Today’s companies are under greater pressure than ever to be “all things to all customers” — to produce increasing variety and customization of products and services, and keep their costs under control so they can deliver at competitive prices.
|“Organizational structures and management incentives frequently discourage the communication between operations and sales and marketing that’s essential for cost-effective customization.”|
Such errors don’t occur because of incompetence, say experts at the Wharton School of the University of Pennsylvania and Booz Allen Hamilton. On the contrary, marketers often know their customers and their distribution partners in astonishing detail, and operations engineers can follow their products in real time from the factory to the warehouse to the store. The real problem, they say, is systemic.
Most companies’ organizational structures and management incentives frequently discourage — and sometimes even obstruct — the collaboration and communication between the operations and sales and marketing functions that is essential for cost-effective customization.
In this paper, consultants from Booz Allen and faculty from Wharton conclude that failure to communicate and coordinate among functions, particularly between marketing and operations, significantly raises the costs and difficulty of executing customization strategies. They explain the structural and cultural reasons that make it tough for marketing and operations to work together. And they offer suggestions on how senior executives can encourage better communication and information sharing between these functions to ensure that new varieties of products actually add value for customers and earn profits for companies.
To understand what goes wrong, it’s important to see how decisions to introduce new features are made in the first place. “Generally, marketing believes that more variety will enable the company to reach more customers,” says Matthew Egol, a principal at Booz Allen based in New York City.
At the same time, salespeople often push for even more variation, as they try to match their product to the desires of a specific customer, not just a perceived market need. “Sales guys have an incentive to make products more complex because they want to close the deal; they want to get that order or defend the price premium,” Egol explains.
|“Customization missteps often occur because sales and marketing frequently lack information about the costs of product variety and complexity. ”|
But marketers and salespeople often don’t appreciate the underlying costs of introducing greater variety and complexity, Booz Allen and Wharton experts say. “Marketing is focused on providing the variety that’s demanded, but they often don’t think of the cost. Or they think, here’s a budget I have to hit, and then they rely on the Ops guys to figure out how to cut costs… It’s not a systemic approach,” Egol says.
For example, Egol recalls a heavy equipment manufacturer he worked with that offered 500 different versions of the product in its catalog, which were then customized by the sales team into thousands of ad hoc configurations. “They ended up with thousands of versions, because the sales guys would go in and say, ‘You know, your needs are really unique. Let’s change the specification to be exactly what you need and we’ll have a warranty that stands behind it,’” he recalls.