OUR GOAL – THE TRIPLE CROWNTriple CrownOne Action that results in:Reduced CostIncreased RevenueEnhanced Customer ServiceREDUCEDCOSTINCREASEDREVENUEENHANCEDSERVICE

We’ve been taught that MARGIN is the game. Most of us THINK about business the way it is presented in Michael Porter’s Value Chain. Porter’sValueChain This is a COST based approach to Business Success based on Margin the strategic assumption being that MARGIN is the #1 controllable variable in the organization that produces PROFIT hence, Business Success is a MARGIN-based measure…WHAT WE THOUGHT WE KNEW…

This is a COST based approach to Business Success based on Margin

the strategic assumption being that MARGIN is the #1 controllable variable in the organization that produces PROFIT

hence, Business Success is a MARGIN-based measure…

…IS WRONG!

Business Success is affected by margin, but it is driven by the Customer!Can we doubt this?Isn’t it obvious that CUSTOMERS are the KEY to our SUCCESS?IN FACT, the CUSTOMER holds the KEY to Business Success! BECAUSE IT IS MISSING THE CUSTOMER!

Margin has become a ZERO SUM game, due to Price and Cost Contraction……with each cost/price iteration, returning ever smaller business valueVALUE CHAIN REALITIES

CUSTOMERS determine the POTENTIAL of the Business by…Business Growth =New Customers x Customer Lifecycle……where real revenue occurs AFTER Profit per Customer EXCEEDS Acquisition Cost (Loss to Profit Transition)…determining the size of the pipeline - how many NEW customers seek to engage with the business…and by the CUSTOMER LIFECYCLE – i.e. how LONG the customer stays in the customer-business relationship.VALUE CHAIN REALITIES

With the insight that the Success Domain of the business occurs when we:- manage Customer Expectations (Customer Value) andThe 21st Century Value chain is:Expectations (Customer Value)……delivered without Exception (Customer Experience)……maximized through Margin Optimization.- meet those Expectations Without Exception (Customer Experience)THE 21st CENTURY VALUE CHAINWhich is then MAXIMIZED (Profit) through Margin Optimization (Porter)

US CELLULAR SERVICEMarket Expectations:Service will be ok most of the time.2) The quality of service is generally the same no matter who I have service with3) If I want competitive rates, I must purchase cellular service under a contract4) I will need to wait in line and I should expect that getting my service setup will take an hour or more.

Established competitors use classical marketing techniques to push contract sales…Examples:1 - Reps get higher comps for New Customers……often leaving existing customers in long wait lines.2 – Until mid-2008, average in-store time to open an account was 40 minutes…while their processes – the ones that touch the customer – remain stagnant.US CELLULAR SERVICE

US CELLULAR SERVICEMarket opportunity rests with customers, not with technology or marketing…Sir Richard Branson is adept at finding market opportunities in margin-centric industries.…so by focusing on the processes that touch the customer we can drive a new – market leading – value proposition.

How does Virgin Mobile employ the dynamics of the 21st Century Value chain to produce Business Success through Process Innovation?Virgin Mobile USAFlipping the “tables” with a core Value Proposition focused solelyon…Customer Expectations and Customer ExperienceNo contracts (value proposition)Delivery of value proposition without exceptionSuccess Without Exception (all customer interactions) Purchase of service from Sprint PCS (buy infrastructure and primary margin-driver activities/resources)VIRGIN MOBILE USA VALUE CHAIN EXAMPLE

The results of the strategy are compelling: Launched in 2002By November 2003 Virgin Mobile USA touted 1 million customersBy March 2004, growth had exploded to 1.75 million customers (just 4 months after reaching the 1 million customer mark)By February 2005 Virgin Mobile USA’s customer base had grown to 3 million customers. January 2007 – Virgin rings in at more than 4.6 million customersVIRGIN MOBILE USA RESULTS 5 million customers in 5 years Doesn’t own a single Cell Tower More profitable than entrenched players (including Sprint!)

Launched in 2002

By November 2003 Virgin Mobile USA touted 1 million customers

By March 2004, growth had exploded to 1.75 million customers (just 4 months after reaching the 1 million customer mark)

By February 2005 Virgin Mobile USA’s customer base had grown to 3 million customers.

January 2007 – Virgin rings in at more than 4.6 million customers

5 million customers in 5 years

Doesn’t own a single Cell Tower

More profitable than entrenched players (including Sprint!)

ZARA – THE WORLD’S #1 FASHION RETAILERInditex (Zara) opened 448 stores and franchises last year…everywhere from Shanghai to Serbia…and said it planned to open a further 410 to 490 outlets in 2007-2008. Zara started as a local Spanish Fashion Retailer…and has grown to be the undisputed leader in High Street Fashion GLOBALLY!How did they accomplish this?Zara to keep up expansionNow the worlds largest and Europe's fastest-growing fashion retailer have reported strong profit growth and outlined further expansion plans.Spain's Inditex, owner of the Zara chain, has posted a 26% rise in annual net profits to 803m euros ($964m; £555m) for the year to 31 January.

ZARA – Changing Customer Expectations1 – In Store and On Street Sales Trends are fed through handheld devices directly to HQ.4 – Clothes move thru Zara distribution and reach stores within 48 hours.Traditional Fashion Retailer:12 – 18 month new product to storeZara:Trend Spot to Store in days (as little as 10)Customer:Gets Hottest Trends Now!2 – HQ Designers and Product Managers receive trend info directly and make product decisions3 – Designers send new styles/patterns directly to local Zara factories for immediate production

Customer Expectation Management:People on the “front line” capture trends in real timeReal time connection from front line to designSimplistic Supply Chain executes in days48 Hour Logistics turnPorter’s Value Chain:Much higher product costs than industry averageERP is home-grownTechnologyPDA’s, Cellular, Chats, et al create “front line family”Point of Sale (POS) system running on DOS 3.01Homegrown ERP – Support system don’t grow itTHE ZARA DIFFERENCEThe Zara DifferenceProduct to Store in days…Customers get what they want…Higher supply chain cost…Easily offset by premium pricing and sales volume!

Customer Expectation Management:Market Leaders make their customers’ lives Simpler, Easier and More SuccessfulThey Align everything they do to the Customer and eradicate the things that don’tThey use Porter’s Value Chain (Margin) to maximize profit, not as a business strategyThey apply technology where technology adds CUSTOMER value!Common Characteristics include:Reduction in complexity – people’s work, processes and technologyOrganizational alignment and empowermentA behavior of challenge and continual refinementLESSONS LEARNED

TO LEARN MORE…For more on Customer Expectation Management and the 21st Century Value Chain please visit:www.tschurter.com