Perspective
Vanessa Wallace
Peter Burns
Fiona Smith
Therese Fritzson
Making Customer
Centricity Pay in
Good Times and Bad
Lessons from Ten
Leading Companies
Contact Information
Sydney
Vanessa Wallace
Partner
+61-2-9321-1906
vanessa.wallace@booz.com
Peter Burns
Partner
+61-2-9321-1974
peter.burns@booz.com
Fiona Smith
Senior Associate
+61-2-9321-1911
fiona.smith@booz.com
Therese Fritzson
Senior Consultant
+61-2-9321-1981
therese.fritzson@booz.com
Booz & Company
EXECUTIVE
SUMMARY
In these challenging financial times many companies may be
tempted to drop customer-centric business models that have
become popular over the last decade. However, a recent
Booz & Company study has found that companies that truly
have a customer-centric business model have been able to reduce
product development costs and increase customer retention
and revenues—imperatives for all businesses, particularly when
competition for scarce customer dollars is fiercer than ever.
A skeptic might dismiss customer
centricity as just another expensive
management fad. Yet a recent
Booz & Company study suggests
that the problem isn’t the concept;
it’s the execution. By taking a
disciplined approach, a select
number of companies have been
able to achieve significant revenue
and profitability gains through
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customer centricity. Thanks to
their development of a more
customer-centric business, a fashion
retailer shortened its product life
cycle from the six-month industry
average to just 15 days; a telecom
operator increased its profitability
by 22 percent; and a major European
department store increased its profits
by 7 percent per year.
1
A Holistic
Approach to
Customer
Centricity
Why did these companies succeed
where so many others have
failed? That’s the question that
Booz & Company asked these and
other global companies with successful customer-centricity programs.
We found that these companies,
regardless of industry, had taken strikingly similar paths in
developing customer-centric businesses. A successful program demands
a change of process and
a change of culture. In particular,
executives at these companies told us,
building a customer-centric
company requires a clear vision,
backed by strong leadership and
a clearly defined goal to grow shareholder value; an operating
model that breaks down functional
boundaries, allowing information
to move freely and decisions to
be made quickly in response to
customer feedback; and significant
changes to what we call “business
enablers”—the people, processes,
and technology that keep the
business running from day to day.
A Clear Vision
and Defined
Goals
Everyone, it seems, tells their
shareholders they want to
“make the customer the center
of all our activity” or “create
value for customers to earn their
lifetime loyalty.” The difference
in the winning programs we
studied was they all shared a
concrete vision about the goal of
their relationship with customers
and a clear articulation of how
this relationship will deliver
superior shareholder returns.
The most successful programs
also have two other salient qualities:
strong leadership and good advance
planning. Interestingly, while
strong leadership seems to be more
important in a situation in which
the company isn’t under pressure to
change, advance planning is essential
regardless of the reason that the
customer-centricity program began.
Companies faced with either a threat
to their existence or a clear imperative
to change, such as plummeting rates
2
of customer retention or a risky
post-merger integration, were able to
quickly rally the organisation around
a customer-led goal. When a North
American bank found itself losing up
to 30 percent of customers in some
branches due to merger-related service
failures, executives had an urgent
imperative to quickly make changes.
Such urgency enables companies
to quickly identify problems and
reach key milestones. However,
when organisations reach their
original goal, they sometimes find
it difficult to move up to the next
stage of customer centricity, since
customer capabilities are not yet
firmly embedded in the culture. This
is particularly problematic when the
value of a customer-centric strategy
has not been clearly articulated
and embedded in financial targets.
One European bank was able
to successfully build its customercentric focus over the course of
a decade by setting targets for
customer profitability and measuring
and managing these metrics with
the same discipline as it applies to
more traditional product profitability
targets. It began with low-risk
experiments and, when those paid
off, made more public, high-profile
changes to the way it did business.
This rigor is critical to avoid customer
centricity becoming a feel-good fad
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that may have some initial success
if championed at senior levels in the
organisation but quickly abandoned
if profits dip or the macroeconomic
environment becomes more
challenging.
Proving the financial value of a
customer-centric strategy can be
challenging—particularly in the
data-rich financial services and
telecommunications industries,
where executives are used to hard
facts on product line profitability.
The most successful companies
that we studied were comfortable
with an evolutionary approach to
building proof in their customercentric strategy. Companies used
controlled experiments of short
duration, in a specific customer group
or geography, to demonstrate the
value of a customer-centric approach
without betting the house on an
untested theory. For one European
bank, this approach built customercentric momentum through the
accumulation of small victories—a
slow and bumpy ride that stretched
out over the better part of a decade.
The advantage of such slow growth
is that it made it possible to fully
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embed the customer-centric ethos in
the organisation. Similarly, for one
Asia-Pacific bank, it took almost
five years for employees to really see
a deep-seated connection between
employee engagement, customer
service, and shareholder value. Only
now, they say, is customer centricity a
true part of the company’s DNA.
The companies in our study had
differences in their approaches to
implementing customer centricity,
with programs of varying duration,
emphasis, and objective. What
was common to their success was
commitment from the leadership that
this was more than a passing fad—it
was a critical part of the strategy
to secure profitable growth. These
companies backed up their vision
with clearly articulated financial
outcomes of the strategy, even if these
financial benefits were expressed at
the outset as hypotheses that need
to be validated through controlled
experimentations. Doing so gave
the organisation a clear signal that
this change of direction will endure,
improving the odds that the change
will succeed.
Clear Vision: Questions
Is the goal for customer centricity
clear?
Has the vision been translated into
a financial goal?
Has the organisation identified proof
points to measure success
at each stage of the transformation?
Are the organisation’s leaders
demonstrating how the customercentric strategy will deliver growth
in the organisation?
3
Breaking Down
Functional
Boundaries
The second element that successful
customer-centric companies have
in common is that they have
implemented an operating model that
breaks down functional boundaries,
allowing information to move freely
and the organisation’s people to
quickly respond to customer feedback
(see Exhibit 1). There are five steps
to doing so:
Shift the organisation’s focus to
hearing the voice of the customer:
Companies in the study used a variety
of methods to improve their customer
listening, including walking in the
customer’s shoes for a day, having
executives work on the front line in
call centres and retail outlets, bringing
customers into the organisation to
tell their stories, and establishing
customer advice panels in which small
groups of customers provide ongoing
input into new products or service
developments. They also used more
traditional methods, such as customer
focus groups and feedback from
customer-facing staff, to learn more
about their customers’ needs.
To develop true customer intuition,
winning companies increasingly
blur the boundaries between
themselves and their customers and
suppliers. Many such companies
use open architecture models, in
which customers, suppliers, and
the customer-centric organisation
collaborate, sharing ideas and
feedback and working together to
4
improve the offering to customers.
This level of openness will likely
feel uncomfortable for many
organisations—and it does require
careful consideration to ensure
the organisation’s reputation and
intellectual property are protected—
but it can be hugely powerful, both
in terms of insights gathered and
customer relationships built. One
global mobile telephone operator
solicited its employees, suppliers,
and customers for ideas about how
to improve service. This process had
a high success rate, with thousands
of ideas generating 25 truly highpotential opportunities in a matter of
weeks, rather than the months that
an internal team could have spent
brainstorming ideas.
Clarify decision rights: Opening
up the organisation to learn more
about what customers need is only
of value if the organisation is clear
about who makes decisions based
on this information. Decision rights
clarity is important for all effective
organisations, but for organisations
adopting a customer-centric strategy
it is absolutely critical, for at least
two reasons.
First, poorly managed decision
rights mean that the rich customer
insight the organisation has
accessed will go unused. Product
designers will continue to make
decisions on product features in
isolation from operations managers
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adapting customer service standards,
separate from marketing teams
changing promotions and brand
positioning. Acting on customer
insight typically requires greater
cross-functional collaboration than
an internally focused product or
service development effort. Decision
rights must be clear to avoid having
cross-functional decision making
either slow the process down while
consensus is reached or duplicate
effort (and cost) as each function
continues to operate in isolation.
This requires the organisation to first
understand what the critical decisions
are, then define who is accountable
for making these decisions versus
those that provide information to
support the decision making process.
The second reason it is important
to adjust decision rights when
adopting a customer-centric strategy
is that a little bit of knowledge
can be dangerous: Although the
most effective customer-centric
organisations in our study understand
the importance of moving decision
making close to the front line
to customize marketing and
communication for customers, they
also recognize that offering frontline discretion over pricing, credit
assessment, and service delivery can
increase margin pressure, credit risk,
and operational complexity. For
example, a bank branch manager may
have the authority to run a marketing
campaign to specifically meet the
needs of his customers bilingual
communications in areas with diverse
populations or retirement seminars in
areas with large numbers of retirees—
but not change the products offered
or the credit scoring rules that apply.
The trick here, however, is to make
sure that the segmentation is tied to
specific courses of action, through
detailed models of the cost to
serve. Winning companies avoid
building “science projects” that
gather customer data to no purpose.
Instead, they track metrics that allow
customer service and sales teams
to easily deduce when an offering
might require an adjustment. Just as
small shopkeepers know their best
customers, and allocate their time and
energies accordingly, large customercentric companies need to understand
the relative profitability of their
customer segments.
Group customers into meaningful
and actionable segments: Customer
segmentation allows the organisation
to move from developing one-sizefits-all products to creating unique
customer value propositions, based
on behaviour rather than mere
demographics. These unique offerings
make creative use of specific product
and service bundles for customer
segments.
Having a meaningful and actionable
segmentation model is a good starting
point, but certainly not the end
of the road for a customer-centric
organisation. Grouping customers
together helps organisations better
understand specific customer needs
and develop value propositions to
profitably target these segments—but
it can never be perfect. The best
customer-centric organisations are
Exhibit 1
Operating Model Evolution to Support Customer Centricity
Inhibiting customer centricity
Enabling customer centricity
External view is not valued
Customer Listening
Customer and suppliers in close
collaboration with organisation
Unclear who is ultimate decision
maker—particularly when decisions
span functions
Decision Rights
Clear decision rights and streamlined
governance process speed time to market
One-size-fits-all approach to
customers, with standard products,
pricing, and services
Customer Understanding
Needs of customer groups and individual
customers understood and used to
develop compelling offers
Metrics focused on product
profitability (or revenue), average market
share, and business unit-level cost control
Metrics And Incentives
Customer profitability central
to financial metrics
No defined customer function
within the organisation
Organisation Structure
Customer function has own mandate and
is represented on executive team with
customer P&L accountability
Source: Booz & Company
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5
moving beyond segmentation to
understand what individual customers
need. For example, one of the
European banks in our study built up
such a rich picture of its customers
that it was able to offer products and
services with features and pricing to
fit their individual profiles—while
they were talking with a branch
teller or call centre agent. This more
targeted approach has helped the
bank increase sales in key products.
For example, it increased sales of a
new bank account (with higher fees
but more features) by 40 percent,
compared with sales growth before
this targeting was possible.
Align metrics and incentives:
Tracking and monitoring consumer
response to product performance and
service levels—and communicating
the result—is a critical part of
creating buy-in and maintaining
the momentum for a change to a
customer-centric perspective. In the
best customer-centric companies,
employee incentives and customer
metrics are all truly aligned to
drive customer profitability. These
metrics are very serious, and have
the same rigor and measurability
as other financial measures in
the organisation. Executives at
most of the companies we studied
emphasized the importance of both
quantitative and qualitative metrics,
such as mystery shopping scores in
combination with average revenue per
customer, in creating a rich, holistic
view of the relationship.
A trap for many organisations
shifting to a customer-centric
strategy is to focus purely on output
customer measures such as customer
satisfaction and advocacy. Although
these measures are important to
monitor, on their own, they don’t
help an organisation understand
what is driving any changes in
customer satisfaction or advocacy.
Isolating the drivers of customer
retention and value creation and
6
measuring these—as well as the
output measures—is vital so that the
organisation can adapt and improve
the profitability of its customers,
rather than helplessly watch a
customer advocacy rating slipping
down the rankings over time.
Establish “customer” as a business
function: The successful customercentric organisations we studied
have moved away from traditional
product silos, with all their inherently
territorial characteristics, to truly
cross-functional collaboration,
whether through an actual
reorganisation or simply through
better processes. Many leaders in
this area have established a specific
customer function with a distinct role
in the organisation that can efficiently
link marketing, distribution, and
product development.
Executives at the companies we
studied realize that creating a specific
customer-focused senior executive
role is a powerful way to align efforts
to profitably meet customer needs
and ensure that the customer’s voice
is heard in executive decision making.
In doing so, companies highlighted
the importance of the customer
function as having an equal role as
the marketing or sales functions,
which typically have their own
mandate and P&L responsibility.
Operating Model: Questions
Are all parts of the organisation able
to hear customers and their needs?
Have decision rights been
clarified to reduce duplication and
improve responsiveness?
Does the organisation understand
its customers’ needs—either
as individuals or as meaningful
segments?
Are metrics and incentives aligned
to support a customer-centric strategy?
Does the customer function have
a seat at the executive decisionmaking table?
One European retail bank that
succeeded in integrating its functions
found it had dramatically improved
its performance in a number of ways.
Better access between sales channels
increased the number of products
sold to new customers by 33 percent.
Better technical coordination reduced
the time to open an account from 55
minutes to 22 minutes—and increased
the volume of new accounts by 73
percent. At the same time, cost to
income ratio actually declined by 12
percent in the first five years of the
customer-centric journey.
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Changing the
Organisation
from Day
to Day
A clear vision, strong leadership, and
an operating model tuned to deliver
a customer-centric strategy will
ultimately be ineffective—and may
add more cost into the business—if
changes aren’t also made in what
we call the business enablers. Business
enablers are the people, processes,
and technology that operate within
the business on a day to day basis.
People: Shifting an organisation
from a product-push to a customerpull orientation often has a
significant impact on the capabilities,
behaviors, and attitude required
of staff, particularly those in
customer-facing roles. Transitioning
to a customer-centric culture can be
a long journey; all of the companies
in our study acknowledged this
as the most challenging part of their
transformation. The transition
often required changes to the
competencies and behaviors that
staff need, the recruiting process,
learning approaches, and performance
management systems. For a telecommunications company making
this meant changing the recruiting
profile from technical experts to
people who were passionate about
delivering customer service. The
company also reduced the proportion
of bonuses that were paid based on
individual performance and increased
the importance of team performance
and customer feedback in bonus
calculations.
In the organisations we studied,
as well as adapting the people model,
many executives felt that there were
also some smaller initiatives that made
the difference. This included physical
artefacts to signal the change, such
as new uniforms for customer-facing
staff and wallet cards summarizing
key customer messages; personal
e-mails from the CEO to individual
staff to congratulate them on reaching
a particular plan milestone; and
monetary rewards for going the extra
mile in giving great customer service.
In banking and telecommunications,
it was also important to selectively
hire outside leadership (especially
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from fast-moving consumer goods
companies) to force the organisation
to continue to look critically at
customer-centric capabilities.
Product architecture and innovation
processes: A risk for customer-centric
organisations is that the incremental
revenue earned by better targeting
customers will be eroded by a higher
cost structure. Organisations may
listen to customer needs without
filtering out the features that
customers would find nice to have
but won’t pay for. Doing so can lead
a customer-centric organisation to
develop a lot of bespoke, high-cost
products that too few customers are
willing to purchase at their production
cost, let alone a price that will earn
a profit. To avoid this trap, the
product architecture and business
processes need to be modularized.
This is achieved by breaking down
the product or service into base
level components, which are largely
fixed across multiple products
or services and are delivered by
scale processes, and innovative or
distinctive modules, which are added
to the base level components to
create an integrated proposition for
customers commensurate with the
price they are willing to pay.
The simplest way—and the one
most often overlooked—to manage
cost and complexity in a customercentric business is to actually ask
the customers what they value in
a product. One of the financial
services firms in the survey reviewed
its competitors’ offers and noticed
that all of the competitors offered
hundreds of investment options with
their wealth management products.
Testing some new product ideas with
customers actually revealed that for
the firm’s largest customer segment,
this number of investment options
was bewildering, and customers were
much more comfortable making a
decision when only three options were
offered. This example demonstrates
an important lesson for organisations
adapting their product and service
architecture—checking what
7
customers really need and are willing
to pay for can actually simplify the
customer offer and focus the business
on differentiating itself only in those
areas that customers truly value.
the business needs to capture, analyze,
and interpret about its customers
to improve decision making—not
the specs that a software vendor
deems necessary.
Technology: When many
organisations start thinking about
customer centricity, their focus
turns too rapidly to CRM systems.
We have deliberately deferred talking
about technology support to a
customer-centric strategy until now,
as a CRM system should never
be the driver of such a substantial
change, nor is it sufficient to drive the
change. This is not to downplay the
importance of improved information
about customers in helping employees
identify profitable opportunities to
extend the organisation’s relationship
with these customers. Rather,
specifying the data models and
architecture needed to support a
customer-centric strategy should
be defined based on what information
With a clear vision, financial goals,
a redesigned operating model, and
people and process enablers in place,
an organisation embarking on a
customer-centric transformation is in
a good position to clearly articulate
what customer data is needed to make
profitable customer-centric decisions.
The goal should be to capture and
link customer data in a way that
allows profitability to be tracked at
a customer level. This allows the
organisation to make the right cost
vs. revenue trade-offs for different
customer groups, test new innovations
with small groups of customers,
track the impact on the bottom line,
and glean insight from customers’ past
behavioral patterns.
8
Changing the Organisation:
Questions
Has the people model been adapted
to support a customer-centric strategy?
Is there a disciplined approach to
change management supporting
the cultural and behavioural
transformation?
Has the product and service
architecture been adapted to profitably
accommodate greater variation?
Does the product and service
innovation process engage with
customers to test ideas before
significant investments are made?
Does the organisation’s data
architecture support customer-centric
decision making?
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Conclusion
A customer-centric strategy is equally
important in bad times and good.
It can help companies understand
changing customer needs and the
prices customers are willing to pay,
and consistently deliver on their
promise to customers. Making
this happen requires not just lofty
vision statements from the CEO
or great marketing—it requires an
organisation to rethink its operating
model and how its people, process,
and technology enablers support a
customer-centric strategy. For most
organisations, this will be a multiyear journey. To ensure that the board
and management stay the course,
there must be a clear and measurable
financial impact from this increased
customer focus. Charting out the
journey—and the targets to achieve at
each stage of the journey—is critical
to truly embed this change in the
organisation and reap the financial
rewards.
Methodology:
Booz & Company Customer Centricity Study
Booz & Company completed a study to understand how organisations in
different industries and geographies had gone beyond the headlines to
make customer centricity a source of competitive advantage. The research
identified organisations with superior customer-centric reputations—determined
via metrics including customer service and loyalty—and superior financial
performance relative to their peers. To understand the secrets of their success,
we interviewed executives from the top-performing organisations, asking them
to reflect on lessons learned on their journey to customer centricity and the
importance of this strategy to their firm’s success.
Customer-Centric Organisations in the Study
Financial Services
Telecommunications
People used to think of customercentricity programs mostly in terms
of CRM systems. In fact, our research
suggests that technology can just
facilitate customer centricity, not
drive it. Many projects need not begin
with any major technical investments.
What matters more is a sustained
focus on the financial goal and the
transformation effort required to
achieve that goal. Profitable customercentric companies focus not only on
integrating customer centricity into
the organisation, but on ensuring
that the entire “ecosystem” of
the business—stakeholders, along
with organisational processes, and
structures—are aligned in ways
that support a customer-centric
growth strategy.
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RETAIL & Consumer Goods
- A
North American retail bank
that used a customer-centric
service philosophy to improve
customer retention
- A
n Asia-Pacific retail bank
that used improved customer
insight to redesign the service
model and sales approach
- A
European retail bank that
empowered front-line staff
to give customers what they
needed with intelligent point-ofsale systems
- A
n Asia-Pacific wealth manager
that focused
on delivering compelling
value propositions to
target customer segments
and deliver ambitious
growth targets
- A
global telecommunications
provider that was able to
increase customer retention
and average revenue per user
by segmenting its customer
base and developing tailored
propositions for each segment
- A
global telecommunications
provider that engaged with
front-line staff, business
partners, and customers
make its product offerings
more innovative
- A
global alcoholic
beverages manufacturer that
demonstrated the value of a
customer-centric approach to
distributors in order to deliver a
customized brand experience
in specific outlets
- A
European retailer that
comprehensively uses
customer listening and mystery
shopping to understand
customer
buying behavior
- A
European fashion retailer
that uses real-time customer
and staff feedback to adapt
its offerings to meet the
latest trends
- A
global retailer that captures
and interprets customer
buying patterns to optimize
its offerings in each location
and for each customer
Source: Booz & Company
9
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