Author: Esko Kilpi
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Posted: February 03, 2013 1081 views

Last week I met with executives from large traditional manufacturing firms asking what the ideas of social business might mean for them. What kind of changes might be ahead?

There is a saying that without customers, you have no business being in business. Accordingly, customer focus has been the dominant idea in business since the 1960s. Businesses have focused on customers as an audience for products, services and marketing messages.

But unfortunately many businesses still consistently miss the big shift: customers have transformed from an audience to actors. Firms don’t create value for customers. The way customers actively use the products and services creates value. More value or less value.

Many troubled companies still focus mainly on the wrong things. Their turnaround efforts don’t typically involve the customer. Managers streamline the businesses mainly through cutting costs; they re-engineer the internal processes to make them more cost-efficient. But they regularly leave out the most important part of the equation. They don’t start from the outside, the customer, and work in. They don’t create customers first. Instead, they work from the inside out. Many of these initiatives save money, but don’t affect the revenue side of the equation.

There is revolution going on at this very moment as a result of the new interactive tools and social platforms. Every organization, no matter how big has now, for the first time, the ability to interact directly with its end customers. Every company has the potential to consolidate customer insights and to gain a much better picture of who its customers are. How customers use the products, and what, and where they discuss the products.

The real customer for any business is the end user of the offering, the person or company who uses the product, not the ones who distribute the product to the user or even, necessarily, the ones who pay for it. If your actual end customers don’t value your product or service, sooner or later you’ll be out of business. The length of time it takes for customer dissatisfaction to put you out of business depends on the number of steps, the degree to which you are away from direct customer contact. This was one of the main concerns that the executives raised.

Many companies I met had delegated customer interaction to their distribution channel as part of the overall value chain set-up. Very often the distribution channel “owns” the customer in exchange of the services given. The problem here is often letting that channel withhold information about customers as part of the trade-off.

In most markets, the demand for a direct relationship between producers and customers becomes more and more intense as the channels of distribution become shorter and more varied.

The marketing and sales departments used to be the customer’s proxy, with the exclusive role of interpreting changing customer needs. Social business necessarily transforms the marketing function and sales specialists by formally integrating the customer into every part of the organization.

The customer of tomorrow interacts with, and should influence, every process.

For routine retail transactions, as we have known them, such direct customer influence may seem all but impossible. But improvements in interaction technologies and companies ability to handle big data, and customer specific small data, make it feasible to claim that the number one thing shaping performance of the traditional manufacturing enterprise is the interactive capacity between producers and customers.

The good news is that I have seen a new breed of executives coming to power. The people I met are technology-literate.  They are not only the early adopters of the next hot gadgets. They are pragmatists. They are frustrated by antiquated information and CRM-systems, firewalls and organizational silos that get in the way of streamlining customer-facing business processes. “There are no back offices any more”, said one of the executives. “All processes need to be customer-facing in order for us to be competitive and serve the new active customers.”

“There is no business without rich customer interaction” as one of the executives put it.

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Thank you Tore Strandvik


About the author >

Esko Kilpi

Esko Kilpi is founder and principal in Esko Kilpi Oy, a leading research and consultancy firm working with the challenges of knowledge work and digital work environments. The organization is based in Helsinki, Finland. In addition to his work as an executive adviser Kilpi takes part in academic research and lectures on the topics of organizational learning, knowledge based view of the firm and interaction technologies as key enablers for knowledge based value creation in Nordic countries, Europe, Middle-East, Far-East and USA. He has published various articles on these subjects and is the co-author of a book on teams and process management (1996) and books on management challenges of the information age (2001, 2006). His teaching and research interests are about organizational contexts, where creative learning takes place and organizational dynamics for emergence of coherence and novelty. A large part of his work has concentrated on principles of organizational viability based on what can be learned from complexity sciences and theories of complex adaptive systems. At the moment Kilpi's work has focused on open source principles and social software implementations in organizational contexts. Kilpi has been a member of the advisory board of the World Bank on Knowledge Management. He has also been a member of the expert think tank on Knowledge Management for the European Union.

more information Weblog: http://eskokilpi.blogging.fi/

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