Customer intimacy, meet operational excellence

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, it’s 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 let’s 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 we’re 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 we’ve fixed problems reactively, after the event, to keep customers happy. We’ve 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 patient’s 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 isn’t 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.

This article first appeared on the Harvard Business Review and has been lightly edited.