Silo Busting: How to Execute on the Promise of Customer Focus by Lance A. Bettencourt and Anthony W. Ulwick
In 2001, under price pressure from the government and managed health care organizations, GE Medical Systems (now GE Healthcare) created a unit, Performance Solutions, to sell consulting services packaged with imaging equipment as integrated solutions. These solutions, priced at a premium, were intended to enhance productivity by, for instance, reducing patient backlogs. At the time, lots of companies were making the move from selling products to selling solutions in an attempt to differentiate themselves in increasingly commoditized markets. GE’s plan seemed to work well at first. The Performance Solutions unit enjoyed strong initial revenues, in part because most new contracts included additional consulting services valued at $25,000 to $50,000. And the unit had some notable successes. It helped Stanford University Medical Center, for example, make the transition to an all-digital imaging environment at its adult hospital, children’s medical center, and an outpatient facility—moves that delivered millions of dollars in new revenues for the medical center and substantial cost savings. But by 2005, the unit’s growth had begun a swift decline. It turned out that equipment salespeople had trouble explaining the value of consulting services, so when they called on customers they couldn’t contribute much to the sale of additional services. What’s more, these reps were reluctant to allow Performance Solutions salespeople to contact their customers. And by marketing the unit’s consulting services with its product portfolio, GE generated solutions that were useful for customers whose problems could clearly be solved using GE’s equipment but less compelling for those whose needs were linked only loosely to the imaging products. In the end, GE refashioned the unit to address customers’ needs in a more comprehensive fashion and to better align the sales organization. For instance, the majority of solutions now focus mainly on consulting services and are no longer marketed only with GE equipment. The solutions group secured new contracts valued at more than $500 million in 2006. But in trying to escape the perils of commoditization, the company initially fell into a classic trap: It was seeking to solve customer problems but was viewing those problems through the lens of its own products, rather than from the customer’s perspective. It was pulling together what it had on offer in the hope that customers would value the whole more than the sum of its parts. Over the past five years, I have studied the challenge of top- and bottom-line growth in the face of commoditization, and I have found that many companies make the same mistake. They profess the importance of shifting from products to solutions—in fact, in a survey of senior executives I conducted a few years ago, more than two-thirds of the respondents cited this shift as a strategic priority in the next decade. But their knowledge and expertise are housed within organizational silos, and they have trouble harnessing their resources across those internal boundaries in a way that customers truly value and are willing to pay for. Some notable exceptions have emerged: companies that, like GE, found ways to transcend those silos in the interest of customer needs. By the late 1990s, for instance, Best Buy had nearly saturated the market with store openings and was facing increased competition not just from other retailers like Wal-Mart but from suppliers such as Dell. It tried to spark growth through various marketing approaches, but the company’s efforts didn’t take off until it launched a major initiative to restructure around customer solutions. Between 2000 and 2005, Best Buy’s stock price grew at an annual rate of almost 30%. Commercial real estate provider Jones Lang LaSalle (JLL), under serious price competition, made a similar strategic shift in 2001, when its large...
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