Posted tagged ‘Value Creation’

Value Takers Vs Value Makers

July 4, 2018

Are You a Value Creator or A Value Taker

I am writing this, because I want readers to think about the future, and not be like me, when I was in middle and senior management to think only about the well-being of the company rather than the well-being of those we were impacting, the world at large, ecology and sustainability. While many might think this is meant for CEOs, this is the right time for all of us to start thinking about serious issues like ecology, corruption, value destruction or being one sided (my company uberalles, the company must win, right or wrong)

In my forthcoming book Value Dominant Logic, I tell the story of my heading a team to bring out and commercialise the one piece PET beverage bottle. We were led by the desire to win, to be ahead technically, and to see our product dominate. We never entered the debate of whether what we were producing could damage the environment, or not be good or sustainable. Why were we like that?

Were we driven by our customers’ needs, or for us to disrupt glass packaging? Or for helping our company make profits for its shareholders? Or for the larger eco-system?

Readers must start to think truly about the Customer (for most, it is what we can get out of the Customer). The Customer just not as a buyer, but the Customer representing us as a user, as part of society, as one who needs to improve the well-being of those around us.

In this article, I wish to debate Customer Value creation (and Value creation in general) versus value extraction. Too many people believe they are creating value whereas they are extracting value. The global financial crisis of2008 makes us rethink the modern capitalist system which is far too speculative: it rewards takers over true makers or wealth creators. It allows the growth of finance, and greater rewards for speculative exchange of financial assets versus investment that leads to new physical assets and job creation.

In the recently completed First Global Conference on Creating Value at Leicester UK, organised by DMU and me, Ashok Ashta, an attendee wrote:

I personally enjoyed the blend with the practical as instantiated by the Fujitsu presentations. The three speakers I found the most thought provocative were: Chris Baker, Scott Sampson and Michael Shafer. If there is one line that will remain embedded in thought, and that I will perhaps reuse is, “students looking to work in financial institutions such as Goldman Sachs etc. are aspiring to work in criminal organizations!”

Debates about unsustainable growth are increasing calling for reforms and rethinking of the financial system. We need the financial system to re-focus on the long term, and sustainable development rather than quarterly returns, and gaining exorbitant executive pay. This includes proper governance and thinking about the future of us, and our planet.

Mariana Mazzucato in her book, The Value of Everything argues that critics of the current financial system remain powerless – in their ability to bring about real reform of the economic system – until they become firmly grounded in a discussion about the processes by which economic value is created. It is not enough to argue for less value extraction and more value creation. First, ‘value’, a term that once lay at the heart of economic thinking, must be revived and better understood.

“Value has gone from being at the core of economic theory, tied to the dynamics of production (the division of labour, changing costs of production), to a subjective category tied to the ‘preferences’ of economic agents. Many ills, such as stagnant real wages, are interpreted in terms of the ‘choices’ that particular agents in the system make, for example unemployment is seen as related to the choice that workers make between working and leisure.”

By losing our ability to recognize the difference between value creation and value extraction, Mariana argues, we have made it easier for some to call themselves value creators and in the process extract value, like the financial services companies.

Thus GDP and corporate annual reports must reflect the quality of life indicators, happiness, caring etc. versus just financial gains.

Value extractors in finance and other sectors of the economy get more emboldened. Here, the crucial questions – which kinds of activities add value to the economy and which simply extract value for the sellers – are never asked. In the current way of thinking, financial trading, rapacious lending, funding property price bubbles are all value-added by definition.

When price determines value, and if there is a deal to be done, then there is value. Therefore, a pharma company can sell a drug at a hundred or a thousand times more than it costs to produce, there is no problem: the market has determined the value.

The same goes for chief executives who earn 340 times more than the average worker (the actual ratio in 2015 for companies in the S&P 500). The market has decided the value of their services – there is nothing more to be said.

Second, Mariana continues the conventional discourse devalues and frightens actual and would-be value creators outside the private business sector. It’s not easy to feel good about yourself when you are constantly being told you’re rubbish and/or part of the problem. That’s often the situation for people working in the public sector, whether these are nurses, civil servants or teachers.

Mazzucato adds that when Apple or whichever private company makes billions of dollars for shareholders and many millions for top executives, you probably won’t think that these gains actually come largely from leveraging the work done by others – whether these be government agencies, not-for-profit institutions, or achievements fought for by civil society organizations including trade unions that have been critical for fighting for workers’ training programs.

All of which serves only to subtract value from the economy and make for a less attractive future for almost everyone. Not having a clear view of the collective value creation process, the public sector is thus ‘captured’ – entranced by stories about wealth creation which have led to regressive tax policies that increase inequality.

This is not only true for the environment where picking up the mess of pollution will definitely increase GDP (due to the cleaning services paid for) while a cleaner environment won’t necessarily (indeed if it leads to less ‘things’ produced it could decrease GDP), but also as we saw to the world of finance where the distinction between financial services that feed industry’s need for long-term credit versus those financial services that simply feed other parts of the financial sector are not distinguished. You can think of other examples: poor road construction leading to increased repairs builds GDP. M&A fees add to GDP. The middleman making more than the producer

So think of becoming a value maker, a value creator and not just a value extractor, the role of many when they are in management. Maybe this is the time for you to think of your role. Are you going to be a blind follower? Can you do something at your level? Examples of what you can do at your level, is to be transparent, caring for your employees and society, not accepting dishonesty from above. You can start to provide an island of ‘goodness’ in your department, and if many do this, the message will be heard at the top. We call this the bottom up approach, versus the top down system we live in. The power is with you.​

Gautam Mahajan, 
President, Customer Value Foundation and Inter-Link India

Founder Editor, Journal of Creating Value jcv.sagepub.com

New Delhi 110065 +91 98100 60368
mahajan@customervaluefoundation.com 
www.customervaluefoundation.com  

Twitter @ValueCreationJ  Blogs: https://customervaluefoundation.wordpress.com/

Author of Value CreationTotal Customer Value ManagementCustomer Value InvestmentHow Creating Customer Value Makes you a Great Executive 

Come to the ​Second​  Global Conference on Creating Value, May ​2019 ​ in New York, U​SA

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Business World on Gautam Mahajan’s Book, Value Creation

April 15, 2017

Here is an excellent review on Gautam Mahajan’s book on Value Creation written by Nitin Motwani,Co- founder and CTO of Bookmyforex.com

He says:

“The funding frenzy that we recently witnessed in the Indian startup scene has caused several companies to focus on short-term objectives instead of focusing on creating sustainable value. The massive influx of funds in the recent past has caused the mind-set of many existing and aspiring entrepreneurs alike to focus on glorified yet unimportant metrics such as GMV and valuation.

Value Creation: The Definitive Guide for Business Leaders (Sage) by Gautam Mahajan reminds us that businesses today need to focus on value enhancing practices to build a long-lasting enterprise.

The defining quality of the book is that it is not restricted to a linear perspective, but covers an array of synergistic elements that collectively create value within an enterprise. Transformation, as mentioned in ‘Business Transformation Ideas for CEOs to Create Value’, is extremely important to maintain relevance with the market. Even if a particular organisation is the market leader in its domain, its resistance to change can be its downfall. Leading organisations have been replaced by relatively younger ones due to former’s resistance to change. Mahajan also advocates practices that help an enterprise to deliver optimum results, including the development of individual accountability of business leaders and managers rather than maintaining an inclination towards a ‘self-serving bias’.

The systematic progression of the book enables the reader to understand what a customer-oriented business strategy is and how it stands apart from conventional approaches. The account of the market and topic-wise depiction of examples make for a pleasurable read while also educating the reader about the most important business principles. The analysis of business processes in the book prompt ingenious ideas that the reader can exercise to increase productivity. Interesting anecdotes make the book even more engaging. One such example is that of Karl Slym, ex-MD, Tata Motors, who “got 357 ideas just by talking to TCS employees, many of whom were his customers”.

The book also stresses on shifting from an assessment based on financial assets and performance towards other more promising priority areas that include human capital, organisational capital, knowledge and information capital, etc., to develop higher value for an organisation.

The book highlights the typical behaviour and pre-dispositions that ultimately leads to value destruction and suggests that businesspersons avoid them completely. It defines the roles of various key players in the value creation process, including HR, CIOs, CFOs and explains how to leverage these valuable resources effectively. Mahajan, with his vast experience, has managed to extract the most important lessons for entrepreneurs to truly connect with their customers and to use that as a basis to derive value for the organization as whole”.

Would love your comments and help. We are happy to help others in education and executive education on courses in Value Creation.

 

Gautam Mahajan,
President, Customer Value Foundation and Inter-Link India

Founder editor, Journal of Creating Value jcv.sagepub.com
K-185 Sarai Jullena, New Delhi 110025
+91 98100 60368, 011-26831226
mahajan@customervaluefoundation.com
www.customervaluefoundation.com
http://www.interlinkindia.net

Twitter @ValueCreationJ

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

Co-Create Value with Your Suppliers and Partners

March 4, 2017

Purchasing professionals are focused on adding value to their companies, and so are sales and marketing professionals selling to them.

Both of these professionals, however, focus on price or cost as the major source of value creation for their companies. Sales professionals want to discuss their value proposition, but the discussion often deteriorates into a price one.

Assuming both purchasing and selling companies recognise that mutual value and partnership has to be created, could they not discuss and negotiate this? Could they not discuss how to co-create value? Could they not agree that value creation is what additional the supplier should give at what price?

Let’s start with generally what the thinking is:

I am adding value to the supplier by buying from it (help him fill out capacity, help him make money); how much can we get by outsourcing to the supplier versus making on our own (and we do not fully price our self-manufacture).

My role is to increase total profit (not just reducing total cost of acquisition). Shouldn’t I look at the total value added? Shouldn’t the supplier do this? Does the supplier understand what creates value for the buyer?

Both these negotiating parties must understand that there has to be a sharing of value, and a co-creation of value.

How do you go about doing this? A Value Co-Creation Model is shown below

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The Financial and non-Financial benefits are shown below:

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The Financial benefit chart shows higher profits due to better collaboration and fewer delays and mistakes, sharing of profits (reduced price to start with profit incentives), lower costs for changes, spares, inventories etc.

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The Non-Financial benefits include happier employees/bosses, reduced time to market, happier customers, better acceptance and so forth.

Isn’t this a better model than just beating down the supplier on price, and trying to commoditise his offering? Build your Value chain!

Go from a supplier evaluation to a partnership collaboration.

Its just traditional thinking that prevents this shift in organizational behaviour.

If you cannot do this, then maybe an artificial intelligence system to buy and sell based on value (benefits –price) should replace the human purchasing person, as co-created value and collaborations are not required and price is king!

Customer Value Foundation are experts at co-creation of value: Mahajan@customervaluefoundation.com

Would love your comments and help. We are happy to help others in education and executive education on courses in Value Creation.

 

 

Gautam Mahajan,
President, Customer Value Foundation and Inter-Link India

Founder editor, Journal of Creating Value jcv.sagepub.com
K-185 Sarai Jullena, New Delhi 110025
+91 98100 60368, 011-26831226
mahajan@customervaluefoundation.com
www.customervaluefoundation.com
http://www.interlinkindia.net

Twitter @ValueCreationJ

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

The 8 Principles of Customer Value Creation

September 9, 2016

To appreciate Customer Value Creation, you must understand the principles of Customer Value Creation. The principles of Customer Value Creation, enunciated by Gautam Mahajan are:

The 1st Principle: Customers tend to buy or use those products or services that they perceive create greater value for them than competitive offers. It is essential for executives and leaders to create higher value for their Customers than competition can.

 The 2nd Principle: Customer Value Creation is applicable in all fields, such as business, service, education and academics, society and government, social work, innovation and entrepreneurship. It impacts humanity.

 The 3rd Principle: Customer Value Creation touches all stakeholders, you, your colleagues, your employees, your partners (supply chain, delivery chain, and unions), and society to create resounding value for the Customer and thereby for the shareholder. It is the source for creating Customers and retaining existing ones, increasing loyalty, market share and profits

The 4th Principle: Customer Value Creation is proactively exceeding what is basically expected of you or your job and is going beyond your functional and routine roles to creating value in your eco-system. Value creation can be planned or spontaneous, and in both functional and emotional thinking

 The 5th Principle: Customer Value Creation leverages a person’s or an organisation’s potential, learning and creativity while making it meaningful and worthwhile for people to belong and perform, both physically and emotionally

 The 6th Principle: Customer Value Creation presents a very powerful decision making tool for companies to decide on actions, programs, strategies for the Customer that can increase the company’s longevity and profitability.

 The 7th Principle: Value Creation must exceed Value destruction or reduce negative value and be done consciously (not just unconsciously)

 The 8th Principle: Values (what you stand for, integrity, honesty, fairness etc.) creates Customer Value (that is Customers Value your Values)

 These principles form the foundation of the Customer Value Creation strategy and implementation, resulting in great value for you and your company.

 

Gautam Mahajan,
President, Customer Value Foundation and Inter-Link India

Founder editor, Journal of Creating Value jcv.sagepub.com
K-185 Sarai Jullena, New Delhi 110025
+91 98100 60368, 011-26831226
mahajan@customervaluefoundation.com
www.customervaluefoundation.com
http://www.interlinkindia.net

Twitter @ValueCreationJ

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

Invisible Manipulation

August 7, 2016

Jonah Berger in his brilliant book, Invisible Influence discusses how consumers get influenced. Some have to do with influence which is exerted without meaning to influence. A person wearing a particular necklace may influence you to think about that type of necklace. Some are meant to influence subtly, like the aroma in a store to induce you to buy baked goods. Others are really invisible manipulations, meant to manipulate your thinking and accepting lower standards of service.

Let me give you some examples

Nike and shoe colours: Recently, I have been seeing a few of my fellow walkers wear coloured walking shoes. I told myself I would stick to my white or off-white or light grey non-descript shoes. At the Nike store most shoes were red, orange, blues in all shades, and yellow. A few old design shoes were in my preferred colours (but my size was not available). The shoe that fitted and was comfortable was a vivid blue. I liked everything about the shoe but the colour. I thought, what the hell, others are wearing red too…so blue is ok.

Was this invisible manipulation, by giving me no choice? Yes, you can well say I had a choice of going elsewhere. I had been to Puma, and the same colour problems existed, and I did not like the shoes either (even though lower in price than Nike)…Value would have been further destroyed if I had to go elsewhere. So I decided to buy from Nike.

Now, these coloured shoes will become fashion statements for the fashionistas. Just like the colours for dresses from the fashion houses described by Jonah.

The next day I realised people were noticing my new blue shoes, and an invisible influence was being exerted on them!

Next I come to a more subtle but more frightening invisible manipulation that Amazon, Microsoft, Google have on our habits. They have a one-way policy of being contacted. They can contact us and we cannot contact them. Many of the younger generation are happy with this, but the older generation finds this irksome. In India let’s say I am told a delivery will be on the 20th, I am not told the time. I cannot find out. And if I am not at home, I get a call from the delivery person saying you were not home and we will re-deliver. I am not allowed to give an input. The part, I am told, on the 21stby a text message will be delivered on the 22nd. What if I am not home that day too? And on and on. Totally unacceptable to me but acceptable to the providers of service. In due course of time we will accept this as a norm and a way of doing business. The definition of normal business would have been re-written.

I just got a call from Airtel that their technician will be at my house in 15 minutes. This is one hour later. So I called the caller. I got a message saying “incoming calls to this number are barred”. So much for customer service and customer value!

Not so subtle are companies, where you cannot find a way to contact anyone except for investor relations.

Value is being destroyed.

Jonah, we poor consumers need your influence in exerting invisible and visible influence on these companies. HELP!!!

Would love your comments and help. We are happy to help others in education and executive education on courses in Value Creation.

 

Gautam Mahajan,
President, Customer Value Foundation and Inter-Link India

Founder editor, Journal of Creating Value jcv.sagepub.com
K-185 Sarai Jullena, New Delhi 110025
+91 98100 60368, 011-26831226
mahajan@customervaluefoundation.com
www.customervaluefoundation.com
http://www.interlinkindia.net

Twitter @ValueCreationJ

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

Clearing Misconceptions on Customer Value

May 6, 2016

Here are some common ideas posted in blogs, and what is factually correct. The word Value is often misused and misunderstood. You can relate to some of these. These may help you in business or as a buyer.

  1. Satisfaction is the reason why people buy: People buy because a product or a service is worthwhile to them versus competitive products or services. Satisfaction is a necessary condition but not a sufficient condition for purchase. Sometimes, we buy even when very dissatisfied. An example could be a neighborhood petrol station, where we had a poor experience.
  2. High Value products have low satisfaction: This implies value is price, and that if something is high priced it has low satisfaction. This is confusing value for price. Sometimes, people pay “money for value” which means they buy high priced items. Thus if you buy a BMW, you can be very satisfied.
  3. Low Value products have high satisfaction: This implies value is price, and that if something is low priced it has high satisfaction. This is just not true. It has been proved that at every price point, Customers look for Value. What does that mean: If buying a pen, whether a Mont Blanc or a Bic, the Customer is looking for Value, and buys on Value. You may be very dissatisfied with a low cost ball pen, when it streaks while writing.
  4. Satisfaction measures Customer Value: Customer Value and satisfaction studies are different. Satisfaction measurements are done on transactions and generally right after the transaction by the user. Normally the top two boxes are measured. Customer Value studies are done a few weeks after the transaction and on the decision maker, not necessarily the end user, so as to get embedded perceptions. Customer Value studies are done versus competitive alternatives and are ratios. Thus a Customer Value study always compares you to competition and is not based on your score alone but their score also.
  5. Value means Benefits: Value is what the Customer gets (benefits) vs. cost (price and non-price) versus competing offers. While colloquially we use Value to mean benefit or price, Customer Value is the actual worth of a product versus competing options. Value in the Customer context is not just the benefits, but what you pay versus competitive offers.
  6. Values and Value are the same: Values are what someone stands for: ethics, morals, sustainability. Value is defined above. In fact, Values create Value.
  7. Customer Value is newer than Customer Experience: Both are old concepts. However, the formal usage is more recent. Customer Value as a discipline started in the 1980s with Ray Kordupleski and AT&T, and CX in the 2000’s. Customer experience, Customer emotions, Brand Value are all measured by Customer Value.
  8. NPS is a great measure of what the Customer perceives: NPS only answers a couple of questions on repurchase and recommendation. It does not portray what Customer thinks of the product and whether he has had a good or poor experience. NPS is better used with other Customer metrics

Why are these misconceptions propagated and misunderstood? My take is that most people tend to follow what they are told, rather than delving deeply into the actual meaning of, and truly understand how these concepts should be used. These concepts are used and understood loosely.

My suggestion to the lay reader is to truly understand what each of these terms means, how they are used, and how they should be used. Reflection from one’s own experience will show what I am saying makes sense. (Remember your favorite restaurant or airline, and if you are dissatisfied, will you stop using them?)

One reason why companies and executives are not truly becoming Customer–centric is that such loosely used and understood terms confuse companies, and do not give the Customer true insight into what will really help. Thus just measuring NPS and stating that it tells the company what to do is misleading, and will prevent the Customer from truly improving.

Executives and Consultants can lead this change in understanding.

Would love your comments and help. We are happy to help others in education and executive education on courses in Value Creation.

 

Gautam Mahajan,
President, Customer Value Foundation and Inter-Link India

Founder editor, Journal of Creating Value jcv.sagepub.com
K-185 Sarai Jullena, New Delhi 110025
+91 98100 60368, 011-26831226
mahajan@customervaluefoundation.com
www.customervaluefoundation.com
http://www.interlinkindia.net

Twitter @ValueCreationJ

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

How Net Promoter Score is Like Global Warming

April 18, 2016

Scott Broetzmann, President of CCMC has written a brilliant piece on NPS. It is given below. For those of you using NPS, this article may make you re-think:

“Some have suggested that global warming’s “murky consequences aren’t vivid enough to impress our distracted brains.”

And so it is with many omnibus corporate customer experience metrics like the Net Promoter Score (NPS). These oversimplified measures are all too often failing to embolden leadership to act on the impending doom and disaster that accompanies a mediocre customer experience.

Addressing the fatal flaws of an orthodox NPS approach is simple but not easy; NPS can be supplemented by the use of three corrective “measures.”

The three compensatory analytical techniques include:

  • The Market Damage model
  • A proper key driver and sensitivity analysis
  • A commitment to formal action planning

The MDM effectively offsets each of the three weaknesses of an NPS-only approach. Specifically, the MDM:

  1. Identifies specific problems in each phase of the customer experience that cause damage.
  2. Facilitates the identification of the cause of problems and accountability for action.
  3. Quantifies the revenue and word of mouth damage of the overall level of problems (think temperature or CO2 increases in the global warming analogy) and of each individual problem in a manner that is credible to Finance and Marketing.

A Proper Key Driver & Sensitivity Analysis: When executed properly, key driver analysis (the methodology for identifying what matters most) is central to getting executive attention. Executives care less about “what’s important” and care more about an understanding of what can be learned by effectively acting on things that matter.

Assuming that the ultimate goal of any survey is to contribute to a positive, incremental and sustainable improvement in the customer experience, action planning is the magic elixir to bring about this outcome. It is the antidote to complacency.

As we define it, action planning is the intentional and ongoing process of identifying, operationalizing, and implementing specific actions that affect enough customers, over a long enough period of time, to increase positive ratings for those selected elements of the customer experience that yield the greatest payoff.

It would not be difficult to argue that NPS and related omnibus metrics have helped propagate a certain customer experience groupthink. The “magic” of NPS has fostered the evolution of a virtual and overly cohesive group of corporate decision makers which believes itself to be infallible or invincible when it comes to the customer experience. In many cases, nothing could be further from the truth. In such cases, it’s more likely that no one is paying attention to signs of impending customer doom because they lack the right data and processes.”

Would love your comments and help. We are happy to help others in education and executive education on courses in Value Creation

 

Gautam Mahajan,
President, Customer Value Foundation and Inter-Link India

Founder editor, Journal of Creating Value jcv.sagepub.com
K-185 Sarai Jullena, New Delhi 110025
+91 98100 60368, 011-26831226
mahajan@customervaluefoundation.com
www.customervaluefoundation.com
http://www.interlinkindia.net

Twitter @ValueCreationJ

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.