MA Insights #6

Jim Drennen, CPIM

The purpose of a business is to create and keep a customer.” — Theodore Levitt

One of the major criticisms of MBO (Managing by Objectives) often cited in modern texts is the propensity for misalignment, resulting in what Deming called “suboptimization.” What good is it if the finance team meets its goal and sales or production team does not? Some cynics even point out that every department could hit their objectives and the firm could still go out of business!

Alignment is the key-but aligned to what? A guitar can be tuned to itself (in alignment) but not be in the correct key. The answer lies in the words of Levitt: “The purpose of a business is to create and keep a customer.” 

The test is to gauge each objective against this standard—How would meeting this objective improve our ability to attract new customers or retain existing ones? From this lofty but true north position, it is easy to make the jump to improved quality, higher levels of customer care, and developing new products and services that help customers get what they want.

Expect pushback: “OK, explain to me how I am to square my IT goals with creating or keeping a customer?” The answers to this question are discoverable. How can order entry be automated to decrease processing time, resulting in a reduction of lead time? Can the online quotation form be integrated into ERP or CRM to create a record so when the order is received it converts to a warehouse pick or a new shop order?  

Tying each department objectives to creating and keeping a customer points the firm in the direction of being customer centric. To be even more customer-driven, each objective could be weighted on its effect of attracting or retaining new customers. A weighted scale such as 9-3-1 would help the firm’s leadership team focus the firm on what really turns the crank—one what matters most to convert and keep customers. (9 = High Impact; 3 = Medium Impact; 1 = Some Impact.)

Of course, there are situations when something must be done regardless of its alignment to the purpose of gaining and keeping customers. Compliance, regulation, safety, and addressing major direct strategic threats fall into this category of “must-do’s.” Label these as mandatory and get them done but not at the expense of the true driver of business success: keeping the customer at the center of the firm’s activity.

Where to start? One tool to look at is from Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant.  In this excellent book, authors Kim and Mauborgne discuss the “Buyer Utility Map.”

The Buyer Utility Map is a tool that helps managers test whether their business or product/service offers a leap in value to buyers. A buyers' experience can be broadly broken into a cycle of six stages: purchase, delivery, use, supplements, maintenance, and disposal. At each stage, a company can typically use six levers to unlock exceptional buyer utility: customer productivity, simplicity, convenience, risk, fun & image, and environmental friendliness. The buyer utility map is a two-dimensional matrix that displays the six stages of the buyer experience cycle on one dimension, and the six utility levers on the other.

If an objective cannot be directly linked to at acquiring or attracting a customer (ignoring mandatory items), then why do it? When every department or function within a firm can trace  objectives from the customer experience, the firm is indeed aligned to what matters most.

Lesson Learned: Alignment of goals and objectives within an organization happens when all functions work together to create and keep a customer.