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Ranjay Gulati is a professor at Harvard Business School. He is an expert on leadership, strategy, and organizational issues in firms. His recent work explores leadership and strategic challenges for[…]

Companies have a much harder time being “customer-centric” than they are willing to admit.

Question: What are the new rules when it comes to doing rnbusiness in the 21st century? 

Ranjay Gulati: I think rnwhat’s important to realize is that in the last few years, people are rnrealizing that we are perhaps operating in a different business rnenvironment than ever before. What some people have called the "new rnnormal." And the essential idea here is that we are operating in a worldrn that is much more interconnected; we have global competition; we have rncustomers who are more informed and have more choices. So, you combine rnthose ideas, you have customers with more information and more choices rnand you have lowering of entry barriers, you have competitors who get rninto the marketplaces very quickly and can imitate very quickly. So we rnhave fast followers coming into the marketplace, puts tremendous rnpressure on price and margin for businesses. 

"How do I compete rnin a marketplace that is much more competitive than before?" And you rncombine that with one more wrinkle, which is, you see a maturing rntechnology space where products and services start to mature, and you rnare in what we call incremental hell. How do I create differentiation inrn that space? How do I compete in that space? And you combine yet anotherrn factor into that, that’s my demand side of the equation. On the supply rnside, I am now interconnecting much more complicated pieces coming rntogether. And so I have to rely more and more on a network of suppliers.rn I have to look for innovation, not just within my organization, but rnalso outside my organization. 

So I have demand-side complexity, rnand I have supply side complexity. And I have to figure out as a rnbusiness, how am I going to compete effectively where I have to produce rnand sell something that the customer wants and I can do that in a rncost-effective and competitive viable manner. 

Question:rn You challenge the notion that companies are customer-centric. Why? 

Ranjayrn Gulati: Customer-centricity is kind of a platitude. You ask any rnbusiness, are you customer-centric? And most likely the leadership in rnthe company will say, of course we are. It’s a platitude. It’s like, arern you a good person? Who’s going to say, I’m not a good person? So I rndon’t know if there’s a self-presentation issue of trying to say, "Yes, Irn am customer-centric," or if there is a self-delusion issue that I rnbelieve I am customer-centric. So an idea as obvious as businesses are rncustomer-centric doesn’t always actually really happen. There’s a rnconfusion around what exactly does it mean to be customer-centric. As rnlong as customers are buying what I have to sell, what does it mean? Am Irn customer-centric or not? And so in the course of my own research, what Irn have found is that companies have a much harder time being rncustomer-centric then they are willing to... I would say in some cases rnadmit, but in many cases they are willing to admit. And the barriers to rnbeing customer-centric have to do with both awareness of what does it rnmean to be customer-centric and also action. So it’s really awareness rnand being able to act on it. 

So, let me unpack this a little rnbit. Awareness is the first one. And awareness is not just looking at rnyour customers through traditional market research, focus groups, you rnknow, market research and things like that which typically tend to look rnat the customer through the lens of your product. Do you like my rnproduct? What do you like about it? What don’t you like about it? rnInstead, you have to look beyond to understand what is really happening rnin the life of my customer. That’s awareness. You look at bag salad. No rnlettuce company would have thought with bag salad if all they were rnasking was, do you like my lettuce? What do you like about my lettuce? rnHow can I make it better for you? Bag salad came by asking a more rnprofound and deeper set of questions. 

And to really get there rnwith those questions, you have to have a sense of curiosity and rnhumility, not always in good supply in many organizations. That’s the rnawareness side. 

But then there’s the action side of this whole rnstory. I feel a much bigger barrier is in action. And action means rngetting your organization aligned and reinforcing customer focus, if yourn will. Organizations are set up to solve 20th century problems. In the rn20th century the biggest barriers organizations faced were production, rnand distribution. So companies had to be organized, managed, measured rnaround production and distribution, which is by product or by rngeography. 

But today, what we are seeing is the biggest obstaclern is in the demand side is uniqueness in the eyes of the customer which rnrequires you to have a much deeper engagement, understanding of what is rnreally happening in my customer’s life around my product and service. rnWhatever that might be. And I think that line of sight doesn’t happen rnbecause of the silos that exist in organizations that don’t always rncommunicate, collaborate with each other to go to market in a correctivern fashion. 

Take an example, for instance. Look at Best Buy. rnRight? Largest consumer retail in this country. You know, discovers thatrn 55% of their customers are women. This is a store designed by guys for rnguys. And women universally hate the shopping experience at Best Buy. rnSo, now I got to figure out what women want. Women tend to buy things inrn clusters. Not individually like men do. So, the guy who is in charge ofrn buying and placing televisions, doesn’t necessarily have to, or wants rnto talk to the guy or person who is stocking DVD players. Even though rnthey should be, or how do I get the digital camera person to talk to thern printer person to talk to the accessories person to talk to the rnsoftware person so we can assemble all of those pieces and say, we have arn coordinated plan for this group of customers.

So, it’s the rnawareness issue and there’s an action issue and I think both of those rntrip organizations up.
Recorded on April 20, 2010