You Can Sell Products–and Please Customers: An Interview With Jay Galbraith

0
2415

Share on LinkedIn

It’s easy to call your company customer-centric, but where do the customers come in and how do you keep the product from getting lost in the shuffle? CRMGuru.com founder Bob Thompson spoke with organization strategy expert Jay Galbraith on the challenges of building an organization that serves the customer with a superb product. This Inside Scoop interview took place July 12, 2005. The transcript was edited for length and clarity.

The Star ModelTM

The HP strategy

Innovation and relationships

Bob Thompson

I’m delighted to welcome Jay Galbraith, the author of Designing the Customer-Centric Organization, to our Inside Scoop interview. Jay, welcome to our program, and tell us a little bit about yourself.

Jay Galbraith

I’d be glad to. I’ve been on the faculties of a number of business schools, such as the Wharton School and the IMD in Lausanne, Switzerland, but today, I’m spending most of my time just working on my own, consulting, writing and speaking. I do affiliate with the Center for Effective Organizations at USC. This is Ed Lawler’s center [Lawler, a human resources management expert, is the director of the Center for Effective Organizations at the University of Southern California’s Marshall School of Business], and we do some workshops and work on some projects there.

But for the most part, I’m really working for myself, and with a network of long-time colleagues, largely on reorganizations. There’s a number of organizations that are trying to offer solutions. If they want to get their products to work together as a solution for the customers’ problem, then they’ve got to get their divisions, or business units, to work together in order to create those. It’s that process and that kind of challenge that I’m spending most of my consulting work on.

Bob Thompson

How did you get involved in this area? Was there something in your background before you got into the book writing and consulting gig?

Jay Galbraith

Yes, I’ve always been associated with matrix kinds of organizations, complex organizations, from my early days. My first faculty position was teaching at Sloan School at MIT and getting into managing R&D. These are projects and functions and big aerospace projects, and I learned matrix. From there, I’ve really gone on to work on projects where it’s just really difficult to get a nice, clean way to break up your organization into independent units.

Bob Thompson

You’ve done a lot of work and you’ve written some other books on organization, but what caused you to write this specific book about designing the customer-centric organizations? I mean, I don’t get it. Every organization is customer-centric. All you have to do is ask them.

Jay Galbraith

Right.

Bob Thompson

So I don’t know why you’d have to go about designing an organization or writing a book about it. Obviously, you found there was a need. What was that?

Jay Galbraith

We were putting together a program when I was on the faculty at IMD, and a colleague of mine had done a survey on the priorities that CEOs have. Some of them were the obvious ones, managing constant change and so forth. But they also encountered one in which they were having difficulty managing organizational complexity. This arose because most of these multi-national organizations were organized by business units and countries in some kind of matrix, and then they had functions. Suddenly, there was this rise of the customer who wanted longer-term relationships that wanted to be serviced around the world. This required them to set up global accounts, and very often, that, then, became a customer business unit or some customer-facing activity that was more than just sales.

That got them into these four-dimensional organizations. To me, it was more than just adding a solutions unit or a global accounts unit to their already kind of three-dimensional matrix. I got interested in that, and that’s clearly what my practice is today.

So on the basis of a number of case studies that I did, I was financed by McKinsey—their design practice—to help them put together some ways of trying to deal with this complexity that their customers were having. That’s what really got me into it.

The Star ModelTM

Bob Thompson

Early on in your book, you outline what you call a “Star ModelTM” and use it as a way to describe what an organization should look like, so it’s more than just an organization. It’s more than just who reports to whom, for example.

Jay Galbraith

That’s right.

Bob Thompson

Could you spend a moment or two and outline what that Star Model’s all about and why you believe it’s a good model?

Jay Galbraith

Yeah. It’s been sort of my guide to dealing with clients. It basically says you start with strategy, which is fairly standard, and that gives you the criteria for choosing how you want to organize. There are a number of organizations moving toward really offering solutions, rather than just stand-alone products, so that’s the strategic change. Then you design an organization structure, which is often adding a kind of customer-facing front end to deal with these customers. There’s a back end of the business that’s also built around your product lines that gives you global scale.

The real issues are, then, how to tie the product and the customer parts of the organization together. This requires a lot of management processes. The planning process, itself, is really center stage here, but there’s also new product development. There’s new solutions development. So it’s a very process-intense organization, and this, I think, quite often is the piece that’s missed. It means aligning your rewards systems and measures around it, so you’re interested in customer share as opposed to market share, and you also have some human resource policies.

There’s a different set of people that usually need to be brought in. Nobody has enough global account managers these days because it’s usually not just a salesperson. It’s someone who manages the account. And no one has enough project managers to put together these solutions.

So when you move—when you change your strategy—it’s a matter of putting into place those structures, processes, rewards, and people as a whole total package. It’s really organizing around the customer.

Bob Thompson

But moving to a customer-centric strategy, doesn’t it require that other elements of this model be changed?

Jay Galbraith

That’s right.

Bob Thompson

In your experience, among people, structure, rewards, and processes, is there one that stands out in your mind as being the most problematic, the most screwed up, if you like?

Jay Galbraith

Yeah, there’s a couple. It’s rare that you put all the processes into place, because you want to be able to assemble very rapidly a team of people to a proposal or an opportunity that a customer has, and then, if you win that, to be able to pull together another team to execute it. One of the things is that, with assembly and disassembly of teams, this is not a natural act for a number of companies. You really just start to become more and more like a consulting firm or an investment bank where you organize around deals. There are some good models to follow here.

The other one is if you’re a good product-centric organization, very often, you have a bottom-up kind of strategy that you’d find at an HP or the old 3M. So what you need now in a solutions strategy is a top-down component that gives it a logic as to how these products will all fit together in a solution that’ll create value for a customer.

Bob Thompson

But you still need to consider both, right?

Jay Galbraith

Yes.

Bob Thompson

And the customer-centric advocates sometimes forget that there still are products and solutions—

Jay Galbraith

That’s right.

Bob Thompson

And people still buy things or services.

Jay Galbraith

IBM is a good example, because they still have to have world-class products to combine into the solution, and when they don’t, they’ve been getting rid of their storage unit and they put that into a joint venture.

Bob Thompson

Yeah or their PC unit.

Jay Galbraith

PCs. And then they’ll buy them outside. So you’ve got to go to market with the best.

The HP strategy

Bob Thompson

Now, a little digression here. I wonder if you could comment on Hewlett-Packard? They’ve made a change in their leadership, and as near as I can determine, they were on a strategy to improve their customer-centricity. You could see it in the way they organized their different business groups. So they moved away from all these independent product groups, basically.

Jay Galbraith

Right.

Bob Thompson

But, just from reading some of the media articles, it seems like maybe they’re backtracking a little bit. Do you have an opinion on that, on what they’re doing?

Jay Galbraith

I’ve not been closely associated with them lately. I was part of about four different attempts earlier, when Hewlett-Packard tried to set up solutions units and systems units and so forth, and they failed each time. And they did that because the product lines dominate.

Bob Thompson

How far back was this?

Jay Galbraith

Starting in the 1980s. They tried to become an IBM in the ’80s. They were trying to become an IBM here again, but each time, what they were lacking was really this top-down leadership.

Bob Thompson

Well, didn’t they have that with [former CEO] Carly Fiorina. What do you think is going to happen with [CEO and President] Mark Hurd?

Jay Galbraith

Yeah, well, there’s different parts of HP. So if you look at their printer and consumer goods and so forth, I think you’ll find a much more product-centric component there. If you go over to the enterprise side of selling servers and so forth, they’re still on a path there to become a solutions group and will provide consulting services.

Bob Thompson

Is that driven more by the nature of the types of customers, the markets they’re trying to go after? So big enterprises like bundles of things. Consumers like products. Is that the gist of it?

Jay Galbraith

Yes.

Bob Thompson

That leads me to another question that’s been bugging me for a long time, which is that a lot of the conventional wisdom in the CRM or customer-centric community is that being customer-centric is the way to compete. But there’s rarely any discussion about whether it’s appropriate in all situations or how customer-centric you really need to be.

In other words, it’s not like: Let’s put the pedal to the metal and go as fast as we can, but what’s the right speed? So let me ask you, how do you determine that? What’s the right level of customer-centricity? Is there some way to measure where you’re at, where you should go, and develop a business case for what you need to do to get there?

Jay Galbraith

I think there is. What I tried to do in the book was to look at what I called the scale and scope of the solution. I start with defining customer-centric out of the Peppers & Rogers [Group] view, where a customer-centric organization is one that tries to find as many products and services as possible for their customers; where a product-centric organization is one that tries to find as many customers as possible for their product. So how many different products and services you’ve got and how integrated those products and services are will determine how customer-centric you need to be.

Bob Thompson

So if you’re a one-trick pony, maybe not such a compelling need.

Jay Galbraith

Correct. So I’ve got a customer now in marketing services. They do some market research. They do some training of channel partners. They do some measurements of incentives to give out. Those are three products that they put together into a solution for gas stations, so oil companies would hire them to improve the customer satisfaction people have with their service stations. But that’s a small integration task, compared to an IBM that’s putting together a whole CRM solution for a multi-national company.

For IBM, all of these hardware, software and services have to blend together very tightly, very integrated. You’ve got different kinds of hardware, software and services that are being combined, so the scale and scope of what they’re putting together is quite significant, relative to, let’s say, a consumer bank that’s just trying to cross-sell. So if you’re offering a mortgage, you’re offering credit cards, you want an auto loan, a home equity loan, those are all independent units and can be bought and sold independently. There’s not a high level of integration. So the consumer bank can be less customer-centric than IBM, which has to know a great deal about the industry in which they’re trying to apply the sales.

Bob Thompson

It seems to be uncomfortable for business leaders to say they’re not customer-centric.

Jay Galbraith

I know. It’s like being a Neanderthal.

Bob Thompson
.
It’s kind of like, “Well, of course, we are.” So it’s not the politically correct thing to talk about products, but, in fact, people buy products. And what you’re saying is that in some cases, you really should focus on the products.

Jay Galbraith

There’s nothing wrong with being product-centric. Genentech is doing just fine. I heard their earnings today.

Bob Thompson

Yes. Quite well.

Jay Galbraith

I mean, the whole big pharma blockbuster idea is being product-centric. Now, I would think the reason the customer-centric people are talking is that the trend is more and more a movement toward being customer-centric.

Bob Thompson

And why is that?

Jay Galbraith

Your products are commoditizing, and, so, how are you going to distinguish them? You put them together and package them up in some unique forms that solve a customer problem better than the customer can solve it for themselves.

Bob Thompson

That’s a defense mechanism against commoditization. But Steve Jobs would probably disagree with you that you have to give in to commoditization, because he keeps reinventing Apple. And there are other examples. You mentioned pharma, where the products really drive things.

Jay Galbraith

That’s correct. So Apple’s doing just fine at the moment with a collection of winning products. If you’ve got products and the advantage you get through your products has some sustainability—where you can use patents with the pharmaceutical—then there’s nothing wrong with being product-centric.

Bob Thompson

So you’re getting back to the fundamental strategy of the business.

Jay Galbraith

That’s right.

Innovation and relationships

Bob Thompson

Are you about product innovation, or are you about the overall relationship in how you bring a lot of different things together?

Jay Galbraith

Correct. It’s also possible to be both.

Bob Thompson

Can you give me an example of that?

Jay Galbraith

Let’s take Procter & Gamble. Starting with their building of a relationship with Wal-Mart, they developed a supply chain partnership. They have a front end of the business now that is really based around geography and global retailers, and that’s a very customer-centric part of the business. The back end of the business is global business units, and those GBUs are producing winning health and beauty care products and are inventing—what’s the last article?: Procter and Gadget [Business Week, February 2005, Welcome to Procter & Gadget], where they’ve put Mr. Clean into a device that you now wash your car with. They’re inventing different kinds of products, not just packaged consumer goods, but they’ve got mops and Swiffers and electric toothbrushes. They’re taking some of their products and combining it with what they get from outside suppliers. So they have a back end of the business that’s product-centric. And the front end of the business combines these products and has partnerships with Carrefour, Tesco and Wal-Mart around the world.

Bob Thompson

I’ve noticed that you go to Best Buy, for example, which I think does a pretty nice job as a retailer of technology products. You see that the retailers, sometimes, are the organization that is really managing the relationship, to whatever degree that is, or providing the experience, but the products they’re providing are high-tech. And they succeed or fail based on their own merits.

Jay Galbraith

Yeah. I think Best Buy is a good example because they’re really trying to convert to a customer-centric model, in order to compete against Wal-Mart. Because if you just want to buy a product—they call them “grab and gos”—if you just want to grab a TV set, Wal-Mart’s going to beat them every time on price. But for services—for getting the home theater and delivering it to your home, repairing it—they have the whole Geek Squad or people at the home office.

Bob Thompson

Apparently, that’s doing quite well for them, business-wise, in terms of their margins on it.

Jay Galbraith

I think so. So Genentech is a great product-centric organization, reporting their earnings. And Best Buy reported theirs, and they’re both off the charts.

Bob Thompson

Let’s talk a little bit about the measurement reward systems. Let’s assume that your strategy is to be customer-centric and you take care of some of the other issues that we’ve talked about in your Star Model. I want to focus right in on how you measure things and how you reward people. Can you comment about what companies should do and what some of the common problems are?

Jay Galbraith

It can take place on a couple of levels. One is rewarding the executives and the people who run the show, and there, the tendency is to measure what is being accomplished, that is, meeting your goals, your profit goals. There are also measures of customer share, customer retention, that get brought in, that are a bit more important in the customer-centric organizations. There’s also a lot of emphasis on how you do it. So it’s what you do and how you do it so that you’re being evaluated on how effectively you participate in these teams that have to create solutions.

Bob Thompson

OK, but let’s be more specific. How would you design a measurement for such a team, such that management can track how things are going and that, potentially, you could reward the team, somehow, for doing the right kind of customer-centric job?

Jay Galbraith

The ones that are best at doing this, probably, are the investment banks, and they put a team together to do a deal. The partners of the firm will assess how effectively this team functions together. They will interview each member of the team to see how well they work together, and specifically, they’ll go to the customer and say, “How satisfied were you with this?” And then there’s also the profitability measures of the deal and how quickly it was done.

Bob Thompson

I wasn’t aware that the investment bankers did that.

Jay Galbraith

Oh, absolutely.

Bob Thompson

Very interesting.

Jay Galbraith

Once a deal comes together, or if you’ve got an acquisition, then you’ve got to pull in people to evaluate the equities. You may have to issue debts. You may have some derivatives, bring in financial analysts. It’s very easy to get 10, 12 people from different parts of the organization, and very often, these companies will assess the satisfaction of different departments in working with other ones.

If there’s one department that’s kind of difficult to work with, they’ve got sharp elbows and big egos. They’ll get put in their place and be given a goal that will improve the way in which they work with these others, because you can’t afford to have some big ego getting in the way of a deal. You’ve got 30 days from first call to close, like they would say.

Bob Thompson

That’s an interesting example.

Jay Galbraith

The consulting firms, again, are another one where they sort of evaluate each other on the team, so you try to look at the team and their outcomes. And the team members, they’re pulling these things together. The same thing you find in IBM, where they’re pulling together now. I mean, IBM was an individual quota company for years, and now you can have group quotas. There’s a team of people that are working on consumer banking in Zurich, for example, and they’ve got a quota for a number of people here to meet their group quota—not, the individual quota; they may have some individual targets—but there’s a group outcome that they’re really trying to get.

Bob Thompson

Do you have a favorite example of a company that you feel made the shift from a product-centric organization to a customer-centric organization and has seen the benefits of it? You can look back and say, “I did it, and it worked, and I feel like it’s added something to the bottom line,” or what have you?

Practical examples

Jay Galbraith

Actually, I’ve got two. The one I like the best is IBM. I mean, they were going to break it apart 10 years ago—

Bob Thompson

Yeah, I remember that.

Jay Galbraith

—15 years ago.

Bob Thompson

I was at IBM at that time.

Jay Galbraith

Oh. OK. They were going to become a holding company. John Akers was going to break it up, and [former CEO Louis] Gerstner came in and listened to the customer, who said, “Don’t do that. We’d like to have you put all this stuff together for us, because client server doesn’t work.” So here was this company on the path of becoming a holding company. I think they were dominated by the hardware mainframe folks and being very product-centric. I think that’s been turned around to their advantage now.

A similar model is Nokia. I would look at their network business unit. They’ve got three business units. One is solutions—business solutions, which I don’t know much about—and the other is their mobile phones, which is probably on the side of being product-centric. But their networks—where they sell to Verizon, to the Vodafones of the world—that was a conglomerate in and around 1990. But it has really picked a particular class of customer, like Vodafone and Orange, who are the new start-ups. And these people asked all of the providers of network equipment to build them a network, and no one had that capability. So Nokia built it up. They can design a network. They’ll run it for you. They’ll educate people. So it’s a very customer-centric transition that they’ve made in their network business.

Bob Thompson

They’re probably still pretty product-centric, in terms of designing specific phones.

Jay Galbraith

That’s right. They try to get the best phone, the one that wins, and move quickly to the next one, and it’s product, product, product.

Bob Thompson

Yeah. OK. A couple last questions. I want to ask you about leadership and then wrap up with some advice from you.

Jay Galbraith

Sure.

Bob Thompson

What kind of leader needs to be in charge of these types of shifts? I mean, we’re talking about either a business or a business unit that has decided it needs to make the shift to customer-centric strategy in organizations. You’ve heard a lot of the anecdotal stories about failures of CRM projects or what have you. You’ve mentioned HP as struggling with this idea in years gone by. So what kind of leader do you feel is required to make this work?

Jay Galbraith

It’s going to be one that has a great deal of strength, because they’re going to have to marry this back end and front end, the customer-centric and the product-centric part. And those are inherently tension-ridden relationships, so you’ve got to be good at managing conflict. You have to be good at getting a team of people around the table and getting to a decision. So if you’re someone who waffles, if you don’t like conflicts, you’re going to have a hard time moving toward customer-centricity.

So it’s people who can manage the conflict. You also have to make some good strategic choices. And in a way, I think Gerstner is probably a pretty good model. I mean, he’s got a lot of grey matter up there, thinking through the right kinds of moves.

Bob Thompson

But he was fundamentally a marketing guy, if I remember right, not a technology guy.

Jay Galbraith

He always led with the customer. If someone would try to b*** him on some new technology, he said, “Well, what does that do for the customer now?” So I think he drove IBM in that way. I think [IBM Chairman and CEO Sam] Palmisano is probably healing some of the wounds, since he was a brusque kind of leader. I think you’re probably looking at different kinds of combinations of leaders. I like the Intel model, where they’ve had combinations of two or three people who exercised the total leadership role.

Bob Thompson

All right, last question. Let’s imagine that you’re approached at a cocktail party by one of these newly appointed leaders. It’s the CEO or a business unit executive, and that individual says, “You know, I’m totally passionate about customers, and I’ve got to, somehow, move our organization toward being more customer-centric.” What quick words of advice would you give that person in order to head down the right path?

Jay Galbraith

I’d first start off, again, with a strategy, because you can be very attentive to customers, like HP’s printer business, and not be customer-centric. Are you putting together packages of products and services that are going to solve the customers’ problems? And are you starting with the customer’s problem, rather than your product? Very often, what I run into is product out: You combine what you already have and take it to the customer, as opposed to spending time with a customer to see what problem they have, and then, use your products and maybe partners’ products or competitors’ products that you can weave together to solve their problems.

Bob Thompson

So if I could just paraphrase, you would say, “Don’t assume that by being attentive to customers about how they perceive your product that that means that you’re customer-centric in the fullest extent of the word”?

Jay Galbraith

That’s correct.

Bob Thompson

Start with their problems.

Jay Galbraith

I get into arguments with people like the HP printer business that puts the customer in the center of their radar screen. They do focus groups that measure customer sat. They do all this kind of thing, but in the end, they’re selling printers. They try to find as many customers as possible for their printers. They don’t go into hospitals, and say, “How does our printer work in healthcare information, medical information systems and patient records?” and so forth and bring in all the software and other kind of stuff. Then, you’re being customer-centric.

Jay Galbraith
-
Jay Galbraith, Ph.D., a senior research scientist at the Center for Effective Organizations at the University of Southern California and professor emeritus at the International Institute for Management Development (IMD) in Lausanne, Switzerland, is an internationally recognized expert on organization design. His book is Designing the Customer-Centric Organization.

ADD YOUR COMMENT

Please use comments to add value to the discussion. Maximum one link to an educational blog post or article. We will NOT PUBLISH brief comments like "good post," comments that mainly promote links, or comments with links to companies, products, or services.

Please enter your comment!
Please enter your name here