Category Archives: Strategic Management

HOW VALUABLE ARE YOU TO YOUR CUSTOMER?

man with bald head stamped with barcode - identityCustomer value is a concept much beloved by the sales world but, I suspect, it is a concept that is very misunderstood by just about everyone.  To summarize, customer value is usually defined as determining, implementing and selling those features of a product or service that impart value to the customer.  The reason the sales group love this concept is it provides them a list of selling points when talking to the customer.  Something along the line of “You will love this product/service because it can do this, that and the other thing for you.”  The problem is, of course, that the emphasis is on determining what the value is, not what it should be.  This is further complicated by the fact that any organization can only guess at what will be of value to their customer because only the customer can define what is of value to them.  Finally, there is the additional issue that most customers have no idea what value they want.  One of my favorite quotes from Henry Ford is “If I had asked my customers what they wanted they would have said they wanted a faster horse”.  This leads to a serious problem.  If you cannot know what a customer considers value, and the customer does not know what value they want, then how can you be “a customer value company”?

There are a couple of different ways of effectively dealing with this.  The first and most common way is to develop and grow a corporate culture where, rather than worrying about what the customer wants, you determine what you would want if you were the customer and then design to that criteria.  The key to this is the term “corporate culture”.  Everyone has to buy in and lead change based on this concept.  There is no Customer Value Department or person to identify and build in value.  Everyone has that responsibility…and authority…and desire.  Apple is the poster child for companies that do this well.  Of course this still leaves the marketing problem of getting people to understand that this new product or value is a good thing.  After all who knew they needed an iPod or an iPhone or an iPad?  For that matter, who knew they needed a car not a better horse?

Another common way of creating products with value add is to let someone else find it first then to quickly improve it on your product or copy with a cheaper price.  While this is admittedly effective, it condemns you to always being a secondary company instead of a leader.  For some companies that is actually a positive point as being a leader can often be a risky position.  What happens if the new feature doesn’t catch on?  Obviously you lose most of what you invested in the development process.  For many companies that is an unacceptable risk and it is better to concentrate on sure winners rather than something new and untried.

A third, and very ineffective way of creating value add is to put someone in charge or maybe set up a “department of value”.  In the end this probably will not work well as you usually end up with a relatively smaller pool of ideas, most of which never get implemented due to red tape, and a culture where anyone outside the group in charge of value add is either afraid to offer changes or even actively discouraged from creating value add features.  Often, technology takes over and the customer experience is not really a consideration.  How many times have you been shunted into “voice mail hell”?  You just want a live person to talk to, not 30 choices that run you around in circles.  It is the same thing with companies that require an email to let them know you have a problem.  One live person for 30 seconds would resolve at least half the issues that end up taking several emails back and forth.  Or maybe the idea is to discourage people from contacting a company with issues.  Does that sound like a customer value company?

There are several other possible ways of creating customer value but instead let’s just stop and consider the question – How does your organization create and define the customer experience?  This is a strategic decision at the very highest levels of the organization but do the tactics in place reflect the strategy professed?  Technology may be cheaper than people but in the end the proper role of technology is to improve the experience and product for the customer, not to reduce costs at the expense of the customer.  Every organization tracks and rates their suppliers but do you track and rate yours customers measure of your value to them?  Only when you do this can you truly say you are a customer value oriented organization.

If you would like to discuss how to measure your value to your customer in greater detail I would be more than happy to meet with you and to explore this initiative in more detail.  Please feel free to contact me at edwhite@jadetrilliumconsulting.com to discuss how a Customer Value Survey can help your organization.

Hope you enjoyed this posting.  Talk to your friends and co-workers about their experience and thoughts about customer value, especially what it means for your organization.   And, as always, I would love to hear back on your (and their) thoughts.  Just fill in the comment box below along with your contact information to let me know what you think.

ARE YOU WORKING FOR A ZOMBIE COMPANY?

RIPHave you ever heard the old saying “Too much of a good thing is not a good thing”?   Probably… but what does that have to do with zombies?  Stick around and I will get back to that, but first I want to talk about Lean Management.  The guiding principle behind Lean is the elimination of waste of all kinds, whether that is excess inventory, inefficient production processes, poor quality or any of the rest of the 7 deadly wastes of lean.  At the tools, training and implementation of Lean is focused on the understanding that ANYTHING that does not increase value to the customer is a waste and must be eliminated.  From a relatively high level review of Lean Management this is readily understandable and easily applied to all aspects of the business.  Notice that I have consistently used the term Lean Management rather than Lean Manufacturing, Lean Operations or any of the other common names.  I do that deliberately because most of the different names seem to suggest that Lean is a production tool but in reality Lean techniques and processes can be applied to any process in any part of any organization.  That means that Lean is applicable not only in manufacturing but also in logistics, front or back office, logistics, sales or any other part of an organization.  The key to how and where Lean Management is used though still boils down to identifying what is waste and what is required.  If something is truly waste then removing it is clearly “a good idea”.  But what happens if we start eliminating things that are necessary?  Maybe that is not such a good idea… but, of course we would never do that.  If something is necessary then we would obviously never choose to eliminate it.  Right?

In its simplest terms waste is anything that does not add value to the customer but how do you identify what adds value?  Some of these are obvious but even for the ones that are obvious, can you go too far?  Eliminating scrap loss is obviously a good thing and no reworking or changing of scrap is going to add value to the customer.  The problem occurs when the cost of eliminating scrap becomes greater than the cost of accepting scrap.  Now reducing scrap loss (a good thing) is costing the company money, increasing their costs and eventually increasing the customers cost (not a good thing).  This is an obvious example where too much of a good thing is not a good thing.  Want another example?  How about forecasting?  One of the absolutes about forecasting is that they are wrong.  That is OK as any planner or forecaster is far more interested in how wrong it is rather than the actual forecast.  This forecast errors leads to all kinds of waste such as excess safety stock, incorrect inventory levels, incorrect lead times, etc.  Therefore, reducing the forecast error must be a “good thing”.  But reducing error creates cost.  That is OK so long as the increased cost is less than the increased savings.  But once the cost is higher than the savings it is “not a good thing” and a certain level of forecast error becomes acceptable.

So now we have the idea of “Too much of a good thing is not a good thing” clear in our heads, right.  Still does not explain about zombies though.  Essentially every process in a company directly affects capacity and flexibility, and those that do not affect it directly will do so indirectly.  Also, both capacity and flexibility represent a cost to the organization.  As we implement Lean Management and start eliminating various forms of waste, many of these changes will have the side effect of decreasing both capacity and flexibility as well.  Some of the projects may even be directly aimed at reducing capacity as a way to reduce costs (after all, excess capacity is a cost and anything excess must be a waste).  Since all these things are reducing costs they must be increasing value to the customer and therefore must be “a good thing”.  Right?  Not necessarily.  The problem is that by reducing capacity and flexibility you also reduce the organizations ability to respond to changes in product demand.  If you are currently running at close to 100% of capacity and an opportunity to take on a new customer to significantly increase business comes along…will you be able to accept the new business without affecting your current customers?  Or will increasing your capacity to allow you to accept the new business require so much time and expense that the customer goes elsewhere?  Many companies have spent the last several years systematically reducing their capacity to the point that they no longer have any flexibility left.  Yet new business is the only way to grow a company, whether it is from an existing customer or a new customer.  One of the things that organizations share with plants and trees is that they are either growing or they are dying.  Plants cannot stay the same and neither can organizations.    Lean Management is a good thing but too much Lean can be a bad thing.  Many organizations have leaned themselves to the point that they are effectively dead already but do not know it yet.  Any major economic shock and they will be out of business due to their lack of flexibility.  In effect they are Zombie Companies…dead but still moving, which brings me back to the original question…Are you working for a zombie company?

One last point, this phenomenon may partially explain the rather jerky recover from the latest economic downturn.  Everyone was expecting a recovery but it seemed to have a lot of trouble getting any traction.  Maybe enough companies were having trouble increasing their production due to minimal available capacity and flexibility that opportunities were being missed and delayed which created problems in trying to get the economy up and running smoothly again.

Considering introducing a Lean Management program? Already have one implemented?

What do you need to be aware of to make effective use of a Lean Management program yet still ensure you do not accidentally kill your organization by over-leaning?   Contact Ed White at Jade Trillium Consulting to discuss whether we can help your organization and how best to proceed.

Hope you enjoyed this posting.  Talk to your friends and co-workers about their experience and thoughts on this topic, especially what it means for your organization.   And, as always, I would love to hear back on your (and their) thoughts.  Just fill in the comment box below along with your contact information to let me know what you think.