What is in this article?:
- The Perils of Vertical Thinking
- How Asics Reconfigured Services
A fit organization focuses horizontally, toward the customer, resulting in higher quality, better service, faster response and happier customers.
Different goals necessitate different training regimens. Running the Boston Marathon requires stamina and lower body muscular endurance, whereas doing a 5K race places a greater premium on speed and cardiovascular capacity. And of course, any sort of running event requires a completely different kind of fitness than a tennis match.
However, we don’t carry that mindset over to the business world. Irrespective of the industry we’re in, the type of products or services we provide, or the kind of customers we serve, our businesses are organized into pretty much the same kind of functional silos—sales, marketing, finance, product development, customer service, HR, IT, etc.
Of course, there’s nothing inherently wrong with an organization built around functional silos. But that structure does have a real and significant consequence, because the siloed org chart profoundly shapes our thinking. It causes people to think more about what’s best for their department than about what’s best for their customer. Put another way, it makes people think “vertically” instead of “horizontally.”
Just like a fitness program needs to be oriented towards a specific goal—running a marathon, rehabbing a specific injury, playing better tennis—a fit organization orients around the customer and her needs. A fit organization thinks horizontally, not vertically.
The Perils of Vertical Thinking
Service quality suffers in siloed organizations. For example, in most companies, customer service departments are evaluated on call length. Shorter phone calls mean that the company needs fewer people to answer the phones—which means lower costs in the department. Other companies outsource customer service to India or some other low-wage country in order to reduce department costs, even if that results in lower levels of service.
Siloed organizations also tend to struggle with internecine battles caused by poorly aligned incentives. For example, one of the core measures of performance in a credit department is the number of “days sales outstanding,” or DSOs. This metric shows how long it takes customers to pay their bills. If the DSOs for a customer get too high, the credit department will put the customer on credit hold and refuse to ship merchandise. From a strictly financial perspective, this makes sense. But different types of customers may have different sales rates. Holding these two types of accounts to the same payment standards will inevitably result in slower sales and a frustrated sales force.
Horizontal orientation enables—even encourages—the company to optimize its activities for the benefit of the customer.
Siloed metrics such as DSOs destroy intra-company teamwork as well. The financial executive is measured and rewarded in part on reducing DSOs, which leads her to tighten credit. By contrast, the sales executive is measured and rewarded on increased sales volume, which leads him to create dating programs that increase the DSOs.
A Better Alternative: Horizontal Thinking
A fit organization focuses horizontally, toward the customer, resulting in higher quality, better service, faster response and happier customers. Going back to the athletic metaphor, this is equivalent to planning a workout regimen with a specific event in mind, rather than focusing on individual muscle groups without consideration for the ultimate training goal. Horizontal orientation enables—even encourages—the company to optimize its activities for the benefit of the customer, and not the department manager or VP.
A company that thinks horizontally considers the types of customers it serves, and breaks them down by their different needs. Each of these customer types has different product and service requirements, which can be best addressed by the creation of separate processes tailored to their needs.
Case Study: Asics
In 1992, Asics, the athletic footwear company, hired me to address a major problem. The U.S. subsidiary of this Japanese firm was on a four-year roll, nearly tripling revenue to $250 million, primarily by increasing volume in large chains like Foot Locker and FootAction. But ominously, sales through the specialty running channel suffered. Asics slipped from the top spot in this channel to No. 3. Although the sales volume from running specialty retailers only accounted for about 5% of the company’s business, these shops were critical to Asics’ brand image.
This distribution channel was abandoning Asics for competitors because the company wasn’t serving their particular needs. Policies, processes, and systems that worked for chains with 1,000 storefronts that ordered 100,000 pairs of shoes at once didn’t work for a single operator that ordered 72 pairs at a time.
Small Guys Have Special Needs
Big chain stores are sophisticated operations that manage their cash and inventory professionally. Foot Locker, for example, places all their orders before the season starts, schedules delivery throughout the season to refill their stocks, and strategically holds extra inventory at their distribution centers as needed. They pay their bills on time, and when they have a problem, their sales clout gets them fast attention.
Small running shops are entirely different. They don’t have the sophistication or the cash flow to purchase enough inventory, and they don’t pay their bills very well. As a result, they rely on vendors to carry enough inventory to “fill-in” their stock with overnight shipments, and hope they’re not on credit hold at that time.
In 1992, the Asics' vertically oriented organization was terrific at meeting the needs of large chains, and terrible at meeting the needs of the small guys—and that’s why the running shops fled to Saucony and Brooks. Those smaller competitors had less business with the giant chains, and could—or at least chose to—pay more attention to the running shops.
For Asics to address the unique needs of the running specialty shop, virtually every department in the company had to reconsider the way it operated and the way it measured performance. They needed to orient their service around these accounts.