Where Companies Can Create and Destroy Value

Introducing the Customer Management Value Chain

The CMAT model can be used to analyse the contribution of customer management (CM) to corporate value (Figure 4.1). Value is defined here in its broadest sense of stakeholder or owner value. For companies owned by stockholders, value is represented by share value. For companies owned by customers (customer mutuals), value is usually represented by customer dividends or bonuses (or more recently potential privatization value, or risk of failure). For companies owned by employees (cooperatives), value is usually represented by bonuses paid on earnings. For publicly owned organizations, a mixture of cost of provision and quality of service usually represents value. For charities, a similar mixture represents value, with the services received by beneficiaries of charities being important. Recent business news challenges whether some quoted companies, through management compensation and option schemes, are being run for their executives' personal benefit!

Figure 4.1: The Customer Management Value Chain

Behind some of these forms of value lies value to customers. Value to customers is usually measured in terms of the appropriateness of what they receive (benefits) relative to what they have to pay, either directly or indirectly (for example, user costs, taxation). In most cases, stakeholder value and customer value are closely related, though the relationship between the two can diverge in the short run for all sorts of reasons: for example, government intervention, lack of competition and customer inertia. However, in the long run the two rarely go in different directions. It is not the role of this book to prove this assertion, but if true it means that enhancing customer value is critical for most organizations. Enhancing customer value is not done solely by CM: simply producing excellent products and at low cost is another feasible route. In our earlier work, we have investigated many different models of customer management, and investigated the contribution made by the types of good CM practices that are the focus of CMAT. ^[1]

Before analysing how good CM practices improve customer value, let us examine the value to the different groups of people in the value chain:

• Value for customers is implicit in the CMAT model and covered throughout this book. It is the fundamental driver of shareholder value. Customer value is created through the development and effective delivery of the right proposition to the right customers.

• Value for employees and partners, and how to create it, is an important focus of the People and Organization section of the CMAT model. Our business performance research shows that people and organization are the most important contributors to business performance.

• Value for shareholders is based not just on profit but is determined by the stock market, based on a number of factors. If a company is perceived to be managing customers and opportunity well, the share price may go up. CRM is now one of the main foci of large companies' presentations to analysts. In one case, a company made such a presentation, claiming that it managed its customers well. When the analysts challenged it and asked how it knew this, the answer was that IBM was using CMAT to find out! The company turned out to have a top-decile performance, overall and for its sector, so the company was right, but now knows and can prove it! Share value can also be influenced by the way decisions on improvements to customer management capabilities are announced and subsequently managed.