That doesn’t mean that customization, bundling, and one-stop shopping can’t benefit both the customer and the supplier. They can and do — but they stop short of creating new, lasting benefits from the transformed dynamics of the customer–supplier relationship, a value-based alliance we prefer to call “customer symbiosis.” Like symbiotic relationships found in nature, customer symbiosis must be a true partnership, built on transferring a supplier’s skills to a customer lacking them. It must be founded on the belief that sharing knowledge and information about business processes and product design can be advantageous to both the supplier and customer. And the parties must share the risk and potential rewards of every transaction related to the collaboration.
Symbiosis Takes Two
The importance of symbiosis has risen from new competitive stresses virtually all companies are facing in globalizing industries, which have plunged them into a dizzying “specialization spiral” that almost mandates a new operating model. Firms are under increasing pressure to differentiate themselves by focusing on core activities where they can apply their superior knowledge to customer needs. This is compelling them to eliminate noncore activities. After doing so, however, a company retains only a limited ability to master the integration of disparate products and services from multiple vendors. Yet dependence on a vendor to do the integration is risky, unless the vendor assumes some of the risk for the performance of the integrated solution.
For an illustration, consider the low returns companies have received from their massive investments in enterprise resource planning systems and customer relationship management systems, which are typically designed and implemented by systems integrators compensated on a time and materials basis. Significant benefits generally are achieved only when customers ask vendors also to share the risk of attaining real results from the new system. That compels the systems integrator and the client to enter into a more collaborative relationship, in which knowledge and skills are transferred across the boundaries that usually separate them, and the line between the information technology products and the services that support their use are erased.
For suppliers, customer symbiosis is a powerful strategy that creates top- and bottom-line growth, deepens relationships with important customers, and enhances customer loyalty. Customer symbiosis can also be a transformative tactic internally, goading a supplier’s culture toward customer-centrism. This was exactly the revolution instigated by Louis V. Gerstner Jr. when he became chairman and chief executive of IBM and tried, as he told the New York Times earlier this year, to “look at technology through the eyes of the customer.”
It was “an incredible bomb in the company,” Mr. Gerstner said. “Here was a part of IBM that was going to work closely with Oracle, Sun Microsystems and, God forbid, Microsoft.” Today IBM Global Services is the company’s biggest business.
A recent survey of the Fortune 1000 companies, jointly conducted by Booz Allen Hamilton and the Kellogg School of Management, provides strong evidence that customer-symbiosis strategies create value for shareholders. Respondents were grouped into quartiles based on their total return to shareholders from 1996 to 2000. During that five-year period, the top quartile generated a return greater than 22 percent; the bottom quartile’s return was less than 2 percent. By a large margin, top-quartile companies say they are outpacing their bottom-quartile peers in all key areas of customer collaboration: partnering with customers in product development; extending the longevity of their relationships with customers; and placing more focus on meeting customer expectations. (See “Focus: The Value of Relationship Capital.”)