The Empowered Customer

Introduction

We all get that long-distance feeling from time to time. And, up until now, when it came time to choose the phone company we'd use, we had only one choice.

But last June, the CRTC decided to open competition for long-distance telephone service. Unitel Communications, a joint-venture between Canadian Pacific and Rogers Communications, had won a long and arduous battle to offer savings of between 15 and 35 per cent to long-distance customers.

George Harvey, a native of the U.K., brought his expertise in the computer and telecommunications industries to Unitel when he was appointed its President and CEO in 1987. He began his career in the U.K. in 1961 as a sales representative with Burroughs Corporation and, by 1979, he had risen to become President of Burroughs Canada. In 1982, Mr. Harvey became President of Rolm Canada and, in 1986, was promoted to Vice-President Worldwide Marketing at Rolm's headquarters in California.

Mr. Harvey also holds a number of directorships, including the National Museum of Science and Technology, and the Information Technology Association of Canada.

But it was back in 1961, however, that he really got his big break. On military service in Hamburg, he wound up spending Easter Weekend at a local hot spot known as the Star Club. He couldn't help but notice that the band, an English group called The Quarrymen, hailed from his native Liverpool.

After chatting them up between sets, they invited him on stage. As he belted out a popular English bar song with John, Paul and George, he could hardly have guessed that they would later change their name to the Beatles. He didn't stick around for the transition, but a line from one of their songs could have presaged his own career: "When I call you up, your line's engaged." (from the song You Won't See Me)

Now, riding high on the success of his company's bid for open competition, he can speak from experience about the "empowered customer."

Ladies and gentlemen please join me in welcoming George Harvey.

George Harvey

Thank you, Mr. Chairman and members of The Empire Club for your invitation to address this distinguished audience. It gives me the opportunity to talk to you about a subject close to my heart: the new customer revolution. As is the case with most revolutions, the new era often starts with uncertainty, confusion, and turmoil. The new customer revolution is no exception.

We are going through the most difficult recession since the Great Depression. The legacy of the recession is thousands of bankruptcies, millions of unemployed, and shattered consumer confidence. Uncertainty is everywhere. Even Japan, the land of lifetime employment, has hit the doldrums. A few weeks ago, Forbes dedicated its 75th anniversary issue to one topic: Why Do We Feel So Bad?

In times of uncertainty, we look for answers. If there are no answers, we look for signs of hope. If there are no signs of hope we look for the elusive quick fix.

In the past few years we were exposed to more theories on how we should run our businesses than ever before. Many of these theories were genuinely entertaining, the better ones were just plain old common sense. But as the recession deepened, people looked for the quickest fix possible. The "new" theories didn't help much, so doom and gloom prevailed. New words were coined: double-lip recession, triple-dip recession. Downsizing became rightsizing. Voluntary dismemberment whatever that means--became an option. People have used vision--the noun--so much it became a verb meaning to expect, as in "we vision great things to come." A lot has changed since the start of the recession.

Businesses in Canada and around the world realized that this recession is more than just another downturn cycle that could be taken care of by quick fixes or fine tuning of our industries. We are witnessing a complete restructuring of our economy.

The longevity and scope of the recession forced us to re-examine how we do business, how we plan for tomorrow, how we design and market our products and services, how we treat our employees and serve our customers. We know instinctively that if we don't pay attention to these factors, somebody will do it for us. And that somebody could be your competitor from the other side of town or from the other side of the globe.

This was the first recession in history that has actually intensified competition. But, while businesses and national economies are adjusting to the new reality of global competition, the greatest transformation is happening to the customer.

And that's what I want to talk to you about today. the new customer revolution and the changes we have to make to succeed in the new, restructured economy.

Customers have moved from being faceless elements of market share to a powerful force that can pick and choose as they please. Let me give you an example of the first wave of the trend.

Let's look at one fascinating example reported in the Washington Post. The National Bicycle Industrial Company in Kokubu, Japan, builds made-to-order bicycles on an assembly line. The bicycles, fitted to each customer's measurements, are delivered within two weeks of the order--and the company offers 11,231,862 variations on its models, at prices only 10 per cent higher than ready-made models.

What we see here is the rise of the empowered customer. This new customer, aided by enormous advances in computers and telecommunications, is changing not only the way business deals with customers but the way we structure our organizations.

Traditional organizational models we are using today may become as outdated as the black rotary dial phones of yesterday. The reason is not hard to figure out. The old organizational structures were essentially designed as one way streets--goods and services flowed to the customer because customers had almost no impact on products until they picked them off the shelf.

The new organizational structure will be designed around serving the empowered customer. Research and development, marketing, sales, human resources--each and every department's design may have to be turned upside down; some departments may be eliminated for good. In fact, the most enlightened businesses have the customer at the top of their organizational charts.

The Japanese bicycle company couldn't have fit 11,231,862 variations on its models around bureaucratic systems in manufacturing and marketing, or without sophisticated computers and telecommunications. All of these elements had to be focused on creating the perfect, one-of-a-kind product for the one-of-a-kind customer.

A critical element in meeting new customers' expectations is recognizing and responding to higher levels of sophistication and their ability to recognize and choose value. If you talk to your friends who are buying personal computers these days, they talk about 486 processors, fax modems and megabytes of memory or disc drives. They will shop until they find the best price-performance and service value on the market.

Unitel's success in launching its first competitive long-distance service was based on customers' preference for low price, high-quality service--for the same reason people join the Price Club or go to discount stores.

We didn't decide what our customers should get by holding long meetings, or talking to ourselves. We probed, researched, and held many focus groups until we were sure that the services we were going to offer would meet the wide range of expectations of our potential customers. We were confident of our initial success because our research and focus groups included thousands of potential customers.

There is no doubt in my mind that the new customer revolution could not have come without the new technologies based on the microchip. The microchip became the greatest catalyst of change and a curse for those companies who saw the microchip as an exclusive preserve of high-tech businesses.

The fact is, ladies and gentlemen, there are no longer high-tech and non-high-tech companies. Regardless of sector or industry, all successful companies are high-tech companies. Nobody can market a product or service for the empowered customer successfully without computers and telecommunications.

Let me give you an example of what you can do with a simple 1-800 number. Each of our ads, run in daily newspapers and on television, had a different 1500 number so we could determine how successful each advertisement was on a daily basis. The system gave us vital intelligence on demographics of our customers and helped us keep our costs down.

Having a low cost structure is also critical to long-term success. But a low cost structure alone is not going to keep you in business. The empowered customer's decision is based not only on low price but also quality, features and service. Quality of your product and service is what wins you customers and keeps them coming back. Features your customers want will differentiate your product or service in their eyes.

Technology alone is not a panacea either. If your people cannot win your customers' trust and serve them well, there is no supercomputer on the face of the earth that can compensate for lousy service.

Most of the successful companies that have truly recognized the arrival of the empowered customer had to embark on culture change. We found this more challenging than, for instance, taking on Bell Canada. We have been focusing on culture change for four years. And even though we have made significant progress, we have not yet completed the task.

Companies that have managed their culture change and improved their balance sheet are rare. One of the greatest turnarounds and culture change on record must be British Airways. The company went from being the Airline of the Last Resort to the Business Carrier of Preference. As it happened, BA not only won back its customers but became the most profitable airline among the largest carriers in the world.

I can tell you from my own experience at Unitel that changing culture takes more than training your workforce on how to interact with your customers. That would be about as useful as limiting your car maintenance to cleaning your windshield. We had to rethink our organization and eliminate levels and levels of management, reorganize our organization into customer service groups, take engineers out of marketing and hire marketers who understood the needs of our customers and prospects.

The questions we had to ask over and over were these: Why should I, as a customer, go to Unitel rather than to the telephone company? What makes our service different? What could we offer our customer that he or she can't get across the street?

And pretty soon we discovered that, when you are facing a powerful competitor, creating a market is easier than taking a market share. New, innovative products grab your customer's attention faster than expensive ads and marketing programs targeted at existing markets.

A couple of weeks ago, management guru Tom Peters told his audience in Toronto that grocery stores added 16,143 new products last year alone and a consumer could choose from 41 varieties of Tylenol.

"The marketplace has gone crazy."

"If the marketplace has gone crazy," he asked, "does it not follow the organization must be as crazy as the marketplace?"

I'm not sure I agree with his conclusion--it's like suggesting that doctors and wardens have to go crazy before they are allowed to run a mental asylum. But Tom Peters was right on the money about the unbelievable choice available to customers today.

This unbelievable customer choice could be viewed as a disadvantage by many companies because choice means that there are more competitors in the market today than ever before. Twenty years ago, IBM had 20 competitors. Today it has 250 times more.

Regis McKenna, who helped Apple break into the business computer market, points out that companies have to adjust their marketing to the new customer: 90 per cent of people that use computers today were not using one in 1980. The new customers don't know about the old rules, the old understandings, the old ways of doing business--and, more important, they don't care.

To get closer to the customer, we've sent Unitel executives right to the front line. One executive, who is in charge of our long-distance team, spent a day answering calls in our marketing centre. Other executives spent time on the road with our technicians, visiting customers, getting first-hand information about their needs.

A similar program is underway at McDonald's, called Founder's Day. On that day the company closes down its offices and everybody goes to serve customers in honour of Ray Kroc, the founder of McDonald's.

For the same reasons, businesses are turning their org charts 180 degrees, with the customer on the top. The empowered customer is reshaping today's corporation. The process is often painful. Managers, especially the traditional middle-level managers--find it impossible to change from the hierarchical to a team-oriented, flexible and responsive structure.

The problems with adjusting to the new reality often go deeper than middle management. The Western culture has glorified individual contribution. We are more susceptible to looking for and rewarding a hero than a team.

Many times we learn the hard way. When Marlboro put up its well-known billboard with a lonely cowboy in Hong Kong, the advertising campaign backfired. Why? Because nobody could understand what this lonely guy was doing up there by himself in a culture that valued collective achievement.

Today, we are focusing to a much greater degree on team rewards because it makes our company far more effective in introducing new services faster than the telephone companies.

The manager as a lonesome cowboy is a dying breed. We found out that the empowered employee is more effective, more productive and more reliable than the old-fashioned clock-punching employee supervised every step of the way. In fact, only the empowered employee can respond to the empowered customer and create value for both.

The influence of the empowered customer goes beyond reshaping our businesses. Empowered consumers drove the change over to more environmentally friendly products and processes. But let's take another example close to where I live.

I credit customers--business and residential--for winning the battle for competition in long-distance. Organizations that you may not expect to be on the same side of any issue--such as the Consumer Association of Canada, the Canadian Federation of Independent Business, CBTA and many others--went to considerable effort and expense to organize, hire lawyers and economists, and attend regional CRTC hearings and the central hearing in Hull to tell our policy makers that monopolies are no longer in their interest.

This may have been the first time in this country when the empowered customer won a decisive victory, defeating monopolies by changing the policy. So long-distance competition is further proof of just how much clout empowered customers really have.

Ladies and gentlemen, the new customer revolution has been in the making for years. The revolution shifted our focus from marketshare to customer, from rigid, hierarchical structures to a flexible and more human workplace. Those businesses that listen to their customers and act in the customers' interests are going to win.

There is no more powerful combination than the empowered customer served by the empowered employee. In fact, you will find it extremely difficult to capture that empowered customer's business without empowering your employees. Thank you.

The appreciation of the meeting was expressed by Douglas Todgham, President and CEO, icomm, and a Director, The Empire Club of Canada.