The Economist:
Integrated Transformation

How rising consumer expectations are turning companies outside-in

The Economist Intelligence Unit

Integrated Transformation is an Economist Intelligence Unit Report, sponsored by Salesforce. In this paper, The Economist Intelligence Unit explores how companies are adapting to evolving customer expectations and preferences, and how this has affected operations, business processes, decision-making and business models.

Introduction: Keeping up with the customers

Struggling to keep up with more demanding and discerning customers, businesses recognise a growing need for structural change and a shift in organisational mindsets

What do our customers expect and want? How can we see our company through their eyes? How might we better organise our resources to more closely match their needs, exceed them where possible, and win their long-term loyalty?

These are by no means new questions for business leaders, of course. But they are being asked with a new sense of urgency in boardrooms around the world. In a 2017 survey of marketing executives conducted by IT market research company Gartner, more than two-thirds of respondents said that their organisations compete primarily on the basis of customer experience. More than four out of five (81%) expected to be doing so by 2019.¹

Executives tend to cite digital technology and digitally native competition as the ultimate cause of rising expectations.

First, as digital technologies have increasingly enabled businesses to offer slicker customer experiences—simpler, more immediate, better tailored to individual needs—digital pioneers such as Amazon, Uber and Netflix have set new standards, transforming notions of what speed and convenience should look like.

At the same time, those same technologies have given consumers greater democratic powers. Online, choice abounds, and customers are able to easily research and compare products and services, browsing frank customer ratings and reviews, making the competition always a click away and the inertia of brand loyalty less reliable. We shop in-store or online at our convenience, and expect firms and customer service agents to be able to straddle these different “touchpoints” seamlessly.

In a global study of consumers conducted by management consultancy PwC, one in three (32%) said they were willing to walk away from a brand they love after just one bad experience.² They may also go public with their grievance, using online review sites and social media to share disappointing experiences with others, potentially leading to more lost customers and sales.

Great expectations

There is growing pressure on firms of all kinds to develop a more customer-centric approach to all aspects of business, and businesses have struggled to adjust their operations to cope with rising expectations. This is confirmed in a survey of senior executives conducted by The Economist Intelligence Unit and sponsored by Salesforce.

Survey respondents overwhelmingly agree that their business has been impacted in the past five years by a greater need for customer-centricity, with nearly half (49%) of all business leaders surveyed descripting this impact as “significant”, and a further third (32%) as “moderate”.

This effect is felt most acutely in the energy and retail sectors, and the least in the media, publishing and entertainment industry (see chart). Despite extensive business model disruption, the latter industry has always been led by the tastes and preferences of audiences, and therefore the impact here has been less pronounced.

The energy industry, by contrast, is typical of a sector not associated with strong customer ties now being transformed: the rise of smart metering and pressure from new entrants in many markets has forced a new focus on customers as a means of differentiation. Customers want to choose when and how they pay their bills, expect more intelligent and bespoke tariffs, to know where their energy is coming from, and expect immediate, responsive and personal customer service through the medium they prefer—be it a chatbot or phone operator. In retail, meanwhile, a general shift away from high-street stores and onto online channels has had a similar effect.

Action, not words

Across all industries, however, respondents recognise that becoming more customer-centric takes more than just lip service and good intentions. It demands effort and investment. Three-quarters (75%) agree that their organisation will need to make significant changes to keep up with customer expectations. Some of these changes will be structural; others will be cultural, requiring fundamental shifts in thinking.

Rick Hasselbeck, chief commercial officer at white goods maker GE Appliances, describes the required mindset as being customer-first. “In the past, like many businesses, we were a very inside-out organisation,” he says. “We made internal decisions about our products and services and then hoped that the results appealed to customers.”

But in recent years, he continues, the company has shifted instead to an “outside-in” mindset, based on exploring the needs, preferences, opinions and motivations of the people who buy and own its dishwashers, fridges and so on, and then organising its business activities around its findings.

Companies such as GE Appliances have benefited by letting customer opinion and feedback assume a greater role in their research and design decisions. That approach has been most apparent in the success of the GE FirstBuild platform, for instance, where new product ideas are crowdsourced from a deeply-engaged online community.

This shift in thinking began before GE Appliances was acquired by Chinese company Haier in 2016, Mr Hasselbeck explains, but is very much in step with the new parent company’s own “Zero Distance” strategy, which also calls on employees to prioritise internal actions and decisions according to customer needs.

“We’re thinking deeper and harder about the ownership experience than ever before,” says Mr Hasselbeck. “For us, the boss isn’t somebody on the inside of our organisation. It’s the person who makes a significant investment when they buy an appliance from us, who disrupts their own home to accommodate that appliance, and who wants it to provide them with good service for years to come.”

According to Haier’s annual report for 2018, GE Appliances increased its market share by 3 percentage points during the year, despite a general downturn in the US household appliances market, which executives at the parent company attribute to effective replication of its customer-first philosophy at GE Appliances since the acquisition.

Despite the effort and resources involved in achieving greater customer-centricity, respondents expect the rewards to be worth it. When asked about the biggest benefits, the top answer is a better alignment of resources with customer expectations, cited by almost one in three (32%) of respondents, implying greater efficiencies and “product/market fit”. Companies are looking to better orchestrate the design, marketing and selling of products and services around what customers tell them they want and need.

But respondents recognise a number of financial benefits, too: increased market share and competitiveness (30%), increased customer lifetime value (29%) and greater profits (23%).

The challenge for business in seizing such benefits is not in an absence of buy-in from senior leadership or, it seems, in uncertainty over what action to take. Primarily, executives surveyed cite the pace of change, and their organisations’ lack of resources to adapt accordingly, as the biggest barriers to a more customer-centric model (see chart).

https://www.gartner.com/en/marketing/insights/articles/key-findings-from-the-gartner-customer-experience-survey
https://www.pwc.com/us/en/advisory-services/publications/consumer-intelligence-series/pwc-consumer-intelligence-series-customer-experience.pdf