Value creation the definitive guide for business leaders
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Advance Praise This is a rich and rewarding book which will launch organizations into the world of value creation for customers and other stakeholders and will convert good CEOs and companies to great ones with longevity and higher profitability. This book is a conceptual breakthrough which goes beyond the great Total Customer Value consulting work Gautam did for Godrej. —Adi Godrej
Chairman, the Godrej Group This book is a classic because it will change managerial thinking just like Tom Peters did in In Search of Excellence. Value Creation: The Definitive Guide for Business Leaders will shift managerial focus to creating value for the entire business ecosystem and not just for the shareholders. It will make firms agile, adept, and visionary for the future. The book will cause CEOs to think, change mind-sets, and become creative, winning the future. It will create more astute and alert executives, and increase profits. The book gives ideas about creating value at different levels for employees, customers, and shareholders. If you want to be successful and win in the future, you should not miss this trendsetting book. —David Frigstad Chairman, Frost & Sullivan For those who want to learn to create value, you’ve come home to this brilliant book. This book integrates hugging customers and customer-centricity to unleashing the power of value creation for business success. This eye-opening book is about common sense, and gives you instantly practical ideas without being a burden on your time. Incorporating Gautam Mahajan’s uniquely creative concepts will change your mind-set and lead you to superior achievements. —Jack Mitchell Chairman, Mitchells Family of Stores; Author, Hug Your Customers and Hug Your People
I enjoyed Gautam Mahajan’s recent book, Value Creation: The Definitive Guide for Business Leaders. It is very timely given the current conversations about value creation around the world and the waste created by driving stock prices on a quarterly basis with rewards going to a limited few. The book is a valuable catalyst, which should result in a more robust dialogue about long-term value creation for enterprises large and small. The key take away is that customer-centric businesses create value for all stakeholders which should result in higher valuations and stock prices over the very long term. —Edward A. Lapekas Retired CEO and Chairman of the Board, American National Can Group and former President and
Chief Operating Officer, Beverage World Wide Division, Pechiney (later Rio Tinto) Insightful. Full of harsh realities about the world of marketing and management as you know it. Gautam suggests a new vision, common sense and human authenticity ... an excellent springboard for a much needed marketing turnaround ... Marketing with Meaning! —Professor Luiz Moutinho Foundation Chair, Marketing Adam Smith Business School, University of Glasgow, UK Adjunct Professor, Marketing, Graduate School of Business, University of South Pacific, Fiji. Founding Editor, Journal of Modelling in Management (JM2) The days of waging battle against customers are gone. Now, success comes from getting in the trenches with the customer and working toward a win–win outcome. To survive in a world of supremely educated buyers who, above anything else, are time-poor, hungry for insight, and demanding progress, unless you can assume the customer’s perspective, enriched by your experience with other similar customers, your outcomes will never be great. This is the
time to create value for your customers and in this book Gautam provides priceless signposts to get started on that journey. —Donal Daly CEO, The TAS Group; Author, Account Planning in Salesforce I loved this book. No one globally knows more about buyer–seller dynamics than Gautam Mahajan, author of Value Creation: The Definitive Guide for Business Leaders. Likewise, no one knows more about how senior management should change these dynamics to create new value for both company and customers—which in some cases multiplies the bottom line, rather than just lifting profits incrementally. As Gautam relates, too many CEOs and senior managers discount the payback potential of adding customer value. But he believes these executives will soon regret their reluctance to embrace customers when their companies start experiencing limited growth and diminishing value in the near and long term. He peppers his clearly written, no business-speak narrative with real-life examples of companies both creating and destroying enterprise value. His examples should persuade most CEOs and management readers to change course in the direction of true customer-centricity that taps into customer value, rather just talking the talk without walking the walk. Unfortunately, as Gautam reminds us, most graduate business programs resist change and continue teaching future executives to embrace cost-control as their primary goal, which can doom them from the start. He also throws shade at the commonplace corporate practice of focusing first on increasing shareholder value— which Jack Welch calls “the dumbest idea in the world.” Creating shareholder value is an outcome, not a goal. On a practical level, Value Creation: The Definitive Guide for Business Leaders lays out for CEOs and senior managers the change process for moving their organizations from company-centric to real customer-centricity. And when their companies start adding value to customers, they typically get a long leg up on still inwardly focused competitors.
Gautam does not let go unscathed those companies trying to accrue value to themselves by stripping value away from customers. He addresses fundamental shortcomings of common win–lose strategies that ignore the latent opportunities for sellers to extract more value from customers. Instead, he urges CEOs and executives to focus on win–win opportunities to add value to customers, in ways that will add value back to the company, especially at a time when customers are gaining new power and customer loyalty is eroding at an alarming rate. For CEOs, senior execs and middle managers wanting to anticipate where higher-ups are steering their companies and why, Value Creation: The Definitive Guide for Business Leaders is without question the right book at the right time. —Dick Lee Author, We Are Buyers. You Are Sellers. You’re Busted This book is fantastic, a 10 out of 10! Gautam provides CEOs with a practical guide to rediscover the customer relationship as an inspirational source of innovation that is applicable to any industry, and is very much needed today to drive lasting competitive advantage for sustainable, profitable growth! —Brent Zions Value Creation Transformation Consultant This book is a gem! While it is geared to CEOs, its style will be appreciated by anyone interested in helping their organization maximize the long-term value they create and minimizing the short-term value they destroy. Sprinkled throughout this book are real-world examples from real companies, analyses from widely respected sources, and references to articles which are available to everyone. If you are either beginning the value creation journey or updating your successful strategy, you should look no further than this book for information, inspiration, and insight. —Sam Klaidman Principal Adviser, Middlesex Consulting
Does a CEO want to make the stockholders happy or extra happy, or would he want his employees engaged or passionate about their jobs? Also, would he want his customers to be satisfied or to be loyal customers? Well this doesn’t happen by chance, in fact so many companies and organizations around the world need to read this excellent book by Gautam Mahajan covering a great assortment of very important topics. This is a must read for executives, practitioners, and professionals who will see so many of the different components to create customer value in their organization. I use this book as a desk reference and finding myself referring back to the many critical topics. Gautam is truly a respected global leader, speaker, editor, and mentor. —Jim Carras Chairman, Customer Value Creation International In this excellent, very important book that supplements and extends the theory of value innovation and the creation of “blue oceans” as described by Kim and Mauborgne, Gautam Mahajan describes the priority, strategy, and difficult complexities of value creation as the core of a new generation of investment and management theory and practice that is now required in all businesses. The book clearly explains why a fundamentally new type of investment and CEO leadership is required and has to be supplemented with new C-level executive positions in order to focus the organization and its partners on creating new value for customers in order to survive past an average life expectancy for businesses that has decreased to about 12 years while creating value for all stakeholders including employees, business partners, and society. —William L. Miller CEO, Innovation Extension Center LLC Gautam Mahajan has created a new handbook for customer value. New ways of intelligent and outcome-oriented thinking are combined with an individual approach for the 21st century in management and benchmarking of value-driven customer
s ervices. The book is highly recommended for the CXO level as really important, as well highly recommended for lecturers and students in international business schools. —Urs Hauenstein President and Visiting Professor, International Council for Leadership, Governance, Entrepreneurship, Management, Swiss Quality Competencies and Qualifications This book isn’t just good reading, it’s a new mindset. If you are a CEO, it will help you build your company successfully. As a result of applying the concepts in this book you will create value for your customers and for your company. Additionally, apply the long-term strategies outlined in this book, in detail, and you will see that success is so much more than something that can be captured by having short-term focus. A concept in this book that is examined carefully is how to create value for your customers before you can take value from your customers. What an incredible idea, giving more so you can receive more. As a business owner who has always presented a “Nice is Right” strategy, I can relate to the author of this book. He really “gets it.” If you own a business, run a business or just want to find out the importance of adding and providing value to your business relationships, this is the book for you. A must read. —Doug Sandler Author, Speaker, HuffPost Blogger Nice Guys Finish First #1 Best Seller Ranking on Amazon A content-rich framework for creating sustainable value to your customers, employees, partners, suppliers, distribution channels—and thereby, ultimately to stockholders—in a series of stand-alone, yet connected, chapters. There is something within the material for everyone, irrespective of where you may be on
your customer-focus journey. Gautam Mahajan will have you finding fresh new opportunities to powerfully lever the word “value” for your business. —Harvey Thompson Author, Who Stole My Customer?? Winning Strategies for Creating and Sustaining Customer Loyalty (Second Edition) Former Head of Customer Value, IBM Every CEO’s job is about creating and delivering value to all stakeholders. And this book is guaranteed to start the CEO’s day on the right track—that of understanding and focusing on key aspects of internal and external customer value, presented with an easy narrative style that helps refocus on the fundamentals of addressing customer expectations. Better than your first cup of coffee! —Kall Ramanathan Value Creation & Strategy—Blog website The Mobile Ecosystem in India—Blog Creating customer value is essential for success, and Gautam Mahajan’s latest book is a must reading on how to do it! It really is good. It flows well, has great substance, a solid logic which causes one to think and helps put many conflicting concepts in their proper place. —Ray Kordupleski Founder of Customer Value Management; Author, Mastering, Customer Value Professor, Customer Value, University of Montana, USA Yesterday, the landscape for competitive business owners extended between the Yellow Pages and a 20-mile radius around your consumer. Today, competition is global. With efficiencies in technology and greater access to consumer information, the edge is no longer guaranteed to the company with the biggest marketing budget—it’s going to the company that offers their customers
the greatest advantage, benefit, and value. It’s all about “Value Creation.” Gautam Mahajan’s book offers many tips, ideas, and insights for the value-focused CEO to attain just such an advantage. —Charles E Gaudet II Best-selling author, The Predictable Profits Playbook: The Entrepreneur’s Guide to Dominating Any Market and Staying on Top One of the most important tasks in marketing is to create and communicate value to customers to drive their satisfaction, l oyalty, and profitability. This new book will keep you enlightened on both concepts and application of value creation and it serves as an influential source for academics and practitioners alike. —Werner Reinartz Professor of Marketing, University of Cologne In his latest book, Value Creation: The Definitive Guide for Business Leaders, Gautam Mahajan makes a compelling business case for the imperative of focusing on value creation. Blending his wealth of experience, personal and practical examples and an abundance of marketplace research, Mahajan offers practitioners a hands-on toolkit for unlocking the potential of creating value in their own organizations. Not fearful of challenging conventional wisdom (see his premise about the notion that companies are to serve a greater purpose than profits), his candid and authoritative point of view will serve leadership well in their aspirations for institutionalizing a culture of value creation. —Scott M. Broetzmann President & CEO, Customer Care Measurement & Consulting
Gautam succeeds in liberating value from its abstract strategic prison and turns it into an exciting project for the entire organization. Today more than ever, CEOs need to be visible and relevant to their highly diverse stakeholders. While CEOs are often dragged into a swamp of compliance, this book allows CEOs to rise as the commanders of value. This book provides them the concrete words, discourse, arguments, and frameworks to unambiguously choose for value creation as central course of action and performance. The value creation theme will destroy silos and give the organization a new tangible horizon that extends way beyond the CEO’s own tenure. —Olaf Hermans NHTV Breda University of Applied Sciences (The Netherlands), and Pennsylvania State University,USA A very timely book on why and how companies must embrace and implement value creation culture, not just for shareholders, but also for customers, employees, and the community at large. —Jagdish N. Sheth Charles H. Kellstadt Professor, Marketing, Emory University, USA
VALUE CREATION The Definitive Guide for Business Leaders
SAGE Response B1/I-1 Mohan Cooperative Industrial Area Mathura Road, New Delhi 110 044, India www.sagepub.in SAGE Publications Inc 2455 Teller Road Thousand Oaks, California 91320, USA SAGE Publications Ltd 1 Oliver’s Yard, 55 City Road London EC1Y 1SP, United Kingdom SAGE Publications Asia-Pacific Pte Ltd 3 Church Street #10-04 Samsung Hub Singapore 049483 Published by Vivek Mehra for SAGE Publications India Pvt Ltd, typeset in Berkeley 11/13 pts by Zaza Eunice, Hosur, Tamil Nadu and printed at Sai Print-o-Pack, New Delhi. Library of Congress Cataloging-in-Publication Data Name: Mahajan, Gautam. Title: Value creation : the definitive guide for business leaders / Gautam Mahajan, President, Customer Value Foundation and Inter-Link Services Private Limited, New Delhi. Description: Thousand Oaks : SAGE Publications India Pvt Ltd, 2016. | Includes index. Identifiers: LCCN 2016001974| ISBN 9789351508977 (pbk. : alk. paper) | ISBN 9789351508991 (ebook) | ISBN 9789351508984 (epub) Subjects: LCSH: Strategic planning. | Chief executive officers. | Customer relations. Classification: LCC HD30.28 .M3234 2016 | DDC 658.4/012—dc23 LC record available at https://lccn.loc.gov/2016001974 ISBN: 978-93-515-0897-7 (PB) The SAGE Team: Sachin Sharma, Sudeshna Nandy, Megha Dabral and Ritu Chopra
I dedicate this book to all those who believe in and promote the concept of Value Creation and to those I have reached out to and those that have reached out to me. My Value Creators are my family, Veena, Karan, and Shiv. Thank you!
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Contents Preface Acknowledgments
1. WHY IS VALUE CREATION IMPORTANT FOR CEOs?1 Long-term Strategy Creates More Value than Short-term Focus 1 Why Value Creation Is More Crucial than Value Extraction? 9 Value Creation Is a Good Idea! 12 8 Signs Why Your Company Isn’t Creating Value 17 From Value Grabbing to Value Creating: Lesson for Leaders 23 Leadership Training Not Effective: A Contrarian View 27 Why Leaders Fail 30 2. CEOs AS VALUE CREATORS FOR BUSINESS/CUSTOMERS33 Customer Strategy 34 Value Creation Is Output/Input 38 Business As Unusual 41 Think Out of the Box; Think Radically About Your Business 41 Customer Value and Shareholder Wealth 43 Customer Value Management Increases Customer and Company Value (and Also Increases Sales and ROI) 43 Share of Wallet Goes Up When Your Customer Value Is Added or Customer Score Goes Up 48 Customer and Value Migration 53 Transforming Companies through Value Creation Not Value Destruction: The Balancing Act 56 Will Value Destruction Ace Value Creation? 60 Big Brother: Google, Apple, and Microsoft 60 The Case for Value Creation Centers 62 Value Councils Go Beyond Pricing Councils and Innovation Councils 62 The Real Sources of Value: Assets and Performance 67 Chief Value Creation Officer (CVCO) 70 Death of Companies 74 Death of Profit 76 Death of Competition 76 Death of Demand 79
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3. HOW CEOs CAN USE VALUE CREATION FOR CUSTOMERS Customers As Ambassadors and Their Networks Customers with “Social Value”: Your Customer Ambassadors Creating Value from Your Customer’s Network No Time for Customers? Conduct a Task Audit When Zero Defects Are the Norms, Why Not Zero Customer Complaints 5 Ideas for Creating Customer Value 4. CEOs CAN SEE HOW THEIR VALUES (AND THEIR COMPANY’S VALUES) CREATES CUSTOMER VALUE Values Create Value Driving Businesses from Values: Achieve Higher Profits CSR or Conscious Capitalism or Capital Consciousness? Corporate Unconsciousness: A Wakeup Call 5. BUSINESS TRANSFORMATION IDEAS FOR CEOs TO CREATE VALUE How to Get Senior Leaders to Change? The Leadership Skill of Being Able to Unlearn: Create Value through Unlearning Building Silos or Breaking Silos? Internal Customers Is a Flawed Concept! The Memory of Your Experience Is More Important than Your Experience Training versus Mind-set in Value Creation Nuisance Value: Value Creation or Value Destruction? 6. HOW CEOs CAN AND WHY THEY SHOULD CREATE VALUE FOR EMPLOYEES Why Companies Need to Empower Employees and Get Connected Creating Value for Yourself Using Employees to Build Market Place Foresight and Value Creation Value Creation by Employees Is Employee Churn Costing You As Much As Your Salary Expense Employee Journey
83 83 84 85 87 89 92
96 96 98 100 102
106 106 109 112 115 118 122
126 126 129 132 134 137 138
Whom Do I Work For? What Does Being Secure Have to Do with Creating Value?
7. HOW AND WHY CXOs SUCH AS CFO/MARKETING/HR CREATE VALUE De-commoditizing Commodities: Add Value CIOs Can Be True Value Creators 8 Ideas for Value Creation for HR Professionals Become Line Managers Does Value Creation Need Financial Incentives When You Wake up Do You Say I Will Create Value?
148 148 153 156 156 162 162
8. VALUE CREATION AND CUSTOMER SERVICE/LOYALTY TIPS FOR CEOs167 Converting Call Centers from AGGRAVATION Centers to ACTION Centers 167 The Charm of Good Service 170 Customer Care or Do We Care? 173 Customer Value Journey 174 Making the Journey Easy and Meaningful Creates Value 174 Customer-value Marketing Critical as Airline Executives Lose Focus 177 Industry and Telcos Need to Improve Use of New Channels 180 Two Out of Three Consumers Switched Companies in 2011 182 Value Creation Implementation Ideas: Avoid Value Destruction 183 Examples of Extra Steps Executives Can Take (Of Course, This Depends on Your Role in the Organization) 184 Examples of Value Destruction That Can Be Avoided 185 When Less Is More for Customers 187 Should Executives Think Like the Customer? 190 From Executive Think to Customer Think 192 9. HOW CEOs CAN USE VALUE CREATION TO ENHANCE PRICING The Last Mile of Pricing Is NOT Selling but Buying If You Want to Raise Prices, Tell a Better Story 5% More in Price at Retail for Good Customer Experience 81% of Shoppers Willing to Pay More for Better Customer Experience Companies Misunderstand Price
196 196 198 201 201 204
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10. CEOs LEARN FROM VALUE CREATION AND EDUCATION Teaching Value Creation Value Creation in Education Role of Faculty Members Example of Value Creation in Education At the Michener Center, University of Texas, Austin 11. C ONCLUSION: HOW CEOs DRIVE THEIR COMPANIES TO BECOME LEADERS THROUGH VALUE CREATION AND INCREASE PROFITS THROUGH CUSTOMER VALUE Getting CEOs to Become More Customeric: Are We Blowing in the Wind? Are Tasks and Priority the Same? Departmental Tasks and Priorities Steps in Value Creation Implementation: The Customer Department Why is a Customer Department Needed? How will the Customer Department Function? APPENDIX I: ARTICLES I LIKE 82 Ways to Add Value for Customers Excellence Is Being Great At the Things Your Customers Value Most The Customer of the Future and Your Future Why Training Does Not Create Great Leaders? APPENDIX II Short Guide to Customer Value Creation: Definitions from the Book Customer Value Investment: Formula for Sustained Business Success
Perspectives On Value Creation... Value Creation:Executing proactive, conscious, inspired and imaginative actions that Create better gains or benefits for Customers and all stakeholders, including enhanced returns on investment Satya Nadella on Microsoft new vision:
To empower every person and every organization on the planet to achieve more1
he role of Marketing is to Create Customer Value T and Capture Value. Create a Customer Strategy
Peter Drucker:There is only one valid definition of business purpose: to create a Customer. Value is created for Customers, and wealth is generated for owners Financial people believe businesses make money. In reality, businesses make products for Customers. Money is a result earned by products delivering Value that Customers are willing to purchase. Jagdish Sheth: T he distinctive difference between the 1985 and the 2004 American Marketing Association definitions of marketing is the lack of exchange. In the new definition, a focus on creating and delivering Value through Customer relationships replaces the historical focus on the exchange paradigm Don Peppers The only Value your company will ever create is the and Martha Value that comes from Customers—the ones you Rogers: have now and the ones you will have in the future
In my interpretation, create more value for everyone.