Customer focus and army procurement: is it possible?
Over the past few years, customer focus research has occupied much space in the business literature. Research into the hows and whys of customer focus is conducted and reported and metadata studies pulling research together are completed. Customer focus, we are told, holds the key to modern competitive advantage.
Of course, customer focus is not altogether new. Strong and Harris (2004) point out that since the 1950s, marketers have "advocated the pursuit, development, and maintenance of a customer-oriented company" (p. 1). Boulding, Staelin, Ehret, and Johnson (2005) point out that as far back as 1960, Levitt counseled focusing on filling customer needs rather than simply selling products. This idea that customer focus is central to competitive advantage has almost become the "leitmotif for all organizations" (Strong & Harris, p. 1).
While we accept customer focus as important to corporate success, figuring out how to be customer focused is not altogether clear, especially for a procurement system as complex as that of the defense industry. The defense industry, long a product-based industry, is attempting to capture the power of customer focus. This is problematic not only because of its bias toward the push/pull marketing inherit in product-based companies, but also because of the complexity of the whole defense procurement process. Within this process, even the definition of customer is difficult, and maximizing customer needs, wants, and desires is more difficult still. This article documents the difficulty defense contractors face in developing and executing customer focus and puts forward a plan for making such a change.
CUSTOMER FOCUS: WHAT IS IT?
The first step in setting up a customer focus in defense contracting is to define what we mean by customer focus. The definition is not altogether clear and runs the gamut from simple data collection to a rather complicated and amorphous idea of shaping customer experiences.
CUSTOMER FOCUS: WHY IT IS IMPORTANT
Before customer focus is defined, perhaps an explanation of why customer focus came to be so important is in order. Urban (2005) shows how customer power has developed over the past few years. This market power has developed as a result of the abundance of easily obtained information available to consumers. Urban points out that the Internet provides huge amounts of data that customers mine to:
* compare products,
* find competing products,
* buy from suppliers all over the world, and
* collaborate with each other concerning how one company compares to others in customer service.
This increase in customer knowledge has led, as Urban notes, to considerable power shifting from the producer to the customer. Those familiar with defense procurement understand that this power, only now moving to the customer in the commercial world, has long resided with the customer in the defense procurement world.
CUSTOMER FOCUS: A DEFINITION
Perhaps the simplest definition of customer focus can be deduced from the Customer Relationship Management (CRM) movement. The CRM advocates believe that the key to customer focus is for the firm to form a "relationship" with the customer (Boulding et al., 2005; Jayachandran, Shurma, Kaufman, and Raman, 2005; Urban, 2005). Amin (2005) puts the idea of CRM most succinctly: "the only way for a business to prosper in today's highly competitive marketplaces is through concentrating passionately and devotedly on customers and their needs" (p. 1). The point of this concentration is the formation of a relationship between customer and supplier that will hopefully lead to gaining new customers and retaining old customers, thus positively influencing (in the company's direction) customer buying habits. Once that relationship is formed, it must be managed (Boulding, et al., 2005).
At its foundation, CRM demands the accumulation of a tremendous amount of data. According to CRM, a relationship with the customer cannot be established unless the firm knows and understands the customer. This knowledge and understanding begins with the accumulation of data.
CUSTOMER FOCUS: ITS INTENTION
But what is the intention of customer focus? it is well and good to speak of the customer-firm relationship and the information that can be obtained from the mountain of data that is generated each year by modern companies, but there must be a point to the whole process more than just getting to know one's customers. Johnson and Seines (2004) articulate this purpose when they talk about building "value for a firm across an entire portfolio of customer relationships" (p. 2). Payne and Frow (2005) talk about "improved shareholder value through the development of appropriate relationships (p. 2). Johnson and Selnes (2004) mention a host of studies that show a strong correlation between "the customer relation orientation and its financial and marketing performance." Boulding, et al. (2005) soften the idea of increased shareholder value a bit when they speak of creating value for both the firm and the customer, but the point of customer focus is and has always been the creation of value for the firm. While in a market system value creation (read profit) is not bad, profit within the context of defense procurement is somewhat problematic.
Customer focus insists that data collection eventually leads to relationship. But what does relationship mean? Almost universally, relationship means understanding the customer based on knowledge of the customer (Gulati & Oldroyd, 2005; Jayachandran, et al., 2005; Boulding, et al., 2005). The important thing is what the firm does with this understanding. Authors report many different uses for this understanding. Gulati and Oldroyd note that some companies use this information simply to predict future customer behavior for the purpose of more efficient marketing activities (doing what companies have always done, only being more efficient at it). Jayachandran, et al. find many companies who simply wish to distinguish profitable from unprofitable (or less profitable) customers. Others desire developing new and/or different products to fill customer needs (Boulding, et al.; Johnson & Selnes, 2004) or the ability to match customers to existing products (Johnson & Selnes). Some companies use this understanding as a way of developing customer loyalty (Gulati & Oldroyd) and developing long-term relationships (Boulding, et al.).
Others see a less concrete, almost ethereal purpose for this understanding. Prahalad and Ramaswamy (2000) believe that this understanding can allow the firm and the customer to "co-create personalized experiences" (p. 4), Urban (2005) sees the firm becoming the customers' "advocate," and Johnson and Seines (2004) want customers to become "partners" with the firm. But whatever the intent of the relationship, the end result is always seen as building value for the firm.
CUSTOMER FOCUS: HOW TO OBTAIN IT
Once the company defines customer focus, the question becomes, "How do I get it?" Generally writers see this as a process moving from an internal focus to a customer focus. Gulati and Oldroyd (2005) see four stages as companies move toward customer focus. These four stages include:
1. gathering information,
2. gaining insight from past customer behavior,
3. understanding of possible future behavior, and
4. real-time response to customer need.
Johnson and Selnes (2004, p. 2) suggest that the firm move from "strangers to acquaintances," then from "acquaintances to friends," and from "friends to partners." Prahalad and Ramaswamy (2000) state that the firm must "engage their customers in an active, explicit, and ongoing dialogue; mobilize communities of customers; manage customer diversity; and co-create personalized experiences with customers" (p. 1). Strong and Harris (2004) insist the firm must create relational tactics, procedural tactics, and human resources (HR) tactics to create effective customer focus. Urban (2005) insists customer focus cannot be developed until a deep level of trust exists between the customer and the firm.
While each consultant might have a different approach to gaining customer focus, one thing is sure: Customer focus is not business as usual. It involves some type of special relationship between the firm and the customer that is systematically developed by the firm.
CUSTOMER FOCUS AND PROBLEMS IN THE ARMY PROCUREMENT SYSTEM
Anyone working in the Army procurement system understands that DoD rules, regulations, and legislation introduce certain problems that are not faced in nondefense markets, which certainly inhibit realization of the full promise of customer focus. Many of these problems cannot be overcome by anything less that an overhaul of the legal and regulatory foundation of the process. However, there are problems that currently inhibit the realization of a strong customer focus that can be overcome.
THE PROBLEM: WHO IS THE CUSTOMER?
The first problem encountered with the Army procurement system is determining who the customer really is. A quick answer to this question is always the user: the combat soldier. This is the emotionally satisfying answer. All defense contractors want to provide products and services to the combat soldier that will allow them to accomplish the mission and return home safely. Public relations demand this sort of "user as customer" focus.
Unfortunately, this cannot be the only answer. If the ultimate impact of customer focus is to influence the procurement of particular products and enhance corporate profitability, the user cannot be the customer. In the Army system, the users (the combat soldiers) do not control any of the actual procurement processes. Combat soldiers do not control needs assessment and capability determination, concept refinement, contract award, product procurement, product development, or product testing. While developing a relationship with the combat soldier is emotionally satisfying, it does not produce the required influence within the development and procurement communities that is the ultimate goal of a customer-focused strategy.
If the combat soldiers are not the customers, then who is? This answer depends on where a particular product is in the product life cycle. Early in the development cycle, the Joint Capability Integration Development System (JCIDS) community is the customer (Chairman of the Joint Chiefs of Staff, 2005). Later, the combat developer (CBTDEV) community is seen as the customer (PM-2001-ISE, 2003). Later still, the material developer (MATDEV) community is the customer (PM-2001-DL, 2005). Throughout the whole process, the various proponent schools are customers. Relationships must be formed with each of these communities if any influence is to be gained.
For an effective customer focus and its resultant procurement influence, a military contractor must forge relationships with all relevant military stakeholders. That might mean relationships with the JCIDS community as they uncover capability gaps; relationships with relevant CBTDEVs as they develop requirements to fill those capability gaps; and relationships with MATDEVs, proponent schools, and the test community as they develop, procure, and support various products. This obviously makes for a bewildering mix of relationships, because each of these customers has a different set of needs and concerns.
THE PROBLEM: A RIGID PROCESS
Added to the difficulty of determining the actual customer is the inherent rigidity of the procurement process. Central to the idea of customer focus is the notion that a company can determine a need and rapidly fill that need (Gualati & Oldroyd, 2005). However, the Army procurement process is painfully slow. Each stage in this process is tightly controlled by statute and regulation, such that a defense contractor cannot quickly capitalize on an innovation or a technological breakthrough by marketing and selling a new product to combat soldiers.
Every piece of Army hardware developed and fielded to soldiers goes through a very structured process. The process has seven stages, beginning with a needs and capability assessment phase and a concept refinement phase. Once through the concept refinement phase, the future product enters a technology development phase and a system development and demonstration phase in which a product is designed and developed. After successfully completing its product demonstration phase, an Army product enters the production and deployment phase where the product is manufactured and fielded to tactical units. The longest phase for Army products is the operations and support phase. This phase can run in excess of 20 years. Finally, the product is removed from service in the disposal phase. The Army tightly controls each of these stages.
THE PROBLEM: PUBLIC RELATIONS
Additionally, there is the basic public relations problem of a corporation making a profit at the expense of combat soldiers who desperately need reliable and effective products to do their jobs. While everyone acknowledges the right of defense contractors to make a fair profit, the definition of fair is continually discussed, and the MATDEVs go to great lengths to monitor the profit made by contractors. Furthermore, the Army insists that there be competition in all areas of hardware procurement. The Army actively supports multiple suppliers for each product type or technology and goes to great lengths to maintain this competition among contractors (Department of the Army, 1989). Within the Army procurement process, gaining competitive advantage is difficult, and maintaining that advantage is more difficult still.
THE PROBLEM: PRODUCT FOCUS
Complicating things further is the fact that most major military contractors are organized with a product-focused structure. The military products industry has four major players: Boeing, Lockheed Martin, Northrop Grumman, and Raytheon. Of these, only Boeing has attempted any sort of customer focus (Boeing, 2005), but closer examination reveals that even Boeing, within its "customer faced" business units, reverts to product focus. Such a product focus tends to force a company to look inward rather than outward toward the customer. Consequently, the tendency is to make really high-tech, reliable new products and force those products to fit existing Army needs.
This tendency to look inward can be seen in the vision statements of the big four defense contractors as found in their Web sites. In each of the vision statements, the focus is internal. The vision has to do with corporate success. It is telling that in each of the corporate Web sites detailing the company vision, customer satisfaction typically shows up as a strategic thrust or value statement (Boeing, 2005; Lockheed Martin, 2005; Northrop Grumman, 2005; Raytheon, 2005), but the vision statement and the strategies created tend to revolve around products, not customers. This internally focused, product-related structure serves as a strong barrier to developing an outward-looking customer focus.
The product focus is a natural outgrowth of technology-based companies. Companies like Boeing, Lockheed Martin, Northrop Grumman, and Raytheon employ engineers, technologists, and scientists whose education and training tends to be focused on using technology to invent things: products. Their operations and manufacturing organizations are focused on producing things': products. It is natural that a product focus emerges.
WHAT IS POSSIBLE
Thus far this article has explored what customer focus is and the difficulties of influencing Army procurement. Now the focus looks at what is possible within the Army procurement system. There are several avenues that could be explored. First, if defense contractors focus on the dominant customer at each stage in the procurement process, they can use their vast technological knowledge and experience to influence how capability gaps are defined and how they can best be filled. Additionally, they can influence how spiral and technology upgrades are inserted into systems already fielded. If a contractor can forge relationships with all procurement customers and establish a sense of trust with those customers, competitive advantage through procurement influencing could be achieved, at least at some level. The key is for the customer to develop a sense of trust in the company (Boulding, et al., 2005; Johnson & Selnes, 2004; Urban, 2005) that leads to customer commitment (Johnson & Selnes, 2004).
Second and less obvious, a defense contractor can use a customer-focused strategy to leverage productivity and enthusiasm within the firm itself. Defense contractors tend to be very patriotic. They tend to respond to soldiers, especially combat soldiers. When contractors hear good words from soldiers about their products, they feel great pride. When they hear that soldiers are having problems with the hardware, they tend to be depressed. Defense contractors want to be a positive force in the nation's defense. Companies can use this patriotism by focusing on the customer to build morale, productivity, and great enthusiasm.
A third area where customer focus might provide some benefit is in the area of branding and brand recognition. It is extremely difficult to build brand identity with defense products. Corporate names do not typically appear on warfighter products, and everything the Army uses is painted olive drab, white, or black. But if a company can build a strong customer focus, build strong trust among the various customer groups, and build solid relationships, positive branding can be achieved, at least within a particular customer community.
HOW TO PROCEED
If procurement influence is possible, at least at some level, through customer focus, we must now turn our attention to how that influence can be attained. There are three avenues that shall be explored: getting to know the customer, aligning the firm, and developing trust.
HOW TO PROCEED: KNOW YOUR CUSTOMER
Virtually all writers on customer focus understand that the beginning place for developing an adequate customer focus is to know and understand the customer. This knowledge and understanding starts with the accumulation of information about the customer. This information gathering isn't a one-time activity. It is a continuous enterprise that can take years (Gulati & Oldroyd, 2005). Jayachadran, et al. (2005) emphasizes the importance of the proper processing of the mountain of data accumulated. Without adequate information processing, the customer focus effort can be "rendered ineffective by poor communication, information loss and overload and inappropriate information use" (Jayachadran, et al., p. 128).
This information processing starts with focusing on and understanding the customers' agenda (Amin, 2005) and treating customers as equals (Prahalad & Ramaswamy, 2000). It means learning everything there is to know about the customer at the lowest possible level, gathering and pooling this information from all possible sources, and then using that information to construct a comprehensive picture of the customer--past, present, and future (Gulati & Oldroyd, 2005). Once this information is accumulated, Prahalad and Ramaswamy suggest that the company engage the customer in an active dialogue. This dialogue allows the firm to properly process all the information. It also serves to keep the customer interested, involved, and active in the process.
HOW TO PROCEED: ALIGN THE COMPANY
The next thing the company must do to create a vibrant and effective customer focus is to ensure the company is properly aligned. Proper alignment assures the whole company is pulling in the right direction.
Proper corporate alignment begins with corporate vision. Collins and Porras (1996) point out that in a dynamic business environment where truly great companies are able to renew themselves, "vision provides guidance about what core to preserve and what future to stimulate progress toward." The vision must face outward toward the customer and call the entire enterprise to focus on the needs of the customer.
For modern American business, the power of the vision comes from the excitement generated when people feel they are part of something greater than themselves (Hamel & Prahalad, 1989) and taps into values people hold and believe to be important (Bruhn, 2001). A corporate vision that focuses on the customer can supply this excitement.
After the vision is developed, strategies that support that vision must be developed. Yukl (2002) defines strategy as "a plan or blueprint for carrying out the mission and attaining strategic objectives" (p. 360). Without a blueprint, the organization cannot build toward the vision. The strategies that are developed describe the method by which the vision will be achieved. It is beyond the scope of this article to suggest specific strategies for defense contractors; however, it is imperative for defense contractors to ensure that there is proper alignment of vision and strategy (Yukl, 2002; Kaplan & Norton, 2005) and that the strategy be communicated effectively throughout the organization. Kaplan and Norton believe that upwards of 95 percent of the employees of any firm do not know or do not understand the company's strategy. They believe that management spends too little time in "strategy management" (p. 2). The result is a misaligned company: strategy pointing one way with employees heading another.
Finally, the strategies employed by the firm must be continuously evaluated and, when necessary, modified. Kaplan and Norton (2005) estimate that 85 percent of executive leadership teams spend less than one hour per month reviewing the firm's strategy. Without effective reviews, modifications, and corrections, ineffective strategies are not replaced.
Defense contractors must develop dynamic customer-focused visions and dynamic customer-focused strategies. Then they must drive those strategies down to the lowest levels of the organization and make subtle corrections whenever necessary as the vision takes hold.
It is not being suggested here that the whole product-focused structure of the organization should be scrapped and a brand new customer-focused structure be developed. Technology companies tend to have, as discussed above, product biases for some very good reasons. Attempting to eliminate these product biases would be very difficult and would probably be detrimental to the firm. What is being suggested is that changes could be made that would keep the strengths of the product focus and yet allow for a strong customer focus.
Govindarajan (2005) examines the problems of developing new organizational structures in response to technological innovation. He states that there are things the new structure should bring forward from the old structure and things that should be left behind. The trick, obviously, is determining what to bring forward and what to leave behind. Dean (2000) suggests that a front/back structure is the best way to provide for customer needs. Dean believes that a front end that concentrates on serving customers (determining needs and developing often complex solutions to meet those needs) and a back end that concentrates on products is the best organization for meeting customer needs. This front/back structure would allow for retaining the best of what Govindarajan calls organizational DNA.
HOW TO PROCEED: DEVELOP TRUST
Finally, a look at the last step in the process: using the information and the customer-focused, properly aligned firm to build a relationship with the customer. This relationship is most often described in terms of trust (Boulding, et al., 2005; Urban, 2005; Johnson & Selnes, 2004). The idea of trust seems to revolve around the idea of confidence customers feel when they believe their suppliers will treat them fairly (Boulding, et al.). Boulding, et al. (p. 8) notes that the collection of data does allow for the "differential treatment of customers."
Customers evaluate the treatment received from their suppliers and respond based on the sense of trust they have in the firm. That is why Strong and Harris (2004) stress the importance of making and keeping promises. They emphasize the development of adequate measures to ensure that all commitments are met. In this regard, Urban (2005) suggests that all communications remain open and honest. This means giving the customer information that might actually lead the customer to a competitor's product. Urban believes this type of open communication develops the trust required to build lasting relationships.
But what is the purpose of this trust once it is built? Writers are united on the intended result of this developed trust. Johnson and Seines (2004) believe that the "creation of trust leads to the creation of commitment--trust breeds trust, which ultimately increases commitment and results in a shift from short-term exchanges to long-term relationships" (p. 3). They point out that long-term relationships reduce the customer's need to solve problems in the traditional sense of "finding a better alternative." Urban (2005) assumes that if the company becomes an advocate for the customer, those customers will reciprocate with trust, purchases, and enduring loyalty. In other words, "a company advocates for the customer interests and customers advocate for the company by buying its products" (Urban, p. 5).
This article has looked at customer focus within the Army procurement system. Certainly there is sufficient theoretical data to show that customer focus is a valuable strategy for modern business, but there are many reasons why a customer focus would be difficult within the Army procurement process. However, there are sufficient potential benefits to developing a customer focus to make it worthwhile. American defense contractors will never, short of a radical overhaul of defense procurement rules, regulations, and legislation, be able to deliver Prahalad and Ramaswamy's (2000) "personalized experiences" or Urban's (2005) "real time solution to identified problems" as a result of a change to customer focus. But by developing a deep understanding of the customer; creating visions, strategies, and structures that allow the firm to focus on customers wherever they are found in the procurement process; and working hard to develop a bond of trust between contractor and customer, some level of influence can be gained. And constant focus on the end user--the combat soldier--can build morale and enthusiasm within the firm and a positive brand name outside the firm.
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Mr. Keith R. Shelton has served for 20 years as an integrated logistics support manager in Raytheon's Network Centric Systems. He has worked development programs, production programs, and field support programs for Raytheon, and his work has placed him in close contact with various Army procurement commands. Mr. Shelton is currently heading the logistics and training activities for Raytheon's Multi-Function Radio Frequency System (MFRFS) and Medium Range Electro-Optic Infrared (MREO) projects for the Future Combat System.
(E-mail address: firstname.lastname@example.org)
Dr. Drumm McNaughton, CMC, professor of management at Touro University, brings 20-plus years of executive, board, and consultant experience to his scholarship. A former naval aviator, he holds a Ph.D. and M.A. in human and organizational systems from Fielding Graduate University, a B.S. in Physics from U.S. Naval Academy, and a certificate in program management from the Navy Postgraduate School.
(E-mail address: email@example.com)
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|Author:||Shelton, Keith R.; McNaughton, Drumm|
|Publication:||Defense A R Journal|
|Date:||Sep 1, 2007|
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