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rofitable growth is an often talked about but seldom realized objective of industrial
companies. The benefits of profitable growth are obvious but in reality most indus-
trial companies do not have their processes, people and technology aligned to achieve
profitable growth. What results for most companies is an ebb and flow with the general
economy with intense focus on cost reduction during down times and confusion between
good management and good markets during good times. Companies need to build a more
robust and reliable growth platform.
Profitable growth is governed by a simple equation: Having worked with many companies across multi-
ple industries, Charter Consulting has developed an
Profit Growth = approach that focuses on these two areas and has
Change in Revenue – Change in Cost proven successful in driving profitable growth.
• Share of Wallet: Measures the revenue de- Figure 2: Customer Value Analysis; Value Cube
rived from a customer for a company’s prod-
ucts and services in relation to the total
spend on the overall category. Share of Wal-
let is also measured at the customer, seg-
ment and enterprise levels.
Many if not all of these customer facing tools nies collect credit histories and demographic
have been enabled by technology and most have information. This ultimately creates the data
some established process. What’s missing are the playground on which consumer marketers
people who can assemble these tools together thrive. On the industrial side, data is not as
using a rigorous approach to profitable growth forthcoming but is more transparent via the
similar to the approach companies have em- internet than at any time in history. Through use
ployed toward cost and quality improvement … of data mining via the internet combined with
Six-Sigma for profitable growth if you will. primary research, industrial companies can ac-
This point has brought to light the need for com- cess information that enables them to take a
panies to create a competency around industrial much more quantitative approach to market.
marketing. Industrial marketers are those indi- That said, all too many companies continue to
viduals who can bring the process skills of a Six- rely on traditional qualitative insights gained
Sigma expert together with the business acumen through Customer Satisfaction Surveys.
of an investment banker to design and build cus- For these reasons and more, the skills required of
tomer facing processes that will create solution the industrial marketer are not going to be filled
value. by consumer marketers, sales professionals, or
Although many industrial companies recognize engineers. Industrial marketing skills need to be
the need for improved marketing, the area re- built, which constitutes both the challenge and
mains a bit of an enigma for the majority. Char- the opportunity for competitive advantage.
ter has found that in order to drive continuous Summary of Customer Facing Operational
profitable growth in industrial markets firms Excellence:
must come to grips with the need to raise the
To achieve a more reliable and sustainable
competence level of their marketing skills to that
growth platform companies need to be more
of their consumer counterparts. Here are a few
rigorous in understanding then managing those
reasons why:
customer facing processes which will drive prof-
1. Complex Demand Chain: Industrial compa- itable growth.
nies typically deal with a complex demand chain
that involves many different parties working
together to ultimately define an end use product.
Understanding the economic dynamics of this Customer Value Creation—Case Study:
demand value chain is very different than pre- Fortune 200 Manufacturer of Communication
dicting the behavior or trade-offs that a group of Materials
consumers will make during their shopping ex-
Situation
perience.
Like most companies in today’s economy our
2. Decision Process: In the Industrial market client had spent the last few years aggressively
space decisions about which solution offers the reducing costs. Recently the company started to
maximum value are made in days-weeks- reconsider investments that would drive future
months. In the consumer world, the decision growth. The company chose Charter’s proprie-
process is often made in seconds. tary Customer Value Creation approach due to
its focus on the economics of the customer inter-
3. Switching Costs: Due to process entangle-
action and its emphasis on achieving Opera-
ment, relationships in industrial markets often
tional Excellence on customer facing processes.
span years. Convincing industrial customers to
switch requires hard hitting and sustainable eco- Discussion of Approach
nomic benefits. 1. Assess the Current State [Inside-Out Perspec-
4. Data: For the consumer marketer data is more tive]: This element of the process focused on de-
readily available. Companies such as Neilson veloping an understanding of how the firm de-
and IRI collect “Point of Sale” information which livered and captured value in “today’s” state.
in turn allows deep statistical insights to be This was an Inside-Out perspective that cap-
gained about consumer behavior. Other compa- tured the firm’s beliefs regarding the value
dimensions of customer profitability, number of Customer economics included defining the par-
customers and share of wallet. As previously ticipants, value drivers, and improvement
mentioned, duration was also considered to opportunities for each step along the demand
provide a perspective on change in value over value chain. This activity focused heavily on in-
time. During this phase the firms strategy and terviews and collaboration with customer and
marketing plans were reviewed to determine non-customer executives. These interviews
what areas the firm intended to drive growth in significantly relied on the perspective of profit &
the future. They include: increase customers, loss leaders since they were in a position to see
increase share and increase profitability. The above the transactional fray and provide guid-
outcome of this phase was an internal perspec- ance on mutual gain sharing agendas. In the end,
tive of “today’s” value cube and how the firm this research yielded a view of the value chain
planned to change the cube’s shape. that quantified value for each step and allowed
As shown in Figure 5, the client felt their share of economic valuation of the demand value chain.
wallet and number of customers were high, with Just as importantly, the process identified oppor-
the overall profit contribution representing the
value enhancing dimension of focus. As a result
the company was focused on cost reduction and
elimination of lower profit contributing
customers.
Figure 5: Value Cube Defined from an Inside-Out Figure 6: Demand Value Chain
Perspective tunities along the value chain for investment
2. Determine “Could be” Potential [Outside-In defined through collaboration with customers.
Perspective]: In this phase, the objective was to Figure 7 represents the outcome of the process to
understand value from the customer perspective establish theoretical value from an Outside-In
and determine how the firm was positioned in perspective. This view of value is a much differ-
the overall demand value chain. The first step ent view than the Inside-Out view in Figure 5.
was to define the value chain itself.
f
Initially, the client had a narrow perspective of
er o rs
the demand value chain. Their view was b e
um om
anchored around participation in a print value N ust
C “Could Be”
chain rather than a chain of value that existed to
drive retail store traffic. By simply defining the
Customer Profitability
Customer Profitability
delivered solutions rather than focusing on a
significant effort to change the profitability of
the product itself. Today “Should Be”
Results
The project set the context for profitable growth
by identifying value added revenue opportuni-
ties of well over $500 million, focused on increas-
ing share of wallet with current customers. This
Figure 8: Balanced Customer Improvement Portfolio outcome represented a much different path than
the originally held plan of improving profitabil-
ity through cost reduction and elimination of
Concepts were ultimately selected based on the lower profit contributing customers. By defining
companies risk/reward profile and its desire to the direction and magnitude of the growth op-
penetrate particular portions of the overall de- portunity the client was now much better posi-
mand value chain and layered into a “should tioned to choose projects that were relevant to
be” model that is shown in Figure 9. the business opportunity. Additionally, capital
Define Road Map to CVC and human resources were focused on improve-
ment opportunities that were aligned with the
Having set the context for profitable growth and
Outside-In interests of the customer.
identified specific customer driven improvement
initiatives the company established an organiza-
tional framework to transition the effort from
interesting learnings to bottom line profits. This
was done through the creation of the “Office of
A Call to Action
Capturing profitable growth ahead of competi-
tors is more challenging for most companies
than staying in the cost cutting race. Although
capturing profitable growth should always be a
priority, it is a necessity during times of
economic expansion. By most measures the
expansion has begun.