Conquering convergence: Focussing on the...

A briefing paper from the Economist Intelligence Unit sponsored by Oracle

Conquering convergence:Focussing on the customer

Conquering convergence: Focussing on the customer is an Economist Intelligence Unit briefing paper, sponsored by Oracle. The Economist Intelligence Unit executed the survey, conducted the analysis and wrote the report. The findings and views expressed in the report do not necessarily reflect the views of the sponsor.

Research for the report was conducted in July 2007. The Economist Intelligence Unit surveyed 164 executives worldwide using an online questionnaire. To supplement the survey results, we also conducted in-depth interviews with senior executives familiar with the subject. The author of the report was Jeanette Borzo and the editor was Winter Wright. Richard Zoehrer was responsible for layout and design. February 2008

Preface

© The Economist Intelligence Unit 2008 3

Conquering convergence: Focussing on the customer

Meeting the challenges

here is nothing new about the need for companies in the IT,

telecommunications, media and entertainment industries to focus on their customers. Indeed, the notion of “customer centricity” has been around for ages. But several trends in these industries are causing companies to focus on customer preferences and patterns as never before. “Everyone is talking about customer centricity and analytics now,” confirms Eric Kintz, vice-president of global marketing strategy and excellence at Hewlett-Packard Co.

New research produced by the Economist Intelligence Unit and sponsored by Oracle surveyed companies in the so-called ICE industries: information, communications and entertainment (the ICE designation includes telecoms, broadcasting and publishing). The research shows that nearly all firms surveyed in North America, Europe and Asia already have customer-centricity strategies in place and more than two-thirds plan to increase their customer-centric efforts even further. What’s the reason? In part, two other trends are driving this renewed customer focus: the rise of user-generated content, and the ongoing convergence of products, companies and customer groups. Thanks to the rapid rise of the Internet, for example, today’s consumers can easily “talk back” to companies

T

Who took the surveyIn July 2007 the Economist Intelligence Unit conducted an online sur-vey of 164 executives worldwide to determine how they approached the task of developing and maintaining a customer focus strategy in an environment of technological convergence. Of the respondents to our survey, 42% were senior executives (board-level or C-level), and 58% were directors, business unit heads, and other managers. Worldwide, 24% of respondents were based in North America, 21% in Western Europe, 38% in the Asia-Pacific region, and 17% from Latin America, eastern Europe, the Middle East, and Africa. More than half of the respondents (53%) worked at organisations with annual revenues of more than US$500m, while half came from organisations with revenues below that amount. In addition to the survey, qualita-tive interviews were conducted with senior executives familiar with the topic of achieving customer focus.

Does your company have a strategy for staying focused on its customers?

Yes 92%

No 8%

If so, how successful do you feel this strategy has been over the past 2-3 years?

Highly successful 14%

Successful 43%

Somewhat successful 35%

We don’t have formal customer-focus goals 6%

Don’t know 3%

4 © The Economist Intelligence Unit 2008


through user-generated content in blogs, home-grown commercials and personal videos. A single customer voice can reshape a company’s place in the market (as in the case of Jeff Jarvis’s Buzz Machine blog, which inspired Dell Computer to spend an extra US$100m to improve its customer service). “The rules of engagement have changed,” notes Ilkka Raiskinen, senior vice-president for multimedia experiences at Nokia. “Even an individual complaint can have a global impact.”

This rising consumer power, in turn, is pushing convergence. “People don’t want to carry too many devices, and want to have constant access,” adds Mr Raiskinen. “Consumer pull is the key.” As a result, the ICE industries are trying to serve consumers’ needs across a range of areas including technology, communications, news and entertainment. It is a challenge that confounds even the most tech-savvy companies attempting to keep focused on their customers: less than 15% of survey respondents rate their customer-focus strategies as highly successful. Much of the trouble stems from insufficient technology. One-quarter of companies surveyed say that the technology they use to gather customer feedback is inadequate for their needs. Many admit to confronting obstacles such as incomplete and inaccurate customer data. And while companies may want better technology to address these shortcomings, they often find it challenging to

even find the right tools. A full 46% of companies say that they have trouble identifying the best emerging technologies to use in achieving customer-centricity goals. One problem may be a technology glut: companies are often inundated with the market’s many new products, along with new versions of software tools that they already own. “There are many and they are changing all the time,” notes Mr Raiskinen.

Increasingly customer-focusedWhile customers have always been king, today they sit more solidly on their thrones than ever. Companies recognise this and are trying to keep pace. While 92% of companies surveyed say they already have a customer-focus strategy, nearly 70% plan to increase their customer focus. “Customer centricity is becoming more important now,” confirms Peter Skarzynski, senior vice-president for strategy at Samsung Telecommunications America. “We are spending more and more time to understand the customer better. It’s becoming a very competitive market.” Indeed, competition to achieve customer centricity

“We are spending more and more time to understand the customer better. It’s becoming a very competitive market.”

Peter Skarzynski, senior VP strategy, Samsung



has become so fierce that nearly three-quarters of businesses are working with external partners such as business consultants, PR firms and advertising agencies to develop a customer-focus strategy. Even so, challenges abound. Many companies rely on technology to measure their customer focus but are dissatisfied with the results. In our survey, 46% of companies say they use customer relationship management (CRM) software for measuring customer focus, whereas 22% use analytics software for the same purpose. Yet only 6% believe that such technology is excellent. More specifically, incomplete customer data plagues 41% of industry firms, while a lack of clarity about exactly what customer data to measure troubles 32%. Even companies that get all the data they want often have difficulty interpreting that data, observes Mr Raiskinen of Nokia. He adds that such data must also be collected and analysed quickly. For example, a company dealing with shifting customer preferences may be unable to wait for the results of an analyst’s three-month field study before taking action. Only one-quarter of survey respondents agree or strongly agree that their companies have developed predictive customer-buying models. Perhaps even more surprisingly, only about one-quarter (26%) agree or strongly agree that they can produce great analytics about customers to enable real-time up-selling or cross-selling. The goal, of course, is to use technology not only to gather data, but also better to manage, analyse and act on that data. “One of the key challenges of being customer-centric is how to integrate all your sources of customer data into one view of the customer,” says Mr Kintz of HP. “You have to have the right technology infrastructure.” Mr Skarzynski of Samsung adds: “We are trying to create as many touch points as possible and then integrate all that data.” The challenge is significant. For 29% of companies, customer preferences are so fragmented

that firms consider them too difficult to track accurately. Inaccurate customer data plagues more than one-quarter of companies (27%). According to Mr Kintz, data quality is another challenge: “You have to have clean data to feed the data warehouse.” Finding mathematicians and statisticians who can crunch the numbers effectively presents yet another task: “You have to have the right skills internally.” Less than one-third of companies (32%) agree or strongly agree that they have a 360-degree customer view comprising customer purchase and contact histories, preferences and demographics. And only 39% agree or strongly agree that they have a clear scorecard for measuring customer focus.

“One of the key challenges of being customer-centric is how to integrate all your sources of customer data into one view of the customer.”

Eric Kintz, VP global marketing strategy, Hewlett-Packard

Please rate your level of agreement with the following statements about your company. (Rate on a scale of 1 to 5 where 1 = Strongly agree and 5 = Strongly disagree)

We have actionable insights into customer needs/preferences

We have a clear understanding of customer needs and preferences across the entire life cycle of our products/services

We give customers many integrated channels through which to interact with us

My company has a clear scorecard for measuring its customer focus

My company has a 360-degree view of customers, including purchase/contact history, preferences and demographics

My company has developed predictive customer buying models

My company can produce great analytics about customers, enabling us to up-sell or cross-sell in real time

1 Strongly agree 2 3 4 5 Strongly disagree 6 Don’t know

15% 54% 19%

4

56%49% 24% 10% 115%

42% 22% 14%

29% 36% 17%9%

4%

24%

21%

33%

25%

28%

31%

4%

7% 2

2

2

2

3

4

2

2

14%

7% 19% 30% 29% 313%

7%

9%

19%



Converging challengesConvergence further heightens the impact of these data challenges. Retaining a sharp focus on customers while customer groups, companies, devices and platforms are converging and transforming is like changing the tyres on a moving car. “Just when you believe you know what your consumers want, you can bet you are behind,” says Mr Raiskinen. After all, today phones double as TVs, PDAs function as cameras and music players make fashion statements. Companies believe that customer demand for an expanded product or service line is the key external driver of such crossover trends.

Will convergence ultimately help companies or hurt them? Many firms are not yet sure. They view it as a double-edged sword offering both opportunity and risk. For example, they cite convergence as both the greatest threat to—and second-greatest opportunity for—increasing their revenue and/or margins. Forty-four percent of companies see convergence as a way to become more customer-centric, yet more than one-third (34%) say that convergence threatens their ability to do so. Firms seem to see convergence as a binary, win-lose opportunity with no grey area inbetween. Whether they win or lose depends on whether they can identify consumer trends and then deliver converged devices and services that suit customer preferences. “People aren’t going to walk around with seven different devices,” points out Mr Skarzynski of Samsung. But there is an equal and opposite danger: that of losing customers by offering devices or services that fail to meet customer needs.

Putting user-generated content to workTo avoid that trap, many firms are looking closely at user-generated content for clues as to what consumers find most interesting. HP partnered with Personiva, a San Francisco firm, to let customers personalise and post customised HP ads (for its campaign, ‘The Computer is Personal

What are the main threats/negatives your company associates with the convergence of the telecoms, IT, and media/entertainment industries? (Select all that apply) Threats to our revenues and/or margins

Challenges to becoming customer-centric

Hindrance to using our resources to expand into new areas

Threat of being acquired by or merged with another entity

Other, please specify

Don’t know

23%

38%

34%

13%

19%

9%

Today’s phones double as TVs, PDAs func-tion as cameras and music players make fashion statements. Companies believe that customer demand for an expanded product or service line is the key external driver of such crossover trends.



n Focus on results “Don’t do customer

centricity just because it’s the latest fad,”

advises Eric Kintz, vice-president of global

marketing strategy and excellence at

Hewlett-Packard Co. “Carefully tie this to

business results.”

n Connect with centricity Making the

connection between customer-focus and

bottom-line results can be challenging,

however, meaning that tenacity is required.

“It’s somewhat tedious work, without a

silver bullet,” says Mr Kintz. “It needs to be

pieced together. It requires a lot of detailed

statistical work.”

n Listen up If the customer really is king,

than you need to hear what your sovereign is

saying. “A lot of marketers create their own

hype and then wind up believing it,” says Peter

Skarzynski, senior vice-president for strategy

at Samsung Telecommunications America. “But

you have to listen to the consumer. Keep your

ears open always. Continue to listen.”

n But don’t believe everything you hear

While customer input is critical,

not all of it will translate directly into

sustainable product strategies. As Henry

Ford was putting the finishing touches on

his Model T, for example, some consumers

were surely asking the transportation market

for faster horses, speculates Ilkka Raiskinen,

senior vice-president for multimedia experi-

ences at Nokia. “It is challenging to translate

consumer preferences for the future into

something concrete,” he says, adding that using

customer input successfully is a matter of

“finding the balance”.

n Hit the front lines Customer focus is a

company-wide mandate. “Think about how

you inspire your employees to really drive

customer centricity,” suggests Mr Kintz, add-

ing that even if only once or occasionally, by

“putting employees in front of the customer,

you can have them see how each employee

can make a difference. Nothing replaces a

‘face-to-face’ with the customer.”

n Put your data to work The best

technology tool is worthless unless your staff

analyses and acts on the data the tool collects.

“If people are not actively using the [technol-

ogy] tools, it does not help that much,” notes

Mr Raiskinen of Nokia. “How you use that

data across functions is more important than

fancy tools. You should have a passion to take

in the message from the consumer.”

n Try something new There are lots of

new tools out there for connecting with cus-

tomers—why not try one? “Blogging is a great

way to better engage the customer,” confirms

Mr Kintz, who writes HP’s most successful

blog, Marketing Excellence, with about 10,000

readers each month. “Emerging technologies

have been great for us.” n

Again’) on their blogs, YouTube, or anywhere else they wanted. Most companies in our survey recognise the potential impact of these emerging technologies on the bottom line. More than two-thirds of respondents say that emerging technologies offer an opportunity to increase revenue, margins or both. Thirty-nine percent are using emerging technologies to achieve customer-focus goals. As consumers create more content on

Seven secrets for successful centricity



the go, user-generated content can represent an opportunity for firms that sell mobile devices. But user-generated content brings its own challenges. For example, it can be difficult for companies to ease their grip on corporate-controlled branding and enter an unknown world where customers create brand messages. Other challenges abound: getting users to submit content plagues 43% of companies, while making the content commercially profitable troubles nearly as many (42%). Competition is bothersome too, with 32% of firms saying they have trouble differentiating their service enough to obtain more interesting user-generated contributions than competitors.

Concentric solutionsWithout doubt, these trends require a shift in how firms interact with customers. But solutions exist for

many challenges, and enterprising firms may even harness the power of these trends to overcome the very obstacles they create. For example, many see user-generated content as playing an important role in helping companies to become more customer-centric. Nearly two-thirds of our survey respondents say user-generated content is important or critical to their ability to become more customer-centric. “Emerging technologies have been great for us, especially considering the shift in branding that we have made,” responds Mr Kintz of HP. A case in point is HP’s heightened focus on the gaming market after it acquired Voodoo Computers, a PC game-maker, in 2006.

How important is user-generated content to your company’s ability to become more customer-centric?

Critical 10%

Very important 26%

Important 29%

Somewhat important 22%

Unimportant 9%

Don’t know/Not applicable 5%

What are the main opportunities/positives your company associates with the convergence of the telecoms, IT, and media/entertainment industries? (Select all that apply) Increases our ability to expand into new areas

Opportunity to increase our revenues and/or margins

Increases our ability to become customer-centric

Opportunity to acquire/merge with another entity


Don’t know

44%

56%

55%

20%

10%

4%

“It doesn’t matter how fast you run. The competition is running as well. You can never stop. It’s an ongoing race.”

Ilkka Raiskinen, senior VP multimedia, Nokia



Companies also believe that getting a single view of the customer and then organising the company around that single view is a key to success. When asked to choose one action that would make their company more customer-centric, the greatest number of companies (30%) said creating a central customer view across product and division lines; 28% chose organising the company around customer, rather than product, lines. Technology, of course, plays a key role in how companies generate that complete view. Nearly one-half of the companies surveyed chose direct customer feedback from call centres, websites and other channels. Forty-three percent cited CRM software, while 41% employed customer surveys. But respondents mentioned other tools such as focus groups and analytics software, saying those tools were important for clarifying who their customers are and what they want. “The more touch points you have with consumers, the better,” reckons Mr Raiskinen of Nokia. Even when armed with the best technology, companies should recognise the depth of the challenge before them. Only through continuous upgrading and redefining of their systems can they hope to achieve customer centricity in an age of convergence. “It doesn’t matter how fast you run,” says Mr Raiskinen. “The competition is running as well. You can never stop. It is an ongoing race.”

What does your company consider most important for getting a complete view of its customers? (Select up to three responses) Direct customer feedback from call centers, Web sites, and other channels

Customer relationship management software

Customer surveys (online or by phone, SMS, or post)

Focus groups

Analytics software

Feedback gathered at customer conferences

Customer-generated content

Open architecture permitting data exchange among disparate applications

Self-service applications for updating customer data, such as personal URLs


Don’t know

41%

49%

43%

29%

19%

18%

13%

10%

1%

5%

22%


Appendix: survey results Conquering convergence: Focussing on the customer

Appendix: Survey results In July 2007, the Economist Intelligence Unit conducted a global online survey of 164 executives. Please note that not all answers add up to 100% because of rounding or because respondents were able to provide multiple answers to some questions.

Does your company have a strategy for staying focused on its customers?

Yes 92%

No 8%

If so, how successful do you feel this strategy has been over the past 2-3 years?

Highly successful 14%

Successful 43%

Somewhat successful 35%

We don’t have formal customer-focus goals 6%

Don’t know 3%

Which statement best describes your company?

We plan to maintain our investment in customer-centric efforts 26%

We plan to increase our customer-centric efforts 69%

We plan to reduce our customer-centric efforts 1%

Don’t know 4%

Who is your company’s main external partner in developing a customer-focus strategy?

Marketing or business consultancy 29%

PR agency 10%

Telecom and/or media partner 8%

IT vendor 7%

Ad agency 6%

Other, please specify 12%




Which of the following tools does your company use to measure its customer focus? (Select all that apply)

Market research

Win/loss analysis


Analytics software


Not applicable/Don’t know

46%

59%

49%

22%

12%

9%

Please rate your level of agreement with the following statements about your company. (Rate on a scale of 1 to 5 where 1 = Strongly agree and 5 = Strongly disagree)

We have actionable insights into customer needs/preferences

We have a clear understanding of customer needs and preferences across the entire life cycle of our products/services

We give customers many integrated channels through which to interact with us

My company has a clear scorecard for measuring its customer focus

My company has a 360-degree view of customers, including purchase/contact history, preferences and demographics

My company has developed predictive customer buying models

My company can produce great analytics about customers, enabling us to up-sell or cross-sell in real time


15% 54% 19%

4

56%49% 24% 10% 115%

42% 22% 14%

29% 36% 17%9%

4%

24%

21%

33%

25%

28%

31%

4%

7% 2

2

2

2

3

4

2

2

14%

7% 19% 30% 29% 313%

7%

9%

19%

What are the main obstacles preventing your company from being as customer-centric as it would like? (Select up to three)

Incomplete customer data

Lack of clarity about what customer data should be measured

Customer preferences too fragmented to track accurately

Inaccurate customer data

Customer preferences change too quickly

Growing competition is diverting resources from customer focus

Legacy IT systems can’t adapt to changes/IT switching costs too high

Proponents at our firm have not created a compelling case for change

A merger or acquisition is distracting us from customer focus

Our executives do not promote a customer-focused approach


Don’t know

29%

41%

32%

27%

18%

19%

15%

12%

7%

9%

4%

22%

What are the main threats/negatives your company associates with the convergence of the telecoms, IT, and media/entertainment industries? (Select all that apply) Threats to our revenues and/or margins

Challenges to becoming customer-centric

Hindrance to using our resources to expand into new areas

Threat of being acquired by or merged with another entity


Don’t know

23%

38%

34%

13%

19%

9%



What are the main opportunities/positives your company associates with the convergence of the telecoms, IT, and media/entertainment industries? (Select all that apply) Increases our ability to expand into new areas

Opportunity to increase our revenues and/or margins

Increases our ability to become customer-centric

Opportunity to acquire/merge with another entity


Don’t know

44%

56%

55%

20%

10%

4%

What is the main external force causing convergence at your company?

Customer demand for an expanded product or service line 35%

A corporate strategy requiring us to better monetise our existing customer base 19%

Increased competition from companies outside our primary business sector 16%

A need to reduce overhead costs 12%

A merger or acquisition involving our company 11%


Don’t know 6%

What single primary action do you think your organisation would need to take to become more customer-centric in an environment of convergence?

Create a central view of the customer across product and division lines 30%

Organise the company along customer lines rather than product lines 28%

Compete in new industry sectors 13%

Update our information systems to accommodate converged products and services 11%

Understand the strengths and weaknesses of new competitors 10%

Consider a merger or acquisition 2%


Don’t know 4%

How would you rate the technology your company uses to gather customer feedback on its products and services?

Excellent 6%

Good 27%

Adequate for our needs 38%

Inadequate for our needs 25%

We don’t use technology to gather customer feedback 5%



What does your company consider most important for getting a complete view of its customers? (Select up to three responses) Direct customer feedback from call centers, Web sites, and other channels


Customer surveys (online or by phone, SMS, or post)

Focus groups

Analytics software

Feedback gathered at customer conferences

Customer-generated content

Open architecture permitting data exchange among disparate applications

Self-service applications for updating customer data, such as personal URLs


Don’t know

41%

49%

43%

29%

19%

18%

13%

10%

1%

5%

22%

How important is user-generated content to your company’s ability to become more customer-centric?

Critical 10%

Very important 26%

Important 29%

Somewhat important 22%

Unimportant 9%


Please rate your level of agreement with the following statements regarding emerging technologies at your company. (Rate on a scale of 1 to 5 where 1 = Strongly agree and 5 = Strongly disagree)

Our executives write or contribute to a company blog to complement our marketing/branding strategies

My company has a system to leverage user-generated content

My company has a system to leverage on-line social networks

My company uses emerging technologies to achieve customer-focus goals

My company wants to use emerging technologies to achieve customer-focus goals, but has trouble identifying the best technologies to use

My company sees emerging technologies as an opportunity to increase revenues/margins


8% 20% 15%

4

27% 23% 29% 13%6%

26% 22% 30%

34% 33% 17%5%

24%

39%

44%

29%

21%

15%

6%

7%

28% 4

4

3

3

3

2

25%

16%

2

9%

7%

3%



What are your company’s key challenges regarding user-generated content? (Select up to three responses) Getting users to submit content

Making the content commercially profitable

Differentiating our service so we get more interesting content than competitors

Screening out inappropriate content

Finding the resources to support user-generated content

Ensuring content works across multiple platforms

Mitigating the creation of damaging or negative content

Establishing procedures to pay users for content


Don’t know/Not applicable

32%

43%

42%

27%

21%

12%

11%

2%

9%

5%

22%

In which region are you personally located?

Asia-Pacific 38%

North America 24%

Western Europe 21%

Eastern Europe 7%

Latin America 6%

Middle East and Africa 4%

What is your primary industry?

Information technology 44%

Telecommunications 15%

Media 12%

Entertainment 5%

Publishing 2%

Broadcasting 1%

Networking enabler 1%

Other 22%

What are your organisation's global annual revenues in US dollars?

US$500m or less 47%

US$500m-$1bn 11%

US$1bn-$5bn 18%

US$5bn-$10bn 6%

US$10bn or more 19%



While every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in the report.

Which of the following best describes your title?

Board member

CEO/president/managing director

CFO/treasurer/comptroller

CIO/technology director

Other C-level executive

SVP/VP/director

Head of business unit

Head of department

Manager

Other

2%

4%

23%

6%

7%

10%

10%

21%

7%

10%

What are your main functional roles? (Select up to three functions)

General management

Strategy and business development

IT

Marketing and sales

Operations and production

Finance

Customer service

Information and research

R&D

Risk

Human resources

Legal

Supply-chain management

Procurement

Other

30%

40%

40%

23%

16%

13%

12%

10%

7%

11%

6%

3%

2%

1%

3%

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