Read an Excerpt
Chapter 1: Customer Value Management-
Achieving the Vision
Action without vision is a nightmare.
Virtually every corporation you can think of has a vision and a strategy to achieve it. I can't tell you what each of them says, but most share the same theme: "Where do we want to be in three to five years, and how are we going to get there?" To get there, many of these companies have also consistently tried the same things. Both their efforts and results have a lot in common. For starters, in the late 1980s many corporations began downsizing in order to boost profits. Critics said such moves amounted to little more than trying to save your way to profitability. Business results said the same: Surveys of companies that downsized revealed that fewer than half had experienced improved operating profits, very few had actually increased productivity, and in many instances, the stock price (shareholder value) of downsized companies was significantly lower than that of similar firms which had not downsized.
Point taken. So corporations did more than simply cut back. In the early 1990s, companies began to reorganize or reengineer themselves to increase productivity. That can be an easy target for criticism, too. If you've reorganized, fine. But for whom? And why?. Who's actually going to buy your product or service once you've finished laying everyone off and reengineering? And so on.
So corporations went on reinventing themselves: creating product segmented groups, industry-specific this and niche-marketing that, reorganizing and re-reorganizing in an endless search for the"silver bullet" that would bring success. Library shelves were loaded with books about boosting business and making the company more (usually price or cost) competitive.
But what always struck me was the one thing missing from all of these tomes on business advice: the concept-indeed, the very presence of the word-customer. Best-selling books at that time did not focus on the customer, much less feature the word in their titles. it seemed that the customer was a relatively unimportant element in the formula for business success.
That isn't surprising. Incorporating the word customer into the vision or mission statements of business organizations has been a fairly recent phenomenon, especially when viewed in the context of the 100-plus years since the Industrial Revolution. The customer has not traditionally appeared in a company's stated reasons for being; normally, the shareholders occupied that lofty space (e.g., "To provide our shareholders with industry-leading value and returns."). Until the 1990s, the world of business was typically characterized by overdemand, and customers were often literally relegated to stand in line while eagerly purchasing all the products and services that could be manufactured and delivered.
No more. In today's environment, the world can be characterized by overcapacity, and customers have become kings and queens. They have taken on new importance as the focal point for business, as seen on the banner of corporate stockholder reports and mission and vision statements (e.g., "Our vision is to be the premier provider of [insert product or service] to our customers.") (Figure 1-1).
The old management philosophy, "if you build it, they will come," is being replaced by a new executive order, "Find out what they want and give it to them." There is empirical research today that such customer-focused firms simply make more money. A multiindustry study by the Wharton School, for example, found that a reduction in annual customer attrition of only 5 to 10 percentage points can actually increase a company's profits by 25 to 75 percent, depending on the industry. When you consider that many American businesses report annual customer attrition rates approaching 20 percent, the potential profit leverage from becoming customer centered is immense, and that doesn't include the benefits of attracting customers from competitors and growing market share. To remain successful today, the theme for a business's vision and strategy must change from, "Where do we want to be in five years?" to, "Where do our customers want us to be, and how do we get there?"
"Great idea," you may be saying. "Now how do we do it?" Unfortunately, another thing shared by many CEOs, company presidents, COOs, CFOs, and CIOs (all of the CXXs) is a marked absence of an approach to put such a customer-focused vision into real action. Management's ability to develop a vision has often exceeded its grasp in terms of being able to implement the realities of the required changes down to the desk level. However, implementing change is vital if a company is going to make the customer the design point for all business activities, behaviors, and metrics of success. In other words: Good idea; poor execution. This common problem is raised repeatedly in our discussions with senior managers globally. And when it is introduced during talks on "Becoming Customer Centric" at professional conferences, one can feel the audiences palpably react and lean forward in their chairs. Everyone, it seems, shares this concern, as indicated by results from a study sponsored by IBM of global senior executives to identify the things they felt would be most important to their business after the year 2000 (Figure 1-2).
Customer value management (CVM) represents the very best practices used today by IBM and client executives worldwide to attain their visions of finding out what customers want and giving it to them. Customer value management provides a rational set of techniques, methodologies, and strategies to weave the needs and wants of customers into the key process designs and management activities of a corporation. Refined extensively at IBM and leading client corporations, these approaches to drive customer loyalty and growth are becoming the pathway to corporate renewal and change, displacing traditional reengineering and quality management mindsets.
Customer value management is a way of doing business. Employed correctly, it can help a business enterprise create and sustain differentiating value. In other words, it is a vehicle to understand what your customers or clients want of you and how you can go about aligning your business to deliver that product or service consistently.
But if CVM is the result of lessons learned and if it can be explained in such simple terms, why don't more companies practice it? Why don't more companies listen to what kind of a business their customers want them to be and then go ahead and be that kind of company? Or why don't they make informed judgments to not become that kind of company, but only where the identified customer vision does not make business sense? The obvious answer is that CVM is a lot harder to implement than to understand....