Review of Gautam Mahajan’s book “Value Creation – The Definitive Guide for Business Leaders”

Gautam Mahajan, Value Creation: The Definitive Guide for Business Leaders, Sage Response. New Delhi, India: SAGE Publications India Pvt Ltd, 2016, 340 pp., ` 450 (ISSN: 978-93-515-0897-7) (Paperback)

Mahajan is a champion in advocating the customer as the fulcrum of business. Through his no nonsense approach, he reasons that creating value to customers is not only beneficial to the shareholders, but also to the entire ecosystem which includes employees, partners, vendors, customers and of course the shareholders.

This book is primarily targeted at chief executive officers (CEOs) (and chief experience officer [CXO]) and provides a detailed roadmap of how CEOs can create a value-creating organization. He has organized the book in 11 chapters and each chapter focuses on an important aspect of value creation. The book is interspersed with widely accepted research articles as well as personal experiences of the author.

Chapter 1 ‘Why Is Value Creation Important for CEOs?’

The author, aptly, begins by building a strong case for the importance of value creation for the company and why the CEO should focus on value creation, rather than on other competing goals such as shareholder wealth creation, profit maximization, etc. He argues that value creation is for all stakeholders, including customers, employees, shareholders, suppliers and society, while shareholder wealth creation is focused only on shareholders, which leads to myopic mindset. To support his point, he cites various research articles which champions value creation as the goal of the organization and highlights the drawbacks of shareholder wealth creation as the sole objective of the organization.

The concept of value creation is explained in detail, where the fulcrum of the business is the customer. All processes and systems are designed to add value to the customer, which leads to value creation for the entire ecosystem (customers, employees, shareholders, partners and society).

The author probes the reasons for the high failure rate of leaders and leadership training. In his view, the failure is mainly because of lack of customer focus. Leaders are profit focused and not customercentric; leaders lack the mindset of value creation as well. He argues that leadership training should focus on changing mindsets, which will make potential leaders more customer-centric, making them aware of value creation for all stakeholders.

Chapter 2 ‘CEOs as Value Creators for Business/Customers’

Having built a strong case for value creation, the author moves on to discuss various ideas for value creation. The first step to building a value-creating, customer-focused organization is to craft a customer strategy and integrate it into the business strategy. The author explains the key features of a customer strategy and explains the key differences between customer strategy and business strategy.

The author gives strong arguments to silence critics of customer value creation, who argue that customer value is focused on the company at the cost of the company. He argues, when a company creates value for the customer, the company also gets value. He further explains that being customer-centric is not in conflict with shareholder wealth creation. To explain his point, he uses customer value added (CVA) as a metric for value creation and demonstrates that increase in CVA is linked to increase in market share, return on investment (ROI) and share of wallet.

He cautions CEOs against being complacent and explains the reasons for companies losing market share. He argues that customers desert a company, if a competitor adds more value than the company. He advises CEOs to innovate and keep on adding more value to customers than competitors, to retain customers.

Chapter 3 ‘How CEOs Can Use Value Creation for Customers’

The author introduces the idea of customer ambassador, how a company can create customer ambassadors by creating more value for them than by competitors, how to leverage the customer ambassador’s personal and social network for acquiring more customers. To illustrate his point, he gives examples of Apple customers who are also their ambassadors.

He moves on to the reasons why senior management does no pay as much importance and heed to customers despite being aware of the benefits of being customer-focused and customer value-centred.

The common refrain of most CEOs that they do not have sufficient time for customers is debunked by the author by conducting a task audit, which reveals that 50–70 per cent of the work done by CEOs is not necessary and relevant to the customer.

Chapter 4 ‘CEOs Can See How Their Values Creates Customer Value’

The author broaches the topics of value creation through values, corporate consciousness and conscious capitalism. He urges corporates to do business with values (integrity, honesty and sustainability).

He argues that such companies are preferred by customers, suppliers, employees and all other stakeholders, which will lead to higher prices, higher market share, higher profits and higher value creation for all.

He also advises CEOs to walk the talk and implement the values of the organization and not confine it to the annual reports and corporate walls.

Chapter 5 ‘Business Transformation Ideas for CEOs to Create Value’

The author talks about how CEOs need to change their mindset and unlearn to make their organizations customer-centric. He also suggests ways for the top management to be customer focused. The author, in fact, gives a checklist of what to unlearn for middle and senior managers. He goes on to ridicule the concept of internal customers, arguing that the concept of internal customers creates silos and departments, which are often isolated, and do not care for the customer, passing the buck to the customer department.

He advises companies to break away from the concept of internal customers by building customer strategy whose leadership is from all departments, ensuring that all departments own the customer.

Chapter 6 ‘How CEOs Can and Why They Should Create Value for Employees’

In author’s view, the three pillars of a company are customers, employees and investor. In this chapter, he discusses the role of employees in creating value for themselves and for the company. In the process, he explains the concepts of employee value added (EVA) and employee journey in the context of value creation for the company. He emphasizes on security and self-esteem of employees because only such employees can be proactive and have a sense of ownership towards customers. To build self-esteem and pro-activeness, he suggests building customer-centric circles in companies on the lines of quality circles, where employees across departments discuss, ideate and initiate value creation initiatives.

Chapter 7 ‘Howand Why CXOs Such as CFO/Marketing/HR Create Value’

The author discusses various strategies of de-commoditizing and differentiation and argues for ‘Adding Customer Value’ as the best way to differentiate. He cites several examples of how adding customer value can de-commoditize businesses.

The author also challenges the traditional roles of chief information officer (CIOs) and advocates the growing importance of information technology (IT) and information technology enabled services (ITES) in businesses. He argues that IT should no longer be a support function, but be a core function with the CIO taking the lead and initiative to design systems which aligns with the customer strategy of the organization and create value for all stakeholders.

Chapter 8 ‘Value Creation and Customer Service/Loyalty Tips for CEOs’

In this chapter, customer service, complaints and loyalty issues are discussed. The author is critical of the role of call centres in resolving customer complaints and advises CXOs to take one call a day from the call centre to understand the customer and redesign the systems and processes to be more customer focused.

The author is also critical of executives who stop thinking and acting like customers. He advises them to think and feel like a customer. His focus should be the customer, not the company. In author’s view, it is the training in business schools which alienates the customer from the executive. The focus in business schools is on company’s needs and not on customer’s. He suggests B Schools to start courses on customer strategy and value creation so that future employees are customer centric and not company centric.

The author also distinguishes between necessary and sufficient condition to buy. He reasons that, while experience and satisfaction are necessary conditions to buy, it is the value which is created for the customer over competition which makes the customer buy. Hence, companies should not overtly focus on experience and satisfaction, but make all efforts to create value for the customer.

Chapter 9 ‘How CEOs Can Use Value Creation to Enhance Pricing’

The author focuses on how value creation can be used not only as a tool to improve customer service but also be leveraged for enhancing price, thereby increasing profits and shareholder wealth creation.

The author moves ahead of the standard pricing theories and recommends a story approach to pricing, wherein a story is weaved around product on what the product does to the customer and how the product enriches the lives of the customers. It is this story approach which results in enhanced pricing power to the company.

Chapter 10 ‘CEOs Learn from Value Creation and Education’

The author discusses the linkage between value creation and education. He advocates teaching of value creation in engineering colleges, business schools and companies. The first step towards value creation is awareness about activities which create or destroy value. He goes on to narrate how Michener Centre, University of Texas, Austin is imparting education in value creation.

Chapter 11 ‘How CEOs Drive Their Companies to Become Leaders through Value Creation and Increase Profits through Customer Value’

In the concluding chapter, the author summarizes all the important ideas of the book beginning from meaning of value creation, importance of value creation, changing the mindset of CXOs from short-term profits to long-term value creation, transforming HR and IT from support function to line function, creating value for all stakeholders through values such as integrity and sustainability, focusing on important customer-related activities, creating and nurturing customer ambassadors, etc.

He also provides a road map for implementation of his ideas to transform the company from ‘Companystan’ to ‘Customerstan’, by starting a customer department, headed by the chief customer officer. The customer department would cut across all functions and focus only on delivering seamless customer experience.

This book, though primarily targeted at CEOs and CXOs, is a must read for all executives across functions, across hierarchy. It will change the mindset of executives and will challenge the accepted paradigm of shareholder wealth maximization as the goal of the firm. Executives will embark on a new journey of unlearning and will get ready for leading value-creating organizations.

 

Surendra Poddar

Assistant Professor

International Management Institute, Kolkata

2/4C, Judges Court Road, Alipore, Kolkata 700027

E-mail: s.poddar@imi-k.edu.in

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