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8 reasons why your company isn’t creating value


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Wrote by Gautam Mahajan

Published in: Business
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8 reasons why your company isn’t creating value

  1. 1. CVF ARTICLE OF THE WEEK Add Us to Your Safe Sender List 8 Reasons Why your Company Isn’t Creating Value Value Creation is a distinctive mind-set. It is a mentality driven by enhanced self-esteem, awareness and pro-activeness. It goes beyond just doing your job, it is doing something extra. Value Creation is executing proactive, imaginative or inspired actions that increase the net worth of products, services or an entire business to create better gains or value for Customers, stakeholders and shareholders. Value Creation stimulates executives and business leaders to generate improved value for Customers, driving success for the organization and its stakeholders. Value Creation creates Customer conscious companies. If Value Creation is so good and basic a management technique, why is it not being adopted in a universal fashion? Which of these is holding your company from using it (If you are using value creation techniques, you would be aware of this! Are you?) You will find that smart people like you will be able to create more value when you focus on doing so. There are several reasons: 1. You are captives to what you have been taught and what you have learnt. a. You have been taught to be executives, and hard driving at that to create value for the company. b. Customer believe that Value Creation for the company means increased profits, typically by reducing costs, increasing efficiency and trying to increase market share c. You are taught to forget that you are Customers too. You therefore find it difficult to think like an executive and a Customer at the same time
  2. 2. d. You have to take advantage of everything in your power to create value for the company. This could mean exploiting the employees, Customers and partners, of society and ethics, if you have to. This concept is undergoing a sea change, as executives now know the importance of employees, Customers and partners and society and ethics (values). But it hasn’t gone far enough. All these prevent us from adopting Value Creation in the proper manner. 2. In the last 20 years, CEO compensation has gone up much faster than profits, and is based on short term profits. The lifespan of CEO’s has gone down, making them look for quick wins. a. More and more of the executive bonuses are now being based on short term profits. Stocks and options compensation have gone up sky high. Huge motivation to make more money now. Why worry about the long run? The CEO may not last that long See the two charts below, showing the lifespan of companies and executives is reducing and executive compensation is going up, especially through stocks and options Taken from James Montier
  3. 3. The short term thinking is against Customer Value Creation and Value Creation in general, except for Value Creation for the shareholder. 3. MBA and professional schools teach students to become executives, and teach them that shareholder wealth is the real purpose of the firm, then that is what they will practice. They do not understand that shareholder wealth is a result and not the purpose of their existence a. Shareholder value is not necessarily shareholder wealth. It can mean much more than that. It could be a focus on employees and Customers or even societal value b. Shareholder Value (read Profits) grows by increasing Customer Value Creation because it grows loyalty and market share 4. There is an overemphasis on efficiency, systems and processes. Not enough thought is given to mind-set and attitudes, which are required to increase employee and Customer Value. 0 5 10 15 20 25 30 1974 1980 1986 1990 1996 2002 2008 Life in Years Year Average Life of Companies and CEO's Company Life Av. tenure of CEOs
  4. 4. a. Mind-set comes from education and awareness, and wanting to create value rather than being forced to do so 5. More time and emphasis is paid to correcting problems and settling complaints, rather than to get to Zero Complaints a. Every time there is a complaint, it takes away the value you are providing. What are you doing to prevent complaints from happening? b. This requires a mind-set that works systemically to avoid complaints, driving the business to a Zero Complaint state c. There is a feeling that complaints give you the opportunity to interact with a customer. Surely, there are better ways to do so! Imagine, the waiter drops soup on you; a true cause for a complaint. Is this what you want as an interaction? Better to find more positive ways of interacting with customers 6. Competition is doing the same thing, why change. Let’s all make merry and get our bonuses. a. Why do we need to be different? Because we will gain competitive advantage and be ahead of competition, rather than be followers 7. Customer concepts apart from being executive led are also embedded by consultants who in a race to get ahead come up with niche phrases like CRM, CX, Customer Journey, Customer Effort etc. but all focused on processes. a. There is confusion on basic definitions. So work is done in bits and pieces instead of a real sea-change as outlined in my book, Total Customer Value Management: Transforming Business Thinking. b. You may not realise a customer journey requires an effort. You may not realise that the basic product and the service should provide the experience, and other experiences other than delightful ones are unnecessary. Thus, a good experience is when you are upgraded by an airline or being allowed to get free miles for lower points.
  5. 5. The reverse is having an experience such as cancelled flights. We do not want this experience. If it does happen, the Customer journey to get the problem solved should be minimal. 8. Employees and departments such as HR and IT are not taught to create true value and remain staff functions a. Owners or managers or employees must realize that company’s place a value on their positions (what the company will get vs what it costs them to have the employee). Value is created when employees do something extra and go beyond what is expected of them. Employees add value by doing things better than others. If actions are worse employees destroy value. Those that add value get promoted and get better raises. b. Employees destroy value sometimes. Why would one wish to destroy value? But value gets destroyed, too, unconsciously c. Put your Customers at the centre of your business decisions on making organizational changes Destruction of value happens unconsciously just as creation of value. If you created value consciously and you understood this you would work differently. And companies, if they understood the true intent of shareholder value and that there is a strong connection between creating value for employees and employees creating value for Customers to increase profits will embrace Value Creation. Your comments are welcome! Gautam Mahajan, President-Customer Value Foundation M: +91 9810060368 Tel: 11-26831226, Fax: 11-26929055 email: website: Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person
  6. 6. working with the companies. Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person's role in Creating Customer Value and getting shareholder wealth and Value.