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Working Paper

Capabilities for Forging Customer Relationships

George S. Day, 2000 [00-118]

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Customer retention has always been a high priority in business-to-business markets, and it is now at the center of the strategy dialogue in most markets. Customer relationships are seen as among the most valuable and durable of all advantages. Most firms have started, or will start, a major customer relationship management initiative to achieve:

• a continuing dialogue with customers,

• across all their contact and access points,

• with personalized treatment of the most valuable customers,

• to increase customer retention and the effectiveness of marketing initiatives.

However, for many firms, this initiative will be purely defensive, and will not result in advantages. In addition, as firms diffuse best practices, and vendors make relevant software widely available and economical, all competitors will be equally equipped. Most importantly, the organizational capability to provide a personalized experience for each customer is more difficult to achieve than a transactional or product-focused approach. In fact, few firms will master it.

What factors distinguish firms that are more capable than their rivals? How do firms achieve an alignment that enables them to successfully execute customer relationship management? What actions can strengthen the customer-relating capability?

Achieving a Relationship Advantage

In this paper, author Day provides a framework for addressing these issues. He uses a resource-based view that differences in firm performance are attributable to differences in assets and capabilities. Like all capabilities, he suggests, the customer-relating capability is embedded in a web of other capabilities and resources, and exercised through a complex knowledge acquisition, sharing, and application process.

These include three closely coupled components:

• Orientation—the standards by which employees set priorities and make decisions about customer retention

• Information—the availability, quality, and depth of relevant customer information

• Configuration—the structure, systems, and processes that enable the application of the information

Each of these components plays an essential role—but none is a sufficient condition for success. To gain an advantage a firm must be as good or better than the best of the rivals on each component, and there has to be a positive interaction among the components.

Implications for Action

This model of a superior customer-relating capability raises a series of questions for managers:

• What are our competitors doing? How do we compare to the best of the rivals on each of the three components? Are our judgments the same as those of our customers? If not, why not?

• Is the entire organization engaged? No business can prevail if the firm orientation is transactional or unsupportive, if the key implementers don't accept the need to treat different customers differently, or if a silo mentality discourages information sharing and condones the belief that one function "owns the customer."

• Are the structures, systems, and incentives aligned? Each of these elements of the configuration sends a strong signal. Revamping the incentives and organizing around customers have especially high leverage.

• Are there new possibilities for relationship building? Does the collective mindset encourage a continual search for innovative ways to combine market insights and technology advances to tighten customer relationships?

• Is learning a priority? Best of breed companies are never satisfied, and keep learning more about what their best customers value.

George S. Day is Geoffrey T. Boisi Professor, Professor of Marketing, and Director of the Huntsman Center for Global Competition and Innovation at the Wharton School, University of Pennsylvania.

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2000 Working Paper Series

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