The 4 Pillars of Successful Businesses - #2: Customer Centricity

How do organisations handle the increasing pressure of today’s business world – increasing regulatory environment, heightened risk awareness, customers demanding increased flexibility and responsiveness, environmental footprint concerns, workforce pressures and rising costs.

In our view, there are 4 key pillars that are common to successful businesses.  All successful businesses…

  1. Have a clearly defined strategy
  2. Are customer centric
  3. Innovate to stay ahead
  4. Focus on productivity

These 4 pillars are held in place by the organisation’s processes and systems, and the success is then cemented by the people and culture that exists within the organisation.

 

the four pillars

 

So how do we adopt these 4 pillars into our ways of working?  This is the 2nd of four articles that discuss bringing these 4 pillars to life in a pragmatic manner, not just across the supply chain but also across the wider business environment.

The 2nd Pillar – Customer Centricity

 What does ‘being customer centric’ mean?  Does it mean undertaking everything that each customer asks of your organisation?  Or does it mean being ‘set in your own ways’ of doing things regardless of the customer.  In our view, both approaches are not sustainable.

There is a saying:

“All customers are important, but not all customers are equal”

This implies that some customers bring more value to the table than others, but it also implies that you must not ignore those customers who don’t bring as much value; your challenge is to ensure those customers needs are met efficiently and that you are clear about what you can and can’t offer.

In our experience, less than 10 customers bring 40% - 60% of the revenue and margin to an organisation – irrespective of whether that organisation had 100 customers or more than 1,000 customers.  In effect, it’s the 80:20 rule taken to the extreme.

This is important - once you understand which customers and products bring the most value, you then can understand which raw materials are used for those customers and products.  And as a result, you can adapt our planning and procurement strategies to protect that value.  And the key to this is the principle of segmentation.  The Business Dictionary defines segmentation as “the process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics – refer http://www.businessdictionary.com/definition/market-segmentation.html.

Customer Segmentation

You can use customer segmentation to classify the customer base into 3 – 4 segments.  Revenue and margin are usually the two most important criteria within the segmentation matrix.  But other criteria could include market share, willingness to innovate, willingness to jointly collaborate, global vs local player, growth potential, etc – an example of a 3-segment matrix is detailed in the following Customer Segmentation Matrix table.

Remember that your organisation is wanting to grow.  Your Segment 1 customers should not only be those customers that already bring a disproportionately large share of revenue and margin, but also have the capacity to grow further.  Their growth is your growth!  Sometimes you may have a reasonably large customer who has the majority of their market share.  Their ability to grow further is therefore limited (they’re prone to market share erosion by their competitors) and they might be better considered as in Segment 2 customer category rather than a Segment 1 category.

 

customer-segmentation-matrix-table

Product Segmentation

Customer segmentation on its own isn’t sufficient to drive our customer centric behaviours.  Your customers buy your products, so customer segmentation goes ‘hand-in-hand with product segmentation.  Products usually also follow the 80:20 rule albeit you may need to use some aggregation from SKU level into family level to get meaningful assumptions.

The Product Segmentation matrix ………………….

 product-segmentation-matrix-table

 

Segmentation and S&OP

Having defined the customer and product segments, these can now be used in the S&OP process as the foundation for managing competing priorities.

Sales and Operations Planning (S&OP) is a major business process adopted to manage the balance and trade-off between the conflicting preferences of the supply and demand. A properly implemented S&OP process routinely reviews customer demand and supply resources and “re-plans” quantitatively across an agreed rolling horizon. The re-planning process focuses on changes from the previously agreed sales & operations plan. While it helps the management team to understand how the company achieved its current level of performance, its primary focus is on future actions and anticipated results. It also links high-level strategic plans with day-to-day operations. It is one of the most critical business processes used to achieve best in class performance to consistently outperform competitors.

 

s&op-cycle

 

We’ll discuss the S&OP process in more detail as part of the 4th Pillar of Successful Businesses – the Focus on Productivity

Customer Value Management

Customer Value Management (CVM) is a powerful tool that organisations can use to determine the ‘stickiness’ of its customers.  By surveying customers (preferably using an independent ‘market watch’ organisation to avoid bias), can determine the following 3 criteria:

The outputs of the CVM Surveys include both the Nett Promoter Score (NPS - albeit it won’t usually be the sole KPI) as well as other valuable both quantitative and qualitative information from your customers.  How to we use this information?  Aligning the CVM results and NPS with the customer segments previously discussed, customer service strategies can be realigned to ensure the right levels of services are being appropriately applied to each customer segment, thereby enhancing customer and value retention and improving competitor resilience.

Summary

Segmentation principles are used to identify those customers and products that bring the most value to the organisation.  Segmentation is used to define the level of service to each customer segment and to manage competing priorities within the sales and operational planning (S&OP) process.  Customer Value Management (CVM) is a tool that can be used to ensure the services supplied align with those that the customers most desire, and to understand an organisation’s customer service performance against those of its competition, as the customer perceives it.  Customer Plans are then adapted to provide the strategies for business growth.

 

Value Chain Connections Ltd can help with defining your segmentation process and adopting segmentation as a core part of your customer service parameters and S&OP process.  For more information, visit our website www.valuechainconnections.com or contact Alistair (alane@vccnz.com, mob +64 21 610 918) or Natasha (natasha@vccnz.com, mob +64 21 432 681).

The 4 Pillars of Successful Businesses - #1: Strategy

How do organisations handle the increasing pressure of today’s business world – increasing regulatory environment, heightened risk awareness, customers demanding increased flexibility and responsiveness, environmental footprint concerns, workforce pressures and rising costs.

In our view, there are 4 key pillars that are common to successful businesses.  All successful businesses…

  1. Have a clearly defined strategy
  2. Are customer centric
  3. Innovate to stay ahead
  4. Focus on productivity

These 4 pillars are held in place by the organisation’s processes and systems, and the success is then cemented by the people and culture that exists within the organisation.

 

the four pillars

 

So how do we adopt these 4 pillars into our ways of working?  This is the 1st of four articles that discuss bringing these 4 pillars to life in a pragmatic manner, not just across the supply chain but also across the wider business environment.

The 1st Pillar – Strategy

An organisation’s governing body (usually the Owners or Directors) are responsible for setting the strategic direction of the organisation.  In practical terms, the strategy is usually developed by the Executive and endorsed by the Board.  Whilst this sounds fine in theory, the reality is that the organisational strategy needs to be understood and embraced throughout the organisation if it is to be fully effective.  Often the further down into the organisation one looks, the less that the employees understand how their work contributes to the strategic direction of the organisation.

The A3 Planning Process

The use of the A3 format in the development of Business and Action Plans is a useful way of bringing focus throughout the organisation.  A3 Plans are ‘one pagers’ – they limit the amount of information that can be imparted on 1 page – and this is why they’re so effective.  When developed properly, they bring out the 5 – 6 key ‘game changers’ or ‘must do’s’ for the organisation.  Typically we’ll develop 3-year A3 Business Plans, and these will then be supported by A3 Action Plans for each of the key initiatives.

A3 Plans can be likened to a business roadmap – just like satellite navigation in a car.  Without satellite navigation, drivers can easily deviate from their journey, requiring them to back-track and lose time.  In a worst case scenario, they can end up in the wrong place.  Satellite navigation enables drivers to plan the most efficient route to their destinations; it prevents unplanned deviations, reduces time and saves running costs.  The A3 Plan is an organisation’s ‘satellite navigation’.

 

The A3 Business Plan

The A3 Business Plan has 5 sections:

Background – it explains “Why are we here?” and summarises the organisational intent and some of it’s history, ie it provides context to the Business Plan

Current State – it answers the question “Where are we now?” and lists the 5 – 6 ‘game changers’ that the organisation must adopt. And this where the employees can have significant input.   We use a structured idea generation workshop (called Reflective Thinking) with a range of employees to detail their views on the Current State.  And we also use the participants to identify the key priorities.

Future State – it answers the question ”Where do we want to be in 3 years?”. Again we use the Reflective Thinking process to generate a list of employees’ ideas on the desired future state.  Why 3 years?  Organisational change or capital may be required to achieve the 3-year Future State and any shorter time-frame may not allow these investments to be fully implemented.  And conversely anything beyond 3 years is increasingly more difficult to visualise.  In effect, 3 years is a good compromise.

Key Performance Indicators – KPIs answer the question “How do we know when we get there?”. It’s not necessary to detail a full balanced scorecard on the A3 Plan – we find that the top 3 – 4 KPIs are sufficient.

Key Actions – The Key Action Table will answer the question “How will we get there?”. It will list the key high-level actions, who is responsible, the timeframe to complete the actions (some actions may be concurrent, others may be staggered over the 3 years depending on interdependencies and available resources).  The actions are colour coded according to their state eg

  1. Blue – not yet started
  2. Green – on track
  3. Orange – facing difficulties and requires additional support to bring back into line
  4. Red – Unlikely to meet the objective and requires senior support to remove bottlenecks.

And the colour-coded Action Table is an easy way to see if the A3 Plan is on track and where any stakeholder discussions may need to be focused.

 

 

In order to ensure alignment with the organisational strategy we incorporate the organisational strategies into the outputs of the Reflective Thinking workshops.  This results in:

The A3 Action Plan

An A3 Action Plan is then created for each of the 5 – 6 gamechangers that were identified in the A3 Business Plan.  The A3 Action Plan has 6 sections – it contains the above 5 sections but also includes a 6th section on Risk and Mitigations.  The Risk and Mitigation section asks the question ‘What might slow us down or stop us reaching our Future State?”.  The risks and mitigations should be completed separately using a risk heat map, and a summary of risk severities and weightings before & after mitigation are then included in the A3 Action Plan.  An example of a risk heat map follows:

 

 

A word of caution:  There are a number of ways you can structure the A3 Business Plans across an organisation.  For example, they can be set up by function, eg Manufacturing, Sales and Marketing, Procurement, Supply Chain, etc.  If established this way, the challenge will be to ensure that each Business Plan does not have competing priorities with the Plans from other functions within the organisation.  Another option is to structure the Business Plans by organisational business theme, eg Customer, People, Quality, Sustainability, Productivity and Safety.  Then each department can have an Action Plan for each of the themes.  The advantage of this structure is that it:

Key to the success use of the A3 Plans is their continual review and update.  They are dynamic documents that need to be kept current.  Sponsorship is key – use the organisation’s Executives as sponsors for each A3 Business Plan, and assign an aspiring key talent within each department as the Worklead for each plan.  It’s great as part of their own personal development.  And include the Plans in individuals’ annual objectives.

Summary

 The use of A3 Business and Action Plans, combining the organisational strategies with the employees’ ideas on the current and desired states (using structured idea generation workshops) is a useful way of getting organisational alignment and commitment to the strategies.  The A3 Plans create a ‘line if sight’ between the strategies and the operational targets.  The 5 – 6 ‘game changers’ are identified as part of the A3 3-year Business Plan, and an A3 Action Plan is developed for each of these priorities. Progress against the Plan is monitored using KPIs and the status is highlighted using colour codes (traffic light principle).

 

Value Chain Connections Ltd can help with developing A3 Business and Action Plans.  For more information, visit our website www.valuechainconnections.com or contact Alistair (alane@vccnz.com, mob +64 21 610 918) or Natasha (natasha@vccnz.com, mob +64 21 432 681).

Using A3 Business Plans, Segmentation and Collaboration to Identify, Protect and Grow Business Value

Introduction

The ninth, and largest-ever, PwC Global Supply Chain Survey 2013 drew on the insights of over 500 supply chain executives across North America, Asia and Europe to identify which key trends they saw as reshaping the supply chain. This survey identified that the most important value drivers in all business categories surveyed were minimised costs, maximum delivery performance, maximum volume flexibility and responsiveness, and complexity management. So the question for today’s Supply Chain Manager’s is – how can an organisation strive to improve on what appears to be ever-competing forces to drive overall business value? This paper identifies 3 simple techniques that businesses can adopt to grow business value and improve supply chain performance.

Business Planning

Creating a ‘line of sight’ from an organisation’s vision and strategy into the culture of the organisation is essential if business targets are to be identified and achieved. Structured idea-generation techniques such as Reflective Thinking workshops can be used to develop current and desired (3 year future) views of the organisation. When coupled with the organisation’s strategies, the key challenges and priorities of the organisation are identified. Capturing these within a 1-page A3 format as 3 Year Business Plans ensures that only the most crucial opportunities are identified, thus providing a clear focus on the ‘imperatives’ for all stakeholders across the organisation’s value chain. In order to avoid ‘silo behaviour’, these Business Plans should be centred on themes that transcend departments, eg People, Customer, Productivity, Quality, Health & Safety and Sustainability.

Segmentation

Segmentation is a simple but very effective technique for identifying where the true value lies within the business. Whilst a business might have more than 1,000 customers, often less than 10 customers will contribute up to 40% of the revenue and the profitability. And 30 – 40 customers will contribute 70% of the revenue – it’s the 80:20 rule taken to an extreme! Customer segmentation allows the organisation to identify those customers that bring the most value to the organisation, and allows Key Account plans to be developed that protect and grow those customers’ businesses. Customer segmentation should also include other factors, eg

Having identified the key customers, customer surveys are an important next step in understanding the customers’ requirements and behaviours. They can be global, regional or domestic in nature and cost anywhere from $5K to >$100K, depending on scope. However, the 3 key deliverables are (1) information relating to those attributes that the customer deems as most valuable, (2) your company’s performance against those attributes, and (3) your company’s performance against your competitors – valuable information indeed!

Segmentation is also used to identify the products that contribute the most value; note it might be necessary to aggregate products into logical family groups to allow meaningful product segmentation. Having identified the key products, vendor segmentation is used to ensure the key raw materials/components of these high value-creating products are protected. Typically vendors will be segmented into one of four categories according to the uniqueness of the products being supplied, eg bottleneck, strategic, leverage and shop. Strategies are then developed to ‘derisk’ the supply chain, without necessarily impacting working capital. Category management plans can then be developed to ensure an ongoing supply review capability for these materials.

Collaboration

Having aligned the organisation with a shared vision, and having identified where the value is created in the organisation, the third step is collaboration with the stakeholders in the value chain to grow value. By working together in a structured manner, both customers and suppliers can align their service delivery requirements whilst simultaneously minimising costs. Where organisations create additional value through joint initiatives, this value can be shared between the parties. However, to be successful, collaboration must be driven from the executive, and successful collaboration will often involve an initial cultural/behavioural alignment (eg clarification around IP) as part of a formal process. Personnel involved in the collaboration opportunities should also be unencumbered of the financial implications on each organisation – transparently sharing the financial benefits is the domain of both organisations’ accountants!

Conclusion

Whilst there appear to be ever-competing demands on the supply chain to improve customer service and responsiveness whilst minimising costs, the use of A3 Business Plans, segmentation principles and collaboration techniques can be easily used to simplify the end-to-end value chain and identify, protect and grow business value, both within the organisation and with its customers and other supply chain partners.

References

Using A3 Business Plans, Segmentation and Collaboration to Identify, Protect and Grow Business Value

Download this page content as a PDF: ANZAM-2014-Abstract-Growing-Business-Value

Introduction:

The ninth, and largest-ever, PwC Global Supply Chain Survey 2013 drew on the insights of over 500 supply chain executives across North America, Asia and Europe to identify which key trends they saw as reshaping the supply chain. This survey identified that the most important value drivers in all business categories surveyed were minimised costs, maximum delivery performance, maximum volume flexibility and responsiveness, and complexity management. So the question for today’s Supply Chain Manager’s is – how can an organisation strive to improve on what appears to be ever-competing forces to drive overall business value? This paper identifies 3 simple techniques that businesses can adopt to grow business value and improve supply chain performance.

Business Planning:

Creating a ‘line of sight’ from an organisation’s vision and strategy into the culture of the organisation is essential if business targets are to be identified and achieved. Structured idea-generation techniques such as Reflective Thinking workshops can be used to develop current and desired (3 year future) views of the organisation. When coupled with the organisation’s strategies, the key challenges and priorities of the organisation are identified. Capturing these within a 1-page A3 format as 3 Year Business Plans ensures that only the most crucial opportunities are identified, thus providing a clear focus on the ‘imperatives’ for all stakeholders across the organisation’s value chain. In order to avoid ‘silo behaviour’, these Business Plans should be centred on themes that transcend departments, eg People, Customer, Productivity, Quality, Health & Safety and Sustainability.

Segmentation:

Segmentation is a simple but very effective technique for identifying where the true value lies within the business. Whilst a business might have more than 1,000 customers, often less than 10 customers will contribute up to 40% of the revenue and the profitability. And 30 – 40 customers will contribute 70% of the revenue – it’s the 80:20 rule taken to an extreme! Customer segmentation allows the organisation to identify those customers that bring the most value to the organisation, and allows Key Account plans to be developed that protect and grow those customers’ businesses. Customer segmentation should also include other factors, eg

Having identified the key customers, customer surveys are an important next step in understanding the customers’ requirements and behaviours. They can be global, regional or domestic in nature and cost anywhere from $5K to >$100K, depending on scope. However, the 3 key deliverables are (1) information relating to those attributes that the customer deems as most valuable, (2) your company’s performance against those attributes, and (3) your company’s performance against your competitors – valuable information indeed!

Segmentation is also used to identify the products that contribute the most value; note it might be necessary to aggregate products into logical family groups to allow meaningful product segmentation. Having identified the key products, vendor segmentation is used to ensure the key raw materials/components of these high value-creating products are protected. Typically vendors will be segmented into one of four categories according to the uniqueness of the products being supplied, eg bottleneck, strategic, leverage and shop. Strategies are then developed to ‘derisk’ the supply chain, without necessarily impacting working capital. Category management plans can then be developed to ensure an ongoing supply review capability for these materials.

Collaboration:

Having aligned the organisation with a shared vision, and having identified where the value is created in the organisation, the third step is collaboration with the stakeholders in the value chain to grow value. By working together in a structured manner, both customers and suppliers can align their service delivery requirements whilst simultaneously minimising costs. Where organisations create additional value through joint initiatives, this value can be shared between the parties. However, to be successful, collaboration must be driven from the executive, and successful collaboration will often involve an initial cultural/behavioural alignment (eg clarification around IP) as part of a formal process. Personnel involved in the collaboration opportunities should also be unencumbered of the financial implications on each organisation – transparently sharing the financial benefits is the domain of both organisations’ accountants!

Conclusion:

Whilst there appear to be ever-competing demands on the supply chain to improve customer service and responsiveness whilst minimising costs, the use of A3 Business Plans, segmentation principles and collaboration techniques can be easily used to simplify the end-to-end value chain and identify, protect and grow business value, both within the organisation and with its customers and other supply chain partners.

 

INTERIM MANAGEMENT SERVICES

At some stage, most organisations will face a need to employ the services of some-one on an interim basis. This could be through a requirement to temporarily introduce a specialised skill set, to resource up whilst an existing executive is on an extended development programme or sabbatical, or to enable an organisation to undertake significant organisational change or growth. Interim management, also known as executive leasing, provides an opportunity for additional resource without the high cost and implications associated with permanent recruitment.

With over 20 years of executive experience in global management and leadership roles, Value Chain Connections offers interim management solutions in:

NON-EXECUTIVE DIRECTORSHIPS

Do you need to enhance your global supply chain capability at the Board table? Do you require a Director who also brings a strong Health and Safety focus and Compliance culture?

With over 40 years in the metals, food, beverage, fish, dairy and agri-tech sectors, covering both commodity and retail sectors, the Value Chain Connections Directors have extensive supply chain strategy and leadership experience in global organisations. The governance skills developed as part of this executive experience is the foundation for the advisory services provided by the Value Chain Connections Directors.

PROJECT SUPPORT SERVICES

In order to remain competitive, organisations may need to undertake various change initiatives, whether they be structural, process-related or new systems. Value Chain Connections has over 15 years’ experience in global business transformation and offers support services in:

The services and solutions offered are simple and pragmatic, engage stakeholders, are applicable to any size organisation and delivered by professionals with proven experience in large change initiatives.

BUSINESS COACHING

The business coaching services offered by Value Chain Connections lay the foundation for organisations to undergo significant growth. Rolling 3 year A3 business plans provide your roadmap and engage and empower your employees to deliver great results. Segmentation techniques identify the customers and products within your business that bring the greatest value, and allows you to implement strategies throughout your value chain to protect and grow that value with both your customers and your vendors.

ADDRESS

59 Mt Taylor Drive
Glendowie
Auckland 1071
NEW ZEALAND

VALUE CHAIN CONNECTIONS

Value Chain Connections is an independently owned supply chain and management services company based in Auckland, New Zealand.

Value Chain Connections offers supply chain advisory and interim management services to businesses wanting to improve to the success of their operations. Value Chain Connections looks beyond conventional logistics and business process wisdom and focuses on the dynamics of the end-to-end supply chain, aligning processes and achieving synergies and benefits throughout the value chain. These realisations can only be made when organisations understand and collaborate in the trust and behaviour of true partnerships.

Value Chain Connections achieves results primarily through leading and managing change within the client's business. It challenges people to think outside the traditional boundaries of their operations and explores new ways of working, whether this be in:

Benefits Include: