Structure the Organization Around the Customer (How Dell Acts Small While Getting Bigger)

In the late 1990s, Michael Dell took customer focus one step further by structuring the organization around the customer. He had become convinced that organizing by product alone would not ensure the high-quality customer relationships he hoped to achieve. (If the company organizes only by product, says Dell, there is an assumption that the leaders of those divisions know everything about their target customers—not only domestically, but also around the globe.) Instead, he decided to segment by both product and customer. This way, product teams would have the information they need in order to satisfy specific customer segments.

First, Dell created several distinct sales organizations, each focused on serving the needs of a particular customer segment. As the company got bigger, he split the segments even further:

Large and medium-sized companies
Educational and government organizations
Small businesses and consumers

This degree of segmentation not only reinforces Dell's commitment to satisfying customer's needs, but also ensures that the accountability for satisfying customers is shared throughout Dell's ranks. But Dell didn't stop there. He further extended the customer segmentation model, creating complete business units organized around different customer types, each with its own sales, service, finance, IT, technical support, and manufacturing pieces. He credits the company's segmentation with supporting and reinforcing the direct approach:

Segmentation takes the closed feedback loop and makes it even smaller and more intimate. It refines our relationship with our customers.

As the company has grown, it has spun off some of these groups focused on customer segments into de facto small companies, each with its own organization team. That model enables Dell—today a huge company by almost any measure—to act with the spirit and responsiveness of dozens of small companies. Without a doubt, it gives Dell a decided edge in the marketplace.

What can other companies learn from the way Dell is organized? Here are some ideas that can prove useful in almost any organization:

ORGANIZE AROUND THE CUSTOMER. The key is to get as many people in your organization as possible involved in satisfying the customer. Review the organizational chart with a fresh eye, and determine whether the way you are organized achieves this important goal.
IF POSSIBLE, SEGMENT THE FIRM BY BOTH PRODUCT AND CUSTOMER, OR CREATE CROSS-FUNCTIONAL TEAMS THAT CAN DO SO. The key is to make sure that as many people in your organization as possible know the customers—their needs, desires, preferences, and so on. If you can't organize the company in that manner for some reason, consider creating ad hoc cross-functional teams or task forces designed around specific customer groups or clusters.
GET YOUR COMPANY TO MOVE WITH THE RESPONSIVENESS OF A SMALL COMPANY. Most large companies eventually get mired in bureaucracy, and when they do, it is the customer who suffers. One key to winning in the marketplace is to make sure that your firm is streamlined in a way that does not penalize the customer for your mistakes. In other words, get the people in your organization to adopt a small-company mind-set. Get them to move faster, respond more quickly, and anticipate customer needs more effectively. Get them to be more proactive, so that they won't have to play catchup later.

Peter Drucker, the ageless management author, makes a critical point about customers that is worth repeating here. He urges companies not to forget about the customers who don't currently use their products—in other words, those who have the potential to become customers. After all, says Drucker, even the best companies don't have a lock on the whole market, and far too many companies forget about this crucial constituency.

As an example of what can go wrong when a business forgets about potential customers, Drucker cites a case far removed from Dell's world of computers—the fall of the big-city department stores:

Marketing starts with all customers in the market rather than with our customers. Even a powerful business rarely has a market share much larger than 30 percent. This means that 70 percent of the customers buy from someone else. Yet most businesses or industries pay no more attention to this 70 percent than the department stores did.

Drucker implores managers to pay attention to the inherent changes in demography that may transform the markets in which their business operates. These changes should be viewed not as threats, but as sources of new business, for the shifting environment changes the customer landscape of many businesses. He also points out that customers define markets, and that potential customers offer organizations the best opportunities with the least amount of risk. But market knowledge can go only so far in helping a business to snare new customers. It is not knowledge, cautions Drucker, but actions that will ultimately determine a company's success.

Let's return now to the scenario at the beginning of the chapter—in which, you'll recall, you are the CEO of a $30 million consumer-products manufacturer that has fallen on hard times. I hope that, based on a review of how Michael Dell has built his company, the answer to the question posed is reasonably obvious.

First, you'll have to agree that it is unlikely that Michael Dell would have gotten into such a jam. Why? Because once the company's web site was constructed—remember, you launched it shortly after taking over—he would have used the site to garner as much information as possible from his customers.

Your major problem is that you don't know why your number one product is hemorrhaging market share. Let's back up 18 months, to when the AirPure 4000 started to lose market share. Faced with that situation, Michael Dell would have used all means possible to find out why. He would probably have arranged for a customer questionnaire to be prominently featured on the web site (perhaps rewarding respondents with cash-off coupons). Had he done so, he most likely would have discovered the key to the entire problem: The AirPure 4000 was not designed to clean mold spores from the air! During the last 2 years, air allergens and mold spores have become your customers' chief concern, but you had no idea about this. Your top competitor has been taking away your core customers by featuring this product benefit.

Next, he would have found a way to hold off producing the product until the order came in. Obviously, this would have prevented the inventory backlog that is adding to the company's red ink. Perhaps he would have found a way to let customers choose the features that were most important to them. For example, perhaps some buyers of the AirPure 4000 were interested only in cleaning pet dander from the air, while others were interested in eliminating smoke.

And finally, he would have worked to increase the percentage of sales that come in via the Internet. Remember, Michael Dell's own goal is to secure 100 percent of the company's sales from the Web. (Those sales save the company money!) Right now, you are at 50 percent—not bad by most measures, but probably a long way from where you could be if you offered additional incentives for buyers.