Today, I spoke to Ranjay Gulati, who is the Jaime and Josefina Chua Tiampo Professor at the Harvard Business School and the author of Reorganize for Resilience: Putting Customers at the Center of Your Business.  In this interview, Ranjay talks about why companies aren’t customer-focused, how companies can keep track of customers, the five key levers that create organizational resilience, and more.

Why do most companies think they’re customer-focused when they aren’t?

There are two gaps that lead to this syndrome: awareness and action. With regard to the former, in some instances firms delude themselves into believing they are customer-focused when they are not because they have an incomplete, or even misguided, view of what it means to be customer-focused. They begin with a set of products or services they want to sell and then looking for ways to slice and dice the marketplace to see where they can sell them. The second gap originates from firms underestimating the extent of organizational changes that are required to truly align their enterprise around customers. Ultimately, talking about customers is like “happy talk” in most enterprises where people engage in tokenism and refer to customers repeatedly but don’t really mean it, nor are they able to engage their enterprise to act in a concerted way around these issues.

How can companies stay one step ahead of customers especially since information is traveling so fast right now?

In turbulent markets as we are in today, it is imperative that firms are not just listening and responding to customers but trying to stay one step ahead. Customer-centric organizations don’t just slavishly respond to all that customers ask for. As my colleague Clay Christensen has shown, sometimes companies that follow this path can be completely blindsided by disruptive innovations since customers themselves don’t always see such innovations. Instead, those firms that embrace an outside-in mindset through their careful engagement with customers are quick to see possibilities where others don’t. They are able to identify and articulate product and services possibilities that others don’t because they are constantly exploring the problems customers are facing and the potentiality for them to address those problems.

What are your five key levers that together help create a resilient organization?

My research found that the outside-in organization is built on five critical organizational levers – coordination, cooperation, clout, capability and connections.

  • Coordination: Coordination aligns tasks and information around a customer axis but doesn’t necessarily lead to a collaborative culture, which requires the lever of cooperation – the alignment of goals.
  • Cooperation: When members of disparate or competing silos cooperate around a common set of goals, they make adjustments more quickly and at lower cost than in organizations in which the needs of the silo come first.
  • Clout: But cooperation does not solve problems associated with the redistribution of power, so for collaboration to work, clout – power and influence – must be in the right hands.
  • Capability: At that point, the capability to develop new organization-spanning skills must be fostered and strengthened so managers don’t fall back on their own silo-protecting skills.
  • Connections: Yet there is another critical lever that organizations must employ – connections, which provide the external relationships and partnerships that can improve a company’s performance dramatically.

What companies are best practices for focusing on the customer need and delivering solutions?

Best Buy, the largest dedicated consumer electronics retailer in the US, provides a good example of a company that developed an outside-in orientation by tackling its own internal silos.

Best Buy undertook, first, a massive internal effort to educate its employees about the benefits of an outside-in perspective, and, second, a monumental effort to mobilize action. From building cross-functional customer segment units to creating additional teams that cut across merchandising, store operations and their segment owners, senior leadership at Best Buy saw to it that the entire organization embraced an outside-in approach.

Examples of companies that have gone well beyond their competitors in attuning goods or services to customers’ needs include Apple and Bharti Airtel, India’s leading wireless phone company. These companies are more attached to producing solutions to customers’ problems than they are to the products and services they offer. Their borders are their customers’ borders – even if that means that some boundaries are dissolved into partnerships and third-party arrangements.

Ranjay Gulati is Jaime and Josefina Chua Tiampo Professor at the Harvard Business School. He is the author of Reorganize for Resilience: Putting Customers at the Center of Your Business. He is an expert on leadership, strategy, and organizational issues in firms. His recent work explores leadership and strategic challenges for building high growth organizations in turbulent markets. Some of his prior work has looked at both when and how firms should leverage greater connectivity within and across their boundaries to enhance performance. Professor Gulati has received numerous scholarly awards. He was ranked as one of the top ten most cited scholars in Economics and Business over a decade by ISI-Incite. The Economist Intelligence Unit and the Financial Times have listed him as among the top handful of business school scholars whose work is most relevant to management practice. He has been a Harvard MacArthur Fellow and a Sloan Foundation Fellow.