Customer Value Creation In A Down Economy: Avoiding Near-sighted Strategy Mistakes
Officially, the recession ended two years ago. Don’t tell that to the U.S. manufacturing businesses who saw orders for airplanes, autos and heavy machinery decline in June, according to Commerce Department data just released this week. The anemic economic growth so far in 2011 is also effecting service firms, where they experienced their weakest growth in 17 months during July, according to the Institute for Supply Management. This sector accounts for 90% of U.S. employment. Odds are, your business is feeling the pinch and has made or is making adjustments to accommodate for slower sales.
Keeping The Lights On During The Recovery
A slow economy provides many challenges for business leaders, but that does not mean we throw out the baby with the bathwater. Yes, most executive leaders are battling pressure from boards and investors to implement quick fixes that will keep IBITDA on target with projections. Others are tapping into innovation and R&D dollars to fund operations with already allocated monies. There are limited marketing dollars to go around and sales numbers…well, let’s not even go there.
Despite the challenges, long-term viability of our businesses relies on keeping our strategy focused beyond the horizon-line. The recession and painfully slow recovery has put tremendous pressure on virtually all organizations, and as a result, strategy investment towards customer value creation has slipped into second place behind overhead reduction plans in order to reach a bottom-line targets and performance objectives for some businesses. This is short-sighted in terms of maintaining a competitive edge and almost certainly was not what your organization’s strategy prescribed. For forward-thinking executives that want to do the right things (yet would like to remain employed), this creates an internal struggle about managing this dichotomy.
The conflict relates to the struggle of maintaining balance between internally focused overhead reduction strategy goals on one side and those related to the creation of customer value on the other. In recent years, corporate planning became overly focused on creating shareholder value, sometimes to the exclusion of customer value. This creates a gap which serves to allow market share to be taken away by more nimble competitors in your space — those focused on creating a better value proposition for their customers and planning accordingly. The gap represents a huge risk; a potential loss of competitive advantage.
Chief executives must own the responsibility to stay the course on value-creation, championing the cause to maintain enthusiasm for innovation within the business organization. That does not mean that operational costs cannot be streamlined. The key to a balanced approach is to avoid focusing too heavily on cost removal. After all, margins can be improved through value creation programs, still effecting EBITDA positively.
Focused Spending On The Right Strategic Initiatives Will Create Value
With the corporate mission statement as a guide, the planning process can be adjusted towards viewing strategy and goals in terms of key customer outcomes.
– How can the organization increase the efficiency of customer interactions?
– How can we improve the cost-effectiveness of our product or service?
– How can we develop better customer intimacy and grow customer loyalty?
These are but a few examples of questions that should be triggered when thinking about strategy with a customer key outcome mindset. With the central themes being customer value creation, customer acquisition and customer retention, chief executives should work with their boards to garner support for long-term thinking and not knee-jerk cost cutting. Even if that means keeping spending at prior year levels, strategic investment is an imperative.
This translates into:
– Investment in projects to improve staff productivity
– Investment in projects to make business processes more efficient and cost effective
– Investment to promote innovation
All of the above can mean cost-effective delivery of products and services to the business’s market and improvements in quality and function that put competition further behind in the rear-view mirror – despite a troubled economy.