ALIGNINGTHEORGANIZATIONWITHTHEMARKET

GeorgeS.Day TheWhartonSchool

Firmsarebeingpulledbytheirstrategiesandpushedbyincreasinglyassertivecustomers
1 toorganizearoundcustomergroups. Theinevitableupheavalisfurtherjustifiedbyvisible

successstoriessuchasFidelityInvestments,IBM,CumminsIndia,andImation,andendorsedby
2 organizationalspecialistswhoapplaudsmaller,marketresponsiveunits.

AnewstrategywasbehindtheJanuary2005announcementthatIntelwouldreorganize intofivemarketfocusedunits:corporatecomputing,thedigitalhome,mobilecomputing,health
3 care,andchannelproducts. Nolongerwouldthefirmrelyonthedesignofdiscretechipsand

expectcustomerstoadoptthem.Instead,thefocuswouldbeon thebundlingof processes, ancillarychips,andintegratingsoftwareintoplatformstailoredtoeachcustomersegment. Althoughthemarketlogicofthisstrategywascompelling,therewerenoillusionsthatimposing suchamanagementstructureacrossthecompanywouldbeeasyinthefaceofasuccessfulbut engrainedproductcenteredculture. Therehasbeenaseeminglysteadyevolutionoforganizationstowardcloseralignment withtheirmarkets.Thefirststageofthisevolutionistheemergenceofinformalcoordinationto overcomethefamiliardeficienciesofproductorfunctionalsilos.Ifthisisntsufficient,then integratingfunctionssuchaskeyaccountmanagersandsegmenttaskforcesareadded.Fuller structuralalignmentisachievedbystrengtheningthecustomerdimensionoftheorganization
4 matrixwithsegmentmanagersorcustomerbasedfrontendunits.

Eachstageofthisevolutionisdisruptiveintheshortrun,andaddscoordinationcostsin thelongrun.Isitworthdoing?Thefindingsfromour studyof347mediumtolargefirmswere

mixed(seeAppendixAforthedetails).Accountabilityforcustomerrelationshipssharply improved,andinformationsharingwasbetter.Firmsorganizedbycustomerswerealsoeasierto dobusinesswith,andbetteratdealingwithproblemsandqueries.Butthesebenefitsdidnt translateintosuperiorperformance. Aswelookedmorecloselyat15highprofilereorganizationsaroundcustomers,the reasonsforthesemixedresultsbecameclearer.Thereweresomerealsuccesses,onedisastrous failure,andalotofworkinprogress.Somefirmswereoveralignedandseveralwerereturning toaproductfocusedstructure.ThusoneofMarkHurdsfirstmovesasCEOofHPwastoundo CarlyFiorinaseffortstocreateanintegratedsalesforcetosellbundlesofproducts,andreturnto

5 amoreproductspecificfocus.

Fromthesestoriesofsuccess,failure,andbacktracking,wehavedrawnthree implementationlessons: 1. Keepeveryonefocusedonthecustomerstotalexperience, 2. Adjustthepaceofthealignmentprocesstotheanticipatedobstacles,and 3. Keeprealigningtostayaheadofmarketchanges. Manyorganizationscannot,shouldnot,andwillnotaimforcompleteorganizational alignmentwiththeirmarkets.ManysuccessfulcompanieslikeSamsung,Toyota,andUnilever remainresolutelyproductfocusedandarenotdisposedtomovebeyondmodestcoordinating mechanisms.Thosefirmsaimingforaverytightalignmentshouldnotembarkonamultiyear journeytoimplementthisdesignunlessthereissubstantialleadershipcommitment.

TOWARDSACUSTOMERFOCUSEDORGANIZATION Organizationstructurescomprisingtheformalstructureandthecoordinating mechanismsarecontinuallyseekinganequilibrium.Theyneverreachthisstatebecauseany

structureistheoutcomeofmanycompromisesandtakeslongertoadjustthandochangesin strategyormarketrequirements.Underlyingthisdynamicequilibriumisasteadyprogression towardmorecustomerfocusedstructures.Thisevolutionisshownin thefourstagesofFigure One,startingwithStageOneasthefamiliarproductorfunctionalsilo.Forsmallerand/orhighly focusedfirms,thiscleanandsimplestructureusuallysuffices.Problemsariseascompetitive pressures,fragmentingcustomerrequirements,andproliferatingchannelscreateperformance sappingconflict.Silostructuresareseldomacomfortablesteadystatesolution,leadingtothe nextstage.

StageTwo:InformalLateralCoordination Anearlysignofdifficultyismountingtension betweenthesalesandmarketing functions.Bothgroupsshouldbeworkinginparalleltowardshortandlongtermgoals.Problems firstsurfacewheneachfunctionblamestheotherforitsownfailings,andareexacerbatedbya lackofrespectfortheothersrole.Salesmaythinkofmarketingasshortrunsalesprospecting andprogramsupport.Marketingthinksofitselfasidentifyingattractivegroupsofprospective customersandfindingwaystoattractandkeepthemoverthelongrun.Theviewthatprevails dependsonwhichfunctionhasthemostpowerandthemostcredibleadvocates. Therearevariouswaystodefuseandchanneltheseconflictsandmisunderstandings towardmoreproductiveends.Welltrainedandproperlyincentedproductmanagerscanserve informallyasbridgesandcoordinators.Italsohelpsifthereisconsciouscrosspollinationby rotatingpeoplethrough eachfunctiontogainsharedunderstandingandcreatespanning networks.Jointparticipationinplanningmeetingsisessential.Theintroductionofcompany widecustomerrelationshipmanagement(CRM)systemsissometimesuseful,byrequiring

standardizedcommunicationsandsharedaccesstocustomerinformation.However,thesemoves aremuchmoresuccessfulwhendoneintandemwiththenextstageofevolution.

StageThree:PartialAlignmentviaIntegratingFunctions Themostsignificantandenduringshiftintheorganizationofmarketinghasbeenthe
6 introductionoftheboundaryspanningroleofmarketsegmentand/orkeyaccountmanagers.

Theseareinstalledtoovercomeafunctionallypartitionedviewofthecustomer,therebyhelping toidentifyunmetoremergingneedsandimprovethecoordinationofmarketingandsales.These internalcustomeradvocatesusetheirknowledgeandpersuasiveabilitytogaininfluencesince they rarelyhavedirectcontroloverresourcesorincentives.Theaim istoimprovethe coordinationofallcustomercontactactivities.Thus,keyaccountmanagersareoftenresponsible forlargemultifunctionalteamswithmany pointsofcontacttodifferentfunctionsandlevels withineachlargecustomer. Inthewakeoftheseshiftsmarketingactivitiesareincreasinglydispersedandassignedto teamsledbysales,ortocrossfunctionalprocessteamsresponsibleforcustomerserviceor logistics.Sometimesseparateorganizationalunitsareformedtodealwithcustomerrelationship management,customerservice,orworldwidebrandingissuesthatwereoncethesoleprovince ofthemarketingfunction.

StageFour:FullerStructuralAlignment Thetraditionalwaytoachievestructuralalignmentwastodesignafamilyofautonomous SBUs,eachwithfullaccountabilityforperformancewithinadistinctindustryorcustomer

7 segment. WhenallSBUresourcesareoptimizedtogrowcustomersegmentrevenueandprofits,

thencustomerneedsandpreferencesandopportunitiesforcompetitiveadvantagetakepriorityin

decisionmaking.Thus,aU.K.publishingcompanywithaportfoliooflifestylemagazinessetup anumberofsmall,decentralizedSBUs,eachaddressingadifferentreadersegment.Therewas littlesharingofservicesbetweentheseSBUs. ThestandaloneSBUdesignrequiresstablemarketsegmentsthat overlapminimallywith themarketsofotherSBUs.IftheSBUsshareproducts,services,orcapabilities,then coordinationbecomesdifficult,theunderstandingofthecustomerbecomesfragmented,and resourcesforservingcustomersareinefficientlyallocated.Inresponsetotheseproblems, organizationdesignersareevolvingtowardfront/backhybridmodelsormatricesthatadda customersegmentdimension. Thefront/backhybriddesignhasstrongcustomerfocusedfrontendunitsthatoffer integratedsolutions(seeFigureTwo)andproductbusinessunitsthatprovidethemodular
8 elementstocombineintosolutions. WithinIBM,theoriginalbusinessunitsforpersonal

computers,servers,software,andtechnicalserviceareinternalbackendsupplierstothe solutionunitswhilealsosellingdirectlytocustomers.Thisdesignflourisheswhen customers wantsolutionsthatarecustomizedtotheirindividualizedneeds,anddeliveredthroughasingle customercontactpoint.Theotherrequisitesforsuccessareastrongcorporatecentertomediate theconflictingdemandsofthetwounits,andastrategywithsolutionsasthecentralthrust. FidelityInvestmentshasevolvedtothefront/backhybridmodeltomeetthechallengeof discountbrokersononesideandindependentfinancialadvisorsontheother.Their organizationaltransformationfromasolelyproductfocusedcompanybeganwithastrategythat emphasizedcredibleadviceandinvestmentsolutionstailoredtotheindividualinvestors situation.Thismeantpickingthecustomersegmentstonurture,andcreatingdedicatedgroupsto serveeachofthesesegmentswithpersonalizedguidanceandservicelevelsappropriatetothe

profitpotentialofthesegmentmembers.Theproductgroupscontinuedtodevelopandmanagea broadenedarrayoffundsandfinancialservicesthatcouldbereadilybundled.SeeFigureThree forfurtherdetails.

TheEvolutionofOrganizationalAlignment Howfarabusinessproceedsthroughtheseprogressivestagesof alignmentdependson thebalanceoffacilitatingandcountervailingpressuressummarizedbelow:

FacilitatingForces Strategicemphasison relationalvalue Needforcleareraccountability forcustomers Recognitionoflackofsharing ofmarketinformation Dissatisfactionwithmarketing productivity Pressurefromlarge customers

CountervailingPressures Lackofsegmentsales/ profitdata Cost Toleranceforcomplexity Legacyeffects(inertia/ organizationalresistance) Homogeneityofcustomer base

Themaindriveristheemphasisofthestrategyonrelationalvalueasinsolution strategiessuchasIBMsGlobalServicesorGeneralElectricsPowerSystems.Thesestrategies prevailwhenthereisawidediversityintherequirementsandattractivenessofthecustomer base,andsomeofthebestcustomersseevaluefrombuyinganintegratedbundleofproductsand servicesfromonesource. Thisrequiresengagingincloseinteractionsfarbeyondthetraditional buysellrelationship.Conversely,apricevaluestrategythatemphasizesleveragingeconomiesof scaleandscope,tocompeteinareasonablyhomogeneousmarketwithastandardizedoffering, doesnotusually requiremorethanaStage Twostructure. TemperingthedecisiontoproceedallthewaytoaStageFour structurewithfuller structuralalignmentare:(1)alackofinformationon thepurchasebehaviorandprofitabilityof individualcustomersorsegments,(2)alowtoleranceforthecomplexitiesoftransferpricing

mechanismsandactivitybasedcosting,and(3)thedifficultyofovercominginertiaand reforminglegacysystems.Thesecountervailingpressuresareawarningthatwhiletheevolution towardcloseralignmentisdirectionallycorrect,itisnotsufficienttosupportrobust prescriptions.Theappropriatestructureisguidedasmuchbyimplementationrealitiesasthe strategicimperativetogetclosertothecustomer.

GETTINGCLOSERTOCUSTOMERS (The) integration of front office functions that touch the marketplacecanproducesignificantbenefits,buttheintegrationmust be executed superbly or the benefits will be decimated by the parochial 9 interestsofindividualunits. ThisquotationfromLouGerstner,drawingonhisexperiencewiththeturnaroundof IBM,capturesthestakesandrisksofimplementingacustomerbasedfrontenddesign.To identifythemainbenefitsandpitfalls,weinterviewedseniormanagersoffifteenfirmsthathad undertakenalargescaleredesigninanefforttogainacloseralignmentwiththeirmarkets. Ourmethodwastofollowuponpreviouslypublicizedreportsorannouncementsofa firmrealigningitsorganizationaroundmarketsegments,andaskthefollowingquestions: 1. Whywastheorganizationalchangeundertaken?Whatwerethetriggers? 2. Howwasthedesignchosen?Whatalternativeswereconsidered? 3. Whatwerethebiggestimplementationchallenges?Howdidtheorganizationget behindthechangeandcommittomakingithappen? 4. Whatweretheperformanceresults?Wastheredesignconsideredasuccess? Thefifteenfirmsinourstudy wereclassifiedbydegreeofsuccess(seeExhibit One),usingthejudgmentsofthosewhowerefamiliarwiththehistoryoftherealignment process.Onlyfourwereunqualified,sustainedsuccesses.Twomorewerejudgedtobesuccesses

withinoneregion,buttheirapproachhadnotbeenadoptedbytheirparentinothermarkets.In twocases,firmshadretreatedfromastrongalignmentwiththeirmarket. Mostrespondentswerereluctanttoattributeanumericalimprovementintheirprofitor revenueperformancetotheorganizationchange,onthegroundsthatitwasembeddedin concurrentchangesintheirstrategy,systemsandcapabilities.Afurthersixfirmswereinthe midstoftheirrealignment,andjudgeditwastooearlytoannouncesuccess.Buteventhesefirms couldpointtopromisingearlyindicationsofsuccessusingintermediatemetricssuchas customersatisfactionandcustomerperceptionsofresponsiveness,aswellasbetterutilizationof marketingresources.

RationalesforReorganization ThereasongivenforamajorreorganizationofMotorola,launchedbythenewCEO,
10 EdwardJ.Zander,inlate2004,wouldhaveresonatedwitheachofthefirmsinourstudy. The

intentwastodismantleMotorolasdebilitatingbureaucracyandendacultureofrivalryamong productdivisionswhobehavedlikewarringtribes. Thiswasnecessarytohelpexecuteastrategyofseamlessmobility,andmakeiteasy forconsumerstotransportanydigitalinformation music,video,email,phonecallsfromthe housetothecartotheworkplace.Zanderplannedtoabandonadivisionalstructurebasedon products,suchasmobilephonesandbroadbandgear,andreorganizearoundcustomermarkets suchasthedigitalhomeandlargeenterprises.Toovercomeresistance,Zanderhasmade cooperationakeyfactorindeterminingraisesandbonuses. Theprimacyofstrategy.Themanagerswetalkedwithconsistentlysaidtherehadtobea compellingstrategicrationaleforarealignmentaroundmarketsbeforetheorganizationcould

summontheenergytocarryouttheprocess.Therewasaclearpathtocompetitiveadvantage,the reasons(ortriggers)wereobvious,andeachimplementercouldseewheretheycouldcontribute. Numerouscombinationsofstrategicrationaleswerebehindtherealignmentswestudied:

StrategicRationales
PrimaryReason SupportiveReason

Implementasolutionsstrategy Getclosertothemarket(improveretentionrate) Findandexploitsegmentgrowthopportunities Improvemarketingproductivity ResponsetoCompetitivePressure NumberofCompaniesgivingreasons

(Twocompaniesgavetwosupportingreasons)

8 3 3 0 1 15

3 7 1 4 2 17

Implementingasolutionsstrategy.Thiswasthemostfrequentlycitedstrategicrationale. Thesestrategiesrequirethatthesolutionbecocreatedwiththecustomers,betailoredtoeach customerorsegment,requireintegrationofproductsandservices,andentailsomedegreeof

11 risksharing.

CumminsIndiabegantheirevolutiontoa StageFoursolutionsstrategy withaungainly groupofseparatejointventuresformakingandsellingengines,generatorsetsandrelated equipment,alongwithaseparateserviceentity.Thetriggersforchangewerethethreatoflossof theirdominantshare,plusdeterioratingmarginsastheIndianeconomyopenedtocompetition, andtheconsolidationofcontroloverthejointventuressotheycouldbeoperatedasoneentity. HavingaservicebusinesswasviewedasgoodfortunebecauseithelpedCumminslearnabout theongoingneedsoftheircustomers,andshowedthatthemarginsoncustomservicebundles weremuchsuperiortoproducts. ThenewheadofCumminsIndiawastheobviousownerofthesolutionsstrategy,which wasimplementedthroughthreefrontendsubsidiarieseachfocusingonaparticularsolution.

Assubsidiariestheywereshieldedfromtheexistingsystemsandcultureofthebackendunits thatmadetheenginesandgenerators.Akeymovewastomakethethreesubsidiariesproduct agnostic,sotheycouldoffercompetitorsproductswhentheywerebettersuitedtothesolution. Initiallytherewasinternal skepticism,compoundedbylackofknowledgeoftheneedsoftheend userbuyingthesolution.Theneedofpowersystemcustomersforuninterruptedpowerdepended onmuchmorethanareliabledieselengine.TomeetthatneedCumminshadtosourcenew componentsfromoutsidethecompany,analyzethecustomereconomicsindepthtotailortheir offering,andprovideextensivemaintenanceandtestingprograms.Overalltherealignmentis viewedasasuccess,withmarketshareandrevenueslightlyincreased.Meanwhilesalesofthe coreproductbusinessofenginesandgeneratorsdroppedby30percent. SolutionsstrategiesaremostsuitableforservicecompaniessuchasFidelityInvestments orsystemsmanufacturerslikeIBMabletoprovideasignificantservicewrappertoaugment theirproductorfirmsinconvergencemarkets.ThusThermoElectron,thegloballeaderin analyticalinstrumentation,hasbeenmovingtoaStage Threerealignmentwithkeyaccount managerstorepresenttheirwholelineofbundledlabinstruments,augmentedwithfinancialand maintenanceservices,andlabinformationsystemsusingintegratedsoftwareplatforms.Theyare fixingadeeplyflawedandfragmentedbusinessmodelinwhich24subsidiariessoldtheir individualproductstothesamecustomerasothersubsidiarieswithmuch duplicationofeffort andaggravation ofcustomers.Oneofthelegaciesofthisbalkanizedstructurewasthatkey accountmanagersfromproductdivisionspreferredsellingtheproductstheyknew,andwereless interestedinsellingsolutions.Toovercomethisproblem,ThermoElectron beganhiringpeople fromtheircustomersforthisintegratedsellingjob.Aspartoftheirjourneytocloseralignment withmarketstheyhaveaddedmarketsegmentmanagersforeachtypeoflaboratory.Itistheir

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jobtoknoweverythingabouttheirsegmentandsupportthesalesforcebypullingresourcesfrom theproductgroups. Gettingclosertothemarket.Whilethiswasseldomthemainreasonforrealigning aroundmarketstheadvantagesof,gettingclosertocustomers,gainingdeeperinsightsinto segments, orbreakingawayfromproductorientation,wereseenasstrongsupportingreasons. Furtherimpetuscamewhenthecustomerstiredofhavingmultiplesalespeoplefromthesame companyvisiting,anddemandedasinglepointofcontacttocoordinatesalesactivitiesacrossall businesses. AstrongproponentofthestrategicvalueofamarketorientationwasWilliamMonahan, theChairmanandCEOofImationwhosaid,Ifwhatyoudodoesnotleadtocustomers,then youshouldbedoingsomethingelse.Imationwasspunoutfrom3Minthemidninetiesasa collectionofsevenproductfocusedbusinessesinrapidlycommoditizingmarkets. Thefirstmove wastodivestfivenoncorebusinessesandconcentrateondatastoragemediaanddevices.Even thoughImationdoesnotselldirectly,theychosetorealigntheirorganizationaroundfourend usersegments:personalstorage,entrylevel,midrange(highlevelofnetworking)andenterprise. ForeachendusersegmentImation createdabusinessteam,ledbyproductmanagement, whoareexpertsinassessingcustomerrequirementsanddesigningtheImationoffering.Thisisa standardmatrixdesignwithaproductdimension responsiblefordatastorageproductsthatcan beusedbymultiplesegments,andamarketsegmentdimensionhousingthebusinessteams responsibleforthesegments.Salesaremadebykeyaccountmanagerswhocallonlargeretailers suchasBestBuy,andlargeOEMaccounts. Each accountmanagerisalsoamemberof a businessteam.Imationisnotsellingsolutionstheiradvantagecomesfromdeepercustomer knowledgethatstrengthenstheirtieswiththeirdistributorsandretailers.Otherbenefitsarea

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muchmoreaggressiveculture(theirterm)withastrongerproductivitymentality.Bysetting clearerstrategicprioritiesImation reducedtheirSG&Acostsbytwopercent. Pursuingsegmentgrowthopportunities.BothSony NorthAmericaandNokiarealigned themselvesaroundmarketsegmentsbecausetheiruncoordinatedandproductcentered organizationsweremissinggrowthopportunities,andmarketingeffortswerebeingdiluted acrosstoomanycategories.Bybundlingproductstomeetsegmentneedstheywerefollowing JackWelchsnotion,Ifyouhavedominantshareinthemarket,makethesandboxbigger. SonyElectronics,NorthAmericahadmirroredtheparentsorganizationwithfive autonomousproductdivisions(e.g.homeentertainment,digitalimaging,personalmobileandso
12 on)withseparateprofitandlossstatements. Becauseeachproductlinehaditsowntarget

customers,withWalkmanfocusingontheyouthmarketforexample,othersegmentssuchas activematureswereunderservedoroverlooked. Independentmarketingprogramsalsomeant thatcustomerswereontheirownwhenbundlingorlinkingSonyproducts. Inaneraof convergence,thelackofcoordinationmeantmissedopportunities.

MANAGINGTHEIMPLEMENTATIONPITFALLS Asuccessfulplanfora reorganizationaroundcustomershastoconsidermanypotential pitfalls.Somearebuiltintothecontradictionsandcompromisesoftheoriginaldesign.Thusthe pressuretocontainoverheadcostsmayconflictwiththedesiretoimprovecoordinationand

13 informationsharingacrosstheorganization. Eachnewjobfunctionaddsabitmore 14 bureaucracyandcost,anddispersesmarketknowledgemorewidely. Also,itishardtonurture

deepfunctionalexpertisewhilesubordinatingthesefunctionswithinprocessteams.The inevitablefrictionsarethenseizedonbythosewhopreferredthestatusquo,orstandtolose somethinginthenewstructure.Inadequatesystemsareamajorsource ofdelayandfrustration

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howcananorganizationbealignedtoitsmarketsifcustomerdataisdispersed,segment profitabilitycantbeestimated,andcustomerdefectionsarentvisible? Aswithanychangedprogram,theremustbeseniormanagementcommitment,

15 persistence,andintensecommunicationtoovercometheresistancetochange. Buttheoddsof

successaremuchimprovedifthereisacompellingstrategicrationaleandourthree implementationlessonsarefollowed.

LessonOne:KeepEveryoneFocusedontheCustomersTotalExperience Thebenefitsofamorecustomerfocusedorganizationarefirstrealizedthroughclearer accountabilityfortherelationshipswiththebestcustomers.Functionalandproductdominant structuresarenotablypooreratcomprehendingthetotalexperienceofthecustomerswiththe companyandsolvingcrossfunctionalproblems.Nooneislookingatthecompanythroughthe customerseyesandaskinghowprocessescanbeimprovedtoreducetheirfrustration,how productscanbeintegratedacrossunits,orwhatnewrequirementscouldbesatisfiedwithan augmentedoffering.Withoutclearaccountabilitynoonemayberesponsiblefortracking customerdefectionsandlaunchingwinbackinitiatives. Acorollaryofabalkanizedviewofthecustomeristhatsystemsandcontrolsdesigned formeasuringproductprofitabilitycantmeasuretheprofitabilityofindividualcustomersor segments.Yettheabilitytotreatdifferentcustomersdifferentlyaccordingtotheirlifetimevalue isattheheartofcustomerrelationshipmanagement.Improvingaccountabilityrequiresa combinationofsystemchanges,customerfocusedmetrics,andincentivestiedtocustomer segmentperformance. Anecessaryearlystepisunifiedcustomerinformation thatisfilteredthroughlinked databases,anddeliveredinacoordinatedandmeaningfulwaytocustomers.Thenthecompany

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presentsasinglefacetothecustomer.Whenindividualproductandgeographicgroupshave theirowninformationsystems,includingorderingandfulfilment,thefirmisunableto
16 coordinateitsoffering. Theconsolidationofinformationatthepointofcustomercontactalso

makesiteasiertoseparatethefrontendcustomersolutionunitsfromthebackendproduct infrastructure. Furtherreinforcementofacustomerfocusedstructurecomesfromthejudiciouschoice of performancemetrics.Thischoiceshouldbeguidedbybothstrategyandobjectives.Most firmswetalkedwithheldtheircustomerfacingunitsaccountableforsegmentrevenueand profitability.Butthesemeasuresareshortondiagnosticvalue,andareusuallynotinthedirect lineofsightofindividualcontributorsorteams.Theyneedtobeaugmentedwithadashboardor scorecardusingmetricsthatilluminatethestrategyandhaveatestedconnectionwithfinancial performance.Thesedifferbyfirmandindustry.Whilecustomerretentionisoftenadriverof growthandprofitsitissuspectasameasurewhentherearehighswitchingcosts. Similarly, customersatisfaction canbeausefuldiagnosticmeasurewhenitisaskedaboutthecomponents oftheoffer(serviceversusproductforexample),butitisalsocumbersomeandunreliable. Thebestmetricssupportthestrategy,aremeaningfultoemployees,andareleading indicatorsofperformance.EnterpriseRentACarcanranktheir5000brancheswithtwo customersurveyquestions,oneaboutitsqualityoftheirrentalexperienceandtheotheraboutthe likelihoodtheywouldrentfromthecompanyagain.Amoregeneralizedversionofthese
17 questions isHowlikelyisitthatyouwouldrecommend[companyX]toafriendor

colleague? Tailoredperformancemetricsarealsogroundedinadeepunderstandingofcustomer needsandpriorities.Thus,GEPlasticsfoundthatontimedeliverywasmostimportanttotheir

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customers,andthatpoorperformancewascausedbyvariabilityinmeetingdeliverypromises. Bothearlyandlatedeliverycausedproblems.TheyusedtheirwellhonedSix Sigmadiscipline tomeasureandmanagedeliveryspan.Thiswasthevariationindeliverydatearoundthe promiseddate.Bytyingincentivestoprogressinnarrowingthisspan,andfollowingthis progressclosely,theyassuredaccountabilitywhereitmattered. Theclearestsignalthataccountabilityforsegmentperformancemattersiswhen incentivesandperformancereviewsaredirectlylinkedtothesegmentmetrics.Thus,SquareD altereditsincentivesystemsothatthenewmarketsegmentunitsweremeasuredandrewarded forthenumberofcustomersacquiredandkept,ratherthannumberofunitssold,andonthe operatingprofitmargin.Incentivesarealsousefulforsignalingdesiredbehaviour.Thus, ThermoElectronrewardedsalespeopleforsharingcustomerleadswithothermarketsegment groups. Implementationcaveats.Agoodgeneralruleisthatemployeesonlywillinglyaccepta newaccountabilitywhentheyfeeltheycantrust themetricanditwiththeiractions.Thisruleis often violated.Thefirstproblemisthatemployeesoftenlackconfidencein themeasures.For example,segmentlevelsalesdataisoftenhardtoobtain.Proxymeasuresofrevenuebasedon surveysmaybegoodenoughfordecisionmaking,butnotforincentivecompensation.Also, accountingsystemsconfiguredforproductcostingaregenerallycluelesswhenitcomesto measuringthecostsofservingcustomers.Complexestimatesofthesecostsarelikelytoarouse suspicion.Measuresofcustomersatisfactionandretentionaresimilarlyvulnerable. Anotherproblemariseswhenemployeeslearntheycangamethemetrics.Thewell
18 knownmanipulation ofcustomersatisfactionscoresbyautodealerscertainlycompromisesthe

valueofthismetric.

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Athirdproblemisthatemployeesdontseehowtheycanimpactameasurebecauseitis toofarremovedfromanythingtheycancontrol.Profitandlossmeasuresatthesegmentlevelare essentialforcontrolanddiagnosis,butfewemployeescanpersonallyrelatetothem.Bycontrast theGEPlasticsmeasureofspanofdeliveryperformanceismeaningfultoallfunctions, includingprocurementandmanufacturing,thatwouldnotnormallyconsidertheimpactoftheir activitiesoncustomers.Byfocusingontheattributeofgreatestimportancetothecustomerthey improvedtheoverallalignmenttothemarket.

LessonTwo:AdjustPaceofAlignmentProcesstoAnticipatedObstacles Reorganizationsinvariablytakelongerthanexpected.Sometimesachangeinleadership undercutstheenergyandcommitmenttothechange.Becauseittakeslongertoreorganizethan toplanachangeinstrategy,thereisanunrealisticexpectationabouthowquicklyitcanbe accomplished.Systemschangesandupgradesareoftenaratelimitingstopintheprocess. FidelityInvestmentsmanagersestimatethatittookthematleastthreeyearstoaccomplish60 percentoftheirreorganizationgoalsmainlybecauseofsystemsconstraints. Overall,wefoundthebiggestimpedimenttothetimelycompletionofareorganization wasaninabilitytoanticipateandovercomeobstacles.Fewfirmsviolatedthisimperativeto worseeffectthanXerox.Therewasaclearstrategicrationaleforaproposedfrontendalignment
19 aroundcustomers.Asearlyas1992thethenCEO,PaulAllaire, sawthatashiftoftheXerox

strategytofocusonthedocumentwouldhavethegreatestimpactoncustomerrelationships, InthefutureXeroxwontjustsellcopiers.Itwillsellinnovativeapproachesforperforming workandenhancingproductivityButthatmeansoursalespeopleneedtounderstandthe customersbusiness,whatthecustomersrealneedsareandhowthecustomerisgoingtouse ourproducts.

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Toovercometherigidityofanextremelyfunctionalorganization,andpresentasingle facetothecustomer,thesalesandservespeoplewerefirstorganizedintogeographiccustomer operationsdivisions.ThisstructureservedthecompanywellthroughtheNineties.Thengrowth slowedandanoutsiderRickThoman camefromIBMtotakeoverasCEO.Hesoonconcluded thatthenextlogicalstepwastoassignthesalesforceawayfromtheirgeographicresponsibilities toindustrygroupstoselldocumentsolutions.Thiswouldseemtoreinforcethedirectionsetby AllaireandmeetintensifyingcompetitionfromHPandCanon.Becausethechangewassobadly botched,noneof itsbenefitswererealizedandXeroxwasseriouslydamaged.Soonafter, Thomanlosthisjob. Ourinterviewsandotherautopsiesfoundamixofstrategicmisjudgmentsandserious implementationmisstepsbyXerox.Inretrospectnotallindustrysegmentswantedadocument solution.Ahybridmodelwouldhaveservedthembetterwiththesolution approachlimitedto industryverticalmarketslikeLawOfficesorPharmaceuticalswheredocumentmanagementwas crucial.Thentherewereunrealisticexpectationsabouttheabilitiesofthesalesforce.Whilethey wereverygoodatsellingboxestoofficeadministratorsandpurchasingagentswithlarge contracts,itbecamepainfullyobviouswhentheycalledonsystemsorITpeoplethatthey didnt knowenough aboutnetworkingortheirassignedindustry. Xeroxmanagementdidntproperlytrainthesalesforceintheirnewassignmentsnor weretheircustomersadequatelypreparedtounderstandthechanges.Salespeoplecomplained aboutlosinglongstandingclientrelationships,andbeingpulledintotimeconsumingmeeting andtaskteamswhilestillbeingjudgedoncustomercallsandsalesresults.Thefalloutwasvery damagingthesalescyclelengthened,aggrievedcustomersslowedtheirpayments,andathirdof thesalesforceleftthecompany.

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Theculturalimperative.Afirmsculturecaneithergiveordenypermissiontoproceed witharealignmentaroundmarkets.BothNokiaandCapitalOnebenefitedfromsupportive cultures.Nokiagrewupwithaflexibleculturethatencouragedinformalnetworkingandcross businesstaskforces.Thismadeiteasierforsmallprojectteamstoevolveintoseparate businessesservingdistinctmarkets. CapitalOnealsoleverageditsculturetomovefromaconventionalfunctional organizationthattookacentralizedcreditviewoftheircustomers,tobusinessteamsorganized aroundmarketssuchassuperprimeorsubprimecustomers.Eachteamhadallmarketingand customeracquisitionandretentionactivities,andwasresponsibleforcreditanalysisandrating. Thiswasabigdeparturefrompractice,thatbegunwiththehighlyvisiblesuccessofacreditcard forcollegestudentswithoutcredithistories.AnanalyticalcultureofshowmetheNPVcould seethepossibilitiesofthisearlywin,andwithanaverageemployeeageoflessthan30years, mostpeoplewerenotstronglyweddedtothetraditionalorganization. Obstaclesarisewhenthiscultureismatureandhasabsorbeddysfunctionalbeliefssuch as:thesalesforceownsthecustomers,orwellselltowhoeverwillbuy,orcustomersdont knowwhattheywant.ThiswastheenvironmentthatLouGestnerforcedwhenhejoinedIBM, andcontributedtoXeroxsplight. Culturalobstaclesareamongthemostdifferenttoanticipateandmayonlysurfacelater assubtleresistanceoranunwillingnesstoshareinformation.Oneprovenwaytodealwiththem isthroughsuccessstories.This,SquareDwasdividedintocoreandnoncoremarkets(thelatter weremostlyaboutnewopportunities).Marketsegmentmanagementbeganinthenoncore marketsbecausetheydidnthavestronglegacyculturestoovercome.Oncetheleadersofthe

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noncoremarketsdemonstratedthepayofffromtheirrealignment,theyweretransferredintothe coremarketsaschangeagents. ImplementationCaveats.Mismatchedcapabilities,fragmentedinformationsystemsand inadequateexecutioncanallunderminetherealignmentprocess.Forthemostpartthefirmswe studiedanticipatedanddealtwiththeseobstacles,becausetheyareafamiliarfeatureofall organizations.Theyweremorelikelytomisstwolessfamiliarobstaclestorealignmentsaround marketsthatstemfromcustomerresistanceandexacerbationoflongsimmeringfunctional tensions. Acommoneconomicrationaleforrealignmentsaroundcustomersisthatdifferent customersaretreateddifferentlyaccordingtotheircosttoserveandlifetimevalue.Butlong standingandloyalcustomersusuallyresentbeingrelegatedtoalowerstatus,suchasbeing servedbydistributors,whentheyhadalwaysbeenserveddirectly.Thesecustomerswillhave friendsandadvocateswithinseniormanagementandthesalesforcewhomaytaketheirside.A carefulmigrationpathforthesecustomershastobedesignedinanticipationofthisobstacleto avoidjeopardizingthewholeprogram. Finally,anorganizationalrealignmentoftenexacerbateslongstandingconflicts, notablybetweenmarketingandsales.Whenfieldsales,telesales,retailers,andcustomerservice allinteractdirectlywiththesameaccount,andmarketmanagersdevisestrategiesforthese accountsthatarenotcloselycoordinatedwithsales,theobjectiveisseamlessexecution,butthe resultsareoftenexpensiveduplications,infightingandapoorcustomerexperience.These adverseresultsconstituteaverysizeabletransitioncostoftheneworganization andadeterrent toambitiousreorganizationplans.

LessonThree:KeepRealigningtoKeepAheadofMarketChanges

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Organizationscontinuallyslipoutofalignmentwiththeirmarketsbecausemarketsare increasinglydynamicandstrategiesmustkeeppace.Indeedmanagersmustbracethemselvesfor anacceleratingpaceofrealignment.Theycanonlyhopetherateofchangeisslowerthantheir abilitytocompletethepreviouschange.Thisisfarfromasurethingbecauseoftheinherentdrag ofsystemlegacies,cultureandotherobstacles. Onereasonforcontinuouschangeisthatanyorganizationthathighlightsthecustomer dimensionconfrontsthequestionofwhichcustomertoserve.Thestrategiclogicdoesnotpermit theluxuryofservingallsegmentsequallywell.Dowewantahighshareofafewaccounts,ora smallershareofalargenumberofaccounts?Buttherosterofhighvalueaccountskeeps changing,soteamsmustbeabletocontinuouslyformandreformasnewsegmentopportunities emerge. Second,thereisthependulumphenomenon.Anorganizationintransitiononlystopsat thetopofapendulumswingandthenmovesmostquicklywhenitreachesthebottomofthe swing,whichwastheintendeddestination.Becauseofthismomentumitiseasytoovershoot andoveralign,sosavvymanagersexpecttoadjustandcorrecttheircourse.Thisisallpartofthe learningprocess.WhenPhilipsSemiconductorsshiftedentirelytoglobalaccountteams,aspart ofatightercollaborationwithcustomersontechnology,service,andlogisticswiththeirbiggest globalaccounts,theyencounteredanumberofproblems.Somewerethenaturalfalloutof managingteamsacrossmanytimezones,andtheresistanceofsomecountryculturestonot havingalocalastheirboss.Theyalsofoundtheycouldntfullycustomizetheirentireservice organization.Nordidallaccountswantahighlylinkedcollaborativerelationship,thatlooked likeavirtualjointventure.Nowtheyaremovingtoahybridorganizationwithglobalteamsfor thetop70percentoftheircustomers.Theotherswillbeservedwithregionalteams.

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CompetitiveRealities.Alignmentwithamarketmeansbeingresponsivetobothcustomer opportunitiesandcompetitivecostpressures.Intougheconomictimesthecustomerdimension maybesubordinated,aswefoundwithtwofirmsthatreemphasizedtheproductdimension. Until1993,SquareD,themakerofindustrialcontrolandelectronicdistributionsystems, wasorganizedaroundthreemainproducts,andcouldntseemtogrowanyfasterthanthe underlyingmarkets.Atthesametimetheirlargemanufacturingcustomers,suchastheBigThree automakers,wereglobalizingandwantedintegratedsolutions.Togetclosertothesecustomers theyreorganizedaroundfourmainmarketsindustrial,residential,construction,andoriginal equipmentmanufacturing.Theremainingfunctionswerethenreorganizedtosupportthese divisionswith centralizedmanufacturing. ThiscustomerfocusedmodelwasjustrightfortheNineties,butstruggledwhenthe economyslowedandcustomersstartedmovingproductionoverseasinsearchoflowercosts.As theheadofsalesandmarketingnoted,Ourcustomerfocusedorganizations,withproductand customersegmentsidesofthematrixequallybalanced,serveduswell throughoutthe19942000 period.... IfIrateourperformancethenatA,thelasttwoyearswouldamuchlowerrating.Asa resultwearenow strengtheningtheproductsideofthematrix.Withinthecrossfunctional teamsthatservesegments,theproductorganizationisbeingmademoreaccountable theirrole isbeingevaluated,theircompensationplansarebeingchangedtheproductsidewillbe mainlyresponsiblefortheP&L,andthetradeoffsthatarenecessarybetweenrevenuesand costs.Theyfounditwaseasiertoimplementcostmeasurementsandcostallocationstothe productsideandholdthemaccountableforcostsavings.Inthisway theyhaveconvergedto the familiarhybridstructurewherethefrontendisalignedaroundmarketsandtherestofthe organizationisstructuredaroundproducts.

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TherearemanyparallelsbetweenSquareDandCiscoSystems.UntilAugust2001Cisco hadan advancedversionoftheStageFourdesign,withthreeseparatesemiautonomouslinesof

20 business. EachLOBindependentlydeveloped,manufactured,andsolcustomizednetworking

solutionstodistinctcustomersegments:internetserviceproviders,enterprises,andsmallto mediumsizedbusinesses.Withthisstructuretheyrodetheexplosivegrowthoftheindustryto salesof$22.3Billionin2001from$6.4Billionin1997. The2001technologyslumpexposedthefaultlinesofthisstructure.Becauseeach segmentfacingLOBdevelopedandbuilttheirownproducts,therewasagreatdealof redundancyinengineeringandinnovation.Concurrently,thecustomersegmentswere convergingintheirtechnologicalsophisticationandrequirements,lowcostcompetitorslike HuaweifromChinaweresellinglowerpricedversionsofCicscosequipment,andoverall demandwasfallingquickly.Underthisburden,netincomecollapsedfrom$2.7Billionin2000 toa$1Billionlossin2001. Tosqueezeoutthecostlyredundancies,all relatedtechnologieswerecentralizedinto eleventechnologygroupsunderaChiefDevelopmentOfficer.Acentralmarketingorganization housedsolutionsengineeringteamsthatcouldmixandmatchthesetechnologies.Therisksof buildingtechnologysiloswaswellrecognized.Wemovedtheinflectionpointbacktowards engineering.Thisallowsthetechnologytobeusedinmultiplecustomersegments,butitdoes putengineersfurtherawayfromthecustomersAmazingly,thisentirerealignmentwas implementedwithinthreemonths,withoutlayoffsorphysicalrelocationformostengineers, whichmadeiteasiertothemtokeepconnectedwithothertechnologygroups.Bytheendof 2003theywereseeingthebenefitsofthecostefficiencies,withoutapparentdeteriorationin customersatisfaction,andnetincomewas$3.6Billion.

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FindingtheStructuralSweetSpot Organizationstructuresaredestinedtostayinfluxbecausetheyarejustameanstoan end,whichistherealizationofacompetitivestrategy.Arethinkingorredirectionofthisstrategy istantamounttoaredesignoftheenablingstructureandsupportingelements.BothSquareDand CiscoSystemshadriddentheirfullcustomerfocusedorganizationstorapidgrowthduringthe nineties,butfoundtheywereoveralignedwhenmarketgrowthslowedandlowcostcompetitors challengedtheircostbase.Bothsettledonahybridfrontbackdesign.Perhapsthisisthesweet spotforpursuingasolutionstrategy. Inbothcasestherealignmentwaseasedbytheirstronglymarketdrivencultures.Close observersoftheCiscoreorganizationconcludedthatthehighvalueplacedoncustomer advocacywassoembeddedintheculturalDNAthatitwasunaffectedbythechangestothe formalstructure.Insummary,organizationsareaboutmorethanboxes,arrows,andlines,but structuredoessignalstrategicintent.Althoughthebalanceofaccountabilityandpowerofeach dimensionwillstayinflux,thereisnodoubtthatsomeformofalignmentwithmarketshasvalue eveninthemostcostconstrainedanddemandingmarkets.

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AppendixA AbouttheResearch Arepresentativesampleofseniormarketing,sales,andMISmanagersandexecutives wasdrawnusingadatabasecombininginformationfromDun&BradstreetandMarketPlace. SICcodeswereselectedfromthemanufacturing,transportation,publicutilities,wholesaleand retailtrade,finance,insurance,andrealestatesectors.Companieslocatedinall50stateswith morethan500employeeswereincludedinthesample. Thequestionnairewasmailedtothemostseniorpersonwhowasknowledgeableabout thecompetitivestrategyperformanceofthefirm.Twoweeksafterthemailing,followup telephonecallswereusedtoremindpeopletocompletethesurvey,andsurveyswereremailedif requested.1,100surveysweresentoutinthefirstmailing,andasecondwavewassentoutabout fourweekslaterto900newcontacts.Thetwomailingshadsimilarresponseratesandthefinal responseratewas17percent.Datacollectionwascompletedin March2002. Therewerenosignificantdifferencesbetweenthefirmsthatrespondedcomparedtothe sampleframeintermsoftheirindustry,numberofemployees,andgeographiclocation.Early respondentsdidnotdiffersignificantlyfromlaterrespondents,whichfurtherconfirmsthat representativenessofthedata. Respondentswereasked:Howareyouorganizednow?andHowdoyouthinkyou willbeorganizedin3years?toestablishtheprevalenceofthefivemajororganizational dimensions:
Howareyou organizednow? Productservicelines Customergroups Processteams Functions Geographics .61 .32 .22 .50 .48 2.13 in3years? .50 .52 .33 .26 .36 2.37

Thefirstanalysistreatedorganizationbycustomergroupsasabinaryindependent variableandusedlogisticregressiontoseekpotentialantecedents.Anequationwith8market characteristics,2companydemographics,and6strategicchoicesfailedtofindavariablethat wassignificantatthe.05level. Thesecondanalysissoughttheconsequencesofbeingorganizedbycustomergroups. Thesignificantcorrelationswere: Employeesfreedomtotakeactionstosatisfyindividualcustomers(Pr>.06) Opennesstosharinginformationaboutcustomers(Pr>.13)

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 Accountabilityforoverallqualityofrelationshipswithbestcustomers(Pr> .0003) Numberofcompaniesacustomersees(Pr>.01) Thecorrelationsinseparateequationswithrelativeretentionandrelativeprofitsasdependent variableswerenotsignificant.

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FOOTNOTES
1

SeeJ.R.Galbraith,DesigningOrganizations:AnExecutiveGuidetoStrategy,Structureand Process,SanFrancisco:JosseyBass,2002,ChapterSevenN.W.Foote,J.Galbraith,Q.Hope andD.Miller,MakingSolutionstheAnswer,TheMcKinseyQuarterly,3,2001,893D.K. Rigby,F.F.ReichheldandP.Schefter,AvoidtheFourPerilsofCRM,HarvardBusiness Review,February2002,101109andG.S.Day,CreatingaSuperiorCustomerRelating Capability,SloanManagementReview,44(Spring),2003),7783. H.E.Aldrich,OrganizationsEvolving,ThousandOaks,CA:Sage,1999,andJ.ChildandR.G. McGrath,OrganizationsUnfettered:OrganizationalForminanInformationIntensive Economy,AcademyofManagementJournal,44,2001,11351148. ForbackgroundonIntelsreorganization,seeC.Edwards,ShakingupIntelsInsides, BusinessWeek(January21,2005),p.35IntelsRightHandTurn,TheEconomist(May14, 2005),pp.6566,andA.Lashinsky,IsThistheRightManforIntel?Fortune(April18, 2005),pp.110120.

D.Miller,R.EisenstatandN.Foote, StrategyfromtheInsideOut:BuildingCapability CreatingOrganizations,CaliforniaManagementReview,44(Spring),2002,3754,andR. Eisenstat,N.Foote,J.GalbraithandD.Miller,BeyondtheBusinessUnit,McKinsey Quarterly,1,2001,5463. P.Burrows,TheUnCarlyUnveilsHisGamePlan,BusinessWeek(June27,2005),p.36.

TheseshiftswereidentifiedanddocumentedinC.Homburg,J.P.WorkmanJr.andO.Jensen, FundamentalChangesinMarketingOrganization:TheMovementTowardaCustomer FocusedOrganizationalStructure,JournaloftheAcademyofMarketingScience,28(Fall), 2000,459478. M.GouldandA.Campbell,DesigningEffectiveOrganizations:HowtoCreateStructured Networks.SanFrancisco,CA:JosseyBass,2002. ThisdescriptiondrawsheavilyfromGalbraith(2002),op.cit., ChapterEightandfromFoote, Galbraith,HopeandMiller(2001),op.cit. Thestreamofresearchdescribedinthischapter alsoconfirmstheevolutiontowardcustomerfocusedorganizations.

LouisV.Gerstner,WhoSaysElephantsCantDance?InsideIBMsHistoricTurnaround.New York:HarperBusiness,2002,p.248. R.O.Crockett,ReinventingMotorola,BusinessWeek,August2,2004,8283. D.Sharma,C.LucierandR.Molloy,FromSolutionstoSymbolism:Blendingwithyour Customers,StrategyandBusiness,27,3948.

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D.Sharma,C.LucierandR.Molloy,FromSolutionstoSymbolism:Blendingwithyour Customers,StrategyandBusiness,27,3948. ThetradeoffbetweenspecializationandcoordinationwasfirstidentifiedbyP.Lawrenceand J.Lorsch,OrganizationandtheEnvironment,Cambridge,MA:HarvardUniversityPress, 1967. S.GhoshalandNiFinNohria,HorsesforCourses:OrganizationalFormsforMultinational Corporations,SloanManagementReview.(Winter1993),2335. J.K.Kotter, LeadingChange, CambridgeMA,HarvardBusinessSchoolPress,1996. M.SawhneypresentsasimilarnotioninDontHomogenize,Synchronize.HarvardBusiness Review,(JulyAugust2001),101108. Henotesthemostdifficultchallengeisgettingtheback endproductgroupstoviewtheinternalcustomerfacingunitsastheirprimarycustomer,rather thantheexternalendusers. M.SawhneypresentsasimilarnotioninDontHomogenize,Synchronize.HarvardBusiness Review,(JulyAugust2001),101108. Henotesthemostdifficultchallengeisgettingtheback endproductgroupstoviewtheinternalcustomerfacingunitsastheirprimarycustomer,rather thantheexternalendusers. F.Reichheld,TheOneNumberYouneedtoGrow,HarvardBusinessReview,(December 2003),4654. Reichheld,op.cit,page49. ThisdescriptionoftheCiscoreorganizationisbasedonRanjayGulatiandPhanishPuranam, OrganizationalInconsistenciesAfterReorganization:GoodforPerformance?London BusinessSchool,unpublishedworkingpaper,2005.

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ExhibitOne ClassificationofCompaniesInterviewed
(Successisbasedonmanagementjudgmentplusobjectivemeasuresofperformanceimprovement.)
Initialsuccess followedbyshifting emphasisbackto productdimension 13. SquareD 14. Cisco

Sustained success
1 1.IBM (interviews indepthwith Systems Group) 2.Fidelity Investments 2 3.CapitalOne 4.Imation

Regional successnot global 5.Cummins India 3 6.AstraMerck

Redesignin progress 7. Nokia 8. IntelSat 9. Qwest Communication 10. Thermo 4 Electron 5 11.SonyUSA 12.Philips Semiconductors

Damaging retreat 15. Xerox

LouisV.Gerstner,WhoSaysElephantsCantDance?InsideIBMsHistoricTurnaround.New York:HarperBusiness,2002,p.248. Gerstnerwasanimportantsourceofinsightintothe strategiclogicofaligningtheIBMcompanyForwardsolutions. 2 ThiscaseisdescribedinG.S.Day,TheMarketDrivenOrganization.NewYork:FreePress, 1999,andthefindingswereconfirmedinfollowupinterviewstwoyearslater. 3 ThiscaseisdescribedinG.S.Day,op.cit. 4 BasedonaspeechanddiscussionbyDr.MarynDekkers,CEOofThermoElectron Corp.at theCMOSummitat theHarvardBusinessSchoolinOctober2004. 5 AdescriptionoftheSonyUSAorganizationalredesigncanbefoundintheMarketing LeadershipCouncil,DrivingCustomerFocusedDecisioinMaking,Washington,D.C.,2002,p. 248.

FigureOne StagesofEvolutionForwardCustomerFocusedOrganizations

Increasing Alignment withMarket

KeyAccount Managers

Industry/ Customerbased Customer FrontEndUnits focusedSBUs Matrixwith Customer Segment Teams Champions Segment Global Managers/ Accounts Coordinator Advocates

Segment Productfocused Taskforces SBU(Product ManagerCoordination) Functional Stage1 Functional silos Stage2 Informal coordination Stage3 Formal coordination viaintegrating functions

Stage4 Structural grouping (solutionsbased organizations)

Stageof Evolution

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FigureTwo CustomerBasedFrontEndUnits

SeniorManagement strongcentertomediate
Commonaccount planningandmetrics

BackEndUnits product businesses

Lateral Linkages

CustomerBased FrontEndUnits

ProductCustomers
Standardizeandmodularizesolution readyproducts Tailorproducts Collaborateonaccountplans,product specs,salespriorities,andpricing
Source:AdaptedfromFoote,Galbraith,HopeandMiller(2001)

SolutionsCustomers
P&Lresponsibilitiesforsegments Configureteamsaroundopportunities Sourcefromoutsideasnecessary

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FigureThree TransformingFidelityInvestments

TransformingFidelityInvestments
Organize FrontEnd bySegment
Dedicatedgroups Segmentedofferings andservicemodels MatchCSRswith customer

Repositioning

Segmentation

Results 19952003

Fidelityprovides HighValue affluentinvestorsa $2million+ completerangeof $500kto$2 innovativeinvest million mentsolutions $100kto500k tailoredtomeettheir Core financialgoals, Mature deliveredwith Boomers exceptionalservice, Young ontheirownterms. professionals ActiveTraders

Shareofwallet: 25% 50% Attritionrate: 11% 6%

CRMarchitecture synchronized channels

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