Contact: Nigel Holloway
Economist Intelligence Unit
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NEW GLOBAL STUDY FINDS COMPANIES STRUGGLE TO UNDERSTAND CUSTOMER NEEDS, HAMPERING ORGANIC GROWTH

Marakon Survey of 200 Executives Reveals Lack of Insight Into What Customers Really Want

NEW YORK, Nov. 17, 2004 – Despite spending nearly $20 billion annually on market research,¹ companies report a huge capability gap in understanding customer needs, according to a new survey conducted by the Economist Intelligence Unit (EIU) on behalf of management consulting firm Marakon Associates. This gap helps explain why many companies are finding it difficult to generate above-average rates of "organic growth" (growth from existing lines of business) versus growth through acquisitions.

Two-thirds of executives surveyed agreed that "having the right information and insights to tell us what customers/consumers really want" is very important. Yet only 16% rated their companies as doing a top-notch job of it. The 50-percentage-point gap is particularly notable in light of the efforts companies have made to get close to customers.

Over the past two years, for example, 87% of respondents said they had improved their ability to spot emerging consumer trends; 56% said they had invested in customer relationship management (CRM) technology; and 49% said they had conducted large-scale segmentation studies.

"Clearly, these efforts have not paid off for many companies," explained David Meer, a New York-based partner and head of Marakon’s customer value group. "Either the research investments have not produced insights that lead to a meaningful advantage over competitors, or the companies are unable to act on the insights collected."

The survey, conducted earlier this year, elicited responses from 201 senior executives and managers across a wide range of industries, geographies and job functions. Large companies (those with sales of $500 million or greater) comprised about 40% of respondents.

Beyond the difficulty of understanding customer needs, companies reported significant capability gaps in attracting and retaining enough creative individuals (46% of respondents) and reacting quickly to changes in the marketplace (45%).

Organizational barriers were highlighted as another big obstacle to generating organic growth. The biggest perceived barrier, cited by 42% of respondents, is under-investment as a result of short-term performance pressures.

Not surprisingly, large companies (sales of $500 million or greater) face a stiffer challenge in achieving organic growth than smaller companies (sales less than $500 million). Consider:

• 28% of large-company respondents reported below-average organic growth (vs. only 12% at smaller companies)

• Only 29% said they were highly confident of achieving growth targets (vs. 40% at smaller companies)

• Significantly more large-company respondents said they felt pressure from the expectations of the financial community (49% vs. 30% at smaller companies)

Despite the difficulties, some companies are doing a better job at achieving organic growth than others. Organic growth leaders (those that reported better internal growth than their peers over the past five years) outperformed competitors by adopting growth-oriented mindsets and behaviors. For example:

• Organic growth was at the top of the agenda for 78% of leaders (vs. 45% at average and below-average performers), and leaders were much more likely to say that growth is always on the agenda

• Leaders said they are more likely to increase R&D investment (73% vs. 55% at average and below-average performers) and are investing in improving their innovation skills (75% vs. 60%)

• Leaders said they are working harder to shorten product development cycle time (69% vs. 55% at average and below-average performers)

As a result, organic growth leaders are less plagued by organizational barriers than their less successful peers.

For a more detailed summary of the survey’s findings, contact David Fondiller at Marakon Associates, 212 377 5016.

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¹Jack Honomichl, founder of Inside Research – a leading market research trade publication – has estimated global market research spend at about $19 billion. See his article, "Despite Acquisitions, Firms’ Revenue Dips," in Marketing News, Aug. 15, 2004.

About Marakon Associates:
Marakon Associates is an international management consulting firm that advises some of the world’s best-known companies on the issues that most drive their performance and long-term value. Regarded as "top-tier" by consulting industry publisher Kennedy Information, Marakon ranked among the world’s 20 largest strategy consulting practices in 2003. The Economist has called it "a consultancy that has advised some of the world’s most consistently successful companies." Marakon has offices in Chicago, London, New York, San Francisco and Singapore. www.marakon.com