Effect of Customer-Centric Structure on Long-Term Financial Performance

Firms with a customer-centric structure-an organizational design that aligns each business unit with a distinct customer group-are expected to exhibit superior performance compared to firms that are internally structured. Top executives invoke these customer-centric beliefs when initiating corporate reorganizations. However, a lack of empirical evidence linking these customer-centric structures to better long-term financial performance raises doubts if corporate structure can truly foster customer centricity and better position a firm to satisfy customers and hence exhibit superior performance. The current research addresses this question by using longitudinal data 1998-2010 that links Fortune 500 firms' corporate-level structure to performance. Utilizing a dueling mediator model with allowance for endogeneity in a firm's organizational structure choice, the study reveals that a corporate-level customer-centric structure translates to greater customer satisfaction, but simultaneously adds coordinating costs. Further explaining customer-centric structure's record of mixed success, the benefits of increased customer satisfaction diminish 1 as competitors have already adopted customer-centric structures, 2 in fragmented markets where competitors leave few unique customer needs unaddressed, and 3 in less profitable industries. Ultimately, we show that aligning corporate structure around customers pays off only in specific competitive environments. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mksc.2014.0878 .

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