White Paper. The Pyramid of Success: Don t Bury Your Assets, Build on Them

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1 White Paper The Pyramid of Success: Don t Bury Your Assets, Build on Them

2 The Pyramid of Success: Don t Bury Your Assets, Build on Them Written by Robert Jonas, President, Strategy International, Inc. Builders in ancient Egypt erected the most sound and enduring structures on earth the pyramids. The product of their knowledge and labor has outlived anything that has been produced by modern technology. Contemporary masterminds still struggle to understand the knowledge and capabilities of those ancient engineers. Similarly, CEOs, management consultants and technology designers constantly analyze, refine and redesign business practices to build and strengthen their institutions. Traditional giants of industry, such as Sears, IBM and General Motors, have found themselves left in the dust by the fast-growing competition. Wal Mart, Microsoft and Toyota found the formula not only for success, but also for endurance and continued growth in the consumer market. Sam Walton had a policy of visiting several of his Wal Mart stores each week. Walton always had his finger on the pulse of the customer, and he would make decisions accordingly. Though his approach may not be practical for most CEOs, Walton knew the importance of understanding the customer wisdom businesses in this country are just beginning to realize. Knowledge for Success The right knowledge is obtained by learning from and listening to the customer. designing new technology and evaluating and re-training employees. From all these analyses and evaluations, what should be clear is that the future of commerce in this country is dependent on a transition in corporate thinking from focusing on physical assets to recognizing and capitalizing on intellectual assets. The companies that possess and effectively apply the right knowledge are the ones that will win in the marketplace. The right knowledge is obtained by learning from and listening to the customer: incorporating the customer into the business strategy, giving the customer access to all levels of the company and understanding customers and their needs on a one-to-one basis. The effective use of technology is the structural capital necessary to gather, apply and transform this knowledge into success in the marketplace. Defining Intellectual Assets The Intellectual Capital or the Intellectual Assets of a corporation go far beyond the information stored in the company's database. Intellectual Capital is made up of the Customer, Human and Structural capital of the organization. Human capital refers to the people in the organization and the knowledge that they have. In fact, the most valuable information the company has may be the undocumented knowledge and experience of individual employees. Structural capital includes the systems, networks and management structures that hold the people together. Customer capital is the knowledge of what to do, and when and where to do it in order to provide the best service and product to the customer. These are the building blocks in the pyramid to success in the marketplace. Success in the marketplace is the goal for any business. How success is defined or measured may vary from business to business or industry to industry. Millions of dollars are spent annually on analyzing business practices, One could debate endlessly about where these types of capital fall in the pecking order of attaining corporate success. In the end, you would find that each one points in the same direction. The people in the organization are 1

3 there to create a product or provide a service for the customer. Knowledge within an organization focuses on the product or service and its relationship to the customer. All the systems and technology ultimately enable the business to attract, serve and keep the customer. Creating Customer Capital in the Strategic Thinking Process Most companies have something in their mission statement or in one of their strategies stating that they are a "customer-driven company." Unfortunately, what they often omit in the formula to become a "customer-driven company" is the customer. How exactly does the customer drive a company? Customers drive the company when they participate in the strategic thinking process. One way to accomplish this is by employing Customer Relationship Management (CRM) techniques. CRM is a form of structural capital that systematizes the interaction with and capture of customer knowledge. CRM computer software programs gather, sort and warehouse customer information. The traditional approach to customer relationships aligning organization to organization, president to president, manager to manager and customer to sales is passe. It may have been the way of the past but it will not be the way of the future. Customers drive the company when they participate in the strategic thinking process. Today, Customer Relationship Management includes a category of electronic software products that automate the interaction between the company and its customers. Therefore, individuals within the organization have the capability to know the customer's current needs and can combine that knowledge with other information gained from the relationship to predict the customer s future needs. CRM enables organizations to form long-term relationships established on a one-toone basis. One-to-one relationships with its customers not only enable the company to keep its existing customers but also to better attract new ones. Don Peppers and Martha Rogers, coauthors of The One to One Future: Building Relationships One Customer at a Time and Enterprise One to One: Tools for Competing in the Interactive Age, advocate increasing sales to fewer people as more efficient and more profitable than mass-marketing. Their one-toone partners. Nurture your relationships with each more profitable than mass-marketing. Their one-to-one theory recommends focusing on one customer at a time. "Find the 20 percent - or two percent - of your own customers and prospects who are the most loyal and offer the biggest opportunities for future profit. Collaborate with each customer, one at a time, just as you now work with individual suppliers or marketing customer by relying on new, oneto-one media vehicles - not just the mail, but the fax machine, the phone, voic , cellular phones, and (eventually) interactive television. Reorganize your marketing department to deal with this new one-to-one reality." Peppers and Rogers recognize the challenge that the one-to-one customer relationship presents. Not only does it present the challenge of integrating information throughout the entire organization, but it also means offering individualized marketing to customers based on the prospective profitability of each. They cite Hickory Farms as one example of a company that has used the one-toone customer relationship process to increase business. That company's repeat, high-volume customers generate three times the amount of business than that of all other customers. In developing these relationships, Hickory Farms takes a proactive rather than responsive approach. They use the knowledge of repeat customer's purchasing patterns accumulated by 2

4 their CRM system to offer options for purchases that would satisfy the customer's purchasing pattern objectives and also present other purchase possibilities to establish additional relationships with the customer. approach creates a powerful relationship, a customer relationship. Without this accumulated intellectual capital, the company is operating on conjecture assumptions of what the customer needs and wants. Customer Capital Becomes Intellectual Capital Too often a company assumes its role is to teach the customer something. This may be true to some extent, however, if it is a "customerdriven company," it will focus on what it can learn from the customer. By learning about the customers wants and needs, the company is able to convert this knowledge into customer capital. When customers feel they are learning or gaining from the relationship with the company, they become more reliant on the company. Consequently, both become stronger and more dependent on each other and customers become promoters of the services they patronize. When a company starts thinking of an individual customer as an enterprise of one and of themselves (the company) as an enterprise of one, then the oneto-one relationship is being built. The saying in the business community that "your customer is your competition's prospect" should be the impetus for a solid CRM structure. Effective customer relationship management is not just knowing more about the customer than the competition, but customer relationship management is not just knowing more about the customer than the competition, but using that knowledge to hold and increase revenue from the customer, thereby creating customer capital. As customer capital grows, the company grows and becomes more successful in many ways. Human capital grows through the knowledge acquired. Structural capital grows because the systems that are needed are defined and can be designed accordingly. This You want a system to present you and your customers with an easy to follow path whose final destination is a mutually agreed upon objective. How precisely does this exchange of learning occur between the customer and the company? Customers must be allowed access to the knowledge the company has about them and the knowledge they can use to meet their own objectives. When this happens, learning will occur. Charles Kwon, President and CEO of Neodesic, a designer of marketing and sales support systems, explains how this learning relationship with the customer is supported. "With the Internet and customer relationship management products, companies have the ability to provide an endless stream of information to the customer. Often the customer can access this data without assistance. But simply accessing mountains of information versus establishing a relationship where the ultimate goal is mutual understanding and learning are two different things. For customers that are trying to interact with the company, whether it is through a Web site or directly with a salesperson, the goal is to accommodate that customer s specific objectives. For example, they might be trying to solve a problem, or find out why your product costs more than competing products. What you want, therefore, is a system that can walk that customer and your own salesperson through a step-by-step process where both learn more about each other from the interaction. Kwon suggests using what he calls a Performance Support System. "The process steps required and the subsequent information that must be captured or delivered to accomplish that objective must be carefully chosen to ensure that they are properly aligned 3

5 with what the customer really wants. Customers don't want access to every little bit of information about the company. They only want the right knowledge, conveniently delivered at the right time, to meet their objective. From the company s perspective, the real challenge is how to identify which processes and information were used to satisfy similar customer objectives in the past. Once identified, you can then assess the effectiveness of these processes in meeting similar objectives. This ongoing analysis provides insight on how to optimize those processes over time and improve your ability to learn from every customer interaction in the past, so as to improve all your customer interactions in the future. In the end, you want a system to present you and your customers with an easy to follow path whose final destination is a mutually agreed upon objective. This path is always changing as more and more customers follow it, but its goal is always to be the shortest, fastest and most effective way of solving the customer s problem. More importantly, critical customer capital accumulates with every successful path that the company and customer travel together. The problem with "the customer relationship management systems that are out there," Kwon explains, is that their intent "is just to make the information available and catalog it. Unfortunately, they never provide a clearly delineated path you and your customers can follow to get the information you re both looking for. There is nothing in the system that links captured information with your current objectives. And there are no ways to embed within current systems the best path to meet these same objectives." He sees the second necessary characteristic of the CRM system as "how easy is it to interact with the system? What is truly powerful about a Performance Support System The structural capital of organizations must change to accommodate customers changing buying habits.. is how it simplifies the interaction with the system while at the same time it improves the system s ability to help you manage often complex interactions. The best analogy is to think about interacting with the system like a very smart and experienced assistant. The premise here is that you have a strategy, and you are trying to collect as much relevant information as possible so that you can drive that strategy. The system, like a good assistant, remembers how you met similar objectives in the past and what relevant information you required. Consequently, it can draw upon these previous learning experiences. It s this ability of the assistant to remember and learn from previous customer interactions that will empower the next generation of customer relationship management system." It is not only the value (having objectives met) that the customer receives from the company contact, but also the quality of that contact that is important. What type of experience does the customer have at the point at which they contact the company? If customers contact with the company is not a pleasant experience it is not likely that they will be repeat customers. Quality and efficiency of personnel service are integral requirements of customer relationship systems. Is the responsiveness to the customer contact timely? Is the attitude of the respondent helpful and positive? How easy was it to reach the appropriate person to handle the customer's objective? How flexible is the contact system? Is there a process to monitor these qualities in the system? And, finally, is there a point of accountability that keeps up with this information and corrects deficiencies? Companies most successful at customer relationship management take an aggressive approach to those relationships and make sure that customer contact is both pleasant and effective in meeting their objectives. 4

6 Jon V. Ferrara, Executive Vice President, GoldMine Software Corporation, a leading mid-market Sales Force Automation (SFA) vendor, supports this opinion, "People understand today more and more that it is not enough to just sell a customer something. You have to deliver a "knock your socks off" service and support so that not only do they come back and buy from you again but they drag their friends along with them. Because ultimately it cost 10 times more to sell a new customer something that it does to sell an existing customer. And if you can provide that highest level of service and support to your existing customers then they turn back into future orders short circuiting the need for spending the additional marketing dollars." Optimizing Customer Capital Customers are changing the way they buy. Companies that survive and prosper in the future are those that are willing to change the way they sell. Businesses will need a whole new breed of sales managers and salespeople. The structural capital of organizations must change to accommodate customers changing buying habits. In an interview with Profit Magazine, Don Peppers talked about implications of customer relationship management. He cites three important criteria of structural capital: 1. Having a good design interface. Such an interface would make it easy for the customer to give information and for the system to capture that information. 2. Remembering what the customer told you so that they don t have to repeat the information. 3. The ability to integrate the information into the way in which the customer is dealt. Like the perfectly fitted blocks of the ancient pyramid, CRM links all of the company s intellectual assets. Accountability in managing the relationship management process is an issue that Peppers feels businesses need to consider when implementing these strategies. He illustrates this point by referencing Hewlett- Packard. H-P's divisional global structure makes a corporate level designee responsible for the growth of the relationship with the company's 200 largest customers. The person in any organization who has the greatest need for information is the CEO, yet he or she is usually the furthest from the customer. In a large corporation the CEO is often five to ten people removed from a customer. The CEO must have some way to link directly with the customer. Otherwise, by the time information from the customer has made its way up the corporate ladder and reaches the CEO, it may be so filtered that it is meaningless. If the customer so chooses, he should be able to direct his comments, questions, or concerns directly to the CEO. PC networks and the Internet allow this to occur without serious disruption in time flow. Restructuring Strategic Thinking to Utilize Intellectual Assets The corporate blueprint or strategic plan is often the product of the time-honored tradition of the annual management retreat. Not only is the plan designed away from the "real world" where it will be applied, unfortunately, it is often implemented the same way. Characteristics of a good strategic plan incorporate these concepts: a. The strategies identify the intellectual assets needed including measurable performance expected from employing those assets. b. The strategies are designed not only in the environment where it will be 5

7 applied, but also with the input from those responsible for implementing it and from valuable customers who will be the recipients of its success or failure. c. The information system or company technologies are aligned with the strategic plan and designed to easily illustrate how well the goals and objectives are being achieved. d. Because the strategies are built around the customer relationship, the technology tracks how the customer relationship is impacting the strategy implementation and visa versa. e. The system will access information on all vendors providing services to the company. These are all part of the structural capital. f. The strategies recognize the human capital. They provide a method to inventory the skills and knowledge of the human capital and how employees are performing against the skills and knowledge that they have. All aspects of the strategies can be tied to automated software driven system that clearly shows what the company is using to measure the success of the business. This makes the strategic plan the core of how the business operates rather than an abstract. Foremost, the strategic thinking process must be tied to customer relationship management. Just as the Internet is webbed together, the organization can be webbed together with the customer so that the connections can be mapped. These "web relationships," "virtual organizations," or "network organizations" empower the company to visualize its success and the knowledge it has. In return, the intellectual assets increase by building a strongly woven network or web. CRM system will not succeed unless the company s thinking includes Learning from the customer Letting the customer teach the company Strategizing with the customer Cementing the Success Pyramid with CRM Most CRM systems do not fulfill the requirements of one-to-one marketing. Nor are they comprehensive enough to bind together the blocks of intellectual capital to build a strong structure for success. What then should be used as a standard for expectations from a CRM system? The system provides customer access to those areas of the organizations where customers objectives can be met. As a marketing tool, it analyzes every business contact, collecting significant data, including behavior patterns and designing a total customer profile. Products and services are assessed accurately, identifying profitable and unprofitable, and even recommending new products and services based on analysis of customer contact. It segments the customer base into target groups and matches the groups with products and services to be offered to them. These marketing predictions are integratable into the overall strategic plan and used as the basis for largescale marketing strategies. It tracks and analyzes marketing results, both on the one-to-one basis or largescale. It provides a system for accountability, auditing and analyzing customer reactions to the service they are receiving. Effective Customer Relationship Management refocuses the company. Meeting the customer's business objectives becomes the strategic plan of the organization. Like the perfectly fitted blocks of the ancient pyramid, CRM links all of the company's intellectual assets customer capital, human capital, physical 6

8 capital, and structural capital. It transforms the company from a fragmented or departmentalized organization to a closely linked corporate structure. With CRM guiding the company's strategic plan the blocks of the success pyramid are properly aligned to support a permanent and enduring structure. Side Bar What are the implications when structuring the corporate pyramid to success? * 1. What sorts of systems procedures need to be established to focus on the customer capital? 2. How is the concept of focusing on the customer capital introduced into the company and used to bring customers into the innovation process? 3. Are customers being incorporated into R&D marketing and innovation? 4. What products and services have not been addressed? 5. Can a new service product be offered customers to bring them into the relationship process? 6. Should any of these concepts be incorporated into the strategic planning process? Into the strategic planning process? 7. How does the view of the customer capital impact the customer relationship management interactive marketing practices? Reconstructed from The Almighty Customer, Management Review of the American Management Association, February Incorporate these concepts into the strategic thinking process. About the Author: Robert Jonas is President of Strategy International, Inc., a management consulting firm specializing in strategic planning and supply-chain development. For further information, please call (815) or visit the company web site at 7