Alternate High-Level Solutions Companies
Step 6: Customer Profit Centers
A final change is the creation of customers and customer segments as the line organization and profit centers. All of the global units re- port to the global industry units. The countries manage the local business and serve as geographical coordinators.
This stepwise process was followed by Citibank’s commercial banking business. Starting in 1985, Citibank reestablished its World Corporations Group, which managed global corporations across the country profit center structure. It created teams for each global account. The members were called subsidiary account man- agers, and the leader was a principal account manager. The number of customers qualifying to become global accounts increased to around 450. Citibank created a customer-focused planning system and an accounting system to track customer revenue, cost, and profit across countries.
In 1995, Citibank conducted a strategy study and realized that it was a licensed bank in over a hundred countries. That is, it was in the business of taking deposits and making loans in local cur- rency in over a hundred countries—more than double its nearest competitor (Hong Kong–Shanghai Bank, with around forty-three countries). This presence was a competitive advantage when serv- ing the global customer and one that competitors could not match.
Citibank managers chose to emphasize the cross-border bank role.
It would focus on global products, foreign exchange, and cash man- agement for global customers. Each of thirteen hundred global cus- tomers became a profit center. These customers were collected into global industry groupings for administration. The customer-focused planning process is now called COMPASS and is placed on an in- tranet. Thus, in about twelve years, Citibank evolved from country profit centers to customer profit centers and modified its strategy, structure, and processes. It drove the change with formal integrat- ing mechanisms like customer teams and global account coordina- tors before completing it with the establishment of a new formal structure.
How to Manage the Change Process
In general, management can drive a change process that transforms any existing organization into any new organization using the se- quential approach. Each step in the sequence makes an incremen- tal shift in the power structure. The incremental changes are shown in Figure 6.6.
Figure 6.6 Shifting Power Incrementally to a New Structure
Step 0 Voluntary and Informal Groups E - Coordination Step 1 Few Formal Teams
Step 2 More Customer Teams
Step 3 Customer Account Coordinator Step 4 Customer Account Department
Step 5 Matrix-Customer Units in Countries Step 6
Customer-Centric
Product- or Country-Centric
Line Organization Customer P&Ls
Each increment corresponds to the change in the example.
Starting with a few teams and moving to stronger coordinating units, the example described the transfer of power from countries (existing) to customers (new). At each step, new work is accom- plished. At Citibank, the new work was cross-country coordination to provide integrated service to global customers. At each step there is also the opportunity to drive and shape the change process. With teams with step 1 and step 2, three hundred and then a thousand people learn about the global customer. They learn how to create strategies that competitors cannot match. A percentage of the par- ticipants will become convinced of the direction and lobby the nonbelievers. Through the teams, a thousand people are building networks of personal contacts.
Management’s role is to seize the opportunity and drive the change. It may sponsor a formal development program. Everyone working on teams could spend several days in a session with their other team members. In addition to facilitating more learning and networking, managers and customer representatives could attend and get feedback from the participants. But most important is the opportunity for management to select and develop the talent and leadership for the new strategy and structure. By observing and re- viewing the teams, management can identify those who have the skills and interest in cross-border work. Who are the best potential team members? Who can be a team leader? Who can develop into a global industry coordinator?
The coordinator roles, introduced and developed in steps 3, 4, and 5, shift more power to the new structure and deliver more ser- vice to customers. But the other opportunity is to develop processes and information systems to support the new organization. In addi- tion the coordinator teaches managers about the new strategy. They must shift from managing a portfolio of countries to managing a portfolio of customers. How will they make trade-offs and set prior- ities? Thus, at each step, management has the opportunity to change the soft factors to support the change. It can develop the talent, build the networks, change the mind-sets, and ultimately create a cross-border, customer-focused culture.
The ultimate step in organizing around the customer is to cre- ate a separate structural component for customers. Usually this capability in structural form is added to the company’s existing structure, creating a front-back hybrid. Managing this structural form creates its own challenge. Building this customer-centric ca- pability is the other management challenge. The result is an am- bidextrous organization generating both excellent products and customer focus.
Conclusion
These three examples expand our repertoire of examples of customer- centric companies that have evolved into front-back structures.
Each has followed a different trajectory and arrived at a slightly dif- ferent structure. Citibank’s front end focuses on only global cus- tomers and is organized by industry. P&G faces customers who are mostly local and organizes its front end by geography. Nokia is a mixture of some local customers (some remain state-owned mo- nopolies, like Saudi Arabia) and some global ones. P&G seems to be moving toward a Nokia-type of structure. The Citibank exam- ple also goes into detail on the change process to get to customer- centricity. It is particularly noteworthy because it illustrates how to build organizational capability. People are trained at each step of the way. Doubters are converted. The information technology and accounting systems are built. Finally, structure is changed after the infrastructure is built.
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