Making business sense of the Internet

For managers in large, well-established businesses, the Internet is a tough nut to crack. It is very simple to set up a Web presence and very difficult to create a Web-based business model. Established businesses that over decades have carefully built brands and physical distribution relationships risk damaging all they have created when they pursue commerce through the Net. Still, managers can't avoid the impact of electronic commerce on their businesses. They need to understand the opportunities available to them and recognize how their companies may be vulnerable if rivals seize those opportunities first. Broadly speaking, the Internet presents four distinct types of opportunities. First, it links companies directly to customers, suppliers, and other interested parties. Second, it lets companies bypass other players in an industry's value chain. Third, it is a tool for developing and delivering new products and services to new customers. Fourth, it will enable certain companies to dominate the electronic channel of an entire industry or segment, control access to customers, and set business rules. As he elaborates on these four points, the author gives established companies a systematic way to sort through the risks and rewards of doing business in cyberspace.     

Build loyalty in business markets

Companies often apply consumer marketing solutions in business markets without realizing that such strategies only hamper the acquisition and retention of profitable customers. Unlike consumers, business customers inevitably need customized products, quantities, or prices. A company in a business market must therefore manage customers individually, showing how its products or services can help solve each buyer's problems. And it must learn to reap the enormous benefits of loyalty by developing individual relationships with customers. To achieve these ends, the firm's marketers must become aware of the different types of benefits the company offers and convey their value to the appropriate executives in the customer company. It's especially important to inform customers about what the author calls nontangible nonfinancial benefits-above-and-beyond efforts, such as delivering supplies on holidays to keep customers' production lines going. The author has developed a simple set of devices-the benefit stack and the decision-maker stack-to help marketers communicate their firm's myriad benefits. The vendor lists the benefits it offers, then lists the customer's decision makers, specifying their concerns, motivations, and power bases. By linking the two stacks, the vendor can systematically communicate how it will meet each decision-maker's needs. The author has also developed a tool called a loyalty ladder, which helps a company determine how much time and money to spend on relationships with various customers. As customers become increasingly loyal, they display behaviors in a predictable sequence, from growing the relationship and providing word-of-mouth endorsements to investing in the vendor company. The author has found that customers follow the same sequence of loyalty behaviors in all business markets.     

The ultimately accountable job: leading today's sales organization

In recent years, sales leaders have had to devote considerable time and energy to establishing and maintaining disciplined processes. The thing is, many of them stop there--and they can't afford to, because the business environment has changed. Customers have gained power and gone global, channels have proliferated, more product companies are selling services, and many suppliers have begun providing a single point of contact for customers. Such changes require today's sales leaders to fill various new roles: Company leader. The best sales chiefs actively help formulate and execute company strategy, and they collaborate with all functions of the business to deliver value to customers. Customer champion. Customers want C-level relationships with suppliers in order to understand product strategy, look at offerings in advance, and participate in decisions made about future products--and sales leaders are in the best position to offer that kind of contact. Process guru. Although sales chiefs must look beyond the sales and customer processes they have honed over the past decade, they can't abandon them. The focus on process has become only more important as many organizations have begun bundling products and services to meet important customers' individual needs. Organization architect. Good sales leaders spend a lot of time evaluating and occasionally redesigning the sales organization's structure to ensure that it supports corporate strategy. Often, this involves finding the right balance between specialized and generalized sales roles. Course corrector. Sales leaders must watch the horizon, but they can't take their hands off the levers or forget about the dials. If they do, they might fail to respond when quick adjustments in priorities are needed.     

Banks: Advisers or sellers of mortgage loans?

The financial sector has undergone major changes in recent years. From being sharply divided between various sub-sectors, financial activities within banking, insurance and mortgage credit have become increasingly integrated. Two different trends have emerged in this process: One of them is the conglomerate strategy in which the various sub-sectors are linked through joint ownership offering the customers all financial products in-house. The other trend is the focus strategy in which the financial institution sticks to its core business but offers its customers complementary products sourced from other financial institutions. This paper presents an analysis of the conglomerate strategy versus the focus strategy. A questionnaire sent to Denmark's largest companies reveals that the choice of bank and mortgage credit institution is not based on independent decisions. The paper raises the question of whether the financial service businesses are able successfully to balance their functions as sellers and advisers to the customer.     

Strategic stories: how 3M is rewriting business planning

Virtually all business plans are written as a list of bullet points. Despite the skill or knowledge of their authors, these plans usually aren't anything more than lists of "good things to do." For example: Increase sales by 10%. Reduce distribution costs by 5%. Develop a synergistic vision for traditional products. Rarely do these lists reflect deep thought or inspire commitment. Worse, they don't specify critical relationships between the points, and they can't demonstrate how the goals will be achieved. 3M executive Gordon Shaw began looking for a more coherent and compelling way to present business plans. He found it in the form of strategic stories. Telling stories was already a habit of mind at 3M. Stories about the advent of Post-it Notes and the invention of masking tape help define 3M's identity. They're part of the way people at 3M explain themselves to their customers and to one another. Shaw and his coauthors examine how business plans can be transformed into strategic narratives. By painting a picture of the market, the competition, and the strategy needed to beat the competition, these narratives can fill in the spaces around the bullet points for those who will approve and those who will implement the strategy. When people can locate themselves in the story, their sense of commitment and involvement is enhanced. By conveying a powerful impression of the process of winning, narrative plans can mobilize an entire organization.     

Information partnerships--shared data, shared scale

How can one company gain access to another's resources or customers without merging ownership, management, or plotting a takeover? The answer is found in new information partnerships, enabling diverse companies to develop strategic coalitions through the sharing of data. The key to cooperation is a quantum improvement in the hardware and software supporting relational databases: new computer speeds, cheaper mass-storage devices, the proliferation of fiber-optic networks, and networking architectures. Information partnerships mean that companies can distribute the technological and financial exposure that comes with huge investments. For the customer's part, partnerships inevitably lead to greater simplification on the desktop and more common standards around which vendors have to compete. The most common types of partnership are: joint marketing partnerships, such as American Airline's award of frequent flyer miles to customers who use Citibank's credit card; intraindustry partnerships, such as the insurance value-added network service (which links insurance and casualty companies to independent agents); customer-supplier partnerships, such as Baxter Healthcare's electronic channel to hospitals for medical and other equipment; and IT vendor-driven partnerships, exemplified by ESAB (a European welding supplies and equipment company), whose expansion strategy was premised on a technology platform offered by an IT vendor. Partnerships that succeed have shared vision at the top, reciprocal skills in information technology, concrete plans for an early success, persistence in the development of usable information for all partners, coordination on business policy, and a new and imaginative business architecture.     

Multi-attribute analysis of confidence,convenience and price functions of customers of financial services firms: A GLS systems model

The paper examines attributes of customers for modelling the dimensions of confidence, convenience and affordability of services offered by financial services firms (FSFs) by applying a generalised least square (GLS) systems model to a cross-section of customers in Dubai. These three dimensions have become major drivers of long-run viability and survivability in the last 15–20 years, because of dynamic and competitive macroeconomic forces faced by the FSFs. Earnings stability, longevity of relationship and liquidity attributes significantly explain the confidence level of customers across FSFs. Core, tangible and relational attributes besides ambience and ATM network, positively significantly explained the convenience level of customers in FSFs. Home loans, credit cards, savings accounts, term deposits and insurance services are significant products that are affordable and valued by customers. The systems model was validated using a holdout sample. The study findings have implications for customer relationship management, customer insight and production/transaction processing competencies of FSFs in the study area and are equally applicable to FSFs in other developed and developing economies.     

The four faces of mass customization

Virtually all executives today recognize the need to provide outstanding service to customers. Focusing on the customer, however, is both an imperative and a potential curse. In their desire to become customer driven, many companies have resorted to inventing new programs and procedures to meet every customer's request. But as customers and their needs grow increasingly diverse, such an approach has become a surefire way to add unnecessary cost and complexity to operations. Companies around the world have embraced mass customization in an attempt to avoid those pitfalls. Readily available information technology and flexible work processes permit them to customize goods or services for individual customers in high volumes at low cost. But many managers have discovered that mass customization itself can produce unnecessary cost and complexity. They are realizing that they did not examine thoroughly enough what kind of customization their customers would value before they plunged ahead. That is understandable. Until now, no framework has existed to help managers determine the type of customization they should pursue. James Gilmore and Joseph Pine provide managers with just such a framework. They have identified four distinct approaches to customization. When designing or redesigning a product, process, or business unit, managers should examine each approach for possible insights into how to serve their customers best. In some cases, a single approach will dominate the design. More often, however, managers will need a mix of some or all of the four approaches to serve their own particular set of customers.     

Service transition strategies in service-dominant settings: Towards all finance solutions in SME markets

Intense competition and extensive customer needs are motivating companies to develop so-called ‘solution’ offerings in service industries. Building on service transition strategy literature, this article outlines the practical activities that broad-based financial service providers take in transitioning towards ‘all finance’ solutions and accentuates the inhibitors that their business customers perceive in this process. The empirical data consists of 40 semi-structured interviews among two service providers and 17 of their small- and medium-sized enterprise (SME) customers. The results show that the service transition strategies of service extension and relationship focus are increasingly utilized in the financial industry. However, the integration of various components within a comprehensive bank and insurance offering is still in its early stages, suggesting providers rely mainly on a pure component strategy. SME customers, who seem to have taken the role of independent value creators, fail to perceive the benefits of purchasing comprehensive offerings from a single provider. Thereby, they tend to follow price-based purchase behaviour and negotiate their service offering with many different providers.     

Customer value propositions in business markets

Examples of consumer value propositions that resonate with customers are exceptionally difficult to find. When properly constructed, value propositions force suppliers to focus on what their offerings are really worth. Once companies become disciplined about understanding their customers, they can make smarter choices about where to allocate scarce resources. The authors illuminate the pitfalls of current approaches, then present a systematic method for developing value propositions that are meaningful to target customers and that focus suppliers' efforts on creating superior value. When managers construct a customer value proposition, they often simply list all the benefits their offering might deliver. But the relative simplicity of this all-benefits approach may have a major drawback: benefit assertion. In other words, managers may claim advantages for features their customers don't care about in the least. Other suppliers try to answer the question, Why should our firm purchase your offering instead of your competitor's? But without a detailed understanding of the customer's requirements and preferences, suppliers can end up stressing points of difference that deliver relatively little value to the target customer. The pitfall with this approach is value presumption: assuming that any favorable points of difference must be valuable for the customer. Drawing on the best practices of a handful of suppliers in business markets, the authors advocate a resonating focus approach. Suppliers can provide simple, yet powerfully captivating, consumer value propositions by making their offerings superior on the few elements that matter most to target customers, demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer's business priorities.     

Business marketing: understand what customers value

How do you define the value of your market offering? Can you measure it? Few suppliers in business markets are able to answer those questions, and yet the ability to pinpoint the value of a product or service for one's customers has never been more important. By creating and using what the authors call customer value models, suppliers are able to figure out exactly what their offerings are worth to customers. Field value assessments--the most commonly used method for building customer value models--call for suppliers to gather data about their customers firsthand whenever possible. Through these assessments, a supplier can build a value model for an individual customer or for a market segment, drawing on data gathered form several customers in that segment. Suppliers can use customer value models to create competitive advantage in several ways. First, they can capitalize on the inevitable variation in customers' requirements by providing flexible market offerings. Second, they can use value models to demonstrate how a new product or service they are offering will provide greater value. Third, they can use their knowledge of how their market offerings specifically deliver value to craft persuasive value propositions. And fourth, they can use value models to provide evidence to customers of their accomplishments. Doing business based on value delivered gives companies the means to get an equitable return for their efforts. Once suppliers truly understand value, they will be able to realize the benefits of measuring and monitoring it for their customers.     

Where value lives in a networked world

While many management thinkers proclaim an era of radical uncertainty, authors Sawhney and Parikh assert that the seemingly endless upheavals of the digital age are more predictable than that: today's changes have a common root, and that root lies in the nature of intelligence in networks. Understanding the patterns of intelligence migration can help companies decipher and plan for the inevitable disruptions in today's business environment. Two patterns in network intelligence are reshaping industries and organizations. First, intelligence is decoupling--that is, modern high-speed networks are pushing back-end intelligence and front-end intelligence toward opposite ends of the network, making the ends the two major sources of potential profits. Second, intelligence is becoming more fluid and modular. Small units of intelligence now float freely like molecules in the ether, coalescing into temporary bundles whenever and wherever necessary to solve problems. The authors present four strategies that companies can use to profit from these patterns: arbitrage allows companies to move intelligence to new regions or countries where the cost of maintaining intelligence is lower; aggregation combines formerly isolated pieces of infrastructure intelligence into a large pool of shared infrastructure provided over a network; rewiring allows companies to connect islands of intelligence by creating common information backbones; and reassembly allows businesses to reorganize pieces of intelligence into coherent, personalized packages for customers. By being aware of patterns in network intelligence and by acting rather than reacting, companies can turn chaos into opportunity, say the authors.     

Your loyalty program is betraying you

Even as loyalty programs are launched left and right, many are being scuttled. How can that be? These days, everyone knows that an old customer retained is worth more than a new customer won. What is so hard about making a simple loyalty program work? Quite a lot, the authors say. The biggest challenges include clarifying business goals, engineering the reward structure, and creating incentives powerful enough to change buying behavior but not so generous that they erode margins. Additionally, companies have to sort out the puzzles of consumer psychology, which can result, for example, in two rewards of equal economic value inspiring very different levels of purchasing. In their research, the authors have discovered patterns in what the successful loyalty programs get right and in how the others fail. Together, their findings constitute a tool kit for designing something rare indeed: a program that won't do you wrong. To begin with, it's important to know exactly what a loyalty program can do. It can keep customers from defecting, induce them to consolidate certain purchases with one seller (in other words, win a greater share of wallet), prompt customers to make additional purchases, yield insight into their behavior and preferences, and turn a profit. A program can meet these objectives in several ways--for instance, by offering rewards (points, say, or frequent-flier miles) divisible enough to provide many redemption opportunities but not so divisible that they fail to lock in customers. Companies striving to generate customer loyalty should avoid five common mistakes: Don't create a new commodity, which can result in price wars and other tit-for-tat competitive moves; don't cater to the disloyal by making rewards easy for just anyone to reap; don't reward purchasing volume over profitability; don't give away the store; and, finally, don't promise what can't be delivered.     

Understanding customer experience

Anyone who has signed up for cell phone service, attempted to claim a rebate, or navigated a call center has probably suffered from a company's apparent indifference to what should be its first concern: the customer experiences that culminate in either satisfaction or disappointment and defection. Customer experience is the subjective response customers have to direct or indirect contact with a company. It encompasses every aspect of an offering: customer care, advertising, packaging, features, ease of use, reliability. Customer experience is shaped by customers' expectations, which largely reflect previous experiences. Few CEOs would argue against the significance of customer experience or against measuring and analyzing it. But many don't appreciate how those activities differ from CRM or just how illuminating the data can be. For instance, the majority of the companies in a recent survey believed they have been providing "superior" experiences to customers, but most customers disagreed. The authors describe a customer experience management (CEM) process that involves three kinds of monitoring: past patterns (evaluating completed transactions), present patterns (tracking current relationships), and potential patterns (conducting inquiries in the hope of unveiling future opportunities). Data are collected at or about touch points through such methods as surveys, interviews, focus groups, and online forums. Companies need to involve every function in the effort, not just a single customer-facing group. The authors go on to illustrate how a cross-functional CEM system is created. With such a system, companies can discover which customers are prospects for growth and which require immediate intervention.     

Deep change. How operational innovation can transform your company

Breakthrough innovations--not just steady improvements--in operations can destroy competitors and shake up entire industries. Just look at Dell, Toyota, and Wal-Mart. But fewer than 10% of large companies have made serious attempts to achieve operational innovation. Why? One reason, contends the author, is that business culture undervalues operations--they're not as sexy as deals or acquisitions. In addition, many executives who rose through the ranks of finance or sales aren't familiar with operations--and they aren't interested in learning more. Finally, because no one holds the title Vice President of Operational Innovation, it doesn't have a natural home in the organization, so it's easily overlooked. Fortunately, all of these barriers can be overcome. This article offers practical advice on how to develop operational innovations, such as looking for role models outside your industry to emulate and identifying--and then defying--constraining assumptions about how work should be done. The author also discusses the best way to implement operational innovations. For instance, because they are disruptive by nature, projects should be concentrated in those activities with the greatest impact on enterprise strategic goals. Operational innovation may feel unglamorous or unfamiliar to many executives, but it is the only lasting basis for superior performance. Executives who understand how operational innovation happens--and who understand the barriers that prevent it from happening--can add to their strategic arsenal one of the most powerful competitive weapons in existence. In an economy that has overdosed on hype and in which customers rule as never before, operational innovation offers a meaningful and sustainable way to get ahead--and stay ahead--of the pack.     

Don't homogenize, synchronize.

To be more responsive to customers, companies often break down organizational walls between their units--setting up all manner of cross-business and cross-functional task forces and working groups and promoting a "one-company" culture. But such attempts can backfire terribly by distracting business and functional units and by contaminating their strategies and processes. Fortunately, there's a better way, says the author. Rather than tear down organizational walls, a company can make them permeable to information. It can synchronize all its data on products, filtering the information through linked databases and applications and delivering it in a coordinated, meaningful form to customers. As a result, the organization can present a single, unified face to the customer--one that can change as market conditions warrant--without imposing homogeneity on its people. Such synchronization can lead not just to stronger customer relationships and more sales but also to greater operational efficiency. It allows a company, for example, to avoid the high costs of maintaining many different information systems with redundant data. The decoupling of product control from customer control in a synchronized company reflects a fundamental fact about business: While companies have to focus on creating great products, customers think in terms of the activities they perform and the benefits they seek. For companies, products are ends, but for customers, products are means. The disconnect between how customers think and how companies organize themselves is what leads to inefficiencies and missed opportunities, and that's exactly the problem that synchronization solves. Synchronized companies can get closer to customers, sustain product innovation, and improve operational efficiency--goals that have traditionally been very difficult to achieve simultaneously.     

Effective marketing for professional services

In many professions, the idea of marketing has traditionally been not only foreign but distasteful. After all, what doctor, lawyer, architect, or consultant worth his or her salt would even need to go out hustling business? While this view still holds considerable weight in many people's minds, it is gradually receding before the forces of economic reality. As more professions become overcrowded, competition for customers is sharpening. How should professionals go about drawing favorable attention to themselves? By first recognizing the special problems they face in marketing their services, argues the author. Among the obstacles he identifies are buyer uncertainty about obtaining professional services, the difficulties of distinguishing among firms, and the immeasurable benefits of advertising. Among his suggestions are that providers of these services concentrate on educating prospective customers about the opportunities and limitations of the services, team up with others who have desirable experience, and do marketing research to identify and then cater to customer desires.     

The Restoration Methodology for Valuing Goodwill

A method is proposed by which the goodwill of a business may be valued whenever the conventional accounting method is not available. This ‘restoration’ methodology involves using a combined cost and income approach to value the benefits a hypothetical purchaser of an operating business obtains, by reference to the costs, delays and risks it avoids, by acquiring the operating business rather than the business's identifiable assets alone. Such a value approximates that of the goodwill of the business. To provide some guidance as to how the restoration methodology might be used in a real situation, the actual sale of an interest in the Gove bauxite and alumina joint venture business is considered, where the existence and value of the business's goodwill was a factor in determining whether land‐rich stamp duty was payable in respect of the transaction. When the benefits gained by the purchaser of the Gove business are identified by reference to the costs, delays and risks it avoided by purchasing the business rather than the assets, it is not difficult to understand why such a sophisticated purchaser paid (and a pre‐empted purchaser was prepared to pay) an amount equal to or greater than the value of the business's identifiable assets in order to obtain those benefits.     

Loyalty-based management

Despite a flurry of activities aimed at serving customers better, few companies have systematically revamped their operations with customer loyalty in mind. Instead, most have adopted improvement programs ad hoc, and paybacks haven't materialized. Building a highly loyal customer base must be integral to a company's basic business strategy. Loyalty leaders like MBNA credit cards are successful because they have designed their entire business systems around customer loyalty--a self-reinforcing system in which the company delivers superior value consistently and reinvents cash flows to find and keep high-quality customers and employees. The economic benefits of high customer loyalty are measurable. When a company consistently delivers superior value and wins customer loyalty, market share and revenues go up, and the cost of acquiring new customers goes down. The better economics mean the company can pay workers better, which sets off a whole chain of events. Increased pay boosts employee moral and commitment; as employees stay longer, their productivity goes up and training costs fall; employees' overall job satisfaction, combined with their experience, helps them serve customers better; and customers are then more inclined to stay loyal to the company. Finally, as the best customers and employees become part of the loyalty-based system, competitors are left to survive with less desirable customers and less talented employees. To compete on loyalty, a company must understand the relationships between customer retention and the other parts of the business--and be able to quantify the linkages between loyalty and profits. It involves rethinking and aligning four important aspects of the business: customers, product/service offering, employees, and measurement systems.     

Manage customer-centric innovation--systematically

No matter how hard companies try, their approaches to innovation often don't grow the top line in the sustained, profitable way investors expect. For many companies, there's a huge difference between what's in their business plans and the market's expectations for growth (as reflected in firms' share prices, market capitalizations, and P/E ratios). This growth gap springs from the fact that companies are pouring money into their insular R&D labs instead of working to understand what the customer wants and using that understanding to drive innovation. As a result, even companies that spend the most on R&D remain starved for both customer innovation and market-capitalization growth. In this article, the authors spell out a systematic approach to innovation that continuously fuels sustained, profitable growth. They call this approach customer-centric innovation, or CCI. At the heart of CCI is a rigorous customer R&D process that helps companies to continually improve their understanding of who their customers are and what they need. By so doing, they consistently create or improve their customer value proposition. Customer R&D also focuses on better ways of communicating value propositions and delivering the complete experience to real customers. Since so much of the learning about customers and so much of the experimentation with different segmentations, value propositions, and delivery mechanisms involve the people who regularly deal with customers, it is absolutely essential for frontline employees to be at the center of the CCI process. Simply put, customer R&D propels the innovation effort away from headquarters and the traditional R&D lab out to those closest to the customer. Using the example of the luggage manufacturer Tumi, the authors provide a step-by-step approach for achieving true customer-centric innovation.