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 .