Choose Your Customers Wisely

These four powerful words were uttered by a student in my Executive MBA course. Break down the underlying messages in this phrase and you’ll have some powerful tools to help your organization compete effectively.

1. Choose your customers. There's no law that says you have to accept every customer. In other words, not everyone ought to be your customer. If you’re in the business-to-business space, corporate customers who pay your bill on time and have been with you the last ten years are not necessarily good customers. They might consume an inordinate amount of your time and resources before they’re finally grudgingly satisfied. They might constantly play you off other vendors to press you to lower your price. They might frequently threaten to leave unless they get better terms, regardless of the impact on your organization’s health. In short, even though they pay on time and have been with you for years, they might be lousy customers. FedEx, for example, did a Return-on-Investment analysis on their corporate customers and found a shocking allocation of the company’s resources to marginal customers. The moral: Don’t just automatically take on any customers who are willing to buy just to beef up your top line. Selectively choose your customers, because ultimately it’s bottom line metrics that will determine your organization’s health. In fact, as plastics manufacturer Nypro found, firing marginal or bloodsucking customers is the best way to grow your business with the kinds of customers who are willing to pay for innovative value.

If you’re in the business-to-consumer space, you might still have the luxury of choosing your customers, like banks and dentists do. If you do have that luxury, don’t apologize for it. Or, minimally, if you can’t pick and choose, then at least discriminate among customers. Pamper and reward your “good” ones. Make them feel special. Don’t apologize for it.


2. Choose your customers wisely. Choose customers that “fit” your values and your growth strategy. If you’re seeking transparent collaborative relationships with corporate customers, don’t accept those who are closed or untrustworthy. If your business plan calls for higher-end value-adding services, don’t choose or try to please customers who are attracted to commodity services at basement prices. If you’re in the business to consumer space, target your marketing primarily (or only) towards the kinds of customers that fit your growth plan, and make sure that you take special pains to make them feel welcome and desired. Anyone can walk into a Best Buy store. But consistent with the company’s new growth strategy, CEO Brad Anderson told store managers to reduce their attention on promotions, rebates and gimmicks that would attract lowest-price customers, and instead concentrate their attention on providing more service value to higher-end “angel” customers. Anderson figured out that his company would be more focused, less distracted, and healthier without also seeking low-price customers who would be better served by Wal-Mart, where their inclinations fit the latter retailer’s strategy.

You hire and fire employees as a good business practice. Why not customers? Moral of story: Choose your customers wisely.

Globalization is a Good Thing (Isn't It?)

Ralph Peters, writing in the Sept. 4 issue of The Weekly Standard said something provocative:

“Globalization is real, but its power to improve the lot of humankind has been madly oversold. Globalization enthralls and binds together a new aristocracy--the golden crust on the human loaf--but the remaining billions, who lack the culture and confidence to benefit from "one world," have begun to erect barricades against the internationalization of their affairs. And, from Peshawar to Paris, those manning the barricades increasingly turn violent over perceived threats to their accustomed patterns of life. If globalization represents a liberal worldview, renewed localism is a manifestation of reactionary fears, resurgent faiths, and the iron grip of tradition.”

Though I’m an affirmed globalist (for the simple reason that technological advance has clobbered time, distance and national boundaries) , I must concede that Peters has a point. For the individual firm, the potentials of global connectivity in developing expanded information, new customers, dynamic partnerships, research and development breakthroughs, and cost efficiencies is immense. Proctor and Gamble is successfully partnering with R & D talent abroad and anticipates that 50% of its new product development will come from outside the U.S. by 2010. Public Financial Management, with under $100 million in revenues, is offshoring a lot of routine financial data entry work to free up resources that can be applied to the company's customers. I recently gave a speech to 400 small business owners and entrepreneurs, and one of my main points was that with the availability of new technologies and strategic alliance opportunities, every company ought to consider itself a global company and look beyond domestic borders for growth potential.. Any company that doesn’t, by the way, will be fodder for firms outside the U.S. who do. Globalization is inevitable, and the savvy leader will seek to capitalize on it, not pretend it doesn’t exist.

And yet, when it comes to nations themselves, the reality is more complex. In the long run, the impact of globalization is solidly beneficial. Empirical economic data are unequivocal about this point. In fact, countries that have attempted to put a brake on this process with tariffs, quotas, trade barriers and other forms of protectionism have consistently generated economic stagnation.

But on the flip side, the “trickle-down” benefits of globalization might indeed, in the short run, be just a trickle.. In both rich and poor countries (including the U.S.), local traditions and habits might be threatened; local businesses might be decimated; local people might lose jobs which are farmed abroad and not have the skill sets to seek something better.

Politicians and business executives must recognize this complex fact of life. They shouldn’t adopt simplistic “let the global marketplace prevail, even if it’s painful” (for others, of course) or simplistic “let’s ‘protect’ our businesses and workers from foreign competition”. Neither black-white alternative will work in the long haul.

Globalization is a good thing. It spurs efficiency. It spurs healthy competition. It spurs agility. It offers avenues for new customers, sales, licenses, distribution channels, partnerships, and such. I always advise my clients to develop their corporate strategies with these premises in mind.

Yet for many individuals, and countries, the tough times may precede the good times. I think Ralph Peters’ words are prescient. Which means that leaders in both the private and public sector should start collaborating on ways to constructively smooth the edges and buffer some of the pain of unfettered globalization—without killing the free market goose that lays the golden eggs. It’s a conundrum: On one hand, smothering free markets with good protectionist intentions will lower the prosperity bar for everyone. On the other hand, it’s hard to sustain economic growth and prosperity in any country when its social landscape is in upheaval.

A Bunch of One-Pagers

"A Bunch of One-Pagers" by Oren Harari. September 14, 2006

I just spent a delightful day with Harold Gray, a Senior Vice President at State Farm Insurance. In my recently released book Break From the Pack, I describe how Gray led a turnaround in the Pacific Northwest region that was so dramatic that the CEO of State Farm, Ed Rust, proclaimed it one of the most exceptional outcomes he had ever seen at State Farm.

In my book I thought I did a pretty good job describing the strategic, operational, and leadership steps that Gray took, but he reminded me of something that I’d overlooked because it was so ridiculously simple. Yet that simple thing had profound consequences.

Like many large, mature companies, State Farm’s culture was bulging with lots of people preparing lots of long, complex reports and documents. These long complex reports and documents were continually copied, earnestly distributed, and often presented in long, complex meetings. The result? Slow communication, slower follow-up, and vanilla decision-making.

One of the many ways that Gray attacked this beast was to insist on ever-shorter and shorter documents. Ultimately, he led with a ridiculously simple commitment to “a bunch of one-pagers”, in his words. With some exceptions, all reports and documents that advocated action had to be one page long. He told me, “I actually said that ½ page would be better, but I’d accept one page.”

So any action plans about customer retention, employee morale, sales enhancement, agent relationship, and such became “a bunch of one pagers.” The impact? The ideas had to stand on their own merit. Less b.s., less grandstanding, less “padding”, less time and resources devoted to verbosity and explanation of ideas that were inherently ambiguous or suspect. More “KISS” (keep it simple, stupid), more urgency, and more clean, crisp, communication of ideas and decisions.

All this led to more clarity, more consensus, more speed, and more accountability—and shorter meetings! These attributes were essential in carrying out Gray’s very specific blueprint for transformational change and enhanced performance.

So if you want to turn your corporate culture into something more agile and productive, start demanding a bunch of one-pagers.

Why Collaboration Matters

XIP (short for Xerox International Partners)--based in Palo Alto, California--is a sales, marketing, and distribution arm of Fuji Xerox. The organization offers printers, full-system copiers and other document imaging systems for resale under other companies' brand names.

XIP operates in a tough, highly competitive global environment (come to think of it, these days, who doesn’t?) One would think that to survive in this Mad Max market, the boss would be a kick-ass, take-no prisoner type. I have no doubt that CEO Sunil Gupta is a tough guy, but what really intrigues me is his (correct) assessment that in today’s marketplace, it’s in-house collaboration—not command-and-control, not intimidation, not turfism, not pure Darwinian survival of the fittest--that will create corporate winners.

In a recent phone conversation, Gupta told me that one of his main priorities is to get three internal constituencies to work more closely and more transparently with one another. He cited his own management and technical team as one group, the folks at Fuji Xerox-- who are XIP’s exclusive supplier of technology as another group, and the members of XIP’s Board of Directors as the third group. Gupta’s belief is that pooling the talent and resources of these three stakeholders will create a faster, more cost-efficient and more innovative XIP. He doesn’t expect, or want, these three groups to second-guess or micro-manage each other’s affairs. He wants them to contribute their brains and passions towards common goals, without regard to artificial organizational barriers.

Gupta’s goal is absolutely valid. Today’s global marketplace is unbelievably fast, fluid, and transparent. In that environment, it’s the most agile and “smart” organizations which will prosper. And to become agile and smart, organizations must encourage—indeed, demand—that genuine collaboration become real, and not just lip service. Several years ago, Bob Ulrich, CEO of retailer Target, told me that one of the main reasons that the Target corporation stayed so innovative and vibrant is because he was unequivocal about pushing “boundarilessness” throughout the organization, so that divisions and units and departments and management levels freely shared information with one another, and freely allowed migration of people and data among themselves. Companies as diverse as Target, GE, 3M, Gore Associates, Genentech, Google, and Public Financial Management have strong cultures marked by performance accountability, to be sure, but also by collaboration, openness and transparency.

It’s not easy to break down beliefs and cultures that revolve around status, rank, turf, secrecy, separateness, closed doors, and “for your eyes only”. But Sunil Gupta, Bob Ulrich, and other exceptional executives believe that it ought to be a top leadership priority to try.