Managing Business Operations (MBO) Report - Cost: the price of value creation

1. Managing Business Operations (MBO) Report, PT-MBA 2nd year, 4th Trimester, NMIMS
Neha Kumar, A-029
Topic: Cost- The price of value creation
Company: Schneider Electric
Introduction: I work as a part of the ITB (IT Business) SBU of Schneider Electric. We provide
IT infrastructure solutions, which includes both hardware & software, to our clients. The
manufacturing facilities are located at Pune and Bangalore; regional offices are at multiple
locations across the country while the head office is based out of Bangalore. Our organization
runs on the business model of Customer Value Creation and has taken a lot of initiatives to
create an enhanced customer experience.
Three other costs that customers pay in addition to the purchase price - are time, effort and
anxiety. Hence we focus to reduce not only the COGS but also these additional costs. The key to
reducing these costs lies in understanding and improving our business processes. We compete
with other solution providers not only on their solution offerings but also on speed, convenience
and reliability. Hence, Schneider incurs some additional cost to provide these additional
benefits, but it adds to the customer experience and they perceive it as value. Listed below are
few such initiatives:
1. Customer Order Tracking System (COTs)

Provides a web based platform for customers to
keep track of order status
This facility allows customers to track their Order stepby-step through our manufacturing process cycle. To do
so they just have to log on to the online application via
our website.
 Maintains the order status of products and
services through each step from order
confirmation to delivery and installation
The information on COTs is updated from our manufacturing facilities at Bangalore and Pune
every two days. COTs therefore offers the latest authentic information on the status of customer
orders- direct from the production centers - so that they can check the progress of their order
stage-by-stage.
 Customers and account managers can login at any time and check the position of the
order and deliveries
COTs has message fields for exchanging communications between the customers, channel
partners and the sales team. Customers can also receive automatic email or SMS updates on their
orders. This is especially useful when there are situations where orders are stuck due to
insufficient or incomplete information or documentation.
 Highlights tasks that require customer inputs such as specifications, documents, tax
forms, etc.

2. The use of this facility greatly reduces the time required to obtain clarifications and resolve
problem situations. All dispatch information is also posted on COTS so that it is available to
them as soon as their order has been dispatched. In case their order is likely to be delayed, for
whatever reasons, this information is also posted on COTS, along with the new dispatch date.It
saves our sales persons’ time also by allowing customers a direct access to order status instead of
asking them for continuous updates. Thus it creates a significant competitive advantage by
providing customers a professional service.
 Maintains a detailed history of all interactions between the customer and the supplier
2. Availability of Enclosures in CKD form
At customer sites which are located in high rise buildings, carrying a fully assembled enclosure
is very tedious and it requires a lot of efforts on the client’s part to make necessary arrangements
at site to receive and install them. Also, after purchase, the client might need to transport these
to a different site later based on their project requirements. Hence Schneider focuses on
modularity as well as tool-less assembly joints as an essential feature while manufacturing. As a
result the most popular Enclosure is now made available in a CKD (Completely Knocked Down)
form of packing so that it can be assembled with ease and transported conveniently.
Even though Schneider has to incur additional expense for this while manufacturing as
well as packaging, it creates a value for the client as we are able to improve their ease of
use.
3. Launch of new product for the Channel market which is more price competitive
Schneider as an organization understands that different customers will have varying perceptions
of value relative to our competitors, based on various parameters (for example, geographic
proximity or product price or a particular attribute) that one segment may find particularly
attractive.
The Channel market focuses more on the product price to decide the vendor, and their
expectations in terms of features are basic to meet the required specifications. Keeping this in
mind we have launched a new variant of the Data Center Enclosure, called Smart Rack, whose
profile is made entirely of Aluminum instead of a combination with CRCA steel. This is because
Aluminum is more cost effective in comparison. This does decrease the weight carrying capacity
of the enclosure but it is enough to suffice the needs of clients who have medium density
applications.
The main value creation in this case is that the cost reduction makes this product’s Selling
Price more affordable for smaller firms who earlier wouldn’t buy Schneider Enclosures
because they were considered as premium products only for the Enterprise clients. This has
enabled us to increase the organization’s market reach and has at the same time created
value for the Channel market customers.

3. Topic: Cost- The price of value creation
Features are what we build in to our products and services but value is what our customers get
out of them. Value can be explained by the formula:
Value = Benefits - Costs
As long as customers believe the benefits they receive outweigh the costs they have paid they
will consider they have received value, and they will be satisfied. They are therefore likely to
come back with repeat business and they may even give reference to other clients. Since value
exists in the mind of the customer, businesses must learn to see the world through the eyes of
their customers. They should bring the world of the customer into the workplace.
If a company doesn’t have a value-based competitive strategy, they have no option but to
compete on price alone. In this crowded and competitive market they are likely to find that
delivering more benefits at a lower cost (but at a justified price for the benefits offered, not
necessarily at a lower price) will be the most successful strategy to follow. A company should
think first about creating the most value, and then think about capturing part of that value as
profit.

The value created could be Cost effectiveness or Sacrificial if the firm offers economic
value (low costs) or sacrifices by minimizing psychological investment of customers.
An example of this is the Value-added reports and Plan of Action analysis done by TCS for
their clients free of cost.
The “Outcome Based Delivery” pricing model adopted by iGate Global Solutions, which
allows the clients to pay only once they are satisfied with the outcome of the services offered
is also on similar lines. It makes them more competitive by minimizing customer risk.
The launch of a price effective product SmartRack by Schneider Electric to meet the
requirements of the Channel market segment is another example.
The Advertising agencies offer value when they accommodate additional activities in their
Scope of Work at a later stage of the business cycle to satisfy their client’s needs and retain
them for future business.

It could be Functional if it increases the usefulness of a product or service, as in the case of
making Schneider making the Enclosures available in a CKD form.

It could also be Experiential if it improves and enhances the experience of using the service
as is the case of software tool KEAT Pro X by Kotak and COTs (Customer Order Tracking
system) COTs by Schneider Electric.

4. For Kotak, not only is managing clients money of utmost importance but also customer service
like providing customers the necessary tools and applications, which will enhance their trading
experience and give company an advantage over its competitors. The software tool KEAT Pro X
was devised by the company so as to smoothen out the obstacles faced by the client in
conducting his routine trading activities. Most importantly, it was offered free-of-cost as a part of
a trading account opening kit. So it meant giving customer the benefits without them having to
bear the additional expenses.

The value created could be Symbolic it is facilities belongingness of the product to the
customer. For example Schneider offers to print the logo of the customer on the front side of
its enclosures in order to create or add a personal meaning which the client values.
Based on our individual experiences in our respective companies, we have listed below few ways
in which organizations create value for their customers:






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Organizations compete with other vendors not only on their solution offerings but
also on speed, convenience and reliability. Reducing product manufacturing costs and
enhancing the customer’s purchase and use experience is the most effective value
creation.
They help their customers improve their business performance by reducing the costs
their customers have to pay. In this way, we can create more benefits for our customers.
Segmentation - Identify the customers and segments where are you can create more
value relative to competitors. Accordingly disproportionately allocate the sales force,
marketing money, and R&D investments toward the customers and segments that we can
best serve and will provide the greatest value in return.
Also, allocate the growth capital toward new products and solutions that serve the
best customers or can attract more customers that are similar to the best customers.
Different customers will have varying perceptions of our product’s value relative to our
competitors. Identify the attribute or benefit that the customer perceives as value
and maximize the same.
Detailed, real-time understanding of changing needs of well-defined customer
segments is essential as value creation is an innovative process. Before applying these
innovative approaches, the changing trends of business should be well captured.
Leveraging technology or regulatory changes to create new values – New Companies
venturing into a well established market try to leverage the latest technologies available
to create a USP (unique selling proposition) which the customer considers valuable.
Not only incurring additional costs, even cost reduction can create value proposition
for a price sensitive market. The key to reducing costs lies in understanding and
improving our business processes.

5. Conclusion:
The identified scope of value creation indicates areas where increased efforts may generate
revenue improvements. The potential degree of cost benefit and its associated revenue increase
must be compared with the competition in the industry and then with the market size to truly
assess its impact.
The purpose of any business is to create value for customers. The first focus should be on
creating value for the customer, but this cannot be achieved unless the right employees are
selected, developed, and rewarded, and unless investors receive consistently attractive returns.
As a result value creation for the customer also results in the same for employees, and investors,
and that the interests of these three groups are inextricably linked. Therefore, sustainable value
cannot be created for one group unless it is created for all of them.