Staying Power Requires Customer Focus

Maximizing customer value creates organizational resiliency-and longevity.

"Companies built around an inside-out mind-set-those pushing out products and service to the marketplace based on a narrow viewpoint of their customers that looks at them only through the narrow lens of their products-are less resilient in turbulent times than those organized around an outside-in mind-set that starts with the marketplace, then looks to deliver creatively on market opportunities," writes Ranjay Gulati in Reorganize for Resilience: Putting Customers at the Center of Your Organization. "Embracing an outside-in perspective-focusing on creatively delivering something of value to customers instead of obsessing over pushing your product portfolio-builds an inherent flexibility into organizations."

In this excerpt from Reorganize for Resilience, Gulati outlines what it takes to become a more resilient organization.

How Can You Become Resilient?

Over the last decade, long before economic circumstances made resilience such a vital survival skill, I have interviewed over five hundred executives, from CEOs to division heads and line managers, and analyzed close to a dozen enterprises, searching for the secrets of resilient organizations. I began my research during the 1999-2000recession, when I was looking at strategies companies used to survive and thrive, and have continued to track the same firms and some others through the post-2000 upswing until the present. My research has revealed a four-part path that many of these companies are following.

First, they have changed the conversation with their customers from one that focuses only on product specifications and price-the underpinning for inside-out thinking-to one that is more outside-in, focused on how they can help address customer-articulated needs. They have also sought to discover customer needs that may not be fully articulated.

Second, they no longer conceive of themselves as selling to customers, but rather as solving problems with and for customers. Their corporate souls are shaped not by making or even being but by solving. Developing real and deep customer empathy has become a key imperative.

Third, many have developed a salutary indifference to whether their own key inputs or even outputs are produced by themselves or someone else. As customer-centric companies focus on the set of customer problems they want to solve, they become less concerned with the means and more focused on the ends. Thus, these resilient enterprises are defined not by the stalwartness of their boundaries but rather by their permeability. Where once corporate boundaries were marked by defensive fortifications, these firms are strong enough to invite their former enemies inside.

Finally, and most important, for these resilient firms, customer centricity and related outside-in thinking isn't a shopworn mantra; it's their way of life. Their CEOs and top management see the business from the outside in-immersed in the broad customer experience, not constricted to the narrow lens of product or service-and build an organizational architecture that preserves that perspective and allows the company to bend the customers' way-the more so, the worse the economic climate. Under dire commoditization pressures, these companies have hacked down not costs but the old structures that held them in a product-centric world. They have not simply sharpened or redefined their strategy-the normal nostrums-nor was effective marketing alone the key.

Most managers understand why they need to be resilient, and many have figured out what customers want and what their companies should offer, but few appreciate the huge organizational barriers that prevent them from delivering on the suppleness they so fervently desire. While building customer centricity and outside-in thinking can make for great mission statements, most companies find it also spawns operational chaos and job confusion because they are not set up to execute on the promise.

Virtually all organizations have traditionally been built around stand-alone "silos" that revolve around a set of functions, products, services, or geographies, guarded by fortified boundaries that resist the intellectual, structural, and emotional changes that cooperation and coordination around a customer axis require. This organizational architecture has dictated strategic focus, which was by necessity inside-out (from the product or service to the customer), and, in turn, the customer interface, which was oriented toward selling products or services rather than toward customers and the problems they are trying to solve with those products or services.

These legacy boundaries are the final and often most resistant barrier to organizational elasticity. Even in a networked age, organizational boundaries have an extraordinary and endemic capacity to impede new growth initiatives by creating blind spots to fresh opportunities that may reside between silos or that can only come about through cross-silo collaboration. Altering such core elements is not easy-but it can be done. In fact, as readers will discover, some companies have done so very successfully, and many more could.

Building resilience into an organization can involve a complete restructuring, or require the bridging of existing product, geographic, or functional lines, and processes that have created barriers. But busting up organizational silos does not always equal obliteration, nor should it. Boundaries are often crucial to innovation and the development of deep product and marketing expertise-not to mention corporate identity-so managers must find ways to maintain those benefits while harnessing the aggregate strengths of the company's silos to develop and improve customer-centric offerings.

+ + + + + +

About the Author: Ranjay Gulati is the Jaime and Josefina Chua Tiampo Professor of Business Administration at the Harvard Business School.

Excerpt from Reorganize for Resilience: Putting Customers at the Center of Your Organization, by Ranjay Gulati. Copyright 2009, Harvard Business Press.