Silos part 2: the importance of connection

Earlier this week, I posted on an article by Ranjay Gulati of Northwestern University in this month's Harvard Business Review, "Silo Busting: How to Execute on the Promise of Customer Focus" (link - $$). Gulati brings up another area in which companies are adjusting to provide solutions that better fit customer needs: increasing connections between companies.

It's an accepted fact that more and more companies are pursuing alliances to extend their capabilities or to shed noncore functions. Gulati reinforces what often gets lost in all the talk about alliances: these moves occur primarily because it helps companies deliver solutions that customers will buy.

Extended capabilities help fill out solutions that would be incomplete with only the company's own products. Outsourcing helps companies reduce their unit costs, thereby enabling more cost-effective solutions, and allows them to focus more investment and management attention on activities that are more central to serving customers (like account management).

Relying more on partners has a downside. A company can become too dependent on partners and suppliers. It can grow competitors by educating other companies about its business. And managing cooperation is more difficult between two different companies with their own strategies and cultures than it is between different departments of the same company.

But the extended firm is here to stay. If you don't think you can manage alliances, you better get some education quick.

(Photo: "Silo2" by saulinis via stock.xchng)

alliances strategy account management solutions Harvard Business Review

For solutions providers, Account Management is king

Every product company wants to sell solutions. Packaging products with useful complementary services can elevate a firm above commodity-provider status and provide more value to customers. Customized solutions also are more difficult for competitors to replace than standalone products.

Moving to a solution focus is not easy to do, of course. Ranjay Gulati of Northwestern University takes up the issue in his article, "Silo Busting: How to Execute on the Promise of Customer Focus" (link - $$), in the May Harvard Business Review. Prof. Gulati focuses on issues that most large product companies face when trying to move to a solution orientation--specifically, that solutions typically span multiple groups (or "silos"). Selling and delivering a coordinated solution requires close cooperation between those groups--an unnatural act in most large companies.

What most struck me was his observation that customers worry because the account managers they are assigned don't have the clout to influence the groups contributing to these integrated solutions. And this worry is not misplaced: my experience with large companies indicates that only very senior people can drive coordination among separate business units that manage their own P&L. Writes Gulati of one company that succeeded in selling solutions across division boundaries:

The account management group was staffed with high-ranking officers who had the authority to negotiate the pricing and delivery of [its] solutions, and the experience to help clients with strategic planning.

Dedicating senior people to a strategic account management role is a large investment for companies. But if you want to move from a product focus to an integrated solution focus, it's one you have to make.

(Photo: "Silo2" by saulinis via stock.xchng)

strategy account management solutions Harvard Business Review