Factors A ffecting B usiness V alue: A n O verview Dr. Jim Hamill

1. Factors Affecting Business Value: An Overview Dr. Jim Hamill Institute for Customer Advantage Department of Marketing University of Strathclyde jim.hamill@strath.ac.uk

2. Core Question • How do we achieve sustained growth and profitability……….. • ………in an era characterised by intense global competition and customer dominance?

3. Key Success Factors…… Many would answer….. • The quality of our products and services • The quality of our management team • Our people; their education and skills • Innovation and technology • Productivity and efficiency • Costs and price competitiveness • Sales and marketing • Integrated e-business/ ICT • Financial management • Organisation and decision making • Business processes • etc

4. Key Success Factors…… • Very important factors and we will hear more about them during the conference • Captured in Michael Porter’s ‘Value Chain’ – the Primary and Support Activities essential for achieving sustained competitive advantage • Also, the Balanced Scorecard

5. Porter’s Value Chain

6. The Balanced Scorecard • Provides an integrated and coordinated approach to strategic planning, implementation, management, communication and performance measurement • Ensures alignment of primary and support activities behind clearly agreed strategic goals and objectives • It achieves this through linking organisational vision, mission and strategy to specific objectives, initiatives, and performance measures for each activity • Helps to overcome one of the main challenges facing most organisations - translating strategy into action

7. Something to Think About….

8. A New Era…………… • We have entered a new era in global competition – a ‘customer led’ era • A combination of market, customer, economic and technology ‘drivers’ have shifted the balance of power from suppliers to customers • In a global economy characterised by ‘customer dominance’ the traditional sources of competitive advantage remain important • However, on their own they are not enough • They are the ‘table stakes’ that keep us in the game

9. A New Era…………… • The concept of competitive advantage has become outdated. It has been replaced by the need to build sustained customer advantage • The long term value of your business depends on the quality of your customer base; the relationship you have with them; and your ability to leverage your ‘Most Valuable’ and ‘Most Growable’ customers • The business ‘Winners’ of the early 21st will be companies who cultivate strong ‘1-to1’ relationships with high value, high margin, high growth potential customers • It is high value, high growth potential customers who will provide you with a source of sustained growth and profitability

10. Questions…… • Ask yourself the following questions • How different are your products and services from those of your major competitors? Really, how different are they? • Do you really have better products and services? • Does the market perceive you to be different and better? • Even where a product or service advantage does exist, how durable is this given the rapid pace of new product development and technology change in your industry?

11. Questions…… • Can you continue to compete on the basis of products and services alone? • How can you build a sustained competitive advantage when the market you are operating in is highly competitive; products are becoming commoditised; there is aggressive price competition; and low customer switching costs? • Are your customers becoming more demanding? Can they differentiate one supplier from another? How are you going to satisfy rising customer expectations? - faster, cheaper, better and personalized products and services

12. Questions…… • Do you know who your most valuable customers are (actual and potential)? Do you fully understand their needs and wants? Are they looking for products or solutions? • How do you allocate your marketing budget between new customer acquisition and customer relationship building? What effort do you make in building learning relationships with key customers? What opportunities exist for Up and Cross selling • Do you reward sales staff for customer loyalty and retention as well as for selling?

13. Implications • Increasing the Value of Your Business

14. Implications • In an era where ‘Customer is King’….. • New, innovative ‘customer led’ approaches to sales, marketing and relationship management are required • New insights and approaches needed…..

15. Increasing the Value of Your Business • The core challenge we all face is the need to….. • “coordinate and integrate strategy, people, processes, systems, organisation, culture and technology to achieve sustained customer advantage and long term profitability” • This requires innovative, new ‘customer led’ approaches to strategy and management aimed at…… • “Identifying, Acquiring, Retaining and Growing ‘Quality’ Customers”

16. The Changing Global Business Environment

17. The Eight Customer Led ‘Drivers’ • Global Market Turbulence and Uncertainty • Customer Discernment and Empowerment • Global Competition • Shortening Product and Technology Life Cycles • Product Convergence and Oversupply • Declining Effectiveness of Traditional Approaches to Sales and Marketing • The 80/20 Rule • Impact of New Technology

18. Customer Life Time Value • Requires a focus on life time value of the customer relationship NOT just short term selling

20. The Ten Key Features of a Customer Led Organisation

21. Being Customer Led • Focus on quality customers NOT markets – aim is to Identify, Acquire and Retain MVCs and MGCs (Most Valuable and Most Growable Customers) • Focus on Building ‘1-to-1’ relationships • Life time value not just short term selling • A ‘Win-Win’ situation • IT/IS is a necessary but not sufficient condition

22. Being Customer Led • Requires an integrated and coordinated organisational approach • Requires new business metrics and performance measures (e.g. short term financial performance v. strength of the customer base) • Now critical because of dynamic changes in the global business environment • Requires sound planning • Should drive the business

23. So where is your organisation?

24. Are You Customer Led (RUCL) • A diagnostic tool for evaluating your ‘preparedness’ to be customer led assessed against ‘10 Best Practice’ Benchmarking Criteria’ • Vision; Strategy and Objectives; Customer Knowledge and Understanding; Customer Touch Point Strategies; People; Processes; Systems; Organisation and Culture; Performance Evaluation; Planning • The ‘strategic gap’ provides a solid foundation for strategy development in this area • See questions in Appendix 1

25. Building Quality Customer Growth Programmes

26. Quality Customer Growth Programme • In a customer dominated global economy, strategy should be aimed at ‘Identifying, Acquiring, Retaining and Growing’ quality customers • QCGP - a framework for ensuring that your sales, marketing and relationship building efforts are focused on building a solid base of high value, high margin, high growth potential customers

27. Quality Customer Growth Programme • Stages • Strategically position different customers, sales prospects etc on a ‘Customer Value Matrix’ using two main criteria • Customer/ Sales Prospect Attractiveness • ‘Probability of Success’ – the probability that you can win, retain and grow that customer’s business • Develop and implement sales and marketing strategies appropriate for each customer segment depending on their strategic value to your company e.g. ‘Build Strategic Relationships’; ‘Target for Development’; ‘Withdraw’ etc Overall aim is to improve the efficiency (costs) and effectiveness (ROI) of your sales and marketing efforts

28. The Customer Value Matrix

29. Customer Value Matrix

30. Evaluation Criteria • Customer/Sales Prospect/Sector Attractiveness • Probability of Success - probability of winning, retaining and growing that business

31. Customer/ Sales Prospect Attractiveness • Current Sales Potential • Future Sales Potential • Profit Potential • Profit Timescale • Customer Image and Reputation • Nature of the Customer’s Business/ Their Customer Base • Financial Strength/Payment Risk/Speed of Payment etc • Attitudes to the Type of Service/Product you are supplying

32. Probability of Success • Current Relationship • Share of Customer’s Purchases • Share Trend • Product/Service Competitiveness • Price Competitiveness • Customer Service • Customer Understanding • Experience

33. Strategic Implications • Sales, Marketing, Relationship Building Strategies appropriate for each group • Customise and tailor the approach to different customers/sales prospects depending on their strategic position on the ‘Value Matrix • Low involvement/low commitment modes for ‘Low to Medium Attractive Sales Prospects’ where there is no previous relationship • Higher involvement/higher commitment modes for ‘high value/high growth potential sales prospects’ • Aim - to maximise the effectiveness (return) and efficiency (costs) of our sales and marketing efforts

34. An End Note on Business to Business School Collaboration

35. Business/Business School • An example of relationship marketing for mutual benefit • A ‘win win’ situation

36. Business/Business School

37. An Example

38. Conclusions

39. “Thanks Jim for a very interesting presentation but is this just not common sense”

40. Yes it is……… • ‘The true business of every company • is to make and keep customers’ • (Drucker, 1954)

41. So why are you not doing it?

42. “Most managers and companies have heard the wakeup call, and they believe that customer centricity is the key to success in the future. The hard part now is becoming fluent in alternative thinking, strategies, and tactics – breaking away from the responses and policies that our parents and grandparents taught us for the past 100 years”, (Newell, ‘loyalty.com’)

43. Thank You for Inviting Me

44. Appendix 1 • Are You Customer Led (RUCL)

45. RUCL • Vision/Mission: • What is the overall vision/mission of your organisation? Is it customer led? • Strategy and Objectives: • What are the overall strategic goals and objectives of your organisation? Are goals and objectives customer led? Have clear customer management objectives been established and agreed; for example, covering customer knowledge and understanding; customer acquisition, retention and growth; customer satisfaction and loyalty etc? What proportion of your marketing effort (budget) is devoted to relationship building compared to selling? • Customer Knowledge and Understanding: • How well do you know your customers? Really, how well do you know them? What procedures/systems are in place for ensuring a high level of on-going customer learning and understanding, especially with your ‘MVCs’ and ‘MGCs’? Do you have a Customer Knowledge Infrastructure in place?

46. RUCL • 4. Customer Touch Point Strategies (Out Bound) • Have you achieved brand advocacy? Have you implemented a ‘Quality Customer Growth Programme? Do you have a customer led e-business strategy? Are you fully utilising the interactive power of Internet technology for building strong ‘1-to-1’ customer relationships? Where are you in terms of multi-channel customer contact? • 5. People • Do you put the HRM into CRM? • Do you put the CRM into HRM?

47. RUCL • 6. Processes: • What improvements could be made to your internal processes to deliver better customer support and service? • 7. Systems • Does your IT/CIS system deliver the right customer information to the right people at the right time? • 8. Organisation • Is your company organised from the ‘inside out’ or from the ‘outside in’? • 9. Performance Evaluation • How do you measure your customer management performance? • 10. Planning • What planning procedures do you follow to ensure effective customer management?