What impact does Customer Management have on Business Performance


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We know intuitively that managing the customer portfolio well leads to improved business performance. This slide deck shares important insights into what makes customer management work and how to measure it. This is based on research done by QCi (the main players now with The Customer Framework Ltd) and although I put this deck together 6 years ago I was astounded as to how relevant the thinking still is. The sad reality is that Customer Management capability hasn't improved very much over the years (in the majority of cases, hence we are still subject to inconsistent and poor customer experience) yet it remains a topic that is spoken about and focussed upon by many organisations. The difference that I find today versus 7 or 8 years ago is that MORE people talk about customer management than previously, however I don't se much improvement in the understanding of what it involves or much improved capability in operationalizing customer centric business.(this is a generalised statement)

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What impact does Customer Management have on Business Performance

  1. 1. Customers Rule! Period!What impact does customer centricity really have onbusiness performance?
  2. 2. What Impact does Customer Management really have on Business Performance?Business people intuitively know that managingcustomers well leads to improved businessperformance, but when it comes to allocating budgetsthey find it hard to determine what budget to allocateto acquiring, retaining and developing customers.Even Analysts, Economists and Stockbrokers arestarting to take customer managementseriously, believing it to be a very important“intangible that determines sustainable long-termcompany performance”. But is it? Yes, and lessintangible than it was! Research over the years hasgenerated important insights into what makescustomer management work, and how to measurethat it is working.This does not mean that every company shouldinvest in developing intimate relationships with all ofits customers. It means that companies should workthough a process to understand: their target market;their proposition to this market; how the propositionshould be delivered in order to acquire and thenmanage customers through sales, marketing andservice on a day to day basis; what they shouldmeasure to show that they are doing this cost-effectively, and what infrastructure –people, processes, data and IT – is needed. Thisworks for public institutions and governmentdepartments too.Our studies show that companies that do this willperform better than those that do not. Our studiesalso show that this is not easy to achieve.© REAP Consulting 2010 2
  3. 3. What is „Line of Sight‟?Think about our systemic approach to businessmeasurement that we call „Line of Sight‟. This isunderpinned by a fundamental belief that: Sustainable business performance is achievedthrough gaining commitment and sales fromcustomers who are, or can become, heavy spendersin a category Commitment is gained through delivering a distinctand appropriate customer experience (the rightblend of functional, rational, sensory and emotionalelements) to these customers This is done most effectively through engaged andmotivated employees or partners Employees and partners work within the context thatthe company sets which encourages the appropriatecustomer management approach (e.g.budgets, policies, products, pricing, clearproposition, environment, processes, ITinfrastructure, measures) This „system‟ must work in harmony so that theorganisation is aligned to deliver sustainable businessperformanceOur global Customer Management assessments show thatalthough most companies would agree at least in principleto this, few see all the elements as part of a „system‟ thatneeds to be actively managed. We believe the evidencecontained in this report is compelling and shows the needfor a fresh approach to business management andmeasurement.Only the most mature companieslook at customer management ina systemic way. They are also thebest business performersIn this excerpt we describe each element of „Line of Sight‟and, for each element, we describe the: Link to business performance Knowledge and insight senior managers should have Link to next level in „Line of Sight‟It goes on to remind readers of what a systemic approachreally means, and shows how „Line of Sight‟ isphilosophically different to current measurement systems.We have included an appendix with some generic metricsthat a company might use to measure elements of Line ofSight© REAP Consulting 2010 3Whether a business is performingwell or not depends on how youdefine performance – it is not justabout today‟s profit
  4. 4. Superior Business PerformanceWhat is Business Performance?„Business performance‟ is one of those terms. We allthink we know what it means, but when we try and defineit, we tend to disagree! This is because abusiness, including the public and voluntarysectors, involves many stakeholders. These includecustomers, employees, directors, shareholders, lenders, creditors, suppliers, government, regulators, stateagencies, voters, local communities, taxpayers, andpatients. Performance means different things to each ofthese groups. While in theory positive performance forone in the long run means positive performance forothers, in practice their interests often conflict, especiallyin the short run. For instance, the drive for greaterefficiency may mean fewer employees and longer queuetimes for customers; satisfying lenders may meandisappointing shareholders and so on.How do you handle these conflicts in your company? Arethere similar instances when in order to meet one targetmore serious damage is caused elsewhere?The Problem with a Profit FocusThe driving goal of the enterprise might be to make aprofit, but the problem comes when companies have anoverriding focus on it! This is because: The need to focus on short-term profit can beoverwhelming. There is often an uncomfortablerelationship between the need for short-term returns,to appease the demands of shareholders, and therequirement for long-term investment andsustainability. We know from many highly visiblescandals that the balance sheet can be misleading.P&Ls can give a false picture of „businessperformance‟. A company can make excellent profitsthis year and look good on the balance sheet if it cutscustomer service standards to increase productivity,fires 30% of its staff, cuts its marketing budget by half,fails to invest in product development and cuts all of itsIT development budgets. The focus on short-termprofitability will compromise the company‟s long-termsustainability to say the least!© REAP Consulting 2010 4A balanced approach to shortand long-term profitability isimportantFor each of the stakeholder groups, there may beseveral important measures. For shareholders, profitsare important, but even this has severaldimensions, not least the time dimension (i.e. short andlong term profitability), which is discussed below. Not allthose stakeholder groups are equally important. Forexample, there is a legal hierarchy in terms of who getspaid when a company goes bankrupt. In principle, in apublic company, shareholders interests comefirst, managers second, though as we know, poorgovernance often reverses this. While there is anargument for performance improvement policies thatobserve the theoretical hierarchy, it may be necessaryto recognise that, in practice, a different ordering isimportant. We have to conclude that businessperformance should be judged by the hierarchy ofbalanced measures set by the board. However, at thetop of this hierarchy for most private sector companiesis PROFIT. Sometimes this is so far up the hierarchythat other measures don‟t receive the considerationthey merit!
  5. 5. Customer BehaviourThe Link between Customer Behaviour andBusiness PerformanceTrading profit is for most companies the major source ofprofit, along with profit from capital efficiency (e.g.investment, assets) and comes from sales to customers.As far as profitability from customers is concerned, thePareto rule (80:20) holds true for almost all categories ofproduct and service. 12% of a bank‟s customers areresponsible for 119% of the bank‟s profit. 18% ofsupermarket shoppers are responsible for 65% of marginand so on. The only exceptions include pure subscriptionbased services, although cross-sales and up-sales to thebasic subscription service can skew the relative value ofcustomers towards Pareto levels.The Decile Analysis graph adjacent shows that losing just5% of the most valuable customers may account for up tohalf of overall profitability, whereas losing 50% of theleast valuable may have an insignificant effect or, in thiscase, may even increase overall profitability! If 10% of thebest customers shift half of their spend somewhereelse, then this is likely to result in a 35% fall in profit. Ittherefore makes sense for a company to focus on: Holding on to their most valuable customers, theheavy spenders, and developing their value wherepossible Attracting the most valuable prospectsIf this is done well, the REAP Target Table (see below)shows that it is possible for a large company to doubleprofit in 3 years! Yet only 21% of companies understandcustomer management well enough to be able to achievethis. The majority of companies may have differentmarketing campaigns for different customer groups (theactivities which are least important to customers), yet theywill treat them all pretty much the same when itmatters, i.e. when the customer has an issue or requiresservice.© REAP Consulting 2010 5Only 26% of leadingcompanies measurecustomer acquisition,retention and penetration,by customer valueA company can do this by understanding who their mostvaluable customers and prospects are (both now and inthe future), how they behave, their attitude to the categoryand their commitment to the brand. If you can thendetermine what drives this commitment, you can begin todesign an effective, focused proposition.Decile Analysis: Manufacturer5% of customers in yourcompany will make or break yourprofitability, 50% will haveminimal impact on profitability
  6. 6. Customer BehaviourEssential Senior Management Insight Requiredto Understand Customer BehaviourIn terms of customer behaviour, senior managementneed to know: Their own Pareto in terms of volume and profit? Who their heavy spending customers are? The share of spend of this group, versus competitors? How the company manages this heavy spendinggroup, tracks their spend levels and takes remedialaction if necessary? When and why the heavy spenders reduce their spendwith you, or leave you altogether? The relationship between the dynamics betweenretention, penetration, acquisition and cost to serve, byvalue group?A focus on what generatescommitment amongst yourhighest spending customers willlead to better businessperformance© REAP Consulting 2010 653% of companies applydifferent outbound campaignsto different customersegments, yet only 12% havedifferentiated inboundstrategies which can beconsistently appliedBehaviour and the Link to CommitmentA company needs to understand why its bestcustomers and prospects behave in the way they do.For instance, in retail markets, a senior manager mayask; „which of my best customers stopped buying, orreduced their buying, from my store?‟ The next logicalquestion to ask is; „Why did they stop buying; was it theproduct range, service, store location or some otherfactor?‟A review of behavioural metrics will enable seniormanagers to ask the questions that will explainbehaviour. If they can do this, they will be getting to theheart of increasing business performance. This iswhere the overlap with the next element in „Line ofSight‟ - customer commitment - begins. Why docustomers behave the way they do? How can weinfluence this? And then the killer question: How canwe increase the commitment of high spendingcustomers to our brand, rather than someone else‟s?
  7. 7.  A focus on profit naturally encourages a focus on the mostobvious components of profit, rather than the underlyingcauses of it. Thus the focus is on: Cost reduction, rather than longer-term investment incustomers, channels, products and people, andproductivity - often at the expense of customer serviceand employee motivation Short-term sales revenue, squeezing another sale out ofcustomers now that isn‟t balanced by nurturing customercommitment and longer term value An unerring comparison of activities through animmediate „return on investment‟ argument rather thanthe overall value generated by that investmentThrough focusing on profit in these ways, currentmeasurement approaches (even so called „balancedscorecards‟) inadvertently destroy sustainable profit!Companies worry about profit too much, and spend too littletime worrying about the systemic drivers of profit such ascustomer behaviour, commitment, employee capability andengagement. Our premise in this article is that, by focusing ona system of measures of which a key output is profit, ratherthan on profit alone, managers will achieve the optimumbalance of short and long term performance. This focus muststart with customers.© REAP Consulting 2010 7Customer Behaviour
  8. 8. Customer CommitmentThe Link between Customer Commitment andBusiness PerformanceCustomer satisfaction is a commonly used and importantmeasure. Applied correctly, customer satisfactionmeasures tell how satisfied customers are with aparticular interaction (i.e. touchpoint). However, they aremisleading in that the overall „Satisfaction score‟ rarelypredicts, or even correlates with, repeat purchasebehaviour and therefore business performance. Customercommitment is different. Customer commitment,measured in a variety of different ways, does have a clearlink with business performance and is a first classbarometer of the overall impact of organisationalactivities. A number of studies show conclusively theworth of developing customers who are committed to thebrand. Not all customers will become committed, but theaim of the organisation must be to get a large percentageof heavy spenders, and potential heavy spenders,committed to the brand.Commitment is likely to be based on a set of: Functional and rational elements (e.g. price, productfeatures and process-type success of the transactioni.e. interaction delivered on time, in full, onspecification) Emotional and sensory elements (e.g. how do I feelabout what happened; do I like the look and feel of theproduct/package/advertisement)In increasingly global and commoditised markets, thebalance of power is shifting towards the emotionaland sensory side of the equation. How well does the brand advertising deliver oncommitment (e.g.differentiation, relevance, esteem, involvement), andhow important is this for heavy spending customersand prospects? How well do the direct personal experiences impact oncommitment (e.g.price, product, service, relationship), and howimportant is this for heavy spending customers andprospects? What % of the market is committed to competitivebrands, and what % is available to you?© REAP Consulting 2010 894% of companies measuresatisfaction; only 12% measurecommitmentEssential Senior Management Insight Required toUnderstand Customer CommitmentIn terms of customer commitment, senior managementneed to know: What % of your heavy spending customers arecommitted to your brand (not just „very satisfied‟)? How many, and which, of your heavy spendingcustomers are vulnerable (weakly bonded with you)or very likely to shift some or all of their spendelsewhere? What makes heavy spenders in your categorycommitted to a brand in your category?Commitment and the Link to Brand ExperienceCustomers interact with an organisation at many differentlevels, both passively and actively. They will seeadvertising and communications in all their shapes andforms. They may interact when they enquire, purchase orcomplain about the product. They will experience theproduct or service. They may see, from PR or directly, theimpact a company is having on theircommunity, country, the world. Many of these interactionswill wash over most of the market. But for somecustomers a more lasting impression will be made. Thebrand and direct personal experience they receiveshapes their commitment to the brand. A great customerexperience is not necessarily an intimate one. It mustsupport the top customers‟ values and belief systems anddeliver against their functional and emotional needs.
  9. 9. Managing the Brand ExperienceThe Link between Brand Experience andBusiness PerformanceEffectively, the link between the brand experience andbusiness performance will be measured throughcustomer commitment and sales behaviour. Thechallenge facing senior managers is to design both: Brand approaches to bring valuable prospects into thebrand and Customer management interactions to keep themthere (see table below)In most markets, brand awareness is developed initiallythrough advertising and word of mouth, but thencommitment is developed through the experience thecustomer has when they interact with the brand (this is alittle different in fast moving consumer goods markets (e.g.Coca-Cola), where brand advertising has a higher impacton commitment). New media can help to build the „goodbrand feelings‟ that lead to brand preference by involvingthe consumer in ways that mass media never could. Theymake it easier to create meaningful „engaging‟ brandexperiences to different audience sets.Any interaction or communication may have an impact onthe customer experience, and therefore customercommitment and therefore business performance. Someinteractions are more important, in the customers‟minds, than others. The interactions need to be designed todevelop commitment and sales, rather than just sales.Without a systemic approach, the short-term profit focusdiscussed earlier may provide an overwhelming challengeto the cost of providing good service. It may also encouragethe achievement of short term revenue at the expense of anurtured longer term customer relationship, which will inturn lead to a poor customer experience, lower commitmentand lower sales.An understanding of what drives commitment andbehaviour is the starting point for the development of theappropriate customer experienceAn understanding of what drives commitment andbehaviour is the starting point for the development of theappropriate customer experience. Companies can thenmanage their channels against the desired customerexperience. To deliver the appropriateexperience, brand, reseller, customer management, directmarketing and other communities in your company needto: Share data and insights on customers and the market Work together to understand the implications of theiractions and impact not just on sales andbehaviour, but on commitment Work with other functions such asHR, Finance, Planning, Manufacturing and IT tounderstand each others‟ role in delivering businessperformance, using the „Line of Sight‟ framework asthe backbone© REAP Consulting 2010 9Relative Impact of Brand Approach vs. CustomerManagement Interactions; by Customer Lifestage“We must adopt the mentality ofpermission marketing andcreative advertising that is soappealing that consumerswelcome it into their lives”Jim Stengel CMO P&G 2004
  10. 10. Managing the Brand ExperienceThis should be orchestrated by the marketing function.Few companies work this way, and instead, providedysfunctional delivery of the desired customerexperience. Often departmental measures will clash withthe overall goals of the organisation (e.g. measuring callcentre people on call time may degrade the customerexperience of best customers and undermine the initiativeof employees).Attempting to control the experience provided throughindirect, or third-party channels is much harder andsuccess is dependent upon the level of influence youhave over the channel, the investment you make in thechannel or the level of additional business you canprovide it.Essential Senior Management Insight Requiredto Understand the Brand ExperienceIn terms of the brand experience, senior managementneed to know: Which events, journeys or touchpoints your topcustomers perceive as critical or important? How well you deliver the functional and emotionalexperience at each touchpoint? What organisational barriers exist to delivering thedesired experience? How aligned are the measurement goals of individualfunctions to ensure that they are all pulling towardsyour overall business objectives? The efficiency and effectiveness of yourcommunications from both the short and long-termsales perspective, and from the customer experienceperspective?Customer facing employees, and their immediate backoffice support functions, will impact on both thefunctional/rational side of the commitment equation („theydid the job for me‟, „they were knowledgeable‟, „theyprocessed my application quickly‟) and on the sensory/emotional side („the design looks great‟, „they made mefeel really good‟, „I enjoyed that‟).Other staff, or suppliers, will be involved in designing ordelivering processes or systems which need to deliver theingredients of commitment.For example: Designing the advertising and communications thatshape customers and prospects perceptions Designing web sites used by customers and/or staff Providing systems which will be used by customersand/or staff to provide them with the necessaryinformation, on time and in full Providing decisions or documentation in the fullunderstanding of what drives customer commitment Presenting information (e.g. financial) to the market ina way that engenders trust and esteemThey too need to understand what drives customercommitment and what they need to do to achieve it. Butare they capable of doing it, and do they care?© REAP Consulting 2010 10An understanding of whatdrives commitment andbehaviour is the startingpoint for the development ofthe appropriate customerexperience.Brand Experience and the Link to EmployeeEngagementThe brand experience is delivered through interactions viaadvertising, personal contact, and the web site. The largemajority of employees will impact on the brand experiencein some way because they eitherdesign, influence, deliver or manage interactions
  11. 11. Employee Commitment, Engagement and BehaviourThe Link between Employees and BusinessPerformanceAn increasing body of research shows that theattitude, engagement and commitment of staff towardsthe brand and, ultimately, to the customer has a largeimpact on business performance: Companies with highly engaged employees generated200% higher three-year total returns to shareholdersthan low-commitment companies between 1999 and2002 Over the past 5 years, companies which employeesrate as great places to work have shown 25% growthin share and dividend returns, compared to 6.3% forthe rest of the All-Share index 70% of customer brand perception is determined byexperiences with people 41% of customers are loyal because of goodemployee attitude UK retailer: 1% increase in employee commitment =9% increase in monthly salesAs basic as it may sound, a warm, helpful, caring andknowledgeable person on the phone, or in the retailoutlet, makes a big impression. Somebody designingthe website who really understands what customersneed, what makes them committed, what otherchoices they have, how they are likely to use the site– someone who is engaged in the brand – will do amuch better job than someone who doesn‟t reallycare or understand.The Vivaldi Brand Leadership study chart belowshows that if customers rate your brand highly youwill outperform the market by a factor of 1.6, but ifcustomers and employees both value your brandhighly, you will outperform the market by a factor of3.2 times! Proof indeed of the value of engagedemployees!All this provides overwhelming evidence of the powerof employees in delivering the brand.© REAP Consulting 2010 11“I worry about employeesfirst, customers secondand shareholders third”Richard Branson, in hisautobiographyEssential Senior Management Insight Requiredto Understand Employee EngagementIn terms of the employee commitment, engagement andbehaviour, senior management need to know: Which employees you want to keep, at all levels, inthe company How may of these are committed to the company How many of these are engaged with the proposition What positive and negative impact employees canhave on the brand experience. Have employees been instrumental in defining whatgood customer experience looks like Do HR, coaches and the training department knowwhat the right customer experience looks like
  12. 12. Employee Engagement and the Link to CorporateContextEmployees can only work within the „context‟ set by thecompany. If the strategy, policies, processes are incorrect orundefined; if they do not have the appropriate support tools; ifthey are working in a scruffy, poorly managed, demotivatingenvironment, then they will not be able to manage customerswell.Setting up the appropriate customer managementinfrastructure is the foundation (but not necessarily the startingpoint) for „Line of Sight‟ and is perhaps the largest source ofprofit for most companies.© REAP Consulting 2010 12Employee Commitment, Engagement and BehaviourOnly a fifth of companieshave a clear cascade ofobjectives from businessperformance down to „grassroot‟ employees.
  13. 13. Link with Business PerformanceCustomers are normally the largest single source of profit(alongside capital efficiency and investment performance), andfor smaller companies the only source. Customer managementimpacts significantly on business performance and profit.Research has shown that between 29 - 61% of any commonprofit indicators (e.g. ROA, ROCE, OM, NM) may be describedby the way a company is set up to manage customers! It iscritical to get this right. It sets the context for the whole ofcustomer management. The table alongside illustrates theareas which need to be considered to set the right context forcustomer management. These areas form the basis of ourassessment approach, and doing them well has a clear linkwith business performance.Essential Senior Management Insight Required toUnderstand the Corporate ContextIn terms of the corporate context for customermanagement, senior management need to know: Whether they are a top quartile performer in their sector, interms of how they manage customers against the criteria inthe table ? Do all functions work together as a cohesive unit and arethey aligned behind sustainable business performance, notjust profit? Are all business units sharing best practices? What is the „Line of Sight‟ for your organisation?© REAP Consulting 2010 13Corporate Context for Customer Management
  14. 14. The Importance of Systems ThinkingA system can be defined as: “Any network of functions oractivities within an organization that work together for theaim of the organization”. A boundary of a system could bedrawn around a firm, an industry, or a country as in theUS. The diagram below, Production Viewed as aSystem, was the spark that ignited the turnaround ofJapan from 1950 onwards.As Deming says, ”This flow diagram directed theirknowledge and efforts into a system ofproduction, geared to the market - namely prediction ofneeds of customers. The whole world knows about theresults… This simple flow diagram was on the blackboardat every conference with top management in 1950 andonward. It was on the blackboard in the teaching ofengineers. Action began to take place when topmanagement and engineers saw how to use theirknowledge”The flow diagram can be adapted to serviceorganisations where A, B, C etc could be work frompreceding organisations, data sources etc.Dr Russell Ackoff talks about the difference betweenanalysis and synthesis in systems thinking. He explains:“Analysis has been the dominant mode of thought in theWestern world for 400 years because, whileinvestigating the nature of mankind and theenvironment, scientists copied the behaviour of children.As they take apart unfamiliar objects, children attempt tounderstand each part separately and then try toreassemble the whole. That is analysis, and it explainshow the pieces of a system work. Synthesis is neededto understand the why of a system and the interactionsbetween its parts as they work together. It begins withidentification of a larger or containing whole (system) ofwhich the system to be studied is a part. Synthesisyields an understanding of how the thing to be studiedserves the purpose of the larger whole. Usedtogether, analysis and synthesis make possible bettermanagement - or even the redesign - of societysinstitutions”.The government‟s obsession with meeting targets can havesome unfortunate consequences as the following exampleshows. Dr Richard Harrad, Clinical Director, Bristol EyeHospital, when giving evidence to the House of CommonsPublic Administration Select Committee told MPs:“The waiting time targets for new outpatient appointments atthe Bristol Eye Hospital have been achieved at the expenseof cancellation and delay of follow-up appointments. Atpresent we cancel over 1,000 appointments per month tomeet the target. Some patients have waited 20 months longerthan the planned date for their appointment. We have keptclinical incident forms for all patients, mostly those withglaucoma or diabetes, who have lost vision as a result ofdelayed follow-up; there have been 25 in the past 2 years.This figure undoubtedly underestimates the true incidenceand of course there is the large backlog of patients still to beseen. One particularly sad case was that of an elderly ladywho was completely deaf and relied upon signing and lip-reading for communication. She lives with her disabledhusband who like her is completely deaf. Her follow-upappointment for glaucoma was delayed several times andduring this time her glaucoma deteriorated and she becametotally blind.”© REAP Consulting 2010 14Production Viewed as a SystemThis was the original Deming flipchart model which changed businessthinking in the western world
  15. 15. The Importance of Systems ThinkingSeparating the elements of a system into separatecomponents results in the destruction of the system.The table below shows the cost of electrical componentsused in both the engine and transmission of a vehicle. Itwas discovered that by putting different electricalcomponents in the engine, none would be required inthe transmission. The proposal was rejected by thepeople in charge of finance for the engine because itwould have increased the engine component costs. Itwas outside their scope to consider that it would havereduced overall costs by $50 as they were solelyconcerned with the cost of the engine rather than thevehicle as a whole.The „Command and Control versus Systems Thinking‟table below illustrates how systems thinking is diametricallyopposed to command and control thinking. John Seddonargues that command and control organisations focus onmanaging costs, but end up increasing them, provide poorservice and that "top down functional hierarchies damagethe way customers are dealt with“© REAP Consulting 2010 15Functions within a company shouldnot work in isolation or even inpartial isolation. They work best aspart of a system tuned to deliveringbusiness objectivesSeparating a firm into separate cost centres can do thistoo. For example, W Earl Sasser in a Harvard BusinessSchool lecture describes an airline trip (first class) with amajor airline he was doing some work for. The customerexperience at check-in was excellent, as was everythingon the flight. First class passengers were off the aircraftquickly, but when they arrived at baggage reclaim theproblem started. He had to wait, as did everyone on theflight, for around an hour. He finally arrived at the airlineconference centre. He told the audience about each ofthe customer experiences saving the baggage handlingexperience till last. Afterwards, a man came up to himand said that he was responsible for baggage handling.He explained that in order to meet budget for the monthhe had had to cut staffing levels. The consequences ofmanaging separate functions as separate cost centresrather than „the system as a whole‟ can be hugelydamaging to a company. Top management in this airlinewere probably unaware of the damage they were causingby managing the parts separately rather than the whole.Isolating elements of a system,and setting non-systemic targetsfor them, may destroy the overallperformance requiredStatus Engine Transmission TotalAs is $100 $80 $180Proposed $130 $0 $130Gain from Proposal $50Electrical ComponentsCommand and Control versus Systems Thinking
  16. 16. „Line of Sight‟ as a Business PhilosophyA Systemic Approach to Business Organisationand Measurement„Line of Sight‟ is a very different business philosophy andmeasurement approach in which everyone can understandand align with the overall purpose and aspirations.Although each element of „Line of Sight‟ correlates withbusiness performance independently, the overall effect is tofocus on optimising the system as a whole – aligning theorganisation behind business performance optimisationand changing „the way we do things around here‟. Itreduces or even removes the conflict and confrontationcommon between pseudo-independent organisationalfunctions.The measurement approach has an emphasis on forward-looking prediction and insight to help people understandand improve performance (e.g. to improve customercommitment) and their role in delivering it. It is not designedto provide a rear view mirror to what happened in the past –although it must not ignore the lessons from the past.„Line of Sight‟ links in the critical „people‟ angle, omittedfrom most measurement systems. It applies the sameprinciples to employee measurement as it does customermeasurement; measuring commitment and behaviour, andtrying to keep those that are most valuable now and in thefuture.The process of developing „Line of Sight‟ buildsengagement and encourages self-motivation, againcontrary to the top-down management „command andcontrol philosophy‟ of „tell them what to do and make surethey do it‟. Do it with them, not to them! It provides theopportunity to continuously improve, based on customerand employee feedback, and creates improved businessperformance, rather than simply reacting tocircumstances. Those who have to deliver the changesbecome directly involved in shaping them.„Line of Sight‟, like any measurement system, needs to beused carefully and it will only work if the measures areused intelligently by managers. As an example, a callcentre manager will need to look at average call time toanswer questions such as „how many people are requiredto manage the call centre‟. An agent will also need to bemeasured on this but in the context of other measures,such as revenue generated and customer satisfaction. Agood supervisor or coach will recognise the balance ofmeasures and coach people to improve appropriately. Afocus on any one of these measures to the exclusion ofothers will break the system.„Line of Sight‟ positions profit as an output of the system;not the sole focus of it. This will be a leap of faith formany. Our preferred approach is to encourage boardlevel and general management interest not just inprofitability, but in all of the elements of „Line of Sight‟.© REAP Consulting 2010 1638% of leading companies usea „balanced scorecard‟Senior managers shouldseriously consider whethertheir balanced scorecardreally is relevant and drivesthe right behaviours
  17. 17. „Line of Sight‟ as a Business PhilosophyDoes the Balanced Scorecard approach providefor this?Kaplan and Norton introduced the concept of thebalanced scorecard back in 1992. The balancedscorecard was intended to provide a more balanced setof measures. It recommends developing a framework ofmeasurement from four perspectives(Financial, Customer, Internal Business Process, andLearning and Growth), which are linked to the overallvision and strategy of the business. About 40% of thecompanies we assess have a „balanced scorecard‟. Onlya small number of these 40% will say that they have ascorecard which enables them to get close to measuringthe „Line of Sight‟ we discuss in this excerpt. Some dothis, but in our experience, most do not. We would asksenior managers to seriously consider whether theirbalanced scorecard really is relevant, drives the rightbehaviours and adopts a systemic approach (measuresthe system). They should ask themselves „Does it providethem with the line of sight they need or is it, infact, counter-productive?‟This excerpt describes how companies can obtain moresuccess through a systemic approach - focusing on theenablers of business performance rather than on theprofit objective in itself. Of course, organisations shouldstill measure and worry about profit but as an output ofthe work of the organisation. They should not focus solelyon its achievement or even maximisation, as this maydestroy the process of achieving it. We do not proposethat companies blindly adopt a systemic approach, butdevelop the measurement systems and managementcooperation that this approach implies.Some companies are applying system thinking in theirapproach to customer (and business) management.Others will struggle to persuade sceptical managers thata systemic approach is appropriate. Perhaps in thesecompanies it will be worth while ?? an evangelist, or ateam of customer management professionals, developingthe linkages discussed in this excerpt. Normally, whenthis is done, the story for systemic management becomespervasive.© REAP Consulting 2010 17Cranfield University‟s Centre for Business Performancecommenting on the Balanced Scorecard and the EFQMmodel states“The problem with both of theseframeworks, however, is that they are simplyframeworks. They suggest some areas in whichmeasures of performance might be useful, but providelittle guidance as to how appropriate measures can beidentified, introduced and ultimately exploited. Forthese, or any similar performance measurementframeworks, to be of practical value, the processes ofpopulating the framework, designing themeasures, implementing them and then exploiting themhave to be understood”.