One of the great things about modern day marketing in most companies is that many non-marketers are engaged in marketing tasks.  Whether it is information systems, operations, manufacturing, or human resources, many different groups take actions that have a direct impact on customers.  The challenge therefore is getting a singular view of the customer from all of these interactions.  Compound this with multiple communication and purchase channels as well as strong divisions between marketing and sales and you have the classic case of fragmented marketing knowledge.  Everybody knows a little, but the most profound insights that come from integrating knowledge across all of the company’s touch points with the customer are lost.  This can become especially hazardous when brands or divisions “own” customers in companies because opportunities for extending the customer relationship are lost.  This is one reason to advocate for an organizational structure based on customers, not brands.  Another opportunity for integrating knowledge about marketing occurs within large multinational companies.  There are many local success stories that could provide lessons for the broader organization but are never re-integrated.  Why not?  Most often it is because information processes have not encouraged that flow back into company headquarters.  This happens because there is a belief that HQ knows best or because local managers are not encouraged to share the reasons for their success with other units.

When I say “developing knowledge about how to do marketing” I mean the active codification of effective marketing practice.  This is important because the firm can benefit immensely by capturing and transferring marketing success.  To make this work, it is essential that companies uncover what successful marketers are doing.  This points to one of the reasons many companies don’t do this, which is that many marketers may not be aware of what they know or the process they use to engage in important marketing activities, such as setting price, positioning a new offering, or responding to a competitive threat.  Steps become tacit and must be “externalized” (to use a Nonaka term) before they can be codified.  This may be even more likely when the knowledge marketers have acquired is about marketing processes.  Because marketing strategy processes such as market selection, entry, and positioning are intangible activities, marketers may be less aware of what they have learned when engaging with these processes. As a result, this knowledge is not documented or shared and it is often lost.  Companies also may not store what has been learned because they do not think has immediate value.  This may occur for many reasons, including a short-term focus that makes learning seem like a luxury. Company quarterly performance pressures make learning seem like a luxury resulting in tension between learning and performing.

Looking at these two types of marketing knowledge, Table 1 shows that B2C companies make, on average, the biggest investments.  This contrasts with more traditional knowledge investments, for example marketing training, which is dominated by B2B-product companies and marketing consulting, which is dominated by B2B-services.

Table 1.  Sector Differences in Marketing Knowledge Investments

Here is a list of some of the strategies that seem to be paying off.

• Localize products (somewhat). KFC, which gains almost a third of its revenues from China through its 2000 outlets across the country, is an excellent example of this strategy. In addition to its core recipes, KFC continuously innovates by introducing dishes that match the Chinese customer’s tastes. Two examples are the Beijing Chicken roll with sea food sauce (similar to the Beijing duck, a traditional Chinese dish) and Spicy Diced Chicken (resembling a popular Sichuan-style dish). As another example, Pizza Hut, also a division of Yum! Brands, positions itself as an upscale restaurant in China by offering an expansive salad bar and even serving snail in red wine sauce. On the other hand, too much localization can harm marketing strategies in China. Global brands bring status, quality, and exclusivity. When deciding whether and how much to localize, global brands should weigh the costs and benefits of this decision. For example, Coke introduced a type of tea to the Chinese market under the Sprite name. However, customers associate Sprite with fun and refreshing drinks and did not intend to buy a traditional drink from Coke.
• Translate with care. Brand name choices in China can be a little tricky for foreign firms, as they need to choose a word that delivers the core message, sounds phonetically similar to the original name, and builds an image the company wants to deliver. Microsoft had to rebrand their Bing search engine in China since the definition of the mandarin characters pronounced Bing implied “diseases”—probably not the best meaning for a computer product. The name was then revised to Bi ying, which means “response without failure.” Similarly, Carrefour chose the name Jia-le-fu, which means “happy and prosperous families” because the sound “fu” has an auspicious meaning in Chinese.
• Collaborate with established vendors. A partnership with an established vendor can also lead to marketing success in China. To capture the attention of consumers in Shanghai and Beijing metro stations, DuPont partnered with several brands in China to promote its Teflon fabric protector. For the promotional program, DuPont chose domestic active-outdoor brands Anta, Semiar, and Qiaodan, which already had a strong retail presence. This DuPont partnership created customer interest in DuPont, increased store traffic for the partners, and led to more purchases of apparel with Teflon brand hangtags.
• Jump in early when demand is new. McKinsey’s report “The Products Chinese Customers Want” argues that many companies can make substantial early gains by offering products that are novel or unfamiliar to Chinese customers. As they note, “Fabric conditioners and pure fruit juices were rare in China a few years ago, but about half of all urban households regularly buy both now. Similarly, vitamins and mineral supplements, almost non-existent before America’s Amway launched Nutrilite in the late 1990s, has grown into a $6.5-billion business.”
• Get close and stand out. Chinese customers today have many choices when it comes to product selection. Therefore, to stand out, it is important to begin with the customer need and to offer products that follow closely. Through its market research, Johnson & Johnson identified leakage protection as the top priority of female sanitary protection products, which customers rated over comfort and superior absorption. This enabled the company to launch a product with a set of features that are distinctive from its competition.
• Luxury sells. The growing Chinese economy and urban expansion have produced a class of wealthy consumers who have purchasing power and a desire for conspicuous consumption as expressed in Deng Xiaoping’s famous phrase, “To get rich is glorious.” As a result, we find many luxury companies turning to China for growth opportunities. For example, Burberry’s opened up a flagship store in Beijing and launched the opening with a runway show that was turned into a social media event. Picking up on the theme of product localization, other companies are not only importing Western luxuries, they are creating their own unique brands associated with “Chinese luxury.” The best example of this strategy is Shang Xia, a line developed by Hermès. The press accounts note that Hermès’ new “created in China” luxury brand Shang Xia, is the first-ever Chinese high-end lifestyle brand built from the ground by a major European luxury house.” Shang Xia products will not be sold in Hermès stores and vice versa. Instead, they will be sold in Shang Xia boutiques, the first of which was opened in Hong Kong. This strategy builds on the growing national pride of Chinese consumers while offering the sophistication of well-known luxury brands.
• Trust USA. Some other U.S. retailers have found it effective to introduce private label brands into their stores. For example, Walmart’s private labels “Great Value” and “Mainstays” were brought to China with the names “Hui Yi,” which means both “good price” and “quality” and “Ming Ting,” which means “bright hallway/yard.” These brands also appeal to Chinese customers because they come from a U.S. company. With health scares and worries about the safety of local Chinese products, many Chinese customers will spend a little more on Walmart’s private label.
• Target non-urban centers. In addition to its three major cities, Bejing, Shanghai, and Hong Kong, China also has many tier-two cities that are less wealthy. To tap this potential market and develop products that match their price points, many firms look to develop and manufacture products locally. Honeywell opened a global engineering center in the western municipality of Chongqing to develop instrumentation products for mid- and low-tier markets in China. Because of their low price, these products are often exported to other emerging markets. In the case of Honeywell, this includes Taiwan, Thailand, and Indonesia.
• Make history matter. Other brands that have a history in China have found it helpful to play up that connection. The history of Buick is an excellent case in point. As one study observed, “…the most influential Buick customer of all time—even if he didn’t recognize it—was the last emperor of China. Emperor P’u-i bought two of the cars in 1924. They were, in fact, the first motor vehicles ever allowed to pass through the gates of the Forbidden City. His endorsement was so critical that by 1930 one in every six cars in China was a Buick, the company boasted in an advertisement from that era. ‘Buick owners are mostly the leading men in China,’ it declared.” GM has stayed true to this heritage. This brand positioning helped GM sell 3 million Buicks in just 12 years. In fact, General Motors became the country’s first passenger carmaker to sell more than a million vehicles in a single year (2010).
• Respect culture. China is a country deeply rooted in culture and values with strong respect to their cultural symbols. Nippon, the Japanese paint manufacturer, once developed an advertisement that depicted a dragon slipping from one of the pillars in a monastery due to the smooth finish of the paint. Customers reacted negatively because they viewed it as a sign of China slipping against another country.
• Use local talent to learn. It is no surprise that utilizing local talent in market research and product development improves insights about the local customer. International Flavors and Fragrances Inc. hire Chinese product managers more than expats for heading their operations in China. This improves the company’s ability to navigate regional differences, to analyze market demand better, and to be more responsive to customer needs. Likewise, cosmetic companies Clinique and Estee Lauder use Chinese R&D teams to tailor their products to Chinese skin types.
• Get the business model right. Companies may need to rethink their business models when operating in China. Amway uses a direct-selling approach in USA and Europe. However, in China, direct-selling operations function as a base for criminal activity. Also, the Chinese market is riddled with unscrupulous operators selling substandard goods with poor services, claiming to be legitimate direct marketers. As a result, Amway’s direct-selling techniques raised concerns in the Chinese government. Amway thus had to revise its business plans to sell its products only through its own retail outlets.

Best of luck marketing in China! 祝您在中国营销成功

In response to the question, “Do you outsource any of your marketing activities?” I find that the B2C-Service industry has the greatest percentage of firms that outsource (88%), followed by B2C-Product (80%), B2B-Product (75%), and B2B-Service (66%) sectors. When asked, “By what percentage will your firm’s outsourcing of marketing activities change in the next year?” I see a different pattern as shown in Figure 1. B2B companies plan to increase outsourcing significantly more than B2C companies. Perhaps it makes sense that those firms that outsource now will need to increase outsourcing less in the future.

Figure 1. Percentage Increase in Marketing Outsourcing in Next 12 Months by Sector

Expected change in marketing outsourcing is also higher among firms that have 0% of sales through the internet (14%), lower for firms with 1%-10% of sales through the internet (8%), and lowest for firms with >10% of sales through the internet (2.8%). Here is my story about this result—firms that are already culling greater than 10% of their sales from the internet have built internal groups to do this work. Firms that are not yet deriving sales from the internet need help to get there.

Figure 2. Percentage Increase in Marketing Outsourcing in Next 12 Months by Company Internet Sales

How does the company’s growth strategy influence its marketing outsourcing level? Logically, when the growth strategy relies on existing knowledge and skills, such as in market penetration strategies, there is probably less need for outsourcing. The firm presumably can do this work based on its experience. However, as the company expands into new markets with existing products (Market Development), new products for existing markets (Product Development), or new products and new markets (Diversification), we should see the level of outsourcing increase. Correlation results offer some support for this view. If I correlate the level of investment in each of these four growth strategies with the level of marketing sourcing, I find the relationship is negative and significant for Market Penetration. This means as the level of investment in Market Penetration strategies increase, market outsourcing decreases. I find the opposite for Product Development, which is positive and significant. This means as the level of investment in Product Development increases, so does the level of marketing outsourcing. There is no relationship with the other two growth strategies.

One view of outsourcing is that firms do it when they cannot afford to build their own activities. If so, I should find that recent financial success is negatively related to marketing outsourcing. I do not observe that relationship in The CMO Survey data.  I find no relationship between current financial performance in terms of sales revenue or profits and expected change in marketing outsourcing over the next 12 months. Another view of marketing outsourcing is that it reflects strategic direction—firms that are increasing spending will tend to outsource more, on average. Results indicate support for this view: Companies that reported increases in sales revenue, profit, and customer acquisition goals also report the largest increases in marketing outsourcing. Together, these results indicate that it is not about where you have been but where you are going that determines your marketing outsourcing level.

A last factor that might influence outsourcing levels is the respect, longevity, and value of marketing within the company. If marketing is not valued, firms may not want to build internal groups of any scale. I examined the relationship between the tenure level of the CMO, the CMO’s number of direct reports, and the number of strategic responsibilities marketing controls in the company and the firm marketing outsourcing level. I see no relationship between any of the three predictors and outsourcing level.

Together these results indicate that marketing outsourcing is more about a company’s strategic direction and spending and not its wealth or the power and stature of marketing within the company. Why does your company outsource marketing?

Figure 1: Percentage of Company Outsourcing of Marketing Expected in Next 12 Months

Why do companies outsource marketing?

1. Companies don’t have the expertise to perform key marketing tasks.
2. Companies don’t think the benefit of building knowledge and skills is better than the value they get from an expert partner performing that same task.
3. Companies can’t produce the same function at the same low price as they can buy it in the open market because the provider has scale, scope, and experience (and perhaps cheap labor?).
4. Companies prioritize other strategic areas more highly than doing marketing internally.
5. Companies want a new point of view. It is easy to stop learning when you are stuck listening to the same colleagues every day. An external partner can offer important insights.
6. Companies don’t understand the value of marketing.

What are the costs of outsourcing marketing?

1. Integration costs: Outsourced marketing doesn’t fit well with marketing the company produces or with other strategies it is pursuing
2. Customer costs: Managers lose sight of customers and what the firm is doing in the marketplace. They spend a lot of time on inventory, balance sheets, analyst conference calls, or building plants. This turning inward can be tragic in some cases.
3. Control costs: Coase and Williamson both won Nobel prizes in Economics for their study of transaction costs, which are those costs the firm must control, contract, and incentivize away to ensure partners act as its agent. When a company chooses to “buy” its marketing services and not “make” them itself, the challenge is to ensure the relationship produces value.
4. Objectivity costs: No marketer wants to be fired for sharing bad news about the value of a strategic decision or initiative. This can make it tougher to be a truth teller if you are providing marketing from outside the boundary of the firm.
5. Risk costs: Partners may take more or less risk than a firm would take given they are not responsible to shareholders, employees, and customers in the same way managers are.
6. Path dependence losses: A path dependence means that experience matters. The down side to path dependencies from marketing experience is that firms get locked into their own habits and routines. However, the upside of path dependency—grinding out the knowledge and efficiencies that come from learning by doing over and over and over again—is not realized either. These positive path dependencies can make it difficult for competitors to jump in because the firm is so good at what it does.

Is your firm outsourcing marketing? How is the calculus of these costs and benefits working out? Any suggestions on how to tip the scales in the favor of benefits? I’ll share more next week on who is outsourcing. In the mean time, jump in and share your view.

Figure 1. Marketing Leader Retention Over Time

It appears that CMOs, on average, earn their keep; or at a minimum, companies realize that only so much good can come from stirring the pot. When CMOs leave, strategy is disrupted and valuable information is potentially lost. Furthermore, new CMOs need time to learn about the company and to gear up to lead the marketing organization. This means a loss of productivity and perhaps an opening for competitors to pounce.

The CMO Survey also finds that marketers tend to have experience in the companies in which they serve as CMO. Looking at the right-hand side Figure 1, we see that marketers have approximately 8.6 years of total experience in these firms, which when differenced from time as CMO, leaves marketers with approximately 4.2 years of other experience in these firms. No study has yet confirmed the wisdom of hiring from within or from the outside. However, one benefit of time in the company is the ability to really understand the company’s business, its customers, and its business model. Another benefit is the ability to build a network to get decisions implemented. These are two reasons many CMOs fail so I see these fruits of experience as a plus.

The CMO Survey also asked top marketers to report the number of direct reports they have. This is one view of marketing leader power. This figure is interesting because it is has increased from 4.6 in August 2009 to 7.2 in August 2010 and stayed level at 7.3 in August 2011. Together with tenure levels, this is another piece of convergent evidence that CMOs are offering value to companies during tough times.

Figure 2. Number of Direct Reports to Top Marketer

I see successful CMOs doing a number of key things for their companies.

1. They view themselves as a contributor to the firm’s bottom line.
2. They lead the company’s efforts to create customer value in both the firm’s offerings and in its business model
3. They use customer-based metrics that show the impact of their decisions to all members of the C-suite.
4. They lead their companies’ efforts grow and innovate.
5. They build marketing capabilities (not just one-off marketing strategies) based on organized, motivated, and knowledgeable human capital.
6. They develop trust as a truth teller of the present and as a forward-looking planner.
7. They execute strategies well. In fact, they put as much time and effort into implementing as designing the strategy.

First, financial investments are leading investments in human capital. On the one hand, this makes sense as the company builds the technological infrastructure to gather, store, and process its new “social” strategy. However, many companies fail to match human investments with these technology investments. This happened with many customer relationship management systems. Firms spent millions of dollars on systems that were never fully utilized to drive strategy decision making. Technology can be a major boost to the effectiveness and productivity of marketing strategy, no doubt. However, technology must be embedded in a larger social media capability that fundamentally involves human investments. In short, people drive what technology does and then use its output to drive company decisions. Without a capability, financial investments—whether in the form of technologies or new designs—won’t really amount to a competitive advantage.

Second, my sense from looking around my own organization and many I encounter is that most companies think social media employees can do more than they really can with the time and training they have. Some social media people are designers, others are marketers (about 50% based on The CMO Survey), and others are pure techie types who migrated to social media. The best social media employees are customer-savvy, marketing-minded, design-aware, and technically proficient. Unfortunately, that profile is hard to find. With lean staffs and weak integration of social media into the rest of the company strategy (3.4 on a 7-point scale where 7 is very integrated), exactly how all of this fits together into a powerful social media capability is not clear. That fit can be strong if it is managed or it can be a mess if left to the discretion of social media personnel alone trying to respond to too many requests from too many different groups. Social media must be a company-wide capability to really payoff.

Third, I know a lot of my friends running independent social media shops don’t like it when I say this, but I think it is a problem when the number of company personnel dedicated to social media (mean = 2, s.d. = 4.8, 95% confidence interval = 1.3-2.8) is not higher than the number of external people the company has hired to help with social media (mean = 2, s.d. = 8.5, 95% confidence interval = 0.6-3.3). Capabilities can emerge from strategic partnerships with external agencies, but the company must manage this relationship with strength from the inside. Furthermore, if social media is to be fully integrated with ALL of the firm’s activities—as a way to learn about customers and to deliver more value to customers—and even as a new business model, the firm must be in charge by building the capability with the intention and attention to maximizing its long-term effect on the company.

Table 1 shows the rankings for each of the last three years as well as the average for each factor across the three years. Remembering that “1” is most important, the table indicates that marketers believe, on average, that low price is the most important priority for their customers (average rank 1.81) followed by superior product quality (1.94) and innovation (1.96). Trusting relationship (average rank 2.04), excellent service (2.13), and brand (2.22) are believed to be less important.

Table 1. What is Important to Customers

Both Table 1 and Figure 1 show that these figures have shifted over time. In particular, at the beginning of the recession (August 2009), low price dominated these rankings (1.66). Although superior product quality and superior innovation were not unimportant, low price was significantly more important. However, one year later (August 2010) and holding through August 2011, both superior product quality (increasing from 2.01 to 1.90) and superior innovation (increasing from 2.14 to 1.86) have gained importance. All three of these shifts are statistically significant. There were no discernible changes to the importance of excellent service, trusting relationship, and brand.

Figure 1. What is Important to Customers Over Time

So what customers want during an economic downturn goes beyond low price. They want products that will last or that stand out in some important way. This means companies can add value beyond slashing prices. I might add that unless they are low-price leaders, companies should add value by focusing on quality and innovation. These strategies are more defensible given competitors may not be able to make these investments. These strategies also differentiate the company from competitors and help create a distinct image of the company that customers rely on to make purchasing decisions and share with others.

If I cut the data by whether the company is focused on products or services, a few important differences emerge. Reporting the August 2011 data, low price is important for service companies (1.69 vs. 1.98 for product companies) as is a trusting relationship (1.95 vs. 2.11 for product companies). On the other hand, superior product quality is more important for product companies (1.75 vs. 1.99 for service companies) as is brand (2.07 vs. 2.46 for service companies). Superior innovation is equally important to both types of companies (1.93 for service companies and 1.90 for product companies).

1. Companies consistently fail to achieve the marketing goals they set. I compared the 12 month goals that were set in one time period (e.g., August 2010) to actual company performance one year later (e.g., August 2011). I did that consistently over the four time periods for which I have data. Looking at the difference between the two, companies achieve approximately 48% of the goals they originally establish. This difference was lowest in February-2010 (31.4%), increased in August-2010 (44.1%) and February-2010 (58.9%), while flattening in August-2010 (57.8%). Therefore, although companies do not perform at 100% marketing goal levels, they are achieving a bigger percentage of their marketing goals as we climb out of the recession.

2. Marketing goals are increasing modestly. One theory about a narrowing performance gap is that marketers went soft on goals and didn’t ask as much from their companies. That does not seem to be the case. Table 1 contains the change in marketing goals for each survey across time. Although there is variability by period and by marketing metric, there is a surprising consistency and perhaps even a slight increase in the goal level chosen as you can see from the average goal over time: Aug-2009 (5.0%), Feb-2009 (4.5%), Feb-2010 (5.4%), Aug-2010 (5.2%), Feb-2011 (5.4%), and Aug-2011 (5.6%).

Table 1. How Marketing Goals Have Changed Over Time

3. Performance on marketing metrics has increased. A second, more encouraging, interpretation of a narrowing performance gap is that marketers performed closer to their stated goals. Table 2 shows that this is a more likely explanation. Actual change in performance dipped in the trough of the recession to an average performance increase of 1.4% in February 2010, a 50% reduction y-o-y from February 2009: 2.8%. However, results climbed from there to a high of 3.2% in February 2011 and stayed flat.

Table 2. How Marketing Performance Has Changed Over Time

4. Goals for the subsequent period always rise relative to current performance. Here is how it works in the survey: Marketers are asked to rate their company performance on each metric and then are asked to rate their company goals for each metric for the next 12 months. Across the time periods, marketing goals have been an average of 2.8% higher than marketing performance in that period. This difference was at its lowest in February 2009 (1.8%) and picked up at the worst time in the recession, February 2010 (4.0%) and leveled off at 2.4% this August 2011. It is interesting that the goals have actually increased as the recession deepened. Perhaps to inspire? To urge stronger effort?

The August-2011 CMO Survey reported the following increases in marketing performance goals over the next 12 months: market share (4.9%), sales (6.8), marketing ROI (5.3), profits (6.0%), customer acquisition (6.1%), customer retention (4.2%), and brand value (5.8). If the observed marketing goals-performance gap trend holds, companies should achieve the following performance outcomes: market share (2.8%), sales (3.9%), marketing ROI (3.1%), profits (3.5%), customer acquisition (3.5%), customer retention (2.4%), and brand value (3.3%).

Figure. Company Disintermediation 2009-2011

From my conversations with executives, there appear to be two good reasons to side-step channel partners. The first good reason is that companies can learn more from customers through direct engagement. This is primarily why Procter & Gamble decided to open an online store. As noted in the press release announcing the site, “P&G officials don’t expect the eStore to boost the manufacturer’s revenue or profit very much very soon. They’re more interested in the data it will produce about their shoppers and what works for them—whether it’s product pairings, social media links, environmentally friendly pitches, packaging options, and even the web standby of banner ads.”

The second reason is that direct interaction can help you serve your customers more effectively. This was American Airlines’ argument when it pulled its flights from Orbitz, Expedia, and Hotwire when those online travel agents refused to include American’s new program called “Direct Connect” that allows customers to receive bundled and customized travel offers from American. Without the ability to differentiate its offerings, American and other airlines were stacked in front of the customer, head-to-head, on price only. American argued that global distribution systems, like SABRE, and the online travel agents they owned, like Orbitz, were commoditizing the industry. American noted, “The airline is sick of being viewed as nothing more than a flying bus.” A good comparison is Southwest Airlines which has never been yoked to a global distribution system. Southwest must be searched independently by the customer but Southwest has a better chance of making offers that customers will find appealing. American ultimately won its battle—now the online travel agencies get their information from American’s Direct Connect system and not from a non-aligned global distribution company. Exactly how American will exploit this advantage remains to be seen.

A very common form of disintermediation involves the emergence of an online company that acts as a super broker of products or services. Think of video companies displaced by online sources, financial advisors displaced by online brokerage accounts, travel agents displaced by online travel agencies, online book stores displacing local book stores, classified ads displaced by online services such as eBay or Craigslist, and electronics retailers getting bumped by online sellers ranging from Amazon to Tiger Direct. What if you are on the wrong end of this form of disintermediation? What to do? The most important thing is to remember what Theodore Levitt told us of in his book, The Marketing Imagination. He reminds companies not to get fixated on the particular form their offerings take but rather the solution, job, or benefit that they are offering customers. He noted, “People don’t buy a quarter-inch drill bit, they buy a quarter-inch hole. You’ve got to study the hole, not the drill. The drill is just the solution for it.” In a retrospective on an influential article entitled “Marketing Myopia,” Levitt adds, “… the organization must learn to think of itself not as producing goods or services but as buying customers, as doing the things that will make people want to do business with it.” Using this logic, what is a stockbroker, travel agent, book store, or electronics retailer really selling? Also, when you do go directly to your customers, what business are you in?

The CMO Survey asks a series of questions that reflect this focus on managing from the outside in. Specifically, it asks six questions across a range of strategy activities. Top marketers rate the following items based on the lead “Information about customers and competitors”:

• Is collected on a regular basis
• Is shared vertically across different levels of the firm and business unit
• Is shared horizontally across different functions and business units
• Shapes the design of firm strategies
• Influences the implementation of firm strategies
• Impacts the evaluation of firm strategies

These ratings are performed on a 7-point Likert scale where 1 is “not at all” and 7 is “very frequently.” Overall, companies report to be just slightly above the scale average on these measures. As you can see from the figure, means from the August 2011 survey range from a high of 5.3 for information collection to a low of 4.6 for vertical and horizontal information sharing. What I found interesting is that these company averages have clearly risen during the downturn. Between February 2011 and August 2011, the figure shows all of the indicators are up. In comparison, during the prior year from February 2010 to February 2011, there was very little change. During what many consider to be the deepest trough in the economic downturn, companies punched up how much they focus on managing from the outside in.

Figure: Company Ratings on How Frequently Information About Customers and Competitors Is Used.

Not all companies invested equally in using market information to drive strategy. B2C-Service companies have the highest scores on all measures while B2B-Services companies have the lowest scores. Both B2B-Product and B2C-Product companies are between these two extremes. Other factors, such as firm size or percentage of sales from the Internet do not influence performance on these indicators.

Why improve these outside-in indicators during the economic downturn? There may be many reasons. However, I speculate that these tough economic times challenge managers to rethink priorities and to focus on the raison d’être of their existence—customers. It is easy during boom times to pretend that other factors are more important. However, tough times force managers to break free of any delusions and to remember who pays the bills.

How do firms focus on managing from the outside? In research for the book and in other published work on the topic, it is clear that top management must commit to focusing on customers. It is also important that the firm build a structure that is based on customer, not on the products or services it sells. Finally, the organization has to set up informal and formal processes for acquiring, sharing, and using information from the market in its strategy.