A lesson from Lukes on letting customers define you

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A successful business is more often defined by the distinctiveness of its relationships with customers than by the distinctiveness of its production systems.

I have seen water closets coming off a production line and visited some of London’s most exclusive casinos. I have watched computer-controlled hair dryers make instant coffee granules and I have sat on a box in the Lloyd’s insurance market. I have admired the sterile environments required for advanced electronic components and listened in on complaining customers at a call centre.

Business people usually want to show you their plant and all these visits have been enjoyable and instructive. The casino gave me insight into how irrational financially successful individuals can be, the call centre was a lesson in how unreasonable customers can be. But I cannot honestly say I ever learnt much about an industry from a factory tour. When I did, it was usually from casual remarks by employees when my chaperones were out of earshot.

In contrast, I have found it illuminating talking to the people who sell products to customers. To let them talk about what clients want, or think they want – often not the same thing; to hear how the sales team see the competition, relative pricing and positioning; and to understand how the technical and financial aspects of the business both help and impede their job.

August is the silly month for newspapers, when readers ask what it is that a-b glöbâl, the fictional company whose internal processes are revealed in the Financial Times each Thursday, actually does. But when Martin Lukes, the UK chief executive, replied that the company delivered solutions that leveraged customers’ competencies, I was less dismissive than I have been previously.

By interpreting the question, “what does the company do?” with reference to customers, not products, Mr Lukes was making an important point. A successful business is more often defined by the distinctiveness of its relationships with customers than by the distinctiveness of its production systems. That is why I learnt more about a company and the nature of competitive advantage in its industry from visiting marketing departments than from visiting plants.

Even in technology-based industries, it is usually more important to develop technology in ways suited to customer needs than to have the best technology. IBM recognised this about mainframe computers, where its customers were information technology professionals. Hence the famous slogan “no one ever got fired for buying IBM”. But the target market for personal computers was different – people who wanted a machine they could use without knowing anything about computers. Microsoft and Apple understood early on that product quality was defined by users, not technicians. The iPod and BlackBerry are successful for similar reasons.

Technology matters in retailing. But a lecture about Wal-Mart’s systems would sound indistinguishable from a lecture about the systems employed by any other retailer. Appreciating how technology relates to competitive advantage in this industry relies, not on understanding how the technology works, but on understanding why the technology makes a difference. What matters, and what everyone can understand, is the consequences of better systems for inventory levels and stock out-rates.

When I studied a new business, the meeting with the chief executive generally proved more useful than the factory tour and less useful than the session with the people who dealt with customers. Sometimes, like Mr Lukes, senior executives would deliver vapid clichés, unrelated to either product or customer. The depressing truth of the Martin Lukes’ column is that people of some innate ability, occupying senior and well-paid positions, and superficially very busy, may in reality be doing nothing at all.

But Mr Lukes is right to think that a-b glöbâl should aspire to lead in solutions that leverage the competencies of customers. He must also identify who these customers are, what their competencies are and how he can leverage them to add value. If he can spell out in short words exactly what that means he might, even now, snatch triumph from the jaws of disaster.

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