We explored approaches companies are taking to segmenting customers and customizing products, services, and processes to market needs, in order to evaluate how more customized approaches create value for customers and for suppliers. Our goals were to find what linkages existed between specific behaviors and improved business performance; determine the limits to which high-performing companies go in customizing their products and services, sales and marketing, operations, and customer service; and identify specific success factors and pitfalls of customization programs.
We researched corporate operating units, with sales from $1 billion to $20+ billion, from 50 different companies, split evenly between North America and Europe. Product and service industries were represented; participants included companies in consumer goods; chemicals and gases (e.g., resins, lubricants, industrial gases); commercial banking; media; pharmaceuticals; telecom equipment; telecom carriers (both wireline and wireless); and utilities. Participants filled out a detailed written survey. Topics included: segmentation; approach to customizing products and service levels; approach to aligning operations and the organization; analytical capabilities; IT systems support; performance measurements and incentives; and company data.
We then conducted more than 150 in-depth management interviews across all 50 participants, including, for example, the CEO, head of sales, head of marketing, general manager, head of strategy, quality manager, and customer care manager.
By synthesizing the interview findings, Booz Allen experience, and a statistical analysis of survey data to identify those behaviors that explain higher growth and profitability, we identified a set of 36 best practices in customization and constructed a "Smart Customization Index" that weighted the criteria to reflect their relative importance in driving higher growth, based on multiple statistical approaches. Using peer groups to normalize for industry differences in growth and profitability, we were able to demonstrate that a higher Smart Customization Index score is 99 percent statistically significant in predicting both growth and profit margins above those of industry peers.
Reprint No. 04104
Keith Oliver (firstname.lastname@example.org) is a senior vice president in Booz Allen Hamilton’s London office. During more than 35 years in consulting, he has helped senior executives address strategic issues involving the management of the extended enterprise, from suppliers to end-customers.
Leslie H. Moeller (email@example.com) is a vice president with Booz Allen Hamilton in Cleveland, Ohio, and leads the firm’s Customers, Channels, and Markets service offering.
Bill Lakenan (firstname.lastname@example.org) is a Booz Allen Hamilton principal based in San Francisco who specializes in operations strategy, manufacturing, and supply chain transformation, primarily for clients in the high-technology and aerospace/defense industries.
Also assisting in the development of this article were Booz Allen Hamilton vice president Edward Frey, vice president Atul Kamra, principal Matthew Egol, and principal Karla Martin.