Capitalism is FREEDOM. Customers are FREE to choose whatever goods or services they desire and can afford. Companies are FREE to develop and sell whatever goods or services for which they believe there is a market. This relationship between the customer and company is the foundation of Capitalism.
But as the Information Age morphs into the Relationship Age and the balance of power shifts to the customer, the foundation is being challenged. Meanwhile, value creation business processes are still stuck in the Industrial Age!
The change in how a customer relationship is developed and managed will transform Capitalism. The challenges are also opportunities to
- Make sense of the data—measure what matters for business results.
- Get closer to customers—personalize and deepen the relationship.
- Transform the Enterprise--embrace Social Business and its new form of power.
It is time to build a new CRI (Customer Relationship Intelligence) Infrastructure to thrive in the Relationship Age and transform Capitalism.
The most intriguing leadership opportunity and the most pressing management challenge of our time is measuring and managing the intangibles inherent in value creation through innovation and growth. After a long, long stretch of cost-cutting and sitting on the sidelines during the economic downturn, executives now are interested in innovation and growth—growing the top line as well as the bottom line.
But in this cycle of growth, the customer is in the driver’s seat. Sales no longer owns the relationship. The power of the Internet in customers’ hands has the potential for making every product or service a commodity. This same power can make a product or service go viral overnight—sometimes to the company’s benefit, too often to its sorrow.
There is hope here. Marketing guru Theodore Levitt of Harvard was ahead of his time when he said there was no such thing as a commodity. Even commodities can be differentiated by the relationship between the buyer and seller—to sell based on what customers value.
WHAT IS VALUE?
Value is a concept often discussed in business, but value has been as hard to define as the measurement and management of the intangibles inherent in creating it. A first step toward long-term capitalism is having a common understanding of value.
Oscar Wilde saw value as a matter of perspective: “A cynic is a man who knows the price of everything and the value of nothing.” and “A sentimentalist is a man who sees an absurd value in everything, and doesn’t know the market price of a single thing.”
We agree that value is a matter of perspective—not just from the customer perspective that Wilde described, but from the company perspective as well. To complicate matters further, just as there are differences in customer perspectives, each function of the company may have a different take on value. For example:
- Finance: Uses cost as a surrogate for value—the money spent to create and deliver what is “presumed” to be of value to the customer.
- Operations: Focuses on internal efficiency methods--to deliver product as fast as possible while containing costs and limiting variation. Value is speed and quality.
- Research & Development: Sees value in features and technology that are “presumed” to be of benefit to the customer.
- Marketing: Tries to listen to both company and customer points of views, but in the end Marketing equates value with whatever they can get a customer to buy.
Yet each function has something important to contribute to a comprehensive solution. That solution finds a balance between 1) the value provided to the customer and 2) the value received—for the cost expended by the company and the price paid by the customer.
Here’s our take on how to think about value from the customer’s perspective.
Brand Value is the beneficial value the customer associates with owning or using a product or service from the company. It is what the company promises to the customer, what the brand stands for, its reputation.
For communities of interest, Brand Value provides an affinity or reason for affiliation with a community and/or the sponsor(s).
Product Value is the value of a product’s perceived quality and benefits for the price paid--what the company delivers to the customer, making good on the promise.
In a community the product value is enhanced by sharing experiences and applications of the product with other customers.
Relationship Value is the perceived value of the customer’s experiences and relationships with the company and the people in the company who make and deliver on the promise of the product or service—from the person who answers the phone, through the sales process, to fulfillment, to technical support, to the executive who thanks them for a referral.
Brand Value and Product Value are very hard to measure. A customer’s perspective on these values is a constantly moving target. The Internet and Social Media make it even more challenging. In the past, resources to listen to the customer were hard to come by in R&D and Marketing—that is why we said “presumed” to be of value to customers earlier. Now the customer is shouting and talking past the company. Dealing with the chaotic crush of Interaction data coming off the Internet, smart mobile devices, Social Media, and Communities has just become an imperative.
Relationship Value, on the other hand, can be measured and managed. By measuring and managing Relationship Value, Brand Value and Product Value are measured and managed.
This is a breakthrough! Relationship Value is the foundation of a new “value creation accounting system” for non-financial performance management.
Relationship Value is so important that the metric we use in the CRI (Customer Relationship Intelligence) Framework to measure effectiveness in relationship development is called Relationship Value as well. (More about this in the Solutions section.)
Since the foundation of capitalism is the relationship between customer and company, measuring and managing that relationship is essential. The old measurements of leads, sales, complaints, and returns are too slow for today’s business environment and are reactive in nature. Measuring Relationship Value allows the company to proactively manage their business for both growth and profitability.
People buy from people they know--or know of through a positive review, a recommendation or referral. That’s why it is easier to sell products and services from an established, trusted brand than from a new company. The math is that it is roughly ten times easier to sell to an existing customer than to a new one. Whether you are taking a reorder or selling something entirely new, it is far easier to sell to existing customers than to a new prospect. That’s why many salespeople don’t want to pay attention to leads for new prospects, may question the quality of the leads, and ask whether they have been qualified. Acquiring new business is harder to do. Relationships have to be established first. They don’t just happen.
People buy from people or brands they identify with, are comfortable with, and can trust. It is possible to establish instant rapport, just as it is possible to fall in love at first sight. (The consumers’ love affair with the iPod/iPhone/iPad is one example of that.) But establishing a relationship, whether personal or with a brand, is more likely to take time and involve a step-by-step process. We establish relationships with people. Your customers are the people in the companies with whom you do business, not their companies.
Companies that avoid commoditization and excel at value creation no matter what the conditions are will be those who are customer relationship-driven and who optimize the customer experience while paying attention to profit. First, however, they have to know what customers value, what customers experience, and what it costs the company to deliver it.
Interactions with customers are the essence of value creation. Anticipate what the customer experience is likely to be. First, map how value is created—or destroyed—to optimize the Customer Relationship Process. Then, configure an Operational Social CRI -> CRI Tracking System to measure and manage the customer experience Interaction by Interaction—what you DO, and what they DO.
FIRST, MAP THE CUSTOMER EXPERIENCE.
Our Value Creation Mapping (VCM) methodology captures the interweaving and overlapping of customer/community and company processes to map what the customer experiences. It maps both the company process and the customer reactions and interactions to those processes. The purpose of the VCM is to account for everything the company and its people do to create value for the customer, tied to profit. Then the value provided to customers can be balanced with the value received—for the cost expended by the company and the price paid by the customer.
When both the customer interactions and the company/stakeholder community interactions are known, the company has competitive advantage. The unknowns mean added risk.
Developing a relationship is a joint collaborative process—a give and take—between the company and its people and the customer and within a community of company stakeholders--that move a relationship forward or backward. All sides need to be accounted for—utilizing in-depth Critical Interaction Processes.
Critical Interaction Processes obviously important to value creation are:
- Ones with high impact on top priority, high-profit potential customers,
- Ones with high impact on Brand, Product, and Relationship Value (the three aspects of Customer Value and Community Value),
- Customer events (such as “becomes unhappy,” “makes referral,” “makes large purchase”).
- Hand-offs between functional groups within the company,
- Retention enhancing activities (cross-selling, contract renewal, community building),
- Value Cycle Interdependency.
Tie Value Creation to Profit. Not only is the Value Creation Map important in understanding the Customer Relationship Process and what the customer experiences, but we can tie the data from the Value Creation Map to profit. We may use any or all of the following value creation business process models:
Strategic
- Product Relationship Roadmap: Engineer positive customer interactions into product use to link strategy to innovation and continue the customer relationship after purchase.
- Profit Matrix: Understand and optimize the experience of top priority customers and those with high profit potential, while paying attention to profit.
- Productivity Model: Quantify critical customer and staff activities to tie to profit.
- Social Tactics Model: Quantify Social Media for value in building communities.
- Strategy Decision Model: Detail the Interaction Process Flow and its costs to carry out tactics for alternative Customer Relationship Strategy evaluations.
Operational
- Social CRI -> CRI Tracking System: Calibrate customer relationship metrics to track relationship cause-and-effect in customer relationship strategy execution.
THEN, TRACK THE CUSTOMER EXPERIENCE.
The Social CRI -> CRI Tracking System collects Interaction Data for each Individual Contact from all Customer-Facing and Community Systems.Each system is tracked separately and the Interaction Record is consolidated to show one view of the Individual Contact within each Enterprise CRI Segment.
By knowing what happens in the real-time individual Interactions between Individual Contacts and the company, Frontline Staff and Managers can gain relevant intelligence about relationships. Relevant intelligence delivers real-time management, real-time operational control, and real-time profit enhancement. The foundation of capitalism, the customer/company relationship can be measured and managed.
The combined CRI data can mashup in real time with Enterprise Financial data for strategic operational control for Executives.
Our HACK, “ Measure Management 2.0 with CRI for Real-Time Management/ Operational Control/ Profit” shows how to make sense of the data tied to results. With Operational CRI we measure relationship cause-and-effect. Interactions are the “cause.” A new, breakthrough metric Relationship Value is the “effect.” It measures whether an Interaction with a customer or in a community moves the relationship forward or backward. Relationship Value is a KPI (Key Performance Indicator) for relationship development, which is how value is created. Relationship Value also can be a leading indicator for profit.
The operational Social CRI -> CRI Tracking System can ride on top of existing Customer-Facing and Community Systems, becoming part of the operational workflow or simply valuing the output of their workflow without participating in it directly. In either case, CRI fills in the blanks in the Customer Relationship Process between these systems going forward. Doing a Value Creation Map for these Critical Interaction Processes is really useful, helping understand and optimize the customer experience.
CRI essentially integrates these Customer-Facing and Community Systems at the data level. Where the Interactions are unstructured or only partially structured like the Activity Steams coming off collaboration tools used in Social Business, business rules convert the Interactions to a structured data stream. Although not shown in the preceding visual, when collaboration solutions are designed to be an Enterprise Platform, CRI can be built into that platform. Then that Enterprise Platform can then ride on top of existing systems to enable the collaboration solution to integrate at the data level, too. Developing a relationship is the ultimate collaboration, after all!
In configuring the Social CRI -> CRI Tracking System, the relationship development activities and programs that have occurred historically are valued in arrears to leverage what has come before.
Our HACK, “Measure Management 2.0 with CRI for Real-Time Management/ Operational Control/ Profit” talks about how relationships drive business. Our HACK, “Measure Strategy Execution with CRI to compete on relationships,” gives the rationale for executing directional strategy with the underlying, implicit customer relationship strategies
Interactions with customers are the essence of strategy execution and value creation. Sustainable competitive advantage comes from understanding and acting on customer behavior and profit patterns better than your competitors understand and act on theirs.
WHY CRI IS IMPORTANT TO LONG-TERM CAPITALISM
The advent of social media technology has begun to transform customer/company relationships that are at the foundation of capitalism. However, technology alone won’t create value—as attractive as the new Social Business collaboration offerings are. You need business processes like those in CRI.
Writing in her May 2012 Harvard Business Review blog Collaboration Will Drive the Next Wave of Productivity Gains, Tammy Erickson quoted a McKinsey Global Institute study on productivity gains in the 1990s. Referencing the study, she notes that “technology adoption alone, without the accompanying changes in work practices, had little or even a negative impact on productivity.” Her conclusion: The frontier of human productivity capacity today is the power of extended collaboration—the ability to work together beyond the scope of small groups. Today’s technologies have the potential to enable a very different level of business performance, but only when accompanied by a thoughtful redesign of the way your business is done.”
Executives recognize the need for action. Some 71 percent of senior business leaders believe that the customer experience is the next corporate battleground, according to a survey by Colin Shaw and John Ivens, authors of Building Great Customer Experiences.
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FOR MORE on Value Creation, Technology Innovation, and Voice of the Customer Research, see our Thought Leadership Papers at www.Religence.com. You will find more in the CRI Reference Section there as well. You can also get helpful files in the Helpful Materials section of this Value Creation HACK. Download CRI Value Creation Mapping, CRI Customer Fundamentals, and CRI Listen to Customers Tips.
For more on CRI (Customer Relationship Intelligence) see Linda Sharp’s book Customer Relationship Intelligence: A Breakthrough Way to Measure and Manage Sales and Marketing.
A copy in eBook form is available with our complements. It is included in the Helpful Materials section of our Management 2.0 HACK, “Measure Management 2.0 with CRI for Real-Time Management/ Operational Control/ Profit.” For a link to the HACK, go to the Helpful Materials section of this Value Creation HACK or try this one Measure Management 2.0 with CRI.
For more on the book, please go to www.CRIbook.com.
For more on Strategy Execution, please see our HACK, “Measure Strategy Execution with CRI to Compete on Relationships.” For a link to the HACK, go to the Helpful Materials section of this Strategy Execution HACK or try this one Measure Strategy Execution with CRI.
A Customer-Focused Enterprise is one that develops mutually beneficial (profitable) and sustainable relationships with its customers, to its competitive advantage. That means focusing the whole enterprise on the customer, from the people who engage the customer directly to those who support them throughout the organization. Creating value for customers is everyone’s job. And everyone wins:
Value to Your Company:
- Cross-function alignment to stay focused on the customer,
- Tighter, more nimble operations.
- Better use of resources.
- A more profitable, sustainable business model.
- Improved corporate governance, transparency, and accountability.
- More realistic valuations.
Value to Your Team:
- Recognition for the value they create everyday in developing relationships with customers. (Our CEO dedicated her book to them!)
- Working on a highly motivated, directed team is exhilarating.
Value to Your Customers:
- Recognition as active participants, as partners, in the business.
- Customers get the attention and respect they deserve.
- Value given is balanced with value received so both the company and customer profit.
MEASURE VALUE CREATION OPPORTUNITES:
Make Sense of the Data.
Please see our HACK, Measure Management 2.0 with CRI, for how CRI can make sense of the data, tied to business results. The First Steps in that HACK recommends starting with Retention. The MONEY is in Retention. What we’re recommending here is a drill down of that advice.
Get Close to Customers.
- Listen to Customers. Customer relationships are fundamental. It is critical to stay close to customers.
- Invest in a Social Media Monitoring tool or service. Now that the customer is in charge, it would be suicidal not to know what is being said about your company, your products, and your people. Major players like IBM, Maritz Research, and others have shown that what people say in Social Media tracks with traditional research. This is not frivolous.
- Interview top priority customers on a regular basis. A one-on-one conversation, or interview—whether voice-to-voice or electronic—can make customer feedback from traditional research, online surveys, and social media actionable. A conversation can move the relationship to another level.
- Operationalize Voice of the Customer (VoC) in our Social CRI -> CRI Tracking System. Track customer Interactions in real time to correlate what people DO with what they SAY. Built-in VoC Interactions systematically calibrate customer relationship status with performance.
- Choose a customer relationship process to map. Think through the steps you take, steps the customer takes.
- Identify which ones enhance or detract from the impact of Brand Value, Product Value, and Relationship Value.
- Detail the customer’s activities and yours.
- Score the process for how long it took, how well the activity was done, and the cost to you AND the cost to the customer.
- Identify whether you can improve profit while at the same time improving on Customer Value.
- Improve the process, if necessary.
Embrace Social Business.
Leverage your customer relationships with Retention Initiatives in your Stakeholder Community to profit from referrals, to get support and collaboration help on innovation and to influence the conversation in the Social Media Wild, Wild West.
CREATE YOUR OWN RELATIONSHIP-BUILDING MACHINE
First map, then track the customer experience in a Stakeholder Community or in Community Initiatives. (Popular Community Initiatives are innovation/ product development initiatives, mutual support initiatives, or those that evangelize the company or the company’s offering.)
Inside Social CRI Communities there is structured data for real-time operational control. Outside the boundaries of the Communities, the Social Media Wild, Wild West reigns—to be influenced by the Social CRI Communities, but not controlled. Enterprise GOAL: Expand reach and influence of Communities.
From Social CRI Communities, a natural next step is to narrow the focus to those in the Community who are also in a CRI Segment. CRI Segments are sales channel/ product group/ customer segments with potential for profit improvement. The same CRI FRAMEWORK, METRICS, and PROCESS apply. First map, then track the customer experience in the CRI Segment.
WHY SOCIAL CRI COMMUNITIES ARE IMPORTANT TO LONG-TERM CAPITALISM
A Stakeholder Community is the new source of POWER—right up there with Information, Mass Support, Capital, and Position. A Stakeholder Community is so important that we predict that major Enterprises will run their businesses through them within five years. Companies will run, or manage their business, with the Operational CRI. And they will profit from relationships with Suspects, Prospects, Customers, Employees, Partners, Suppliers, Influencers, and Interested Parties in the Stakeholder Community. Start with customers, certainly, but build out from there.
People long for community, to be a part of something bigger than themselves and to be recognized for what they do. Recognition can be more important than money. Communities make relevant public recognition easy for management to give.
It Takes a COMMUNITY and dedicated, innovative professionals to collaborate on the scale we have to develop Relationship Age business processes to:
- Retool from a company/product focus to a customer focus from strategy to execution to profit.
- Retool from backward looking RISK to forward looking ADVANTAGE.
- Share operational control among Frontline Staff, Managers, and Executives.
- Reward the unsung heroes in sales and marketing and customer service for the value they create every day by developing relationships with customers.
- Build on proven methods, many of which our team has pioneered including profitability segmentation, Voice of the Customer, customer experience engineering, and valuing intangibles, and
- Invent new ones like Value Creation Mapping, Product Relationship Roadmap, and the Social CRIàCRI Tracking System with its revolutionary metric Relationship Value.
Thanks to all the others on the Religence CRI Team: Jim White, Bob Sabath, George Fruehan, Dave Pearson, Dick Morgan, Kathleen Robinson, Ray Dunaway, Eve Thompson, John Kauke, Steven Cox, and Anne Chambers plus our colleague Richard Taylor. This team of experienced senior people represent marketing, operations, finance, IT, and change management. A customer-focused enterprise is everyone’s job. Together we have commercialized our CEO’s business process patent and built out the Religence Framework for CRI. What a total pleasure it is to collaborate with this innovative, multidisciplinary team. Thank you.
Many, Many More Acknowledgements can be found at the end of our HACK Measure Management 2.0 with CRI for Real-Time Management/ Operational Control/ Profit.
©2012 Religence®, Registered USPTO, Patent Number US 7,526,434
Thank you for sharing this! I strongly support your statement that true capitalism means freedom of choice.
Ludwig van Mises demonstrated in great detail how the 'sovereignty of the consumer' in a free-market economy ultimately dictates everything that happens. I think your approach helps entrepreneurs be closer in touch with the present and future consumer needs. Building relationships with customers / stakeholders which highlight the values that the company provides and the values by which it operates, provide the information to make educated consumer choices and differentiate from the competition.
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Thank you for your support of our Capitalism is FREEDOM definition, Christian. Freedom of choice is definitely easier for the customer in the Information Age (morphing to the Relationship Age). Now it will behoove companies to listen to customers and build the relationships, that will make the company's choice of products and services to provide more likely to appeal to the customers--so both profit.
Like you, we see delivering Customer Value as differentiation. So much so that we believe that companies can compete on relationships. You might want to check out our HACK Measure Strategy Execution with CRI to Compete on Relationships. Thanks for your comment, Linda
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Mr. Wandeler
Von Mises was certainly the advocate for the costumer in an economy based upon capitalism. We have developed an approach that we believe allows a company to understand what the customer experiences. With that knowledge they are able to design products and services that appeal to the customer and create value for both parties. Thanks for you comments and encouragement.
Ray Sheen
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I agree with all your perspectives in this Hack. I would now like to see how it can work with a specific client in the sustainable resource use market space. I believe intuitively that it can and will and will be in touch with you about how best to work it practically.
I think that the "resource value cycle" models and information systems that our company, Noble Resources Group, is developing, via our "integrated utilities value proposition," should fit well with your value creation mapping tools. We are proceeding with projects that are integrating water(& wastewater), organics (food, fiber, feed, fuel, flowers & fertilizers) and bio-energy (that drives each economic/resource cycle), for the "nested value cycles" at the facility, local community, and broader environmental resources levels (especially water, carbon and nitrogen). Your approach in this Hack, may well be a perspective and approach that we can use to benefit individual customer's resource value cycle optimization.
I look forward to more in-depth discussions and practical application trials to implement this on specific projects, at least at those three levels... to see if my hunch has merit.
Thanks for sharing it here! And now on to implementing!
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I look forward to working with you on your "resource value cycles." The Value Creation Mapping approach discussed in this Hack can definitely provide some insight into how the customers/consumers are being impacted in the resource value cycle. If we keep thinking or capitalism as the freedom of each individual consumer and company to make wise choices for themselves, rather than having a centralized agency making all decisions for them, then it is imperative that we have the tools to understand the long and short term impacts of our decisions. Value Creation Mapping is one of those tools.
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Great, Dan. I look forward to learning more about your "integrated utilities value proposition" work. I certainly have appreciated what you've had to say about "value cycles" versus "value chains" and the difference perspective that, that requires. Thankfully, more and more the interdependencies at work in all industries are being recognized. We look forward to pioneering a practical application with you! Thanks for your comment, Linda
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The dream of all organizations is to be able to quantify the emotive drives. Very interesting!
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Jeffrey, emotion is one of the hardest things to measure. What are the units? How much is enough? Through the Value Creation Mapping we can measure what customers do as a result of what we do. It isn't perfect, but as the saying goes, action speaks louder than words. Thanks for your comment.
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Tell, me, Jeff! Brand Value and Product Value are very hard to measure. A customer’s perspective on these values is a moving target. Too often they tell you what they think you want to hear, if there is budget to ask them in the first place. Or with Social Media, they may say what is politically correct at that moment. To complicate matters, what people SAY isn’t always what people DO.
Our breakthrough is to measure Brand Value and Product Value through the customer experience with Relationship Value. With Relationship Value we measure what people DO and validate their attitude with Operational Voice of the Customer at critical junctures. We can correlate what we learn operationally to what people SAY. Talk about interesting!
Our Value Creation Mapping methodology is a first step towards measuring what people DO. With VCM we anticipate, map, and validate what the customer experiences in a Critical Interaction Process. We quantify how that process impacts the customer and what it costs them to do business with you AND you to do business with them.
Everyone wins—the Customer, the Company’s Marketing, R&D, Operations, and Finance Teams. Now that is an emotive driver! Thanks for your comment, Linda
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Creating added value and enhancing each customer relationship will be driving forces as alert companies employ the analytical techniques now available to gain, and more importantly, retain profitable customers.
Prospects and customers constantly provide data to suppliers by their actions or inaction. Unfortunately, many suppliers lack systems that capture and analyze the data in ways that provide the customer-facing teams real-time intelligence upon which to act.
Customer Relationship Intelligence (CRI) developed by Religence, Inc. is a promising way to put together the myriad data streams into a useful decision-making tool, also tied to customer profitability.
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You mentioned profitable customers twice in your comment, Dick. Profitable customers is what CRI is all about. And real-time intelligence to act. It's not enough to look backward anymore for profit. And not enough to focus so many resources on Acquisition, when the real money is in Retention. That is why we focused on that in the First Steps section. Profit and Retention. Profit is the common language of business--profit for the company and profit for the customer. Thanks for your comment, Linda
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You may be interested in my value research, and how to measure emotion at: valman.blogspot.com. I looked at how consumers buy 3G mobile phones for my PhD at UQ Business School. I see shades of Prof. Zuboff's work on The Support Economy. Worth reading if you haven't seen it. About ten years old now.
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Thanks for your comment, Richard. Good to see other people caring about what the customer values! Too often when people talk about customer value, they are only concerned with the value the customer brings to them. From what you've identified as drivers, no wonder measuring emotion is hard. Thanks again, Linda
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Led by CEO Linda Sharp, Religence's offering to drive profit and business success through strong customer relationships is a leading-edge innovation business practice. Part of Religence's innovative approach uses metrics and processes to measure relationship value (RV) through operational customer intelligence (CRI) throughout the organization at various customer interactions and business programs - all an excellent way to know the status of a relationship throughout the customer lifecyle.
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Thank you, Claudia. It is time to move beyond anecdotal evidence and executives not knowing why their company is successful or not knowing if they are at risk with key customers.
Losing even one key customer relationship is a hard-to-manage risk...after the fact. In high-value B2B there are multiple buyer relationships at play and at risk.
All customers are not equal. Profitable customers behave differently. You can see it in the relationship patterns. They want a relationship. They buy value. Good idea to be successful with them!
Thanks again, Linda
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