Credited by Philip Kotler with popularizing the term “relationship marketing,” Barbara Bund specializes in marketing strategy, as a consultant and Senior Lecturer at the MIT Sloan School of Management. As explained in her most recent book, The Outside-in Corporation, she focuses on the challenge of driving an organization’s marketplace strategy and tactics clearly and explicitly from the perspective of the customer — from the outside in. While acknowledging that the outside-in perspective is often difficult to achieve and maintain, she argues that it is also critical to marketplace success.
Bund has taught at MIT since 1991. Previously, she spent three years at the consulting firm Index Systems, where she was a vice president. She also spent eleven years as a professor at Harvard Business School. She holds an A.B. from Radcliffe College and a Ph.D. from Harvard University. She has published numerous articles as well as eight books. In addition to The Outside-in Corporation, her most well known publications are “Build Customer Relationships that Last” (Harvard Business Review) and Winning and Keeping Industrial Customers.
Morris: In 1902, James Cash Penney opened his first store in Kemmerer, Wyoming. He named it “The Golden Rule”. Nevertheless, for decades thereafter, the importance of customer centricity was either not recognized or was ignored. How do you explain that?
Bund: First, I should be clear that there were always some exceptions – business people who really did run their businesses with a strong customer perspective. In The Outside-In Corporation I tell the story of the decision by the McDonald brothers in the 1940s to adopt the kind of fast-food format that is so familiar to us today. Although customers were not asking for the change, the brothers thought hard about customers and how customers seemed to be changing. They modified their initial restaurant to fit with their views about customers and what those customers wanted, how they chose, and so on. Obviously, the McDonalds were extremely successful.
Similarly, in business-to-business situations there were also smart exceptions who succeeded by being outside in. Successful small companies that sold to the industrial giants in the U.S. focused strongly on their large customers, understanding their needs and their processes. There were also some larger outside-in organizations. Thomas Watson of IBM urged his employees to talk about the customers’ businesses, not about IBM products.
That said, I definitely agree that far too many people either did not recognize or ignored the importance of customer focus. I believe the reason for this situation is that good customer-based thinking can be difficult and uncomfortable.
The crux of the problem is that we never know as much about customers as we want or need to know. It seems dangerous, even irresponsible to base your marketplace strategy on something like customers, who you don’t know enough about. As a result, I believe, business people generally do think some about customers, but they then go on to focus on something about which they feel more comfortable and knowledgeable. The problem is that success still comes from customers.
My objective in The Outside-in Corporation was to offer readers a way out of this dilemma. It was to present and explore an approach that allows business people to take an outside-in, or customer, perspective in their actions and marketplace strategies, and to do so in the real world where there is never as much information about customers and markets as those business people want and need.
Morris: How do you explain the fact, at least in recent years, that customer centricity has become such an important marketing concept?
Bund: I think the basic reason is that business people are feeling more and more pressure. They face increasing pressure from local and global competitors. They face customers who have more and more information about alternatives and more and more access to suppliers from all over the world. Given these pressures, business people are looking for approaches that make sense and will continue to make sense. I think many are fed up with management fads that may or may not provide any benefit and don’t continue to work over time.
The idea of customer focus really does make sense. People really do recognize that fact.
Yes, it’s hard to achieve and maintain a strong outside-in or customer perspective. The good news, however, is that if you manage to achieve and maintain a strong outside-in perspective while your competitors do not, you gain a competitive advantage in the marketplace. If you really do maintain that perspective, the advantage can last.
Morris: Based on what you have learned, what seem to be the most common misconceptions about customer service?
Bund: Surprisingly often people say they can’t base their strategies on customers becasue customers make unreasonable requests (or even demands) and because customers vary too much. Such opinions reveal serious misconceptions.
The truly outside-in company definitely does not try to serve all the needs of it customers. Instead, its managers are clear about what their organization can and should do for customers, and whatever they do they do well. They focus.
The second, related misconception is that a supplier must serve all customers. Wrong. The really smart outside-in company makes decisions about which customers to serve. Again, the idea is to focus and do some things exceptionally well, not to try to do everything.
Morris: What prompted you to write The Outside-in Corporation?
Bund: I had two reasons. First, in my work with companies I kept being surprised – or, more accurately, shocked – at how few managers stated strong customer-based strategies. Different people in a single organization often expressed markedly different views about customer needs and behaviors. Implementation suffered. Plans for new or existing businesses rarely explained clearly how the organization would satisfy customer needs and accommodate customer behaviors. At the same time, I saw how real customer focus brought success to businesses that achieved it.
My second motivation came from my graduate students. I wanted to teach them skills that would be especially helpful to them in their careers. I decided it would be especially useful to teach my students how to focus on customers in a realistic and effective way.
So, I spent quite a number of years developing and teaching courses in which my students learned and practiced good outside-in thinking. I then decided it was time to write a book to share the outside-in approach with a wider business audience.
Morris: You say that your objective in the book is to share that “outside-in discipline.” What does this discipline require of managers?
Bund: The outside-in discipline requires that you have an explicit customer-based reason for everything you do in the marketplace.
There are really two parts to this requirement. First, managers need to be explicit about what they believe about customers. They need to create what I call “customer pictures,” verbal descriptions of customers that highlight the key customer characteristics and make those customers come alive. Although managers never know as much about customers as they want and need to know, the outside-in discipline requires that they construct customer pictures anyway, basing the pictures on whatever hard data they have plus hypotheses and intuition – often a lot of hypotheses and intuition.
The second part of the requirement is to make sure that the organization’s strategies and actions in the marketplace match the customer pictures and that they are understood by the people who implement them. It involves updating the customer pictures, strategies and actions as the managers learn more and as customers change. And it involves communicating the pictures, strategies and actions so that people throughout the organization understand what they are doing and why.
Morris: You quote Peter Drucker that “it is the customer who determines what a business is.” Please elaborate.
Bund: That quotation comes from Drucker’s 1954 book The Practice of Management. Drucker explains that it is the customer who is the foundation of business success. Customers are the ones who keep a business in existence, through their willingness to pay for the goods or services that business offers. Customers’ perceptions of what is worth paying for determine whether a business will prosper. He says that “What the business thinks it produces is not of first importance – especially not to the future of the business and to its success. What the customer thinks he is buying, what he considers ‘value,’ is decisive – it determines what a business is, what it produces and whether it will prosper.” In other words, it’s not the managers’ view of what is good or what customers should want; it’s the customers’ view that counts. In this way, Drucker says, the customer “alone gives employment.” (The quotations come from page 37 of The Practice of Management.)
I find it noteworthy that Drucker was so clear about the central importance of what I call outside in. He used the term “marketing,” which he defined as “the whole business seen from the point of view of its final result, that is, from the customer’s point of view.” (page 39) He said that the question of what the business is can be answered only by viewing it from the outside, from the point of view of the customer and the market. (page 50)
The term “marketing” means lots of different things to different people today, so I decided to use the terms “outside in” and “customer perspective” rather than talk about marketing in the way Drucker did. Make no mistake, however, Drucker fully understood the importance of outside in. The fact that so much of business practice did not adopt the outside-in perspective, despite Drucker’s clear admonitions, highlights the difficulty of achieving and maintaining outside in.
Morris: In your opinion, by what process must decision-makers in any organization determine how to create value for customers?
Bund: By this time no one will be surprised to have me say that the key is customer understanding – clear, explicit customer pictures built from a combination of data, hypotheses and intuition. Those pictures should consider customers needs directly related to the product or service but should also go further to consider customers’perceptions (including misconceptions) and key aspects of customers’ behaviors – how the customers become aware of the product or service, how they evaluate possible purchases, how they actually decide, how they use the product or service.
The organization’s strategies and actions should then be checked carefully against the customer pictures. Those pictures will often suggest additional promising strategies and actions.
The decision-makers should communicate the customer pictures and the logic of the strategies and actions. That communication allows employees throughout the organization to implement the strategies and actions, tweaking them appropriately in response to variations in the marketplace. It also allows employees to recognize information in the marketplace that contradicts the customer pictures, either because the pictures were not entirely correct or because customers have changed.
Customers’ perceptions are what determine whether or not customers buy, but it’s difficult in practice for managers to focus on customer perceptions. To quote Drucker again (this time from his 1985 book Innovation and Entrepreneurship), “The greatest danger for the new venture is to ‘know better’ than the customer what the product or service is or should be, how it should be bought, and what it should be used for.” (page 193) The danger is by no means confined to new ventures; it is common in existing businesses, too.
I see the problem especially often in high-tech businesses (of which I see many at MIT). Often, very talented technical people find it extraordinarily difficult to take the viewpoint of customers, who are often ignorant about the technology and who may have strong and perhaps incorrect prejudices about it. The technical people may believe, deep down, that they know better what customers “should” need. Customers, of course, have a different perspective. They want products that will solve customer problems and provide other customer benefits, and will do so without undue risk or cost. Not infrequently, customers view advanced technology itself as a risk.
Morris: Warren Buffett once suggested that price is what is charged but value is what a customer thinks it’s worth. Presumably you agree.
Bund: Absolutely. Peter Drucker agreed, too. I began my chapter on Outside-in Pricing with another Drucker quotation: “Customers pay only for what is of use to them and gives them value.” (Innovation and Entrepreneurship, page 228)
As I’ve been saying, in many ways it is surprising that more managers don’t take the outside-in or customer perspective, when people like Buffett and Drucker keep making statements like these. Then again, Drucker said in 1954 in The Practice of Management that the “most difficult question” is “What does the customer consider value?” (page 54) Outside in is difficult. It’s also extremely effective.
Morris: One final question. Looking ahead, what do you think will be the next major development in customer relationships?
Bund: I’m having trouble predicting what will in fact happen, so I’m going to answer a slightly different question – what I hope will happen and think should happen. I really hope that more and more companies will become much better at achieving and maintaining outside-in. I hope that we will see more and more truly outside-in corporations and that those organizations will remain outside-in corporations over time.
Again, I acknowledge that the task is not easy. Even companies that have achieved outside-in perspectives often have difficulty remaining outside in. As an example, consider Dell. I use Dell in my book as one of the examples of organizations whose success was clearly built on an impressive outside-in focus. Recently, of course, Dell has been struggling. Some of Michael Dell’s comments in the business press suggest that the company fell into the habit of overemphasizing costs and efficiency and underemphasizing customers. In the terms of my book, Dell built its initial success with a strong outside-in focus but over time some of its strategies and actions slipped into the bad habit of inside-out instead. In working to correct the problems, the company’s managers are working to regain outside-in.
So, I really hope that we’ll see many more truly outside-in corporations. No, outside in isn’t easy to achieve and maintain, but it’s a wonderful approach for achieving and maintaining success in the marketplace.