Value Creation Major Actions

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Any business, big or small, succeeds originally due to the fact it delivers a product or service to the market for which a number of persons in the market are willing to pay.
Either by deliberate planning or chance or a combination of these, the business offering has value for a group of consumers interested in what was being offered.
After the early introduction, when the newness of the product or service is no longer a basis of value and the innovator customers have gone away, the real work of producing new value differentiation starts. Offerings now have to offer a new value for customers, value that is higher to the customer value commitment provided by competitors; and you should continuously generate and deliver the value promised.

Value Creation Five Actions
Customer relationship can get highly damaged when the sales organization sign a deal with a national account to install systems nationwide. Then, after the contract has been signed, the company discovers that it can’t make and deliver the equipment, there aren’t enough technicians to install the equipment, and accounting doesn’t have the hardware or the personnel to add the new accounts for billing needs. Understanding and committing to the customer have minor importance if you’re not able to develop the value the customer expects to receive.

Value Creation includes five major actions:
1. Build customer value commitment culture. The customer value commitment has to be a lot more than a slogan; it has to be predicted, normative behavior throughout the organization, a commitment that the workforce is empowered to implement. Every customer touch point is an chance to create or destroy value.
2. Plan customer value processes. This demands discovering and defining all the processes, subprocesses, and individual activities that must be in place to deliver customer value. These processes and activities consist of understanding the customer, creating customer commitment, transforming that customer commitment into an implemented customer value, and assessing the customers’ levels of satisfaction with your customer commitment. Continuously improving your commitment in line with transforming customer values maintains you ahead of your competition in delivering the desired value to the customer.
3. Populate customer value processes. The people skills and expertise required for a customer value commitment have to be defined and acquired. Your people resources have to be deployed, trained, and developed, and value delivery has to be measured and compensated.
4. Invest in suitable infrastructure. To deliver customer value you have to invest in the infrastructure. This may be infrastructure to create and support the physical, service, and intangible elements of your customer value commitments. It might be to select and manage appropriate value channels that deliver the value to the customer. It may include the knowledge management systems to support your customer value creation.
5. Implement customer value efficiently. Having understood, designed, and created your customer value commitment, you have accomplished nothing until it is implemented effectively. Implementation actions have to be clearly defined, planned, prioritized, communicated, and agreed to.

Build Customer Value Commitment Culture
Management of mature businesses tends to become less concerned about value being supplied to customers and more concerned with capitalizing on business operations. Business turns into more competitive, customers seem more recalcitrant, margins are squeezed, and reorganization becomes the rule rather than the exception.

Every customer value segment has particular elements of its value set that, if fulfilled, will attract a non price-sensitive response. The key is to determine these elements. As soon as the value expectations of customer value segments are understood, the company must create internal alignment to provide the expected value.

Everything your organization does says something explicitly or implicitly about your company, and workforce say it the loudest, by word and by action. If your workforce aren’t informed about your customers’ value expectations or the value your business brings to the marketplace, they can’t deliver that value. How frequently do you form an unfavorable attitude about a company because someone you talk to in that company doesn’t understand your needs and expectations? What outcome does a product manager, installer, or customer service or technical service representative have when he or she does not understand your customers’ value drivers and your company’s willingness or unwillingness to meet those expectations? As soon as the value expectations of customer value segments are understood, the company must create internal alignment to deliver the expected value.

All parts of the organization must recognize their contribution to customer value. The labor force must be encouraged to create and deliver customer value, to which everyone’s compensation must be linked. Skills and competencies must be in place to create and deliver customer value, and customer feedback and KPIs (Key Performance Indicators) must be communicated to all parts of the organization regularly. But first and primarily the customer culture must be directed from the top. The danger is a loss of more than revenue; it’s a loss of the relationship and Customer Lifetime Value (CLV).

A company’s communications strategy is all too often concentrated solely on external communications. It’s essential to communicate your company’s customer value segmentation strategy internally, the customer needs on which it’s based, and what strategic and operational decisions have been implemented to meet or exceed those value expectations.
Everyone in the company must understand what the customers’ value expectations are and how the organization intends to deliver the expected value better than the competition. Each individual in the organization needs to know how his or her role is important to making the customer value commitment a reality.

The profit significance of customer satisfaction and CLV have to be communicated, since they will be inevitably tied to measurement and payment issues. The order fulfillment function needs to know that you’re seeking to manage disruptive rush orders from a group of clients by working with them to be better forecasters and understand that being 100 percent responsive to orders from these customers may be counterproductive to that effort.

In addition, and perhaps most notably, all employees need to understand what part of customer relationships they own, no matter how small. If 5 percent of customer satisfaction is dependent on the timeliness and precision of billing, then the billing department should know how it’s performing.

The finest way that we know for achieving this ownership is to ensure that customer focus, customer value, and customer commitment are written into everyone’s job description. This ensures a real and regular awareness of customer-related issues, as they are discussed every time the jobholder and his or her manager discuss performance and related topics (including career development, skills and competency development, and remuneration).

A well-documented example is the Ritz-Carlton hotel chain, which pioneered a problem ownership value model and became the first service organization to win the Malcolm Baldrige Award. When a Ritz-Carlton guest has a problem to be resolved, there’s an expectation that the problem will be solved rapidly, efficiently, and as transparently as possible. Problem ownership means that the employee who is made aware of the guest’s problem owns it until it’s resolved. The problem isn’t passed off to someone else. All employees should not simply share ownership of customer need fulfillment, they have to share in the benefits of profitable customer relationships. Manage, measure, and compensate all employees for contributing to the customer value commitment. If people aren’t compensated for the profitability of customer value segments, they won’t focus on profitability.

There are variety ways to make sure that the company’s value messages are communicated internally. There demands to be a carefully crafted, clearly articulated, company mission statement that concentrates on the customers’ needs and value expectations and the company’s commitment to meeting or exceeding these. This mission statement needs to be not only widely disseminated, but assimilated into the culture. The long-standing mission of a Nordstrom’s floor sales representative meets all of these criteria: “Do whatever it takes to satisfy the customer. ” This mission must then be reflected throughout the organization in a consistent set of clearly communicated goals and objectives.

Periodic surveys of employee awareness of and perceptions toward the company’s customer value commitments and customer value segments carried out with human resources assistance can be invaluable. Start with an analysis of a benchmark survey to assess existing levels of understanding, then bring up to date the data at least twice per year. Internal newsletters focusing on your customer value commitments, changes in customer expectations, success stories, and failures are functional for sharing information and enfranchising employees to participate in value delivery.
With sales and other functional or departmental management, create an incentive program for all workforce to find new customers, to grow business within existing customer value segments, or to report back customer information.

Use social media to reinforce the customer value commitment consistently and provide special messages about basic company facts, new customer value commitments, and relationship stories.

Plan Customer Value Processes
Organizational alignment is crucial to long-term sustainable profit. A company’s organizational form, such as management, people, resources, measurement, and payment structures have to link with the customer value processes.
For example, if a large manufacturer has technical expertise that directly links to creating value for customers, it might make a decision to keep this expertise in its business. Whatever the day-to-day operational needs of the technical function are, they’re secondary if technical expertise doesn’t provide customer value and drive the manufacturer’s profitability. As soon as your business understands that the most critical value-creating activities are based on customer priorities, you can determine how to manage other less directly connected resources to run the business.
While the manufacturer’s workforce want to get paid, the essential question is whether payroll effectiveness makes a direct contribution to the customer value commitments. Is the manufacturer’s payroll function something that responds to customer value expectations? If not, perhaps outsourcing or contracting for such services would allow the manufacturer to allocate more resources to functions that do provide value.
A typical example of value-driven resource management that created value for its customers, because its organizational form centred resources and people around the processes most critical to its target customers, is Nike. These are contributors, but Nike’s profitability was due to exceptional alignment of resources to what customers valued. Nike wasn’t successful thanks to its low labor cost or because its marketing was outstanding at convincing people to spend a lot of money for its shoes. Curiously, Nike has manufactured almost nothing in its history except air bladders. Nike shoes are manufactured by means of alliances with other companies.

The traditional business rule is that manufacturing is certainly critical and brings great value to the customer, and that without manufacturing there would be no Nike shoes to sell in the marketplace. Completely true. But Nike formed its organization around the customer values that have the most impact on customers. Even though manufacturing is a vital function, Nike realized that there were ways to manage this function, thereby both maintaining its target on the critical customer value areas and saving cost.
Nike’s target buyers were interested in the latest innovative performance products. You might argue that Nike’s products don’t perform much better than its competitors’ products. But Nike’s marketing determined a segment of the global population who thinks the image, technology, and design of Nike’s products has the edge they need to live their life at a higher level of performance. This customer value segment was willing to pay for this value and, as a result, consistently bought the latest and greatest Nike products.
To fulfill these target customers’ expectations, Nike had three essential value creating resources: (1) design/R&D for new products, (2) marketing to drive the demand, and (3) distribution to make certain the latest most innovative products are offered to customers rapidly. These drove the expansion, not Nike’s manufacturing expertise or breadth of product. In general, Nike did an excellent job of accomplishing maximum profitable growth, high productivity, low cost, and the flexibility to respond to fast-changing consumer tastes.

Marketing by Nike in fact did persuade many people to use its products, but the customers also had the option to buy a different brand. Faced with intense competition, Nike allocated rare talent and money for marketing rather than for manufacturing. Achieving a Six Sigma level of quality also added little value for the buyers because Nike consumers were regularly buying the latest products. Nike identified this trend, which minimized the need for long-lasting high-quality designs and investments. Nike created an organization that had the power to innovate. Those parts of the organization that restricted innovation were better accomplished through partnership with suppliers. In addition, Nike never had to worry about being locked into old manufacturing technology.

If you’re managing a business where the customers value the latest high performance innovation, in what capabilities will you invest? Why is manufacturing often a difficultyto a business supplying customers who crave the latest innovations? If you work for a manufacturer, you need to appreciate how your capital investments work for or against being innovative.
The composition of your company’s functions, resources, assets, and people is determined as soon as you figure out the winning customer value commitment for your target customer value segments—form follows value. Avoid the temptation to debate whether you really need to outsource manufacturing, R&D, or any function to make the business more profitable before you’ve done the customer value commitment background. If not, you’re starting in the wrong place.

Populate Customer Value Processes
There is one capital asset your company has that no competitor can duplicate— your employees. Providing value requires people who have particular skills and competencies for all customer value processes. This signifies having assessed what skills and competencies are essential at all functional levels, identified the gaps, and quantified the human resource needs for each process. Considering that creating value typically represents major organizational and cultural changes, you have to have an effective people training and development system in place. Most significantly, you must measure and reward performance linked to customer value creation and delivery.

This is one of the most challenging cultural and organizational transitions for a company to make when shifting from a product-centric strategy to a customer value commitment culture. The “form follows value” and the form of management, measurement, and compensation must comply with value. This permits your business to focus training and rewards on the key people critical to customer value, rather than distributed across many people and functions with variable links to value.

There is a key disconnect when a sales manager says, “I know we’re talking about value and solutions and CLV, but then I get called every month and am asked what my revenues are. It’s difficult to think about the future when you’re being driven by the present. ” There’s a key disconnect when customer service representatives are evaluated based on how many calls they can turn each hour and therefore don’t believe that or understand how their function can legitimately impact customer relationships and profitability.

If organizational performance—from sales and marketing to operations, customer service, and other support functions—is managed, assessed, and compensated on the basis of revenues (transactions), the organizational emphasis will be on transactions and revenue rather than long-term relationships and CLV. It’s a matter of acquiring a fast nickel or a slow dime.

All of this reinforces why a customer value culture must be directed and driven from the top of an organization. Whenever the organization is managed, measured on, and compensated for CLV, the focus becomes the customers’ value expectations and relationship maintenance. The focus is on the long-term $100, 000 profit to be gained from the customer relationship rather than the short-term $5, 000 of revenue. Managing a value-driven organization implies that CLV must be measured and compensated for. One company’s tactic is to provide a bonus pool from which everyone has the chance to draw. Sales reps aren’t on commission; they’re paid a relatively good salary and then earn bonuses based on the value of their customer relationships. The value of these types of relationships can be calculated in a number of ways, including on an actual or average value basis. Some customer relationships are very tricky to acquire but easy to maintain once acquired. Others are very easy to acquire but difficult to maintain over time. Fifty percent of each year’s bonus is drawn and 50 percent is added to the sales reps’ bonus bank. As the value of the managed relationships increases, so do the bonus and the bonus bank value. The sales reps now have incentive to focus on long-term customer profitability. A major by-product is that the sales force experiences more stability and less churn, which benefits the customer by having someone who can proactively anticipate the customer’s changing value expectations and then manage those changes. The outcome is more business, increasing CLV from the customer relationship, and more profit.
But sales isn’t the only function responsible for customer relationships and CLV, so each business unit and employee needs to know the quantified extent to which it has an impact on the customer relationship. This compensates value-driven behavior and permits everyone to participate in the bonus. Measurement of value performance is based on a combination of the customers’ Preferred Vendor Ratings, Customer Satisfaction Data, and CLV. If on-time delivery (OTD) is 25 percent of a customer’s value expectation, then every function which has responsibility for OTD would share 25 percent of the bonus according to its percentage of responsibility. If billing accuracy and timeliness is 5 percent of the customer’s satisfaction, then all shifts in the billing department share 5 percent of the annual bonus. If technical service response time is 15 percent of the customer’s value, the technical service function is eligible for 15 percent of the bonus pool.
One hundred percent of the bonus is granted if the metrics are between 100–95 percent; 95 percent of the bonus is awarded for ratings from 95–90 percent; 90 percent of the bonus for ratings from 90–85 percent; 85 percent of the bonus is given for ratings from 85–80 percent, and there is no bonus for anything below 80 percent.

Invest in suitable Infrastructure
Small regional airlines in US had became popular and grown because they had concentrated on customer value commitments. Success was an albatross for most regionals as they determined that bigger was better, that passengers wanted to travel farther than point-to-point. They adapted their business resources, processes, and even their aircraft fleets to become like the “big boys. ” Airlines in the hub-and-spoke world try to be all things to all passengers. This proves expensive. Decreasing cost eventually the value for every passenger. Processes falter and airline employees lose their customer focus. Many airlines were lost to bankruptcies or acquisition transitioning from successful regionals to national carriers.

Southwest Airlines went on a different approach from its beginning than other carriers like PeopleExpress. Southwest remains highly profitable in spite of expanding its regional airline strategy nationwide. From 1996 to 2001, Southwest generated total return to investor of 33. 7 percent, beating the first most-admired company GE, who returned 21. 2 percent from 1996 to 2001. Moreover, industry peers ranked Southwest Airlines number one in Innovation, Employee Talent, Quality of Management, Social Responsibility. Financial Performance, Use of Assets, and Investment Value. For eleven consecutive years, Southwest ranked number one in fewest customer complaints, according to the U. S. Department of Transportation’s Air Travel Consumer Report. The airline began the first profit-sharing plan in the U. S. airline industry in 1974. Through this plan, employees own about 10 percent of the company’s stock. And the airline is approximately 81 percent unionized. In 2002, despite the falloff in business following the September 11, 2001, terrorist attacks in the United States, Southwest Airlines continued to prosper, while everyone around them floundered. In the second quarter of 2002, Southwest reported a $102. 3 million profit, with bigger rivals reporting heavy losses for the same period.
In 2002, Southwest ranked as the fourth largest U. S. airline in terms of domestic customers carried and carried 90 percent of all discount air travel in America. Southwest is one of the most admired companies in America based to the March 4, 2002, issue of Fortune. Southwest ranked second among companies across all industry groups and first in the airline industry in the magazine’s 2002 America’s Most Admired Companies list. Among airlines,

In an industry where competitor conduct reflects a belief that the only way to operate is to control airports and routes and maximize hubs, Southwest Airlines defines what it means to be an airline from a customer value point of view, a company where form follows value. This is reflected in the business decisions it makes, the employees it hires, the planes it buys and flies, and the decision not to provide food service.

Southwest’s primary focus on customer is a short-haul business traveler. Everything the airline does aligns with the customer’s three key value drivers: (1) fast, efficient transportation from Point A to B, (2) more economical than any other form of transportation, and (3) an enjoyable experience. While casual and vacation flyers may choose Southwest, these travelers aren’t the airlines’ primary target customers. Southwest hasn’t altered its customer value commitments to satisfy the expectations of these travelers while sacrificing the value drivers of its core target customer value segments.

Infrastructure can be produced internally or can include other channel members and third parties. For many customer value segments, you may choose not to or be unable to provide all of the value expected to your customers directly. Success can depend on the effectiveness of your strategy and management of the channel members. Numerous channel options are available, from direct sales to E-commerce and from supplier delivery to distribution, wholesalers, or specialized channels. A single channel strategy may be able to meet a customer value segment’s needs completely or could miss opportunities to fulfill customer value expectations.

A multiple-channel strategy might be necessary to fulfill customer needs and expectations, but then you have the challenges of managing branding, positioning, and cross-channel pricing. A targeted channel strategy needs to be based on clear understanding of customer value segment needs and analysis of your competitive position and ability.
The function of a channel partner is to produce some form of customer value. The function could be to
• provide products to the end user
• enhance the efficiency of the supply process
• enhance the range of products/services available to the end user
• balance economies of scale—the need for large-scale production and small-scale usage
• present a local efficient service to local customers
• satisfy the different needs of different customer value segments
• produce new and better solutions for customers by fulfilling unmet needs
It’s essential to identify what that value is and how relevant it is to the target customer value segment.

This value offered by the channel can be multi-faceted, and may include one or more facets of the order-to-payment process as well as aspects of the marketing and sales process. The key question to be clarified is “How can this channel meet or exceed the customers’ needs and value expectations and be mutually profitable? ” The channel must also provide value to the supplier.

Standard channel signifies the same base customer value commitments for each customer value segment. Mass-customized channel signifies customer value commitments are created and managed by the customer value segments for which they’re provided.

Value-commitment channel signifies that the customer value segments themselves influence how the channel participates in providing the customer value commitments.

Channel options can be described as owned, which means it’s the supplier’s function; partnership, which indicates that the supplier has created an affiliation with a channel member to produce the value; or procured, which means that the value delivery responsibility is outsourced. Putting these channel options together into a matrix and plotting each element of the offering helps optimize the channel selection, its management, and the customer value commitments to respective customer value segments.

The channel options matrix assists you easily determine which elements of the offering will be provided solely from within the company, which will be provided by means of some form of partnership between supplier and channel, and which will be outsourced. This analysis makes certain clarity of role definition for each channel member, ensures that each party in the channel understands the value delivery for which it is solely or jointly responsible, avoids duplication of value, and enables appropriate sharing of value created. An essential basis for any channel decision is a clear segmentation of the ultimate consumer, and a detailed understanding of the needs and buying behavior of those customers.

To help in channel selection, a simple question have to be asked of the customer value segment: “What are the five essential offerings of your preferred or ideal supplier source for products or services shown in order of importance? ” This information can be organized quickly into a Customer Value Expectations Priority Matrix . This knowledge can assist you select the appropriate channel to serve the target customer value segment.
As soon as you’re convinced of the ability of one or more channels to fulfill the customers’ needs, you have to also ensure that the channel can fulfill your requirements. A scoring method for evaluating the capacity of each channel to produce the expected customer value . The significance of each of the essential offerings to a customer value segment is weighted on a 100-point basis. Each customer value segment, by definition, would have a distinct set of criteria.

Each of the channels is subsequently scored on each of the customer value commitments by utilizing satisfaction estimates or quantitative research data. By multiplying each of the score attributes by the weighted value and then totaling the results, the channels can be compared on the basis of how good each delivers the expected value. In this example, the third channel is most effective at providing the value the customer value segment expects.
Only when you have determined a channel that can fulfill both the customers’ needs and the requirements of your business/marketing strategy should you finalize your channel strategy. There might not be an most effective choice, in which case, you should trade off the customer needs and those of the business/marketing strategy and assign the greatest weight and importance to the fulfillment of customer needs. Consideration have to also be given to equally current and future need fulfillment and capabilities.

As soon as the roles of the individual channel members have been described, individual channel partners can be selected. Within a selected channel, the essential questions to be clarified are (1) How well does the partner fulfill customer needs? and (2) How well does the partner perform against our company-partner selection criteria?
The selection considerations for your channel partners should be based on what value expectations you would expect a channel partner to provide that you can’t.

Scoring is achieved using the same approach described previously for assessing channel performance by customer value segment. The importance of each of the selection criteria is weighted on a 100-point basis. . By multiplying each of the partner’s ratings by the weighted value and then adding the results, the partners can be compared on the foundation of how well each satisfies the selection criteria.
Another essential aspect of infrastructure, not to be underestimated or to be considered lightly, is that of information and communications technology and systems.

Considering “form follows value, ” you have to first figure out what your customers value and design the processes to deliver that value, and then define the information and communications technology and systems that will deliver that value most cost-effectively. In today’s global environment, profitable value commitment companies have consistent technology platforms enterprise-wide, enabling a free, easy, and rapid exchange and sharing of knowledge, with accessibility around the world from corporate and remote locations.

In a world of significantly rapid change, knowledge affords enormous customer competitive advantages. The winning companies will be those who have the quickest access to knowledge about customers, markets, the competition, and so on, and those companies who excel at sharing such knowledge within their organization and with their marketing partners and using such knowledge to impact business results.

Implement Customer Value
Implementation of a value-based customer focus is a critical challenge for several companies. The challenge is amplified by the constant demands of the bean counters to reduce costs by reducing headcount and outsourcing “non-core” activities. These initiatives placed } increased pressure on the staff and infrastructure that {endure } such programs. However, the staff are usually given little or no help to enable them to work more effectively or more effectively.

First, implementation can solely succeed if you have recognized and clearly defined all the actions that need to take place in order for your customer value commitments to be provided to your chosen target customer value segments. In order to be certain that you don’t neglect something, take each line of your customer value commitment and breaking it down into all the constituent elements of the marketing mix that are needed to create that customer value commitment.

Developing a consciously chosen value mind-set can allow your company to offer value differentiation that really matters to your targeted customers.
If your daily mission is to generate more revenue by selling product, your outcomes are going to be very different than if your daily mission is to help your customers become more profitable. Positively impacting customers’ profitability makes you a valued and valuable supplier. Regardless of what your customers make or sell or what you sell to them, the ultimate deal maker is demonstrating tangibly how you impact their profitability better than your competitors.