Customer Value: The Gold Standard - InformationWeek

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8/6/2004
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Customer Value: The Gold Standard

Why do so few companies make customers the focal point of performance management initiatives? Here's a guide to focusing on customer value and metrics that can measure success.

It's no secret that information gleaned from customer interactions is incredibly valuable. In fact, this information is virtually the only privately held asset that stems from an organization's demand chain efforts. In the context of the classic "five P's" of marketing (product, promotion, placement, pricing, and people), the Web site — for many organizations, a major focus of customer interaction — alone offers ample information for customers, prospects, and competitors. Product positioning is always featured there, and pricing is often derivable. Distribution strategies (placement) can be readily understood, and promotional offers are often presented with animated click-through enticements. The Web site even exposes the fifth 'P' — people — when it highlights the management team (with photos!), new "name" customers, and downloadable customer case studies, usually with a spokesperson's name and title (wisely, specifics of customer interactions are rarely revealed).

On the flip side of these sales-driven revelations, however, it turns out that a surprising number of organizations continue to overlook the customer interactions themselves as a significant source of market and performance intelligence. Measuring relative customer value and establishing priorities on the basis of profitability are difficult objectives: yet such metrics are crucial in the quest for performance improvement. Information drawn from customer interactions, particularly through the Web site, is essential to these metrics. Plus, by making a commitment to customer intelligence at this level, organizations will naturally begin to shift focus to the customer and away from a product-centric, transaction-driven mindset.

A customer-focused strategy becomes the foundation upon which an organization can build its capacity to understand how customer value relates to its success; how it can optimize activities with respect to customer interactions; and how it can align cross-functional group performance in order to leverage and influence more profitable customer interactions. A customer profitability framework provides the organization with a structure and discipline for managing its resources, allowing it to focus strategic, tactical, and operational efficiencies toward enhancing the value of its customers.

How does an organization employ customer data integration and other technical means to define "the customer" across multiple functions? How does it create customer value and profitability metrics based on information that's coming from multiple sources? These are daunting tasks, but they are critical to customer-facing performance management. Meeting such objectives will bring your organization closer to effective management of cross-channel customer experiences. It will attain the ability to assign accountability and responsibility for customers to employees and organizational functions, and ultimately, to understand how to align the organization to achieve higher customer profitability.

A central premise in this context is that customer value is heterogeneous. Simply put, not all customers are created equal. Just as a suite of product offerings represents an array of profit profiles — or a hedged investment portfolio includes a heterogeneous mix of vehicles with variable earnings profiles — so too do customer lists comprise a blend of more and less profitable engagements. Enterprise goals and objectives should reflect comprehension of this truism.

The ability to improve performance from a customer-centric perspective requires broad adoption of a customer-driven culture and customer-aware integration management and information management strategies. This change represents a more significant cultural leap than most organizations can manage in a single bound. I'll explore some ways organizations can use technology as an enabler for making progress toward a customer profitability business focus within the demand chain.

A Repeatable Methodology

Performance management is a business strategy and methodical process of managing execution within an organization toward a common set of goals and objectives. The performance management process enables individuals to understand, optimize, and align business and achieve optimal performance through intelligent action (see Figure 1). Companies achieve this goal by aligning business and IT to leverage technology, providing timely and appropriate information for strategic, tactical, and operational purposes.


FIGURE 1 The performance process and cycle. Source: Ventana Research

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