Customer Intimacy, Meet Operational Excellence

Brad Power

What is more important to company success, a strong external focus on customer experiences or an
internal focus on effective and efficient operations?
Of course, its a false dichotomy you need both. I described in an earlier post how Tesco worked for
years to improve its supply chain capabilities, then leveraged this value by using deeper customer
knowledge to enrich customer experiences. But lets flip the paradigm. Some organizations which have
competed successfully for decades by focusing primarily on creating unique solutions for each customer
are now embracing operational excellence to drive even more customer value.
For example, catalog and online retailers like L.L. Bean have had lots of information about customers for
many years that they have used to tailor offerings and services. As they have grown their ability to analyze
ever more data about their customers, they have found new ways to provide uniquely tailored catalogs
and offers, increasingly online. But while such customized services used to be enough to compete
effectively, these retailers are now finding they need to improve their operational reliability too.
L.L. Bean is embarking on a major investment in its systems infrastructure. Terry Sutton, vice president of
business transformation, told me that The systems were implementing are about operational excellence.
As a direct marketer we have been good at customer intimacy. We know a lot about our customers. But
our new system infrastructure investments are about running better. We have known for a long time that
we needed to be operationally excellent, but in the past weve fixed problems reactively, after the event, to
keep customers happy. Weve survived through heroics.
While retailers and consumer packaged goods companies are leaders in understanding and serving their
customer uniquely, no industry is closer to its customers than healthcare. Doctors are driven to
understand each patient deeply and to deliver a unique solution tailored to the patients specific needs.
And new tools are emerging to push the frontiers of personalized medicine. Gene sequencing, wireless
physiological sensors, and digital anatomical imaging are creating more granular patient profiling and
tailored treatments. For example, gene sequencing is enabling better prediction of disease susceptibility
and drug reactions. By sequencing the tumor DNA of cancer patients, doctors are able to tailor treatments
only to patients who will benefit. And all the data is being captured in patients electronic health records,
allowing more coordinated and customized care.
At the same time, many healthcare organizations have been working hard to complement their historic
strengths in delivering unique solutions for each patient with an added focus on operational excellence.
Patient safety is one motivation. The landmark report by the Institute of Medicine, To Err is Human,
Building a Safer Health System, chronicled the unexpectedly high incidence of medical errors. Many
hospitals began pursuing the triple aim: better patient experiences, consistent quality, and lower costs.

Hospitals such as Virginia Mason and ThedaCare adopted process improvement systems from
manufacturing (Lean and the Toyota Production System) to deliver increased consistency, reliability,
and quality. While skeptics are right when they say, Patients are not cars, the reality is that medical care
is, in fact, delivered through extraordinarily complex organizations, with thousands of interacting
processes, much like a factory.
Consider ThedaCare, a health delivery system with five hospitals, 26 clinics, and over 6,000 employees,
based in northeast Wisconsin. Like many healthcare institutions, Thedacare was good at diagnosing and
delivering unique solutions to each patient. But in 2003 ThedaCare leaders decided to focus on designing
processes that consistently work better, reduce waste, and enable staff to better meet the needs of
patients. To learn more about how to approach process improvement, their leaders consulted with a
nearby Wisconsin-based business, Ariens Outdoor Power Equipment Company, which had successfully
employed Lean management for several years. ThedaCare built its version of the Toyota Production
System, which it calls the ThedaCare Improvement System. Leaders engage staff in intensive week-long
process improvement efforts. There are typically five of these projects running every week. The projects
have improved clinical performance, including lowering the incidence of preterm births, improving heart
attack response rates, offering same-day appointments in every office and clinic, and changing the way
care is delivered to a collaborative, team-based approach. ThedaCare employees have increased
productivity 12 percent since January 2006, saving the company more than $27 million. They have
passed those savings along to patients and insurers. With a price increase rate that is half that of their
nearest competitors, their costs are consistently the lowest in the state.
L.L.Bean and ThedaCare show that organizations that have historically competed on customer
intimacy can simultaneously strive for operational excellence. But it isnt easy. Autonomy to make
customer-specific decisions seems to be in conflict with the use of standards, which are essential to
delivering consistency, reliability, and low cost. In another post, I described how the Cleveland Clinic
standardized an approach for patient web searches, so they were able to scale easily to over 100 unique
patient pathways.
The art is in finding ways to optimize these apparent opposites simultaneously: introducing standard
operational work wherever possible, while continuing to get better and better at delivering tailored
customer solutions.

http://blogs.hbr.org/2013/09/customer-intimacy-meet-operati/