A different way to think about value
Every legitimate business truly impacting its customers must have a product or service that solves a real problem.
That problem is solved not just because we have the right product or service but because we’re able to deliver it in a way that achieves the intended result for the recipient.
That is the very nature of an effective business. It is also the inherent reason why customers stay, engage fully and refer to the companies they work with.
This is especially true when it comes to managing and growing your most important customers.
These four activities should all be part of a weekly team and organisational conversation:
- Evaluating the impact of your value.
- Reviewing the effectiveness of that delivery.
- Accessing new levels of value.
- Translating that into a proposition or result that your customers would spend more to get.
I’ve given presentations to thousands of sales and customer leaders, and in each show of hands or event survey I get the same result – an average of 30% say they have regular conversations about value. Yet only 61% of sales and customer leaders report they get the return they expect from the value they deliver to their customers.
The responses cause me to ask the following question:
How much time do you devote to thinking about the areas that impact the way you deliver value to your customers?
In a marketplace where scepticism is high, uniqueness is rare or non-existent and it’s now easier than ever to move to another provider – be warned, your customer relationships aren’t safe!
We cannot become more to our customers if we have the same level of thinking like everyone else. We must become more and adopt Irreplaceable thinking.
To begin the process of irreplaceable thinking, we need to be aware of the value chain of our business.
The dictionary describes the value chain as:
A set of activities that a company operating in a specific industry performs in order to deliver a valuable product or service for the market.
In a previous blog on the disciplines of delivering value, I discuss how to deliver the value you have today with your most important customers.
I also state that value to me is:
Your ability to provide a relevant, sought after personalised outcome that delivers a specific result, based on the present and future practical and emotional needs of your customers.
This is an ambitious statement and is what the value disciplines are designed to help do. When used effectively they offer:
- Sought after
- Present and future practical and emotional results
For this to happen we need to stretch, get out of the middle and think differently about how value is designed and talked about in our businesses.
No one really wants improvements in their business. Instead, we want to release the untapped and undiscovered resources and advantages we know are there. The advantages that allow us to be separated from the rest and become the number 1 choice in our customers’ mind.
This is where value chain analysis comes in. One of the most popular concepts on understanding the value chain is Porter’s Five Forces.
Porter’s Value Chain
The Five Forces was developed by Havard Professor Michael Porter. This was laid out as his method of analysing value chains in his 1985 book Competitive Advantage. It has since been used by thousands of organisations around the world for over 30 years.
Porter sought to define a company’s competitive advantage stating that it originates from a select number of key activities.
Value Chain analysis
Porter breaks value chain analysis into five primary activities common to all businesses. These reflect the creation, sale, maintenance and support of a product or service.
This is broken down further into four activities that help support the five primary activities.
The primary activities of Michael Porter’s value chain are:
- Inbound Logistics
- Outbound Logistics
- Marketing and Sales
The goal of the five sets of activities is to create value that exceeds the cost of conducting that activity and to make a profit. There is also a hidden sixth opportunity which we’ll cover.
Here are the five key primary activities.
Five Primary Activities
- Inbound Logistics – processes relating to restoring, receiving and distributing inputs.
- Operations – the activities that turn inputs into outputs, where operational systems create value.
- Outbound Logistics – activities that deliver your product or service to your customers.
- Marketing and Sales – processes used to persuade customers to purchase from you rather than your competitors.
- Service – supported activities related to service during and after the sale has been made.
Four Supporting Activities
- Procurement – it’s what an organisation does to get the resources it needs to operate. This can include finding vendors and negotiation. It will often support operations, marketing and sales with specific activities.
- Technological Development – activities related to capturing, managing, processing and sharing information for an organisation.
- Human Resources – how well a company recruits, trains, motivates and rewards employees to effectively produce specific results which work across the five areas.
- Firm infrastructure – company’s support systems that allow it to maintain daily operations like legal, accounting, CRM and general management.
You don’t need to be a Harvard professor or expert in the supply chain to see all these areas working in some way within your organisation. The interactions of these areas can vary greatly for different organisations.
Porter’s Value Chain is a helpful framework to examine an internal organisation. From it you’ll be able to see where:
- Value is created
- Costs can be reduced in order to boost margins
- Communication can be improved between departments
An exercise for your business…
Evaluate what the value chains of your company’s suppliers and buyers are. Place them in line at the appropriate place in your company’s value chain. This will allow you to see all potential interacting activities, challenges, opportunities and blocks to you, your customers and partners working effectively together.
The internal challenge
For most organisations, the majority of their employees are oblivious to the way in which all the interworking parts of their organisation work together.
Why? Because it can feel academic, complex and a lot of work. None of these has to be true. It can be creative, simple and yes, sometimes a lot of work, but work that actually brings results.
With focused evaluation and effort, even the most disconnected departments can contribute to dramatically improving departmental and organisational performance that will drive results for themselves and their customers.
As each department gets better, so does the customer.
The missing ingredient
Whereas at an organisational level, models like Porter’s Five Forces are extremely helpful in identifying inefficiencies, leveraging resources, reducing cost, increasing revenue and profits.
What is missing from almost all value chain models is the ability for individuals and departments to do the same. Both for themselves and their most important customers.
Ultimately true market advantage sits hidden throughout the value chain process and an organisation’s ability to draw out the untapped potential in its people for results.
Every department can have a role to play in this. Particularly those account management teams and leaders managing key customers.
The way each individual and or department can realise these results is through what we call the Value Pillars.
The Value Delivery Pillars
Value delivery pillars are the four primary pillars that almost all value delivered to customers and the marketplace can be categorised into.
These are areas in your business that are working or not working right now, intentionally or unintentionally, to shape and reshape your customer relationships and business results.
These pillars impact all areas of the value chain.
In most organisations, we don’t think about value as individually connected areas that we can influence.
Embracing this thinking will transform the way we design and deliver results that are insanely attractive to our customers.
The four observable Value Pillars are seen in three functions:
Direct Value: Benefits a customer can experience immediately or for a set period of time.
One: Value-Adding – What you do with your products and services to help your customers gain a result and or eliminate pain.
Two: Value Creation – Identified and designed insights from the knowledge of your customers, their market and goals allowing you to deliver unexpected benefits.
Systematic Value: Benefits customer experiences consistently and predictably at different stages of the relationship.
Three: Value Realisation – The effective use and management of resources enabling the full value of your services and products to be delivered.
Enhanced Value: Areas within the product or service that can be made more attractive to a customer to help make an existing product more profitable or create new future solutions for a customer.
Four: Value Elements – The inclusion of specific psychological, emotional, practical and philosophical distinctions, that greatly improves the perceived benefit of a specific product or service.
Each of the pillars by themselves can yield game-changing results when applied to your department and company around the way you deliver to your customers.
If combined, you will be on the way to being the number 1 choice in every category you want for your most important customers.
How to activate the Value Pillars
Pillar One: Value Adding
What you do with your products and services to help your customers gain a result and or eliminate pain.
Value-adding is a phrase we hear a lot. ‘Added value’, a ‘Value add’.
All this typically refers to are the known extras, assets and resources we can offer attached to our products and services.
These could be educational emails you send, the proactiveness of your customer service department, or webinar training. Anything you or your employees are doing to help your customers get more value from the existing products or services you offer.
That is all ‘adding value’ is.
While adding value is very important we must also understand the impact of that value. Not all the things you do for your customer are appreciated at the same level. Some things you do will have more value because of context, timing, relationships, the extent of the problem etc…
- Write down all the places you believe as an organisation you are adding value to your customers.
- Speak with your customers to understand if they see it the same way and evaluate what impact it is making.
- Record the answers from the customer by using surveys, meetings etc..
- Share the results within your business.
- Decide what needs to Continue, Start, Stop or Change.
Pillar Two: Value-Creating
Identified and designed insights from the knowledge of your customers, their market and goals allowing you to deliver unexpected benefits.
Value creation has been defined by many people in different ways.
Here is my explanation of value creation that will help you take action immediately. Value creation is…
what you do with the insight and information you have about your customer that can be converted into a highly personalised benefit for them today or in the future.
The impact of value creation can often define how your customers perceive you in the future. It does require a little more deep analysis and proactive listening. The results are well worth the effort.
An example of this came in 2018. I had the opportunity to work with a small manufacturing company producing silicon products across Europe.
They were in a very competitive market that was very price-driven so there was always another manufacturer around to take their place. In fact, 95% of what they could do could be delivered by many of their competitors.
They had to find ways to stand out. Rather than exploring new products we asked a different set of questions for a small set of key customers.
What is it we know about our customers today that they don’t?
Then based on their current and future goals, we asked.
How might that information bring greater benefit, reduce risk or create opportunity they need or want today?
These questions shifted everything.
We came up with a list of 17 different insights. Yet only one mattered most at the time.
It was their customers’ ability to respond and deliver large product orders internationally in less than 10 days. The manufacturing company was losing business to local providers and they were taking a longer shipping route to manage costs.
We worked out that the loss in potential business and returned items for key customers was resulting in thousands in unrecoverable costs every month.
The manufacturing company struck partnerships in key geographical areas that would:
- allow the customer to keep the same price in the same market
- deliver within 5 days
- reduce shipping costs by 60%
This was huge. On knowing this they presented it to the customer. Within 4 months they saved the customer $75,000 dollars in shipping and increased their revenue by 28% in a single quarter.
Outcome? They went from managing a national licence to being given an international manufacturing licence that tripled the revenue with their key customers.
All because they took the time to think about creating value.
Value creating can have two impact points:
- An immediate problem is solved or a specific benefit gained for a customer.
- Delivery of a recurring utilised benefit and competitive advantage.
We see both in the example above.
There are a few different ways to determine if what you create could achieve both. By using other evaluation models like VRIO you can view competitive advantage analysis.
The easiest way to get started is by asking these questions:
What do we know about our customers today that they don’t?
Note: You may find the value-adding exercise helps to bring some of this to light.
Based on their current and future goals:
How might that information bring greater benefit, reduce risk or create opportunities they need or want today or tomorrow?
What available, accessible and or untapped resources do we have to create this for the customer. Are these sustainable?
Brainstorm these with your team, colleagues or peers and you’ll be on your way to creating superior value.
Pillar Three: Value Realisation
The effective use and management of resources enabling the full value of your services and products to be delivered.
Several sources define value realisation as:
“The value extracted from a process or project shown over time”
There are many schools of thought on value realisation. It has its origins in the world of IT systems with the need for organisations that purchase IT to achieve their intended result from their investment.
A financial services company may want to decrease the wait time for customers by improving the ease and usability of its new digital self-service desk.
- reduction in the cost of service
- increase in user satisfaction
- increase to transaction revenue
Pre new service desk: Serviced 50 customers per hour, cost £90 per person and only 60 transactions.
Post new service desk: Serviced 80 customers per hour, cost £40 per person with a 40% increase in self-service and 90 transactions.
The value in this example was seen in all measurable areas.
This is value realisation.
This concept is now rapidly being applied to all kinds of investments across industries, in departments and now with any customer purchase.
Typically this evaluation was held for specific departments like operations and strategy.
It is now becoming an area that all aspects of a business need to consider as the touchpoints with a customer extending beyond the traditional business areas like sales and support.
Every organisation can turn the value realisation process into a core advantage to drive unrivalled results for their key customers.
It just requires taking the lead.
All frameworks aside. True value realisation is a team sport and requires discipline, coordination and an internal desire to engage at a higher level.
There are 11 important steps to cover:
- Get a grip on the real results you want to produce and your customer expects.
- Determine the real time frame for results your customer wants.
- Establish clear lead measures and milestones.
- Set the new internal standards for work internally.
- Don’t overburden.
- Prepare for delays.
- Define clear roles and responsibilities.
- Create internal incentives.
- Invite your customer into the process.
- Evaluate, adapt and keep improving.
This pillar is arguably the most important. It is where we see most of the value activity in an organisation. Reviewing how to coordinate and manage the process of delivering value realisation to your customer is the most important pillar to master.
We’ll have a separate blog on this in the future.
Pillar Four: Value Elements
The inclusion of specific psychological, emotional, practical and philosophical distinctions, that greatly improves the perceived benefit of a specific product or service.
More and more we see the use of other ways organisations market their products to consumers.
Not just with the practicality of the product or service. Also with the emotional and moral connection, the social connection, and the status connection. All of these things are elements that increase the perceived value of the product or service.
In fact, research from Bain & Company uncovered what they call the Value Pyramid. It consists of 30 different elements of value, split into 4 categories mapped against the work by psychologist Maslow’s Hierarchy of Human Needs.
The four elements categorised by Bain & Company were:
- Social impact
Some elements noted within the categories are more inwardly focused, primarily addressing consumers’ personal needs. For example, the Life changing element motivation is at the core of Fitbit’s exercise-tracking products.
Others are outwardly focused, helping customers interact in or navigate the external world. The functional element Organises is central to The Container Store and Intuit’s TurboTax because both help consumers deal with complexities in their world.
The important distinction is the elements are not based on rudimentary words we hear from customers like convenient. Bain & Company distilled the words into core attributes which each element has.
Here’s their example for convenience:
convenience = saves time, avoids hassle, simplifies, and reduces effort.
Bain & Company partnered with Research Now (Dynata) and surveyed 10,000 US consumers about their perceptions of 50 US brands. Using a 0-10 scale, each person scored companies they had bought a product or service from.
Looking at the relationships, the results conclusively showed, organisations who ranked 8 or above in a combination of these elements and attributes for their products or services saw their companies grow 4 times faster than their competition, with 3 times higher Net Promoter Scores (NPS).
Those companies included the likes of Apple, Samsung, USAA, TOMS, and Amazon.
According to the research across all the industries studied, perceived quality affected customer advocacy more than any other element. However, the research shows companies must attain a certain minimum level of elements.
These elements can’t be just bolted on. They must still be very relevant, and in the context of solving real business or personal challenges for your customers.
You can use the elements to:
- Identify new value areas to grow with existing products.
- Review areas of value that are weak.
- Create new products designed around business outcomes and specific elements.
- Reduce churn.
The case studies are wide and varied for these elements, like an insurance company adding a low-fee, automated advice platform to its core investment services in order to keep its clients better informed and, reduce the risk of churn.
- How many elements do we have in our current products and services? How do we know our customers see it the same way?
- What elements, if added to your current products or services, could become more attractive to your existing customers and their desired outcomes?
- What elements of value could be developed into new and undiscovered products that might solve a future problem for customers?
The opportunities are only bound by your creativity. Now get creative and give them a go.
I’ve covered a lot of information in this blog. These are the distinct qualities of companies who want to become leaders and organisations their best customers never want to leave. They want to be irreplaceable.
You can’t do that sitting in the middle thinking like everyone else.
Choose to ignite the value you have and create new advantages starting today.
Get in touch if you’d like me and my company The IA Group to help.
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