The Promise Keepers

As Amazon.com is learning, customer centricity and profitability may be competing objectives
 

Congratulations: You've spent the last year rewiring your information infrastructure to support front-office business processes that make meeting customer needs the highest priority.

Your organization is now customer-centric, customer-focused, and customer-driven. You know what they want, when they want it, and why.

That's a great start. Now, are you sure your back-office operations can align with these new goals without turning your revenue stream into a dry creek bed?

Evidence suggests that many companies may be indifferent to the issue. InformationWeek (like this publication, an arm of CMP Media LLC) has released its Global IT Strategies 2001 report, and the news is only half good.

In that survey of 894 IT and business professionals from organizations of every size across the globe, 70 percent of participants say their organizations will implement software to improve customer service and support, and half will deploy customer intelligence systems of some kind in order to "better understand" their customers.

A new study commissioned by Gartner Inc. and the Association for Information and Image Management International echoes the same trend; it tells us that customer relationship management (CRM) software - albeit a highly elastic category - is now the fastest-growing segment of the enterprise applications market.

However, less than a third of the InformationWeek participants report that improvements to supply chain performance are currently underway, and just under 40 percent consider integrating electronic business operations with back-office or legacy systems among their "most strategic" IT projects.

From this data, one could infer that many companies are rushing headlong into CRM initiatives without a clear understanding of their impact on operations. Or, to put it another way, they may be eager to make promises they can't keep.

Amazon Exploration

As always, Amazon.com is the ideal example. The company has been around so long in e-business "dog years" that it may, in fact, be the only example.

In its new crusade for profitability, the company has hired Russell Allgor, a former Bayer Chemical efficiency and logistics expert with a doctorate from MIT, to analyze how it does business. According to The New York Times (May 20, 2001), Allgor has created an 800,000-equation model of Amazon.com's supply network for the express purpose of making inventory management and fulfillment not only customer-centric, but financially feasible.

In the wake of this self-analysis, Amazon.com has discovered not only that many of its products are unprofitable, but that outsourcing fulfillment to distributors - a cardinal sin in the Amazon business model - may make more sense than its current policy of strictly internal inventory management. That proposal could make one of the company's core customer-focused principals, 24-hour delivery, a charming historical artifact in many cases.

Even Amazon, the consummate customer-driven business, is learning (finally) that there is no such thing as a free lunch. If we are to learn from its example, then we have to accept the premise that customer centricity and operational efficiency may be competing objectives that can coexist only in careful balance.

Reorienting business processes around customer needs is a worthy and important goal. But unless you properly rationalize them with back-office operations, it is an empty one.

Out There

The InformationWeek study brings other interesting news to light: