unit prospecting for new customers and new technologiesWhen a possibly disruptive technology comes along put it in a sep-arate subsidiary and protect it from the core business As always abalanced perspective is needed

Conclusion

With the advent of buyer power the wise manager will be shifting theramifications of ldquokeep it simplerdquo from an internal credo to a customerpledge Companies should stop asking if a customer-centric applica-tion should be implemented and instead ask how much customer-centricity is mandated to remain competitive and healthy

The challenges facing implementation include discerning the ap-propriate level taking the steps necessary for successful structural re-organization and doing what is necessary for successful psychologicalreorientation Unless the product-centric mind-set of personnel is



updated along with the product-centric organization itself no truegrowth can really be expected

This chapter looked at organization It consists of structurebusiness processes like CRM management processes reward sys-tems and human resource practices like selection All of these areasare aligned around strategy So when a company wants to becomecustomer-centric it means literally organizing around the customerTable 11 gives a good idea of what a customer-centric organizationlooks like and how close or how far a company is from that modelThe next chapter begins to address the issue of how customer-centric your organization should be Not every company needs toadopt the extreme form of customer-centric organization



25

2

CUSTOMER-CENTRICITY

How Much Is Enough

No two snowflakes or companies are the same But while the strate-gic requirements of a snowflake are relatively simplemdashfall to thegroundmdashthose of a product-centric company are far more chal-lenging It could be said that in todayrsquos marketplace specific andfundamental changes are necessary to prevent a company fromfalling to the ground and because no two companies are the samea one-size-fits-all application is not the answer

This chapter discusses how to determine the level of customer-centricity necessary for your company It begins by describing thedifferent kinds of customer relationship strategies from which willbe determined the level of customer-centricity to be implemented


bull That different solutions strategies require different levels ofcustomer-centric organization

bull That solutions strategies vary in their scale and scope andintegration requirements

bull How to determine your solutions strategy with the strategylocator

bull How to use the strategy locator to position your company onthe customer-centric continuum

bull How to use lateral forms of organization to align the power andauthority of your organization with your solutions strategy



Customer Relationship Strategies

A number of authors using slightly different wording have arguedthe case for becoming customer-centric (Day 1990 1999 Vander-merve 1999 Wiersema 1998 Peppers and Rogers 1997 2001Selden and Colvin 2003) and have described the details of a cus-tomer relationship strategy They make several points that need tobe underlined here

First many customers want relationships with key suppliers Al-though companies are using auctions and reverse auctions to pur-chase commodities they are choosing a few long-term suppliers fortheir unique requirements

Second customers want close relationships through which theycan engage in dialogue with suppliers for the purpose of detailingtheir customization desires

Third these dialogues create opportunities for astute suppliersto discover unmet customer needs and requirements and can thenexpand their offerings to include more products and services Moreimportant these suppliers can develop packages of products and ser-vices that create value for customers These packages or solutionsmake the customer more effective and the more effective the cus-tomer feels as a result the more the customer will engage in dia-logue with and use the supplier A virtuous circle can result

Following this prescription to establish a relationship ultimatelyleads a corporation to offer more than stand-alone products it leadsit to offering solutions Let us look at several solutions strategies thatwill determine the level of customer-centricity

Strategic Choice

The different types of solutions described here will guide the choiceof organization to implement that strategy But first there must bethe conscious choice of a customer relationship strategy for thecompany The contrast between Nestleacute and Procter amp Gamble is il-luminating Both are consumer packaged goods manufacturers de-


livering a large number of products to the same retail customers Onour strategy locator (described later in this chapter) both would mea-sure 5 on the scale and scope dimension Yet Nestleacute has chosen to re-main a product-centric company and uses informal processes only tocoordinate account management around the large global retailersPampG in contrast has chosen to focus on these retailers and formglobal supply-chain partnerships Some retailers like Wal-Mart evenoutsource the management of product categories and aisles to themSo a company still needs to do its strategy homework to decidewhether becoming customer-centric will be an advantage for it

In other industries gaining customer-centricity is becoming anecessity Both Hewlett-Packard and Motorola saw that the digitalrevolution held out opportunities too good to pass by Currently al-most all product-centric consumer electronics companies like Sonyand Philips are experiencing the digital pull to provide solutionsIn the automotive industry the tier I suppliers to the auto originalequipment manufacturers (OEM) are finding themselves faced witha few very large customers For those in tier I becoming customer-centric is less of a choice and more of a necessity (The automotivesupply chain is led by the OEMs like General Motors and ToyotaThey are supplied by the tier I suppliers which are supplied in turnby the tier II suppliers and so on)

The points here are that there are industry- and company-specific factors that must be weighed when choosing whether to im-plement customer relationship strategies However in manymdashifnot mostmdashindustries these factors are leading companies to be-come more customer-centric and to offer solutions The followingtypes of solutions strategies will help to determine how customer-centric you need to become

Different Types of Solutions

Companies that follow a relationship strategy that leads to solu-tions bundle their products together and add software and servicesThese packages create more value than the customers can create for

CUSTOMER-CENTRIC ITY 27


themselves by buying only the stand-alone products For the cus-tomer solutions constitute a limited form of outsourcing which al-lows them to focus on their core business For the suppliers solutionsconstitute an alternative to products that commoditize rapidly Thechallenge to the supplier is to create an organization that can pack-age and deliver the solutions

The organization that can deliver these solutions is one that fitswith the solutions strategy There are four dimensions of solutionsstrategymdashtwo major and two minormdashthat appear to make a differ-ence to the organization The major dimensions are the scale andscope of solutions and the degree of integration of products and ser-vices the minor dimensions are the types of solutions and the per-centage of total revenue deriving from solutions

Scale and Scope The first major strategic factor having a great or-ganizational impact is the scale and scope of the solution Scale andscope refer to the number of products and the number of differentkinds of products that are combined into a solution For example asmall-scale and -scope solution would be a local area network for awork group A dozen desktop computers a shared printer and diskstorage could all be linked by an ethernet cable and form a network

A larger-scale and -scope solution would be computer-aided de-sign (CAD) system for an engineering department of several hun-dred engineers This solution would require desktops servers storageunits CAD software database software network software and in-stallation and maintenance services It may also require financingand training of the engineers This CAD solution comprises manymore products and many different kinds of productsmdashsoftware andservices as well as hardware products

At the extreme end of scale and scope Mitsubishi Trading Com-pany could order state-of-the-art trading floors for ten thousandtraders at six worldwide sites This solution requires hardware soft-ware and services for computers telecom financing and trainingLarge turnkey projects such as these are an extreme challenge to or-ganization design and require a highly integrated approach



Integration The second major dimension is the degree of integra-tion between the components that comprise a solution Integrationvaries from a loose assortment of products to a highly integratedcombination In between are combinations that use modular archi-tectures Little integration is needed between products supplied byagriculture firms to farmers The firms try to bundle seeds herbi-cides insecticides and consulting However the farmer can easilybuy each as a stand-alone product from a different supplier

An example of larger-scale but still limited integration can befound at ISS in Europe and ARAMARK and ServiceMaster in theUnited States They try to provide as many simple services as pos-sible with one-stop shopping for security catering janitorial park-ing lot management landscaping building maintenance and manyother similar services But each is a relatively independent servicethat could be provided by an independent service company A moreintegrated offering is the set of solutions from computer companiesFigure 21 shows what Sun Microsystems calls the integrated stackThe stack shows hardware on the bottom software in the middleand services on the top

All hardware and software components have to operate in anintegrated manner (The services are somewhat more indepen-dent) But thanks to standards like the Java programming languagecomponents using Java can be substituted for other componentsFor example a customer could choose BEArsquos middleware or IBMrsquosWebsphere and substitute it for Sunrsquos i-Planet middleware There-fore components in the information technology industry must beable to operate with other-branded components by following stan-dards the customer has the choice of mixing and matching

At the extreme are integral solutions in which the componentsare unique but are designed specifically to work together A simpleintegral solution would be an antilock braking system (ABS) for anauto manufacturer Each ABS is unique to an automobile modelJohnson Controls is a more complex example The company de-signs and manufactures interiors for Toyota Chrysler and other au-tomobile OEMs Each Toyota model has a unique interior comprising



unique parts these parts cannot be used on a Chrysler interior Thesignificance of the integration dimension for the organization is thecoordination required The organization reflects the solution Themore interdependent the components are the more interdepen-dent are the organizational units responsible for those componentsand the larger the challenge is to rapidly mobilize them

The combination of scale and scope with integration deter-mines the coordination requirements and the organizational fea-tures to provide the necessary coordination Figure 22 shows thiscombination and some different solutions strategies that have beendiscussed

Figure 22 shows that scale and scope and integration increaseas the solutions move from the lower-left to the upper-right cornerThe consequence is that the coordination requirements increase inthe same manner We will focus first on the low levels and thenexamine the medium and then the more complex solutions andcustomer-centric organizations


Figure 21 Sunrsquos Integrated Stack

Sun Educational Services

Enterprise Services

Sun dotcom Consulting

Java-based applications from ISVs

i-Planet Middleware

Sun Storage

Sun Servers

Sun Solaris Operating System

Sparc Architecture

Note The dashed lines signify that there may be more than one application


Types of Solutions There are two main types of solutions hori-zontal and vertical Horizontal solutions are generic and apply acrosscustomer categories For example Sun Microsystems creates and de-livers a human resource portal solution that can be used for thehuman resource function across all industries IBM also deliversindustry-specific solutions For example e-Agency is a solution toput the agency network of an insurance company on the InternetThese industry-specific solutions are referred to as vertical solutionsClearly the vertical solutions require a more customer-centric or-ganizational unit than do the horizontal solutions

Revenues The last strategic dimension is the percentage of totalrevenues that comes from solutions If like Motorola solutionscontribute 10 percent or less the firm can simply add a solutions unitwhose task is to integrate the firmrsquos products into solutions Whenthe percentage gets higher as at IBM the company has sufficientvolume to specialize the solutions units that serve different cus-tomer segments Instead of one solutions unit IBM has abouttwelve each specializing in a customer segment as several in globalservices for the generic horizontal solutions


Figure 22 Coordination Requirementsof Different Solutions Strategies

autointeriors


The Provider Challenges In summary a solutions provider desir-ing to respond quickly to customer opportunities faces greater chal-lenges as its strategy increases in the scale and scope of the solutionprovided and the degree of integration of the components compris-ing the solution

Scale and scope increase the number of organizational unitsthat must be integrated quickly Integration relates to the coordi-nation effort needed to accomplish the requisite integration Incombination these two factors determine the amount of customercentricity that is needed and the strength of customer-facing orga-nizational units


Now that customer relationship strategies have been defined anddetailed it is time to determine your specific companyrsquos require-ments in these areas

Of utmost importance to your company is the level of customer-centricity that it should implement Too little or too much couldprove significantly counterproductive so ascertaining the properlevel is key

The following lists have been compiled to help you determinethe levelmdashlow medium or highmdashthat will give your corporationor division optimal performance Locate your company on each ofthe lists for scale and scope and for integration Pick the location on thelist that best describes the offerings of your company or division

Scale and Scope

bull My company has two to five similar products or services to sellto the same customer

bull We offer five to ten mostly products and services

bull We have ten to fifteen products or services of different types tosell to the same customer

bull We have fifteen to twenty variegated products or services tosell to the same customer



bull We have more than twenty products or services of various dif-ferent types to sell to the same customer

Integration

bull My company provides stand-alone products to the same cus-tomer with common invoice and billing (ldquoone-stop shoppingrdquo)

bull We have a set of minimally connected stand-alone products (likea common brand common experience combined shipment)

bull We have minimally packaged (themed) components thatneed to work together for customer segments

bull We have modular components of products and services thatneed to work tightly together as a system

bull We have very tightly integrated packagesbundlesfull solu-tions of products and services to offer the customer

If your total from both lists is one to three then you will bene-fit most from the information for the light-level implementation ofthe customer-centric application Locations on the two lists total-ing four to seven would require the midlevel implementation of theapplication A total of eight to ten means that your corporation willgain the most benefit from the full strong-level implementation ofcustomer-centricity (Figure 23 illustrates your score This model isused throughout the book to show other companies)

Chapter Three begins the process of actual implementation forthe company falling into the light-level category This informationwill be supplemented in Chapter Four with the additional informa-tion necessary for the midlevel application If yours is a complete-level company you will require the full cumulative information ofChapters Three through Eight


In order to implement a responsive customer-centric capabilitycompanies also need a lateral networking capability Because they



have been organized by business units countries and functions or-ganizing around the customer requires that they create networksacross these dimensions

To create multiproduct solutions for global customers a com-pany must work through lateral networks A simple company witha few local customers selling a single product can work through afunctional hierarchy But a company with multiple product lines inmultiple countries using multiple functions must work less throughhierarchy and more through networks Indeed a company needs anetwork for each strategically important dimension Some compa-nies like Philips have organized around global product lines calledbusiness units They have created country and functional networksto coordinate across product lines Other companies like Nestleacutehave organized around country and regional profit centers They havecreated product (called strategic business units) and functional net-works to coordinate across their geographical structure


Figure 23 Customer-Centric Strategy Locator

Integration

Scale and Scope

Stand-AloneProduct

0

1

2

3

4

5

6

7

8

9

10

Low

Medium

High


There are different kinds of networks and the organization de-sign challenge is to match the right kind of network with the strate-gic importance of the customer dimension Some networks areinformal and others are formal with varying degrees of strengthThese formal networks vary in power and in the cost to coordinateacross the other dimensions A list of these networks is shown inFigure 24 This is an ordered list with the simplest cheapest andeasiest to use listed first The further up the list the more powerfulthe networksmdashand the more costly and difficult to employ themThe designer should start at the bottom of the list and proceed upuntil a network is found that matches the coordination require-ments of the customer dimension for their business This list corre-sponds to the score on the strategy locator The bottom of thelateral forms is for stand-alone products and the top for highly com-plex solutions The low and medium levels of complexity requireincreasingly more powerful forms of lateral returnables

Informal Networks and E-Coordination

Informal or voluntary networks form naturally in all organizationsManagement however can initiate them and then let them pro-ceed under their own energy Nestleacute is an example with informalnetworks that have formed around global customers AlthoughNestleacute unlike a corporation such as Procter amp Gamble has notstrategically focused on cross-border customers like Carrefour orWal-Mart the Nestleacute country managers and country account man-agers for Wal-Mart routinely exchange information and ideas aboutthe global retailers on an informal basis

This informal exchange was judged to be sufficient until theInternet allowed more formal communication (while still main-taining informal coordination) Now the country manager in theheadquarters country of the global customer maintains a databaseabout that customer and issues e-mails and updates about the cus-tomer Anyone dealing with the customer can add information and



ideas But this is still an informal network each country treats theinformation as an input and then acts in the best interest of itsproduct lines and country profit and loss statement (PampL) Thisform is called e-coordination in Figure 24

More intensive and more formal versions of e-coordination canbe used (A version will be illustrated by an investment bank inChapter Four) The formal communication among all people in-teracting with customers is the approach taken by companies suchas the investment bank wanting to show one face to the customerEach contact is recorded and entered into a database Others cansee this running record when they deal with the customer Eachperson then deals with the customer according to function butrecords all information to be used across functions This electroniccoordination is a slight increase in the cost and effort to coordinateacross units for the customer


Figure 24 Types of Networksfor Customer-Facing Units

Voluntary and informal group(minimal or extensive)

E-coordination

Formal group(ranging from simple tomultidimensional and heirarchical)

Integrator(full time by rolesor departments)

Line organization

Customer-Centric

Product-Centric

Amount ofpower andauthority inthe customerunits

Matrixorganization

Low

High

Management time and difficulty


Formal Teams

Formal teams are the next level of strength that can be applied to acustomer network usually implemented when a customer desiresmore than informal coordination Citibank started with teams fora few accounts and expanded them to over 450 within a few yearsto accommodate all customers that wanted a coordinated cross-border service An example of this level is the formation of globalor key account teams which are created by appointing all of a cus-tomerrsquos sales and account representatives to an account team forthat customer These representatives from all product lines and allcountries exchange information as the Nestleacute informal networksdo but also meet regularly prepare an account plan and agree oncustomer-specific goals The account manager in the customerrsquoshome country usually leads the team which consists of a few coremembers and a larger extended team to encompass the salespeoplefrom every customer location

The customer teams can be strengthened and assume more ac-tivities when customers want partnerships along the supply chainWal-Mart and PampG provide an example PampG initially formed ateam of its salespeople that represented all products that PampG pro-vided to Wal-Mart The team was expanded to include manufactur-ing distribution marketing information technology and financeThis team of about eighty people representing various functionsfrom all product lines worked to synchronize the product and orderflow from PampG factories to Wal-Mart warehouses to minimize in-ventories and cut cycle times Today as Wal-Mart expands globallythis team consists of 250 people from different functions productlines and countries

Degussa Automotive Catalysts takes the team one step furtherincluding research and development (RampD) participation Degussasalespeople serve DaimlerChrysler by coordinating across borders(like the lower-complexity Citibank application does) and alsopartnering along the supply chain to synchronize their productionwith the DaimlerChrysler assembly lines (as Procter amp Gamble



does with Wal-Mart) In addition Degussa engineers determineDaimlerChryslerrsquos new-product needs and coordinate with the auto-maker on creating new catalysts for new engines on Daimlerrsquos automo-tive platforms Degussa creates customer-specific engine-specificand platform-specific catalysts for exhaust emissions Its formal teamstructure is described and analyzed in Chapter Three as an exampleof the low level of customer-centricity and solutions complexity

Formal customer networks can therefore vary from a few keyaccount teams for salespeople to supply-chain-partnership teamsof sales logistics and other functional people to new-product-development teams that represent all functions including the var-ious engineering functions

For companies like Degussa this customer team organization issufficient to meet the needs of its most important customer Othercompanies like Citibank take the further step of creating a full-time coordinator to manage all of the customer team activities

Integrator

The next step to move the customer dimension to a more powerfulposition is creating a coordinator for key accounts When a com-pany creates fifty or more teams and the customer wants still morecoordination the key account or global account coordinator role isa useful addition to the informal networks and formal customerteams

The coordinator provides two new factors First the coordina-tor becomes a voice for the customer on the management teamwhich usually consists of managers of product lines geographiesand functions The coordinator gets the leadership thinking interms of a portfolio of customers customer priorities and customer-centricity Customer teams can also appeal to the coordinator in re-solving conflicts The teams can solicit a high-level voice to defendthem in conflicts with more product-centric parts of the company

The second task of the coordinator is building and managingthe infrastructure that supports customer teams The coordinator



assumes the role of managing customer information systems andcommunications across customer teams The coordinator usuallycreates training programs for managers and team members regard-ing the role and operation of key accounts Many coordinators cre-ate a common planning system for customer plans fifty customerteams are likely to create fifty planning formats and the coordina-tor agrees on a single common one

Another key addition to the infrastructure is a customer ac-counting system which leads to customer PampLsmdashcustomer prof-itability is a key measure in setting customer priorities Asymmetriesin costs and revenues always occur across geographies The cus-tomer account manager and team in the customerrsquos home countryexpend extra effort to make a sale to their customer Often the ini-tiative is successful but the customerrsquos first purchases are for its sub-sidiaries in other countries Thus the costs are incurred in the homecountry but revenues are booked in other countries A globalaccounting system for customers can identify these asymmetriesand management can correct for them When companies likeCitibank expand to over 450 teams the network coordinator isoften expanded into a network coordination department At Citithe 450 customers were organized into industry-specific units anda network coordinator was appointed for each industry group

All of these infrastructure additions can be combined in theplanning process The countries and product lines can set customer-specific goals for key accounts and then customer teams countriesand product lines will pursue an aligned set of goals

When a higher level of organization is required to coordinatethe countries and product lines a further step up the lateral organi-zation ladder may be chosen

Matrix Organization

The next step to enhance the power base of the customer dimen-sion is the formation of units within countries and product linesthat are dedicated to customers customer segments or industries



and report to the network coordinator for the customer unit Incountries where the company may not control 100 percent of theequity joint ventures that serve multinational clients are often cre-ated between the parent company and the local subsidiary

The assumption here is that the customer dimension has at-tained a strategic importance equal to the countries or businessunits This importance is expressed by making the customer orga-nization an equal partner in the decision-making process

When the customer needs still more prominence in the organi-zational structure there is one more complexity that may be added

Separate Customer Line Organization

The final step is to create a separate customer-facing structure bygathering all dedicated customer-specific resources from the prod-uct lines countries and functions Companies serving the automo-tive customer like Johnson Controls have formed customer businessunits (CBUs) Companies like IBM form customer segment profitcenters by gathering all relationship managers into industry groupsThese industry groups call on product profit centers for additionalstaffing as the opportunities require They are usually profit centersthemselves and are measured on customer profitability These separatecustomer-facing units are the most powerfulmdashand most customer-centricmdashform of organizing around the customer

Matching Organizational Unitsand Solutions Strategy

The important point of this chapter is that the level of power andauthority vested in the customer-centric organizational units shouldmatch the level of solutions strategy As a company introduces alow-solutions strategy it should use a level of lateral forms such asformal teams (as will be demonstrated in Chapter Three with theexample of Degussa) When it chooses a medium level of solutionsstrategy it should include a higher level of coordination such as anetwork coordinator in addition to the informal lateral forms (as



will be illustrated by the investment bank example in ChapterFour) Finally the high level of solutions strategy requires a separatecustomer unit to achieve the necessary level of customer-centricityChapter Five illustrates IBMrsquos organization to implement its high-complexity solutions strategy Thus the choice of type of strategyshown in Figure 24 should be matched by the strength of the cus-tomer organizational form shown in Figure 25

Conclusion

An essential tool for implementing the application is lateral net-working capability which can be delineated in five cumulative lev-els of complexity

The art of the implementation process comes from discerningthe appropriate amount of the customer-centric application andchoosing the requisite solutions and a corresponding level of lateral


Figure 25 Matching Strategy Locationto Lateral Coordination Requirements

1

2

3

4

5

6

7

8

9

10

0Product-centric

(stand-alone product)

E-coordination


Formal group(ranging from simple tomultidimensional and hierarchical)


Line organization

Customer-centric

Matrixorganization

Low

High

Medium



network complexity The next chapter begins this process with thefirst steps referred to as light-level application

In this chapter the different solutions strategies were describedand placed on a strategy locator You can locate your strategy usingthe strategy locator and then determine how much power and au-thority you need to allocate to the customer dimensions of your or-ganization Lateral forms were described as the means by whichpower and authority can be aligned with the strategy locator In thenext chapters examples are given for light- to complete-levelstrategies and how the companies aligned their organizations withtheir strategies


43

3

Light-Level Application

The range of options for implementing degree of customer-centricityis less a definitive choice from three sizes and more a determinedpoint on a continuum of complexity For expediency the optionsseem to be divided here into the static checkpoints of low mediumand high but these should rather be considered the delineations ofchunks of the continuum a company requiring low-level applica-tion will place itself somewhere along the first chunk a medium-level application will fall within the middle chunk and a high-levelapplication will be situated in the high-end chunk


bull How to apply the strategy locator to the light version of acustomer-centric strategy

bull How to use customer teams as the structural form for the lightstrategy

bull How to implement the total organization design by usingmanagement processes measures rewards and people practicesto complement the strategy and structure

bull That the leadership is the key ingredient for putting all of thepieces together



Customer Lite

This chapter focuses on a company that has incorporated a ldquoliterdquoversion of the customer relationship and the customer-centric or-ganization (the first chunk) I have used Nestleacute as an example of aproduct-centric company whose customer-focused organization wasan informal one (which more recently became Internet based) De-gussarsquos Catalytic Converter division has formulated a stronger cus-tomer relationship strategy and has implemented it using customerteams Degussa has implemented a more customer-centric strategythough it measures only a 3 on the strategy locator score This cus-tomer strategy has evolved because of its extensive interaction withits auto OEM customer in customizing unique products for themAlso Degussa is dealing with a few strong auto OEMs that knowhow to use buying power (Nestleacute watches global retailers like Wal-Mart and Carrefour carefully but sells into a much less concentratedmarket) And finally Degussa participates in the supply of an inte-grated auto exhaust system solution while providing one of thecomponents It actively participates in the design of the exhaustsystems by partnering with the engine group at the auto OEM theelectronic engine controls supplier (such as Bosch) and the assem-bler of the tailpipe muffler and catalytic converter system

In terms of the framework being developed here Degussa isshown in Figure 31 The company is depicted as low on the solu-tions strategy locator Its low position results from measuring 1 onscale and scope and 2 on integration The 2 results from its supplychain partnership integration Degussa uses formal teams as well asinformal contacts to become more customer-centric than Nestleacute


Degussa AG (which was recently acquired by the OM Group)places a specialized chemical formulation including platinum andpalladium catalysts on substrate pieces which are inserted into au-tomotive exhaust systems by the tier I assembler The catalyst pro-


motes a chemical reaction to reduce harmful emissions from tailpipeexhaust It is a tier II supplier but a tier I developer to the automo-tive OEMs like BMW and Volkswagen The development role isthe driver of organizing around the OEM automotive customer

The division has revenues of 600 million euros half of which isthe catalysts for the OEMs The rest is supplying precious metals Itstarted in the auto catalysts business in 1974 and by 1980 had a 4percent global market share Today it has a 20 percent share whichis increasing because of its technology Degussa has factories in Ger-many the United States (joint venture JV) Canada MexicoKorea (JV) Japan (JV) South Africa (JV) Brazil (JV) and Thai-land and is considering starting up in India China (JV) Argentinaand Sweden

L IGHT-LEVEL APPLICATION 45

Figure 31 Low Solutions ComplexityUses Formal Teams

Note The right figure shows the lateral forms that Degussa used


The business opportunity is driven by the reduction of exhaustemissions largely because of legislation The more stringent legis-lation requires more catalysts Degussa sees growth because ofgrowth in the number of autos growth in miles driven and in-creasing populations in urban areas around the world Also it seesopportunity in diesel fuels which have superior thermodynamicproperties It is working with engine designers at the OEMs to re-duce exhaust emissions the negative feature of diesel fuel Fuel cellsare another opportunity A fuel cell is itself a catalyst of platinumon carbon black plus four other different catalysts So Degussa sup-plies three basic products catalysts for standard engines catalystsfor diesel engines and eventually fuel cells These three give it ascore of 1 on the scale and scope dimension of strategy

Degussa works directly with the design engineers in the enginecomponent of the auto OEM Once a vendor is selected by anOEM and its product is designed into the auto platform it is verydifficult to dislodge the supplier The product must be certified bythe government and the OEM Each catalyst is specific to an engineand a platform Once it is designed in the OEM does not change itfor the life of the vehicle The product can be subject to recall If anOEM designs in a catalyst that is reliable it is reluctant to changethe equipment So the competition is to get in early like Indiawhen legislation is being enacted to control emissions

Competitive advantage comes from a solid chemical back-ground and skill in handling and know-how of precious metalsPlatinum and palladium are subject to global supply movementsand speculation The production process requires precise control Itis the micrograms of platinum that make the difference betweenprofit and loss AlliedSignal entered the business on the basis of itscompetence in chemical catalysts However it never mastered thehandling of the precious metals and did not control supply of thematerial It sold the business to Delphi

The business is a regulation- and technology-driven enterprisewhere the most sophisticated and demanding customer is the Euro-pean OEM European drivers demand high-performing engines



and strong green political parties are demanding stringent pollutioncontrols Degussarsquos technical superiority has led to a 25 percent an-nual growth rate The industry demand grows at only 5 to 6 percentper year So Degussa has used its technology and relationship withthe OEMs to increase market share

Organization

The leadership of Degussarsquos Automotive Catalysts Division believesthat its organization is one of its sources of competitive advantageIt has a formal structure like many other companies and an exten-sive lateral organization One of the lateral structures is built aroundcustomer teams The formal structure is shown in Figure 32

Until recently the division was a functional structure appro-priate for a single business Then the sales and marketing functionwas divided into three geographical business units for the Ameri-cas Europe and South Africa (the main source of platinum) and


Figure 32 Automotive Catalysts Division Structure

Division Head

Manufacturing

ProcessEngineering

10 Plants

AffililatedCompanies

Research +Development

AppliedTechnology

AdvancedTechnology

Customers Products

Business UnitNorth + South

America

Business UnitEurope and

South Africa

Business UnitJapan and

Asia

Staffs


Japan and the rest of Asia The change represents Degussarsquos in-creasing global presence and priority given to emerging marketsThe functions of manufacturing and RampD remain the same but arematrixed across the new business units

A key lateral organization is the customer team There is oneteam for each major OEM with which the division works The cus-tomer team structure is shown in Figure 33

The customer is at the top of the structure The layer betweenthe customer and the executive committee is the customer businessteam The executive committee consists of the division managerthe three business unit managers and the manufacturing and RampDfunctional managers Each customer team has a coach who is amember of the executive committee The purpose is to allow rapidescalation of issues to the executive committee Platinum catalystsare a volatile product from politically sensitive places like Russiaand South Africa Platinum itself can be price volatile and subjectto speculation It can require priority setting around customers andplants Since platinum is a very high-value ingredient it influencesvalue-added statistics that governments watch It is subject to changesin value-added legislation import duties and subsidies A change inthese factors will cause a customer to shift its source of supply from


Figure 33 Customer Team Structure

Customer

Customer Business Team(CBT)

Executive Committee

Board


Brazil to South Africa So Degussa maintains a portfolio of produc-ing sites and the flexibility to move production among those sites

Another factor is pricing The teams coordinate prices for Volks-wagen worldwide The price for Volkswagen in Germany must be co-ordinated with prices for Volkswagen in Brazil China and MexicoPrices are adjusted for shipping imports duties and taxes The priceis not identical but must be coordinated for all customer locations

The third purpose of the customer team is to coordinate the de-sign of the new products for new customer platforms Degussa wantsto get close to the customers in order to get ahead of the competi-tors It wants to be able to anticipate the customer requirementsand therefore needs to know customer engine requirements threeto five years in advance It has a resident engineer or engineers atthe customer site to learn about what is going on there These resi-dent engineers relay information to RampD When a lead is discov-ered RampD starts searching for solutions which may involve exoticchemicals like rare earths and explores environmental impacts re-source availability costs and other factors It tries to be better or-ganized than competitors on these issues The goal is to be ahead ofthe customer and competitors By knowing first and knowing bet-ter Degussa can prepare and move ahead Then when the cus-tomerrsquos management comes to Degussa it already has a projectteam in place and a set of alternatives prepared When successfulit can even influence the customerrsquos preferences

A customer team is a form of matrix organization The structureshown in Figure 34 is a combination of countries and functions Itconsists of core team members and extended team members Thecore team consists of the sales and marketing representatives fromeach country in which the customer is present and makes buyingdecisions They are in contact with the customer every day Othercore team members are functional representatives from the countryin which the customer is based The decision center for the cus-tomer is in the home country The team leader can come from theapplied technology function which is itself organized by customerThe sales and marketing representative could also be the team



Bra

zil

Ger

man

yN

orth

Am

eric

aC

hina

Mar

keti

ng a

nd S

ales

XX

XX

App

lied

Tech

nolo

gyLE

AD

ER

Ramp

DX

Man

ufac

turi

ngV

XV

V

Logi

stic

sX

Qua

lity

X

Figu

re 3

4Vo

lksw

agen

Cus

tom

er T

eam

X =

mem

ber o

f cor

e te

am V

= m

embe

r of e

xten

ded

team


leader In the customerrsquos home country the applied technology en-gineer and the sales and marketing representative are 100 percentdedicated to the customer The extended team members are func-tional representatives from other countries in which the customeris present They become active when building or adding to a plantintroducing a new product or creating the business plan

Business planning is done by the customer and the customer busi-ness team The teams prepare a plan for each customer engine by en-gine process by process country by country and function by functionThey make a list of all future opportunities and a list of problem areasDegussa stresses the norm of not hiding problems Problems are to besolved not lead to punishment Priorities are set and programs areinitiated or continued These plans are reviewed and updated quar-terly in relation to goals milestones and strategies The teams aremeasured by customer share

Degussarsquos customer teams were started five years ago with oneteam for Daimler-Benz The Degussa salespeople were initially wor-ried they felt that they owned the customer relationship But asproblems were solved people began to see the benefits and to enjoythe teamwork The cost was time taken from functional jobs Otherteams were added The company has always experimented with teamsFor example it has tried electing team leaders and rotating theleader role and has finally settled on selection by the executive com-mittee The leader role is now evaluated higher and people wantthe opportunity to hold this position

Currently there is concern about some competition betweenthe customer teams Degussa has always allowed some competitionbetween teams Sometimes the request comes from the customersCurrently there are two dedicated teams working on fuel injectionprojects for different customers The two teams are developing dif-ferent catalysts for the same application Both have signed nondis-closure agreements The leaders of the teams stay informed Theywill prevent failures but will allow different solutions When not re-stricted these leaders are the links between teams and the means of



spreading best practices The executive committee had a meetingand discussion with the team leaders about the current situation ingeneral It is discussing what steps to take to maintain a balance Sothe leadership is constantly monitoring and improving the perfor-mance of the team process

Another formal meeting is the Automotive Catalyst SteeringCommittee which meets twice annually and consists of the execu-tive committee and the general managers of the major subsidiariesaround the world The purposes of the meeting are to deal with cus-tomer and capacity issues transfer ideas and increase local capabil-ities There is a continuous upgrading of manufacturing processesSince Degussa tries to maintain similar equipment in all plants itstarts a process in one plant and then expands it around the worldMost recently Brazil was the transmitter or lead plant The start-upof the process is carried out by the transmitter and is assisted byteams from the subsequent receiving plants Canada South Africaand Germany all assisted in the start-up of the process in Brazil Thesteering committee addresses cross-country cross-customer-capacityissues

Other Lateral Organizational Forms

The manufacturing function meets once a year and focuses onbenchmarking There are common and extensive measures for allten facilities These are sent out on CD-ROMs monthly showing allmeasures for all plants with reports by process and by customer Atthe initial meetings there was consternation about comparativemeasures In response the leadership tried to reduce defensivenessby setting norms and explaining that the measures provided an op-portunity to talk and learn They were not to be a punishment oran embarrassment for those that did not seem to measure up An-other step was to push the discussion to the detail level and con-tinually ask why there were differences They also use measures toshow rates of improvement (Usually the lowest performer is the topimprover) Degussa encourages visits and other exchanges across



the plants The goal is to get people to travel and move around theworld and create an effective network

Traditionally the interface between RampD and manufacturinghas been a tension point Degussarsquos Catalyst Division has worked tomake sure that both units are aware of the otherrsquos problems and ap-preciate the issues They hold regular workshops at which bothgroups are in attendance and the focus is on product teams andnew-product programs In addition there are rotational assign-ments across the interface people are colocated in each otherrsquos de-partment areas and they work with each other on the customer andnew-product teams

Today teams are formed without executive committee involve-ment RampD and applied technology are an example RampD is orga-nized by product and applied technology by customer Appliedtechnology is then also organized into liaison groups to link betterwith RampD The purpose is to speed the transfer of ideas and im-prove cooperation on new-product programs Product life cycles arespeeding up with a generation appearing every year or two Thereare more new products so this interface is crucial

Another series of lateral forms takes place around the Total Qual-ity Management (TQM) initiative which was started in the early1990s to tear down organizational barriers There had been several at-tempts at TQM in the past and many people had been throughCrosby training a popular Total Quality program At one pointthere were more projects than people in the division The effortthen began anew with the result that there are no more than fiveprojects at any one time The projects are chosen by the TQMsteering committee which is chaired by a member of the executivecommittee The members range from the general manager of the di-vision to the operators from the factories The operators rotatethrough the committee Initially those who resisted were identifiedand placed on the committee They have since become converts

The TQM steering committee holds workshops for training andproblem surfacing Usually these are cross-departmental process meet-ings with some members of the executive committee in attendance



The meetings are held in a hotel overnight The intent is to havepeople mix get to know others informally and socialize togetherThe meetings are a forum to teach the business to the employeesand to listen to what the people believe are the issues The meet-ings result in projects to improve standard business processes Onesuch project is to introduce new products faster so that more can belaunched

Overall Degussa has an extensive lateral organization (Figure35) The key team is the customer team but there are also productteams process teams at transmitting factories functional teams andmeetings and TQM process project teams The product teams aresubteams to the customer teams Priorities and conflicts encoun-tered in these teams can be quickly escalated to steering commit-tees or the executive committee whose members stay involved sothat they can stay informed and quickly resolve these issues


Figure 35 Team Structure


Measures and Reward Systems

The key process is the planning process which takes place aroundcustomers and is created by the customer teams These result in pro-grams for the teams and in goals and milestones for the team mem-bers The teams were measured on the share of the customerrsquosbusiness that they win

The plans and the actual performance of the customer teamsare added up for the regional business units (RBUs) which are thenmeasured on the basis of a measure similar to earnings before inter-est and taxes for each OEM that is headquartered in the region Fig-ure 36 illustrates the situation

The RBU manager for the Americas is measured on the globalprofitability of General Motors and Ford So revenues and costs nomatter where they accrue are assigned to customersrsquo accounts TheRBU manager for Europe is responsible for the global profitabilityof Volkswagen DaimlerChrysler Renault and others The RBUsare not just regional entities but are globally responsible for their lo-cally headquartered customers The customer team leaders also have


Figure 36 Regional BusinessUnit Customer Measurement

Business UnitAmericas

Business UnitAsia

Business UnitEurope

GM

VW

Nissan


an allegiance to the RBU manager as well as to their function Thecountry managers of the subsidiaries are still measured on a countryPampL They serve all customers in their countries These measuresadd a constant tension to the country-region relation They bothhave a different view

The other processes are the order fulfillment process and thenew-product-development process Both have been the subject ofredesign efforts in the auto industry At Degussa they are also thesubject of continual improvements and projects in the TQM initia-tive All of Degussarsquos plants carry certifications like ISO 9000 QS9000 UDA 61 and ISO 14000 respectively The new-product-development process in particular was singled out in the earlier dis-cussion of improving the interfaces between RampD applied tech-nology and manufacturing

The new-product-development process also includes allianceswith other partners An example of a current one involves Daimler-Chrysler and Bosch Daimler is designing a new diesel engine andBosch is simultaneously developing the electronic engine controlsystem On this project Degussa is simultaneously designing a newcatalyst to reduce exhaust emissions The project involves control-ling not only the engine temperature but also the catalyst temper-ature A constant temperature at the catalyst-exhaust surface leadsto more complete reactions and fewer emissions It is necessary forall three components to be designed simultaneously A dedicatedteam from the three partners is conducting the design effort usingthe Daimler product development process

Information Technology

Degussa claims not to be a trendsetter in electronic communica-tions Earlier I noted that it sends a monthly CD-ROM and quar-terly reports to factories and encourages travel Today it is increasingthe use of e-mail and videoconferencing and is making an effort toincrease the use of Lotus Notes On Lotus Notes it has folders foreach customer and competitor The folder for VW for example lists



all contacts and which catalyst products VW uses maintains a cus-tomer database and lists the latest call reports and competitive in-formation All benchmarking data are being placed on the Notesprogram With a collaborative culture in place the electronic linksshould be easier to implement

Human Resource Processes

Degussarsquos HR processes are geared around selecting developingand rewarding those people who can work within the TQM valuesystem The hiring process is selective and seeks people who canwork without a hierarchy The process uses a realistic job previewand peer interviewing When Degussarsquos CEO took over fifteen yearsago the organization employed 120 people Today it employs 712largely developed within the company

Degussa believes the opportunity for travel and international ex-perience attracts people to it In order to attain a position in top man-agement a manager must work a minimum of four years abroad Thisview is discussed up-front with potential candidates and is enforced

The executive committee discusses the list of top employeesand assesses them in open discussion The committee also rankspeople within and across functions They are believers in the rank-ing process and the discussion that it produces All of the commit-tee members are very involved in the business they travel collectdata constantly and know the management population They as-sess people on their total contribution They do not want just a su-perior engineer (although they have places for superior engineers)they want a good total contributor and are particularly interested insocial competence (defined as being able to go out for a beer afterhaving had a good fight in the business meeting) The ranking dis-cussion flushes these people out as well as establishes the criteria forjudging These rankings are the basis for assessments bonuses andpromotions

Salaries are set by following the union negotiations There isusually a 3 percent annual salary increase The salary pool is divided



up by the executive committee members in discussion with the HRpeople There is profit sharing from the division in addition to in-dividual salary and bonus awards

The division leader will fire or remove to a new position peo-ple who are constantly at the bottom of the rankings along withthose who are not contributors and do not fit the company cul-ture Those who contribute and fit are those who like open com-munications and live the TQM values

Leadership

The division leader and the executive committee members are ac-tive and visible within the division Their purpose is to demonstrateTQM values In addition to the executive committee meetingsthey hold ldquoinformation daysrdquo once or twice a year when they visiteach plant and RampD site and meet with all employees The purposeis to spend an equal amount of time explaining what is happeningin the business and listening to the views and questions of the peo-ple Every quarter the committee presents all financial figures toeveryone at the sites They want to create an open system where allinformation is visible

The executive committee itself is very active and tries to livethe company values Issues around customers regions and func-tions are discussed in the committee which meets once a month forabout twelve hours in meetings described as being heated Conflictsare surfaced and debated Management describes itself as havingadopted the values of TQM and being committed to living themTheir goal is to quickly recognize issues that cannot be resolved incustomer teams product teams and project teams and to resolvethem They describe a decision by the head of manufacturing thatwas reversed by the manufacturing member of a customer teamThe head of manufacturing said the division would not meet a cus-tomer request because it could not be done The team memberprobably influenced by the customer business team said the requestwould be difficult but that it was easier for Degussa to handle the



issue than it was to hand it back to the customer The team mem-ber had a prior and in-depth knowledge of the situation that was su-perior to that of the manufacturing head

Degussarsquos leaders are active in the organization design processand the human resource processes and in resolving conflicts and set-ting priorities By living the TQM values and by promoting and re-warding others who behave similarly they believe they are buildinga culture that reduces barriers across organizational units and hier-archical levels


Following are the main points from the Degussa case

bull When leaders believe that the organization can be a sourceof competitive advantage they design organizations that are exactlythatmdashan organization that is hard to match Degussarsquos leaders seetheir task as designing and improving the organization choosingand rewarding people who contribute to that organization and cre-ating the values to sustain the organizationrsquos operation

bull Although the formal structure is functional and regional theorganization operates around customers using customer teams cus-tomer business plans and customer-based performance measures

bull Speed of decision-making results from a combination of a flatstructure and an active and effective executive team There is onelevel between the customer teams and the executive team Thatthe leadership at Degussa can quickly address and resolve prioritydisputes and conflicts is an essential ingredient The combinationof flat structure and active executive team results in decisions thatare made at a speed that matches the speed of the business

bull The policies of rotational assignments participation in a vari-ety of teams and frequent off-site meetings result in extensive per-sonal networks The leadership has a policy of valuing these networksand the networkers The policy results in a situation where all pos-sible organizational dimensions are latent in the network They can



organize by region function customer product process and proj-ect In short Degussa can organize any way it chooses by creatingteams with oversight by the executive committee

bull Organizing around the customer and getting close to that cus-tomer allows it to know more about its customersrsquo issues than thecustomers themselves and competitors do Degussa in fact is smarterabout engine catalyst issues than its auto OEM customers are

bull There is room for improvement in Degussarsquos use of informa-tion technology It admits a deficiency and is working to eliminate it



61

4

Medium-Level Application

When a company begins to offer more complex solutions it re-quires a more complex organization In this chapter the story of aninvestment bank called IBank is examined Some five years agoIBank offered equities trades and initial public offerings (IPOs) toits clients Today it offers equities convertible bonds equity deriv-atives other IBank products through cross-sell opportunities and anincreasingly diverse set of services These new services are cus-tomized according to the needs of the best customers In terms of thestrategy locator IBank measured 2 at the beginning of this case Itmoved to 3 during the case as the customer-centric unit discoverednew customer needs and matched them with new services IBankused its common brand and customer interactions to customize


bull How to apply the strategy locator to a more complex customerstrategy

bull That more complex strategies require more complexorganizations

bull How to evolve the organization by building capabilities andthen moving to more complex forms

bull How to use customer account units to customize packages fordifferent customers

bull How to use CRM systems in a customer-centric organization



products and services But these products and services were mostlystand-alone types so IBank would measure 2 on the integrationscale It would move from a total score of 4 to 5 during the case andeventually end up with 6 Its position is shown in Figure 41

The organization has evolved in a similar manner IBank wasproduct-centric and added a light customer-centric unit This globalaccount management unit of a dozen people is an example of thenetwork integrator role described in Chapter Two These integratorsworked through extensive informal and e-coordination networksusing a customer relationship management system These lateralforms were appropriate for a medium level of solutions integration

The case described here focuses on the equities business of aglobal investment bank The business provides trading in existingequities as its main product It also provides initial public offerings(IPOs) of new stocks convertible bonds (which trade like equi-ties) and more recently equity derivatives These products go toa customer who is a fund manager at an institutional investor likeFidelity or Vanguard Group The customer typically uses the bankrsquos

Figure 41 IBank as a Medium Solution Strategy

1

2

3

4

5

6

7

8

9

10

0

Stand-Alone Product

IBankat start

IBankat end

Informal

e-Coordination

Formal teams

Integratingdepartment


equity trading but may buy one or two other products from the eq-uities business It may also be possible to cross-sell some productsfrom the treasury products business like currency derivatives

The new strategy adopted by the business was to focus on thetop fifty accounts and build stronger and closer relationships withthem Then on the basis of frequent interactions with these cus-tomers the bank would customize services for these top clients Thebank typically offers between two and four products and two tothree customized services to a top-fifty customer These offerings arecustomized to work together on occasion but are still largely stand-alone products It also offers some packages of products like a hedgefund starter kit The bank measures 2 to 3 on both the scale andscope and the integration checklists giving it a score of 4 to 5

In contrast to Nestleacute or Degussa the bank is pursuing a moreintense customer relationship strategy Nestleacute has chosen thus farto remain product-centric at the corporate level (It may be morecustomer-centric within a specific country but not across countrysubsidiaries) Recall that Nestleacutersquos approach to customer-focused or-ganization is to use informal networks and e-coordination acrosscountries and Degussarsquos is to use formal teams for customers Thebank as we will see uses these same lateral coordination mecha-nisms but more formally and more intensively In addition it hasadded a small network integrator unit that guides the informal andelectronic coordination activities As is often the case the bankstarted at a low level moved to a medium level and then based onexperience is now moving to a higher level of solutions strategyand customer-centricity

The Global Investment Bank Case

The Global Investment Bank (referred to here as IBank) is part ofa worldwide financial services firm The other two parts of the firmare the Global Consumer Finance and Global Asset ManagementGroups IBank and its Global Equities Business are the focus of thischapter The structure of the investment banking part of the firm isshown in Figure 42

MEDIUM-LEVEL APPLICATION 63


Corporate finance is the customer relationship group responsi-ble for corporate and government issuers of securities It also con-tains advisory underwriting and mergers and acquisitions activitiesThere are three product units for equities fixed income (bonds)and treasury products (derivatives) Each product consists of a re-search sales and trading unit There is a private equity business andsecurities services business which also is responsible for the opera-tion and trade settlement processing The securities services ismainly a custody operation where mutual funds must place theirstocks and bonds for safekeeping

The private equity business participates in buyouts and takesequity positions in the companies The other customers the in-vesting customers are shown on the right side of the chart PrivateBank is the private bank for high-net-worth individuals Thesepeople increasingly want access to derivatives and private equityopportunities so the unit has been made part of the investment


Figure 42 IBank Organization Chart

Global Investment Bank

PrivateBank

E-Banking

RetailBrokerage

Equities

FixedIncome

TreasuryProducts

SecuritiesServices andOperations

Private Equity

CorporateFinance

Industries

Countries

CapitalMarket

Issuing Customers Investing CustomersProducts

InstitutionalInvestors


bank A similar argument pertains to e-banking and retail broker-age Both serve the affluent investormdashone over the Internet andthe other through a traditional brokerage

The next sections focus initially on the equities product line andthen expand to include the other businesses and their interrelationships

The Equities Business

A few years ago the equities product line was a straightforward in-stitutional brokerage business selling equities (primary or IPOs andsecondary) to institutional investors Each country was a differentproduct In France IBank sold French equities to French investorsThe transactions were conducted in French francs at the ParisBourse The sales calls and trades took place in French There wassome cross-border investing but the business was similar in Ger-many Italy Japan and elsewhere

The organization for the equities business was a nearly symmet-rical matrix and is shown in Figure 43 In each major country therewere three functions of research sales and trading For the mostpart they researched sold and traded equities in their own coun-tries Each function reported to its country manager who oftenserved as head of equities as well and to its regional European headOccasionally there would be a big deal like the IPO of British Air-ways as part of a countryrsquos privatization program In this case cross-border distribution was an asset

The selling of equities to fund managers in a country was rela-tively straightforward The communications followed the simplepattern shown in Figure 44

The research department would generate fifty to one hundredideas for fund managers to act on The account manager wouldpick three to five that were appropriate for the particular fund andfund manager When a recommendation was accepted the ac-count manager would instruct trading to execute the buy or sell re-quest So the fund manager ldquopaidrdquo IBank by executing tradesthrough the bank IBank made its money on the commission for



executing trades The better the fund manager liked the researchthe more trades that were executed by IBank Advantage was ob-tained through having good IPOs good relationships and access toinformation In most countries insider trading was not illegal In-deed having networks to get access to insider information was anadvantage The client paid for this information by channeling tradesthrough the equities unitsrsquo trading function from which it derivedcommissions

The account manager was a generalist who ldquoownedrdquo the clientand the revenue stream and was compensated on revenue gener-ated from the client trades The only person with client contact wasthe owner of the revenue stream the account manager Today justabout all of the conditions underlying this traditional model havechanged


Figure 43 Equities Organization

Equities

Other Functions

Europe Research TradingSales

Research TradingSales



North America

Asia

UK

Switzerland


The New Equities Business

In the past decade almost all of the conditions affecting competi-tion in the equities business have changed and are still changingNot the least is the widespread availability of financial informationto brokers and investors alike so access to information is disap-pearing as a competitive advantage as is insider trading Instead newproducts new markets relationships as before and customized ser-vices appear as the sources of advantage going forward Many of thesenew offerings are cross-border cross-product or cross-functionalin nature The new opportunities create a challenge for the straight-forward matrix organization shown in Figure 43 They are as follows

bull Convertible bonds Some bonds can be issued at a lower rate ifthey are convertible into equity at a later date This financial instru-ment can be issued for leveraged buyouts and for mezzanine financ-ing of venture investment After they are issued the convertiblestrade as if they were equities but are still related to bonds

bull Equity derivatives Originally derivatives were cash derivatesfor hedging changes in interest rates and exchange rates Today withvolatile markets investors as well as issuers of IPOs and companiesengaging in mergers and acquisitions are interested in buying and


Figure 44 Traditional Communication Flow

IBank Customer

Account Managers Fund Managers

Order to buy or sell

Research

Trading

50ndash100 ideas

3ndash5


trading equity derivatives in order to manage their risks during thetransition period

bull Global investment product There has been a general adoption ofportfolio theory As markets consolidate and globalize it is now possi-ble to create portfolios with higher risk-adjusted rates of return Fundmanagers are responding to more open markets and cross-borderinvestors by creating global funds The global fund product is theadvice on how to invest $10 billion without any country or sectorbias to achieve the best risk-adjusted rate of return

bull The rise of sectors With increased globalization investors aremore interested in investing ideas about telecom or semiconductorsthan they are about countries The investment houses are now cre-ating sector funds and are seeking sector investing ideas

bull The rise of the hedge funds As the fund industry consolidatesmany of the top fund managers leave and form their own fundsusually a hedge fund These small funds are one of the most rapidlygrowing portions of the fund management business These clientshave different needs from mutual funds For example they maywant to borrow against equities that they own Now some of thetraditional asset management houses are creating their own hedgefunds The service to these customers is to provide loans short salescustody and simultaneous buy and sell transactions

bull Portfolio trading solution Another package of products andservices is portfolio trading This solution is required when a fundwants to restructure its portfolio For example the Magellan Fundfired its manager who made a bet on long-term bonds that did notwork out A new manager with a different philosophy came in andrestructured the portfolio This transition is a project which re-quires large trades to be executed quickly and discreetly

A restructuring is a partnership project with the customer Itmeans working with them on ideas and then executing them IBankis in a good position in this business because of its trading presencearound the world Trades can be executed in the United StatesUnited Kingdom Switzerland Singapore Australia and HongKong IBank is one of the three global banks that offer this solution



bull Using the Internet to distribute research Currently fifty-twohundred clients are on a distribution list and IBank sends the re-search as a printed copy and e-mail alerts IBank believes that thiscontent can be delivered more effectively electronically It has putits research on the Web site and is making it more user friendly

bull Leveraging other market segments In order to serve existingclients IBank must invest in new information technology andmake itself available on the Internet It thinks that this enormousinvestment and increase in capacity can be leveraged across othermarket segments in addition to the institutional client In fact itcan leverage its research products trading platforms and settle-ment systems across these new markets It can get significant vol-umes of business by leveraging its scale and geographical presenceIBank believes it can serve as the backroom for small banks bro-kerages private banks and other intermediaries

bull Foreign stocks The interest in cross-border investing createsan opportunity to sell stocks from other countries to domestic in-vestors So in large countries it is possible to sell UK JapaneseUS German and French stocks to local investors who are inter-ested in diversification

bull Special services to large institutional investors The investmentfunds have been consolidating and entering new markets outsidetheir home countries These large global institutions have a uniqueset of needs that a large global investment bank can serve

bull Internet banking Using the Internet IBank could reach af-fluent investors in countries where it does not have a retail broker-age network and whose citizens are becoming equity investors

IBank has responded to every one of these opportunities It hashired and developed specialists in each of these new product andmarket areas The lead specialist in each area usually in the NewYork or London office serves as the global product manager for thearea These product managers become the champion for their prod-uct or market and hire and train sales specialists for countries withsufficient volume to support specialists They all report to the global



head of sales and distribution The resulting organization is shownin Figure 45

The structure is the traditional functional-geographical matrixwith the champions of the new opportunities as product manageradd-ons In each country there are the traditional salespeople andaccount managers for the large customers Then there is the explo-sion in the number of sales specialists for all of the new opportuni-ties All of the specialists want to call on the client fund managersAs a result the old model of customer interaction cannot workThe account manager is now a bottleneck But how does the ac-count manager get a complete picture of the account and also cus-tomize the services for the client

Global Account Management

IBank in response to the changes in the equities business and at theinstitutional client created a global account management depart-ment and global account directors for its largest customers Theglobal account directors were to establish and manage top-to-bottomrelationships with the large global institutional investors Theywere to manage the complex interaction between the IBank spe-cialists and the fundsrsquo specialists On the basis of these interactionsthe global account directors were to customize the bankrsquos productsand services for clients Global account management was to serveas the champion for the global account directors and build a CRMsystem to support the new roles

Global Account Directors

In 1998 IBank created global account directors for its top fiftyclients Although it had over five thousand clients 35 percent of itsrevenue came from the top fifty clients and this percentage wasgrowing It decided to create a group of executives whose sole taskwas to focus on the special needs of these increasingly global play-ers and serve them wherever they are present Initially eighteen



Fig

ure

45

Org

an

izati

on

al

Str

uct

ure

of

the

New

Equ

itie

s B

usi

nes

s

Glo

bal E

quit

ies

Glo

bal

Acc

ount

sM

anag

emen

t

Inte

rnet

Res

earc

h

Reg

ions

Res

earc

hSa

les

Trad

ing

Fixe

dIn

com

eTr

easu

ryPr

oduc

ts

Con

vert

ible

Bon

dsEq

uity

Der

ivat

ives

Glo

bal

Prod

uct

Sect

orSa

les

Hed

geFu

nds

Inte

rmed

iari

esan

d E-

Ban

king

Port

folio

Trad

ing

US

UK

HK

Jap

FrG

erO

ther

Cou

ntri

es

Oth

erC

ount

rySt

ock

Spec

ialis

ts

Japa

nSt

ocks

Spec

ialis

t

UK

St

ocks

Spec

ialis

ts

Glo

bal

Acc

ount

Dir

ecto

rs

Inte

rnet

Res

earc

hSp

ecia

list

Acc

ount

Man

ager

sC

onve

rtib

leB

ond

Spec

ialis

t

Equi

tyD

eriv

ativ

eSp

ecia

list

Glo

bal

Prod

uct

Spec

ialis

t

Sect

orSa

les

Hed

geFu

ndSp

ecia

list

Inte

rmed

iari

esSp

ecia

list

Port

folio

Trad

ing

Spec

ialis

t

Liai

son

toPr

ivat

eB

ank

and

Ret

ail

Bro

kera

ge


global account directors were selected and each was given three tofour clients The global account directors were not to be salespeo-ple They were to be general managers for the account They wereto be managers of account managers

The global account directors were typically account managerswith ten to fifteen years of experience Many were selected becausethey had been relationship managers in corporate finance Theyresided in the home country of their accounts They would call onthe CEO of the institution the chief investment officer the chiefstrategist the head of equities the head of operations and so onThey were to understand the institution learn how the institutionwanted to do business get out ahead by knowing the clientrsquos long-term plans and then customize services and products for the client

The global account directorsrsquo other task was to coordinate all ofthe account managers and salespeople who were calling on theclient One coordination mechanism was the global account plan forthe client Initially this plan was the assembly of all the local ac-count plans plus the global account directorrsquos guess as to the increasethat could come from customized services The global account di-rectors were to be measured on this improvement in account rev-enue and revenue growth Eventually they began influencing localplans as well In addition to informal contacts and visits they held amonthly conference call in which all salespeople and account man-agers participated E-mail exchanges completed the communicationamong the account team members The relationship between theglobal account directors and the account team members was informalThe global account directors could participate in the performancemanagement process for these people but there was no guaranteethat their views would be considered

Customization

The initial internal response to the global account directors wasone of skepticism They were seen as an additional layer and an in-crease in overhead But then the situation improved The global ac-



count directorsrsquo overall view of the client led them to discover andcapitalize on customization opportunities Eventually these discov-eries led to the increase in IBankrsquos ranking at the large clients Theinstitutional clients allocated their trades and commissions on thebasis of their ranking of investment banks It was the global accountdirectorrsquos task to determine what was important to these clients andthen get the rest of IBankrsquos departments to respond to the clientsrsquopriorities The clients varied considerably in what they consideredto be important Some clients are interested only in the researchfrom IBankrsquos analysts One clientrsquos fund managers meet every Thurs-day to discuss a sector like pharmaceuticals So the global accountdirector working with the head of research has the research sectorsdeliver their latest thinking to this client every Wednesday Anotherclient does its own proprietary research but values IBankrsquos researchdatabase The global account director the head of informationtechnology and the head of research make these data available tothe client over the Web and in a format that can be downloadedinto the spreadsheets of the clientrsquos analysts

The global account director usually has to work with other de-partments at IBank like the research unit in order to customize ser-vices for the client These directors use their personal networksbuilt up over their ten to fifteen years of experience and theirknowledge of the customer to influence others Their knowledge ofthe customer is used to increase IBankrsquos ranking and therefore rev-enues For example a number of clients now value flawless execu-tion of trades by operations and include operations quality in theirrankings The global account director and the head of operationstry to respond to the clientsrsquo needs In one case operations createda customer team to synchronize its activities with those of the cus-tomerrsquos operations The leaders of the other departments are also in-terested in increasing IBankrsquos rankings of these top clients

Some funds believe that they can get an advantage through ag-gressive trading They will call IBankrsquos traders with a ldquotake it orleave itrdquo offer to sell the customer 100000 shares of IBM at 110 pershare Initially IBankrsquos traders were reluctant to sell on these terms



because they would then have to buy 100000 shares that might betrading at 111 Working with the head of trading the global accountdirector worked out some guidelines for dealing with this client Asales trader was assigned to always take this clientrsquos calls The clientrsquosrankings of investment banksrsquo equities division was based 50 per-cent on their tradersrsquo votes of how easy it was to do business withthe bankrsquos trading unit As a result IBank improved its ranking andrevenue from this client

Some fund managers value face-to-face discussions with theCEO and CFO of the companies whose stock they are buying Inthese cases the global account directors work with relationshipmanagers in corporate finance to schedule these discussions So theglobal account directors are primarily charged with knowing theclients knowing what is important to them knowing how theyvote and rank and then delivering IBankrsquos resources to serve theclient in the manner that the client desires

Providing Product Line Consulting

Another key activity of the global account director is to obtain ac-cess to the client for the product specialists This access is particu-larly important for new products In addition the global accountdirectorrsquos customer knowledge is useful in the creation of new prod-ucts and cross-selling existing products

New products create an opportunity to instruct clients and gainaccess for the product specialist For example many funds are eagerto start their own hedge funds and use equity derivatives but theyknow little about them On learning of the clientrsquos interest theglobal account director schedules a conversation between IBankrsquosproduct specialist and those interested at the client When theclient becomes interested in equity derivatives the global accountdirector may create a training program for all of the clientrsquos fundmanagers and analysts The global account director may bring inIBankrsquos training people who have trained all of IBankrsquos people inequity derivatives



The global fund product provides the same opportunity as eq-uity derivatives and the additional opportunity for a cross-sell If theclient creates a global fund IBank may then sell its global fundadvice to the new global fund manager The client may choosewhether to buy foreign equities for the fund in the United Statesfrom the Japan desk the UK desk or somewhere else Or it maychoose to buy them from IBank Japan and IBank UK and thenhave the shares held by IBank Japanrsquos custody business Part of theglobal funds advice may involve treasury products for managing thedollar-yen exchange rate risk It is the global account directorrsquos taskto sense the cross-sell opportunity bring in all of the specialists sup-port them and train the clientrsquos people to use the new product

The global account directors can also discover the opportunityfor new products They saw an opportunity to use IBankrsquos globalpresence as an advantage As their clients entered in new countriesin which IBank was already present IBank could serve as a host andmake it easy for the client to enter these new areas One of the biginvestments for the client was starting up its operations and settle-ment activities in the new country The global account directorssaw the opportunity for a fund to start up quickly and avoid a big in-vestment by outsourcing the clientrsquos backroom to IBankrsquos local cus-tody division The custody division was moving into outsourcinganyway By working with the global account directors the custodydivision developed a starter kit to quickly get the client up and run-ning with custody handling their outsourced operations Therewere numerous opportunities for the global account directors to cre-ate value for customers and for the product lines by making linksbetween them on new products and on cross-selling

Customer Interaction

Managing the interactions with the customer is complex because ofthe increase in the number of sales specialists at IBank The interac-tions are complicated by the increase in the number of specialists atthe client As clients have grown and globalized they have acquired



their own research analysts and traders The new communicationsflows are shown in Figure 46 The bulk of the conversations nowtake place between the research analysts The clients have about 10percent of the total analysts that IBank has The fund manager getsadvice from the fundrsquos analysts and from the sales sector sales var-ious sales specialists and account managers at the investmentbanks When buying or selling the fund manager instructs thefundrsquos traders who work with the traders and sales traders at IBankThe fund manager then solicits the input of all of these specialistsat the client when doing the ranking of the investment banks Thisranking then determines the number of trades executed throughIBank

In addition to the normal informal contacts between global ac-count directors account managers and the specialist IBank hasemployed a CRM system in order to get a total view of the interac-tions with clients and to focus them on the issues that the clientsthink are important The development and management of the sys-tem is the task of the global account management department Ini-


Figure 46 The New Customer Interaction Model

IBank

Equities Leaders

Global Account Manager

Local Account ManagerSalespeopleSales Specialist

Research AnalystsSector Sales Specialists

TradingSales Trading

Operations

Fund Client

CEO

Chief InvestmentOfficer (CIO)

Fund Manager

Analysts

Trading

Operations


tially each country tracked its own products and clients The globalaccount management started by focusing on the top fifty clientsthat were cross-product and cross-border The CRM tracks all salesand other information about these clients Each client and its pri-ority are identified The business plan and goals for the client areposted along with key individuals at the client The CRM lists alltransactions executed for the client research reports received andany deals in progress

A key subsystem of the CRM is the contact management sys-tem Its intent is to be the holy grail of all CRM systems to recordall transactions and conversations with the client The names of allpeople at the client with whom IBank does business are listed alongwith their telephone numbers and e-mail addresses All people atIBank who contact the client are listed The contact managementsystem is to be a tool of the global account directors and accountmanagers for getting a total view of what has been said to the clientduring a day At every investment bank the day starts with themorning meeting The company literally gathers on the sales andtrading floors and listens to the head of research who runs themeeting At the meeting research gives its opinion of what is hap-pening what stocks to recommend what sectors are hot what eco-nomic news is coming out that day and what the bankrsquos position ison various issues The meeting lasts half an hour and ends whentrading begins The IBank people then begin calling their counter-parts at clients

One of the objectives of the contact management system andthe global account directors is to coordinate everyone on a dailybasis around the morning meeting objectives First the content ofthe morning meeting is posted on the system for all to see what isbeing recommended to clients this day There are ldquotalking notesrdquofor discussions with clients Then an electronic ticker runs alongthe bottom of the screen throughout the day tracking the currentprices of all stocks mentioned in the morning meeting There arelinks to research reports for these same stocks and convenientcharts like the last twelve monthsrsquo price history The salespeople use



the data straight off the screen There is a list of clients whom theyare to call and they are to record whether they spoke to them leftvoice mail or other disposition There is a chat window which isintended to record client reactions to the recommendations and toserve as a running commentary throughout the day The intent isto record peoplersquos observations and results of conversations with theclients There is a cross-sell reward that goes to those who discoveropportunities that can be followed up in other departments Ulti-mately all conversations from across IBank with a client can berecorded and accessed In this way the global account director oraccount manager can get a complete view of the evolving situationwith the client and take whatever actions may be needed

The contact management system has extensive links with othersystems at IBank One is deal flow which is maintained by corpo-rate finance It shows the progress of deals in the pipeline that aclient may want to know about Event management lists all up-coming events in which the client may be interested Prior to theissuance of a big offering the issuing companyrsquos management mayappear at an event for possible buyers Or IBank may hold an an-nual e-commerce event A third link is to the Web site which iselectronically accessible to clients One site is Investment BankingOn-Line (IBOL) All the top fifty have a customized home page Itis the portal for all areas of the bank Like the global account direc-tor IBOL is to deliver the firm to the client Most clients howevergo directly to product Web sites on a daily basis Fixed Web is thefixed income site and increasingly allows more direct or on-linetrading The equity site allows on-line trading for a few large clientsThe trend is for more on-line trading The global account directoror account manager can complete the picture of client activity witha scan of the e-access sites

Global account management is working to realize the intent ofthe systemmdasha single integrated interface with which to interactwith the client Initially the system was too complex so it is beingsimplified It was also to serve the company and less often to servethe needs of the people who were expected to provide information



So global account management is trying to find ways to deliver ben-efits to users as well as asking them for input The experienced sales-people still feel that they own the customer relationship and arereluctant to open the relationship to everyone The official posi-tion however is that the client is an IBank client and new sales-people are adapting to this position Global account managementhas also contributed to the design of a reward system that considerspeoplersquos behavior when using the contact management system

The equities group has developed its own peer ranking systemto determine compensation This system in its second year was cre-ated by an internal working group to reward all the contributionspeople made over and above meeting their numbers With so manyspecialists having to work together around clients and products theequities group runs on cooperative efforts In this system everyonein equities ranks all of the people they work with in all of the de-partments There are four categories with descriptions attachedThe system is Web based and easy to use The results are gatheredby the leadership and used to rank people in quartiles These rank-ings become the basis of individual bonuses

Global account management is also training all internal peoplein these systems One session is devoted to client relationship man-agement Another is to teach the contact management system tothe same people In addition the sessions are an important sourceof feedback on how well the initiatives are working and of newideas for improvement For the contact management system theleadership of the unit being trained follows up to monitor use Un-less everyone uses it the system becomes less valuable Currentlyglobal account management is searching for ideas and debatingwhether to use carrots or sticks or a mixture to encourage universaluse One approach is to put trip expense reimbursement on the sys-tem Travelers do not get reimbursed until they have entered theircontact report into the system The ultimate goal of the initiativeis to allow the global account director or account manager to man-age the client relationship without being a bottleneck and insistingthat all contacts go through him or her In simpler times almost all



contacts could go through the account manager Today the prolif-eration of specialists at the investment bank and the client com-bined with the pace of the business make one point of contactimpossible

These contacts will be replicated in each of three or four largecountries In order to manage the relationship the global accountdirectors use all the tools that are available The process starts witha client plan for the year This plan may involve a gathering of asmany contact people as possible to brainstorm and create the planThese sessions teach people about the top fifty in general and thisclient in particular The session provides a face-to-face meeting ofas many team members as possible The plan is then put on thecontact management system and members can get a context withinwhich to conduct their daily contacts The plans get updated everysix months The global account directors conduct monthly tele-phone calls with the core members of the client team to exchangeinformation and review progress against plan And finally there isthe constant daily informal contact that takes place between vari-ous specialists serving the account

One of the purposes of the contact management system is toconvert this informal contact to a more organized and informedprocess The global account directors try to use it all day long Asthey walk the floors they encourage their teams to use it Theyshow how it can be useful to the users They show how muchknowledge IBank has about the client and how the specialist canuse it to better serve customers and increase sales As more peopleuse the contact management system and as more improvements areadded the global account directors and account managers will im-prove their ability to present an integrated customized service fortop clients

Customer Relationships at IBank

The change at IBank is shown in the star model in Figure 47 Thestrategy was to focus on the top fifty customers build close rela-tionships with them customize services for these clients and cross-



sell when possible The structure change was to add a global ac-count management for these top fifty customers The key processeswere customer planning customer relationship management andthe multiple informal communication networks A powerful shaperof behavior at all investment banks is the reward system IBankused rankings of personnel by all people and the global account di-rectors as well These rankings were to focus all people on the cus-tomers and customization for the top fifty There was extensivetraining in the contact management system and development andselection of relationship-oriented global account directors Togetherthese policies have created a medium version of a customer-centricorganization that requires midrange levels of both scale and scopeand integration of solutions

Next Steps in Global Account Management

The leaders of IBank made a review of the global account direc-tors at the end of two years They made several changes in order tostrengthen the approach They are moving from the medium to ahigher level of customer-centricity


Figure 47 People and Integration of Solutions

Strategy

Structure

Processes

People

Rewards

Customize Service forTop 50 Customers

Global AccountManagement Unit

Customer RelationManagement System andContact Management

Customer Plans

Informal Communication

Rankings andBonus Based onCustomer Rankings

Selection andDevelopmentof Global AccountDirectors

Training in CRM


The review showed that the internal acceptance and under-standing of client-centric activities at IBank was variable At firstglobal account directors were seen as a level of overhead ThenIBank created a course in client relationship management to createa common understanding The course also became a source of feed-back on how well the global account directors were working and asource of ideas for improvement But even with understandingthere was variable acceptance among country and account man-agers Some are naturally cooperative and play the reciprocity gameof giving and getting favors When they are matched with seniorglobal account directors with good networks and networking skillsthe system works However there are country managers who are in-terested only in their country revenue and not in diversions that donot enhance that revenue These managements are already pressedby 20 to 50 percent growth rates in the sale of equities New smalldemanding foreign funds producing little or no revenue are an an-noyance If these same managers are willing to move from firm tofirm concrete performance numbers are more valuable than firm-specific goodwill from reciprocity The response at IBank is to selectand reward country managers who are skilled at reciprocity and toremove and deny bonuses to those who are not The collapse of eq-uity markets after 2000 also helped country managers see the globalfunds as a new source of growth

The review showed a variety of reactions from customers Somepreferred to do business as they always have country by countryOther customers were skeptical at first and then through dialogueswith the global account directors came to find value The CIO ofa large UK fund complained to the global account director thatthe fundrsquos new Japanese office was not receiving research reportsfrom IBankrsquos Japanese subsidiary The subsidiary was not sendingresearch because the client had placed no orders with it and didnot know that the client had established a presence The Japanesesubsidiary began sending research at the global account directorrsquosrequest The CIO then asked about equity derivatives The globalaccount director brought in a specialist to educate the CIO Even-



tually all of the clientrsquos fund managers went through IBankrsquos two-day course on derivatives This CIO became a convert Otherclients had similar experiences because IBank was one of the first tooffer a global account service At the other extreme were someclients who refused to do business with an investment bank that didnot have a global account director assigned to them They valuedthe service and particularly the hosting service when they enteredJapan and Hong Kong

On the basis of the review IBank further segmented its clientsSegment 1 was the top fifty plus other clients who wanted to do busi-ness in the traditional way country by country and product by prod-uct The account manager in the clientrsquos home country acted as theglobal account director when the role was needed Segment 2 con-sisted of clients who wanted to do business product by product butwanted a global account director to coordinate within equities acrosscountries And finally in segment 3 there were increasing numbersof clients who wanted the global account director to coordinateacross countries and products IBank then adopted a policy of doingbusiness the way the customer wanted to do business It also adopteda strategy of migrating clients from segment 1 to segments 2 and 3IBank was the first and one of the few that could provide global ac-count directors to serve these clients These changes moved IBankto a 3 on the integration scale as well as the scale and scope Thatgave it a 6 total for the strategy

IBank made several changes to its organization in order to im-plement the focus on segments 2 and 3 These changes are shownin Figure 48

The segment 2 global account directors were placed in a sepa-rate organization within equities to serve the segment 2 clients Theaccount managers serving segment 2 clients would report to theglobal account director and the country manager The planningprocess would result in the country managersrsquo having goals for localclients and goals for segment 2 and 3 clients IBank and the globalaccount management department continued their work to developclient profit and loss accounting systems



The other change was a creation of a segment 3 client groupThis group reported directly to the head of IBank These clientswere assigned a global account manager These managers had onlyone client Reporting to them were the global account directors andaccount managers serving these clients for all product lines andcountries The accounting and planning systems are crucial for thissegment One client does business with all of IBankrsquos product linesIt pays directly for the custody service But for the others it choosesto pay by directing trades through IBankrsquos Treasury Products in theUnited Kingdom This payment scheme is most efficient for thiscustomer It is up to IBank to sort out the revenues and credit theright product lines and countries


Figure 48 New Global Account Segment Structure

IBank

GlobalEquities

Trading Research Sales Segment2

Clients

Europe

NorthAmerica

Japan andAsia

Global FixedIncome

Treasury Product

Global Custody

PrivateBank

E-Banking

RetailBrokerage

Intermediaries

Segment3

Clients

GlobalAccountManager



ProductSpecialist

FixedIncome ampTreasuryProductsGlobal

AccountDirectors

EquitiesGlobal

AccountDirectors

CustodyGlobal

AccountDirectors



AccountManager

AccountManager

AccountManager

CorporateFinance


The bonus system has also been changed to reflect the structuralchanges The bonus process starts with the determination of thebonus pool based on IBankrsquos total profits The bankrsquos pool is thensubdivided into pools for corporate finance the product lines andthe customer sets The pool is divided on profits versus plan andother goals Some amount is usually held back to reward individu-als over and above the bonus awarded through the organizationalprocess The segment 3 client organization will get a pool to be dis-tributed based on its performance against plan

The equities division also receives a pool to be divided among itsunits Originally the pool was divided among the countries whichthen allocated bonuses to sales trading and research Today the eq-uities unit emphasizes its global nature and divides the pool first amongsales trading research and after the reorganization segment 2 clientsThe global account directors and managers now have a major voice inthe bonus allocation Their voice in the reward system is a majorchange and a major step toward a more customer-centric orientation

Lessons from IBank

There are a number of lessons that can be taken from the IBank case

bull Different customers want to do business differently IBankapplied the principle of ldquoDo business the way the customer wants todo businessrdquo It learned that not every customer wants a singleglobal interface although some do So it customized the relation-ship Some clients worked with product sales in the countries Someworked with the segment 2 organization across borders And oth-ers worked with the segment 3 unit across borders and products

bull Advantage through managing complexity The price of cus-tomizing relationships was a more complex IBank structure How-ever the complexity created value for many of the top customersIBank attained an advantage because many other investment bankscould not provide the global coordination service

bull Growth through customization On the basis of customer inter-action the global account directors were able to deliver customized



research trading and operations services They were able to delivereducation for new products like equity derivatives There is no limitto the number of customer needs that can be discovered and served

bull Managing customer interactions The IBank case provides agood example of managing customer interactions at all touchpoints In todayrsquos business world where specialist talks to specialistthe CRM model is needed IBank created a global account directorwho is not a salesperson but a manager of the account relationshipThrough mechanisms like the account plan monthly conferencecalls walking the floor and e-mail the global account director canget an overall picture and influence a common consistent ap-proach The contact management electronic system is a major ad-vance It does not work perfectly yet But through trainingpromotion by global account directors and supervisors improvedease of use and rewards it is becoming a useful tool

bull The emergence of customer-centric units The single ap-proach to the customer through segments 2 and 3 is a step towardthe creation of customer-facing organizations It is a major step to-ward creating a customer-centric capability and using it to learnabout customers customize offerings for them and create valuethrough bundling products in useful ways

bull Link the customer units with the product units Once a sep-arate customer unit is formed it needs to be linked to the productunits The segment 3 organization shows a global account man-ager as the leader and global account directors from the productlines These global account directors are the primary links as theywork for both the product and the customer They participate increating a customer plan and goals that align the product and cus-tomer interests The necessary product and customer account-ing systems pricing policies and double-counting revenue are alsoimplemented

bull The IBank case shows the customer interaction and cus-tomization that is required by many customers today It also showssome limited bundling of products into solutions and outsourcingof client activities



87

5

Complete-Level Application

Welcome to complexity While it can be argued that applying thecustomer-centric capability at this highest level offers the mostchallenges it can also be viewed as offering the mostmdashperhapsonlymdashrelief to the corporation whose customer relationships willnot be expedited by anything less Further solace may be gleaned inthe knowledge that there is more delineation available for thefront-back hybrid modelmdashthe lateral networking capability requisite


bull How to apply the strategy locator to the most complete solutionsstrategies

bull How IBM created an organization that can act as ldquoOne Companyrdquo

bull The definition of the front-back organization model whichcombines a customer-centric front end with a product-centricback end

bull The difference between horizontal generic solutions and verticalindustry-specific solutions

bull How formal processes like CRM are used to manage the complexinterfaces that go with high scale and scope solutions

bull How a solutions profit and loss unit spans the entire company

bull About the kinds of human resource practices that are needed tosupport customer-centric organizations



for this level of implementationmdashthan for lower lateral networkmodels The corporation that goes for the big guns finds a deeper de-gree of support available not unlike a high-roller who gets keys to thepenthouse suite (though gambling parallels should not be inferred)

IBM offers a range of solutions but many of them will measure5 on the scale and scope strategy dimension The use of standardsin the computer industry prevents it going all the way on the inte-gration Thus a score of 4 on integration gives it a total of 9 on thestrategy locator (Figure 51)

Complex Solutions andCustomer-Centric Organizations

This chapter describes companies that measure high on the scaleand scope of the solutions they offer At the same time this largenumber of products and services must work together closely as with

Figure 51 IBM as the High-Complexity Model

1

2

3

4

5

6

7

8

9

10

0

Stand-AloneProduct

e-Coordination

Formal Teams

Integrators

Matrix

IBMLineOrganization

Informal


computer systems When the components of solutions must worktogether closely so must the product divisions that design and pro-duce these components The solutions provider must also knowhow to put all these products and services together for the customerHence it must have a customer-centric organization that has thein-depth customer knowledge as to how to create solutions that cus-tomers value The product divisions must work together not onlyamong themselves but also with the customer-centric units De-signing these organizations is the focus of this chapter and the next

In this chapter we study one of the best implementers of thecustomer-centric capability IBM The following chapter analyzesthe high-level application of two other companies and discusses thealternatives in implementation used by corporations with structuresand requirements different from those of IBM

IBM

In the early 1990s IBM was product-centric and focused on hard-ware products such as mainframes It shows that a company cansuccessfully add a customer-centric capability and use it to deliversolutions This chapter provides a detailed look at the steps thechallenges and the payoffs involved in IBMrsquos successful implemen-tation of the customer-centric capability

Parts of the IBM success story are well known Lou Gerstnerrsquosdecision not to break up IBM because customers wanted all the ca-pabilities kept together is an example Less well known is the trans-formation of the organization to get all of the parts of IBM to acttogether

IBM like all of the other computer companies offers the largestscale and scope solutions They offer combinations of hardwaresoftware and service products that are combined into solutions forsupply chain management (SCM) or customer relationship man-agement (CRM) And these solutions must function in an inte-grated manner on a twenty-four-hour seven-day-a-week basis Theintegration needs are lessened somewhat by having products that

COMPLETE-LEVEL APPLICATION 89


are modular That is the computer business is increasingly charac-terized by open standards driven by customers who do not want tobe dependent on a single supplier of proprietary systems IBM hasembraced these open standards but still has a formidable organiza-tion design challenge

Strategy

The decision to keep IBM together was a key one that shaped the fu-ture strategy On the basis of extensive discussions with customersGerstner and IBMrsquos leadership learned that customers did not wantto build their own systems in the face of rapidly changing technol-ogies and products that were difficult to integrate IBM could do theintegration and everything else for them Under one roof IBM hadthe hardware software and soon the services to do the whole taskfor the customer It also had the relationships and global presenceto serve these customers The leaders came to realize that IBMrsquossize and scope thought to be a weakness in the product-centricworld was a source of uniqueness and advantage in providing cus-tomer solutions

In 1995 the leaders announced the ldquoNew IBMrdquo which was tobe based on network-centric computing and the Five Srsquos (serversstandards services software and solutions) Networks of comput-ers were seen to tie together all of a customerrsquos activities usuallyusing software like SAPrsquos enterprise resource planning (ERP) sys-tem The twenty-first-century networks were seen to be a corpora-tionrsquos lifeblood and principal means of commerce IBM invested inLotus Notes and other groupware packages to reinforce the newnetwork concept It also financed a redesign of the hardware line tosupport communications as well as computing

Another important decision was to orient all of IBM to the In-ternet Initially the Internet was part of the network-centric com-puting strategy IBM also had its own private network It was notclear in 1995 whether private networks or the Internet would dom-inate but once it became clear to IBM it focused on the Internet



it sold its private network to ATampT and got out of Prodigy its pro-prietary network service About a year ahead of Microsoft IBMshifted focus It also gets high marks for not focusing on the browserwar although it had one of its own From the beginning IBM andGerstner have seen the Internet as a means of conducting businesstransactions

The move to the Internet was to be led by the newly created In-ternet Division part of the Software Group The Internet repre-sents the ldquoNew IBMrdquo It was network computing based on ease ofuse and open standards to which IBM was now committed TheInternet Division initially worked with all of the product divisionsto make sure that its products were Internet ready The division thenput together IBMrsquos Internet strategy and a list of products andofferings that an Internet-ready IBM needed but lacked at thattime In 1996 IBM announced its e-business strategy The purposewas to show customers how they could transform themselves intoInternet-based companies Not surprisingly this e-commerce strat-egy plays to IBMrsquos strengths When a company makes its Web siteits front door that door is open twenty-four hours a day and sevendays a week When all transactions take place on the network in a24-7 world that becomes IBMrsquos world The customer needs 100percent available servers huge storage capability secure databasesmassive processing power expert systems integration consultinghelp training financing security advice and services to pull it alltogether Pulling it together as customer solutions is the New IBMBut the thrust of the Internet strategy is also to accentuate softwareand services With hardware prices and margins falling IBM hadlong been seen as vulnerable The Internet was its way out of de-pendence on hardware

Gerstner stated his view of services in IBMrsquos 1998 Annual Re-port ldquoThe greatest competitive advantage in the information tech-nology industry is no longer technology Technology changesmuch too quickly now for any company to build a sustainable com-petitive advantage on that basis alone Someone is always invent-ing some software code or device that is a little faster or cheaper



More and more the winning edge comes from how you help customersuse technologymdashto steal a march on their competitors to implemententirely new business models That means creating integrated solu-tions that draw on the full range of products and increasingly ser-vicesrdquo (p 6)

The real payoff of services is believed to be in solutions pack-ages of hardware software and services At IBM these are createdby the industry groups when they are industry specific or vertical(for example computer-aided design for manufacturing compa-nies) or by global services when they are applicable across indus-tries or horizontal

An example of vertical solutions comes from the global insur-ance solutions practice which generates $5 billion in revenue eachyear from two thousand accounts The practice has developed astrategy to be a catalyst in the industry and to take the first steps increating enterprise architectures These architectures will allow in-surance companies to migrate from legacy systems to the InternetA key ingredient in the strategy is the Insurance Research Center(IRC) which was created as part of IBMrsquos research laboratoriesThe IRC also works through a ldquolive engagement labrdquo the InsuranceSolution Development Center (ISDC) in La Hulpe Belgium Thereresearchers work with lead customers on developing applicationsThrough the IRC and ISDC the practice is working to create aportfolio of solutions (called offerings) for the future based on en-terprise architectures the Internet data mining and voice dataand video technologies

IBMrsquos answer for infrastructure is the insurance application ar-chitecture (IAA) which was designed with forty insurance andfinancial services companies It is intended to define common com-ponents and services that can be applied across all insurance linesand thereby lower the costs and risks connected with creating newsystems IBM plans to tailor IAA through packaged insurance busi-ness systems to meet the requirements of different customers Withinthis new architecture the insurance practice has launched threeinitiatives for its customers



First-of-a-kind solutions are joint research projects withcustomersmdashfor example

bull Collaborative Internet sales and marketing a prototype thatenables customers agents and representatives to simultane-ously view a screen and talk to each other using voice dataand video

bull Underwriting profitability analysis a data mining technologyused on existing customer and policy data

bull Hand-held terminals that is the use of mobile devices thatcommunicate with and deliver customer and policy data toinsurance company sales forces

InsureCommerce is an offering consisting of a family of solu-tions to bring companies into e-commerce using Java software Itconsists of several solutions

bull InsureStrategy consulting and services for developing anInternet strategy

bull InsureIntra an intranet and Internet design and implementa-tion service combined with legacy system integration

bull InsureKiosk which enables insurance providers to extendtheir marketing and services by deploying kiosks in strategi-cally placed locations

bull InsureAgent an agent automation and data-sharing productto manage agents more effectively

Third is the transformation of key processes in insurance oper-ations such as claims management IBM is integrating agency man-agement and information systems with CRM solutions to createconsistent construction of databases The CRM solution also inte-grates with call centers IBM is also targeting lines of business in in-surance with solutions for life health and property and casualty

All of these insurance solutions are combinations to various de-grees of IBM hardware software and services and partnersrsquo hardware



software and services In each case IBM integrates the componentsinto a solution or offering for the customer The offerings combineall of IBM in the service of the insurance customer

The same types of solutions are developed by global serviceswhen the solution is not industry specific and can be leveragedacross industries and applications Indeed the e-Business Servicesunit sees itself creating repeatable solutions Among these offeringsare supply chain management e-commerce customer relationshipmanagement and ERP For each of these there is a global offeringowner who coordinates the development improvement and de-ployment of the solutions These solutions can be built by IBM andturned over to the customer to run they can be built and outsourcedto IBM to run for the customer or the application could be hosted onIBMrsquos computers and sold by means of a service fee

One of these offerings is Business Intelligence (BI) which waslaunched in February 1998 It is a combination of hardware (serversstorage) software (its database product DB2 data mining) and ser-vices (consulting education installation maintenance) for datamining and data warehousing for large customer databases It canbe combined into CRM systems as well The offering was a compa-nywide initiative to address a $70 billion per year opportunityThere are twenty-five hundred specialists in the field today sellingand implementing these systems along with a partnership programof 150 vendors The applications are designed to help companiesmake more informed decisions about markets risk assessments andclassification of customers into segments and to manage marketingcampaigns An early adopter was Citibankrsquos Consumer Bankingunit Citi is using a portfolio of services to help quantify the lifetimevalue of its customers Empire Blue Cross is using it along with IBMsoftware called Fraud and Abuse Management System to uncovermedical fraud It led to $4 million in savings in 2000

The network-centric computing strategy was implementedthrough the Five Srsquos servers standards software services and so-lutions Today network-centric computing has been transformed



into ldquoBusiness on Demandrdquo by the new CEO Sam Palmisano Busi-ness on Demand is the movement of computing to servers run byservice providers like IBM with applications delivered as a servicefrom the Internet Solutions are still a central part of the offering tocustomers So if solutions were a reason for keeping IBM togetherhow did the leadership get it to act together

IBM Structure

The IBM structure before Gerstner arrived always had a strong ge-ographical orientation It was based on IBM Americas and theWorld Trade Corporation which served the rest of the world Thekey positions outside the United States were the country managersAfter losing some outsourcing contracts because some countrymanagers opted out of bidding the structure was changed to thefront-back model shown in Figure 52

IBMrsquos structure is constantly changing as are a number of theservice-offering titles The structure shown here is simplified but cap-tures the essence of it and uses more generic titles like outsourcingIt shows the four-dimensional design of most high-level customer-centric companies Reporting to the CEO or office of the chief ex-ecutive are the functions These are corporate staff units most ofwhose members are working in the product lines and industry groupsThe back end of the structure consists of product lines for hardwaresoftware and services They design deliver and sell their productsto IBM customers Global services also has a product managementtype of responsibility in addition to selling and delivering servicesThis product management activity is to create horizontal solutions(ldquoofferingsrdquo in IBM language) that are not industry specific For ex-ample if a customer wants to implement a CRM project IBM wouldwant to provide the initial consulting change management sys-tems integration education and then either the supporting hard-ware and software or the outsourcing of the service The productmanager known as an offering owner would coordinate the various



Fig

ure

52

IBM

Str

uct

ure

IBM

Lega

l ampIn

telle

ctua

l Pro

pert

yR

ampD

Supp

ly C

hain

Mar

keti

ngH

uman

Res

ourc

esC

FO

Fun

ctio

ns

Fron

t End

Glo

bal S

ervi

ces

Soft

war

eH

ardw

are

Cus

tom

ers

amp G

eogr

aphy

Pro

duct

s amp

Sol

utio

ns

Asi

aEM

EAA

mer

ica

Fina

ncia

lSe

rvic

es

Dis

trib

utio

n

Man

ufac

turi

ng

Gov

ernm

ent

Part

ners

Fina

ncia

lSe

rvic

es

Dis

trib

utio

n

Man

ufac

turi

ng

Gov

ernm

ent

Part

ners

Fina

ncia

lSe

rvic

es

Dis

trib

utio

n

Man

ufac

turi

ng

Gov

ernm

ent

Part

ners

Fina

ncia

lSe

rvic

es

Dis

trib

utio

n

Man

ufac

turi

ng

Gov

ernm

ent

Part

ners

Out

sour

ce

Syst

ems I

nteg

rati

on

Con

sult

ing

Educ

atio

n

Solu

tion

s

CR

M

Bus

ines

s Int

ellig

ence

E

RP

Serv

ices

Serv

ices

EM

EA

Web

sphe

re

Ope

rati

ngSy

stem

Dat

abas

e

Lotu

s

Syst

ems

Man

agem

ent

Serv

ers

Des

ktop

s

Stor

age

PCs

Sem

icon

duct

ors


businesses to create several different types of CRM offerings Soboth the global services and software groups have charters to deliverall of IBM to the customer for offerings and initiatives

The front end of the structure is based on customers collectedinto industry groups (such as financial services customers) and geog-raphy The industry groups focusing on the largest one thousandglobal customers replaced the countries as the central building blockof the sales and distribution structure In this four-dimensional struc-ture the product lines are the profit centers The industry groups arenot yet profit centers but instead are measured on revenue and mar-gins PampLs are added up for geographies but they do not functionas profit centers

In order to examine the customer organization in more detaillet us look at the Europe Middle East and Africa (EMEA) regionIt represents IBM in microcosm but without the manufacturing ac-tivities The structure is shown in Figure 53 Reporting to the gen-eral manager of EMEA are product lines (hardware sales softwareglobal services) industries country operations and functions (fi-nance and planning legal human resources and marketing) It isthe same four-dimensional structure that reports to the CEO Theactual work is done by following processes that connect these fourdimensions The European portion operates primarily through fol-lowing opportunities and offerings

Opportunities

One of Gerstnerrsquos early moves was to reengineer the business pro-cesses at IBM At one point there were thirteen global processesbeing redesigned and led by global process owners Initially theseprocesses were put on the IBM network Today they are on in-tranets and extranets One of the key processes described here isIBMrsquos own CRM

One of the processes that integrate IBM around the customer isa subsystem of the CRM called the Opportunity Management Sys-tem (Omsys) An opportunity is originated by salespeople when a



Fig

ure

53

IBM

Eu

rope

Mid

dle

East

an

d A

fric

a F

ron

t-E

nd S

tru

ctu

re

Cou

ntry

Ope

rati

ons

Glo

bal

Serv

ices

Soft

war

eH

ardw

are

Serv

ices

Bus

ines

sTr

ansf

orm

atio

n

Out

sour

cing

Prod

uct S

uppo

rt

Educ

atio

n

Sale

s and

Mar

keti

ng

Soft

war

eTe

chno

logy

Supp

ort

Tivo

liSy

stem

s

Bus

ines

sIn

telli

genc

eSo

luti

ons

Lotu

s

Hig

h-En

dSy

stem

s

Mid

rang

eSy

stem

s

Prin

ting

Stor

age

Ente

rpri

seR

esou

rce

Plan

ning

Solu

tion

s

Indu

stri

es

Gen

eral

Man

ager

EMEA

e-B

usin

ess

Solu

tion

s

e-B

usin

ess

Serv

ices

Nor

th

Cen

tral

Nor

dic

Wes

t

Sout

h

e-B

usin

ess

Serv

ices

Com

mun

icat

ions

Sect

or

Dis

trib

utio

n

Fina

nce

Indu

stri

al

Publ

ic S

ecto

r

Bus

ines

sPa

rtne

rs

Smal

l and

Med

ium

Bus

ines

s

Cal

lC

ente

rs

Aus

tria

Bel

gium

Fran

ce

Ger

man

y

Ital

yG

reec

e

Net

herl

ands

Nor

dic

Swit

zerl

and

Uni

ted

Kin

gdom

Emer

ging

Mar

kets

Cen

tral

Eur

ope

Rus

sia

Mid

dle

East

Afr

ica

Sout

h A

fric

a

Fina

nce

and

Plan

ning

Hum

anR

esou

rces

Lega

l

Mar

keti

ng

Not

e T

itle

s hav

e be

en m

odifi

ed fo

r thi

s str

uctu

re


customer sales opportunity appears (although anyone can originatean opportunity) Some opportunities are product opportunities (forexample a customer orders a replacement mainframe) These or-ders are straightforward opportunities and are probably handled au-tomatically over the Internet The challenge is when integration isrequired as when a customer like DaimlerChrysler announces theconstruction of a new assembly plant in Alabama It would likeIBM to bid on supplying the entire package of hardware softwaremaintenance installation financing and even outsourcing Forthese opportunities a team from across IBM must swing into actionThis type of opportunity is the coordination challenge for deliver-ing IBM to the customer

Omsys is part of the whole CRM process which is driven by theindustry groups They begin the process with a customer plan Thereis a plan for the largest one thousand customers like Daimler-Chrysler The purpose is to get ahead of the process anticipateevents like a new factory and begin assembling the resources Theplan for each customer is prepared by a customer team with mem-bers from around the world It is to anticipate sales for that customerfrom anywhere in the world that the customer is present For thelargest and most profitable customers product specialists assist inpreparing their part of the plan as well Each customer set has prod-uct people dedicated to it for preparing its plans High-end systemssalespeople will be dedicated to the banking industry or even to Citi-group when there is enough volume to justify the dedication Thesepeople will report to both their product line and their industry

These plans accomplish several goals They lead to a plan forthe industry revenue targets and quotas for the people and a fore-cast for the resources needed from the product lines to support thecustomers Second the planning process allows the prioritization ofopportunities and of customers The CRM is based on the value ofthe customers Not all customers are equal The most profitable anddesirable customers get the highest priorities Some opportunitiesalso get a higher priority Banks in the Nordic region lead the in-dustry in technology These opportunities will be given a priority to



get the industry firsts Third the planning process is a means tobuild the customer team and teach the product specialists about thecustomerrsquos situation The account manager in the customerrsquos homecountry leads the team and the planning effort The industries putthe plans together and set the industry and customer priorities Thetop customers are also assigned to the top two hundred executiveswithin IBM Each executive has two to six customers for whom sheor he acts as the executive partner

The sales link process takes these plans for industries and con-verts them into expected sales numbers for the product lines Theproduct lines then prepare to meet these targets and provide the re-sources The targets are adjusted quarterly IBM is in a volatile mar-ket where conditions can change quickly For example a customerhires a new chief information officer who shifts the company fromUnix to NT A pharmaceutical customer is surprised and has its rev-enue reduced when its new drug fails to win approval from the Foodand Drug Administration The customer then postpones its acqui-sition of new information technology equipment

Omsys works within this planning context The system startswhen an opportunity is entered from a salesperson a reseller or overthe Internet It is immediately evaluated within the system by com-paring it to benchmarks and prioritizing it It is possible not to pursuethe opportunity but usually it is qualified and assigned an opportu-nity owner If the opportunity is like the replacement mainframe theowner will be the product line salesperson from mainframes If it isthe bid opportunity from DaimlerChrysler the owner will likely bethe DaimlerChrysler account manager in Stuttgart The opportu-nity will be indicated on the screens of the product representativeson the DaimlerChrysler team They will gather the resources fromtheir specialty to staff the bid team These specialists will be se-lected on the basis of availability of the talent and the priority as-signed to DaimlerChrysler and the Alabama opportunity

Many simple opportunities (add a thousand seats to a LotusNotes license) pass through the CRM system without human in-tervention But there are numerous chances for disagreements on



complex and new opportunities There are the usual differenceswhere a salesperson sees a great revenue opportunity and the prod-uct line sees a poor profit opportunity Then there is always the bot-tleneck caused by the hot resource In the past the scarce resourcewas SAP programmers then it was Java programmers and nowthere are too few Linux programmers The opportunity owner thenbegins an escalation process She goes to her network first Does sheknow anyone who could help get the resources she needs If notshe can search the skills database If still not she can go to her ex-ecutive partner or the industry head to see if their contacts canhelp If still no there is the senior leadership team the EMEA headand direct reports which meets weekly or the European growthteam a smaller group that meets when needed During this processthe participants should have been prepared by the planning pro-cess The scarce resource is allocated to the opportunity owner ornot based on the company priority for that opportunity Then oncean opportunity like DaimlerChrysler in Alabama is won an exe-cution or an engagement team is activated to complete the oppor-tunity These resources are allocated in the same manner as thosefor the bid team

Another issue at all companies providing solutions is the pric-ing of the offering and dividing of revenue among the various profitcenters that contribute to the solution At IBM these decisions aremade at pricing centers Some centers are global others are regional(EMEA) and still others may be local in small and medium busi-nesses (SMBs) The pricing centers are run by finance They allo-cate revenues to product lines hardware software and servicesbased on pricing methodologies that they have developed over theyears They call them ldquofair sharerdquo methods The system is adminis-tered by the network of chief financial officers who support theprofit centers It is legitimate to appeal to this group if a share of adeal is not seen to be fair The network tries to be fast and fair andtries to follow Gestnerrsquos priorities (1) win the opportunity (2) op-timize for IBM and (3) optimize for your profit center The CFOtries to use 360-degree feedback to reinforce the norm



All opportunities once entered are available for trackingOmsys can answer various questions How many opportunities dowe have at DaimlerChrysler Who is working on them And so onIBM is creating Web sites for its most important customers a vari-ation on MYIBMCom a personalized customer Web site In 2002IBM had two thousand customers with their own sites for direct or-dering customer service and inquiries In this manner the CRMprocess is the means by which resources from across IBM can bematched and integrated around customer opportunities

Offerings

The other process for matching and integrating resources is in thecreation of offerings Offerings are solutions that can require hard-ware software and service products from inside and outside IBMthat need to be integrated to solve a customer issue Some of the of-ferings are industry specific and fall within the industry customerset The solutions described earlier for the insurance business wouldbe the responsibility of the insurance solutions unit in the financesector When the offering cuts across industries the owner is usu-ally in global services The e-business offerings tend to be located inglobal services and specifically in the e-business services unit Ineach case the purpose of the offering is to cannibalize the one-offsand create repeatable solutions These solutions can be global likee-commerce ERP CRM supply chain and so on Some can be re-gional like the move to the euro and the European Monetary UnionOthers can be local like applications for chartered accountants insouthern France For each offering there is an offering owner whoacts as a product manager creating a new product The owner for-mulates a strategy usually with the help of a cross-IBM team Whenapproved the strategy implementation is led by the owner who re-ports at milestones along the way The industry the region or thecompany selects those offerings as being worthy of reuse and the ef-fort to standardize them



An offering is created through the cooperation of many IBM or-ganizations For example IBM is working with a manufacturing cus-tomer in a business very much like IBMrsquos own business This projectis a full partnership effort to implement CRM and e-commerce asIBM has implemented them in its own organization The partner-ship consists of the industry group global services the softwaregroup (especially middleware) RampD and some input from thehardware side Usually the offerings are created using existing hard-ware architectures In another effort the best people from aroundthe world are working on developing an offering with a Europeanbank Both offerings have been globally prioritized by the leader-ship of IBM Others can be prioritized by the European leadershipSo by working with lead often large customers IBM can developsolutions which can become offerings

The organization of a global offering unit is shown in Figure 54The majority of the offerings are located in e-business services (seethe EMEA organization chart) The one shown here is in the out-sourcing business because it is a hosting offering Specifically it isthe e-business hosting services in which IBM is the host for an ap-plication that serves the customer That is IBM owns the hardwareand software and runs the infrastructure The customer pays for theservice by the number of persons using it the transaction or by themonth

There are three subofferings with a product manager in chargeof each One is Web hosting The customer may create a Web siteand control its content and IBM runs the infrastructure and the ap-plication on its own servers Or IBM can build and run the Web sitefor the customer Application services is used when IBM becomesan application services provider That is IBM will host the ERP ap-plication from SAP or J D Edwards CRM from Siebel and so onThere are about ten applications currently available and new onesare being added constantly Trading networks is where IBM hosts amarket for business-to-business transactions Working with a part-ner IBM creates a market like e-chemicals It will then build and



run the infrastructure and sell the service by the transaction Thepartner will bring the industry expertise and run the market Againnew markets are constantly being added The addition of new mar-kets and applications is the charter of the marketing department

When a new application is discovered it is proposed in thebusiness plan When it is funded an owner is appointed and a teamcreated to formulate a strategy and form a project to implement theoffering The hosting offering teams work closely with software forWeb servers firewalls encryption and other middleware Theywork with the server group to deliver the hardware Usually theyuse existing hardware but on one occasion they needed modifica-tions to the servers and operating systems to support the hosting ofan e-commerce activity The global services business took the issue


Figure 54 Structure of a Global Solution Offering

Global Offering Executivee-Business Hosting Services

ApplicationServices(ASP)

WebHosting

TradingNetworks

MarketingNew

Business

HostingServices

GlobalServicesRegions

Global ProfessionalServices

Global ServicesAmericas

ProfessionalServices ndash EMEA

Global Services ndashEMEA

COUNTRIES


to the IBM technical committee to get a priority for a hardware andsoftware project The technical committee is the top organizationalbody in IBM for deciding on new products and technologies It isrun by the head of technology and includes the CEO in its mem-bership The request was approved and a product owner was cre-ated to lead the project These projects report every two months tothe technical committee until all work is closed out

The new offerings are then taught to global services salespeopleand members of customer account teams which bid for and imple-ment the opportunities from customers For hosting services thereare some seven hundred people globally distributed in the field forsales and implementation These people often work with the in-dustry groups to originate opportunities Global services has its ownsales specialists for its product lines These sales and implementa-tion people are organized by region and report through the globalservices organization

The global head of hosting services is considered to be a ldquolitePampLrdquo That is the main PampLs within global services are the re-gions and then the products like outsourcing An offering is codedwhen an opportunity arises and is captured By associating the of-fering code with the opportunities a revenue stream can be identi-fied and matched with costs These opportunities enter the systemthrough Omsys The offering owner responds when customer inter-ests are flagged as offering opportunities

Other opportunities are organized similarly but are housed in e-business services There are five basic offerings ERP e-commercesupply chain management CRM and business intelligence Forthese offerings the customer invests in the hardware and softwareto run them rather than have IBM host them as an applications ser-vice provider In addition to the hardware and software IBM pro-vides the consulting change management systems integrationinstallation availability services and education Many of these of-ferings are scalable A customer can begin in e-commerce with ahome page hosted by IBM A medium-sized business can begin withldquoStart Nowrdquo Similarly a customer can begin with ERP I and move



to ERP II and III These offerings and offering structures are com-mon across all of the regions of IBM and the regions within globalservices EMEA

So much of the integration of IBM product lines and industriestakes place through processes to create and implement offerings andto capture and deliver opportunities The CRM process with itssubprocesses for Omsys and SalesLink provides a common meansfor coordination But the analysis needs to go a step further In or-ganizing around the customer IBM has created customer sets likethe industries But every product line service and offering has itsown sales force as well In addition there are other channels like re-sellers How are all these customer-facing units coordinated Or dothey have to be coordinated The next section examines this issueby looking in more detail at Global Services EMEA

Global Services OrganizationmdashEMEA

Global Services EMEA is itself a multidimensional organization Itis about a $12 billion business with sixty-two thousand people plusanother fifteen thousand in companies in which IBM has a 50 per-cent stake or more The structure is shown on the EMEA chart inFigure 53 There are the five business segments that cluster theprofit centers consulting systems integration outsourcing services(availability customer support) and education The primary di-mensions are the five geographies which are also profit centers andin which most of the people reside There is a joint PampL matrix fortracking business segments in the regions The third dimension isthe offerings led by solutions although some like hosting servicesare in the outsourcing segment These offerings are also PampL unitsIn addition there are the usual finance human resources and otherfunctions

The result is a complicated matrix organization Most of thepeople have multiple reporting lines It is possible to be a consul-tant in the Nordic region working in the banking industry Fur-thermore the consultant could be working on e-commerce offerings



in the banking industry Since the Nordic region is a leader in e-commerce it is possible for the consultant to get project work inother EMEA regions to transfer leading ideas to those regions Theconsultant can be working for the heads of consulting the Nordicregion the e-commerce offering and the banking industry

The salespeople can also have similarly complex reporting linesThe product lines in global services have their own sales forces orig-inating opportunities as well as receiving opportunities originatedby the industry customer sets Why do the product lines have theirown sales forces First is the need for product expertise A servicelike outsourcing must be sold by an expert It is a new product anddifferent from an equipment sale Outsourcing is a commitment toan income stream over five to ten years There are risks that needto be managed by the specialists These specialists work with andbecome members of customer teams from the industries There arealso small teams from global services dedicated to the six industrysectors which are available for large opportunities But the salesforces also call independently of the industry sets Sometimes a cus-tomer wants to add a maintenance contract that was not includedin an equipment sale Also customers typically want one partner toservice their equipment IBM can receive the service contract froma Hewlett-Packard customer In fact through maintenance andoutsourcing IBM global services is the largest customer in Europefor Hewlett-Packard These sales require customer calls outside theindustry sales force

It is possible that the customer wants to deal separately with theIBM product lines For example the education service could be soldto a manufacturing customer as part of an e-commerce offeringThat same manufacturerrsquos training and development (TampD) unitmay want to contract separately with IBMrsquos education unit for amanagement development course The e-commerce offering couldbe sold to the customerrsquos information technology department andthe education to the TampD unit under separate contracts throughseparate sales forces In this way IBM does business with the cus-tomer in the way the customer wants to do business with IBM



The situation becomes more complicated when more channelsare added Education could be sold to a customer through a reselleras part of an offering or as an independent service Education couldbe sold to a customer over the Internet or through a call centerdoing telemarketing The possibilities are shown in Figure 55 Thepossibility for disagreements and conflicts is multiplied with everychannel Disagreements on customer priority skilled educator allo-cation and price differences immediately come to mind

The process for dealing with the channel complexity is Omsysand the channels organization If every opportunity is entered intothe system a complete customer picture can be obtained by all per-sons dealing with that customer A common customer code must beused by all parties IBM has worked hard at creating the disciplineto use Omsys All of its people have been trained and most businessgoes through CRM However getting joint venture partners re-sellers and partially owned companies to use Omsys still requiressome work This task is the one handled by the channels unit

Once an opportunity is entered into Omsys it can be analyzedprioritized assigned to an owner and tracked The customer ac-count manager in the industries can view all transactions with hiscustomer and can receive credit for all revenues The account man-ager can communicate with the other channel participants and co-ordinate actions Disputes can go through the normal resolution


Figure 55 Possible Channels to the Customer

Education sales force

Industry sales force

Offering sales force

Partner sales force

Call centerndashdirect marketing

Internet

Education


process But the key is getting the opportunity indeed all opportu-nities entered into Omys This discussion focused on global ser-vices but similar issues arise in selling software and hardware

People and Rewards

One of the biggest changes at IBM has been in the area of HR poli-cies IBM was known for its individual rewards and quota measuresldquoBeat your quota and go to the Golden Circlerdquo In Europe the HRpolicies were mostly country based Every country had its own payrollsystem Country managers felt that they ldquoownedrdquo the talent in thecountries Succession planning based on replacements was used Thereward system was managed by administrators who compared perfor-mance to quota It was a system based on stability and hierarchy

Just about all of that system has changed The individual quo-tas have been changed to group quotas With the specialization ofthe sales force selling is done in teams of industry and product spe-cialists led by an account manager A team may get a quota for com-mercial banks in Switzerland Another team may have a quota forretail banks in the Basel area The quotas are set around whatevergroup makes sense for the business

People are assessed today on the basis of competencies The as-sessments are made regarding the potential of people rather than asreplacements for positions The competency model was built withHay-McBer The competencies result from studies on what compe-tencies will be needed by IBM managers in the future The result isan IBM executive leadership model consisting of eleven compe-tencies grouped into four clusters (Exhibit 51) Each person is ratedon each competency on a four-point scale

The assessments are done in a variety of ways The task is man-aged by executive resources They identify some twelve thousandpeople who have potential The top eighteen hundred are specifi-cally managed on a global basis The CEO chairs the World Man-agement Council (WMC) which discusses the top 250 people inIBM versus the competency model A group of young employees




Exhibit 51 IBMrsquos Executive Leadership Model

I Focus to WinmdashCompetencies that enable leaders to think about IBMrsquosrelationship to its customers and the marketplace in order to providebreakthrough strategies for success1 Customer Insight

Putting oneself in the mind of the customer seeing the customerrsquosbusiness from their point of view

2 Breakthrough ThinkingHaving new insights about how to position their business to win in themarketplace

3 Drive to AchieveMaking continuous improvements in the existing business model (iedoing things faster better and at lower cost and higher quality) andtaking calculated business risks to pursue new market opportunities

II Mobilize to ExecutemdashCompetencies that enable leaders to take dramaticdecisive action that energizes teams to rapidly execute against their businessstrategy4 Team Leadership

Focusing their organizations on winning strategies through skillfulinfluence and impactful action

5 Straight TalkTelling the truth even when itrsquos unwelcome and acting with integrityconsistent with onersquos beliefs

6 TeamworkWorking collaboratively with others to run their business effectively

7 DecisivenessMaking tough decisions and acting on them with speed and urgency

III Sustain MomentummdashCompetencies that enable leaders to sustain results overtime by developing priorities people processes and structures aligned with thebusiness strategy8 Building Organizational Capability

Getting the right people systems and procedures aligned with businessstrategy

9 Developing TalentHelping others grow and develop to provide long-term bench strength forthe organization

10 Personal DedicationAligning their personal needs and priorities with the ldquogreater goodrdquo ofIBMmdashnot the ldquosilorsquosrdquo

IV The CoremdashThe ldquoheartrdquo of the model what energizes IBMrsquos leaders11 Passion for the Business

Being excited and passionate about IBMrsquos products and services itspossibilities and ways it can help customers and the world


with high potential and some women and minorities are also sin-gled out for individual discussions Information is obtained fromHR-trained people assessment centers and 360-degree reviewsThe idea is to get a variety of comments and to make assessmentsin a group discussion context The industries and the product linesalso assess people around the globe in the same team context

In addition to the global executive resources assessment processthere are other global HR processes as well including a global jobclassification system and a single worldwide process for performancemanagement With the products and industries structure human re-sources are becoming more available for pan-European assignmentsMore people are working outside the countries The language of thecompany is becoming English Roughly forty nationalities are to befound in the Paris headquarters These centers like Paris and LaHulpe Belgium are melting pots of multinationalism With manybarriers removed the talent is no longer locked up in country silosMost of the country managers have been changed to facilitate thistransition

The other feature of HR policies is the increase in variable com-pensation and the use of stock options or now stock grants Themix of compensation policies varies but let us look at an industryhead in EMEA This person would have a salary which in an aver-age year is 50 percent of the take-home pay The other 50 percentis bonus That bonus would be based 50 percent on worldwide per-formance of the industry 30 percent on EMEA and 20 percent onthe industry in EMEA This population represents the two sides ofthe matrix in which industry managers in EMEA find themselvesThese proportions represent a large increase in variable pay But thebiggest impact until recently had been stock options Options weregranted to the manager by the HR committee like WMC Each in-dividual was assigned a percentage from 0 to 200 percent Thatmeans an individual could receive no options or two times the op-tion grant Today these options are being migrated to restrictedstock grants The percentage is based on the personrsquos contributionto IBM Contribution is to account for customer satisfaction and all



the unmeasured dimensions of performance like teamwork andhelping out a colleague The option amount varies but in recentyears for many people at the industry level their annual stock earn-ings have matched their annual take-home pay (salary plus bonus)

So today people are assessed on meeting their targets contri-bution and competencies Many of the HR policies are global andnot country based and are more team and less individually basedCompensation is more variable and includes more stock These as-sessments are a different set of lenses and are intended to rewarddevelop and promote the kind of people who can deliver all of IBMto the customer

Progress in Delivering IBM to the Customer

IBM has been quite successful in following its strategy of deliveringsolutions to customers Its performance on revenues profits share-holder value and customer satisfaction has been good It now getsless criticism from the ldquofocus enthusiastsrdquo who said IBM shouldfocus like Dell or Cisco Indeed Dell Cisco and Hewlett-Packardare also going into solutions and copying the IBM business modelIt is just as easy to ask ldquoHow well will the focused companies playIBMrsquos gamerdquo IBM believes that 60 percent of its customers wantsolutions The price of competing in solutions is managing com-plexity How is IBM doing at managing its complexity

One assessment would be that IBM is having an appropriateamount of difficulty It is probably attempting to manage more com-plexity than any other company It is trying to integrate diversebusinesses to serve customers around the world at top speed and athigh standards of performance It has multiple businesses and busi-ness models It has activities in 170 countries which need to be in-tegrated into solutions for local regional and global customers Theintegration needs to take place at Internet speed and at perfor-mance levels defined by Dell Cisco Intel Nokia and other morefocused competitors There is no other company facing the coordi-nation task that IBM is How does it deliver integrated and lever-aged speed in the service of customers



The success achieved so far results from doing a number ofthings right IBM chose the right strategy for its customers It did in-deed want solutions based on network-centric computing And IBMwas able to create an organization that could integrate the productsand services for these customers The structure was changed to afront-back model in which the customer-facing industry sectors(front) were able to develop customer relationships and focus Andthe product lines (back) developed global scale and excellent prod-ucts that could be integrated into customer solutions Reengineeredprocesses for new-product development supply chain managementand customer relationship management tie the front and back to-gether A finance group arbitrates the usual disputes about pricesand revenue sharing that can paralyze other solutions providers Acustomer-focused planning process produces a clear set of prioritiesAnd when the world changes new priorities can be set by referringissues to dispute-settling bodies like the senior leadership teamwhich decides quickly Teams of sales specialists are rapidly assem-bled to bring knowledgeable people together quickly to serve cus-tomers The quotas are now team quotas A new higher variable-paysystem emphasizes the company the global business and then thelocal business in that order Stock awards granted on the basis ofcontributions and customer satisfaction communicate a commonmessage New people were brought in to lead the way in new direc-tions People are selected and promoted based on assessments ofcompetencies Multiple inputs are gathered in making these assess-ments So a number of changes were made to convert IBM into acompany that can deliver its whole self to the customer But thechanges are mutually consistent and reinforce each other All ofthem produce integrated solutions at high speed for the customerThey are summarized and shown in IBMrsquos star model in Figure 56IBM has touched all elements of the star model I would argue thatthis thoroughness is a factor in its success The issues discussedbelow arise because not all of the people fit with the new design

But the changes continue and the transformation is a work inprogress A company like IBM surfaces issues that are not faced byothers when pursuing this level of complexity The reason is that



organizations have not been designed before and managers notbeen developed before to deliver this level of performance for thislevel of complexity New design and new development issues ariseas a result The following paragraphs describe the organizationalfrictions that result

Some of the frictions are normal matrix issues of any multina-tional organized around product lines geographies and functionsOn their management teams are representatives of the three di-mensions who view the world through three different lenses AtIBM-EMEA there are people representing customers solutions andpartners in addition to the normal three views This multifacetedorientation should give IBM an advantage in seeing a change com-ing but only if the multiple views can be resolved on a timely basisIBM will surface more differences as a result of its multidimensionalview of the world It will also generate more conflicts putting a pre-mium on rapid management decision making

At lower levels of the organization the multiple dimensionsmean multiple reporting lines These multiple reports have alwaysbeen an issue in multinationals But the move away from com-mand-and-control culturesmdashand an understanding of ldquothatrsquos the


Figure 56 IBMrsquos Star Model


way it isrdquo in a solutions businessmdashhelps people to accept the com-plexity But not everyone is there yet Some cultures accept themultiple reports more easily than others Through selection andself-selection people who fit in stay and rise to the top

IBMrsquos situation pushes the envelope on this issue Most compa-nies wrestle with two dimensions IBMrsquos people like the consultantmentioned earlier can have three four or five reports in a givenyear Also a characteristic of matrix structures is that ldquoproblemsfallrdquo That is unresolved policy issues which should be settled atthe leadership level but are not fall to lower levels where the issuecannot be postponed These become dilemmas for people with mul-tiple reports and multiple unresolved dilemmas The more dimen-sions there are in a company like IBM the more of these unresolvedpolicy issues will arise and some will drop to subordinates Usuallythese people do not have the knowledge and maturity to make pol-icy decisions So it is natural to see a company struggle with exe-cuting multiple dimensions quickly

Conflicts are easily generated I have noted that a four-dimen-sional organization is much more likely to generate conflicts than atwo- or three-dimensional one And the possibilities for conflict in-crease exponentially In addition IBM is in a business that changesevery day There are new technologies new competitors new cus-tomers and new ways to go to market When people face situationsthey have not faced before the likelihood of seeing things differ-ently increases

All of this integration and activity takes place in an environ-ment of high performance standards Everything has to be donewith higher quality lower costs and faster IBM used to be reason-ably tolerant of people Today employees have to perform Thereare more casualties as a result Today one has to be a complete man-ager Today one has to show teamwork be a team builder be a net-worker and communicate Managers in Europe start the morningcommunicating with colleagues in Asia and end the day communi-cating with others in the Americas Whether employees make theirnumbers or not they are assessed on being a total person



IBM is pushing the limits of what can be done in a large organi-zation with todayrsquos talent It has done a lot of things right But whensystems are pushed to higher levels of performance the limits to thatperformance are discovered IBM is trying to fix these limits

Lessons Learned

Following are the primary points illustrated by the IBM case

bull The IBM case illustrates the kind of reorganization that isneeded to become customer-centric IBM has identified a strategythat creates value for customers It has designed a front-back struc-ture that provides a customer-centric front end and a product-centricback end It has tied the front and back together with business andmanagement processes And finally it has completed the designwith compensation and human resource practices that align the or-ganization with the strategy

bull One gets a sense of the complexity that needs to be managedif a company chooses to supply solutions of large scale and scopethat require integration However we need to remember that cus-tomers would be left with the task of providing this same coordina-tion if IBM did not do it for them By taking on the complexityIBM creates value for customers By managing this complexity bet-ter than its competitors do IBM creates an advantage for itself thatis hard to match

bull The IBM case provides a good example of how formal man-agement processes allow IBM to master complexity The CRMOmsys SalesLink solutions development planning and pricing tomention just some of the processes take a lot of the burden offmanagers

bull Another way to manage complexity is to reduce it throughreplicable solutions By productizing a solution IBM does not haveto reorganize for every unique solution opportunity

bull We get some idea of the level of conflict that is generated byputting a customer-centric unit alongside a product-centric unit in



the same company A natural tension results that must be continu-ously managed by the leadership

bull The IBM experience shows how difficult it is to build acustomer-centric organization After ten years IBM is still strug-gling to master the complexity However any competitor thatwants to match it must repeat the same type of process Once IBMachieves some mastery it will have a competitive advantage thathas some durability




119

6

Alternate High-LevelSolutions Companies

This chapter describes some additional companies that have builthigh-level customer-centric organizations The computer compa-nies like IBM are not the only ones that have transformed them-selves Nokiarsquos Network Systems business is an example of a wireless


bull About companies in other industries that have evolved to thesame front-back structure as IBM

bull That there are variations in the front-back structure Nokiaapplies it to a division Procter amp Gamble like IBM applies itto the whole company

bull That a successful solutions strategy requires the selection ofcustomers who desire solutions

bull That doing business the way the customer wants to do businesscauses a complex front end of the structure and value for thecustomer

bull That Procter amp Gamble evolved first in the United States andthen moved globally

bull How Citibank evolved into customer-centric organization bybuilding organizational capability first and then changing struc-ture rather than the other way around

bull How to manage the change process itself



telecommunications equipment supplier that was a product-centricbusiness unit in 1990 and a product- and customer-centric unit in2000 Procter amp Gamble was a product-centric consumer packagedgoods company in 1985 By the early 1990s it had built a customer-centric capability in the United States by 2000 the global organi-zation was transformed Citibank and now Citigroup provide aservice company examplemdashone that took a unique trajectory to ar-rive at the front-back organization

Nokia Networks

Nokia Networksrsquo story begins around 1990 At that time Nokiawas a Finnish conglomerate with sales in Finland and the SovietUnion When the Berlin Wall came down the Soviet economycollapsed taking Nokia down with it When new leadership camein they focused Nokia on wireless telecommunications and beganselling off all the other businesses They reinvested the funds fromthose sales in mobile phone products for consumers and networkproducts (switches and base stations) for operators of wireless net-works The phones and handsets were immediately successfulToday the handset business is about 70 percent of Nokia

The network equipment business had a tougher time gettingstarted The network operators in Europe were all state-owned mo-nopolies which bought their equipment from their national championsuppliers (for example France Telecom bought network equipmentfrom Alcatel and Deutsche Telekom bought its equipment fromSiemens) The market was tough for newcomers to crack

These state-owned companies were to provide jobs as well asphone service so they were staffed with those who designed in-stalled managed and repaired their own networks They neededsuppliers only to provide them with products like switches andtransmission equipment As a result all of the suppliers includingNokia were product-centric companies The Nokia organization asof the early 1990s is shown in Figure 61 The product lines are net-work systems (switches) radio access systems (base stations for trans-


mission) broadband systems (new Internet and other digital sys-tems) and professional mobile radio (dedicated systems for policeand emergency networks) Each of those is a fully functional busi-ness consisting of sales marketing operations logistics and RampD

Customer operations is the customer-facing front end Until1999 the customer was local and the structure was geographicalSome are still local but others are regional and becoming globalThe field organization consists of sales and marketing for a geogra-phy The account managers are generalists and sell all products tothe network operators which usually buy all products The productsales specialists are also in the field and assist the customer accountpeople on sales A sale can vary from $10 million to over $100 mil-lion These opportunities appear intermittently Teams form and re-form around these opportunities to bid and to deliver when a bid iswon It is a contract and project business In Europe there are around270 customers but 10 percent account for 50 percent of the busi-ness The other part of customer operations was customer servicewhich is an installation and repair unit to service the companyrsquosequipment under warranty The sales and service people are all phys-ically located in the countries and work for their product divisionsand the field country managers Nokia Networks was particularly

ALTERNATE HIGH-LEVEL SOLUTIONS COMPANIES 121

Figure 61 Nokia Networks Early 1990s

Nokia Networks

Customer OperationsBroadbandTransmissionSwitching

CustomersProducts

Private Nets

RampD

Asia

CustomerService

EMEA

Americas

Sales

Marketing

Operations

RampD

Sales

Marketing

Operations

RampD

Sales

Marketing

Operations

RampD

Sales

Marketing

Operations


proud of this product-country matrix which they believed to be asource of their effectiveness

New Opportunities

Opportunities came as European countries began to deregulate theirwireless telephone networks As each country deregulated new op-erators entered the market In the United Kingdom Orange andVodafone entered the market It was Mobilix in Denmark and StarNetwork in Singapore Unlike the state-owned companies domi-nated by engineers these start-ups were staffed with entrepreneursand marketers Because they had very few engineers and lean oper-ations they went to the equipment suppliers and said ldquoHow fastcan you design and build a network for usrdquo The product-centric na-tional champions like Siemens and Alcatel responded ldquoWe designand build switches not networksrdquo Nokia however saw an oppor-tunity and replied ldquoWersquoll be happy to design and build a networkfor yourdquo Nokia hired some new people bought some small con-sulting firms and trained and developed some of its own peopleand collected them in a professional services organizational unitNokia provided technical consulting to the newcomers on the de-sign of networks and purchase of equipment It also advised onadding and pricing features like call forwarding It was helping cus-tomers to be more effective and profitable and the more profitablethose newcomers were the more services and equipment theywould buy from Nokia Over time Nokia added an education ser-vice unit to provide training to its own people and also to teachnetwork operations and pricing to customers It added as well a spe-cial unit for project management Each network design and instal-lation is a big project Good project managers are scarce so Nokiabegan to develop its own Eventually Nokia began to receive re-quests from operators to run their networks so that the operatorcould concentrate on sales and marketing Today Nokia has an out-sourcing unit that runs networks for operators Its organization in2000 looked like the chart shown in Figure 62



The professional services unit has grown to several thousandpeople the various new units are shown in Figure 62 Also shownin Figure 62 is a global accounts unit This unit was added in 2000as the industry was consolidating The consolidation of the cus-tomer has been happening for some time Originally the cellularphone business was a national or subnational regional business Cel-lular companies were granted licenses to operate in a particular ge-ography One of the licenses usually went to the existing fixed-linetelephone company but it had to create a separate subsidiary so asnot to subsidize it Other licenses went to newcomers There was aninitial period of explosive growth where anyone could make moneyBut in markets where competition was allowed prices began fallingand the natural shake-out took place The stronger players boughtthe licenses of the weaker ones

Other factors came into play as well Mobile phones werebought by mobile people When these people traveled to otherareas and used their phones they were charged higher fees forroaming The operator whose customer paid these fees receivedonly a small portion of the charge but a large portion of the com-plaints Some operators saw the advantage of a single area with noroaming fees This area was first national then regional and nowglobal for operators like Vodafone They would like to offer a singleseamless global service with a single price


Figure 62 Nokia Networks 2000

Nokia Networks


CustomersProducts

Private NetsSoftware

GlobalAccounts

ProfessionalServices

RampDAsia

EMEA

Americas

Sales

Marketing

Operations

RampD

Sales

Marketing

Operations

RampD

Sales

Marketing

Operations

RampD

Sales

Marketing

Operations

RampD

Sales

Marketing

Customer

Consult

ProgramManagement

Education


The Internet connection is another consolidation The Inter-net knows no boundaries People can log on to a Web site from any-where Why not make the access easy anytime and anywhere Andto provide this access operators need to buy new equipment Thisinvestment is large and only a few have the necessary resourcesConsolidation is one way to gain leverage in purchasing power tomake these investments more economically

The consolidation started in stages Initially cellular was a na-tional business Then the operators began investing in other coun-tries They usually took a minority position along with two to fiveother operators The operators discovered that they had little con-trol over pricing and purchasing decisions made in these subsid-iaries Some of the stronger players began to buy out others andestablish controlling positions When Vodafone won the bid forAirtouch the acquisition contest began Mannesman bid for Or-ange (in the United Kingdom) Then Vodafone bid for Mannes-man Deutsche Telekom acquired One-to-One (in the UnitedKingdom) Japanrsquos DoCoMo then took stakes in European compa-nies and in ATampTrsquos wireless subsidiary Then Cingular boughtATampT Wireless

As this process continued Nokia began to form units dedicatedto these emerging global operators Nokia was always organizedaround the operator customer with its account representatives andcountry structure When the customer began to control subsidiariesNokia started to use cross-border account managers The geo-graphical organization saw the operators growing and moving acrossborders Then a couple of years ago Nokia created global accountmanagers Some were the local account managers who were givenglobal responsibility Others were full-time global account man-agers There were about fifteen global account managers for thelargest customers

When the big acquisitions started this global account managerstructure was seen as insufficient The global account managers werenot recognized by the product divisions and had little authorityThen in September 1999 Nokia created a global relationship man-



agement function It reported to the head of customer operationswho reported to the head of Nokia Networks With the Vodafone-Airtouch merger Nokiarsquos management felt a need to get in controlof the consolidation Literally every day there was an article in theFinancial Times about a takeover merger buyout or alliance amongoperators Nokia management knew the leaders of the operators butneeded top-to-bottom knowledge of the customer and its strategicintentions It wanted to get out ahead and not have to react to thelatest customer consolidation In addition it wanted to get a jumpon third-generation issues So it was Nokia management and notthe customer that asked for global relationship management

The reasons were several First Nokia wanted better informa-tion and more systematic and continuous contact There was a lotof contact with some customers The account manager countrymanagement product sales and RampD people all had contacts Buteach one would come back with a different answer to the same ques-tion at the same customer In part the customer was not very coor-dinated either

Second Nokia wanted better information so that it could co-ordinate Nokia for the third-generation infrastructure opportunityThe operators after consolidating would probably standardize theirequipment and choose one or two global suppliers The time thatthe supplier consolidation would happen would probably be on thepurchase of new third-generation infrastructure The operators wouldchoose suppliers that can coordinate globally and are seen as long-term players Nokia wanted to be seen by the operators as being inthis category It also needed to know which customers could coor-dinate their own subsidiariesrsquo buying decisions Some operatorswant to make central buying decisions but cannot get their sub-sidiaries to follow the central decision Others want a global con-tract but let their subsidiaries do their own buying

Both Nokia and the operators want to know the otherrsquos tech-nology road map for third generation They also want to influencethese maps to their own favor Nokia wants the customer to chooseits technologies and standards There will be strategic partnerships



in which this information is shared and the partners co-invest inthe technologies There may be some customization of servicestechnologies Nokia needs to choose which operators will be itslong-term partners Which ones are trustworthy and easy to workwith Which ones will be the winners in the consolidation Onwhich customers should Nokia place its priorities There are notmany experts on third-generation technology and business aspectsTo which customer team should these people be assigned

The global relationship management unit was created to haveNokia chosen as a preferred supplier and partner It is to representboth networks and terminals in this effort The country manager fromJapan appointed to lead the unit created a project team to establishthe unitrsquos mandate roles and responsibilities practices and processesperformance measures and supporting information systems

The global account managers will focus on the largest and mostimportant customer accounts For each selected account there willbe a full-time relationship director and a customer executive whowill be one of Nokiarsquos top executives The relationship director willreport to the head of global account managers and also to the cus-tomer executive and the regional vice president from the region inwhich the customer headquarters is located The relationship di-rector will lead three teams to serve the customer First is a coreteam consisting of the key country account managers the regionalsales representative from terminals and networks and representa-tives from technology marketing logistics customer supportfinance the customer executive and a representative of the cus-tomer Another team is the virtual team that consists of all salesrepresentatives having contact with the customer The intranet sitefor the customer will be the primary coordinating device for thisgroup And finally an extended team will be used when preparingfor and delivering customer opportunities

The core team will prepare the customer plan The results willbe measured by metrics important to the customer The measureswill apply to all core team members who will receive customerteam goals The virtual team will react to the plan and respond to



it Twice a year this plan and progress will be reviewed at executivereview meetings by top management In addition to the plan therewill be a customer profile (basic data) and a relationship map show-ing all contacts from Nokia to the customer

The role of the relationship director and the teams is to man-age the global relationship and build customer satisfaction Theywill have new business responsibility and be measured by customershare And finally they will be responsible for global deals The pur-pose is to secure a Nokia-wide mandate and to get acceptance in-side Nokia If the relationship directors are seen as having littleinfluence they will have difficulty gaining access to the customerand Nokia is less likely to be seen as a global supplier

In addition to the usual challenge of introducing a customer di-mension on top of the products and geographical dimensionsNokia has an additional challenge finding qualified relationship di-rectors These are people who must be acceptable to the customerrecognized within Nokia and knowledgeable about the competi-tive third-generation landscape Nokia does not have a long historyof global account management that would have developed staff in-ternally On other occasions companies have hired senior peoplefrom the customerrsquos industry But experienced people from the oldmonopoly PTTs (post telephone and telegraph) do not fit well intothe young entrepreneurial Nokia culture Yet a German is preferredwhen dealing with Deutsche Telekom as is a Spaniard for Tele-foacutenica and a French native for France Telecom One approach hasbeen to hire former managers from the national PTT and pair themwith a Nokia manager like a former country manager The PTTmanager can teach Nokia the network in the PTT and the countrymanager can link to Nokiarsquos internal network

Nokia started with relationship directors and core teams for thethree most important operators The three will be expanded toabout ten The process proceeded by discussions among the leader-ship the building of accounting systems for customer PampLs thecreation of customer measures customer intranets and extranetsand customer satisfaction measures



Salient Points

The Nokia case illustrates a couple of points First not all customerswant to be provided with solutions Nokia supplies these custom-ers with products as they desire But it focuses on the new operatorsand their desire for solutions and outsourcing Second Nokia hasdeveloped a customer-centric front-end organization It has addedservices units and a global accounts unit to provide solutions out-sourcing and constant customer interaction with the most impor-tant customers This customer-centric unit has been added to theproduct-centric units So Nokia Networks has made the transitionto a customer-centric business The third point is that Nokia Net-works has both a product-centric back end and a customer-centricfront end They can coexist but only with a strong top manage-ment to resolve the constant conflicting issues

Procter amp Gamble

The organizational journey of Procter amp Gamble (PampG) providesanother example of a company in a different industry making thecustomer-centric transition PampG reorganized its activities first inNorth America and then around the globe Consumer packagedgoods manufacturing companies were originally structured aroundcategories as shown in Figure 63

In the late 1980s PampGrsquos retail customers began to change Thevolume buying and intelligence acquired through checkout counterbar code scanners at such mass merchandisers as Wal-Mart and Tar-get substantially increased their power Some of them demanded asingle interface along with just-in-time supply relationships Incontrast other retailers began to experience considerable variety inthe buying habits of ethnic groups within the regions they servedThese retailers were moving in the opposite direction from the massmerchants They were doing less central buying even moving thebuying decisions to the store level



Consumer packaged goods manufacturers have responded dif-ferently to these forces PampG tried to acquire an advantage byadding a front-end structure that enables responsiveness to all typesof customers This structure is shown in Figure 64 which illustratesthat both a regional structure and a customer structure have beencreated as the front end of the business

The regional and customer teams are all multifunctional andstaffed by people who come from the product groups Customerteams are created for customers large enough to justify the effortthat want to coordinate operations closely Some customer teamsare located at the customer headquarters The teams consist of sev-eral functions The marketing people work with customer market-ing on analyzing bar code data and using promotions to moveproduct The salespeople talk directly to the buyers at the cus-tomerrsquos merchandising functions The distribution and informationtechnology people link the logistics functions of the producer andthe retailer And sometimes factory people join the teams to discuss


Figure 63 Former Group Structure of Procter amp Gamble

CEO

Toiletries

RampD

Operations

Sales

Shampoo

Dentifrice

Cosmetics

Soap

Staff

RampD

Operations

Sales

Bar soaps

Detergents

Liquids

Paper

RampD

Operations

Sales

Towel

Tissue

Diapers

Food

RampD

Operations

Sales

Cooking oils

Pringles

Peanut butter


Fig

ure

64

Fro

nt-

En

d S

tru

ctu

re o

f P

roct

er amp

Gam

ble

in

th

e U

nit

ed S

tate

s

CEO

Bac

k En

ds

Toile

trie

sgr

oup G

roup

sale

s

Soap

grou

p

Staf

f

Gro

up sa

les

Pape

rgr

oup G

roup

sale

s

Fron

t End

Soap

Toile

trie

s

Food

Pape

r

Reg

iona

l tea

m

Mar

keti

ngSa

les B

oys

Safe

way

Von

s

Ope

rati

ons

Cus

tom

er te

am

Fina

nce

Soap

Toile

trie

s

Food

Pape

r

Soap

Toile

trie

s

Food

Pape

r

Soap

Toile

trie

s

Food

Pape

r

Mar

keti

ngD

istr

ibut

ion

Ope

rati

ons

Soap

Toile

trie

s

Food

Pape

r

Info

rmat

ion

Tech

nolo

gy Soap

Toile

trie

s

Food

Pape

r

Sale

s Soap

Toile

trie

s

Food

Pape

r

Soap

Toile

trie

s

Food

Pape

r



putting on bar codes and prices in the factory rather than in storesFinancial people on both sides discuss ways to speed the turnover ofinventory and accounts receivable and minimize cash The wholecross-functional team works for a customer team leader who is a se-nior manager from sales or marketing The leader of the entire frontend is a senior manager with sales and marketing experience

Product coordination within a customer team is accomplishedby the team leader and the top functional managers and by cross-functional teams for each product group The product team ischaired by the marketing representative All the product groupfunctional representatives in the front end also communicate withtheir counterparts in the product groups These representatives areon two- to three-year rotational assignment from the productgroups Their contacts within the group are kept current through-out the rotations But in each case there is a clearly defined interfacebetween products and customers using the product representativesin the front end

The regional teams consist of three functions The marketingfunction translates the product-marketing message into regionalversions The sales function consists of teams that call on storeswhere the buying decisions are located In Southern California cus-tomers that are large enough to justify a team are such retailers asBoys Market and Vons One store in Monterey Park serves a largelyTaiwanese population and products there must appeal to ethnicChinese and be in Chinese packaging The same retailer in Malibuserves the specialized beach community with health foods Thelocal variety of customers requires responsiveness on a local levelThe operations function works with the storesrsquo operations people toset up displays and stock shelves The functional people on regionalteams also can form product teams and communicate with theircounterparts in the product groups

Some customers prefer to do business as they have in the past Forthese customers the company sends salespeople from the group salesforces The soap salesperson talks to the soap buyers and salespeople


from the paper group talk to the paper buyers So sales staff can beorganized by group (as they have been traditionally) region or cus-tomer The company has maintained product specialization at thesalesperson level but it has organized them simultaneously by prod-uct group region and customer A rotational assignment processdevelops them to see all three sides of the issue and maintain per-sonal networks

One strength of this front-back design is that it allows the com-pany to do business the way the customer wants to do business Dif-ferent customers prefer different relationships Another strength ofthe design is the clear identification of product people and productteams in the front end These groups can communicate and coor-dinate within the front end and between the front end and the backend The structure makes it easy for the customer but it can be com-plex for the producer The same conflicts described earlier exist be-tween customer teams and product lines In addition the differentinterfaces with different customers make things difficult to coordi-nate But if the company can manage the conflict and the com-plexity it will have achieved a competitive advantage Competitorscannot easily copy and execute the entire front-back organization

Over time most North American customers migrated to thecustomer team model The front-back structure was regarded as suc-cessful The leadership then undertook a project to see if the modelcould be extended globally When a new structure was found Or-ganization 2005 was announced in 1998 It consisted of a front endcomposed of market development organizations and a back end ofglobal business units The market development organizations werebased on geographical regions like North America Western Eu-rope and Latin America The global business units were the prod-uct lines like baby and family care (Paper) fabric and home care(Soap) and beauty care The number of market development orga-nizations and global business units has varied from four to eightsince the announcement as businesses are added or consolidatedand as business grows in a particular region The structure is shownin Figure 65



Organization 2005 is a three-dimensional structure Reportingto the CEO are the usual corporate functions product lines (globalbusiness units) and geographies (market development organiza-tions) The geographical front end shows that most of PampGrsquos cus-tomers are local retailers serving local consumers However there isa growing international presence on the part of some retailers likeWal-Mart Tesco Carrefour and Ahold to name a few PampG hasextended its customer team model across borders to service thesecustomers wherever they are For example the US Wal-Martteam some 250 strong takes the lead in servicing Wal-Mart in allcountries in which Wal-Mart has a presence In the United King-dom servicing the Wal-Mart subsidiary (Asda) are about a dozenpeople Other teams of a dozen each can be found in Mexico BrazilGermany Thailand and most other countries where Wal-Martneeds support In each country the teams are cross-functional con-sisting of sales advertising product supply information technologyand others and crossndashglobal business units The team and leaders


Figure 65 Organization 2005 at Procter amp Gamble


from the retailerrsquos home country take the lead and coordinate acrossmarket development organizations and global business units Theleadership team for Tesco is in the United Kingdom Carrefour inFrance and Ahold in the Netherlands In this way the customerteams coordinate service across functions countries and productlines

The PampG example is instructive as it uses a geographical front-end organization This structure reflects the existence of local cus-tomers while IBM focuses on global ones Over time as the globalretailers grow in importance and PampG chooses to focus on them afront-end structure similar to Nokiarsquos may evolve


Most companies develop a customer-centric capability and add it totheir product and geographical structures This section describeshow Citigroup (then called Citibank) has built its customer-centricunit It is a good description of the change process used at Citi-bankrsquos commercial and investment banking unit In the 1980sCitibank saw that it was in a position to serve global customersHowever it needed to change its country-based organizations andskeptical country managers and build a capability to coordinateacross countries The change process was a systematic progressionthrough the lateral forms starting simple and getting increasinglycomplex Step zero was at the bottom of the lateral forms informalcoordination That is the account managers in countries servingglobal clients would coordinate among each other This informalcoordination was regarded as insufficient by many global customers

Step 1 A Few Customer Teams

An initial step to drive the change was to create approximately fivecustomer teams to serve customers around the world Care wastaken to choose the five customers that were most desirous of thisglobal service The account manager serving the customerrsquos head-quarters was the team leader In each country where the customer



wanted service one team member was selected This team then puttogether an integrated customer strategy and plan to serve the cus-tomer and executed it Two things usually resulted from this effortthe intended purpose of better coordination across countries to de-liver integrated service to the global customer and the opportunityto drive organizational change and build organizational capabilitywhich was customer-centric

The first opportunity is provided by satisfied customers who canbecome a genuine force for change If they were carefully selectedthese customers should respond positively to any efforts to betterserve them across countries They will probably respond positivelybut they will also indicate that more effort is needed to meet theirneeds This outside forcemdasha satisfied customer wanting moremdashcanbe used to change country-focused mind-sets The request for moreeffort makes them part of the change process

Another opportunity to expand and build on the capability wasalready created With each customer team consisting of 50 to 60 peo-ple between 250 and 300 people have now become aware of and partof the change effort There are now 300 people trained in cross-border customer strategies they understand the needs of the globalcustomer and now have cross-border networks and personal contactsThe 300 people themselves will have had different experiencesMost of them should be positive if they were chosen and recruitedon the basis of skills and interests They too can become a positiveforce for change Some of these people will enjoy the experience andwant more Some will find that serving local clients is more to theirliking and can opt out For the observant management the effort isan audition to find cross-border talent Some people will be good atthis new effort and others not Management that sees its task asidentifying new leadership will use the teams as an opportunity to doso And finally the effort provides an experience from which to learnand improve Collecting team membersrsquo and customersrsquo experiencesand ideas can improve the customer team effort

In this manner every change to the formal structure and systemscreates two outcomes The first is to improve the execution of sometask This outcome remains the intended purpose of the change



The second is the opportunity for management to engage customersin a closer relationship with the company change doubtersrsquo mind-sets train agents of change build personal networks select and de-velop new leaders and improve the process Managements thatcapture the opportunity can use changes to the formal structure andlateral forms to drive and shape organizational change These twooutcomes are produced at each step in the sequence

Step 2 More Customer Teams

A next step would be to expand from a handful of teams to a dozenor so Again the firm selects customers that want the integrated ser-vice It can also solicit volunteers or carefully select team memberswho are interested in cross-border work The initial team members cansolicit their colleagues to join Usually the firm can make these teamassignments attractive In professional service firms like banks peo-ple are interested in personal growth and opportunity Working ona team serving a global customer can be a source of learning and de-velopment not available with local clients The multinational cus-tomer is usually the most advanced customer Management can alsofollow up to see that working on global customer teams is recog-nized and rewarded in the countries

Similar outcomes should result from this expanded effort Thedifference from the first phase is a larger number of people involvedInstead of a few hundred this time a thousand or more people aretrained in serving global customers and building their networks Acouple of dozen customers are satisfied and asking for more A crit-ical mass of change agents is being built

Step 3 Global Accounts Coordinator(Network Integrator)

The next step is to create a position on the management team tocoordinate the efforts to serve global customers At a minimum thischange creates a voice or a champion on the management team forthe global customer Someone of higher status can now appeal to



recalcitrant country managers The coordinator will expand thenumber of teams again But perhaps most important this role canfund and build a customer-focused infrastructure

One task is to create a common process for building global cus-tomer plans and strategies Initially some experimenting by customerteams is useful But soon the countries get overwhelmed with fifteendifferent planning formats The coordinator can collect best practicesfrom the various teams initiate a task force staffed with veterans ofglobal teams and create common guidelines forms and processes Itcreates a common language for communication about these globalcustomers and their needs The common process makes it easier forcustomer teams and country management to work together

The next step is the design and building of customer-based in-formation and accounting systems The question always arises ldquoArewe making any money serving these global customersrdquo With country-based accounting systems and profit centers it is usually impossibleto tell Depending on whether the countries have compatible sys-tems this change can be a major effort requiring central fundingand leadership from the global account coordinator But in the endthe customer teams have information with which to measure theirprogress compare their performance with other teams and demon-strate global profitability

The two steps can be combined by generating revenue and profittargets for customers in the planning process The teams can haverevenue and profit goals for their global customers They can have goalsfor revenue and profit in each country Perhaps more importantthe goals can be added up in each country Then each country man-ager can have revenue and profit goals for local clients and for globalaccounts The country manager can get credit formdashand be held ac-countable formdashtargets for global customers in his or her countryThe accounting system is important because the costs and revenuesfrom the global customer are rarely connected For example an ac-count team in the London office of Citibank worked for a year towin the banking business of a big UK firm The team was success-ful but most of the funding for the next few years would be in theNorth American subsidiary and in a recent acquisition in Australia



That means that the work plus the costs to win the business wereincurred in the United Kingdom and the revenues were booked inNorth America and Australia With customer profit accountingthe United Kingdom can identify the revenues and costs and re-ceive credit The targets can be adjusted for these disconnects Thusin addition to being a champion for the customer the global ac-counts coordinator can create the processes and information sys-tems to manage the global customer as well as continue to developand identify talent and leadership on the teams

Step 4 A Global Accounts Group

As the number of global accounts and teams exceeds several hun-dred the global accounts coordinator role can be expanded into a de-partment or a group In part for ease of supervision the customers andteams are grouped into broadly defined industry categories like con-sumer products financial services oil and gas pharmaceuticals andlife sciences multimedia and others But the main reason is customersatisfaction Customers want bankers who understand their businessPharmaceutical companies assume their bankers know what theHuman Genome Project is all about So the global accounts activitycan be expanded and specialized by customer segment

The global accounts leadership usually leads an effort to estab-lish a common segmentation scheme across the company In largecountries like Germany the United Kingdom and Japan customersegments were probably already in use What is important is to havecompatible schemes across the countries Then a one-to-one inter-face can be established to facilitate communication between coun-tries and within an industry

The global accounts group is usually expanded by adding globalindustry coordination A global industry coordinator is selected foreach industry that is common across the countries Many compa-nies realize the need for global coordinating roles but find few peo-ple qualified to fill the roles But if a company has followed theadvice presented in this chapter and used the opportunity created



by the initial customer team implementations it should have de-veloped its own staff by this point

A Swiss employee in Citibankrsquos Zurich subsidiary can serve asan example A young banker was identified as a talented performeron work for pharmaceutical companies in Zurich When a globalteam was created for Novartis the banker who had experience atNovartis became the Swiss representative on the team Based ongood performance the banker agreed to an assignment in the UnitedKingdom which gave him the opportunity to work in the Londonfinancial center While in London the banker served as the UKrepresentative on the Novartis global team The next assignmentwas to lead a large deal for Roche in the United States The bankerwas then made vice president and returned to Zurich From therehe was selected to be the global account team leader for RocheAfter several years in the team leader role the banker became theglobal coordinator for the pharmaceutical customer segment Hewas assessed in each assignment for financial performance and knowl-edge of the pharmaceutical industry as usual But assessments werealso made of teamwork relationship with customers ability to in-fluence without authority cross-cultural skills with customers andcross-cultural skills and leadership of the cross-border team Basedon these experiences and training courses the banker was qualifiedto move into the global coordinator role

Step 5 Global Accounts Units in Countries

A next step to shift more power to the teams serving global cus-tomers is to carve out units within countries and dedicate them tothe global customers The other country units will serve local cus-tomers The global customer units report to the global accounts co-ordinator and to the local country manager These country unitsplace dedicated talent in the service of the global customer

In some small countries the country management may be re-luctant to create a dedicated unit and share in its direction Theymay have a surplus of profitable local business and prefer to avoid



the multinationals In these cases several banks have created jointventures between the headquarters and the local country manage-ment Usually the dedicated unit is funded from headquarters andstaffed initially with expatriates Then after a couple of years thelocal managers notice that the unit is quite profitable In additionthey notice that the unit is a positive factor in recruiting Many newemployees are attracted by the opportunity to work with globalfirms In this way the creation of a global customer joint venturechanges the mind-sets of local management They eventually takeover the staffing and share in the administration of the unit

Step 6 Customer Profit Centers

A final change is the creation of customers and customer segmentsas the line organization and profit centers All of the global units re-port to the global industry units The countries manage the localbusiness and serve as geographical coordinators

This stepwise process was followed by Citibankrsquos commercialbanking business Starting in 1985 Citibank reestablished itsWorld Corporations Group which managed global corporationsacross the country profit center structure It created teams for eachglobal account The members were called subsidiary account man-agers and the leader was a principal account manager The numberof customers qualifying to become global accounts increased toaround 450 Citibank created a customer-focused planning systemand an accounting system to track customer revenue cost andprofit across countries

In 1995 Citibank conducted a strategy study and realized thatit was a licensed bank in over a hundred countries That is it wasin the business of taking deposits and making loans in local cur-rency in over a hundred countriesmdashmore than double its nearestcompetitor (Hong KongndashShanghai Bank with around forty-threecountries) This presence was a competitive advantage when serv-ing the global customer and one that competitors could not matchCitibank managers chose to emphasize the cross-border bank role



It would focus on global products foreign exchange and cash man-agement for global customers Each of thirteen hundred global cus-tomers became a profit center These customers were collected intoglobal industry groupings for administration The customer-focusedplanning process is now called COMPASS and is placed on an in-tranet Thus in about twelve years Citibank evolved from countryprofit centers to customer profit centers and modified its strategystructure and processes It drove the change with formal integrat-ing mechanisms like customer teams and global account coordina-tors before completing it with the establishment of a new formalstructure


In general management can drive a change process that transformsany existing organization into any new organization using the se-quential approach Each step in the sequence makes an incremen-tal shift in the power structure The incremental changes are shownin Figure 66


Figure 66 Shifting Power Incrementallyto a New Structure

Step 0 Voluntary and Informal Groups

E - Coordination

Step 1 Few Formal Teams


Step 3 Customer Account Coordinator

Step 4 Customer Account Department

Step 5 Matrix-CustomerUnits in Countries

Step 6

Customer-Centric

Product- orCountry-Centric

Line OrganizationCustomer PampLs


Each increment corresponds to the change in the exampleStarting with a few teams and moving to stronger coordinatingunits the example described the transfer of power from countries(existing) to customers (new) At each step new work is accom-plished At Citibank the new work was cross-country coordinationto provide integrated service to global customers At each step thereis also the opportunity to drive and shape the change process Withteams with step 1 and step 2 three hundred and then a thousandpeople learn about the global customer They learn how to createstrategies that competitors cannot match A percentage of the par-ticipants will become convinced of the direction and lobby thenonbelievers Through the teams a thousand people are buildingnetworks of personal contacts

Managementrsquos role is to seize the opportunity and drive thechange It may sponsor a formal development program Everyoneworking on teams could spend several days in a session with theirother team members In addition to facilitating more learning andnetworking managers and customer representatives could attendand get feedback from the participants But most important is theopportunity for management to select and develop the talent andleadership for the new strategy and structure By observing and re-viewing the teams management can identify those who have theskills and interest in cross-border work Who are the best potentialteam members Who can be a team leader Who can develop intoa global industry coordinator

The coordinator roles introduced and developed in steps 3 4and 5 shift more power to the new structure and deliver more ser-vice to customers But the other opportunity is to develop processesand information systems to support the new organization In addi-tion the coordinator teaches managers about the new strategy Theymust shift from managing a portfolio of countries to managing aportfolio of customers How will they make trade-offs and set prior-ities Thus at each step management has the opportunity tochange the soft factors to support the change It can develop thetalent build the networks change the mind-sets and ultimatelycreate a cross-border customer-focused culture



The ultimate step in organizing around the customer is to cre-ate a separate structural component for customers Usually thiscapability in structural form is added to the companyrsquos existingstructure creating a front-back hybrid Managing this structuralform creates its own challenge Building this customer-centric ca-pability is the other management challenge The result is an am-bidextrous organization generating both excellent products andcustomer focus

Conclusion

These three examples expand our repertoire of examples of customer-centric companies that have evolved into front-back structuresEach has followed a different trajectory and arrived at a slightly dif-ferent structure Citibankrsquos front end focuses on only global cus-tomers and is organized by industry PampG faces customers who aremostly local and organizes its front end by geography Nokia is amixture of some local customers (some remain state-owned mo-nopolies like Saudi Arabia) and some global ones PampG seems tobe moving toward a Nokia-type of structure The Citibank exam-ple also goes into detail on the change process to get to customer-centricity It is particularly noteworthy because it illustrates how tobuild organizational capability People are trained at each step ofthe way Doubters are converted The information technology andaccounting systems are built Finally structure is changed after theinfrastructure is built




145

7

Designing a Customer-CentricOrganization

This chapter highlights the process of designing an organization todeliver solutions Although every organizationrsquos process is unique


bull How a company transformed itself from product-centric tocustomer-centric

bull That strategies should be focused on competitive advantageswhen choosing solutions and comparative advantages whenchoosing customers

bull That processes like the planning and goal-setting process thesolutions development process the pricing and revenue allo-cation process the supply chain management process and thedevelopment of a complete accounting system are at least asimportant as structural changes

bull That managementrsquos avoidance of tough decisions will lead tofailure to develop a solutions capability

bull That top-down and active management is required to implementa solutions organization

bull That a complete organization design starting from strategy andaligned with structure processes rewards and human resourcepolicies is necessary for an effective and successful solutionsorganization



there are some general principles that can be identified We will fol-low a company that embarked on the solutions journey and observethe sequence of steps that it took to become a customer-centric or-ganization which it added to its existing product-centric divisionsThis last case shows how one company put it all together

The Semiconductor Company

The company which we will call Chipco was a product-centriccompany in the semiconductor industry Over the years Chipco hadevolved into a full product line supplier It started in business by de-signing and manufacturing discrete semiconductors like transistorsand diodes Then it developed along with the industry and addedmemory chips and later logic chips Analogue chips were nextThese chips like converters would take a continuous analogue mea-sure like temperature or pressure and convert it into the digital codeof zeros and ones which could be processes with digital computersChipco then added the chips to do the computing called digital sig-nal processors (DSPs) The last product line was application-specificintegrated circuits (ASICs) customized applications

Chipco adopted the structure that is typical of semiconductorfirms It is shown in Figure 71

Sales and marketing is organized geographically with field salesand field engineers located in most countries A few global accountssuch as Hewlett-Packard and Siemens were coordinated across thegeographies along with a few large distributors These sales organi-zations sold all products and were supported by sales liaisons andproduct marketing from the product divisions There was also amanufacturing liaison function in each division Most of the divi-sion talent was in product design These engineers generated a con-tinuous flow of new products as the process engineers followedMoorersquos Law each year they doubled the number of transistors thatcould be placed on a chip Manufacturing consisted of the chip fab-rication plants which produced the silicon chips the assembly andtest plants which put the chips into packages and tested them and


the supply chain function which managed the flow of materials toand from the plants and eventually to the customers

Chipco grew with the industry and became a $5 billion companywith thirty thousand employees by the late 1990s As always Chipcowas looking for new sources of growth With Intel dominating thepersonal computer industry most semiconductor producers lookedelsewhere to telecommunications consumer electronics computerperipherals and other areas The digital signal processors divisionwas particularly interested in new markets The Asia sales managerapproached the division general manager about an opportunity in

DESIGNING A CUSTOMER-CENTRIC ORGANIZATION 147

Figure 71 Chipcorsquos OriginalProduct-Centric Organization


China a Chinese company wanted to manufacture wireless hand-sets for the Chinese market but it had few engineers and no tech-nology The Chinese wanted Chipco to provide them with a productdesign (called a reference design) software and the chips for a wire-less telephone They would assemble the parts supply the plasticexterior and distribute the phones The digital signal processors di-vision had been exploring wireless applications and had a team ofengineers and product marketers working on prototypes The teamaccompanied the Asian sales manager to Taiwan to visit an originaldesign and manufacturing (ODM) house ODMs created original de-signs that were certified by the global telecommunications stan-dards bodies The Taiwanese ODM could easily create a referencedesign built around Chipcorsquos digital signal processor Chipco boughtthe design lined up a wireless software company from the UnitedKingdom licensed its software and made the sale of the solution tothe leadership of the Chinese manufacturer

The Chipco design team and the Asian sales manager realizedthat the customer would need some postsales engineering supportThe support would be needed to get the chips software and man-ufacturing process to work together at the launch The digital sig-nal processor division the UK software house and the ODM couldall contribute some engineers at the launch but the team realizedthat something more permanent would be needed Therefore thesales organization looked for some additional Chinese customersWith the growth in the market additional customers were locatedand signed up

When the first customer launched the digital signal processordivision and the Asian sales organization built a Chinese customersupport center They hired and trained their own field support en-gineers to support their local customer Chipco thus responded tothe realization that a solutions business is support intensive at thelocal level

The digital signal processor division then turned its attentionto new growth opportunities in wireless handsets It found thatNokia Motorola Siemens and the big manufacturers were verti-



cally integrated and had their own digital signal processor divisionor partners But it became clear that the wireless operators likeVodafone Orange and Virgin Mobile were all interested in havingtheir brand on their phones rather than Nokiarsquos These operatorswere looking for suppliers who could produce customized private-label phones for them The project team now a business operationin the digital signal processor division along with the Asian andEuropean sales teams pursued these opportunities The wirelessbusiness operation hired some design engineers from the Westernhandset manufacturers These manufacturers had laid off engineersduring the downturn and Chipco was happy to find some compe-tent engineers who understood the whole product These new en-gineers could design the customized features into Chipcorsquos referencedesign for the operators The Asian sales manager lined up a con-tract manufacturer from Singapore which the digital signal proces-sor division approved Together the wireless business operation thecontract manufacturer and the UK software house supplied hand-sets to European and Asian wireless operators Chipco supplied thedigital signal processor and combined its other memory logic andanalogue chips into a chip set to be delivered to the contract manu-facturer Since Chipco was responsible for the handset performanceit had to build up customer support centers in Europe and Asia

Chipcorsquos handset customers were now all asking for new capa-bilities First they wanted MP3 player modules added to the phonesMP3 software modules could easily be licensed from software housesin the United Kingdom Denmark India and Israel But Chipcohad to add support people in its customer centers to see that every-thing worked together Second the customers wanted a digitalcamera capability Cameras were a little more difficult but also pre-sented a larger opportunity Chipco sold some analogue and logicchips to digital camera makers like Canon and Olympus so it knewsomething about the market But the opportunity was with thecomputer makers like Hewlett-Packard and Dell These computercompanies did not have the engineering design capability for digi-tal cameras but were interested in providing them to customers and



designing links to their PC and laptop offerings Since they did notwant to hire more engineers the computer manufacturers were in-terested in buying technology solutions as they moved into consumerelectronics The digital signal processor division and the US salesorganization focused on Hewlett-Packard and Dell to provide digi-tal camera technology and chip sets the core of which was Chipcorsquosdigital signal processor

A digital camera business operation was created within the digi-tal signal processor division from the original business developmentproject team The new operation brought in some engineers from theanalogue and logic product divisions as well as some engineers withexperience in designing digital cameras These systems engineerscould work with the product engineers from digital signal proces-sors analogue and logic and provide the integration and knowl-edge to create a chip set of Chipcorsquos products In order for all thesechip technologies to work together Chipco also needed to hire soft-ware engineers

Strategy

It is about at this point that the formal strategy decision process isprovoked Up to this time the digital signal processor division andthe Asian and European sales managers had worked informally tolaunch a solutions initiative But now the division was hiring moreand different kinds of engineers It was asking sales to create dedi-cated sales units to address the wireless market and now the digitalcamera market Also it was requesting sales to focus on Hewlett-Packard as a global account Initially the digital signal processor di-vision worked with the analogue and logic divisions to bring insome engineers with the promise of more sales of analogue and logicchips But it then requested that the analogue division invest someRampD to get its chips to work better and faster with digital signalprocessor chips in digital cameras With RampD funds scarce theanalogue division was reticent to invest so the question became acorporate issue ldquoAre we in the solutions businessrdquo Are we going to



act as one company and integrate product technologies into chipsets for customers that are sold by market segment-specialized salesforces This decision is the top-down strategy decision that a suc-cessful transition to a solutions company requires

The strategy requires the specific choices of which solutionsChipco will offer and to which customers The strategy choices ofwhich solutions to offer invoke the usual concepts around competi-tive advantage Can Chipcorsquos chip sets provide superior value tothose chip sets provided by other semiconductor companies and theirpartners The choice of customer or which businesses at a customerto serve raises the issue of comparative advantage The strongestcompetitor to a solutions provider is often the in-house capabilityof the customer So at Hewlett-Packard Chipco is not offering chipset solutions to the PC business or to the printer business In thesebusinesses Hewlett-Packard has distinctive engineering capabili-ties Hewlett-Packard can buy chips and integrate them using itsown intellectual property But when integrating and offering wire-less and digital camera technologies Hewlett-Packard is faced witha choice of building the capability or buying it With severe costpressures Hewlett-Packard and companies like it see an advantagein buying the technology from Chipco which supplies many cus-tomers and has superior scale to Hewlett-Packard Chipco has acomparative advantage to PC companies in providing wireless anddigital camera technologies as a result of its scale The learningpoints here are that strategies should be focused on competitive ad-vantages when choosing solutions and comparative advantageswhen choosing customers

Returning to the story Chipcorsquos CEO initiated a strategic re-view led by the head of strategy A team and subteams staffed fromthe divisions conducted a thorough analysis of Chipcorsquos advantagesin offering solutions versus other sources of growth They found thatcustomers generally preferred solutions There was also a trend tomore outsourcing as customers were reducing their own engineer-ing groups In telecommunications Lucent Nortel and others havelaid off engineers and prefer not to hire them back So the strategy



review resulted in a corporate decision to adopt a solutions strategyIt also chose wireless handsets digital cameras automotive radio-global positioning systems Internet wireless connections high-definition TV and set-top boxes as the solutions where Chipco hada good chance of developing a competitive advantage For each so-lution it chose which customers would prefer to buy rather than de-velop their own chip sets

The choice of strategy led to an examination of how to organizeto implement the chosen solutions and address the chosen cus-tomers The human resource department led the organization de-sign effort and visited some computer companies like IBM thathave had the most experience with offering solutions The designteam from across the company laid out the design agenda tochoose the structure the management processes reward systemsand human resource policies that would facilitate the implementa-tion of a solutions strategy

Structure

The design of the structure built on the steps that were alreadytaken The strategic choices pointed the way to extend the existingstructure The first decision was to maintain the existing product di-vision structure Many customers preferred to buy stand-alonechips like analogue ASICs memories and so on as they have inthe past To this structure the design team needed to add solutionsbusiness units for wireless handsets digital cameras and in the fu-ture other successful solutions The structure is shown in Figure 72

The organization chart shows several additions to the oneshown in Figure 71 The business operations in the digital signalprocessor division (originally business development projects) werespun out of the division to become divisions in their own right Todistinguish these profit centers from product lines they were calledbusiness units They would draw on Chipcorsquos product technologiesto be combined into chip sets and increasingly systems-on-a-chipwhich are combinations of technologies like digital signal proces-



sors and logic that were built into a single chip Each business unitconsisted of engineers from all of Chipcorsquos product technologiesfrom systems engineering from the customer solution industry andsoftware engineers A solutions marketing unit was added to decideon solutions pricing advertising positioning and help with roadmaps that the customers would want to see In the sales organiza-tion customer segment units were created for the wireless and dig-ital camera markets Global account managers were created for thechosen customers in those market segments These sales units werepart of sales and part of the business units They formed a matrix or-ganization between the geographies and the business units

The new solutions strategy and organization were announcedto the top one hundred managers at the Chipco leadership meet-ing The participants were divided into working groups to propose


Figure 72 Chipco with a Solutions Business Unit


suggestions on how the new units would work with the existingproduct sales and manufacturing units The leadership respondedto questions as well as the working groupsrsquo suggestions

Processes

The next level of involvement of the managers in the company wasthrough working groups for each major management and businessprocess A process owner was chosen for each process like the plan-ning and goal-setting process the solutions development process thepricing and revenue allocation process the supply chain manage-ment process and others The processes and the charters for the pro-cess teams came from Chipcorsquos experience with combining producttechnologies into solutions and from benchmarking visits to othersolutions companies

Chipco chose to develop its processes when it introduced its dig-ital camera solution That is as it developed its pricing policy for digi-tal cameras it would create a repeatable process for high-definitionTV or set-top boxes So as the digital cameras solution developmentprocess evolved the process team created an RampD allocation processwhereby the business unit could finance RampD projects in the logicproduct division to adapt its product technology to digital camerasolutions As pricing policies for digital camera chip sets were de-signed the pricing process for chip sets was also designed A pricingcenter within the finance function was set up to quickly decide onprices for deals and the allocation of revenue back to the productlines like digital signal processors analogue and logic

The delivery of chip sets rather than stand-alone products re-quired changes in the manufacturing function Manufacturing hadto coordinate the production and combination of chip productsinto chip sets which could then be delivered as a package to cus-tomers This process required modifying the order entry systems andthe supply chain management systems It also required much morecoordination along the supply chain to the customer



The biggest change was at the leadership level The leadershipteam led by the CEO was becoming much more active First therewere many disputes between the product divisions and the digitalcamera business unit Often the product division preferred to allo-cate staff to existing products rather than modify or develop a newproduct for the digital camera The CEO and the leadership teamsupported the ldquoOne Companyrdquo position to invest in the digitalcamera Other divisions disputed the prices for their products in thesolution These disputes served to educate the leadership team inthe solutions business They began to articulate policies for staffingthe division-business unit projects and for pricing

The other management process requiring change was the plan-ning and goal-setting process Chipco now had market segmentsglobal customers geographies business units and product divisionswhose goals needed to be reconciled and aligned The first task forthe process team which was led by finance was to build an ac-counting system so that profit and loss statements could be built forglobal customers and business units Then a series of spreadsheetswas used to support discussions between the leaders of the variousorganizational units A simplified spreadsheet for business units andproduct divisions is shown in Exhibit 71


Exhibit 71 Planning Spreadsheet

DSP

WirelessBusiness Unit

Digital CameraBusiness Unit

Stand-AloneProducts

ASICs Analogue Logic Memory Discrete


The planning process started with guidelines from the strategygroup Then each business unit and product division put togethertheir proposed plan Usually the general manager and the businessunit or division staff put this plan together However the planningteams also used participants from sales and marketing global ac-counts and customer segments product divisions for business unitsand business units for the product divisions

The idea is that the digital camera business discusses and agreeswith the product divisions that contribute to the chip set on vol-umes prices revenues growth and so on for the planning periodThe sales and marketing units also participate in getting agree-ments The CEO and the leadership team lead the final completionof the company spreadsheet The alignment of goals between unitsis one more top-down element that is added through the planningprocess

The implementation of the supporting management processesis when the real strategy change comes alive When the CEO sup-ports the RampD allocation to digital cameras supports the assign-ment of top talent to the digital camera project supports the pricingpolicy and forces an alignment of goals between business units andproduct divisions the solutions strategy becomes a real strategyThen Chipco begins to act as ldquoOne Companyrdquo The tough deci-sions in the management processes are what create the solutions ca-pability It is the lack of definitive decisions that leads to failure inother companies

Rewards

The next design issue is to adapt the reward system to the new strat-egy The human resource group looked at options such as Micro-softrsquos shift to using customer satisfaction measures for executivebonuses At Chipco the decision was made to use the companyprofit for half of the executive bonus and meeting the shared goalsin the planning spreadsheet for the other half The human resource



group felt that this design would promote the kind of executive be-havior that would support the solutions strategy

People

The staffing choices were made continuously as the strategy evolvedThe transition to solutions means the addition of new types of en-gineers Chipco added field support engineers to staff the customersupport centers and design engineers from the customersrsquo industriesto give systems integration knowledge to the business units Andfinally a software engineering capability was added for the customi-zation of designs and the selection of third-party software vendorsAll of these new roles were added and people were recruited trainedand integrated into the new business units

Several career planning issues were raised by the transition tosolutions business units The business unit leaders were initiallyfilled with the engineering-oriented project leaders from the digitalsignal processor product line This selection helped forge a key linkwith the digital signal processor unit These project leaders led thenew business development effort into the new solutions marketsBut in the future when more in-depth knowledge of the customerapplication will be needed marketing people in the customer seg-ments or managers from the customersrsquo industries might be a moreeffective source At lower levels links are needed between the busi-ness unit and product lines contributing technologies to the chipsets Another link will be between the business unit and the cus-tomer segment in sales Rotational assignments are an effectivemeans of forging links and preparing the next generation of leadersfor the business units

The other major assignment for human resources is training forsolutions The leaders and people at key interfaces need to be trainedin the new strategy and new processes for solutions These trainingsessions will be good occasions for building relations between salesbusiness units and product divisions as well as educating the key



players So training will be a key activity in the change process tosolutions

Conclusion

Chipco completed the redesign of its organization with the humanresource department implementing the training program It startedwith strategy and then completed the star model design by movingfrom strategy to structure to processes to rewards to people A sum-mary of the complete design is shown in Figure 73

The strategy is now the product strategy plus selected solutionsfor selected customers The structure is still the product divisions andgeographical sales force plus business units and customer segmentsin sales The biggest change is to the management processes Ac-counting systems for profit and loss for the business units have beenadded Top management is more active in reconciling plans for cus-tomer segments geographies business units and product divisionsBusiness processes have been added for solutions development pric-ing ordering and supply chain management The reward systemhas been modified to reflect a One Company bonus and at thesame time to reinforce the links between business units product di-


Figure 73 Chipcorsquos Solutions Star Model

bullProducts plus selected solutionsbullSelected customers

bullSystems and software engineersbullMultiunit careersbullSolutions training

bullOne Company bonusbullShared goals

bullProductcustomergeographysolution PampLsbullStrategic planning reconciliationbullSolutions developmentbullPricing supply chain

bullProduct divisionsbullSolutions business unitsbullCustomer segmentsbullGeographical salesbullManufacturing

Strategy

Structure

ProcessesRewards

People


visions and customer segments And finally new people have beenadded to new engineering groups The career paths for these peoplehave been redesigned to generate leaders for the new business unitsThe design is a complete design for this phase It was led by the topand provided the initial top-down element of leadership that willcharacterize the company


Following are the primary features that are illustrated in the Chipcocase

bull Chipco followed an evolutionary strategy to enter the solu-tions business Its first attempt was a light version of a solution builtaround the digital signal processor chip and local support but withpartners providing the design and the software Next it brought inmore of its own chips and chip sets and its own software and designsIt eventually moved to complete solutions on the strategy locatorWith the addition of a digital camera MP3 Internet connectionsand so forth a complete wireless hand set was provided to cus-tomers who wanted these complete solutions

bull As the solution evolved so did the organizational unit im-plementing it At first the informal relations between the Asiansales manager the business development unit in the digital signalprocessor division and the division general manager put the dealtogether When the solution grew to medium and then to completethe project team became a business operation within the digital sig-nal processor division and then a separate business unit reporting tothe CEO The more complex the solution and the higher the vol-ume the stronger the profit center needs to be in order to managethe solution

bull As with many other strategic changes the initial steps do notcome from the top management In the solutions business thesalespeople encounter customers who want to buy solutions notjust stand-alone products When some of these salespeople meet



managers from the product units who are looking for new businessopportunities a light version of solution can easily result It is goodchange management practice for leaders to find and nurture theseexperiments help them hire software engineers and talk with part-ners and customers These experiments create some momentumwhich can be captured in the change process when the decision ismade to start with full-scale implementation

bull Informal change initiatives inevitably encounter barrierswhich require top management power and authority Usually solu-tions units encounter the product units Initially product units areinterested in the incremental business that results from solutionssales But when the solutions units request modifications to theproducts that are not in the product unitsrsquo plans progress can stopHuman resources may not have job titles for software engineers orfield support engineers They may not have a salary structure forthem And human resources itself may not have the people avail-able to redesign the jobs and salary structures for the solution unitsAt this point the company needs to decide whether it is going tobe a solutions provider If the decision is yes then an organizationredesign will be required

bull As at Chipco this is the time to engage the entire leadershipand key managers The strategic decisions revolve around which so-lutions to offer to which customer The leadership will have to askquestions such as ldquoWhich solutions draw on the companyrsquos skillsand competencies And which ones will provide a competitive ad-vantage Which solutions do customers want And which ones pro-vide a comparative advantage over the customersrsquo own in-housecapabilitiesrdquo These questions were addressed by Chipco and re-sulted in specific choices of both solutions and customers

bull The structure decision was relatively straightforward as itbuilt on the project and operation structures of the earlier initia-tives The separate business unit design allowed the wireless anddigital units to create their own unique business models Each solu-tion has its own time cycles for product development and life cycleSeparate units for each make sense The sales unit is a matrix struc-



ture The customer segments for each solution have salespeoplewho can call at the executive level to get the sale of the larger so-lution The segments can also ask the global sales infrastructure tocall on local and global accounts around the world

bull A best practice demonstrated by Chipco was the major effortto create the management and business processes to support a solu-tions business Solutions businesses are process intensive Solutionscompanies have the planning process the new-product-developmentprocess and supply chain management process that product com-panies have In addition solutions companies require a reconcil-iation of business unit and product division plans a solutionsdevelopment process a solutions pricing process and an enhancedsupply chain process Chipco appointed a process owner and a pro-cess design team for each process But the really effective practicewas the combination of the process design effort with the imple-mentation of the digital camera solution and the continuous in-volvement of the leadership As the solution was designed for thecamera the process was designed And as disputes arose manage-ment saw that they were resolved on a timely basis

The reason that this combination was such a good practice isthat management leads a solutions company through the processesA continuous stream of contentious issues arises over prices RampDbudgets partners and other issues By beginning the implementa-tion through process involvement management learns about solu-tions learns how to handle the conflict manages the change andmodels the future behavior Their behavior shows the centrality ofmanagement by process

bull The last lesson is that Chipco created a complete design Itstarted with strategy and matched it with an organization alignedaround structure processes rewards and human resource practicesChipco created a complete design and managed the change processuntil the design was in place




163

8

Leading ThroughManagement Processes

There have been repeated references throughout this book for theneed for strong corporate leadership Indeed the discussion of thefailure experiences directly attributed those outcomes to the lack ofstrong leadership So if it is critical in customer-centric firms howdoes leadership get exercised In a quick answer it is through thecompanyrsquos management processes The front-back organization re-quires the addition and successful execution of three additionalmanagement processes This chapter describes these processes basedon the observation of the best practices taken from the case studycompanies These processes are unique to front-back structures Butbefore describing the leadership role in these processes let us reviewthe leadership in managing any strategic change

Leading Strategic Change

Introducing a customer-centric organizational unit into a product-centric company is like introducing diversification global expan-sion or any other strategic change Some key players will support itwhile others will not and still others may resist It is the task of lead-ers to create a sense of urgency and to enroll the key players in thediscussion and debates in order to have them shape and buy into thenew direction There are plenty of books and frameworks for leadingchange (see Beer and Nohria 2000 for example) The point is thatleaders need to confront the resisting key players and resolve theconflicts that accompany any strategic change Leading the con-fronting and resolution of these conflicts requires strong leadership



A second aspect of leading any strategic change is to see thatthe change is comprehensive That is the leaders must see that allof the policies of the star model have been changed to align withthe strategy Simply adding a customer-centric unit to the structurewill not work All of the processes are still product-centric and notcompatible with the new unit or are even antagonistic to it In-deed it is when the funding decisions for solutions are given to thecustomer-centric unit that the change in power becomes clear andconcrete Then the real resistance appears This change in fundingis the opportunity for confrontation and the exercise of leadershipBy completing the design of the organization all of the pockets ofresistance can be flushed out and resolved Everyone in the organi-zation will see the clarity in the newly aligned organization

The third aspect of managing strategic change is the manage-ment of conflict Conflict is inherent in any major change and needsto be managed as such But conflict is also a natural part of the day-to-day management of a front-back structure which delivers solu-tions The customer-centric front end is on the side of the buyerwhile the product-centric back end is on the side of the seller Abusiness unit will want to pursue its unique product opportunitiesrather than play a subordinate role in a solution Pricing prioritiesand talent allocation all generate an unending stream of conflict-laden issues There are two things that effective leaders do Firstthey legitimize the conflict Too often conflict is seen as a problemIn a front-back organization the appearance of conflict is a signthat the strategy is working Leaders make differences of opinionand conflicts a natural part of the business day Second they lead aprocess that results in a thorough airing of the issues and a timely res-olution of them Like change managing conflict is a well-researchedissue (Eisenhardt Kahwajy and Bourgeois 1997)

The other key feature of the organization design for a front-backorganization is the management and business processes that link thefront and back It is in these processes that the leadership exercisesits strong role and leads the resolution of the inevitable conflicts


Linking Processes

Management processes are a critical factor in the successful imple-mentation of front-back structures The reason is that there are somany issues on which the front and the back will have different po-sitions The processes are designed to channel these issues to theright forums support them with the necessary information and seethat the right players are around the table or the speaker phones Asa result the front-back organization of a solutions provider willhave three types of additional processes The product-centric com-pany has a strategic planning process in which business unit plansare reviewed and prioritized The solutions provider also has busi-ness unit plans But it also has customer or customer segment andsolution plans These two types of plans need to be reconciled withthe business units into a single company plan The product-centriccompany has a product development process The company imple-menting a solutions strategy has a product development process aswell as a solutions development process and a product portfolio pro-cess A stand-alone product provider has an order fulfillment processThe solutions provider has an order fulfillment process as well as anopportunity management system for responding to large solutionapplications So the solutions strategy company is more process in-tense Let us look at these three types of management processes andsee how leaders are to perform their strong role


In addition to product strategies the solutions company must gen-erate customer and solution strategies At IBM the plans and strate-gies are created for servers desktops storage units database softwareLotus software and other products There are also strategies for athousand global customers which are aggregated into industrygroups Within each industry the customers are prioritized accord-ing to profitability Then the customer and solution strategies must

LEADING THROUGH MANAGEMENT PROCESSES 165


be reconciled with the product strategies A product general man-ager may feel that a customer unit is not featuring the managerrsquosproduct line as it should Another product general manager maywant to opt out of what appears to be an unattractive solutionThere are many opportunities for priority disputes between productand customer managers as well as across product managers Usuallytop management performs the reconciliation using a spreadsheetlike the one shown in Figure 81

Management first encourages product customer and solutionmanagers to work out their priorities There is a product manager foreach row and a customer or solution manager for each column If dif-ferences cannot be resolved management intervenes with the in-volved managers or with a larger group representing the leadershipthe product managers and the customer and solution managers

Either way the leadership emerges with a spreadsheet with thejoint goals for the product lines and customer segments The pur-pose of the spreadsheet exercise is to align the goals of the front andback of the organization They both are to have the same goals


Figure 81 Spreadsheet to ReconcileSolution and Product Plans

A

1

2

3

B

ConsumerSolution Units

RevenuesProfitsGrowth

ProductUnits

C D

4


Of course the plan starts to change no sooner than it is com-pleted In this case the leadership convenes a session with man-agers of the rows and columns of the spreadsheet and they hammerout a new plan The frequency of these revisions fits with the timecycles of the market The leaders of a stand-alone product businesscan meet and resolve issues with one business unit at a time Theleaders of a solutions provider must convene the right players andresolve issues around the table The strength to manage this teamprocess is a different leadership requirement for the solutions pro-vider And the spreadsheet planning process is the forum for the ex-ercise of the required leadership

The difficulty of managing this process varies directly with thecomplexity of the solution Medium level means that fewer managersmust gather around the table than at high-complexity companiesThe medium-complexity company combines fewer componentsand they are not as tightly coordinated The high-complexity com-pany has more managers and more different managers seated aroundthe table And the more tightly integrated the products are themore tightly coordinated must be the managers of those productsDifferent solutions strategies will create different requirements forthe planning process and for leadership

Portfolio Planning andSolutions Development

Every company has a product planning process Solutions providershave a portfolio planning and a solutions development process aswell Each product unit develops its own products but each unitrsquosproducts must work together with the products of other units toprovide a solution The strategy dimension of component integra-tion is important in determining how much effort must go into plan-ning the entire portfolio so that the products will work together Forexample if Nokia is going to offer third-generation equipment itmust have switches and transmission products software consultingpractices and customer service contracts as well as handsets that all



work together using third-generation technology The product unitscannot independently develop their own product lines without adialogue Again a strong top management team is required to guidethe portfolio planning process The Nokia software product busi-ness may want the freedom to challenge Microsoft However Nokiawill also need a totally integrated product line in order to providecustomer solutions Through the portfolio planning process thesoftware and other product groups have to develop a strategy thatadvances their product line and integrates the products into solu-tion offerings

In addition to developing products a solutions strategy requiresa solutions development process There are two aspects to this de-velopment process The first is the choice of what solutions to offerUsually the solutions providers like IBM and Sun choose solutionsthat can be replicated Replication then requires a process to createa solution that can be sold to other customers If every solution isunique the company cannot make much money on them It needsto invest up front and then replicate the solution to get a return onits fixed investment Sun uses its planning process to reach agree-ment on which solutions it will provide The solutions unit createsteams of five or six people for each chosen solution such as portalsCRM and e-markets among many others The unit also chooseswhich solutions it will not provide

The second aspect is an explicit process like the new-product-development process to develop a replicable solution Usually a so-lutions provider works with a lead customer and invests in thesolution so that it can be sold to other similar customers IBM forexample tries to start with Swedish banks for its financial servicessolutions in Europe It believes that innovation starts in the northof Europe and moves south Sun uses its i-Force process a step-by-step process starting with determining a customer strategy to pro-vide certain customers with a jump-start to get on the Internet Sunuses its Ready Centers to gather people from the customer its part-ners like EDS and its own field marketing solutions unit Theprocess typically starts with a lead customer suggested by an account



manager or partner Upon approval of the project from the solu-tions group a team gathers in a Ready Center to create an inte-grated stack as shown in Figure 82 for the customerrsquos applicationThe partners are also selected for applications and are certified inthe i-Force process Upon implementation the solutions team doc-uments the solution and trains and creates solutions champions inthe field marketing regional units These champions assist accountteams in selling the solution to other customers and leading throughthe i-Force process for solution


The third key management process is the opportunity managementprocess Solutions opportunities appear from customers and requirea proposal Then if the opportunity is captured the proposal must beimplemented The more complex the solution is the larger the pro-posal and execution teams must be The more resources that must be




Enterprise Services



i-Planet Middleware

Sun Storage

Sun Servers


Sparc Architecture



marshaled and the greater the need for a strong project manager themore complex the pricing decision and revenue allocation to thecomponent products must be Again the more complex solutionsstrategies create the greatest challenges to the leadership

The best example of an opportunity management process was de-scribed in Chapter Five for IBM as Omsys In matching resources toopportunities Omsys initially relies on two products from the plan-ning process One is the customer plan in which the big opportuni-ties are usually identified and resources earmarked for them Howeverthe exact timing of a proposal acceptance is usually unpredictableand the size of the project is usually larger or smaller than antici-pated At this time the opportunity owner uses the second productor the priority assigned to the customer to gather the additional ornew resources Owners for top-priority customer opportunities havebetter access to resources than those for low-priority customers doIf disputes or shortages arise these issues become agenda items forthe regional leadership teams These teams give the overall guid-ance and make decisions about the assembly and disassembly ofteams for opportunities The European leadership team at IBMmeets weekly but can gather more frequently when there is a needfor real-time staffing of projects

The challenge of implementing regional and global talent allo-cation processes is in accessing all the information needed to get agood match between the opportunities and the talent The decision-making group needs to know the set of opportunities available thescope of work at the projects for these customers and the nature ofthe talent available It is the information about the talent that isparticularly challenging Most management teams are experiencedat allocating money from a total company perspective But talentinvolves three issues that make allocating it on a company-widebasis difficult For starters a dollar equals a dollar But a softwareprogrammer does not equal a software programmer A good pro-grammer can be ten times more productive than a mediocre one Sothe decision makers need to know the individuals who are invalu-able But there may be hundreds or more people in the talent pool



Second dollars do not care if they are spent on RampD or advertis-ing But people care very much where the project is located andwhether it is challenging The top-down assignment of criticallyskilled people to projects that they do not like will cause them toleave and join a competitor So the decision makers need to knowthe work preferences of the critical people And finally dollars donot care with which dollars they are combined to fund an initiativeFor people their coworkers are important Again the decisionmakers need to know something about the chemistry among keyteam members These factors are all important to the effective func-tioning of opportunity teams

Some firms try to capture as much of this information as possi-ble Some of it can be captured in formal information databases tocreate company ldquoyellow pagesrdquo for talent that can be accessed by de-cision makers But much of it cannot be captured So in order tobring all the data to the table some consulting firms increase thenumber of people at the decision-making meeting Ernst and Young(EampY) Consulting would convene a regional task force for one ortwo days if needed to match talent to opportunities Like other con-sulting firms EampY used scheduling managers at all of its large officesFor most projects the account managers and scheduling managerscan arrive at acceptable staffing plans for projects But in the late1990s there was a shortage of programmers who knew the SAP ap-plication language Then EampY at the initiation of the schedulingmanagers would convene a task force when shortages developed Itwould gather people who knew the customers the projects and thetalent specialties It would even include some of the key specialistsin the meeting These people could choose assignments or have avoice in the assignments that they felt were attractive The taskforce could involve thirty to forty-five people in matching resourcesto opportunities In this manner the firm was able to get a total per-spective on the set of opportunities the business priorities the na-ture of the projects and the needs and desires of the talented people(EampY even experimented with a spot market for an SAP program-mer for a week)



These real time talent allocation processes are the current chal-lenge for solutions firms It is difficult to get a total company per-spective and also know the details of preferences of talented peopleand the chemistry of combinations of them Yet this information isexactly what is needed to satisfy important customers and motivateand retain those who service those customers The consulting firmsand investment banks are probably the most advanced in this areaThe solutions providers need to advance their management teamsto this level Most management teams are used to deciding globalissues on a periodic basis not the required real-time basis Theyhave learned to discuss talented people in assessing promotion needsof the company and development needs of the top 150 But matchingtalent to the top opportunities in real time is a new challenge for them

Conclusion

The effective solutions providers are those with strong leadershipteams that confront and resolve the continuous flow of contentiousissues These conflicts are channeled into three key managementprocesses for discussion debate and resolution These processes arethe strategic reconciliation of product and customer plans the prod-uct portfolio and opportunity management processes These pro-cesses are the forums for the exercise of strong leadership



173

References

Beer M and Nohria N (eds) Breaking the Code of Change Boston HarvardBusiness School Press 2000

ldquoBreaking the Keiretsurdquo Computer Business Sept 2001 p 25Christensen C The Innovatorrsquos Dilemma Boston Harvard Business School Press

1997Day G Market Driven Strategy New York Free Press 1990Day G The Market Driven Organization New York Free Press 1999Eisenhardt K M Kahwajy J L and Bourgeois L J ldquoHow Management Teams

Can Have a Good Fightrdquo Harvard Business Review July-Aug 1997pp 77ndash85

Galbraith J Designing Organizations San Francisco Jossey-Bass 2002IBM 1998 Annual Report Armonk NY IBM 1998Kehoe L ldquoLong Live e-Businessrdquo Financial Times Mar 6 2002 p 9Narver J C and Slater S F ldquoThe Effect of a Market Orientation on Business

Profitabilityrdquo Journal of Marketing Oct 1998 pp 20ndash35Peppers D and Rogers M The One to One Future New York Currency

Doubleday 1993Peppers D and Rogers M Enterprise One to One New York Currency

Doubleday 1997Peppers D and Rogers M One to One B2B New York CurrencyDoubleday

2001Reicheld F F The Loyalty Effect Boston Harvard Business School Press 1996Selden L and Colvin G Angel Customers and Demon Customers New York

Portfolio 2003Seybold P CustomersCom New York Times Books 1998Seybold P The Customer Revolution New York Crown 2001Treacy M and Wiersema F The Discipline of Market Leaders Reading Mass

Addison-Wesley 1995Vandermerve S Customer Capitalism London Nicholas Brealey 1999Wiersema F Customer Intimacy Pick Your Partners Shape Your Culture Win To-

gether Encino Calif Spurge Ink 1998

Galbraithbbiblio 3105 911 AM Page 173


A

ABB 12Account managers at Citibank 135 140

at IBank 66 70 talent allocation pro-cess and 171 See also Global accountdirectors Global account managers

Accounting systems at Chipco 155 atCitibank 137ndash138 at IBank 84 Seealso Profit and loss (PampL) accounting

Africa IBM in 97 98 106ndash109Agriculture industry 29Ahold 133 134Airtouch 124 125Alcatel 120 122AlliedSignal 46Americas division Degussa 47ndash48 55Analogue division Chipco 150ndash152Antilock braking system (ABS) 29Application-specific integrated circuits

(ASICs) 146ARAMARK 29Argentina Degussa in 45Asda 133Asia Chipco in 147ndash148 149 150 159

Degussa in 48Assessment employee at Citibank 139

at Degussa 57 at IBM 109ndash111 113ATampT 91 124Attraction 171 172Auctions 26Australia Citibank in 137ndash138Automotive industry customer business

units in 40 original equipmentmanufacturers (OEMs) in 27 29ndash3044ndash47 solutions strategies in 2729ndash30 See also Degussa AutomotiveCatalysts

Automotive radio-global positioning sys-tems 152

B

Balance 23BEA 29Beer M 163Benchmarking at Degussa 52ndash53 57BMW 45Bonuses at Chipco 156ndash157 158 at De-

gussa 58 at IBank 79 82 85 at IBM111ndash112 113

Bosch Degussa and 44 56Bourgeois L J 164Boys Market 131Brazil Degussa in 45 49 52 Procter amp

Gamble in 133ldquoBreaking the Keiretsurdquo 23British Airways 65Budgeting processes in product-centered

versus customer-centric organizations18

Business Intelligence (BI) 94 105ndash106ldquoBusiness on Demandrdquo 95Business schools custom courses of 17ndash18Business units geographic 47ndash48 in

product-centric companies 9 solu-tions at Chipco 152ndash153 154 155158 159 160ndash161 strategic planningand 165ndash167

C

Canada Degussa in 45 52Career planning 157 159Carrefour 35 44 133 134Catalysts automotive 44ndash47 48ndash49 See

also Degussa Automotive CatalystsChange management 119 at Chipco

161 at Citibank 141ndash143 experi-ments and 160 incremental changesin 141ndash143 processes for 163ndash172

175

Index

Galbraithbindex 3105 911 AM Page 175

Channels organization IBMrsquos 108ndash109Chase Manhattan Bank 22Chase Private Bank 22China Chipco in 148 Degussa in 45 49Chipco (semiconductor company) 146ndash

161 Asian market expansion of 148149 159 growth opportunities of 147ndash150 human resource processes of157ndash159 160 leadership of 155 156158 160 161 learnings from 159ndash161original organization of 146ndash147overview of 146ndash150 processes of154ndash156 158 161 reward system of156ndash157 158ndash159 160 solutionsstrategy of 150ndash152 158 159 starmodel for 158ndash159 structure of152ndash154 158 160ndash161

Christensen C 23Chrysler 29ndash30Cingular 124Cisco 112Citibank (Citigroup) change manage-

ment process of 141ndash143 customerprofit centers of 140ndash141 customerteams of 134ndash136 137 142 evolutionof to customer-centricity 119 120134ndash143 front-back organization of119 120 134ndash143 global accountscoordinator at 136ndash138 142 globalaccountscountry units of 139ndash140global accounts groups at 138ndash139global industry coordinators at138ndash139 142 human resourceprocesses of 131 132 139 142 IBMand 94 99 lateral networks of 37 3839 processes of 142

Claims management systems 93Collaborative Internet sales and market-

ing 93Colvin G 1 7 26Command-and-control cultures 114Commissions 20Communication at Degussa 52 53ndash54

58 at IBank 65 67 72 73ndash74 76 80at IBMrsquos Global Services EMEA106ndash109

Comparative advantage 151COMPASS 141Compensation at Chipco 160 at Degussa

57ndash58 at IBank 79 at IBM 111ndash112113 See also Bonuses Rewards and re-ward systems

Competency model IBMrsquos 109ndash111 113Competitive advantage of chip set solu-

tions 151ndash152 comparative advan-tage and 151 of customer-centricity1ndash2 of managing complexity 85 116117 159

Complexity advantage through manag-ing 85 116 117 159 formal manage-ment practices for 116 167 169ndash170high-level customer-centricity and87ndash89 116ndash117 planning processesand 167

Computer-aided design (CAD) system 28Computer industry open standards in 29

88 90 See also IBMConflict and conflict management at

Chipco 155 at Degussa 58 in front-back organizations 100ndash101 113114ndash117 128 132 163 164 at IBM100ndash101 113 114ndash117 leadershipand 163 164 at Procter amp Gamble132 value of 164

Consulting firms talent allocation in171 172

Consumer packaged goods manufacturersstrategic choices of 26ndash27 See alsoNestleacute Procter amp Gamble

Contact management system at IBank77ndash80 81 86

Convertible bonds 67Coordination requirements solution

complexity and 30ndash32 142 167169ndash170

Coordinator or integrator role 38ndash39 atCitibank 136ndash139 142 at IBank 62

Country and regional profit centers 34141

Country managers at Citibank 134 137fund 82

Cross-selling of global fund products74ndash75

Culture in matrix structures 114ndash115 inproduct-centered versus customer-centric organizations 22ndash23

Customer accounting system 39Customer business units (CBUs) 40Customer-centricity barriers to 2ndash3 cul-

ture of 22ndash23 customer focus versus3 high-level 3 33 87ndash117 119ndash143implementation of 3ndash4 23ndash24 lateralnetworking capability for 3 33ndash41levels of 3 25ndash42 low-level 3 33 40

176 INDEX


INDEX 177

43ndash60 management processes for163ndash172 medium-level 3 33 4061ndash86 167 motivating factors for11ndash14 need for 5ndash11 26ndash27 organi-zation design for 145ndash161 over-appli-cation of 23 product-centricityversus 3 9ndash11 14ndash23 26ndash27 prof-itability of 1ndash2 7ndash8 star model for14ndash23

Customer interaction model IBankrsquos75ndash80 82ndash83 86

Customer or market segments of Citibank140ndash141 of IBank 83ndash84 86 of IBM31 40

Customer relationship management(CRM) software challenges of imple-menting 2ndash3 at IBank 70 76ndash80 86IBMrsquos 89 93 94 95 97 99ndash102 103105ndash106 108ndash109 116 168 processesof 18 20 training in 79 81 82

Customer relationship managers 22Customer relationship strategies 3

26ndash32 choice of 26ndash27 matchingorganizational units and 40ndash41 needfor 26 solutions and 26ndash32 165ndash167strategic planning process and165ndash167 strategy locator for 32ndash3334 42

Customer relationships challenges of2ndash3 demand for as driver of customer-centricity 12 26 elements of 1ndash2 atIBank 75ndash81 importance of 7ndash1126 27 levels of customer-centricityand 3 25ndash42

Customer segment profit centers 18 40Customer support centers 148Customer teams at Citibank 134ndash136

137 142 competition between51ndash52 coordinator role and 38ndash39142 at Degussa 47 48ndash52 55ndash56 59at IBM 99ndash100 matrix organizationand 49ndash51 at Nokia 126ndash127 atProcter amp Gamble 129ndash131 132 133See also Formal teams

Customers importance of 1ndash2 5ndash14loyal 7ndash8 needs of 26 preferred byproduct-centered versus customer-centric organizations 17 revolutionof 5ndash6 23 selection of 119 128 135151

Customization at IBank 72ndash74 85ndash86 atNokia 126 of solutions 14

D

Daimler-Benz Degussa and 51DaimlerChrysler Degussa and 37ndash38 55

56 IBM and 99 100 101 102Data mining technology 93 94Day G 26DB2 94Deal flow management system 78Degussa Automotive Catalysts 40 44ndash60

customer teams of 47 48ndash52 59DaimlerChrysler and 37ndash38 formalteams of 37ndash38 40 44 45 54 59 63human resource processes of 57ndash58information technology at 56ndash5760 leadership of 58ndash59 learningsfrom 59ndash60 as low-level customer-centricity case example 44ndash60 orga-nizational structure of 47ndash54 59overview of 44ndash47 reward systemof 55ndash56 on strategy locator 44

Delivery systems IBMrsquos 112ndash116Dell 112 Chipco and 149ndash150Delphi 46Denmark wireless telephone industry in

122 149Deutsche Telekom 120 124 127Development at Citibank 139 142Diesel fuel 46Digital camera business Chipcorsquos

149ndash152 154ndash156 159 161Digital signal processor (DSP) division

Chipcorsquos 146 147ndash152Disruptive technologies 23DoCoMo 124

E

E-Agency (IBM) 31E-business hosting services (IBM)

103ndash105E-Business Services (IBM) 94 102 103

105ndash106E-chemicals (IBM) 103ndash104E-mail at Degussa 56 at IBank 72Eastern Europe 12EDS 168Eisenhardt K M 164Electronic commerce (e-commerce) cus-

tomer power and 5ndash6 as driver ofcustomer-centricity 12ndash13 at IBank78 IBM and 91 93 105ndash106 See alsoIBM


Electronic coordination (e-coordination)35ndash36 See also IBank (global invest-ment bank)

Electronics companies solutions strategiesof 27 29

EMC 20Empire Blue Cross 94Engineers and programmers 157 159

160 170ndash172Enterprise resource planning (ERP) sys-

tems IBMrsquos 90 94 103 105ndash106Equities business 62ndash63 65ndash70 82 See

also IBank (global investment bank)Equity derivatives 67ndash68Ernst and Young (EampY) Consulting 171Europe automotive industry in 46ndash47

Chipco in 149 150 Degussa in47ndash48 55 IBank in 65 IBM in 9798 106ndash109 109 111 Nokia in120ndash128 wireless communicationsindustry in 120ndash122 123ndash124 127

Event management system 78Executive committee at Degussa 52 53

57 58 59 60Exhaust emissions reduction 46 56Experiments 160

F

Fidelity 62Financial services case study See IBank

(global investment bank)Financial Times 125Finland Nokia in 120Ford 55Foreign stock sales 69 See also IBank

(global investment bank)Formal teams at Degussa 37ndash38 40 44

45 54 59 in low-level customer-centricity 37ndash38 40 44 See alsoCustomer teams

France IBank in 65 Nokia in 127 Proc-ter amp Gamble in 133 134

France Telecom 120 127Fraud and Abuse Management System 94Front-back organization alternate models

of 119ndash143 CitibankCitigroupmodel of 134ndash143 complexity and87ndash88 116 117 conflict and conflictmanagement in 100ndash101 113114ndash117 128 132 163 164 IBMmodel of 89ndash117 management

processes for 163ndash172 Nokia modelof 119ndash128 Procter amp Gamble modelof 128ndash134

Fry A 22Functional teams at Degussa 54Fund managers 62ndash63 65ndash66 75 76 82

G

Galbraith J 14ndash15General Motors 27 55Geographical business units Degussarsquos

47ndash48Germany Citibank in 138 Degussa in

45 49 52 IBank in 65 Nokia in127 Procter amp Gamble in 133 wire-less communications industry in 120124 127

Gerstner L 89 90 91ndash92 95 97 101Global account directors IBank 70ndash86

customization opportunities and72ndash74 85ndash86 product line consultingand 74ndash75

Global account management at IBank70ndash86 at Nokia 124ndash128

Global account managers at Chipco 153at IBank 70 83 84 86 at Nokia124ndash125 See also Global accountdirectors

Global accounts coordinator Citibank136ndash138 142

Global accounts groups Citibank 138ndash139Global accounts units Citibank 139ndash140Global banking companies See Citibank

IBankGlobal business units Procter amp Gamble

132ndash134Global customers lateral networks and

34 35ndash36 40Global industry coordinator Citibank

138ndash139 142Global investment bank case example

See IBankGlobal investment product 68Global offering unit organization IBMrsquo

103ndash106Global services IBM 92 94 95 97 98

101ndash105 106ndash109 human resourcepolicies for 109ndash112

Global Services EMEA (IBM) 97 98106ndash109 human resource policies of111ndash112

178 INDEX


INDEX 179

Globalization as driver of customer-centricity 11ndash12 of equities business67ndash70 of mobile phone industry123ndash127

Goal-setting at Chipco 155ndash156Groupware 90

H

Hand-held terminals 93Handsets wireless Chipcorsquos 148ndash150

151 152 159 Nokiarsquos 120 167ndash168Hay-McBer 109Hedge funds 68Hewlett-Packard 9 18 27 107 112 146

Chipco and 149ndash150 151High-definition TV 152High-level customer-centricity 3 33

87ndash89 CitibankCitigroup example of119 120 134ndash143 complexity and87ndash89 116 117 167 IBM example of89ndash117 lateral networks for 40ndash41management of 167 Nokia Networksexample of 119ndash128 Procter amp Gam-ble example of 119 120 128ndash134

Hiring at Degussa 57 See also Human re-source processes Selection employee

Hong Kong-Shanghai Bank 140Horizontal solutions IBMrsquos 92 95 97Hosting services 103ndash105Human resource processes (people) of

Chipco 156ndash159 160 of Citibank131 132 139 142 of Degussa 57ndash58of IBank 79 81 82 85 of IBM 109ndash112 113 114ndash115 in product-centricversus customer-centric organizations10 20ndash22 in star model 15 20ndash22talent allocation process and 169ndash172See also Rewards and reward systems

I

I-Force process 168ndash169I-Planet 29IBank (global investment bank) 41 61ndash

86 case study of 63ndash86 client seg-mentation at 83ndash84 86 customerinteraction of 75ndash80 82ndash83 85 cus-tomization at 72ndash74 85ndash86 equitiesbusiness of 62ndash86 global accountmanagement of 70ndash86 lessons from85ndash86 medium-level customer-centricity case of 61ndash86 new oppor-

tunities and challenges for 67ndash70organization and structure of 63ndash6465ndash67 69ndash70 71 81 83ndash84 85overview of 61ndash67 review and nextsteps for 81ndash85 rewards and humanresource processes of 79 81 82 85star model for 80ndash81 on strategy loca-tor 61ndash62

IBM 4 9 13 20 22 89ndash117 case studyof 89ndash117 changes and progress at112ndash116 conflict management at100ndash101 113 114ndash117 customer seg-ment organization of 31 40 deliveryprocesses of 112ndash116 executive lead-ership model of 109ndash111 Global Ser-vices EMEA organization of 97 98106ndash109 global services of 92 94 9597 98 101ndash105 106ndash109 as high-complexity example 41 88ndash117human resource policies of 109ndash112113 114ndash115 industry-specific solu-tions of 31 92ndash94 102 integratedsolutions of 89ndash117 168 Internet ori-entation of 90ndash92 102 lessons from116ndash117 ldquoNew IBMrdquo initiative of90ndash92 offerings management at102ndash106 open standards use by 2988 90 opportunity management at97 99ndash102 105ndash106 108ndash109 170organizational frictions at 114ndash117overview of 87ndash90 processes of 9799ndash106 113 165 replication at 116168 star model for 113ndash114 on strat-egy locator 88 strategy of 90ndash95 165structure of 95ndash97 98 106ndash109114ndash115

IBM Americas 95Implementation challenges of 23ndash24

levels of 3ndash4 25ndash42 managementprocesses for 163ndash172

India 149 Degussa in 45 46Industry groups IBMrsquos 97 98 99Industry-specific solutions IBMrsquos 31

92ndash94 102Information days 58Information technology at Citibank 142

at Degussa 56ndash57 60 at IBank 69Insurance application architecture (IAA)

92Insurance Research Center (IRC) 92Insurance Research Development Center

(ISDC) 92


Insurance solutions IBMrsquos 92ndash94 102InsureAgent 93InsureCommerce 93InsureIntra 93InsureKiosk 93InsureStrategy 93Integrated stack Sunrsquos 29 30 169Integration solution at IBM 89ndash117

levels of 29ndash30 33 scale and scopeand 30ndash32 33

Integrator role See Coordinator or inte-grator role

Intel 112 147Internet customer power and 5ndash6 global

investment banking with 69 78global investment research on 69 7378 IBM orientation to 90ndash92 102IBMrsquos insurance solutions on 93 wire-less industry consolidation and 124

Investment Banking On-Line (IBOL) 78Investment banks talent allocation in

172 See also Citibank IBankISO 9000 certification 56ISO 14000 certification 56Israel 149ISS 29Italy IBank in 65

J

J D Edwards 103Japan Citibank in 138 Degussa in 45

48 IBank in 65 75 82ndash83 softwarecompanies in 23 wireless phone in-dustry in 124

Java programming language 29 93Job classification system global 111Johnson Controls 29ndash30 40

K

Kahwajy J L 164Korea Degussa in 45

L

Lateral relationships and networks 333ndash41 at Citibank 134 at Degussa47ndash54 formal team 37ndash38 40 44 4559 informal 35ndash36 with integrator orcoordinator 38ndash39 matching with so-lutions strategy 40ndash41 with matrix or-ganization 39ndash40 need for 34ndash35

strategy locator and 35 36 42 typesand levels of 35ndash41 See also Customerteams Formal teams Front-back orga-nization Matrix organization Organi-zation Structure

Leadership 4 at Chipco 155 156 158160 161 at Citibank 142 at Degussa58ndash59 at IBM 109ndash111 throughmanagement processes 163ndash172 ofstrategic change 163ndash164 See alsoManagement processes

Levels of customer-centricity 3 25ndash42customer relationship strategies and26ndash33 lateral network levels and35ndash41 solution strategies and 28ndash32strategy locator for 32ndash33 34 42 Seealso High-level customer-centricityLow-level customer-centricityMedium-level customer-centricity

Leveraging at IBank 69Light version See Low-level customer-

centricityLotus Notes 56ndash57 90 100 165Low-level customer-centricity 3 33 De-

gussa Automotive Catalysts exampleof 44ndash60 lateral networks for 40 Seealso Degussa Automotive Catalysts

Lucent 151

M

Magellan Fund 68Management processes 163ndash172 for

front-back linkage 165 of opportunitymanagement 169ndash172 of portfolioplanning 20 167ndash169 for reconcilingproduct customer and solution strate-gies 165ndash167 of solutions develop-ment 167ndash169 See also LeadershipProcesses

Management team at Citibank 136ndash138talent allocation and 172

Mannesman 124Manufacturing function organization at

Chipco 154 at Degussa 52ndash53Market-driven capability 7 See also

Customer-centricityMatrix organization 39ndash40 at Chipco

153 160ndash161 customer teams and49ndash51 frictions of 114ndash117 at IBank65ndash67 69ndash70 71 at IBMrsquos GlobalServices EMEA 106ndash109 114

180 INDEX


INDEX 181

Measures at Degussa 55ndash56Medium-level customer-centricity 3 33

investment bank (IBank) case of61ndash86 lateral networks for 40 man-agement of 167 See also IBank (globalinvestment bank)

Meetings at Degussa 52 53ndash54 58 ofIBank 74 80

Mexico Degussa in 45 49 Procter ampGamble in 133

Microsoft 91 156 168Middle East IBM in 97 98 106ndash109Mind-sets customer-centric 8 22ndash24

product-centric 6 22 23ndash24 statusquo 6 23ndash24

Mitsubishi Trading Company 28Mobile phone industry 120ndash122

123ndash124 See also Nokia NetworksMobilix 122Modular architectures 29Moorersquos Law 146Mortgage solutions 14Motorola 27 31 148ndash149MP3 player modules 149 159Multinationals global investment bank-

ing for 69 organizational frictions of114

MYIBMcom 102

N

Narver J C 7Nestleacute customer relationship strategy of

26ndash27 44 63 lateral networks of 3435 37

Netherlands Procter amp Gamble in 133134

Network-centric computing IBMrsquos90ndash92 94ndash95

Networks See Lateral relationships andnetworks

Networks personal 59ndash60New-product-development processes at

Chipco 150ndash151 154 161 customerteams and 49 at Degussa 49 56 atIBank 74ndash75 in product-centeredversus customer-centric organizations18 20 22 solutions development pro-cesses and 167ndash169 See also Researchand development (RampD)

Nohria N 163Nokia Networks 112 119ndash128 148ndash149

early organization of 120ndash122 front-back organization of 119ndash120 122ndash128 global relationship managementat 124ndash128 lessons from 128 newopportunities for 122ndash127 overviewof 120ndash122 portfolio planning and167ndash168

Nortel 151Novartis 139NT 100

O

Offerings management at IBM 102ndash106OM Group 44On-line trading 78One-to-One 124Opportunity management at IBM 97

99ndash102 105ndash106 108ndash109 170process of 169ndash172 for solutions com-panies 165 169ndash172 talent allocationand 169ndash172

Opportunity Management System(Omsys) 97 99 100 102 105108ndash109 116 170

Orange 122 124 149Order fulfillment process 56 165Organization of Chipco 146ndash147

152ndash154 158ndash159 160ndash161 customer-centric versus product-centric 3 9ndash1114ndash23 of Degussa Automotive Cata-lysts 47ndash54 59 front-back 87ndash117119ndash143 163ndash172 of IBank 63ndash6465ndash67 69ndash70 71 81 83ndash84 86 ofIBM 95ndash97 98 106ndash109 112ndash116matching solutions strategy and40ndash41 of Nokia 119ndash128 of Procteramp Gamble 128ndash134 star model ofstrategy and 14ndash23 See also Humanresource processes Lateral relation-ships and networks ProcessesStructure

Organization design for customer-centricity 145ndash161

Organizational change imperative forcustomer-centricity and 2 3 8ndash11incremental 141ndash143

Original design and manufacturing(ODM) houses 148

Original equipment manufacturers(OEMs) automotive 27 29ndash3044ndash47


Outsourcing in IBMrsquos structure 95 105106

P

Palmisano S 95Paris Bourse 65Peer interviewing 57Peer ranking system 79 81Peppers D 26Performance management system IBMrsquos

111 115Pharmaceutical companies 138 139Philips 27 34Planning at Chipco 155ndash156 161 at

Citibank 137 140ndash141 by customerteams 51 at Degussa 51 at IBank 80at IBM 99ndash100 104 113 170 atNokia 125ndash127 opportunity manage-ment process and 169ndash172 portfolio20 167ndash169 in product-centered ver-sus customer-centric organizations 18reconciling customer product and so-lutions 165ndash167 strategic 165ndash167

Platinum 44ndash45 47ndash48Portfolio of solutions IBMrsquos 92Portfolio planning process 20 167ndash169Portfolio theory in global fund manage-

ment 68Portfolio trading 68Post-It Notes 22Pricing customer teams and 49 at De-

gussa 49 at IBM 101 113 to value17ndash18

Private Clients 64ndash65Problems falling of unresolved 115Process owners 154 161Process teams at Chipco 154 161 at De-

gussa 54Processes at Chipco 154ndash156 158 161

at Citibank 142 at Degussa 55ndash56design of 154ndash156 for front-back or-ganization 163ndash172 at IBank 81 atIBM 97 99ndash106 113 in product-centric versus customer-centric organi-zations 10 18ndash20 165 for solutionsbusinesses 161 165 in star model 1518ndash20 for strategic change 163ndash172See also Management processes

Procter amp Gamble (PampG) 35 128ndash134customer relationship strategy of26ndash27 former organization of

128ndash129 front-back organization of119 128ndash134 globalization of 119128 132ndash134 as high-level customer-centricity example 119 120128ndash134 lateral networks of 35Wal-Mart partnership with 37ndash38128 133

Prodigy 91Product-centricity customer-centricity

versus 3 9ndash11 14ndash23 26ndash27 mind-set of 6 22 23ndash24 people in 20ndash22processes in 18ndash20 165 rewards in20ndash22 strategy in 10 15ndash18 structurein 18ndash20

Product groups Procter amp Gamblersquos 131Product line profit centers 18Product opportunities at IBM 99Product planning portfolio planning and

20 167ndash169 reconciling solutionplanning and 165ndash167 solutionsdevelopment process and 167ndash169

Product teams at Degussa 54Profit and loss (PampL) accounting at

Chipco 155 customer 39 geographic56 97 106 See also Accountingsystems

Profit centers Citibankrsquos customer140ndash141 country and regional 34141 customer segment 18 40 IBMindustry groups and 97 in IBMrsquosGlobal Services EMEA 106 of prod-uct-centered versus customer-centricorganizations 18 product line 18

Profit sharing at Degussa 58Profitability customer 39 40 55 of

customer-centricity 1ndash2 7ndash8Profitability analysis underwriting 93

Q

QS 9000 certification 56Quotas 109 113

R

Ranking employee 57Ready Centers 168ndash169Realistic job preview 57Regional business units (RBUs) at

Degussa 55ndash56Regional solutions IBMrsquos 102Regional teams at Procter amp Gamble

129ndash131

182 INDEX


INDEX 183

Regulation 46Reicheld F F 7Relationship directors at Nokia 126ndash127Renault Degussa and 55Reorganization 116Replicable solutions 20 116 168ndash169Reporting lines multiple 106ndash107 114ndash115Research and development (RampD) at

Chipco 150ndash151 154 161 at Degussa49 53 manufacturing interface with53 See also New-product-developmentprocesses

Resistance to change 163 164Resource allocation processes 169ndash172Retail customers changes in 128Retention 171 172Revenues as dimension of solutions 31

distribution of at IBM 101 113Rewards and reward systems at Chipco

156ndash157 158ndash159 160 at Degussa55ndash56 at IBank 79 81 82 85 atIBM 109ndash112 113 in product-centricversus customer-centric organizations10 20ndash22 in star model 15 20ndash22

Roche 139Rogers M 26Rotational assignments 59 131 132 139

157Russia 48

S

SalesLink IBMrsquos 100 116Salespeople in product-centered versus

customer-centric organizations 20 22solutions strategy evolution and159ndash160

SAP 90 103 171Scale of solutions 28 integration and

30ndash32 in strategy locator 32ndash33 34Scheduling managers 171Scope of solutions 28 integration and

30ndash32 in strategy locator 32ndash33 34Sector investing 68Selden L 1 7 26Selection customer 119 128 135 151Selection employee at Citibank 142 at

Degussa 57 at IBM 109 113 114 atNokia 127 talent allocation processand 169ndash172

Semiconductor company case study SeeChipco

ServiceMaster 29Seybold P 1 5ndash6 7Siebel Systems 20 103Siemens 120 122 146 148ndash149Singapore wireless telephone industry in

122 149Slater S F 7Software companies Japanese 23 solu-

tions strategies of 29Solutions Chipcorsquos evolution to

146ndash161 complex 88ndash89 complexityof and coordination requirements30ndash32 142 167 169ndash170 customerrelationship strategies and 26ndash33165ndash167 demand for as driver of cus-tomer-centricity 13ndash14 26ndash28 di-mensions of 28ndash32 horizontal 31IBMrsquos integrated 89ndash117 integrationlevels of 29ndash32 33 managementprocesses for delivery of 163ndash172matching organizational units and40ndash41 organization design for deliveryof 145ndash161 reconciling strategies for165ndash167 replicable 20 116 168 rev-enues dimension of 31 scale andscope of 28 30ndash33 strategic evolu-tion to 150ndash152 159 training for157ndash158 vertical 31

Solutions development processes 18 20167ndash169

Solutions marketing unit 153Sony 18 22 27South Africa Degussa in 45 47 48 49

52Soviet Union collapse of 120Spreadsheet planning 166ndash167Stand-alone products and services 1

solutions versus 13ndash14 27ndash28Standards open 29 88 90Star model for Chipco 158ndash159 compre-

hensive change and 164 dimensions14ndash23 for IBank 80ndash81 for IBM113ndash114 overview of 14ndash15 See alsoHuman resource processes (people)Processes Rewards Strategy Structure

Star Network 122Status quo 6Stock options or grants at IBM 111ndash112

113Strategic change leadership 163ndash164 See

also Leadership Managementprocesses


Strategy of Chipco 150ndash152 158 159customer relationship 26ndash32 design-ing 150ndash152 evolution of to solu-tions 150ndash152 159 of IBM 90ndash95matching organizational units and40ndash41 in product-centric versuscustomer-centric organizations 1015ndash18 reconciling product customerand solution 165ndash167 in star model15ndash18 star model of organization and14ndash23 164

Strategy locator 32ndash33 34 42 Degussaon 44 IBank on 61ndash62 IBM on 88lateral networks and 35 36

Structure of Chipco 146ndash147 152ndash154158 160ndash161 of Degussa AutomotiveCatalysts Division 47ndash54 59 design-ing 152ndash154 of IBank 63ndash64 65ndash6769ndash70 71 81 83ndash84 86 of IBM95ndash97 98 106ndash109 of product-centric versus customer-centric organi-zations 9ndash11 18ndash20 in star model 1518ndash20 See also Front-back organiza-tion Lateral relationships and net-works Organization

Succession planning 109Sun Microsystems 29 30 31 168ndash169Supply chain management (SCM) solu-

tions IBMrsquos 89 105ndash106Sweden Degussa in 45Switzerland Citibank in 139

T

Talent allocation processes 169ndash172Target 128Team quotas 109 113Teams See Customer teams Formal teamsTelecommunications equipment business

120 See also Chipco Nokia NetworksWireless communications industry

Telefoacutenica 127Termination employee 58Tesco 133 134Thailand Degussa in 45 Procter amp Gam-

ble in 133Third-generation infrastructure wireless

125ndash126 167ndash1683M 22Tier I and tier II suppliers automotive 27Total Quality Management (TQM) at

Degussa 53ndash54 58 59

Toyota 27 29ndash30Training at Chipco 157ndash158 at Citibank

139 142 at IBank 79 81 82Turnkey projects 28

U

UDA 61 certification 56Unilever 18United Kingdom Chipco and 148 149

Citibank in 137ndash138 139 IBank in75 82ndash83 84 Procter amp Gamble in133 134 wireless telephone industryin 122 124

United States Degussa in 45Unix 100Urgency sense of 163

V

Vandermerve S 26Vanguard Group 62Variable compensation 111ndash112 113Vertical organization in wireless industry

148ndash149Vertical solutions IBMrsquos 92Videoconferencing at Degussa 56Virgin Mobile 149Virtuous circle 7 26Vodafone 122 123 124 125 149Volkswagen (VW) Degussa and 45 49

50 55 56ndash57Vons 131

W

Wal-Mart 27 35 44 Procter amp Gambleand 37ndash38 128 133

Websphere (IBM) 29Wiersema F 26Wireless communications industry

Chipco and 148ndash150 151ndash152 159Nokia and 122ndash125 167ndash168 See alsoNokia Networks

Work preferences 171 172World Corporations Group 140World Management Council (WMC)

109ndash111World Trade Corporation 95

Y

Yellow pages company 171

184 INDEX


Designing the Customer-Centric Organization

Contents

Preface

The Author

INTRODUCTION

Chapter 1 SURVIVING THE CUSTOMER REVOLUTION





Conclusion

Chapter 2 CUSTOMER-CENTRICITY How Much is Enough




Conclusion

Chapter 3 Light-Level Application

Customer Lite



Chapter 4 Medium-Level Application


Lessons from IBank

Chapter 5 Complete-Level Application

Complex Solutions and Customer-Centric Organizations

IBM

Lessons Learned

Chapter 6 Alternate High-Level Solutions Companies

Nokia Networks

Procter amp Gamble



Conclusion

Chapter 7 Designing a Customer-Centric Organization



Chapter 8 Leading Through Management Processes


Linking Processes




Conclusion

References

Index





Organization


Jay R Galbraith



CentricOrganization














2005001675


HB Printing 10 9 8 7 6 5 4 3 2 1


The Jossey-Bass




ix

Contents

Preface xi

The Author xv

Introduction 1





Conclusion




Conclusion





Lessons from IBank


x CONTENTS


IBM

Lessons Learned


Procter amp Gamble



Conclusion




Linking Processes




Conclusion

References 173

Index 175


xi

Preface





xii PREFACE








PREFACE xiii



xv

The Author





xvi THE AUTHOR




Organization



1

INTRODUCTION

















INTRODUCTION 3








5

1



















The Bottom Line









Mind over Mind-Set

















Tabl

e 11

Prod

uct-

Cent

ric

vers

us C

usto

mer

-Cen

tric

Prod

uct-

Cen

tric

Com

pany

Cus

tom

er-C

entr

ic C

ompa

ny

Stra

tegy

Goa

lB

est p

rodu

ct fo

r cus

tom

erB

est s

olut

ion

for c

usto

mer

Mai

n of

feri

ngN

ew p

rodu

cts

Pers

onal

ized

pac

kage

s of p

rodu

cts

serv

ice

supp

ort

educ

atio

n c

onsu

ltin

gV

alue

cre

atio

n ro

ute

Cut

ting

-edg

e pr

oduc

ts u

sefu

l fea

ture

sC

usto

miz

ing

for b

est t

otal

solu

tion

new

app

licat

ions

Mos

t im

port

ant c

usto

mer

Mos

t adv

ance

d cu

stom

erM

ost p

rofit

able

loy

al c

usto

mer

Prio

rity

-set

ting

bas

isPo

rtfo

lio o

f pro

duct

sPo

rtfo

lio o

f cus

tom

ersmdash

cust

omer

pro

fitab

ility

Pric

ing

Pric

e to

mar

ket

Pric

e fo

r val

ue r

isk

Stru

ctur

eO

rgan

izat

iona

l con

cept

Prod

uct p

rofit

cen

ters

pro

duct

revi

ews

Cus

tom

er se

gmen

ts c

usto

mer

team

spr

oduc

t tea

ms

cust

omer

Pamp

Ls

Proc

esse

sM

ost i

mpo

rtan

t pro

cess

New

pro

duct

dev

elop

men

tC

usto

mer

rela

tion

ship

man

agem

ent a

ndso

luti

ons d

evel

opm

ent

Rew

ards

Mea

sure

sbull

Num

ber o

f new

pro

duct

sbull

Cus

tom

er sh

are

of m

ost v

alua

ble

cust

omer

bullPe

rcen

tage

of r

even

ue fr

om p

rodu

cts l

ess

bullC

usto

mer

sati

sfac

tion

than

two

year

s old

bullLi

feti

me

valu

e of

a c

usto

mer

bullM

arke

t sha

rebull

Cus

tom

er re

tent

ion

Peop

leA

ppro

ach

to p

erso

nnel

Pow

er to

peo

ple

who

dev

elop

pro

duct

sPo

wer

to p

eopl

e w

ith

in-d

epth

kno

wle

dge

ofbull

Hig

hest

rew

ard

is w

orki

ng o

n ne

xt m

ost

cust

omer

rsquos bu

sine

ssch

alle

ngin

g pr

oduc

tbull

Hig

hest

rew

ards

to re

lati

onsh

ip m

anag

ers

bullM

anag

e cr

eati

ve p

eopl

e th

roug

h ch

alle

nges

who

save

the

cust

omer

rsquos bu

sine

ssw

ith

a de

adlin

eM

enta

l pro

cess

Div

erge

nt th

inki

ng H

ow m

any

poss

ible

use

sC

onve

rgen

t thi

nkin

g W

hat c

ombi

natio

n of

of th

is pr

oduc

tpr

oduc

ts is

bes

t for

this

cust

omer

Sa

les b

ias

On

the

side

of t

he se

ller i

n a

tran

sact

ion

On

the

side

of t

he b

uyer

in a

tran

sact

ion

Cul

ture

New

pro

duct

cul

ture

ope

n to

new

idea

sR

elat

ions

hip

man

agem

ent c

ultu

re s

earc

hing

expe

rim

enta

tion

for m

ore

cust

omer

nee

ds to

sati

sfy

Sour

ce

Thi

s tab

le is

a c

ompo

site

of p

oint

s des

crib

ing

prod

uct-

and

cus

tom

er-c

entr

ic c

ompa

nies

take

n fr

om P

eppe

rs a

nd R

oger

s (19

93 1

997

200

1)

Trea

cy a

nd W

iers

ema

(199

5) S

eybo

ld (

1998

200

1)










Globalization








Electronic Commerce






Solutions



















Strategy



Strategy

Structure

Processes

People

Rewards



Tabl

e 1

2St

rate

gy P

rodu

ct-C

entr

ic v

ersu

s Cu

stom

er-C

entr

ic

Prod

uct-

Cen

tric

Com

pany

Cus

tom

er-C

entr

ic C

ompa

ny

Stra

tegy

Goa

lB

est p

rodu

ct fo

r cus

tom

erB

est s

olut

ion

for c

usto

mer

Mai

n of

feri

ngN

ew p

rodu

cts

Pers

onal

ized

pac

kage

s of p

rodu

cts

serv

ice

supp

ort

educ

atio

n c

onsu

ltin

gV

alue

cre

atio

n ro

ute

Cut

ting

-edg

e pr

oduc

ts u

sefu

l fea

ture

sC

usto

miz

ing

for b

est t

otal

solu

tion

new

app

licat

ions

Mos

t im

port

ant c

usto

mer

Mos

t adv

ance

d cu

stom

erM

ost p

rofit

able

loy

al c

usto

mer

Prio

rity

-set

ting

bas

isPo

rtfo

lio o

f pro

duct

sPo

rtfo

lio o

f cus

tom

ersmdash

cust

omer

pro

fitab

ility

Pric

ing

Pric

e to

mar

ket

Pric

e fo

r val

ue r

isk















Tabl

e 1

3St

ruct

ure

and

Proc

esse

s P

rodu

ct-C

entr

ic v

ersu

s Cu

stom

er-C

entr

ic

Prod

uct-

Cen

tric

Com

pany

Cus

tom

er-C

entr

ic C

ompa

ny

Stru

ctur

eO

rgan

izat

iona

l con

cept

Prod

uct p

rofit

cen

ters

pro

duct

revi

ews

Cus

tom

er se

gmen

ts c

usto

mer

team

s cu

stom

erpr

oduc

t tea

ms

PampLs

Proc

esse

sM

ost i

mpo

rtan

t pro

cess

New

pro

duct

dev

elop

men

tC

usto

mer

rela

tion

ship

man

agem

ent a

ndso

luti

ons d

evel

opm

ent



Rewards and People





Tabl

e 1

4Re

war

ds a

nd P

eopl

e P

rodu

ct-C

entr

ic v

ersu

s Cu

stom

er-C

entr

ic

Prod

uct-

Cen

tric

Com

pany

Cus

tom

er-C

entr

ic C

ompa

ny

Rew

ards

Mea

sure

sbull

Num

ber o

f new

pro

duct

sbull

Cus

tom

er sh

are

of m

ost v

alua

ble

cust

omer

bullPe

rcen

tage

of r

even

ue fr

om p

rodu

cts l

ess

bullC

usto

mer

sati

sfac

tion

than

two

year

s old

bullLi

feti

me

valu

e of

a c

usto

mer

bullM

arke

t sha

rebull

Cus

tom

er re

tent

ion

Peop

leA

ppro

ach

to p

erso

nnel

Pow

er to

peo

ple

who

dev

elop

pro

duct

sPo

wer

to p

eopl

e w

ith

in-d

epth

kno

wle

dge

ofbull

Hig

hest

rew

ard

is w

orki

ng o

n ne

xt m

ost

cust

omer

rsquos bu

sine

ssch

alle

ngin

g pr

oduc

tbull

Hig

hest

rew

ards

to re

lati

onsh

ip m

anag

ers

bullM

anag

e cr

eati

ve p

eopl

e th

roug

h ch

alle

nges

who

save

the

cust

omer

rsquos bu

sine

ssw

ith

a de

adlin

eM

enta

l pro

cess

Div

erge

nt th

inki

ng H

ow m

any

poss

ible

use

sC

onve

rgen

t thi

nkin

g W

hat c

ombi

natio

n of

of th

is pr

oduc

tpr

oduc

ts is

bes

t for

this

cust

omer

Sa

les b

ias

On

the

side

of t

he se

ller i

n a

tran

sact

ion

On

the

side

of t

he b

uyer

in a

tran

sact

ion

Cul

ture

New

pro

duct

cul

ture

ope

n to

new

idea

sR

elat

ions

hip

man

agem

ent c

ultu

re s

earc

hing

expe

rim

enta

tion

for m

ore

cust

omer

nee

ds to

sati

sfy



Culture







A Word of Caution



Conclusion









25

2

CUSTOMER-CENTRICITY

How Much Is Enough

















Strategic Choice





























Enterprise Services



i-Planet Middleware

Sun Storage

Sun Servers


Sparc Architecture







autointeriors








Scale and Scope








Integration
















Integration

Scale and Scope

Stand-AloneProduct

0

1

2

3

4

5

6

7

8

9

10

Low

Medium

High













E-coordination



Line organization

Customer-Centric

Product-Centric


Matrixorganization

Low

High



Formal Teams









Integrator










Matrix Organization














Conclusion





1

2

3

4

5

6

7

8

9

10

0Product-centric


E-coordination




Line organization

Customer-centric

Matrixorganization

Low

High

Medium






43

3










Customer Lite



















Organization





Division Head

Manufacturing

ProcessEngineering

10 Plants



AppliedTechnology

AdvancedTechnology

Customers Products


America


South Africa


Asia

Staffs







Customer


Executive Committee

Board








Bra

zil

Ger

man

yN

orth

Am

eric

aC

hina

Mar

keti

ng a

nd S

ales

XX

XX

App

lied

Tech

nolo

gyLE

AD

ER

Ramp

DX

Man

ufac

turi

ngV

XV

V

Logi

stic

sX

Qua

lity

X

Figu

re 3

4Vo

lksw

agen

Cus

tom

er T

eam

X =

mem

ber o

f cor

e te

am V

= m

embe

r of e

xten

ded

team

































Business UnitAsia

Business UnitEurope

GM

VW

Nissan



















Leadership




















61

4















1

2

3

4

5

6

7

8

9

10

0

Stand-Alone Product

IBankat start

IBankat end

Informal

e-Coordination

Formal teams















PrivateBank

E-Banking

RetailBrokerage

Equities

FixedIncome

TreasuryProducts


Private Equity

CorporateFinance

Industries

Countries

CapitalMarket

















Equities

Other Functions





North America

Asia

UK

Switzerland








IBank Customer



Research

Trading

50ndash100 ideas

3ndash5


























Fig

ure

45

Org

an

izati

on

al

Str

uct

ure

of

the

New

Equ

itie

s B

usi

nes

s

Glo

bal E

quit

ies

Glo

bal

Acc

ount

sM

anag

emen

t

Inte

rnet

Res

earc

h

Reg

ions

Res

earc

hSa

les

Trad

ing

Fixe

dIn

com

eTr

easu

ryPr

oduc

ts

Con

vert

ible

Bon

dsEq

uity

Der

ivat

ives

Glo

bal

Prod

uct

Sect

orSa

les

Hed

geFu

nds

Inte

rmed

iari

esan

d E-

Ban

king

Port

folio

Trad

ing

US

UK

HK

Jap

FrG

erO

ther

Cou

ntri

es

Oth

erC

ount

rySt

ock

Spec

ialis

ts

Japa

nSt

ocks

Spec

ialis

t

UK

St

ocks

Spec

ialis

ts

Glo

bal

Acc

ount

Dir

ecto

rs

Inte

rnet

Res

earc

hSp

ecia

list

Acc

ount

Man

ager

sC

onve

rtib

leB

ond

Spec

ialis

t

Equi

tyD

eriv

ativ

eSp

ecia

list

Glo

bal

Prod

uct

Spec

ialis

t

Sect

orSa

les

Hed

geFu

ndSp

ecia

list

Inte

rmed

iari

esSp

ecia

list

Port

folio

Trad

ing

Spec

ialis

t

Liai

son

toPr

ivat

eB

ank

and

Ret

ail

Bro

kera

ge





Customization


























IBank

Equities Leaders





Operations

Fund Client

CEO


Fund Manager

Analysts

Trading

Operations





























Strategy

Structure

Processes

People

Rewards




Customer Plans




Training in CRM















IBank

GlobalEquities


Clients

Europe

NorthAmerica

Japan andAsia

Global FixedIncome

Treasury Product

Global Custody

PrivateBank

E-Banking

RetailBrokerage

Intermediaries

Segment3

Clients




ProductSpecialist


AccountDirectors

EquitiesGlobal

AccountDirectors

CustodyGlobal

AccountDirectors



AccountManager

AccountManager

AccountManager

CorporateFinance




Lessons from IBank














87

5


















1

2

3

4

5

6

7

8

9

10

0

Stand-AloneProduct

e-Coordination

Formal Teams

Integrators

Matrix

IBMLineOrganization

Informal




IBM







Strategy





































IBM Structure





Fig

ure

52

IBM

Str

uct

ure

IBM

Lega

l ampIn

telle

ctua

l Pro

pert

yR

ampD

Supp

ly C

hain

Mar

keti

ngH

uman

Res

ourc

esC

FO

Fun

ctio

ns

Fron

t End

Glo

bal S

ervi

ces

Soft

war

eH

ardw

are

Cus

tom

ers

amp G

eogr

aphy

Pro

duct

s amp

Sol

utio

ns

Asi

aEM

EAA

mer

ica

Fina

ncia

lSe

rvic

es

Dis

trib

utio

n

Man

ufac

turi

ng

Gov

ernm

ent

Part

ners

Fina

ncia

lSe

rvic

es

Dis

trib

utio

n

Man

ufac

turi

ng

Gov

ernm

ent

Part

ners

Fina

ncia

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icon

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Fig

ure

53

IBM

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rope

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l

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keti

ng

Not

e T

itle

s hav

e be

en m

odifi

ed fo

r thi

s str

uctu

re


















Offerings















WebHosting

TradingNetworks

MarketingNew

Business

HostingServices






COUNTRIES




























Partner sales force


Internet

Education



People and Rewards






















































Lessons Learned














119

6














Nokia Networks









Nokia Networks


CustomersProducts

Private Nets

RampD

Asia

CustomerService

EMEA

Americas

Sales

Marketing

Operations

RampD

Sales

Marketing

Operations

RampD

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Marketing

Operations

RampD

Sales

Marketing

Operations



New Opportunities








Nokia Networks


CustomersProducts


GlobalAccounts


RampDAsia

EMEA

Americas

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Operations

RampD

Sales

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Operations

RampD

Sales

Marketing

Operations

RampD

Sales

Marketing

Operations

RampD

Sales

Marketing

Customer

Consult

ProgramManagement

Education


























Salient Points


Procter amp Gamble









CEO

Toiletries

RampD

Operations

Sales

Shampoo

Dentifrice

Cosmetics

Soap

Staff

RampD

Operations

Sales

Bar soaps

Detergents

Liquids

Paper

RampD

Operations

Sales

Towel

Tissue

Diapers

Food

RampD

Operations

Sales

Cooking oils

Pringles

Peanut butter


Fig

ure

64

Fro

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Gam

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s

Food

Pape

r

Soap

Toile

trie

s

Food

Pape

r








































































E - Coordination






Step 6

Customer-Centric










Conclusion





145

7



































Strategy











Structure











Processes










DSP



Stand-AloneProducts






Rewards





People







Conclusion










Strategy

Structure

ProcessesRewards

People























163

8











Linking Processes











A

1

2

3

B



ProductUnits

C D

4



















Enterprise Services



i-Planet Middleware

Sun Storage

Sun Servers


Sparc Architecture













Conclusion




173

References















A










B








C




175

Index





























176 INDEX


INDEX 177












D








E















F










G


















178 INDEX


INDEX 179



H








I











(ISDC) 92









J




K


L








Lucent 151

M








180 INDEX


INDEX 181










MYIBMcom 102

N











O












P





















Q


R



129ndash131

182 INDEX


INDEX 183







157Russia 48

S


























T









U




V



50 55 56ndash57Vons 131

W






Y


184 INDEX



Contents

Preface

The Author

INTRODUCTION






Conclusion





Conclusion


Customer Lite





Lessons from IBank



IBM

Lessons Learned


Nokia Networks

Procter amp Gamble



Conclusion






Linking Processes




Conclusion

References

Index


Organization


Jay R Galbraith



CentricOrganization














2005001675


HB Printing 10 9 8 7 6 5 4 3 2 1


The Jossey-Bass




ix

Contents

Preface xi

The Author xv

Introduction 1





Conclusion




Conclusion





Lessons from IBank


x CONTENTS


IBM

Lessons Learned


Procter amp Gamble



Conclusion




Linking Processes




Conclusion

References 173

Index 175


xi

Preface





xii PREFACE








PREFACE xiii



xv

The Author





xvi THE AUTHOR




Organization



1

INTRODUCTION

















INTRODUCTION 3








5

1










Galbraithc01 3105 912 AM









The Bottom Line









Mind over Mind-Set

















Tabl

e 11

Prod

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ric

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nies

take

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s (19

93 1

997

200

1)

Trea

cy a

nd W

iers

ema

(199

5) S

eybo

ld (

1998

200

1)










Globalization








Electronic Commerce






Solutions



















Strategy



Strategy

Structure

Processes

People

Rewards



Tabl

e 1

2St

rate

gy P

rodu

ct-C

entr

ic v

ersu

s Cu

stom

er-C

entr

ic

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uct-

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tric

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n ro

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ility

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isk















Tabl

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3St

ruct

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and

Proc

esse

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s Cu

stom

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entr

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tric

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Rewards and People





Tabl

e 1

4Re

war

ds a

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e P

rodu

ct-C

entr

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s Cu

stom

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sfy



Culture







A Word of Caution



Conclusion









25

2

CUSTOMER-CENTRICITY

How Much Is Enough

















Strategic Choice





























Enterprise Services



i-Planet Middleware

Sun Storage

Sun Servers


Sparc Architecture







autointeriors








Scale and Scope








Integration
















Integration

Scale and Scope

Stand-AloneProduct

0

1

2

3

4

5

6

7

8

9

10

Low

Medium

High













E-coordination



Line organization

Customer-Centric

Product-Centric


Matrixorganization

Low

High



Formal Teams









Integrator










Matrix Organization














Conclusion





1

2

3

4

5

6

7

8

9

10

0Product-centric


E-coordination




Line organization

Customer-centric

Matrixorganization

Low

High

Medium






43

3










Customer Lite



















Organization





Division Head

Manufacturing

ProcessEngineering

10 Plants



AppliedTechnology

AdvancedTechnology

Customers Products


America


South Africa


Asia

Staffs







Customer


Executive Committee

Board








Bra

zil

Ger

man

yN

orth

Am

eric

aC

hina

Mar

keti

ng a

nd S

ales

XX

XX

App

lied

Tech

nolo

gyLE

AD

ER

Ramp

DX

Man

ufac

turi

ngV

XV

V

Logi

stic

sX

Qua

lity

X

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re 3

4Vo

lksw

agen

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tom

er T

eam

X =

mem

ber o

f cor

e te

am V

= m

embe

r of e

xten

ded

team

































Business UnitAsia

Business UnitEurope

GM

VW

Nissan



















Leadership




















61

4















1

2

3

4

5

6

7

8

9

10

0

Stand-Alone Product

IBankat start

IBankat end

Informal

e-Coordination

Formal teams















PrivateBank

E-Banking

RetailBrokerage

Equities

FixedIncome

TreasuryProducts


Private Equity

CorporateFinance

Industries

Countries

CapitalMarket

















Equities

Other Functions





North America

Asia

UK

Switzerland








IBank Customer



Research

Trading

50ndash100 ideas

3ndash5


























Fig

ure

45

Org

an

izati

on

al

Str

uct

ure

of

the

New

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itie

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s

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ock

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ank

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ail

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ge





Customization


























IBank

Equities Leaders





Operations

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CEO


Fund Manager

Analysts

Trading

Operations





























Strategy

Structure

Processes

People

Rewards




Customer Plans




Training in CRM















IBank

GlobalEquities


Clients

Europe

NorthAmerica

Japan andAsia

Global FixedIncome

Treasury Product

Global Custody

PrivateBank

E-Banking

RetailBrokerage

Intermediaries

Segment3

Clients




ProductSpecialist


AccountDirectors

EquitiesGlobal

AccountDirectors

CustodyGlobal

AccountDirectors



AccountManager

AccountManager

AccountManager

CorporateFinance




Lessons from IBank














87

5


















1

2

3

4

5

6

7

8

9

10

0

Stand-AloneProduct

e-Coordination

Formal Teams

Integrators

Matrix

IBMLineOrganization

Informal




IBM







Strategy





































IBM Structure





Fig

ure

52

IBM

Str

uct

ure

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e T

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s hav

e be

en m

odifi

ed fo

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s str

uctu

re


















Offerings















WebHosting

TradingNetworks

MarketingNew

Business

HostingServices






COUNTRIES




























Partner sales force


Internet

Education



People and Rewards






















































Lessons Learned














119

6














Nokia Networks









Nokia Networks


CustomersProducts

Private Nets

RampD

Asia

CustomerService

EMEA

Americas

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Operations

RampD

Sales

Marketing

Operations

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Operations

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Marketing

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New Opportunities








Nokia Networks


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GlobalAccounts


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EMEA

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Operations

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Customer

Consult

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Education


























Salient Points


Procter amp Gamble









CEO

Toiletries

RampD

Operations

Sales

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Operations

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Liquids

Paper

RampD

Operations

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Operations

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Cooking oils

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Fig

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64

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Pape

r

Soap

Toile

trie

s

Food

Pape

r








































































E - Coordination






Step 6

Customer-Centric










Conclusion





145

7



































Strategy











Structure











Processes










DSP



Stand-AloneProducts






Rewards





People







Conclusion










Strategy

Structure

ProcessesRewards

People























163

8











Linking Processes











A

1

2

3

B



ProductUnits

C D

4



















Enterprise Services



i-Planet Middleware

Sun Storage

Sun Servers


Sparc Architecture













Conclusion




173

References















A










B








C




175

Index





























176 INDEX


INDEX 177












D








E















F










G


















178 INDEX


INDEX 179



H








I











(ISDC) 92









J




K


L








Lucent 151

M








180 INDEX


INDEX 181










MYIBMcom 102

N











O












P





















Q


R



129ndash131

182 INDEX


INDEX 183







157Russia 48

S


























T









U




V



50 55 56ndash57Vons 131

W






Y


184 INDEX



Contents

Preface

The Author

INTRODUCTION






Conclusion





Conclusion


Customer Lite





Lessons from IBank



IBM

Lessons Learned


Nokia Networks

Procter amp Gamble



Conclusion






Linking Processes




Conclusion

References

Index

Jay R Galbraith



CentricOrganization














2005001675


HB Printing 10 9 8 7 6 5 4 3 2 1


The Jossey-Bass




ix

Contents

Preface xi

The Author xv

Introduction 1





Conclusion




Conclusion





Lessons from IBank


x CONTENTS


IBM

Lessons Learned


Procter amp Gamble



Conclusion




Linking Processes




Conclusion

References 173

Index 175


xi

Preface





xii PREFACE








PREFACE xiii



xv

The Author





xvi THE AUTHOR




Organization



1

INTRODUCTION

















INTRODUCTION 3








5

1


















Galbraithc01 3105 912 AM

The Bottom Line









Mind over Mind-Set

















Tabl

e 11

Prod

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ric

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us C

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take

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93 1

997

200

1)

Trea

cy a

nd W

iers

ema

(199

5) S

eybo

ld (

1998

200

1)










Globalization








Electronic Commerce






Solutions



















Strategy



Strategy

Structure

Processes

People

Rewards



Tabl

e 1

2St

rate

gy P

rodu

ct-C

entr

ic v

ersu

s Cu

stom

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entr

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uct-

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tric

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ms

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Rewards and People





Tabl

e 1

4Re

war

ds a

nd P

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entr

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stom

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Culture







A Word of Caution



Conclusion









25

2

CUSTOMER-CENTRICITY

How Much Is Enough

















Strategic Choice





























Enterprise Services



i-Planet Middleware

Sun Storage

Sun Servers


Sparc Architecture







autointeriors








Scale and Scope








Integration
















Integration

Scale and Scope

Stand-AloneProduct

0

1

2

3

4

5

6

7

8

9

10

Low

Medium

High













E-coordination



Line organization

Customer-Centric

Product-Centric


Matrixorganization

Low

High



Formal Teams









Integrator










Matrix Organization














Conclusion





1

2

3

4

5

6

7

8

9

10

0Product-centric


E-coordination




Line organization

Customer-centric

Matrixorganization

Low

High

Medium






43

3










Customer Lite



















Organization





Division Head

Manufacturing

ProcessEngineering

10 Plants



AppliedTechnology

AdvancedTechnology

Customers Products


America


South Africa


Asia

Staffs







Customer


Executive Committee

Board








Bra

zil

Ger

man

yN

orth

Am

eric

aC

hina

Mar

keti

ng a

nd S

ales

XX

XX

App

lied

Tech

nolo

gyLE

AD

ER

Ramp

DX

Man

ufac

turi

ngV

XV

V

Logi

stic

sX

Qua

lity

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re 3

4Vo

lksw

agen

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tom

er T

eam

X =

mem

ber o

f cor

e te

am V

= m

embe

r of e

xten

ded

team

































Business UnitAsia

Business UnitEurope

GM

VW

Nissan



















Leadership




















61

4















1

2

3

4

5

6

7

8

9

10

0

Stand-Alone Product

IBankat start

IBankat end

Informal

e-Coordination

Formal teams















PrivateBank

E-Banking

RetailBrokerage

Equities

FixedIncome

TreasuryProducts


Private Equity

CorporateFinance

Industries

Countries

CapitalMarket

















Equities

Other Functions





North America

Asia

UK

Switzerland








IBank Customer



Research

Trading

50ndash100 ideas

3ndash5


























Fig

ure

45

Org

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Operations

Fund Client

CEO


Fund Manager

Analysts

Trading

Operations





























Strategy

Structure

Processes

People

Rewards




Customer Plans




Training in CRM















IBank

GlobalEquities


Clients

Europe

NorthAmerica

Japan andAsia

Global FixedIncome

Treasury Product

Global Custody

PrivateBank

E-Banking

RetailBrokerage

Intermediaries

Segment3

Clients




ProductSpecialist


AccountDirectors

EquitiesGlobal

AccountDirectors

CustodyGlobal

AccountDirectors



AccountManager

AccountManager

AccountManager

CorporateFinance




Lessons from IBank














87

5


















1

2

3

4

5

6

7

8

9

10

0

Stand-AloneProduct

e-Coordination

Formal Teams

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Partner sales force


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Education



People and Rewards






















































Lessons Learned














119

6














Nokia Networks









Nokia Networks


CustomersProducts

Private Nets

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Asia

CustomerService

EMEA

Americas

Sales

Marketing

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Sales

Marketing

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Sales

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Operations

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Sales

Marketing

Operations



New Opportunities








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Marketing

Operations

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Marketing

Operations

RampD

Sales

Marketing

Customer

Consult

ProgramManagement

Education


























Salient Points


Procter amp Gamble









CEO

Toiletries

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Operations

Sales

Shampoo

Dentifrice

Cosmetics

Soap

Staff

RampD

Operations

Sales

Bar soaps

Detergents

Liquids

Paper

RampD

Operations

Sales

Towel

Tissue

Diapers

Food

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Operations

Sales

Cooking oils

Pringles

Peanut butter


Fig

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64

Fro

nt-

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E - Coordination






Step 6

Customer-Centric










Conclusion





145

7



































Strategy











Structure











Processes










DSP



Stand-AloneProducts






Rewards





People







Conclusion










Strategy

Structure

ProcessesRewards

People























163

8











Linking Processes











A

1

2

3

B



ProductUnits

C D

4



















Enterprise Services



i-Planet Middleware

Sun Storage

Sun Servers


Sparc Architecture













Conclusion




173

References















A










B








C




175

Index





























176 INDEX


INDEX 177












D








E















F










G


















178 INDEX


INDEX 179



H








I











(ISDC) 92









J




K


L








Lucent 151

M








180 INDEX


INDEX 181










MYIBMcom 102

N











O












P





















Q


R



129ndash131

182 INDEX


INDEX 183







157Russia 48

S


























T









U




V



50 55 56ndash57Vons 131

W






Y


184 INDEX



Contents

Preface

The Author

INTRODUCTION






Conclusion





Conclusion


Customer Lite





Lessons from IBank



IBM

Lessons Learned


Nokia Networks

Procter amp Gamble



Conclusion






Linking Processes




Conclusion

References

Index

A Guide to Strategy, Structure, and Process

Documents

Transcript of A Guide to Strategy, Structure, and Process