TranscriptQuestion: What are the new rules when it comes to doing business in the 21st century?
Ranjay Gulati: I think what’s important to realize is that in the last few years, people are realizing that we are perhaps operating in a different business environment than ever before. What some people have called the "new normal." And the essential idea here is that we are operating in a world that is much more interconnected; we have global competition; we have customers who are more informed and have more choices. So, you combine those ideas, you have customers with more information and more choices and you have lowering of entry barriers, you have competitors who get into the marketplaces very quickly and can imitate very quickly. So we have fast followers coming into the marketplace, puts tremendous pressure on price and margin for businesses.
"How do I compete in a marketplace that is much more competitive than before?" And you combine that with one more wrinkle, which is, you see a maturing technology space where products and services start to mature, and you are in what we call incremental hell. How do I create differentiation in that space? How do I compete in that space? And you combine yet another factor into that, that’s my demand side of the equation. On the supply side, I am now interconnecting much more complicated pieces coming together. And so I have to rely more and more on a network of suppliers. I have to look for innovation, not just within my organization, but also outside my organization.
So I have demand-side complexity, and I have supply side complexity. And I have to figure out as a business, how am I going to compete effectively where I have to produce and sell something that the customer wants and I can do that in a cost-effective and competitive viable manner.
Question: You challenge the notion that companies are customer-centric. Why?
Ranjay Gulati: Customer-centricity is kind of a platitude. You ask any business, are you customer-centric? And most likely the leadership in the company will say, of course we are. It’s a platitude. It’s like, are you a good person? Who’s going to say, I’m not a good person? So I don’t know if there’s a self-presentation issue of trying to say, "Yes, I am customer-centric," or if there is a self-delusion issue that I believe I am customer-centric. So an idea as obvious as businesses are customer-centric doesn’t always actually really happen. There’s a confusion around what exactly does it mean to be customer-centric. As long as customers are buying what I have to sell, what does it mean? Am I customer-centric or not? And so in the course of my own research, what I have found is that companies have a much harder time being customer-centric then they are willing to... I would say in some cases admit, but in many cases they are willing to admit. And the barriers to being customer-centric have to do with both awareness of what does it mean to be customer-centric and also action. So it’s really awareness and being able to act on it.
So, let me unpack this a little bit. Awareness is the first one. And awareness is not just looking at your customers through traditional market research, focus groups, you know, market research and things like that which typically tend to look at the customer through the lens of your product. Do you like my product? What do you like about it? What don’t you like about it? Instead, you have to look beyond to understand what is really happening in the life of my customer. That’s awareness. You look at bag salad. No lettuce company would have thought with bag salad if all they were asking was, do you like my lettuce? What do you like about my lettuce? How can I make it better for you? Bag salad came by asking a more profound and deeper set of questions.
And to really get there with those questions, you have to have a sense of curiosity and humility, not always in good supply in many organizations. That’s the awareness side.
But then there’s the action side of this whole story. I feel a much bigger barrier is in action. And action means getting your organization aligned and reinforcing customer focus, if you will. Organizations are set up to solve 20th century problems. In the 20th century the biggest barriers organizations faced were production, and distribution. So companies had to be organized, managed, measured around production and distribution, which is by product or by geography.
But today, what we are seeing is the biggest obstacle is in the demand side is uniqueness in the eyes of the customer which requires you to have a much deeper engagement, understanding of what is really happening in my customer’s life around my product and service. Whatever that might be. And I think that line of sight doesn’t happen because of the silos that exist in organizations that don’t always communicate, collaborate with each other to go to market in a corrective fashion.
Take an example, for instance. Look at Best Buy. Right? Largest consumer retail in this country. You know, discovers that 55% of their customers are women. This is a store designed by guys for guys. And women universally hate the shopping experience at Best Buy. So, now I got to figure out what women want. Women tend to buy things in clusters. Not individually like men do. So, the guy who is in charge of buying and placing televisions, doesn’t necessarily have to, or wants to talk to the guy or person who is stocking DVD players. Even though they should be, or how do I get the digital camera person to talk to the printer person to talk to the accessories person to talk to the software person so we can assemble all of those pieces and say, we have a coordinated plan for this group of customers.
So, it’s the awareness issue and there’s an action issue and I think both of those trip organizations up.