The Case for Value Creation Centres:
Value Councils go beyond Pricing Councils and Innovation Councils
We have been working with companies to establish Value Creation Centres. We are in the process of setting some of these in MBA schools.
Recently I came across a blog by Paul Carpinella quoting Dr. Stephan Liozu who has set up pricing and innovation councils for several companies.
Most companies I deal with work on pricing in an ad hoc fashion, they have no real focused approach to pricing. They do not have pricing departments. They do not even have a pricing council.
Very often when I would visit companies (and many were large companies), I would go past a meeting room and see marketing folks holding a discussion. I would ask, what are they discussing. Many times they were discussing what action they should take because a competitor had reduced price. Should they hold their price? Should they match comp?
I used to ask, how many times these people meet to discuss creating customer value or just creating value. And, generally the answer was never. Some brave managers said we do this when we discuss strategy. Give me a break, I would think, because strategy is generally about how we make more money.
After our Customer Value interventions, many of these companies stopped meeting competition’s pricing, and even ignored competitive moves. They concentrated on creating customer value and getting a price for it.
It is not easy. First you have to measure the value you are creating vs. the value your competition is creating. And you have to understand why people buy and what factors are truly important in the buying equation.
Thus, in buying a refrigerator is price (which is actual price and non-price terms) 40% of the buying decision or is it 60%? Are the benefits 60% or 40%? And what are the relative importance of product, retailer, service and performance? What is the relative importance of price and non price terms? Are you better in these items? Often there is not much to choose between products (yet product focused companies keep focusing on products, not customers).
And as you start to understand this, you start to create value. Some things in creating value are very simple. Doing your job better. Finding better ways to do your job and delivering happiness (as espoused by Tony Hsieh of Zappos) is value creation. Going beyond the requirements of your job leads to value creation. Doing things better is value creation. Touching customers better creates value.
And to do this well you must establish Value Creation Centres or Value Councils.
Steve suggests that Value Councils should have a typical agenda of creating better prices, or delivering new product with innovative marketing, or value propositions, value drivers and messages and value selling materials.
To me, this is an omigosh…more of the same, an inside outside look. Value Councils have to work on creating value for the customer.
Ken Favaro in his 1998 seminal article ‘Put Value Creation First’ said that:
Value Creation tells You Where and How to Grow
Value Creation Gives You the Capital and Talent to Grow
Value Creation Increases Your Capacity to Grow
Remember, Ken wrote this in 1998. Value Creation by definition then was creating more profits and sustainable growth. But he was on the right path. Now you use this to figure out how you would create value for customers and employees. And suddenly, you are looking at work and the world in a different way by using the latest definition of Value Creation (for stakeholders, primarily customers).
Putting Value Creation first will happen with Value Councils. Value Creation will tell you where to grow because you focus on customers’ needs and unmet needs, like an iPad that made even the most anti tech or tech allergic person participate in computing. And also got higher tech people to be happy to use simpler computing.
And talent and capital will chase you because people can see that your value creation will create value for them. Ken Favaro put it nicely: More importantly, though, companies that put value creation first will create over time a cadre of managers who have higher standards and better capabilities than the competition. In a world where nearly everyone faces abundant choices, the challenge for all businesses is to develop and sustain a uniquely attractive proposition for both customers and employees. But the hardest challenge is to do this in a way that also creates value. Holding your managers to this standard means continually asking, “What exactly do we do that’s different from the competition, and how will this enable us to create value?” By instilling this discipline, you can make your people better managers and create an environment that attracts only people who adhere to the highest standards for business performance and personal achievement. In time this will give you more managerial talent than your competitors, enabling you to achieve higher levels of profitable and sustainable growth.
Disney is a great example of Value Creation. Steven Spielberg is another example. The shorter formats of cricket matches (one day, 20 overs etc.) are examples of Value creation. And value creation happens when you leave your charger in a hotel, and the hotel says they will get it to you within 5 hours, instead of asking how you will pay for this (This happened to me at Taj President Hotel in Mumbai and as I was catching a flight to Delhi I remembered about my charger and called the hotel).
And finally Value creation gets you on a truly growth path. Leadership must believe in Value creation and indeed put it first and set a culture and a process for value creation, and work with employees on value creation, whether it is to be world class or leaders. Short and long term growth comes from value creation. Favaro goes on to say be better than your competitors at understanding where, how and why value is created and destroyed within your markets and your company. This means by business unit, by product, by customer, by channel, by market, by technology, or by whatever “cut” will best reveal the truly distinctive capabilities and assets you have to drive profitable and sustainable growth.
If you put value creation first in the right way, your managers will know where and how to grow; they will deploy capital better than your competitors; and they will develop more talent than your competition. This will give you an enormous advantage in building your company’s ability to achieve profitable and long-lasting growth. They will help pricing and innovation.
Some small steps are being taken such as 360pi, the leader in retail price and product intelligence, announced the appointment of Gregory Soussloff as Vice President of Customer Value. This is a start to building Value Councils.
Are you ready to incorporate Value Creation and starting Value Councils or Value Creation Centres in your business? Why not?
Your comments are welcome.
Call at (+91) 9971288580
Please share it too
Gautam Mahajan, President-Customer Value Foundation
M: +91 9810060368
Tel: 11-26831226, Fax: 11-26929055
email: [email protected]
website: http://www.customervaluefoundation.com
Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the customers, employee and for each person working with the companies.
Total Customer Value Management (Total CVM) focuses the entire company and its employees on Creating Value for the customer, thereby increasing Customer Value and Shareholder Wealth.
Explore posts in the same categories: Uncategorized
