The document discusses how businesses can better manage customer expectations to achieve success. It argues that Michael Porter's value chain, which focuses on cost optimization, is wrong because customers, not margins, drive business success. Companies like Virgin Mobile and Zara are used as examples of those that focus on meeting customer expectations without exception through innovations in their processes and supply chains. This allows them to deliver higher customer value through offerings like contracts-free mobile plans or rapid fashion trends, outweighing higher costs. The key lessons are that market leaders simplify customers' lives, align everything to the customer, and use technology and processes to maximize customer value over margins.

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CUSTOMER EXPECTATIOM MANAGEMENT
Simply working harder at existing approaches - even excellent
ones - may not be enough to retain demanding customers. As
price differentials narrow and product features are quickly
copied, business survival requires an unrelenting focus upon
identifying and delivering additional and differentiating value
for customers. Terry Schurter provides a manifesto for all
those who are seeking to inspire a greater focus upon the
experience of customers.
-- Colin Coulson, Thomas, Professor of Direction and
Leadership, University of Lincoln. Author, Winning
Companies, Winning People

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OUR GOAL – THE TRIPLE CROWN
Triple Crown
One Action
that results in:
1) Reduced
Cost
2) Increased
Revenue
3) Enhanced
Customer
Service

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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.
• 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…
Porter’s
Value
Chain

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…IS WRONG!

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

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

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CUSTOMERS determine the POTENTIAL of the Business by…
…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
Business
Growth =
New Customers
x
Customer
Lifecycle…
…where real
revenue occurs
AFTER Profit
per Customer
EXCEEDS
Acquisition
Cost (Loss to
Profit
Transition)

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

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

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Established competitors use classical marketing
techniques to push contract sales…
…while their processes – the ones that touch the
customer – remain stagnant.
US CELLULAR SERVICE
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

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

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How does Virgin Mobile employ the dynamics of the 21st Century Value
chain to produce Business Success through Process Innovation?
1) No contracts (value
proposition)
2) Delivery of value
proposition without
exception
3) Success 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
Virgin Mobile
USA
Flipping the
“tables” with a
core Value
Proposition
focused solely
on…
Customer
Expectations
and Customer
Experience

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The results of the strategy are compelling:
• 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
VIRGIN MOBILE USA RESULTS
 5 million
customers in 5
years
 Doesn’t own
a single Cell
Tower
 More
profitable than
entrenched
players
(including
Sprint!)

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ZARA – THE WORLD’S #1 FASHION RETAILER
Inditex (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 to keep up expansion
Now 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 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?

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

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Customer Expectation Management:
1) People on the “front line” capture trends in real time
2) Real time connection from front line to design
3) Simplistic Supply Chain executes in days
4) 48 Hour Logistics turn
Porter’s Value Chain:
1) Much higher product costs than industry average
2) ERP is home-grown
Technology
1) PDA’s, Cellular, Chats, et al create “front line family”
2) Point of Sale (POS) system running on DOS 3.01
3) Homegrown ERP – Support system don’t grow it
THE ZARA DIFFERENCE
The Zara
Difference
Product to
Store in days…
Customers get
what they
want…
Higher supply
chain cost…
Easily offset by
premium
pricing and
sales volume!

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Customer Expectation Management:
1) Market Leaders make their customers’ lives Simpler, Easier
and More Successful
2) They Align everything they do to the Customer and eradicate
the things that don’t
3) They use Porter’s Value Chain (Margin) to maximize
profit, not as a business strategy
4) They apply technology where technology adds CUSTOMER
value!
Common Characteristics include:
1) Reduction in complexity – people’s work, processes and
technology
2) Organizational alignment and empowerment
3) A behavior of challenge and continual refinement
LESSONS LEARNED

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TO LEARN MORE…
http://www.amazon.com/Insiders-Guide-BPM-Process-Mastery/dp/0929652096
Would you like to learn more about Mastering BPM?
http://acuitystudio.com/human-centric-process-analysis-and-improvement/
http://www.amazon.com/Customer-Expectation-Management-Success-Exception/dp/092965207X