This is the second of four installments of our conversation with Thales S. Teixeira, Lumry Family Associate Professor at Harvard Business School. Readers can find information on his book at

To read Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part IV, click here.
To read Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part III, click here.
To read Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part I, click here.

To listen to [Podcast] Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part IV, click here.

To listen to [Podcast] Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part II, click here.

When you talk to brands, do you think that brands and marketers are looking to create more customer-centric approaches, or do you think it’s only the startups that have that?
Major brands have a desire to be customer-centric, and in many cases, they do certain activities that go in that light. My bigger point is that, when you look at it at the end of the day, for a company to be customer-centric, their managers, their decision makers have to be customer-centric. When you see what they’re trying to do, they’re very focused on their jobs. They’re very focused on budget, and they’re very focused on where they should spend their budget or their money that will have a quick impact on the business.
That is not being fully customer-centric in the sense that I’m not trying to take the customer as the most important element of the decision-making and then backing out of what I should do as a function of that. They are very firm-centric. Most companies, by the nature of how they’re built, how they’re structured, they’re firm centric. They’re centric in making the best decisions for themselves.
What about agency conflict that you learned about in business school?
The agency conflict is another layer, in which the managers aren’t even trying to benefit their companies. They’re trying to benefit themselves. There are these three layers in that regard, so good point on that.
Now, how to be more customer centric—that is a very big question. My view is that you have to make, number one, the employees customer-centric. Businesses aren’t customer-centric. People are. So, you need to get people to become customer-centric, and it requires trading processes in the beginning to change the way things are done.
For example, Intuit has a very interesting process, which they call “Follow Me Home.” Basically, they have their employees routinely go to people’s homes to see how people buy their software and use their software, complain about it, all these things just while observing businesses.
It’s very hard for you to be customer-centric, if you’re not close to the customer. In the past 30 or 40 years, many manufacturers have been very far removed from their consumers and their customers. Where they use, they buy, they dispose of the products. If you’re an auto manufacturer, you say you know customers, but you don’t really know them in-depth enough to understand, “Why did they buy my car as opposed to somebody else’s car?” You can’t just ask these things. You have to observe people.
There are many, many layers between the auto manufacturer and the distributor and the retailer and the supplier and all of these things, until you reach the consumer to really understand them better. What I’m observing is more companies are going direct to consumers partially as a means to understand their customers better to make more customer-centric decisions. 
Do you mean they’re using direct engagement? Can you look at how they respond to offers and how they engage the brand?
Even more deeply. You can get intuition on what customers like and don’t like and how they make decisions. Getting intuition is very important. It’s very hard to get intuition on customer’s priorities by reading an analyst report or reading the results of a survey that a company that you hired, hired another company that hired a local company to execute.
Just doing focus groups and consumer surveys in my experience has three to four companies involved in the process. Each one making slight variations in decisions of what to ask customers, how to ask it, and by the time it reaches the manager, they’re very, very far removed from customers. 
So how do you fix it? How should brands change customer engagement? Or should they just punt? Is it over?
No, no, it’s definitely over. These companies have been successful for decades, because they have the ability to find a large group of customers and create an offering that created huge markets for them. Department stores did that. Auto manufacturers did that. Telecom operators did that.
Creating infrastructure no longer benefits that. When Blockbuster had about 900 stores and consumers wanted more convenience, they weren’t able to say, “Okay, now we’re going to send DVDs by mail” because they had built so many stores. They wanted people to go to their stores. Then a little company called Netflix said, “We’re going to ship the DVDs to your house.” Blockbuster only decided to do that later on.
But the bigger question that you’re asking, “How should companies think about that?” First, companies need to get closer to their customers. One trivial way to do that is selling direct to consumers, because then you eliminate all of those barriers of knowledge which are the retailer, the distributor, the suppliers, all of these things. You go direct to consumer, and your managers get much bigger intuitions.
Nike has gone direct to consumer, and the COO of a major watch manufacturer told me once, “I don’t know why people buy my watches. I really don’t know. I know why the retailers buy my watches, because those are my clients. I don’t know why people choose my watch as opposed to my competitor’s watch.”
In a sense, he was saying basically that he thought he knew all of the information he got was from somebody else, but he didn’t have the strong intuition. Once you go direct to consumer, then you get that intuition. By the way, all the technologies that you talk about—machine learning, AI, AB Test, all these things—those don’t create the solution. They just make a solution become implementable at scale. The startup founders that I’ve talked to have a very strong opinion base of insights and feelings of consumers, and then, they bring in engineers and marketers to make this operationalized in benefits to consumers. There’s no way you can just get the technology to solve your problem of not understanding consumers. 
Brands are looking at technology and trying to look at disruption. What’s working and what’s not working? Is there something they can change from a culture perspective?
I have a strong point of view. I ask executives, “What is disruption in your business?” Many of them, in various different markets, tend to either go with the answer, “This technology is disrupting my business,” or they say, “Facebook, Google, Amazon, or a tech company is disrupting my business or sometimes a startup.”
But when we look in-depth, and when I did the research across many industries and markets, what I found was more often than not—point number one—technology is not disrupting your business. It’s your customer that’s disrupting your business. Your customer is changing their needs and wants. By the way, most of the technologies are standard at the shelf or the other ones are experimental, and they’re not the reason you are losing customers to others.
Point number two is, when executives tell me that startups are disrupting their business, they try to go and buy out that startup. What invariably happens is that another startup comes in its place. It’s like swatting flies. You kill one and another one comes. The reason that happens is because it’s not that startup that is disrupting your business. That startup just found a better business model to cater to customers, and that’s stealing away many consumers from the established business.
The solution, once you realize that it’s not technology but consumers, is basically to go back and understand what your consumers want and that it’s not a startup that disrupts your business, it’s the changing business model. You have to go back and look back at your own business model and adapt your business model.
Let me give you a couple of examples. BestBuy thought a few years ago it was being disrupted by Amazon and many online stores, that people would go to their stores and practice showrooming. Customers would basically figure out what they wanted and pull out their phone and buy it online on Amazon and elsewhere. What BestBuy realized was that wasn’t the case. It wasn’t Amazon. Consumers are just shopping around, and they have a more convenient way to look for prices. So what BestBuy decided to do after many things and failed attempts at trying to block people from showrooming—they even considered jamming the signals in store for mobile, using equipment that you use only in a prison—obviously, that wouldn’t work.
What they came to realize was that people were looking, trial and testing electronics, and that was a huge value-added activity. When people did that, but didn’t buy in the store but bought online, they needed to ask the question, “Okay, who is benefiting from this value? Consumers, shoppers, makers, the manufacturers that didn’t have specific stores?” What BestBuy decided to do was charge the manufacturers every time that people showroomed. If you’re Samsung, and you sell TVs, and I go to a BestBuy store, whether I buy the TV from BestBuy or whether I buy it online at Amazon, Samsung benefits either way. Then, they went to Samsung, and they started charging Samsung for the privilege of putting those TVs in the store.
Now, BestBuy makes much more money out of just showcasing products than actual sales of products itself, just margins of goods sold. That is what I call a changing of the business model to adapt to a changing customer behavior, showrooming, and to the rise of Amazon. Neither of these forces are going to go away, so you have to find sustainable solutions that doesn’t confront or attack either Amazon or customers. 

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