Required Reading: Put Customers in the Driver’s Seat

Without customers, businesses fall victim to disruption and eventually die. But despite this reality, too many companies still don’t focus on their customers’ needs, says Suman Sarkar, a partner at Three S Consulting and author of Customer-Driven Disruption.

Disruption, he says in the book, can be a death sentence to businesses, but it doesn’t have to be. Companies can triumph over disruption by retooling their efforts to focus on customer needs. CRM Editor Leonard Klie caught up with Sarkar to discuss this further.

CRM: In the book, you say that too many leaders focus on short-term performance to the detriment of their customers. What do you mean?

Sarkar: Seventy percent to 80 percent of corporate leaders’ compensation is linked to stock performance. They are focused on increasing stock prices, sometimes to the detriment of customers and the long-term health of the company. Consider the pharmaceutical industry, which routinely increases prices to improve near-term profitability. Look at Comcast’s policy of making it difficult for customers to disconnect service, risking future relationships with customers should they ever want to return. Boeing rushed through production of the faulty 737 Max, which, sadly, resulted in a couple of crashes. There are many more examples.

Why do so many companies fail when it comes to truly understanding their customers’ needs?

Leaders are primarily driven to improve short-term stock prices. They keep trying to do what worked in the past and don’t look around the corner to see how customer needs are evolving. For example, FedEx is continuing to invest in its express business while customer demand is moving to its freight business as retailers have started to ship from local warehouses and stores. FedEx is unwilling to change its business model as customer needs change.

You are a strong advocate of personalization. How can companies offer this while still reining in costs?

Personalization doesn’t necessarily have to increase costs. Traditional cost metrics do not include write-offs of excess product, discounting of products, inventory holding costs, or costs from customers not using the products they buy, which impacts their future choice of products. When holistic cost metrics are considered, personalization can become rather cost-effective both for companies and customers. To personalize cost-effectively, companies have to rethink their whole supply chain from centralized manufacturing to distributed manufacturing, create separate supply chains for different demand patterns, reduce waste, and many more steps. These have to be tailored for the company and the specific customer segments it targets.

Most companies are organized functionally—sales, marketing, manufacturing, finance—but you urge the use of customer-facing groups. Why? What does this look like in practice?

The functional organization structure is left over from the industrial age. Specialization played a more significant role then than it does today. Today, companies will have to respond to customer needs in a more entrepreneurial way. If you think from a customer perspective, customers don’t care about whether an employee is from marketing, supply chain, finance, or another part of the organization. They care about their needs, and if their needs are not met, then they will go somewhere else.

To achieve customer focus, companies will have to create teams that are organized around customer segments. Then they have to empower these teams and build support for them into the organizations.

Which companies are really getting it right when it comes to responding to customer needs? What first step would you suggest for companies looking to emulate these successes?

In every industry and geography, there are companies getting it right, and they outperform the competition. Some of the names are Amazon, Disney, Chick-fil-A, Aldi, Southwest, Apple, Haier, and Patanjali.

The first step is to attempt to connect with customers. The C-suite is very isolated from customers. A Harvard Business Review study found that on an average, CEOs spend less than 10 percent of their time with customers and 7 percent with suppliers. This has to change.

As Millennials become the dominant buying group, we will find companies and leaders that don’t listen to customers rapidly become extinct. As you can see from the retail sector, retailers are increasingly filing for Chapter 11 and are then getting liquidated. For long-term investor wealth creation and the continued survival of companies, leaders will have to start spending time with their customers.