Customer demand centricitypdf


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This article looks at customer demand centricity from the perspective of financial professionals trying to achieve their critical success factors and get a seat at the business tables of their companies. It is also written for bankers who wish to help in this process and enter the relationship achievement zone.

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Customer demand centricitypdf

  1. 1. Relationship Banking: Demand Centricity—Closing The Partnership Performance Gap This article has been written for bankers and their customers with an emphasis on building customer or demand-centric relationships. By way of illustration, it references a number of critical success factors (CSFs) that remain a challenge to the customer. For example, CSFs such as finance people wanting to play a larger role in strategy formulation, facilitating business support activities and improving organizational-wide decision-making. In this regard, the article suggests a number of conversational areas bankers should be having with their customers to demonstrate a prioritization of these needs over their own product-push agendas. The article seeks to demonstrate that one’s competitive advantage in the future is likely to be found not in emphasizing the supply chain of the bank but instead in embracing the demand chain of the customer. A version of this article—written largely for non-bank financial executives--was published in the Financial Executive International magazine (June 2011).IntroductionBankers have focused on selling products—not on understanding customer needs. But, products are notthe needs of the customer. Value is embodied in meeting the unsatisfied wants of a customer; namely,its needs or demand profile—the latter being a function of business circumstances and the pain of thecustomer. In a world of ever increasing supply—focusing on the needs (both implicit and explicit) of thecustomer becomes the critical competitive differentiator. For banks to win in the coming decade theremust be a shift in thinking away from the bank’s supply chain toward an emphasis on the customer’sdemand chain.This article focuses on just one area where bankers can achieve such a competitive shift. Specifically, inmy decades-long work and discussions with top business/financial executives—the increased role offinance in organizational strategy, related internal business-support activities and organizationaldecision-making processes themselves are together perhaps one of the greatest needs expressed byboth CFO’s and CEOs alike. As such, this article suggests that it is in this very space of unsatisfiedwants—or needs—where bankers should begin there conversational journey into the world of demand-driven competition. __________Let’s start our journey with some customer perspective.Specifically, over the years, financial professionals have sought a seat at the business table of theircompanies. CFOs want to play a larger role in decisions impacting the strategy of their organizations.Moreover, they see the finance function as a critical source of business decision-support. By helping tofacilitate more effective decision-making it is believed that finance can make a contribution towardenabling the creation of business value. Unfortunately, as we shall discuss, most finance departmentshave failed in making these desires a reality for their organizations. This is the bad news.But there is potentially good news here as well—especially for bankers. Specifically, rather thancontinuing to sell products—and meeting their own supply agendas—there is an opportunity here forbankers to make a contribution to the achievement of these critical success factors (CSFs) of theircustomers. And, this is no implicit or latent demand we are speaking of. It’s one that has been explicitlyexpressed time and time again; but, remains unsatisfied for a decade or more.Copyright 2011, Future Change Management LLC
  2. 2. Relationship Banking: Demand Centricity—Closing The Partnership Performance GapSadly, however, bankers do not appear to be latching on to this performance gap. Instead they insist onfocusing on their own supply chain of products; failing to recognize and respond to this challenge ofunsatisfied customer demand.In addressing this gap, on the customer front, there are a number of factors that bankers should becognizant of. They have all contributed to the failure of finance people to play a larger role in thebusiness affairs of their organizations. Conversationally, they all have their empathetic value for buildingcustomer-centric relationships. Specifically:First, there have been the “distractions” of recent financial and economic turmoil—not to mention aplethora of increased regulatory/compliance challenges. Second, with tighter budgets and reduced staffthere is only so much the finance organization can accomplish. In challenging times, less measurableactions—like business partnering—are lost sight of; giving an impression of inconsistent prioritization.Finally, and perhaps most importantly, this finance/business performance gap has been exacerbated bydecision-making support itself. This latter point will be discussed shortly.But importantly, bankers can help in closing this internal performance gap—thus, helping theircustomers to achieve these business CSFs; however, to do so they must focus on having the rightconversations. Specifically, not those focused on product supply but instead those focused on realcustomer demand; namely, unsatisfied needs that encompass both the tangible and psychologicalarenas of the customer.For example, if strategy and related business decision-support activities are CSFs of the customer—thenwhat conversational points should bankers be highlighting in their interaction with customers? How dobankers become part of this important conversation—rather than remain outliers? How do theybecome facilitators—catalysts—in helping to achieve these CSFs? In addressing these questions, let’sstart from some fundamental observations.Conversational Point #1First, bankers must address the fact that decision-making (and decision-support activities) often suffersfrom short-sightedness. Part of this short-sightedness is caused by the fact that finance people are mostcomfortable with cognitive decision-making models, i.e., those that focus on making trade-off decisionsand which appear to bring objectivity into the decision-making process.Bankers must step out on the ice and discuss the fact (perhaps based on their own failures) thatdecision-making processes are not always driven by an understanding and/or accurate articulation ofbusiness needs—and especially when those needs involve emotional elements. In fact, the morecomplex decisions tend to become the more they tend to rely on experience, intuition and emotions.Recognizing it or not, business people are invested emotionally in almost everything they seek toaccomplish from the management of business risk, to the impact that their pricing decisions have oncustomer relationships to the restructuring or disposition of their organizations.Copyright 2011, Future Change Management LLC
  3. 3. Relationship Banking: Demand Centricity—Closing The Partnership Performance Gap , there tends to be a retreat of business people from their financial counterparts and a widening of the performance gap between partnering and its organizational realization. Here it is important to share stories and experiences of other companies—remembering that there is no greater credibility that one can bring to the table than what other companies are doing to address similar quandaries. ThisThe Fundamental Truths is a real value-added opportunity.No. 1 - All decisions are derivedfrom diagnosed needs orprescriptive responses to those Identifyneeds Relevant DecisionsNo. 2 - Unsatisfied needs giverise to pain Understand the Apply Requisite Needs of the Decision-MakingNo. 3 - Decisions are our Business Frameworkresponse to pain Finance Provides MoreNo. 4 - All pain is not equal Effective Strategy andNo. 5 - All decisions are not Decision-equal Support ActivitiesNo. 6 - Some decisions are morecognitively-focusedNo. 7 - Some decisions are more Closing the Performance Gapemotionally-focused Conversational Point #2No. 8 - Making good decisions isabout goal achievement Bankers can point out that there are two benefits of closing the performance gap—supported by empirical evidence and some goodNo. 9 - Making good decisions is old fashioned story telling:about process outcomesNo. 10 - Making the best First, closing the gap is critical for bringing finance closer to thedecisions is about needs business. It is the only way that a partnership of equals can beassessment and “intelligence” achieved. (This is true for banking relationships as well).alignment—the performancegap closers! Second, closing the gap is essential for increased business value. Specifically, in many cases, decision-making requires we go beyond cognitive skills.1 Goal achievement is not the single test of success or failure. Rather the creation (or destruction) of value is part and parcel of the process of decision-making itself and how that process embraces emotion, intuition and experience. 1 Here cognition and cognitive skills refer to the mental skills of knowing, reasoning, recognizing, etc. Frequently, cognitive abilities are equated with one’s IQ and are referred to as “threshold competencies”—those necessary to get you in the door but not necessarily sufficient for personal growth and development; especially as one rises in the organization. Competencies beyond the threshold are frequently described as “emotional competencies” or EQ. See Frederick C Militello and Dr. Michael Schwalberg, Leverage Competencies: What Financial Executives Need to Lead, Financial Times/Prentice Hall, pp. 7-21. Copyright 2011, Future Change Management LLC
  4. 4. Relationship Banking: Demand Centricity—Closing The Partnership Performance GapHowever, in order to address the performance gap, there are a number of fundamental truths to bediscussed. They are both cognitive and emotional—covering both the logical and behavioral dimensionsof decision-making (see side bar). Bankers must not be afraid to discuss emotional needs. There is nocompetitive advantage in product knowledge—supply-based thinking. The competitive advantage ofthe future is in facing the complexity of demand.Needs and Decision-MakingConversational Point #3Bankers need to point out (perhaps a sign of their new enlightenment) that it is demand rather thansupply that encompass needs and that it is needs (those that are unsatisfied) that drive decisions.Again, noting their own experiences—successes or failures—it is critical for bankers to express such forbuilding credibility and trust. Bankers need to point out that if we don’t get the needs of the businessright, or if we express them incorrectly, then it is only reasonable to assume that decision-supportefforts will miss the mark—resulting in a widening of the performance gap. Bankers can play animportant role in this needs assessment process. It is probably safe to assume, that just as supply wasoverrated by banks—the same has probably been true for corporate customers as well? In serving theirinternal customers—corporate financial executives require a demand-based approach as well.Looked at another way, and putting on the hat of a psychologist, bankers need to point out (anddemonstrate with their own behavior) that caring about the needs of others is critical to partnering. Thisis part of the process of building empathy, which is essential for mutual trust, influence andcollaboration. Effective decision-support is always built on the premise that one must make aninvestment in diagnosis (demand) before prescription (supply). In other words, a shift from the supplyequation to the demand equation is an expression of empathy toward the needs of others. But as simpleas this may seem, there are shortfalls in practice.Decision-Making Shortfalls and ReflectionsConversational Point #4One such shortfall—practiced by bankers themselves—is the tendency to immediately express needs asproducts or solutions. For example, a banker may say your business needs more equity and/or a moreaggressive hedging policy. But these are not needs from the perspective of the company. Needs aredetermined by business conditions/circumstances—not product solutions. Bankers need to turn thefocus of attention to business conditions/circumstances—and away from product specifications. In sodoing, they will facilitate such changes in customer thinking as well.For example, consider a case where a company wishes to increase its credit standing—but perhaps it’stoo small or carries too much leverage? Moreover, it might not be able to increase prices to offset risingcosts. Consequently, this company has both limited funding access and is also experiencing pressure onoperating margins. The company clearly lacks flexibility in its cash flows, e.g., smaller size perhapsCopyright 2011, Future Change Management LLC
  5. 5. Relationship Banking: Demand Centricity—Closing The Partnership Performance Gapmakes for less diversification,2 debt—unlike equity—must be repaid, and prices are inflexible. This lackof flexibility is the company’s pain—its unsatisfied needs.But a trade-off must be faced; namely, the attainment of flexibility comes at a higher cost—the explicitcost of hedging, issuing equity or becoming larger. Trade-off models are an example of cognitivedecision-making. They appeal to our sense of knowing, reason and judgment. They appeal to our desireto make decisions less complex—or at least appear to be. However, as bankers we can add to thiscognitive decision-making process and, thus, help our customers develop more effective decision-support activities.Cognitive Decision-Making in PerspectiveConversational Point #5The above example is a cognitive approach to decision-making. Such decision-making approaches havetheir appeal especially when one is: 1. Looking at less complex decisions—those that are believed to lend themselves to explicit tradeoffs, are subject to repetition and are largely devoid of emotions; 2. Seeking to quantify—making more objective—the importance of relative needs and the responses to those needs; 3. Justifying or legitimizing decisions that initially may have be made by emotions, intuition or experience but where there is reluctance to admit that was the case; 4. Attempting to demonstrate that the inexperienced can make decisions of equal value to those with experience; and, 5. Attempting to make complex decisions look less complex and straight forward.People still tend to trust numbers—what appears to be objective and quantifiable. After the lastfinancial debacle—and its reliance on more quantifiable models of potential loss exposure—one wouldthink organizations would begin to place more trust in decision-making based on emotions, intuition andexperience. While this is certainly the case in many professions3 there is no clear evidence that this isequally true for the financial community. Bankers need to point out both the truths and illusions ofcognitive decision-making. In the end—bankers must go further and bring the human element into theprocess of strategy formulation and decision-support. It’s hard to believe, that an industry—that foryears always focused on the importance of relationships—is today failing to embrace the humanelement.2 Studies have shown that when it comes to credit ratings, company size is a more important determinant than even leverage. Company size isequated with risk concentration.3 There are many studies which clearly show that more complex decision-making is not based on cognition or cognitive decision-makingframeworks; but, instead almost totally rely on experience and derived intuition. This is consistent with the findings that the higher one movesup in an organization the more important emotional intelligence is over cognitive skills. In short, as decisions become more complex, the morewe rely on our emotions, experience and intuition to make those decisions and move out of our Comfort Zone.Copyright 2011, Future Change Management LLC
  6. 6. Relationship Banking: Demand Centricity—Closing The Partnership Performance GapCognition versus EmotionConversational Point #6The above observation takes us to another cause for the performance shortfall between partnering andits organizational realization, namely, the importance of not recognizing emotions—or the entirety ofhuman needs—in the decision-making process. Bankers can bring this realization to the forefront ofconversation.For example, in the flexibility/cost example, an appealing cognitive model, its strength is one ofprescription before diagnosis; and, there was trade-off clarity. However, decision-making is more thandemonstrating quantifiable trade-offs or cognitive skills—even when needs-based. Most decisions arefar more complex and rely on their sorting out by emotional competencies and behaviors. Decision-making involves human needs and with that understanding comes emotions, intuition and experientiallearning—all behaviors essential for partnering initiatives. In this regard, bankers willing to go back totheir relationship roots can once again lead the charge in bringing back the importance of emotions andemotional intelligence.Decision-Making ZonesConversational Point #7Another way to view cognitive versus complex decision-making is by embracing the relative nature ofhuman needs—here adapted from the behavioral work of psychologist Abraham Maslow.4 Here humanneeds become more complex as we ascend the pyramid. Corporate executives love to talk aboutMaslow and here are some talking points:First, there are the two bottom rungs of the pyramid, namely, Survival and Safety. This is our ComfortZone. Survival and Safety are needs all financial professionals are familiar and comfortable with.Moreover, business circumstances driving these needs can readily be deciphered. The same can be saidof the responses to those needs. In other words, on the rungs of Survival and Safety, diagnostic andprescriptive decisions can be made largely within the context of cognitive decision-making parameters.(It’s important to note here, that this Comfort Zone is fairly universal to financial people—whether theyare business executives or providers of financial services).4 Maslow’s Hierarchy of Needs is a theory in psychology conceived by Abraham Maslow in 1943. The theory first appeared in his paper, “ATheory of Human Motivation.”Copyright 2011, Future Change Management LLC
  7. 7. Relationship Banking: Demand Centricity—Closing The Partnership Performance Gap Actualization The Partnership Zone of Decision- Recognition Making Belonging Safety The Comfort Zone of Decision- Making SurvivalSecond, as we leave our Comfort Zone, and ascend the pyramid, needs get more complex. This is ourPartnership Zone. We now face needs such as Belonging, Recognition and Actualization. These needsseem more ambiguous, more emotional and more tacit5 in their informational requirements. Theseneeds also tend to take on different shapes and meanings—they are more interpretive and intuitive andless repetitive in nature. Nevertheless, it is here—in these three top rungs—where we have the greatestperformance opportunities and possibilities to narrow the partnership gap.Specifically, one knows they are in the Partnership Zone when one is:1. Making decisions more about the needs of others than one’s self;2. Facing decisions that can’t be made by simple trade-offs;3. Dealing with decisions that are less subject to quantifiable expression;4. Relying more on emotions, intuition and experience to make decisions;5. Going beyond professional credibility/reliability and moving into the realm of reflecting the values of others; and/or,6. Evaluating decisions less on whether they achieve goals than on the robustness of the decision- making journey itself.Let’s look at some examples that clearly fall within the Partnership Zone:5 Tacit knowledge refers to more implicit (below the surface) knowledge. It focuses on our ability to deal with complex situations. It’s liketrying to explain how to ride a bicycle as opposed to having to construct one—the latter being more explicit or transactional so-to-speak.Experience and intuition are highly correlated with tacit knowledge.Copyright 2011, Future Change Management LLC
  8. 8. Relationship Banking: Demand Centricity—Closing The Partnership Performance GapFirst, there is Actualization: Your client wants to sell his/her business. He/she wants to leave a legacy.He/she wants to be remembered in his/her community. He/she wants his/her children to run thebusiness after he/she is gone. How shall he/she make this a reality?This is a complex decision. You are in the Partnership Zone. There are no simple trade-offs here—likethose found in our earlier cognitive model of decision-making.Second, there is Recognition: There are few companies, or individuals, that don’t get caught up inrankings of one sort of another. We love recognition. Recognition comes in all shapes and sizes.Sometimes we want recognition for ourselves, e.g., Fortune’s 100 Best Companies to Work for inAmerica. Sometimes it’s the recognition of others that has decision-making appeal, e.g., covering one’sown decisions by selecting a top-ranked originator, distributor or advisor. Here there may be clear goalsbut the selection process is fraught with emotions, intuition and experience. There are no clear trade-offs and the decision-making process (e.g., what we do to be the best company in America to work for)may yield more value than the actual goals achieved (becoming that company). This too is a complexdecision. You are in the Partnership Zone.Third, there is Belonging—everyone loves to belong. Remember one’s high-school days and trying to fitin—a seat at the lunch room table? It’s not much different than being a financial professional—a seat atthe business table?Belonging is not easy. It requires an element of servant or service leadership. Demonstrating empathytoward others is the key to trust, influence and collaboration—in other words the realization andessence of belonging. Decisions surrounding servant leadership are fraught with emotions, intuition andexperience. Here too we are dealing with complex decisions. We are in the Partnership Zone.Conversational Closing SummaryIn short, we cannot utilize a cognitive decision-making framework when high emotional intelligence iscalled. This is important for bankers to discuss with their customers. Specifically, relationships are morethan a cost/flexibility tradeoff—they are (or should be) based in emotions; namely, the human element.(A table to facilitate and focus such conversations is provided below).For financial executives to be successful in partnering they must move beyond cognitive decision-makingmodels. Bankers can provide valuable input here—especially if they return to their roots of relationshipbanking. With an ever increasing emphasis on the demand side of the equation (and in a world ofincreasing oversupply) differentiation will only be achieved by those bankers who are willing to gobeyond cognitive decision-making and enter into the world of applying their experiences, intuition andemotions to support the business objectives of their (or their customer’s) organizations. The successfulbanker of the future will be the one that understands and relates to both the fundamentals and deeperintricacies of demand-based differentiation.Copyright 2011, Future Change Management LLC
  9. 9. Relationship Banking: Demand Centricity—Closing The Partnership Performance GapFramework Elements Emphasis: Cognitive Decisions Emphasis: “Complex” DecisionsRequisite Intelligence (1) Focus on knowing, reasoning, Focus on emotions, experience recognizing, etc. and derived intuition More repetitive and routine Changing shape and scopeRequisite Intelligence (2) Focus on Intelligence Quotient Focus on Emotional Quotient (IQ) (EQ) Mental skills (Threshold) Behavioral competencies Analytical Experiential Respect intelligence Respect experienceInformation and knowledge Emphasize (explicit) Emphasize (implicit) tacit transactional knowledge knowledgeCollaboration Gain power by possessing Gain power by sharingTrust Focus on credibility and Focus on the identification of reliability similar valuesEvaluation Focus on goal achievement Focus on process outcomesZones Know if you are in the Survival Know if you are in the Belonging, and/or Safety modes Recognition or Actualization modes The Comfort Zone-Supply Focus The Partnership Zone-Demand FocusedThis article was written by Frederick C. Militello, Jr. He is GBS adjunct professor of finance at NYU’s Leonard N.Stern School of Business. Frederick is also CEO and senior thought leader at Future Change Management, LLC.Over the years, he has written many books on financial leadership and organizational change. He was large-corporate division executive and managing director at the Chase Manhattan Bank responsible forbusiness/financial strategy consulting, advisory and merchant banking activities. He has consulted and advisedfinancial organizations (and numerous leading corporations) around the world in a wide variety of strategy anddecision-support activities. Frederick can be reached for discussion at 2011, Future Change Management LLC