Satisfying Internal Customers: It's Still Important

Tweet

What everyone in a company does can be reduced to one of two functions:  to serve the customer or someone who does.

W. Edwards Deming

One of the most basic but difficult philosophies to ingrain into the culture of an organization is the internal customer concept.  The silo mentality is so common today that it interferes with the ability to focus on the needs of anyone who is in another part of the company.  The level of distrust that exists tends to be so high that we feel others will take advantage of us if we focus on making their jobs easier (or that making others look better will in some way jeopardize our own jobs by making us look worse).

I once facilitated a lean project with a technical group in a global organization.  When I asked why there were no representatives from the operations team (who directly received the output of the technical group), those in the meeting commented that the people in operations were lazy, did not understand what they needed, and would ask for anything that would make their jobs easier without regard to the effect it had on the technical group.  The discussion identified a serious problem in the organization that had to be resolved before the lean initiative had any chance of being successful.

Looking at it Objectively

Since very few jobs deal directly with external customers, it stands to reason that most people only work to serve internal customers.  If people are unwilling or unable to satisfy their internal customers, the organization has very little chance of satisfying its external customers on a continuing basis.

If the organization is truly committed to satisfying customers, the people in finance, IT, maintenance, human resources, and many other parts of the organization must develop a clear understanding of how the work they do impacts the external customer by serving internal functions.  Without an emphasis on internal customers, these same groups can begin to think that the work they do is an end in itself.  This captured market mentality - believing that others have no choice but to accept the output provided - often leads to process changes that reduce costs for these groups without regard to the effect on internal customers.

Perhaps the best example I've seen of a company that clearly understands the importance of internal customers is the inverted pyramid at Nordstrom.  The pyramid (shown on the Nordstrom website) depicts the organizational structure with customers at the top and each successive layer supporting the one above it.  As shown in the figure, customers are supported by sales and support people who, in turn, are supported by department managers, etc.  The objective of the pyramid is to make it very clear that customers are at the top of the company's priorities and the job of everyone is to support those who directly serve customers.

Achieving an Internal Customer Focus

There are a number of steps to achieve an internal customer focus within an organization.  The obvious first step is to assure that the company's senior leaders believe in its importance and are committed to making it happen.  If the company has poor teamwork and/or a number of functionally-focused leaders, there is very little chance that they will understand or be concerned with those in other parts of the organization.

Beyond assuring a level of understanding and commitment from those at the top of the organization, the following steps will help institute an internal customer focus:

1. Encourage open communication with internal customers and suppliers on how to improve the quality of what is provided to external customers;
   
2. Talk with people at all levels to better understand the reasons why a focus on internal customers does not exist.  The interviews are best conducted by someone outside of the organization if the level of fear and distrust within the culture will prevent people from openly expressing their thoughts;
   
3. Discontinue the practice of promoting people who do not understand the company's overall system and how the work performed by the teams they lead is used to help others satisfy external customers.  Leaders who are generalists tend to accept and practice the internal customer concept more than those who are specialists and focus more on their functions than the company as a whole;
   
4. Include internal customer input in feedback systems and hold people accountable for continually improving the products and services they provide internally;
   
5. Continually coach team members and lead by example;
   
6. Be patient and consistent.  Like any change initiative, shifting the culture to increase focus on internal customers can be a long-term process that will be tested over and over again as the change occurs.

I have found that, when facilitated effectively, value stream mapping sessions can be very beneficial in communicating how the output from one function becomes the input for another.  It also provides a method for identifying the problems that occur in the hand-offs between internal suppliers and internal customers.

Shifting the culture to one that is focused on satisfying internal, as well as external, customers often results in the identification of deeper cultural issues that need to be addressed before success can be achieved.  As these issues are resolved, however, the improvements in teamwork and communication will translate directly to the customer in the form of improved products and/or services.

Is Comptetitive Intelligence Worth the Effort?

Tweet

How important is it to keep an eye on your competition?  I was thinking about this question as I read an article on competitive intelligence in the April issue of Inc. Magazine [link].  Part of Inc's How To Guidebook series on business basics, the article presents several easy ways for companies to gather intelligence on competitors.  As I read the article though, I couldn't help wonder if focusing on competitors is really worth the effort.

Okay, there are some obvious reasons for knowing what your competitors are doing, but I've seen many companies take it to extremes and become so obsessed with following their competitors that it took attention away from running the business.

Lead, Don't Follow

You're in business to serve customers.  If you continually provide better products and services to your customers, you won't have to worry about your competitors.  The key is to develop a deep understanding of your customer's fundamental needs - i.e., the value your product or service truly provides for the customer.  Clearly understanding this improves your ability to create innovative ways to meet the customer's needs - something that won't happen when you spend too much time studying your competitors.

Too much focus on competitors tends to limit innovation because it directs attention toward meeting or beating what competitors do rather than finding ways to improve the value customers receive by doing business with you.  There is a strong tendency toward a "me too" mentality when you worry more about what your competitors - instead of your customers - are doing.

In other words, when you focus on your customers; you lead.  When you focus on your competitors; you follow.

As an example, when Saehan developed the world's first MP3 player, it did so based on the customer's fundamental need to listen to music from anywhere quickly, easily, and comfortably.  Until that time, the only way to have portable music was to use a portable radio (where one can't personally select the songs) or a portable CD player (which limits the amount of music based on the number of CDs the user is willing to carry).  If Saehan focused on competitors, it would have put its efforts toward developing a better or cheaper portable CD player.  Instead, it focused on the customer's fundamental needs and introduced an innovative product that changed the market forever.

So, I guess I've answered my original question.  Although it's probably okay to have a basic idea of what competitors are doing, it can easily get out of hand and interfere with innovation and customer-focus.  Becoming obsessed with customers instead of competitors, however, can lead to the development of innovative products and services that will result in competitors following you.

Company Purpose and Shareholder Value

Tweet

What is the purpose of a company?  It's one of those questions that has been debated since the beginning of the industrial revolution.  So, is it related to shareholders?  Customers?  Employees?

While presenting at a conference a few years ago, I surveyed those in attendance to discover what they felt the purpose was for the companies for which they worked.  77% of the people who responded (243 of 315) chose money as the reason their companies existed (e.g., earnings, shareholder value, etc.).

The results were not really surprising since the financial side of the business often receives the most attention by senior leaders.  Also, the actions taken in response to a decline in earnings tend to affect a greater number of employees than when the other parts of the business suffer.

Why it Matters

A company's purpose drives its business strategies, including direction, investment related to products and services, marketing, people development, and processes.  On the highest level, the purpose drives the decisions regarding whether the company will compete on the basis of innovation, low costs, or product and service features.

A clear purpose also helps to motivate people by giving meaning to the work they do and build teamwork by providing a common focus.  Without clarity, people will define the purpose in their own terms, resulting in internal battles and a breakdown in teamwork because of conflicting ideas regarding what the company is trying to achieve.

Is it Money?

Those who have read my book or other posts on this blog know that I believe a company's purpose should be focused on serving a need in society (in other words, providing something that potential customers value).  Although it is important for any company to be financially successful, this is the effect - not the cause - of serving customers well.

For example, suppose a privately-held manufacturer of relief valves defines its purpose as, to help protect homes and lives by providing high-quality and reliable temperature & pressure relief protection.  Further, suppose that the company's focus on offering highly reliable, easy-to-install valves at a reasonable price lead to dramatic success and growth.  To grow further, though, the decision is made to take the company public.

Now that it has become a publicly traded company, does it make sense for management to change its purpose from protecting homes and lives to increasing shareholder value?  In other words, should the focus now shift from customers to shareholders?  Obviously not, but this is, in effect, what many companies have done over the years.

What Others Have Said

Peter Drucker wrote that the purpose of a business is to create a customer.  In his book, The Practice of Management, Drucker wrote, "the profit motive and its offspring, maximization of profits, are just as irrelevant to the function of a business, the purpose of a business, and the job of managing.  In fact, the concept is worse than irrelevant.  It does harm.  It is the major cause for the misunderstanding of the nature of profit in our society and for the deep-seated hostility to profit which are among the most dangerous diseases of an industrial society."

Many people may be surprised to learn that, during a March 2009 interview with the Financial Times, Jack Welch [link] referred to focusing on shareholder value as a dumb idea.  Often considered as the creator of the shareholder value movement in business (a fact disputed by Welch), he added that, "shareholder value is a result, not a strategy," and that the main focus should be on employees, customers, and products.

Serve First, Collect Later

The point of all this is to emphasize the importance of developing (and sticking with) a clear purpose - and that it is not related to making money.  Focusing on financial gain leads to short-term decisions and cost cutting that, although well-intended, tend to damage the organization's future.  A focus on shareholder value may lead to satisfied stockholders (at least in the short-term), but dissatisfied customers and employees.  A focus on the customer, on the other hand, can lead to happy customers, employees, and shareholders.

Whole Grains and Happy Employees

Tweet

With all the recent news about layoffs, plant shutdowns, and product recalls, it's refreshing to hear a positive story from the world of business.  Bob Moore, the 81 year-old founder of Bob's Red Mill, an Oregon-based producer of whole grains and related products, announced last week that he is turning the company over to the employees. [Story]

Apparently, Moore felt that the only way to maintain the focus that has made the company successful over the years was to give it to the employees rather than sell it to outsiders.  He credits his success to a commitment to customers and employees and does not want that to change - even when he is no longer running the company.

Employees Really Are an Asset

Many companies talk about the value of employees, but with this decision, Moore has shown that he truly believes it.  My initial thought when I read the story was how the employees must have responded when they heard that their contributions and efforts had been recognized.  After further thought, however, my guess is that they already knew that they were valued and this was just another example of the type of culture Moore has created for the company.

We all need to learn from Bob Moore.  People can do amazing things, but only if the company's leaders remove the barriers that interfere with motivation and action.  This is not a difficult concept, but it cannot happen if the leaders do not truly value the company's employees.  If respect for people is not part of the fundamental makeup of the leader, efforts to create a positive culture that motivates people will require continual effort and will never be fully achieved.  And you do not need to give the company to the employees to make it happen.  People know when they're appreciated - rewards are part of the equation, but money does not appeal to a person's intrinsic motivation.  Appreciation, being heard, having control over the work, and contributing to something worthwhile are the things that really contribute to motivation.

I've bought Bob's Red Mill grains for many years because I like their products.  From now on, though, I'll be thinking about how the product I'm buying was developed and produced directly by the company's owners.