tsg tsg velocity sama part 1 2009

Introduction

The forces impacting profitable growth are intensifying, and as a result companies in many industries face accelerating commoditization of product and service margins. The need to create and deliver value has never been greater. Leading companies are responding to the challenges hindering profitable growth by refocusing efforts on creating value for customers. Yet “value” is one of those business words that has lost its meaning to many and become increasingly difficult to deliver. The concept of value is at risk of being commoditized. This has happened to many words with a foundation in a fundamental idea, but overuse, misunderstanding and the inability to execute have escorted them into the jargon junkyard to join words such as “synergy” and

“re-engineering.” Eye rolling is a common response when a business leader or consultant speaks of value.

Value is a simple word that should hold powerful meaning. Value represents the notion that to generate revenue from a customer, it must receive something in return that makes its expense, as well as investment of resources and time, worthwhile. The central challenge for many businesses remains: In the face of intensifying global competition, how can they increase the value delivered to customers to drive sustainable, profitable growth?

Simple yet elusive

As we have seen in our engagements with hundreds of Fortune Global 500 companies, creating value is often an elusive goal. After efforts to understand it, many companies struggle with executing against that understanding. Other companies may succeed at carrying out a number of initiatives or launching products that create value but then stumble at being able to sustain the efforts beyond the rollout or product launch. Successfully creating, capturing, delivering and sustaining customer value creation requires cross-business alignment, an enterprise-wide approach and the application of higher-order go-to-market capabilities, including structured listening, analytics, marketing and sales integration and process change. No one of these elements is sufficient. All must be synchronously executed to focus the entire organization on sustainably delivering customer value and driving profitable growth.

The value road map series

In a four-part series we will draw on our 17 years of experience working with leading Fortune 1000 and Global 500 companies to describe a value creation road map that has enabled these organizations to differentiate themselves, transform how they go to market and elevate the value they create for customers. A small number of companies have cracked the code to enjoy sustainable customer loyalty and revenue growth. In

The value road map: Part 1Taking value creation to the next level in an increasingly competitive marketplace

By Philip Styrlundchief executive officerthe Summit Group

Shakeel BharmalPresident (canada)the Summit Group

and James RobertsonVice president of business developmentthe Summit Group

V e l o c i t y ® • • 1 8 • • Q 3 a n d Q 4 2 0 0 9Copyright© 2009 StrategiC aCCount ManageMent aSSoCiation. all rightS reServed. reproduCtion or diStribution without expreSSed perMiSSion iS StriCtly prohibited.

“Value” is one of those business words that has

lost its meaning to many and become

increasingly difficult to deliver.

these articles we will share what the best do differently to create, capture and deliver sustainable value. (The value road map is not intended to be a prescriptive, “tick-the-boxes” approach to value creation. Rather, we seek to provide a flexible thought framework that recognizes each company’s unique situation, which in turn means the value road map “dosage” and steps may change.) The value road map comprises seven steps (see Figure 1):

Step 1: understanding customer value drivers

Step 2: aligning your capabilities with the customer value drivers

Step 3: developing and differentiating your products and solutions

Step 4: articulating the value you create

Step 5: capturing value

Step 6: delivering the value proposition

Step 7: sustaining value

In this initial installment of the value road map series we describe the first two steps: understanding and aligning.

Step 1: understanding customer value drivers

Value creation begins with a portfolio analysis of high-potential market segments and customers. The purpose is to identify and prioritize major opportunities for creating and delivering value. This ensures focus where there is likely to be the greatest return. In particular we recommend identifying “lighthouse” customers within prioritized market segments to jump-start your value creation journey. These are typically innovative, collaborative companies expected to lead their industries and be open to working with suppliers to accelerate mutual growth. Engaging first with these lighthouse companies enables you to:

Focus resources where there is the greatest potential.•�

Learn and gain insight with market-leading companies.•�

Create a springboard for your initiative by securing quick wins, •�delivering results and building a loyalty to the logic.

Develop a replicable approach and solutions that can be scaled •�to other segments and customers.

The key to value creation is knowledge acquisition: gaining deep insight and absolute clarity on your customer’s business value drivers. To accomplish this, leading companies work hard to elevate and institutionalize their capabilities for “listening louder” to their customers. John Chambers, chairman and chief executive officer of Cisco Systems Inc., said at Cisco Live 2009 in San Francisco, “For 19 years the one thing which has separated us from our competitors is our ability to listen to our customers.” Understanding your customer’s business is nothing new. As writer Peter Drucker said,

“The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.” Our research indicates, however, that relatively few companies get it right.

So what do the best do differently?

First the best companies reorder their thinking: starting with their


Delivering the value proposition

Sustaining value

Capturing value

Articulating thevalue you create

Developing anddifferentiating your

products and solutions

Aligning yourcapabilities with the

customer value drivers

Understandingcustomer value drivers

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step 7

Figure 1. The value road map

customer’s customer to understand why it selects one product, service or solution over another. Third Box Thinking™ is a principle that operationalizes value creation by reordering and aligning how you think with your customer’s value drivers. Traditional go-to-market processes lead with the product. In our experience this mind-set is one of the hardest things to change, especially when you have enjoyed product success. Third Box Thinking begins with the customer’s customer. (See Figure 2.) Value is created by thinking from right to left: starting with deep insight and understanding of what your customer’s customers care about (seek?), what your customers do to deliver value to their customers (care about?) and what you can provide (bring?). It’s about reverse engineering your relevance and listening beyond your product: suppressing the urge to discuss your solutions before you understand what really drives the customer’s business.

Leading companies engage lighthouse companies and ask the question, “What do you care about and why?” The challenge is to approach and ask in such a way as to build credibility while gaining deep, unique, strategic and tactical insight into industry value drivers, the customer’s business issues and initiatives and critical success factors. While quantitative and qualitative research as well as customer satisfaction surveys provide plentiful data, it is usually filtered through third parties, difficult to interpret, harder to act on and unlikely to provide the depth of insight required to guide the development of differentiated, customized solutions.

Leading companies place a premium on understanding the “ultimate truth”—the unfiltered voice of the customer. They proactively develop relationships with business decision makers across functions and outside their usual safe contact points. Notably they engage beyond procurement. Developing relationships higher, wider and deeper across the customer’s organization is critical to uncovering opportunities to create, capture and deliver value.

To listen louder, the best companies intentionally seek to increase their entire organization’s contact and cadence with relevant customer staff across functions and decision levels. Listening to the customer is not just the responsibility of sales, marketing or service: Value creation is everyone’s business. How can you listen louder as an organization? Increasing your touch-points with the customer – higher, wider and deeper – is key to gaining richer insights. One company we worked with measured its percentage of staff

“touching” the customer each month; its baseline was around 30 percent. Its goal was to reverse this so that 70 percent of its organization engaged the customer on a monthly basis. Procter & Gamble Co. established “mirror teams” with the same intent. Relationships are mapped and proactively developed with owners of key customer business initiatives.

Gaining deeper insight into customer value drivers requires understanding the

“why behind the what” by repeatedly asking “why” to uncover your customer’s higher-order needs. A number of our clients are pioneering an approach to take collaborative value creation to the next level: establishing the foundation for co-innovation. At the heart of this collaborative practice is a structured dialogue with the customer designed to:

Gain deep insight into the customer’s •�business and industry value drivers.

Establish strong alignment and focus •�on the customer’s top priorities and initiatives.

Assess and refine opportunities for •�co-innovation as a basis for developing a mutual growth blueprint.

Establish a tighter joint business •�plan and elevated rhythm for the relationship.

These “next practices” enable leading companies to discover, understand and validate the customer’s key value drivers, a deep understanding of which maximizes the potential for creating value, ensures efficient resource allocation, elevates relationships, differentiates how you appear and counters competition.

Step 2: aligning your capabilities with the customer value drivers

With a profound understanding of what your lighthouse customers care about and the value they seek to deliver to their customers, you should now be in the position to focus and align


Figure 2. Third Box Thinking

The central challenge for many businesses remains: In the face of intensifying global competition, how can they increase the value delivered to customers to drive sustainable, profitable growth?

You

Bring? Care About? Seek?

Customer End Customer

your value creation efforts with their priorities. Only if you are able to directly reinforce their value creation efforts or indirectly address one of their business issues that helps them become a stronger provider – by driving profitable growth, reducing costs and improving operating efficiencies or mitigating risks – will you be seen as creating value for them.

Major in the majors

World-class companies elevate the value they create by “majoring in the majors”: prioritizing and focusing on the business drivers that have the greatest impact on what their customers care most about. The level of value created is directly linked to the importance of the customer issues, challenges and initiatives you attach yourself to. At this

stage in the value creation road map, you should identify and articulate where you can have the greatest impact on your customer’s business using, for example, the matrix in Figure 3. Beginning with the customer’s key “care-abouts” – issues, challenges and initiatives uncovered in the first stage of the value creation road map – you then:

Describe your relevant products, •�services and solutions—your company’s pertinent capabilities.

Articulate and where possible quantify •�the impact your capabilities have on the customer’s care-abouts—the degree to which your products, services and solutions can increase customer revenue growth, reduce customer costs or mitigate risk.

To refine and prioritize where they focus, leading companies also evaluate:

Attractiveness—the potential •�profitable revenue growth for themselves.

Feasibility—their ability to deliver •�value considering their relative competitive position (strengths and weaknesses), strategic and cultural alignment, risks and ability to execute.

Proactive demand creation

A few of our clients are implementing a next practice to accelerate the sales cycle and provoke demand by reversing stages 1 and 2 of the value creation road map. Through Third Box Thinking, impact analysis and industry benchmarking, these clients proactively develop and articulate a point of view. They take the initiative to identify issues, align solutions and quantify impact, raising the customer’s awareness of potentially critical business issues and creating urgency often ahead of their customer’s full realization or appreciation of the implications or opportunity. Validating alignment of your company’s capabilities with the customer’s key value drivers, issues and initiatives will serve you well in Step 3, the next stage of the road map: “developing and differentiating your products, services and solutions to create value.” We will explore that further in the next article in this series.

Philip Styrlund is chief executive officer of the consultancy The Summit Group (www.summitvalue.com) and can be reached at [email protected] or (952) 891-8400. Shakeel Bharmal is president (Canada) at The Summit Group and can be reached at [email protected] or (604) 218-1076. James Robertson is vice president of business development for The Summit Group and can be reached at [email protected] or (952) 221-4889.

Additional resourcesFor more on this subject by these writers in SAMA’s library, the editors recommend: Philip Styrlund, “On-demand webinar: creating business value,” Oct. 17, 2007, www.strategicaccounts.org; and Philip Styrlund, Steve Andersen and David Pearson, “How can an account manager best obtain insight into a customer and its industry?” Focus: Account Manager, Vol. 3, No. 2, Fall 2006, www.strategicaccounts.org.


The value creation road map in practice

Early last year a leading Summit Group technology client decided that it wanted to grow faster

and gain share in the retail sector, where it believed that its capabilities aligned with customer

business challenges yet were “underappreciated.” The ambition was to grow sales to retailers

by 400 percent above the existing level within three years. Targeting a select lighthouse retail

customer, our technology client initiated a collaborative business alignment engagement to listen

louder, gain deeper insight into customer business drivers and uncover new areas for growth. In

2007 our client had been named “supplier of the year” by the retailer’s procurement organization

despite the fact that business had paradoxically stagnated and remained at a similar level for the

previous six years.

Participation by retail line-of-business executives – who it was believed would have the greatest

appreciation for our client’s capabilities beyond the established procurement relationship – was

critical to the success of this collaborative initiative. In a structured, facilitated “conversation,”

our client’s executives actively listened to each retail customer executive from store operations,

supply chain and logistics, marketing and human resources describe their longer-term strategic

business agenda and current initiatives, after which mutual priorities and next-action steps were

agreed upon. This conversation uncovered multiple growth and value creation opportunities that

until then had remained hidden to both companies. Later last year we received an elated call from

our client’s retail account director telling us of a just-concluded multiyear enterprise agreement

representing 1,400 percent revenue growth over the previous year’s business.

Figure 3. Majoring in the majors

Customer’s care-about What do you have? Impact (describe and quantify)

tsg tsg velocity sama part 1 2009

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