When Wharton marketing professor George Day coined the term "market driven strategy" nearly a decade ago – in a conference and a book by that name – he was a pioneer in putting a market focus at the center of the strategy process. Today, virtually every company talks about focusing on the market. But few are truly successful in realizing this vision. To become market driven, companies need to do more than rethink their strategies; they need to rebuild their organizations. In research and work with hundreds of executives in diverse industries, Day has identified some of the distinguishing characteristics of market driven organizations and strategies for building them. He sums up these insights in his new book, The Market Driven Organization (Free Press, 1999). In an interview with Knowledge at Wharton, Day discussed how companies can become more market driven.

Knowledge at Wharton: How has the view of being "market driven" changed in the past decade?

Day: For more than 40 years, firms have been exhorted to listen to their customers and make decisions from the market back. Only in the past decade has this article of faith become a corporate priority for most firms as they recognize the performance benefits of being market driven. We have also learned that a customer focus is an essential condition but not a sufficient guide to action. The only way a business can succeed is to deliver superior customer value, and that requires an intense emphasis on competitors who set the performance standard. Advances in information technology also are bringing us closer to the ideal of an organization that is continually responsive to the changing requirements of customers.

Knowledge at Wharton: You write in your book that while market driven rhetoric is now commonplace, successful market driven organizations still are rare. Why?

Day: There is still some confusion about what it means to be market driven. But I think the most important reason why the desire to be market driven is not translated into action is the organization itself. In my work with senior executives, I found one of the greatest stumbling blocks to implementing a market driven strategy was that their organizations were not suited to the task. One 3M manager summed up the problem this way: "The fact that we are a multi-dimensional, multi-functional, multi-regional, multi-plant organization is not the customer’s fault." You cannot take an internally focused, bureaucratic organization and suddenly expect it to be tightly linked to the market. It’s like taking a military regiment and expecting the soldiers to suddenly become sprinters. It just won’t happen without some reconditioning. It requires a rethinking of the entire organization, building new capabilities. It was the ability to make these deeper changes that separates the firms that talk about become market driven from those that are doing so successfully.

Knowledge at Wharton: What does it mean to be market driven?

Day: Market driven organizations have superior skills in understanding, attracting and keeping valuable customers. These skills allow companies to keep their strategy aligned with changing market requirements. Even firms with world-class technology and innovative business models have to stay close to their customers and ahead of competition to realize their full potential. Market driven organizations have an externally oriented culture, capabilities for market sensing and market relating, and a configuration that aligns vertical functions and horizontal processes. All of these elements work together to foster a market orientation.

Knowledge at Wharton: Why is it important to be market driven?

Day: While many competitive advantages are rapidly eroded in today’s environment, connections to customers are more dynamic and enduring if they are well developed and maintained. These links to the market can help companies weather changes in the environment and anticipate these changes to outperform rivals in finding ways to provide value to customers. For example, Intuit used superior capabilities in market sensing and relating to gain a near monopoly in personal finance software despite fierce competition from dozens of competitors – including Microsoft, which had bested rivals in word processing, spreadsheets, and presentations. Intuit managed not only to survive but to dominate. The company worked closely with customers to make its Quicken software, a financial planning program, easier to use. Teams of software developers watched for small hints of where the program might be difficult or confusing, worked in usability labs and even visited customers at home to identify problems and improve the software. In this process, they identified and filled a need for small business accounting software, and Quick Books went on to capture 70% of the market within two years of introduction.

Knowledge at Wharton: You said there is some confusion about the concept of being market driven. What is being misunderstood?

Day: There are three common pitfalls. Some companies become so product-focused that they become "oblivious to the market." Recognizing the weakness of this internal focus, other companies become "customer-compelled," bending over backward to do whatever customers want. This leads to diluted and uncoordinated efforts. It also ultimately leads to the third pitfall, which is to feel superior to the market. After seeing the weaknesses of following customers, some managers advocate "ignoring the customer." If customers can’t tell you what they want, managers figure they should just ignore them. But the idea of ignoring the customer is just as dangerous as slavishly following them.

Knowledge at Wharton: How can it be dangerous to follow customers?

Day: Customers sometimes can’t tell you what they want. For example, when Ford asked customers if they wanted a second sliding door on the Windstar in 1995, they didn’t appear to be interested. So Ford, as a customer-focused (or, perhaps, customer-compelled) company, took them at their word. Chrysler looked a little deeper and correctly anticipated that customers would want the extra door. Chysler was right, and it cost Ford $560 million to rectify the mistake.

Knowledge at Wharton: Isn’t Ford’s mistake – and the successes of products that no customer asked for, like the Walkman and Chrysler’s minivan – an argument for "ignoring customers"?

Day: That is unfortunately the lesson many managers draw from such experiences. Executives have many more sophisticated ways to identify customer needs or desired attributes rather than getting their feedback on specific products. While customers can’t always tell you what they want, they usually can show you what they need. In the early 1970s, for example, no customers were asking for fax machines but Xerox identified a demand for one million units by looking at the extent and frequency of urgent written messages. (Unfortunately, it chose a computer-to-computer technology– a solution that proved to be a couple of decades ahead of its time.) Between the two extremes of being compelled by customers and ignoring the customer is the profitable middle ground of a balanced customer-focus.

 

Knowledge at Wharton: Which companies do you feel are doing this well?

Day: Different companies have excelled at solving different pieces of the puzzle. The power of a market driven organization also can be seen in the success of companies such as Wal-Mart, Virgin Airlines, Disney, Gillette, and many others that have used a superior relationship to customers to gain advantage over rivals. In contrast, the stories of IBM’s loss of control of the PC market, Motorola’s stumble in shifting from analog to digital cellular systems, and Sears’ difficulties in the early 1990s, show how a failure to align the organization to the market can quickly and seriously erode competitive performance.