Technology is not sufficient for success. Customer-focused business model innovations are desperately needed

A study from IMD in Switzerland confirms what we at CERS always have advocated. A firm that is truly customer-focussed and customer-driven performs better. Being truly customer-driven requires that top management does not only claim that being customer-focused is the top priority, but in reality nevertheless consider finance, technology, operations, and other business aspects equally important in its management actions. Only firms where top management really practise customer-driven management perform better than other firms.
 

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Photo by Helloquence on Unsplash.

This is a real concern in Finland right now. The global economy is growing again and, as a consequence, the export of Finnish firms has improved unexpectedly, quickly and considerably. It is well known that firms in Finland are predominantly technology and product driven. There are, of course, exceptions, but generally speaking this is the case. A customer focus has not been the driving force for management. Both business managers and political decision-makers talk about technology and product innovations, but no one seems to emphasize the need for customer-focussed business model innovations, such that firms will be able to capitalize on the development of new technology in a successful and sustainable way.

Today firms are given the gift of quickly growing global demand. How will they respond? The traditional reaction would be to praise the quality of their products, pursue product-based sales, and take the customers’ orders for true customer satisfaction and devotion. Good sales response will be mixed up with true customer focus. A good economic outcome will disguise the fact that most likely sufficient attempts to turn the firm’s strategy and operations in a customer-focussed directions are not made. In the end, when the demand stops growing and eventually starts to decrease, yet another disastrous situation for Finland and Finnish firms will develop, with lost sales, increasing unemployment, and more.

Right now Finland needs firms where top management realizes that to get the best out of the current good times, and, at the same time, prepare for worse times that undoubtedly will come, is to starting thinking from their customers’ perspective. In other words, now is the time to become truly customer focused and customer driven. Of course, this does not mean that technology innovations and product development are less critical to success. However, customer-driven business model innovations are even more critical. When demand grows, customers buy based on technology and product quality. When demand stops growing, price competition makes the customers stay. When the market starts to decline, not even price is enough for a product-focused firm to keep its customers. This is well known for Finnish firms.

However, this negative development can be avoided. Finally start thinking as the customers, and start doing it when times are good and it is comparatively easy to sell. Our research at CERS has demonstrated that understanding the customers’ ecosystem and adopting the logic of service business is a way of making a firm customer focused. Understanding the customers’ ecosystem, that is understanding the complex environment in which they operate, enables firms to require proper customer insight to make customer-focused decisions. Adopting service logic helps firms to break an inherited habit of just delivering products to customers and instead making products and other tangible and intangible resources part of a process of supporting the customers’ many processes, and thereby enable them to achieve their business goals.

The reason why service logic, in contrast to a conventional product or manufacturing logic, makes firms customer-focused is quite simple. Thinking in terms of providing service to customers is impossible without taking the processes of the customers as the starting point. Service cannot be understood and developed without integrating the customers in the process. Customers are an integral part of true service. On the other hand, it is perfectly possible, and quite normal, to both develop and sell technology and products without including the customers in the processes, and without proper insight into their ecosystems.

Equally much as so-called service firms, such as banks, insurance companies and other firms traditionally considered service industries, product manufacturers can provide their products as service to their customers instead of delivering products. It is a matter of strategic intent and business approach. Sadly, many conventional service firms productize their services in such a way that they lose their ability to truly support their customers’ processes, and in the process they become product-delivering firms.

Managers have to assess their firms’ readiness to be customer focused and driven by their customers. Such an assessment starts with an analysis of the mental orientation of the firm and its management. The mental focus of managers is reflected in the decisions they make. This, in turn, steers how the thoughts and actions of people throughout the organization are developing.

The firm’s readiness to develop and maintain customer-focused relationships with its customers can be determined by asking just two questions:

  1. Does the firm (managers and operational personnel) understand its customers’ processes and ecosystems equally well as it understands its own processes and ecosystem, and is this reflected in the firm’s management and operational processes;

  2. Does the firm (managers and operational personnel) understand what its customers’ consider good quality equally well as its own definition of quality, and is this reflected in the firm’s management and operational processes.

If the answer to all aspects of both questions is yes, the firm is probably ready to cope with the global competition it operates in not only during good time, but also when times turn turbulent and the competition gets tough. To read further, look, for example, at the following three articles:

 

Grönroos, Christian: Relationship marketing readiness: theoretical background and measurement directions. Journal of Services Marketing, Vol. 31, No. 3, 2017, pp. 218-225.

Heinonen, Kristina & Strandvik, Tore: Customer-dominant logic: foundations and implications. Journal of Services Marketing, Vol. 29, Nos. 6/7, 2015, pp. 474-484.

Grönroos, Christian: Adopting a Service Logic for Marketing. Marketing Theory, Vol. 6, No. 3, 2006, pp. 317-333.

 

Christian Grönroos

Professor Emeritus