Fred Wiersema addresses The Masters ForumFred Wiersema addresses The Masters ForumMy prejudice going into Fred Wiersema's session on customer intimacy was that it would be just another talk on customer satisfaction, with lots of stories about companies that went to insane lengths to put a smile on customer's faces, and were accordingly rewarded by the marketplace.
But it wasn't like that at all. Customer intimacy is far from a naive process of "love your customer and the money will follow." Indeed, it can be likened to a reengineering of one's customer base. Just as we reneging processes to eliminate waste and delay, so can we take a paring knife to our roster of customers, eliminating those that aren't in our long-term interests, keeping the best, and coaching the in-between to be better customers than they have been.
Wiersema defined customer intimacy using the front door of his home in Boston. One Friday, a gust of wind blew the door off its 140-year old hinge. No do-it-yourselfer, he took the hinge to the neighborhood hardware store, where a man looked at the old hinge, and the approaching weekend, and suggested Wiersema wrap his doorway in plastic until a carpenter could be called.
Dissatisfied with that solution, he returned home, where his wife told him he had gone to the wrong store. The place to try was Home Depot. This time Wiersema pulled up to the superstore, tiptoed inside, and quaked when he saw the store's immensity. But a customer service desk near the door pointed him to an in-store consultant named Ted.
Ted took an instant interest in Wiersema. He sat down with him, drew some diagrams, pulled parts from several shelves, and sent the once nonhandy consultant home to fix his door. Which he did, making Wiersema a fan of Ted's, and a customer of Home Depot's for life. Where else could he get $30 worth of advice and only be charged $5 for a piece of hardware?
1) He had an old hinge in his hand, and so had an old, high-maintenance house.
2) He looked well-heeled, and so had resources.
3) He looked lost, and thus needed someone to help him now.
Customer intimacy, then, is less about the customer's delight than it is about your delight in having secured for yourself, as Ted did with Wiersema, a body of customers who will help you achieve your growth and profitability goals.
Companies did not have to worry about selecting the right customers 20 years ago. What changed? Why is customer intimacy important today? Wiersema described three quantum changes in the way companies do business since the 1980s:
In the 1980s there was a sudden new emphasis on general conditioning, begotten of international competition. General conditioning involved the new approaches to improving the basics business: quality, meeting customer needs, and competitive comparison.1
In the early 1990s, that movement yielded to a passion for lean management. Offshoots of this new fascination include process reengineering, outsourcing, and supplier rationalization.
The frontier opening up to us in the late 1990s, however, is all about growth. And growth is what drives the three "value disciplines" introduced in Wiersema and Michael Treacy's best-selling book
The Discipline of Market Leaders.
The three value disciplines are:
Unless your industry has been on vacation for the past ten years, there are no ripe new customers to cultivate — the "low-hanging fruit" was picked long ago. Retaining existing customers is nice, but guarantee or growth — who is to say that they will spend less on you in the years ahead, or that they will be as profitable to you? As for extracting higher margins from them, Wiersema's answer is, "Who are you kidding?" the trend these days is for customers to putting the squeeze on suppliers, not the other way around.
Customer intimacy works when businesses take a long hard look at who their current customers are, identifying which of them are ideal, and which of them are not, working hard to provide solutions to the winners that will bind them to you, getting rid of the losers, and working with the group in-between to make them ideal as well.
Wiersema supplied six conditions that tend to be in effect for customer intimacy to succeed.
In your drive to be a leader in your market, you will have to overcome several obstacles. You cannot deliver such a level of drop-dead service (like Ted's $30 worth of time for a $5 purchase) that you cannot make a profit. You must pick and choose which customers you will make such outlandish efforts for.
Your efforts to deliver results to customers are like a fish swimming against the current, because your customers do not stand still while you go through your customer intimacy moves. They are on the move, too, in the opposite direction, alert to opportunities with other providers, who may be promising better service, more hand-holding, and lower prices.
Finally, as you undertake this initiative, you will likely be tripping over the feet of other initiatives underway. Customer intimacy efforts often fail because companies are working too many other efforts. Wiersema calls this Gordian knot of change initiatives the "big disease." The cure to the disease: simplify your plans by terminating those that have low priority or are in conflict.
Wiersema suggests that every company perform an exercise in customer empathy, asking itself three questions:
Who are your most important customers today? Who will they be in five years?
How important are you to these customers' success and well-being?
What makes these customers choose your products or services?
The second and third questions are the most important, and require a level of imagination most companies are not up to.
The great companies, the ones that excel at customer intimacy, employ this "commercial imagination" to grease the customer experience at every stage.
To keep and attract premier customers, we should be providing customers with second-to-none experiences in the three parts of Wiersema's cycle:
The "get-it" experiences a customer has — what it's like acquiring the product or experience. His example of a dynamic get-it experience is the Amazon Bookstore on the World Wide Web (http://www.amazon.com), which allows us to buy any of 4 million titles at a substantial discount with the push of a few buttons.
The "use-it" experiences — what it's like using the product or service. His example here is Staples office supply stores, which offer a Staples National Advantage service that works with corporate purchasing departments to anticipate and meet supply needs as automatically as possible, thus converting the fabled 800-pound gorillas of purchasing into monkeys.
The "fix-it" experiences — what it's like when the product or service we bought needs a little intervention. Wiersema likes the example of Zeppelin (the one-time blimp company), which supplies and services European construction companies with Caterpillar earth-moving equipment. Downtime is so expensive to these companies that Zeppelin's "preventive maintenance" approach, which anticipates breakdowns and replaces vehicles before time is lost on the job, is winning over new customers every day.
Wiersema cited the case of Nypro, a generic Massachusetts-based plastic injection molding company that ten years had several hundred customers but was hovering on the brink of bankruptcy.
The problem was that Nypro was not doing anything different than any of its 52,000 competitors worldwide. Life was miserable. Gordon Nyten, the president, decided a reevaluation was in order, and asked himself what it was that they liked about their favorite ten customers. he came up with three considerations:
Their attitude was a cooperative one, not an adversarial one. It's hard to get excited about customers who perch on your shoulder like buzzards, waiting for something to go wrong so they can blame you.
Their requirements were not run-of-the-mill. Their specs were more challenging than other customers, and forced the company to stretch a bit to meet them. They brought out the best in Nypro.
They were big, ran up big tabs, and had the resources to pay their bills.
If these criteria bring to mind Ted's appraisal of Wiersema at Home Depot, they should. They are the kind of criteria companies must make as they pursue customer intimacy. Wiersema offered a pyramid graphic showing what a basic breakdown of customer base should look like:
Companies that have not undertaken a refocus of their customer base will have a high percentage of them at the bottom of their pyramid. Companies that are getting their act together will have the exact opposite configuration, with a very few at the bottom, and everyone else being pulled toward the top or jettisoned from the pyramid altogether.
Who do you coach, and who do you jettison? the same characteristics Nyten (and Ted) came up with apply. You want to coach customers that are open to collaboration, in need of tailoring or change, and well-heeled enough to take with you on your journey toward higher profitability.
"The fact that we are a multi-divisional, multi-functional, multi-regional, multi-plant, multi-product company is not the customer's problem."
If you're a company where hustle is considered unprofessional or a dirty word, fine. But don't be surprised when you are beaten by companies that don't feel that way, that have cultures that do not insulate them from customer considerations.
Wiersema described the pattern of the typical manufacturing company where the "The fact that we are a multi-divisional, multi-functional, multi-regional, multi-plant, multi-product company is not the customer's problem."sales staff promises the customer the world, then throws the promise over the wall to production engineering to solve. To heal this fractured approach to doing business requires an overhaul of the culture of the organization. Often this requires that companies 'change the conversation" they are having with clients.
The wrong agenda has the sales force out there trying to make the sale come hell or high water. Promise anything, get the sale, and let the chips fall where they may. It's a messy universe, because even as sales people seek advantage over customers, they fear customer retaliation when things go wrong — as they eventually do.
Signs that this is the kind of conversation your company is having with customers: an overemphasis on pricing and terms, and subsequent solving of quality problems. Signs that your conversation has taken the great leap forward toward customer intimacy are a shift away from pricing (which, of course, will remain an important issue) and toward exploring opportunities and solving problems. Customer intimacy is not about short-term sales. It is about long-term relationships with profitable customers.
When you trust customers, you are no longer afraid to ask them scary questions. Northwestern Mutual Life is fearless in its use of customer feedback. Every year it asks customers what problems they are experiencing with the company, with the understanding that the most serious issues will be printed where the whole world can see them, in the company's annual report.
A restaurant supplier in the Philippines was invited by a restaurant chain coming into that market that it might be on its short list of vendors — provided it could meet demanding quality standards and make severe cost concessions. The supplier went home and crunched the numbers and did everything possible to come in under the line the chain had drawn in the sand. They finally told the chain they could indeed meet the stretch challenge, and could they ink a contract immediately, so the commitment would be binding? They were stunned to be told that this chain did not believe in contracts or lawyers. But they did not bolt. Something told them there was something reliable and trustworthy about this particular handshake. And they were right. The new chain was McDonald's, and it (and the supplier) have flourished in that market.
Bring these six conditions into effect, Wiersema said, and you have the foundation for the kind of new growth that will carry you — well, until the next identifiable wave of organizational change.
But make no mistake — this is one wave you dare not pass up. We are living through a period of severe shake-out. Either we were unable to come up with the table-stakes of quality in the brief era of general conditioning, or we were unable to trim the waste from our operations during the lean management phase, or we will not be able to mold our customer base into the profitable and challenging body that Wiersema calls for.
The future will be a place where good customers will be hard to find. Nine out of ten companies who used to service Ford and Xerox no longer do. Companies are reaching out to the unusual supplier that is capable of a radical closeness, a co-location of the heart. A passion for excellence won't be enough to make the final cut — a talent for responding to customer challenges will be necessary as well.
What better example of this than the man who taught Wiersema about customer intimacy — Ted, the carpenter-consultant at Home Depot. The last time Wiersema saw him, Ted had left Home Depot. The superstore was too big, too hurried, and too impersonal for Ted's tastes — and not profitable enough for his entrepreneurial mien. So Ted struck out on his own, with a small hardware store that reflects his hands-on, customer-intimate approach to building. And doing very well.
Will Home Depot survive losing Ted? Undoubtedly. But every time we let a good one like Ted get away, or Toyota, our prospects become a little bit poorer. And Wiersema knows where he's heading next time he needs a good hinge.
Masters Forum Review/Preview is written and edited by Michael Finley .
Mike Finley may be contacted at mfinley@mfinley.com. Or visit him at FUTURE SHOES