Creating Value by Integrating Client & Service Dimensions

Service

by Francois Montrelay, Managing Partner, P2P Consultants. CEOs can create value for their clients and shareholders by adopting the right level of innovation and differentiate with service. Based on a real client example, the article shows how CEOs can manage value creation and overcome resistance to change to turn every employee into a "crafts person of value creation".

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Maintaining Competitive Advantage: The Real Issue for CEOs.

An international Group (B2B) sells financial services to Finance and HR Departments of its client companies. It rapidly grows to number one position on its markets.

An innovating offer and world class service quality allow the company to generate above average cash flow and margins, and to create value for its shareholders.

The Group choses to invest in higher technology intensity products for its key accounts, in order to widen its competitive advantage: New functionalities are developed; the salesforce pushes new products into the market; a new CRM system is developed to manage client relationships in a more professional and systematic way.

The issue is, new products do not sell according to the business plan, and new entrants with no advantage initiate a price war. Some of the most profitable clients defect to competition. Margins plummet and - worse - the company starts destroying value to its shareholders.

Many companies are excellent at creating and marketing a "winning solution" for their clients. Few companies actually manage to develop a sustainable advantage and to continuously create values for their clients and for themselves.

The Innovation Myth

Quite often, alleged demand for innovation from clients is a myth that leads to destroying value: Do you use all the functionalities of your cellphone? On the other hand, simplicity, user friendliness and comfort are often left aside by "innovators in charge": Have you never fought with your cellphone to record a number from an incoming call of yesterday into the address book?

In our B2B Group, product has "kidnapped" clients on behalf of innovation. The first step from the CEO will be to acknowledge that everyone in the company needs to own and manage clients: R&D, pre-sales, sales, after-sales, client relationship, excellence, and quality.

By making sales, technicians, and service persons work together with clients, the company re-discovers two key points:

Simplicity pays (whatever product people may say…): Clients are not as sophisticated as one could "hope"! Moreover, the way a product or service simplifies clients' life and help increase their performance directly influences revenues per client. In that specific case, products need to be simplified, and an electronic link between the client and its provider ought to be developed.
Clients pay more for a simpler life (whatever salespeople may say…): The company's ability to create real "moments of truth" allows to increase margins per client. In that case, what really matters is ability to deliver in time with a backup in case of failure, and to help clients better manage their own internal processes.

Revising offers with clients allows to rapidly restore margins, then to grow them again while reducing investment; a simplified offer requires less customisation and helps reduce operating costs; the sales force's job is made easier; electronic links enhances clients' captivity. A price raise is possible, applied, and accepted by clients. The company starts creating value again.

Creating Value for Clients and Shareholders

What creates value for clients also create value for the Company, provided that operating costs follow: Clients are increasingly loyal and raise average purchase. Customer acquisition is also less expensive. Faultless execution has direct positive impact on the cost of operations.

Practically, CEOs should be able to develop and manage the execution of a value creation plan, both for their clients and for their company. The plan should cover at least two sides of value creation:

1. Identify Client-Level Value Creation Drivers

Most often, service dimensions play a key role. Here are a few illustrations of potential services approach, drawn from our experience in sectors like logistics, financial services, banking, travel industry, software, strategic consulting, engineering,... :

Tailor-made approach, co-design,
Packaging / turn-key,
Cost reduction on the client side,
Shortening internal timeliness for the client,
Simplification of administration,
Proactive problem solving,
Process streamlining on the client side,
Valuing client as an individual....

2. Manage Value Creation Internally

Client is not king! Sizing investment and managing operations to create value is part of the CEO's work. Does this look obvious to you... Just list financial disasters generated - on behalf of clients service - by mammoth CRM projects that never worked to full capacity (if they ever work...).

To create value, companies need to trade-off between strategic initiatives, based on how much value they create for shareholders. The role of the CEO is to establish the demand for value, as well as to facilitate information flows that will allow a realistic assessment of proposed options:

Feed back on client needs,
Understanding of internal costs,
Ability to rapidly transform operations,
Client access and ability to bring offers to market...

CEOs need also to constantly challenge the actual feasibility of initiatives and to ease transformations that will effectively create value for clients and the shareholders.

Overcoming Barriers to Change

I have noticed that CEOs usually develop an early intuition of their company's loss of reactivity. However, it is often difficult for them to make their teams aknowledge the situation.

Because most management teams are good at product innovation and at selling their products, they tend to avoid to stand back and ask themselves some vital questions: "Are we still building the most simple solutions to our clients; how will our per-client margins look like in one year; do our operating structure and cost still allow us to deploy the organization we will need to answer future client needs?" As they not to ask themselves those questions, many senior executives lose their focus on value creation.

When a company operates on a growing market, it may be difficult to acknowledge that bloodshed has started in terms of value creation. Managing by figures is an entry point; getting all teams to get to the field with clients is unavoidable; adopting a simple, candid, anti-bureaucratic approach is essential; helping the development of clients' voice in the very heart of the company is critical.

However, few CEOs actually demonstrate the ability to talk both client and finance language. They are those that actually develop a culture of value creation in their business, while maintaining staff enthusiasm. They are also those who manage to make each employee an actual crafts person of value creation, for clients and for shareholders.

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This article was originally published in the French Journal of Management (click here)

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