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Inside Best Buy’s Customer-Centric Strategy

What are the challenges of doing business in today’s marketplace? A sampling of senior executives would probably come up with the same list: Competition is global. Companies are increasingly competing for the same wallet. With more choices and information, customers are choosing mostly on price. Even before the recent downturn, what former IBM boss Lou Gerstner called “commodity hell” was pretty much every business’s nightmare.

That sampling is also likely to agree on the solutions: Embrace your market and become “customer-centric.” That said, it would be hard to find a CEO who would tell you that his or her firm isn’t customer-centric already. And that’s exactly where mass delusion begins for most companies.

To be sure, most major enterprises do have departments devoted to surveying their customers. But the truth behind “garbage in, garbage out” still applies. Ask about your business only through the lens of your offerings — How do you like product X? How can we improve service Y? How receptive would you be to new product Z — and you may learn something about them, but you will discover almost nothing significant about your customers.

Becoming customer-centric means looking at an enterprise from the outside-in rather than the inside-out — that is, through the lens of the customer rather than the producer. It’s about understanding what problems customers face in their lives and then providing mutually advantageous solutions.

It’s the approach Best Buy took and it’s a key reason why the company has survived in the tumultuous consumer-electronics marketplace, while Circuit City is gone. Best Buy took the time to understand who its customers are and what they need and then started selling solutions instead of products. As part of its research, for example, Best Buy discovered that 55 percent of its customers were women, and that for the most part they loathed their shopping experience at the retailer. Men look for a specific product at a discount price. Women want not just a digital camera, but a printer, cable, and other accessories–and they care far more about these things than price. Equally important, they want help with installation, while most men prefer to try to put things together themselves.

Accordingly, Best Buy adopted mostly common-sense solutions once it understood the issues involved. Related products were bundled together. In many stores, kids now have special play areas while their moms browse. To help with installation, the company acquired Geek Squad. Buy a flat screen TV and they’ll have it running before your favorite show airs.

Getting from awareness to action, however, was anything but easy for these companies. And that illustrates the final — and most critical element — of customer-centricity: implementation. Owning customers’ “problem spaces” doesn’t just happen. It takes lots of work.

Even when a company and its employees try to make sense of what they are hearing from their customers, they often find themselves immobilized by their own organizational architecture — the internal “silos” that inevitably grow around specific units and functions. I hasten to add that there is nothing intrinsically wrong with silos. Division of labor, specialization, and departmental responsibility are necessities in any operation. But most firms today are still structured around product and geography. They have excellent perspectives on what they make and where they distribute and sell it, but poor views of customers and their problems. And these inadequate sight lines impede coordinated action toward solving these problems.

For Best Buy, bundling related products was an obvious answer, but that required separate merchandisers to work together. It necessitated adjusting distribution schedules, creating new store space, and training front-line employees to serve as personal shopping assistants. These aren’t “division reorganization” issues &38212; division reorganization is basically musical chairs for adults. This kind of reorganization is enterprise-wide. It requires connection and cooperation across broad swaths of the organizational terrain. Sometimes to get there you have to blow up silos. More often you can bridge them with some persuasion and cajoling. But however you get there, you are traveling into the very heart of what you do, and that takes determination and more than anything else, strong and sustained leadership.

For most firms today, customer-centricity is a necessity for survival — the only sure way to ensure the organizational resilience that will keep a company out of the jaws of commodity hell. Getting there is not for the faint of heart, but the process makes — and keeps — the company competitive.

Ranjay Gulati is the Jaime and Josefina Chua Tiampo Professor of Business Administration at Harvard Business School and the author of Reorganize for Resilience: Putting Customers at the Center of Your Business (Harvard Business Press, 2009).