Forget mergers, gold dust lies in knowing your customers inside out

The merger, investment and acquisition activity now sweeping across the globe may reflect the rapidly changing nature of the big business landscape. But, paradoxically, it will put small and medium enterprises (SMEs) into the driving seat and allow them to strengthen their position with the large manufacturers.

The merger, investment and acquisition activity now sweeping across the globe may reflect the rapidly changing nature of the big business landscape. But, paradoxically, it will put small and medium enterprises (SMEs) into the driving seat and allow them to strengthen their position with the large manufacturers.

This feeding frenzy has been put into focus by the United Nations, which claims that in 1999 the total value of cross-border mergers came to a staggering $1.1 trillion. In Europe, the figure was £275bn - equal to the total amount spent between 1990 and 1998.

The conventional drivers for this convulsive activity remain the same - the need for increased market share, revenues, shareholder value and cost savings. Yet the irony is that, according to analysts, 90 per cent of takeovers fail to yield expected benefits in terms of increased revenue, because so much is spent on just integrating operations.

It is now dawning on many companies that the key to reducing costs and increasing revenues is not by suddenly acquiring a mass of new customers but by understanding their needs.

However, there is one huge stumbling block: many have no idea who their customers really are. One of the big retail banks recently admitted that it was desperately trying to find out which customers had which products. Even prospective customers are not properly understood - think of car adverts where manufacturers just simply brand build and aim at an amorphous mass.

"They are absolutely desperate to understand their customers, absolutely desperate," says Simon Boon, a business intelligence consultant who has spent the past few years advising on customer management strategies.

This desperation is driving firms to improve relationships with small and medium-sized companies in their supply chain, acknowledging that it is they who are closest to the customers and can tell the manufacturers what is needed.

They can also help cut costs in the supply chain by driving out inefficiencies, passing on information about repeat business, referrals and successful promotions. Such information is gold dust for manufacturers allowing them to fine-tune engineering to demand, cut inventory costs and launch tar- geted marketing campaigns.

Historically, with distrust on all sides, there has been scant motivation to share information. But the new approach is evident at car giant Ford. After years of antagonistic and adversarial relationships with dealers it now acknowledges it must embrace change to serve the customers well.

Last year it launched a "consumer connect" division aimed at doing exactly this. It is now running pilot schemes at several dealerships. Under review is the overhauling of the cost model - where a Ford dealer will be rewarded for previous intangibles such as customer service and successful promotions.

Ford is also looking at sharing the risks inherent in running a dealership by stumping up a sum for inventory and property management.

This customer-focused wave has certainly woken up the manufacturers. Those who cannot dump their intermediaries now realise they can no longer treat them with impunity. And many forward- thinking SMEs now will be looking at the customer data they hold as currency that manufacturers desperately need.