Jensen Homburg Workman JAMS 2000 Fundamental Changes in Marketing Organization

JOURNAL OF THE ACADEMY OF MARKETING SCIENCE FALL 2000Homburg et al. / FUNDAMENTAL CHANGES IN MARKETING ORGANIZATION

Fundamental Changes in MarketingOrganization: The MovementToward a Customer-FocusedOrganizational Structure

Christian HomburgUniversity of Mannheim

John P. Workman, Jr.Creighton University

Ove JensenUniversity of Mannheim

There has been growing interest in the future of marketingand changes in marketing’s organization and role withinthe firm. However, there has not been research that holisti-cally explores key changes in marketing organization. Theauthors draw on qualitative interviews with 50 managersin the United States and Germany and argue that changesin marketing organization that have been discussed inisolation are part of a more general shift toward customer-focused organizational structures. They initially discusstwo specific changes related to the overall shift: changesconcerning primary marketing coordinators and increas-ing dispersion of marketing activities. They then introducethe concept of a customer-focused organizational struc-ture that uses groups of customers as the primary basis forstructuring the organization. They identify typical orga-nizational transitions as firms move toward a customer-focused organizational structure and discuss the chal-lenges firms face in making this transition. They concludewith implications for academic research, managerialpractice, and business school curriculum.

There is growing evidence in the business press that theway firms are organizing their marketing activities is sub-ject to major changes. As an example, many companieshave changed their organizational structures to becomemore responsive to customer needs (George, Freeling, andCourt 1994). In this vein, there have been some voicesquestioning the adequacy of classical organizationalforms in marketing, especially product or brand manage-ment (e.g., “Death of the Brand Manager” 1994; Sheth andSisodia 1995; Thomas 1994). Additionally, as firms focuson reengineering their organizational structure aroundcore processes, the question has been raised whether amarketing department should exist at all in the firm(Hulbert and Pitt 1995; Montgomery and Webster 1997).

There have recently been a number of articles that con-sider innovative ways of organizing marketing activities.Achrol (1991), focusing on the effect of increasing envi-ronmental turbulence on marketing organization, arguesthat a higher level of organizational flexibility is neededand suggests two ideal forms that he refers to as the mar-keting exchange company and the marketing coalitioncompany. Webster (1992) discusses changes in market-ing’s role within the firm and argues that “managing stra-tegic partnerships and positioning the firm between ven-dors and customers in the value chain” (p. 1) will becomethe focus of marketing. Day (1997) claims that “firms will

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increasingly evolve toward a hybrid or hypertext form oforganization—combining the best features of horizontalprocess and vertical functional forms—in order to getcloser to their customers” (p. 93).

While these studies provide important insights, weobserve that this research is primarily conceptual with afocus on innovative ways of organizing but with littleattempt to study the extent to which the changes describedare broad based. Given the interrelated nature of many of thechanges occurring, there is a need for systematic researchlooking at common themes and relationships underlying thechanges in organization. Additionally, prior research hasnot provided propositions that can be tested.

Against this background, our study has five primaryobjectives. First, we seek to identify fundamental changestaking place in marketing organization. Second, weexplore the interrelatedness of these changes in search ofcommon themes underlying the changes. Third, we seek toprovide in-depth description of specific organizationalchanges. Fourth, we seek to understand implementationissues related to the major organizational changes. Arti-cles on changes in marketing organization have notemphasized implementation challenges, and it is impor-tant to realize that each fundamental change in an organi-zation may create additional problems that are new to theorganization. Finally, we aim to develop testable hypothe-ses related to the issues under investigation. Our study isbased on qualitative research across a broad range ofindustries and two countries (United States and Germany).We feel that analyzing different industries and differentcountries is especially important in this context since theyare subject to different environmental demands that mayaffect the way that firms organize their marketing activi-ties (cf. Workman, Homburg, and Gruner 1998).

Our article is organized as follows. In our literaturereview section, we first identify organizational designdimensions and then summarize the key changes in mar-keting organization discussed in recent articles. In the fol-lowing two sections, we describe the methodology of ourstudy and identify two specific changes in marketing orga-nization. We then introduce our holistic theme that a shifttoward customer-focused organizational structures is themajor development underlying the changes we observed.We discuss the nature of this shift and provide a discussionof organizational transitions taking place in this changeprocess. We then discuss challenges firms face in imple-menting customer-focused organizational structures. Weconclude by providing research and managerial implica-tions as well as implications for management education.

LITERATURE REVIEW

In this section, we initially draw on research in organi-zation theory to develop a structured approach for

systematically examining aspects of marketing organiza-tion.1 We then consider some of the more widely discussedchanges taking place in marketing and sales organization.

Dimensions ofOrganizational Design

Following the work of the Aston Group (Blau andSchoenherr 1971; Pugh, Hickson, Hinings, and Turner1968), writers on organizational design (e.g., Galbraith1973; Pfeffer 1978) and marketing organization (Work-man et al. 1998) have described a range of dimensions thatallow comparisons of organizations. Following Scott’s(1992) review of organization theory, we consider struc-ture, coordination, culture, and power as the most impor-tant comparative dimensions. These dimensions are notpart of a single theory of organizational structuring and arenot exhaustive of all possible design decisions. However,we believe that decisions about structure, coordination,culture, and power encompass most of the major decisionsabout how firms organize.

One of the most widely studied organizational vari-ables is that of organizational structure (cf. Pfeffer 1982;Scott 1992). Earlier marketing research on this topic wasdescriptive, focused on the extent to which firms hadadopted or implemented the marketing concept, and con-sidered the types of organizational arrangements used(e.g., Carson 1968; Webster 1981). The earlier work alsotended to focus on the product manager (Ames 1971; Buell1975). There have also been efforts to understand andexplain the extent of involvement and responsibility ofmarketing groups for various marketing activities (Huttand Speh 1984; Piercy 1985; Tull, Cooley, Phillips, andWatkins 1991). More recently, interest has shifted beyondthe boundary of the firm to consider the organization andstructuring of activities in interfirm networks (Achrol1991; Doyle 1995; Webster 1992).

A second fundamental design issue revolves aroundcoordination of activities. Such coordination can beachieved through a range of mechanisms including hierar-chical reporting relationships, information systems,cross-functional teams, matrix structures, and coordinatorpositions (Galbraith 1977; Lawrence and Lorsch 1967;Nadler and Tushman 1988). Within marketing, the productmanager often performs a key role of coordinating activi-ties related to specific products and has been widely stud-ied (see Low and Fullerton 1994 for a list of 31 studies onthe brand management system). There has also beenextensive research on coordination between marketingand R&D during the new product development process(cf. Griffin and Hauser 1996).

A third organizational design issue that has receivedincreased attention since the early 1980s is organizationalculture. Part of the reason for the increased interest wereclaims that successful companies had strong cultures that

460 JOURNAL OF THE ACADEMY OF MARKETING SCIENCE FALL 2000



supported their business mission (Deal and Kennedy1982; Peters and Waterman 1982; Wilkins and Ouchi1983). Deshpandé and Webster (1989) define organiza-tional culture as “the pattern of shared values and beliefsthat help individuals understand organizational function-ing and thus provide them with norms for behavior in theorganization” (p. 4). Within marketing, the majority of theresearch related to organizational culture has focused onmarket orientation, which has been shown to positivelyaffect business performance (Deshpandé, Farley, andWebster 1993; Jaworski and Kohli 1993; Slater and Narver1994).

A fourth aspect of organizational design concerns thedistribution of power and influence within and betweenorganizations (Pfeffer 1981; Piercy 1987). Political theo-ries of organization focus on power, conflict, coalitions,and the dynamic interplay between groups within the orga-nization (Anderson 1982). While most research in market-ing related to the issue of power has studied the constructin a channels (cf. Gaski 1987) or organizational buyingcontext (e.g., Kohli 1989), recent work by Homburg,Workman, and Krohmer (1999) has considered power inthe context of subunits within the organization and hasempirically tested hypotheses that systematically relatemarketing influence to external, internal, and institutionaldeterminants.

The four organizational dimensions above are aspectsof organization design that can be used to compare varia-tions in marketing organization and role across organiza-tional settings. As we will show later, prior research onmarketing organization has tended to focus on individualdimensions in-depth without considering relationshipsamong them. However, our position is that these factorsare related and cannot be studied in isolation.

Changes in Marketing Organization

During the 1990s, there have been a number of articlesthat reflect on the future of marketing and identify signifi-cant changes taking place (e.g., Achrol 1991; Berthon,Hulbert, and Pitt 1997; Cravens 1995; Day 1997; Doyle1995; George et al. 1994; Webster 1992, 1997). In Table 1,we provide summaries of key studies and indicate theorganizational dimensions they have emphasized. In theremainder of this section, we consider key themes thatappear in this work.

The first general theme is that functional boundaries aredeclining and firms are increasingly accomplishing theirwork through cross-functional teams (Achrol 1991; Day1997; George et al. 1994; Montgomery and Webster1997). Achrol (1991) argues that “the firm of the futurewill need to be very permeable across its departments. Itsdepartments and hierarchy will be fuzzily defined, hierar-chy will be minimal and indirect, and individuals will havemuch more autonomy” (p. 80). The rise of teamwork and

decline of functional boundaries has been attributed to theneed to create new knowledge within the firm (Sinkula1994; Slater and Narver 1995), to share information acrossfunctional boundaries (Jaworski and Kohli 1993; Narverand Slater 1990), and to respond more rapidly to changesin the market (Achrol 1997; Griffin 1997).

A second general theme is that relationships and alli-ances with external partners are more important (Achrol1997; Day 1997; Walker 1997). The types of relationshipsinclude vertical relationships through the value chain (e.g.,supplier-manufacturer, manufacturer-retailer) as well asco-marketing and co-branding alliances (e.g., Barclay andSmith 1997; Bucklin and Sengupta 1993). One of the con-sequences of a greater emphasis on external relations formarketing organization is that it is common for people inmore functional areas to interact with external partners.Thus, in many cases marketing is no longer the primaryboundary spanner responsible for interpreting the market(Achrol 1991; Day 1997). While this may lead to a dimin-ished role for marketing (Workman 1993), it often leads toa greater focus on understanding the firm’s core capabili-ties and then strategically aligning the firm in the valuechain (Day 1994; Webster 1992).

A third general theme revolves around the importanceof developing intangible organizational factors such asmarket orientation (Hunt and Morgan 1995), organiza-tional learning (Sinkula 1994; Slater and Narver 1995),and market-sensing capabilities (Day 1994), which mayprovide the basis for a sustainable competitive advantage.Hunt and Morgan (1995) define resources as “the tangibleand intangible entities available to the firm that enable it toproduce efficiently and/or effectively a market offeringthat has value for some market segment or segments” (p. 6).An organizational implication of this focus on intangibleorganizational factors is that structures, coordinationmechanisms, and cultures need to be developed thatencourage flexibility, adaptability, and cross-functionalsharing of information.

While research in this area has been very useful for fos-tering debates about the future of marketing, there are sev-eral ways of extending these studies. First, while market-ing researchers have long argued that firms should getcloser to their customers and be customer oriented, therehas been little inquiry into which organizational dimen-sions companies are changing to be more customer ori-ented.2 Second, to the best of our knowledge, there are noholistic studies on major changes in marketing organiza-tion. Rather, much of this research has focused on specificperspectives (e.g., Achrol’s 1997 network perspective)and organizational dimensions or has advocated a certainorganization form that may be innovative (e.g., Day’s1997 hypertext form) but may not be representative ofwidespread changes. While Workman et al. (1998) pro-vide an integrative framework for thinking about market-ing organization and identify structural and nonstructural

Homburg et al. / FUNDAMENTAL CHANGES IN MARKETING ORGANIZATION 461



organizational dimensions, their research does not directlyaddress the issue of how marketing organization may bechanging. Third, given that all of the prior research ofchanges in marketing organization is conceptual (seeTable 1), there is a need for field research on changes inmarketing organization. Finally, implementation issueshave not been systematically studied. While many of theideas for changing marketing organization are innovative,there is a need to better understand the implementationchallenges firms face.

METHOD

Given our objectives of identifying the main changestaking place in marketing and sales organization and ofidentifying the principal issues in the implementation ofthese changes, we decided to use field interviews that sys-tematically explored major changes in each of a number ofdifferent domains. Qualitative studies have been recog-nized as an appropriate means of knowledge production inthose cases where the subject area is broad and complex(Bonoma 1985; Eisenhardt 1989; Zaltman, LeMasters,and Heffring 1982). We verified the appropriateness ofour qualitative methodology through a thorough reviewof qualitative work in the Journal of Marketing and the

Journal of Marketing Research since 1984. After exclu-sion of studies whose qualitative data were coded andstatistically analyzed (e.g., Anderson and Coughlan 1987;Szymanski and Churchill 1990) and of articles using net-work analysis in single organizations (e.g., Hutt, Reingen,and Ronchetto 1988), we were left with six articles.Among these, our approach comes closest to those ofKohli and Jaworski (1990) and Workman et al. (1998) inthat we do not primarily take an ethnographic (Workman1993) or grounded theory approach (Drumwright 1994,1996; Gilly and Wolfinbarger 1998), but rather seek todevelop a primary organizing theme with supportingpropositions.

Many of the statements about changes in marketingorganization are based on observations in leading-edgecompanies and examples from certain industry sectors thatare not representative of more broad-based changes acrossthe general business community. Therefore, we selectedfirms from a range of industry sectors including serviceand manufacturing firms, with the manufacturing compa-nies encompassing both industrial goods and consumergoods companies.3 We additionally included firms frommore recently deregulated industries such as telecommu-nications and public utilities. Within the firms, we inter-viewed managers in charge of marketing and/or sales toreach someone familiar with major changes occurring in


TABLE 1Research on Changes in Marketing and Sales Organization

OrganizationPrimary Design Basis of

Author(s) Focus Dimensions Support Summary Comments

Achrol 1991 Marketing organizational Structure, Conceptual Argues that “unusual forms of marketing organization (that areforms appropriate for coordination ambidextrous and highly flexible) are needed in complex andturbulent environments dynamic environments.” Describes two such forms.

Berthon, Hulbert, Future of brands and Structure, Conceptual Consider functions brands provide for sellers and buyers; considerand Pitt 1997 brand management coordination pressures for change of brand management; present three

scenarios of future of brand management.Cravens 1995 Changing role of the Structure, Conceptual Argues three major changes are changing selling: flatter organiza-

sales force coordination, with many tions with multifunction teams, market segments as basis forskills examples sales organization, more specialized sales forces.

Day 1997 Marketing’s role in new Structure, Conceptual Considers role of marketing in horizontal, process-orientedorganizational forms coordination structures as well as in hybrid structures that combine business

processes with integrating and specialist functions.Doyle 1995 Considers key tasks of Structure, skills, Conceptual Argues marketing has focused on tactics at the brand level and

marketing in the future career paths with examples does not contribute to fundamental strategic issues within thefirm; explains differing career paths in marketing.

George, Freeling, Changes in how firms Structure, McKinsey Emphasize roles of specialists and coordinators in process-basedand Court 1994 organize for marketing coordination consulting organizations, emphasize teams and process managers, consider

clients changes in roles of product managers in consumer goods firms.Webster 1992 Marketing’s role within Structure, Conceptual Emphasizes changes in marketing’s role as firms move along a

the firm coordination continuum from transaction to network-based relationships.Webster 1997 Future role of marketing Structure, Conceptual Considers strategic, tactical, and cultural aspects of marketing;

within the firm coordination considers changes in marketing organization and role due toincreased customer focus, information technology, globalization,relationships, interfirm networks.



marketing and sales organization. To get additional per-spectives across industry sectors, we interviewed market-ing academics in the United States and Germany familiarwith organizational issues as well as “industry observers”such as management consultants and marketing specialistsfor major business publications. Altogether, the composi-tion of the sample was 30 managers from 30 companies, 12academics,4 and 8 industry observers.

Potential informants were identified from industrydirectories, references, and personal knowledge and werecontacted by an advance letter or fax. Informants statedtheir agreement to participate and their preferred time onan enclosed answer sheet. Fifty telephone interviews(evenly split between the United States and Germany)were arranged and were conducted by the second author inthe United States and by the third author in Germany. Theinterviews averaged 30 minutes in length and were done inthe native language of the informant.

The first part of the interview was semistructuredaround the general organizational design dimensions iden-tified in our literature review (structure, coordination, cul-ture, and power). Within each area, the authors asked forthe most important changes and used follow-up questionsto explore the goals of the change, the factors driving thechange, and the key challenges in implementing thechange. Such use of follow-up questions in qualitativeresearch is consistent with the “laddering approach”(Durgee 1986) and the “narrative approach” (Mishler1986) advocated by other qualitative researchers. In thesecond part of the interviews, we asked about changes infour important topical areas that are classically marketingand sales related: the role of product managers, the man-agement of key accounts, the development of new prod-ucts, and the interaction of the marketing and the salesfunction. At the end of the interview, informants wereasked for additional comments and for an assessment ofwhich two changes they viewed as the most important.Systematic notes were taken during the interviews, andfull transcripts were completed shortly after the interview.

The field research data were then organized in the fol-lowing way. First, the transcript of each interview wasreviewed to identify (a) the most important changes, (b)the primary drivers of the changes, and (c) implementationchallenges for each of the areas covered in the interviews(the four organizational design dimensions and the fourtopical areas mentioned above). Summary statements ofthe key changes were then organized in text files, and keyquotations and examples were stored with these summarystatements to allow for discussion among the authors.

Since the goal of this research was to look for integra-tive themes that could encompass changes that heretoforehave been discussed in isolation, we went through a highlyiterative process to identify such themes. We initially dis-cussed the most frequently mentioned changes withineach of the eight structured areas of the interview and then

narrowed these down to the most broad-based and signifi-cant changes. Informants often used different terminologyfor the same general change, so we identified which indi-vidual changes could be categorized under a more generaltheme. Our initial attempt to develop a holistic frameworkinvolved the identification of five changes we viewed asmost frequently mentioned significant changes and identi-fication of the factors leading to these changes. We thendiscussed the interrelationships among these determinantsand changes to develop a more holistic perspective. Theintegrative theme of movement toward customer-focusedorganizational structures emerged from this analysis andsynthesis of our field data. This iterative analysis of quali-tative data to develop holistic themes is consistent withthat recommended by a number of qualitative researchers(e.g., Belk, Sherry, and Wallendorf 1988; Eisenhardt1989; Hirschman 1986) and utilized by researchers inmarketing (e.g., Drumwright 1994; Workman et al. 1998),consumer research (e.g., Schouten and McAlexander1995), and management contexts (e.g., Hargadon andSutton 1997; Leonard-Barton 1992).

DESCRIPTION OF SPECIFICCHANGES IN MARKETINGORGANIZATION

Changes ConcerningPrimary Marketing Coordinators

To relate changes in coordination roles in marketingand sales, we introduce the concept of a primary marketingcoordinator. We define a primary marketing coordinator asan individual who is the most influential coordinator formarketing and sales activities carried out by different peo-ple or subunits within an organization for a specified set ofproducts or customers.

Changes With Respect toKey Account Managers

One of the more significant organizational changesidentified in our field research is an increasing emphasison key account management and the establishment of cus-tomer segment managers within the sales organization.We define key account management (KAM) as the desig-nation of special personnel and/or performance of specialactivities directed at an organization’s most important cus-tomers. An important implication of the increased impor-tance of KAM is that key account managers and/or cus-tomer segment managers (such as industry segmentmanagers) are increasingly taking on the role of a primarymarketing coordinator.

This increased importance of KAM is reflected by twotrends in relation to personnel working with key accounts.First, we observed that more senior people are assigned to




key accounts. For example, a German steel industry man-ager commented,

Top-level meetings are not new, but they used to bemuch more informal. . . . In the past, one could makedeals on the lower sales levels (“You’ll get somemore tons next time”). This is impossible today aspurchasing policy is subject to much tighter con-trols. . . . Ten years ago, our salespeople had enor-mous hospitality expenses.

Similarly, the automobile industry provides many exam-ples of top managers being involved in procurement nego-tiations, which had previously been conducted on theoperational level.

Second, we observed an increasing assignment ofcross-functional teams to major accounts. For example, aU.S. consumer goods manager noted,

All of our big customers now have a dedicated teamthat includes demand-side sales types as well as sup-ply-side people. They live in the city where the cus-tomer headquarters is. That has been an outgrowthof the acceptance of this is the way you do busi-ness. . . . These teams represent all of our brands.

This is a direct response to the need of multifunctional ex-pertise when collaborating closely with individual cus-tomers. It seems to be a widespread approach to fosterinteraction between equivalent functional specialists in thebuying and selling organizations.

Based on our interviews, we infer that two primary fac-tors are driving the increased importance of KAM. First,many companies are pursuing the goal of developingcloser relationships with their most important customersand view KAM as one way of achieving this goal. Whilethis tendency was actively promoted in some companies, italso represented a reaction to requirements on the part ofcustomers. For example, a U.S. consumer goods consul-tant said,

Starting about 1986 there was a dramatic shift of in-formation being better at the reseller and retailerthan the supplier. That brought about a change in thepower base. . . . The major chains got tired of dealingwith executional, lower level sales people. They gottired of what I call the “Deal of the Month” club,they got tired of conflicting policies from differentoperating divisions in the same corporation. . . . Thishas clearly been driven by retailers saying to suppli-ers, “You better call on me holistically, I’m not goingto spend the time to talk to 3 or 4 divisions.”

Typically, business customers’ emphasis on economiesin purchasing operations led to the desire to establishcloser relationships with a limited number of suppliers tocarry out joint process optimization activities. Between

consumer goods firms and retailing companies, this trendmanifests itself in efficient consumer response (ECR) pro-jects, while between industrial suppliers and buyersjust-in-time (JIT) arrangements may be established. Thecommon trait of these trends is the desire on the part of thecustomer to develop a closer relationship with a supplier tocreate efficiency. This development is paralleled by in-creasing customer concentration and customer power inmany industries.

A second reason for the increased emphasis on KAM isincreased centralization of purchasing decisions. Cus-tomers increasingly coordinate purchasing across loca-tions and involve more senior managers and people frommore functional areas in procurement decisions. It is diffi-cult to be successful in such cases when using geographi-cally based sales personnel who call on local purchasingmanagers. Thus, many firms establish KAM programswith the goal of coordinating sales resources across re-gions, calling on the customer at higher levels, and usingpeople from multiple functional areas. A special case ofthis challenge of coordinating sales efforts across geo-graphical areas occurs when firms sell to customers whooperate on a multinational basis. In this case, there is aneed to coordinate marketing and sales policies acrosscountry boundaries and in particular to coordinate pricingdecisions. International or global KAM teams are one wayin which such coordination is achieved across countries.As an example of this trend, a marketing manager in a Ger-man chemical firm noted,

We need international leverage in the face of interna-tional customers. While our customers made decen-tralized purchasing decisions in the past, they wishto be addressed in a coordinated way today.

Changes With Respectto Country Managers

For firms operating in more than one country, a primarymarketing coordinator has historically been the countrymanager (one informant referred to them as “countrykings”) who coordinates the firms’ activities for customerswithin their geographic region. We observed that their role(particularly country managers in Europe) is generallydiminished, with a shift of power and resources away fromindividual countries to organizational units that span coun-try boundaries.

Changes With Respectto Product Managers

Historically, the product manager has had an importantrole as primary marketing coordinator (cf. Low andFullerton 1994), coordinating the activities of marketing,advertising, sales, R&D, manufacturing, and other func-tional groups in the firm for a given product (or set of re-lated products). In consumer goods firms, we observed atrend of decreasing importance of product management. In




general, there was a shift of people and dollars to the salesorganization. For example, a German academic noted,

The responsibility of the brand manager is more andmore curbed and overlayed by key account manage-ment, category management, and regional salesmanagement. He is not the decathlon athlete of thepast anymore, because he has lost his access to re-tailers and key accounts. Also his influence overbrand policy is limited.

The typical justification for this tendency was the greaterrole of the sales organization in partnering with major ac-counts and adapting programs for these accounts. We addi-tionally observed a shift of focus in product/brandmanagement in many consumer goods companies. Morespecifically, there is a stronger focus on managing a set ofbrands within a product category rather than managing theindividual brand. This development has led to the use ofthe term “category management” in many consumer goodsfirms. The fundamental explanation for this change seemsto be that the customers of consumer goods firms (retail-ers) increasingly think in terms of profitability of productcategories rather than sales of individual brands. The shiftin focus in product management reflects an attempt tobetter think in terms of the categories of the direct custom-ers whose power has increased. This involves a loss of in-fluence of product managers in charge of individualbrands. As one German marketing academic noted,

Companies are increasingly sending employeeswho are supposed to work in marketing later, to theselling front for a number of months. They alsovoice vis-à-vis the universities that they should im-prove the education with respect to selling manage-ment and selling negotiation.

Similarly, a U.S. academic noted that the major con-sumer packaged goods companies recruiting MBAstell them, “You’re going to spend two years on theWal-Mart team or whatever, before you move into cate-gory management.”

While the role of product managers is changing, ourevidence indicates they continue to be central to the mar-keting organization. Thus, in contrast to those who haveproclaimed the “death of the brand manager” (“Death ofthe Brand Manager” 1994), we found no evidence thatproduct management is going to disappear. None of thecompanies interviewed that had established a productmanagement organization had disbanded it, nor did any ofthe interviewed persons predict this. However, we foundthat the importance and roles of product managers variedsignificantly by industry.

In most industrial goods companies, contrary to con-sumer goods firms, product management is gaining in-creasing organizational legitimacy. Historically, a sig-

nificant number of industrial and technology-based firmshad product managers reporting to R&D or operationsrather than marketing. However, most of the industrialfirms we interviewed had product managers established asa central and influential part of the marketing organiza-tion. For example, in one U.S. Fortune 500 computer com-pany, the informant indicated,

In the past, the product manager had responsibilityfor development and manufacturing. Now they havefull P&L responsibility for all of the elements ofbrand value. It is the offering, the terms, fulfillment,support, distribution, and communication.

A related trend within these firms was to give theseproduct managers more power and a greater ability to rep-resent customer needs. For example, a German chemicalindustry manager noted,

The tasks of the product manager have undergonetremendous change during the last five years. Hav-ing been a product administrator in the past, he isnow carrying more holistic responsibility and ismore customer-driven.

In service firms, there is an increased recognition of theimportance of systematic product management. We ob-served that service firms are increasingly introducingproduct managers into their organizational structures tohelp make and implement decisions about customer seg-mentation, development of product lines, branding of ser-vice offerings, and standardization versus customizationof service offerings.

Propositions

To summarize the observations reported above, wehave organized key relational statements as propositionalstatements. Proposition 1 is related to antecedents ofchanges in the relative importance of key account manage-ment, while Proposition 2 consists of organizational con-sequences of an emphasis being placed on KAM.

Proposition 1: The relative importance of key accountmanagement increases

as firms seek to establish closer relationships withtheir customers;

as the extent of coordination of logistics between buy-ers and sellers increases;

as buyers reduce the number of suppliers;as decision making is centralized hierarchically

within customer organizations;as multinational customers centralize purchasing de-

cisions across countries.Proposition 2: As a greater emphasis is placed on key ac-

count management,more senior personnel are assigned to manage key ac-

counts;cross-functional teams are more likely to be used;




the relative power of product managers decreases;people in the sales organization are more likely to be

primary marketing coordinators.

Increasing Dispersionof Marketing Activities

Another significant change in marketing organizationis the increasing dispersion of the marketing effort. OneU.S. consultant generally noted that “more and more of theactual activities that we associate with marketing are notpart of the marketing organizational structure per se.” Toclarify the concept of increased dispersion of marketingactivities, we initially provide an example and then pro-vide a classification scheme for different types of disper-sion. A limited form of dispersion occurs when marketingretains responsibility for an activity but seeks greater in-volvement from other functional groups, often throughcross-functional teams. For example, a marketing man-ager in a German industrial machinery firm said,

We have founded a so-called MTS-circle [marketing-technical-sales] which meets every 2-3 weeks. . . .This is how we manage to have engineers accom-pany sales and marketing people on their customervisits. . . . In the old days, a salesman in the field or-ganization who noticed a customer problem had tolook for someone at the plant who felt responsiblefor that problem. . . . With today’s MTS circles,salespeople know the product better and there areclear responsibilities for problem solving.

We view this as a case of limited dispersion in the sensethat neither personnel nor responsibility are reassigned. Inthe remainder of this section, we describe four types of dis-persion that we encountered in our field research.

Dispersion to a Temporary Team

In this case, there is a transfer of responsibility for anactivity to a temporary team. Such teams are typicallycomposed of members from multiple functional areas andhave a team or project manager. The team is now responsi-ble for the decision with personnel sometimes reporting ina dotted line fashion to the team manager and sometimesbeing fully assigned to the team. Common examples ofthis type of dispersion include new product developmentteams and temporary task forces for issues such as cus-tomer satisfaction.

Dispersion to a Permanent Team

The distinction between this type of dispersion and theformer is the permanence of the change. Many firms in-creasingly think of their business in terms of cross-func-tional business processes (Day 1997; George et al. 1994;Webster 1997). Once firms have identified their key busi-ness processes, there is often a movement of key marketingactivities and personnel to process teams responsible for

activities such as order fulfillment, customer service, andlogistics. As a manager in a German steel companypointed out,

In order to foster communication, we are establish-ing order handling centers, which combine commer-cial and technical activities. Imagine one big roomwhere all are sitting next to one another. This re-duces interfaces.

Dispersion to anExisting Organizational Unit

Another form of dispersion occurs when responsibilityand personnel are transferred from marketing to anotherexisting functional group. Keeping in mind that marketingand sales usually are distinct organizational entities, weobserved the greatest shift in direction of marketing activi-ties has been from marketing to sales. As one U.S. market-ing academic noted,

Activities traditionally done by marketing peopleare getting done now by the sales force or staff peo-ple in the sales force area. They’re just closer to thecustomer.

A marketing vice-president at a U.S. packaged goods firmprovided an example of such a reassignment of marketingpersonnel:

We have marketing and sales people serving on ded-icated, cross-functional teams working in the fieldsupporting accounts. . . . The cross-functional mem-bers of those teams have hard reporting relationshipsinto sales now and dotted-line into the rest of thebusiness.

Dispersion to aNew Organizational Unit

Another form of dispersion occurs when a new unit isestablished with responsibility for a marketing activitythat reports directly to a general manager. This is mostcommonly observed when a marketing activity becomesso strategically important that it merits special attention.For example, in some industries it is common for the pric-ing function to be taken out of the marketing unit (e.g., air-line and telecommunications industries). Other firms havecreated new organizational units to focus on customerinformation, worldwide brand image, and customer ser-vice. In Germany, many firms are establishing a newhigh-level pricing manager to ensure coordination of pric-ing structures across Europe, due to the approaching com-mon currency.

Propositions

There seem to be two general reasons for the increaseddispersion of marketing effort. First, many firms move ac-tivities out of the marketing department to get closer tocustomers and to provide additional value to customers.




One example is by making customer-related business pro-cesses smoother and more responsive to customer needs.A second reason for increased dispersion is to obtain thenecessary specialization and expertise needed to performcertain marketing activities. Based on these and relatedstatements made in our interview, we make the followingpropositions concerning dispersion:

Proposition 3: Dispersion of marketing activities will begreater

in firms that pursue the goal of being close to theircustomers;

as the need for specialized marketing expertise in-creases.

CUSTOMER-FOCUSEDORGANIZATIONAL STRUCTURESAS AN INTEGRATIVE THEME

The Concept of a Customer-Focused Organizational Structure

As we discussed in the methodology section, the inte-grative theme that emerged from our data analysis is theinterpretation that the changes in marketing and salesorganization are interrelated and are embedded in a gen-eral movement toward customer-focused organizationalstructures. The changes in organizational design relate tothe basis on which business units are established. Accord-ing to Cespedes (1989), there are three main bases fordefining strategic business units—product groups, geo-graphical regions, and customer groups. We define a cus-tomer-focused organizational structure as an organiza-tional structure that uses groups of customers related byindustry, application, usage situation, or some othernongeographic similarity as the primary basis for structur-ing the organization. A product-focused organizationalstructure is an organizational structure that uses groups ofrelated products as the primary basis for structuring theorganization. A geographically focused organizationalstructure is an organizational structure that uses geograph-ical territories as the primary basis for structuring the orga-nization. While elements of product groups, customergroups, and geographical location are present in all organi-zations, our definitions aim at the primary organizationalstructuring mechanism.

There is a difference between the idea of a customer-focused organizational structure and the idea of a market-oriented organization. Conceptualizations and operation-alizations of a market orientation have emphasized cul-tural and behavioral aspects rather than structure (Desh-pandé and Farley 1998; Jaworski and Kohli 1993; Narverand Slater 1990). We view a customer-focused organiza-tional structure as an antecedent to and as a facilitator of“market information acquisition and dissemination and

the coordinated creation of customer value” (Narver andSlater 1990:21), that is, market orientation. To clarify thisstructural means of moving closer to customers, considerthe comment of a U.S. chemical manager:

The basic philosophy is to organize around markets,have a lot more focus on what drives markets, whatmarkets need in terms of products and services, andput ourselves in a position so that we can change ourproducts and services so we can change and adaptmore quickly.

While researchers have long argued for making the cus-tomer the focus of the firm’s efforts (e.g., Drucker 1954;Levitt 1960), it was clear from our data that managers arestill in the process of trying to implement organizationalchanges which will increase their focus on customers. Asone informant noted, “More often you are seeing sales or-ganizations organized along industry lines and less by ge-ographies.” Similarly, a U.S. marketing manager at aFortune 500 high-tech firm noted,

Six years ago we had our sales organizations alignedby geography. Today, we have our sales organiza-tion aligned by customer business type—mainlyalong industry lines.

Thus, while the trend is toward customer-focused orga-nizational structures, these two examples indicate thatmany firms have only recently moved in this direction.

5As

a number of researchers have argued, the actual imple-mentation of the marketing concept and the implementa-tion of organizational structures, processes, and systemsthat facilitate a focus on customers are still problematic(Anderson 1982; Bonoma 1985; Cespedes 1995; Webster1981; Workman et al. 1998).

It is important to consider customer-focused organiza-tional structures in the context of competing orientationsfor organizational structure to understand where compa-nies are coming from and not only where they are trying togo. We observed that many firms that traditionally tendedtoward product-focused definitions of business units andthat structured their sales units around geographies (typi-cally regions in the United States or countries in Europe)are redefining their business units from a customer per-spective. While this does not mean completely abandon-ing the traditional orientations, their relative importance isdiminishing. Hence, as shown in Figure 1, the shift towarda customer perspective has two facets: a de-emphasis ofthe product-focused perspective and a de-emphasis ofgeographical regions.

The shift from product-focused to customer-focusedorganizational structures is motivated by the need to comecloser to the problems the customer is trying to solve.Within a product-focused organizational structure, salespeople are essentially product specialists and are typically




assigned to a single product-focused strategic businessunit (SBU) selling to all customers of that SBU. The neworganizational form seeks to enable sales people to betterassess the industry value chain including the customer’scustomers and to differentiate offerings on the basis of thisknowledge. Within such a customer-focused organiza-tional structure, it is common to find the sales force sellingall of the product lines of the firm while being assigned to asingle customer group. A manager in a U.S. telecommuni-cations firm noted,

We have been restructured over the years away fromproduct silos and more toward customers. Sales isorganized by customer and they are able to sell theentire product line of the corporation. . . . We try tosell to the customer whatever they need end to end tomeet their requirements.

Another way of moving toward a more customer-focusedstructure is to add market or customer segment managerswho act in coordinating and liaison roles and represent theneeds of given customer segments, typically within themarketing organization.

The shift from geographically focused to customer-focused organizational structures is the second aspect indi-cated in Figure 1. One way of accomplishing this is to reor-ganize sales people based on the type of customer they sellto rather than their geographic location. As a businessmagazine editor in the United States noted, “Firms don’twant a generalist who will sell to everyone in the New Yorkarea, they want a financial person who will call on DeanWitter, Goldman Sachs, Saloman Brothers.” In an interna-tional context, firms operating in multiple countries havetypically had subsidiaries that were fairly autonomouswith a strong influence of local management. One Germanmanager in the chemical industry noted,

Until recently we left each affiliated company on itsown, they basically reported sales numbers. Now re-gions that face the same problems, are clearlygrouped together.

Another German manager from an industrial supply firmnoted,

Until two years ago, everything was strongly decen-tralized. The national affiliates had their own strat-egy, only 30 percent of the activities were coordi-nated. Today, 70 percent are coordinated.

Increasingly, firms are establishing sales regions thatspan country boundaries. Additionally, many firms are es-tablishing “competency centers,” which consist of special-ists who may be geographically dispersed and specializedin certain types of applications or industry sectors. A U.S.

marketing manager at a computers systems firm men-tioned a specific example of drawing on worldwide techni-cal support:

If somebody at Daimler Benz in Stuttgart needs aguy to talk about plant floor automation, he calls aspecialist to come in and help. All of that is done on aglobal basis. So if that skill is in Boulder, Colorado,he gets it.

Our interviews provide evidence that there are threemajor reasons why firms seek a stronger coordinationacross countries. First, information dissemination acrosscountry boundaries is facilitated by modern communica-tion and information technologies. Generally this in-creases the interdependence of activities across countries.In such circumstances, a firm’s marketing activities inCountry A may have a strong impact on their market posi-tion in Country B. This problem turned out to be most sig-nificant within Europe where price differences acrosscountries have historically been very high in many indus-tries. As one German manager noted, “uncoordinatedprices are a dangerous game” due to the forthcoming intro-duction of a common currency, which will make pricesmore comparable.

6Second, buying firms emphasize syn-

ergies across countries in their procurement operations to astronger extent than in the past. For example, many multi-national firms operating in Europe have adopted organiza-tional structures that span country boundaries rather thanrelying on separate subsidiaries in each country. Sup-plying firms are better able to serve these customers byhaving organizational structures that mirror those of theircustomers. Third, there are also motives of the supplier toemphasize the centralization of decisions across countriesto a larger extent than in the past. Some interviewees men-


FIGURE 1Shift Toward Customer-Focused

Organizational Structures



tioned the desire to control product variety. For example,in consumer goods sectors, firms tend to search for ways tostandardize brands across countries to exploit cost syner-gies. Additionally, speeding up of global new product in-troduction was mentioned as a reason for increasingcentralization across countries and arraying the organiza-tion more toward the customer.

Combining the two facets of the move toward cus-tomer-focused organizational structures yields an impor-tant insight into the question of whether marketing andsales operations will be more centralized or more decen-tralized in the future. Drawing on the work of Jaworski andKohli (1993), we define centralization as “the inverse ofthe amount of delegation of decision-making authoritythroughout an organization and the extent of participationby organizational members in decision making.” On oneside, increasing interdependence between countries leadsto a stronger need for centralization across countries. Onthe other side, to be more customer focused in terms oftheir marketing and sales operations, firms tend to decen-tralize their activities in terms of customer industries.Thus, our findings indicate more centralization acrosscountries and less centralization across customer groups.

Our conclusion is that the movement along the productside is more significant than the move along the geographyside of Figure 1, because it represents a shift in orientationfrom an internal emphasis to an external emphasis (seeDay 1994 for a similar distinction). It additionally appliesto more firms than the geographical shift since many firmsserve a limited geographical region and have not devel-oped geographically differentiated organizational units.Based on the research, we offer the following propositionsconcerning the likelihood of having a customer-focusedorganizational structure.

Proposition 4: The likelihood of a firm or subunit of afirm having a customer-focused organizationalstructure increases

as the emphasis placed on being close to customersincreases;

as customer decision making across geographical re-gions becomes more centralized;

as customers have access to information that allowsproduct feature and price comparisons acrossgeographical regions.

Organizational Transitions

While numerous marketing academics have drawn onthe marketing concept to argue that firms should be morecustomer oriented, market oriented, or market driven(Anderson 1982; Carson 1968; Day 1994; Jaworski andKohli 1993; Narver and Slater 1990; Webster 1992), therehas been relatively little discussion of specific organiza-

tional changes required to achieve this objective and littleresearch on the challenges of implementing these changes.Our field research leads us to conclude that the transitionfrom a product-focused to a customer-focused organiza-tional structure is an evolutionary process. In this section,we provide a more abstract description than we have usedthus far to consider the process of movement toward a cus-tomer-focused organizational structure. In Figure 2, weindicate some of the aspects of the transition from prod-uct-focused SBUs, which typically sell a limited set ofproducts to many different types of customers, to cus-tomer-focused SBUs, which typically sell a broader set ofproducts to a limited set of customers.

In this figure, we have also indicated a number of trendsthat our data analysis indicates is part of the general pro-cess of the shift to customer-focused business units. First,product proliferation has occurred in many firms due to theproduction technologies that allow “mass customization”(Pine, Victor, and Boynton 1993) and due to the greaterability to target smaller customer segments with productfeatures that are more appropriate for their needs. Second,the increased number of products available often results inresellers wanting assistance at the overall category level,not the product level. Thus, firms increasingly have estab-lished managers responsible for entire product categories.Third, there is an increased importance of services indeveloped economies, with many major firms receivingmore profits from services than from products. Fourth,many firms reorganize their sales force around customergroups (often industry based) to develop coherent “solu-tions” out of the products and services from multiple divi-sions. Fifth, following from such an industry segmenta-tion, many firms then assign key account managers to bethe single point of contact with major accounts, selling theentire range of products and services produced by theirfirm. Sixth, the final change indicated in Figure 2 is theresultant shift of marketing resources and personnel fromthe product-focused business units to the customer-focused business units.

To make a transition from a product-focused to a cus-tomer-focused organizational structure, firms typically gothrough a number of major reorganizations. While we didnot explicitly discuss organizational transitions in ourinterview, we observed firms had different types of struc-tures for integrating product and customer perspectives.Figure 3 presents a range of six organizational types rang-ing from a weaker to a stronger degree of customer focus.These six organizational forms are intended not to repre-sent the transitions undergone by any single company, butrather to indicate representative changes from lower tohigher levels of customer-focused organizational forms.The transition from 3(a) to 3(b) represents the creation ofthe multidivisional form, which has been widely discussed




and studied (e.g., Chandler 1962). The transition from 3(b)to 3(c) primarily consists of the addition of “market man-agers” (possibly called application, segment, or industrymanagers) who are introduced to coordinate the marketingactivities in selling to customers in selected markets. OneU.S. bank marketing manager noted, “We have segmentmanagers such as for the affluent segment, for the smallbusiness segment, for retirees.” Such segment managersare distinct from key account managers in that they are typ-ically part of the marketing rather than the sales organiza-tion, usually encompass all sales to the specified segment,and work more in a product or service management rolethan as a coordinator of selling efforts. The organizationalplacement and degree of authority of these managers var-ies significantly, but most act primarily in a coordinat-ing/information role, usually reporting into marketing,with no direct authority over the salespeople calling oncustomers in this market.

The transition from 3(c) to 3(d) represents a major reor-ganization at the firm (or division) level as the sales forcesof multiple product-focused SBUs are combined. This istypically done due to the similarity of selling tasks amongthe SBUs represented, to save on selling costs, and possi-bly due to the desire of customers/resellers to have a single

point of contact. However, one implication is that SBUsare no longer autonomous, since they have lost control ofthe selling function. The next transition, from 3(d) to 3(e),represents a restructuring within the sales organizationaround major markets (e.g., industries, applications)rather than geographic regions. The market managers arenow in the sales rather than the marketing organization,and they typically have hierarchical authority over thesales personnel calling on customers in designated mar-kets. The final transition, from 3(e) to 3(f), is not so much astructural change as it is a change in orientation and inter-nal systems. The managers in charge of the market (or cus-tomer-focused) SBUs now have full profit and loss respon-sibility and typically report at a higher hierarchical level.At this stage, it is common for some of the marketing per-sonnel and budgets in the product-focused SBUs to shift tothe customer-focused SBUs. In some firms, these cus-tomer-focused SBUs are given a high level of autonomyand are allowed to develop their own products and servicesand/or to distribute products and services from externalsuppliers if they cannot obtain the appropriate productsand services from internal units.

It is worth noting that as firms move to higher levels ofcustomer focus, they are also introducing greater


FIGURE 2Evolution From Product-Focused to Customer-Focused Business Units



complexity in their organizational structure. This com-plexity typically shows up with key managers havingeither dotted line reporting to other parts of the firm or dualsolid lines (a matrix reporting relationship) to two parts ofthe firm. In our interviews, we noted that some companiesthat had recently gone through a downturn moved fromhigher to lower levels of customer focus. Given the greatercomplexity of most customer-focused organizationalstructures, this suggests that firms during times of crisis

may establish more simple command structures with aclear emphasis on efficiency.

IMPLEMENTATION ISSUES

In this section, we consider some of the key challengesin implementing the organizational changes identifiedthus far. We start with a consideration of systems.


FIGURE 3Typical Organizational Configurations in the Movement Toward Customer-Focused Business Units



Adaptation of Systems

Information Systems

It was a common theme throughout our interviews thatinformation technology was a key factor that enabledmany of the changes in marketing organization. As oneU.S. manager noted, “You don’t need all these layers andlayers of people dispensing information. Now, everyonecan get information at their fingertips quickly from wher-ever they are on the road.”

One interesting implication of the spread of advancedinformation systems is that coordination and control areincreasingly uncoupled from geographical proximity. Onereason firms historically used product-focused and geo-graphically focused organizational structures was the needto have proximity of people working together. Today,information systems allow more geographically dispersedpeople to be part of the same organizational unit becauseinformation can be easily disseminated via e-mail, shareddatabases, and corporate intranets. In regard to coordina-tion, one sales manager of a German medical equipmentmanufacturer pointed out that “team selling becomes pos-sible through new technologies which allow permanentreachability, such as through modem-equipped laptopsand cellular phones.” The increased centralization acrossregions as in the case of global account management isalso facilitated by the fast access to frontline information.As a German manager in a consumer goods firm noted,“Much more communication is going via e-mail. Thisincreases speed and internationalization.”

The key challenges we heard regarding implementationof the new systems were not so much ones of technology,but rather ones of social acceptance of the new ways ofworking. First, information technology changes what peo-ple do and the way activities are done and there is oftenresistance to this changed nature of the work. Second, tothe extent that information systems allow more dispersedgroups of people to work together, people may lose thesocial contact with coworkers, may feel more isolated, andmay resist changes in this regard. Third, firms oftenencounter significant internal resistance when attemptingto fill their internal systems with useful information.Salespeople are often reluctant to surrender informationabout customers because knowledge of their customerbase constitutes a primary source of their power. One man-ager commented that sales representatives in one countrywho were asked to provide information on a key account’slocal operations to a centralized information system onthis key account resisted this request. In this case, it is notonly giving up the information but also giving it up to peo-ple in another country.

Accounting Systems

As firms make a transition to customer-focused organi-zational structures, there is a challenge in adapting their

accounting systems. Accounting systems typically areable to track profitability of products but not of individualcustomers or customer groups (Montgomery and Webster1997). As one U.S. academic noted,

Most companies don’t know the profitability of indi-vidual customers, because of fundamental weak-nesses in their management accounting systems . . .and they don’t know the cost to serve various marketsegments. So they know they have a lot of businesswhich is unprofitable, but they don’t know how un-profitable it is.

Tracking profitability of customer groups is difficultbecause firms typically allocate costs to product categoriesand to functional activities rather than to customer seg-ments. Additionally, there are typically no systems forsynthesizing the sales to a specific key account on a world-wide basis (McDonald, Millman, and Rogers 1997). Theproblem this introduces to the organization is that oncebusiness units are defined according to customer seg-ments, it becomes difficult, if not impossible, to track theirprofitability. While some of the interviewees mentionedactivity-based costing (Cooper and Kaplan 1992) as an in-strument to make accounting systems more customer fo-cused, the general feeling was that the ongoing use of suchcomplex accounting tools is too demanding in terms ofmanpower.

Reward Systems

The lack of customer focus in accounting systemsdirectly translates into a problem of reward systems. Sincemost firms’ accounting systems do not allow tracking ofprofitability by customers or industry segments, profit-ability-based reward systems are difficult for many firmsto implement as they move to customer-focused businessunits. This is a problem at the business unit level as well asat the level of the key account manager.

A second issue mentioned by several people is that it isdifficult to measure the performance of key account man-agers, even if profitability systems are in place. As oneU.S. academic noted, “How do you measure the perfor-mance of a key account manager when he has to rely on somany other people?” A number of people pointed out thattraditional incentives were primarily individually orientedand with the increased use of teamwork, there is a greaterneed for team-based incentives.

Propositions

We offer the following propositions concerning the ef-fectiveness of a customer-focused organizational structure:

Proposition 5: The effectiveness of a customer-focusedorganizational structure increases

as more attention is placed on the social rather than thetechnical issues in the implementation of infor-mation systems;




as the accuracy of revenue and cost allocations to cus-tomer-focused business units increases;

when managers of customer-focused business unitsare rewarded based on profitability of the set ofcustomers for which they are responsible;

as a greater emphasis is placed on team-based incen-tives.

Changes in HumanResources Management

Individual Skills

The movement toward customer-focused organiza-tional structures also leads to challenges in developing theappropriate skills in sales and marketing. Managinglong-term relationships with major customer accounts re-quires skills well beyond personal selling and negotiationskills. When working more closely with a limited numberof accounts, sales people need an understanding of the en-tire industry value chain to best match a firm’s productsand services to their customers’ operations. As one U.S.consultant noted,

Companies are very concerned about managementof their working capital. As a result, the way theythink about terms and conditions with their supplierschanges. Financial terms and conditions, logisticalarrangements, setting up EDI arrangements, all ofthis becomes more important. Therefore, the peoplewho do key account management increasingly haveto have expertise in those areas.

Additionally, an increasing number of key accountmanagers are responsible for costs in serving the accountas well as the revenues generated. This leads to a need forskills in understanding the financial impact of various de-cisions and understanding how to provide value to custom-ers. As a number of people noted, the skills are more thoseof a general manager than a typical sales manager.

Another change in skills mentioned by several manag-ers was the need for championing and leadership behav-iors among key personnel in both sales and productmanagement. This results from the greater emphasis oncross-functional teams and horizontal business processes,which means there is more ambiguity in organizations andmore voices being put forth of what to do. Key accountmanagers are increasingly likely to be the point of contactbetween the supplier and the customer, yet not to have con-trol over all of the resources needed to be successful in thataccount. A U.S. manager in an industrial firm noted,

The salesperson who previously managed a $20 mil-lion territory with 10 accounts now is managing a$30 million territory with one or two accounts. Theyneed to be able to come back inside the organizationand effectively marshal the resources and gain the

support to meet that customer’s requirements. Be-cause that customer that you are doing $10 or $15million with has naturally a much higher expecta-tion for what you are going to do for him.

While this situation of “responsibility without author-ity” is well-known to product managers (Buell 1975; Lowand Fullerton 1994), it has historically not been as com-mon within sales. This greater ambiguity, greater use ofteams, and greater emphasis on horizontal business pro-cesses produces a greater need for teamwork skills, morebreadth of experience, greater empathy for goals and con-straints of people in other functional areas, and more flexi-bility in being able to respond quickly to changingbusiness conditions.

Recruiting, Training, and Career Paths

Given the increased emphasis on cross-functionalteams, many firms recruit individuals who have a varietyof career experiences and have demonstrated they can ef-fectively work in teams. For example, a U.S. consumermarketing vice-president noted,

From a skills standpoint, we are almost demandingnow that people move between functions. Becausein this kind of environment, you have to have moreexperience than just your own. For that reason, whenwe recruit, we are actively looking for people whohave had a real broad background.

In regard to career paths, we heard a number of com-ments that vertical career paths within either marketing orsales are less common than in the past. Rather, a number ofpeople said that people need experience in a number offunctional areas to advance to general management. Forexample, one U.S. consumer goods manager noted,

There is a tremendous amount of movement be-tween marketing and sales. People are movingaround more so that by the time they become a gen-eral manager they’ve actually sat in many otherplaces and have a much broader experience basethan someone who goes straight up.

In consumer firms, brand managers are increasingly re-quired to work in the sales organization to be promoted.On the sales side, there is, on one hand, more specializa-tion to deal with specialists in the customer accounts, butalso a recognition that effective account managers needexperience in areas outside of sales to effectively providean integrated view of the firm’s products and services.

Propositions

We offer the following propositions relating humanresource management to the effectiveness of a customer-focused organizational structure:




Proposition 6: The effectiveness of a customer-focusedorganizational structure increases

as the financial and cost accounting knowledge ofmanagers of customer-focused units increases;

as the understanding of the industry value chain bymanagers of customer-focused units increases;

as the cross-functional experience of managers ofcustomer-focused units increases.

DISCUSSION ANDIMPLICATIONS

While many people over the years have called on orga-nizations to focus more closely on their customers (Carson1968; Drucker 1954; Levitt 1960; Webster 1981), there isrelatively little detailed consideration of the changes instructure, systems, personnel, and incentives required tobe customer oriented. One of the contributions of ourresearch is using the theme of customer focus to provide anintegrative perspective through which to view changes thathave often been viewed in isolation from each other. Whileresearch on market orientation has provided scales to mea-sure market orientation (Kohli, Jaworski, and Kumar1993; Narver and Slater 1990) and has identified anteced-ents and consequences of market orientation (Jaworskiand Kohli 1993; Slater and Narver 1994), these studieshave not empirically considered specific organizationalstructures and specific organizational changes that facili-tate a customer orientation. The theme of a movementaway from product-focused and geographically focusedorganizational structures toward customer-focused orga-nizational structures (see Figure 1) helps to provide aholistic way of viewing the changes and identifies compet-ing organizational structures that appear to be less impor-tant than they were in the past. Additionally, by drawingour conclusions based on field research across a range ofindustry groups and across national boundaries (UnitedStates and Germany), we are more confident that the over-all theme of customer-focused organizational structures isnot isolated to specific firms, industries, or countries. Incontrast, many of the conceptual articles on changes inmarketing organization have based their conclusions onrelatively little systematic exploration of marketing in dif-ferent contexts.

A second contribution is that we have gone into muchgreater depth than prior research in describing the processof becoming customer focused and in identifying specificchanges in organizational structure that may be needed toincrease the focus on customers (see Figures 2 and 3).While it is easy to say firms should be more customer ori-ented, there are often very different interpretations of whatit means to be customer oriented and little understandingof the changes in organizational structure that are needed.

A third contribution is an exploration of the implemen-tation challenges firms face as they seek to move toward

customer-focused organizational structures. A number ofmarketing scholars have noted the lack of specific guid-ance on how to implement the marketing concept (Ander-son 1982; Kohli and Jaworski 1990; Webster 1981).Beyond the changes in structure discussed above, we addi-tionally consider adaptation of systems (information,accounting, and reward systems) and changes in humanresources management (skills, recruiting, training, andcareer paths) that support the focus on customers.

A fourth contribution is to identify some of the aspectsof marketing organization that are not changing as much assome people have indicated. Some writers have arguedthat product management is going away (“Death of theBrand Manager” 1994) and that marketing is not a func-tion but rather a mindset (McKenna 1991). In contrast, wefind that the traditional organizational form of productmanagement is remaining in most firms. Also, althoughmany marketing activities are carried out in cross-func-tional process teams, we observed that functional units formarketing and sales activities are not abandoned. Whilethere is some stability in the existence of organizationalpositions, we do claim, however, that country/regionalmanagers and product managers are becoming relativelyless important as coordinators and the market segment/keyaccount managers are becoming relatively more impor-tant. We claim that this is a direct consequence of the shiftfrom product-focused and geographically focused organi-zational structures toward customer-focused organiza-tional structures and a change in the primary marketingcoordinator.

Implications forAcademic Research

Our research suggests several avenues for futureresearch. First, there is a clear need for large-scale empiri-cal research (such as surveys and secondary data analysis)to identify environmental factors affecting adoption ofspecific organizational forms. The propositions developedin this article provide guidance for this type of research.This research should also assess performance outcomes ofvarious organizational structures that would allow norma-tive statements concerning optimal organizational config-urations to be made. Several researchers have providedframeworks that identify organizational and environmen-tal dimensions that can help guide decisions on constructsto include in such empirical research (e.g., Achrol 1992;Workman et al. 1998).

Second, while there has been a lot of empirical researchon product management, the topics of key account man-agement and of the dispersion of marketing activities areclearly underresearched empirically. Sound psychometricscales need to be developed to describe and predict thesechanges. Additionally, there is a need to study the processby which firms move toward customer-focused organi-




zational structures. In Figure 3, we indicate typical organi-zational configurations by which firms seek to coupleproduct and customer perspectives. However, since thisfigure represents an abstraction of a change process thatwe did not explicitly study, it should be viewed as a firststep toward the development of an organizational changemodel.

Third, our research reveals a need for new types ofinterdisciplinary research. Prior interdisciplinary researchin marketing has tended to emphasize the marketing/R&Dand marketing/manufacturing interfaces. The movementtoward customer-focused organizational structuresrequires changes in accounting and information systemsand in human resources management, particularly withregard to implementation issues. Research in servicesmarketing has already emphasized that people throughoutthe organization are critically important in creating posi-tive experiences for customers and have developed con-cepts such as “internal marketing” (Grönroos 1990),which should provide a basis for this new type of interdis-ciplinary research.

Fourth, as firms place greater emphasis on businessprocesses, there is a need to understand how this affectsvarious marketing coordination roles. We have introducedthe concept of a primary marketing coordinator and claimthat primary marketing coordinators increasingly reside inthe sales rather than the marketing organization. There is aneed for additional research on the relationship betweenteam-oriented processes, product manager activities,changes in coordination roles within the firm, and whetherthese team-based designs are more likely to be found insmaller or younger firms.7 An interesting issue for futureresearch is whether these changes are more proactively ini-tiated within the firm or represent reactions to changes inthe environment. It may be that as wholesale and retailchannels consolidate and as the power of customersincreases, firms adopt customer-focused organizationalstructures as a response to customer demands.

Implications forManagerial Practice

A number of managerial implications follow from theideas we have presented in this article. First, to make orga-nizations more customer oriented, we have suggested thatstructural changes are needed. The typical organizationalconfigurations in the shift toward customer-focused busi-ness units presented in Figure 3 can provide ideas for struc-tural changes in the organization.

Second, organizational systems must be changed tofacilitate a focus on customer groups. Accounting andinformation systems must be in place to track revenues andcosts by customer (or by groups of customers), and mana-gerial reward systems need to be adapted to providerewards for managers to be more focused on their

customers. As an example, companies need to consider theincentives they must provide their sales people to fill theirinformation systems with useful information. Thus, whilestructural changes can be made relatively quickly, neces-sary changes in the systems, skills, and culture to support acustomer-focused organizational structure are longer termtasks.

Third, there are a number of human relations issuesrequired to support the transition to a customer-focusedorganizational structure as different types of skills areneeded in many positions. Hence, firms need to adapt theirrecruiting strategies and employee selection criteria, needto reevaluate their training programs, and need to rethinkdesired career paths. Within the product managementarea, there is a need for product managers to be qualified toassume responsibility for a whole category of products. Inthis vein, a stronger strategic orientation needs to be devel-oped in product management. Within the sales organiza-tion, there is a need for key account managers and cus-tomer segment managers who have cross-functionalexperience and approach the selling task from more of abusiness and financial perspective than that used by tradi-tional sales representatives.

Finally, managers must address the issue that somepeople may have skills that are no longer relevant whenfirms move toward a greater customer focus. For example,many European firms have abandoned their geographi-cally based sales structures and no longer have countrymanagers. Senior managers need to actively deal with thequestion of what to do with people whose skills are lessrelevant (“dinosaurs” according to one informant). It isimportant to realize that these people can underminedesired organizational changes since they stand to lose outin the new organization.

Implications forManagement Education

We believe there are a number of far-reaching implica-tions for management education of the shift from product-focused to customer-focused organizational structures. Tobe effective in marketing and sales, students clearly needto have greater teamwork skills and need to be more awareof organizational structures that promote customer orien-tation and allow rapid response to changes in the businessenvironment. Among marketing faculty, we believe thereremains an overemphasis on product management skillsand an underappreciation of the skills needed to be effec-tive in sales positions in customer-focused organizationalstructures. It is becoming increasingly common in con-sumer goods firms to require product managers to rotateout into the field sales organization if they desire toadvance within their organizations. It is time for marketingfaculty to place greater emphasis on the skills needed to beeffective in key account management positions and to




recognize that key account managers have skills more sim-ilar to those of general managers than to those of tradi-tional sales people.

Given the importance of marketing’s cross-functionalinterfaces, one way to help students understand and appre-ciate these interfaces is to have more class sessions taughtjointly by marketing and nonmarketing faculty. We claimthat the financial and accounting skills are particularlyimportant as firms shift toward customer-focused organi-zational structures as innovations are needed in informa-tion, accounting, and reward systems to produce thedesired results. However, two problems arise. First, thetraditional functional paradigms in other business disci-plines often prevent faculty from developing the neededknowledge to effectively teach students how to operate inorganizations with blurred boundaries across functions.Second, traditional ways of allocating courses to academicdepartments make it difficult to encourage and reward fac-ulty who participate in jointly taught classes. Changes inthe internal organization of business school may be neededto facilitate the types of teaching needed to develop tomor-row’s business leaders.

CONCLUSION

In this article, we have reported on key changes occur-ring in selected organizational areas and argued that thereis a fundamental shift taking place toward customer-focused organizational structures. We have identified typi-cal changes firms make as they move toward customer-focused organizational structures (see Figure 3) and haveidentified key implementation challenges these firms face.Changing the organizational structure is not suffi-cient—there is also a need to make changes to informationand accounting systems, to change personnel policies, andto adapt the overall corporate culture in a way that supportsthis transition. These changes cannot be made within mar-keting and sales alone—they require the active participa-tion and support of senior managers in the firm. We believethat those firms that move toward becoming more cus-tomer focused will be those that will lead their industries inthe twenty-first century.

NOTES

1. In this article, we follow the integrative perspective of marketingidentified by Workman, Homburg, and Gruner (1998) and considerchanges occurring in the way organizations organize and perform theirmarketing activities. Integrative studies (e.g., Hutt and Speh 1984; Tull,Cooley, Phillips, and Watkins, 1991) consider both marketing activitiesand functional groups that perform the activities. It is worth emphasizingthat firms tend to split out responsibility for marketing and sales activitiesinto separate organizational units. Therefore, when discussing organiza-tional issues, we refer to “marketing and sales organization” since it is

common to observe separate units performing the marketing activitiesand the sales activities (Cespedes 1995; Workman et al. 1998).

2. Our article is based on the implicit assumption that a customer-fo-cused organization structure moves the firm closer to the customer.

3. The industries in Germany included machinery, automotive, chem-ical, steel, industrial supply, consumer goods, electronic instruments,telecommunications, and public utilities. For the U.S. sample, the follow-ing industries were used: computer, office equipment, telecommunica-tions, pharmaceutical, consumer packaged goods, industrial goods, andbanking.

4. The authors thank Gary Armstrong, Michael Hutt, Philip Kotler,Bill Perreault, Frederick Webster, and Bart Weitz in the United States andManfred Bruhn, Hermann Diller, Hans Georg Gemünden, RichardKöhler, Heribert Meffert, and Günter Müller-Stewens in Germany forproviding their perspectives on key changes in various dimensions ofmarketing organization.

5. A quantitative study that we undertook following the qualitativefield research reported in this article has confirmed our observation thatmany companies have not made the transition to a customer-focused or-ganizational structure. Asked for the main criterion based on which theymainly define business units, 44 percent of the 385 firms in our sample in-dicated product-focused, 31 percent indicated customer-focused, and 25percent indicated geographically focused.

6. The Euro was introduced as a common currency in January 1999.The German interviews took place in early 1998 and thus the commoncurrency was “forthcoming” at the time of the interview.

7. We are indebted to one of the reviewers for suggesting this possiblelink between firm size and age and the use of team processes.

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ABOUT THE AUTHORS

Christian Homburg is a professor of business administrationand marketing and Chair of the Marketing Department at the Uni-versity of Mannheim in Germany. He received his Ph.D. andmaster’s degrees from the University of Karlsruhe and earned hishabilitation at the University of Mainz. His research interests in-clude organizational issues in marketing, customer orientation,industrial marketing, and relationship marketing. Dr. Homburghas consulted and delivered executive education programs formore than one hundred companies, including Daimler-Benz,Siemens, Deutsche Bank, Hoechst, RWE, Thyssen, Krupp-Hoesch and Sodexho.

John P. Workman, Jr. is an associate professor of marketing atCreighton University in Omaha, Nebraska. Dr. Workman con-ducts research on the organization and role of marketing withinthe firm, on new product development in high-tech firms, andmore recently on organizational issues for e-commerce initia-tives. His research uses concepts from organization theory, strat-egy, and sociology to examine the interactions between market-ing and other groups in the firm. Dr. Workman has a B.S. fromN.C. State University, an M.B.A. from the University of Virginia,and a Ph.D. from M.I.T. He has consulted for a number of organi-zations on the topics of e-commerce and marketing organization.

Ove Jensen is a Ph.D. student studying under Professor Hom-burg at the University of Mannheim. He received his master’s de-gree from the WHU Koblenz. He conducts research on salesmanagement, organizational issues in marketing, and incentivesystems. He has extensive consulting experience in the areas ofmarket-focused management and sales management.




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