Thursday, August 27, 2009

Follow The Money - Part Two

We pick up from where we left off giving specific action steps to follow.

Suggestion: Seek out forward-looking customers. Listen carefully to their viewpoints and visualize the picture they communicate. No one can predict the future, but these rare visionaries see what others do not see until it’s a commodity. Find out what books they are reading and read them yourself. Look for industry shaping publications, not “faddish,” rearview mirror-type books. Once a topic becomes trendy, bookstores are flooded with a wave of rehash publications that are of little value in uncovering potential future profits.

Aggressively uncover your client’s business model – how they make money and what they truly value. We ask our clients to review how their organization's make money. One CEO told us, "There are about 5 people here who actually know how we make money. That's a bit scary."

Be cautious about excessively fixating on market share. Some nameplate market share leaders are no longer making money. Some are money-losers and have sunk into bankruptcy or are undergoing massive restructuring. Collaborating with customers to anticipate and create genuine future value is a stronger profit model. This customer focused approach requires a detailed understanding of how profits are created for your customers. It also requires tough choices based on a sharper focus on where profits will be created in the future. Consider, for example, the downward spiraling profits in computer hardware and the increased profit potential in providing genuine, cost-effective service to executives dissatisfied with their investment in technology. A “market-share” mentality may move you away from mining potential future profits.

Questions to ask include:

“Who are our most profitable clients?”
“Who are the clients best poised for future growth?”
“Within that group, which have the highest potential for growth?”
“What mix of products or services could best serve their future needs?”
“Are we pushing products (services) or genuinely assisting clients in identifying and helping them solve problems to create future profits?”

The latter question is the most challenging for businesspeople. In our work, we conduct a “Reality Check” that, in a surprisingly short time, reveals often hard to accept realities. For example, a group of owners in a well known, and highly successful retail chain, discovered that as much as they “talk” about the importance of their customers, their business is actually designed around internal factors. Becoming more efficient with their current business model obviously is a low-return pursuit. The opportunity for profit growth is in a greater share of wallet based on seeing things from their customer’s perspective. When they walk into their own stores they see and focus on things that are of little value to their customers. They invest inordinate amounts of time on these internal issues. Together we are searching for, and creating, a new business model that creates genuine value for customers and positively impacts the retailer’s profitability.

Key Questions:

“What do our customers value?”
(Clue: It’s not always the lowest price, even though price is a factor.)

“What will they value enough to allow me to make a profit providing it?”
(Clue: There is value in relationships and customer knowledge as well as in
competitively priced products.)

“What can I create that “inoculates” my customers against the competition?”
(Clue: It’s usually more than an ‘innovative’ product.)

“How do I move towards providing future customers with what they will want
and need without adding additional costs to my product or service?”

Of course we are only scratching the surface here. We invite you along this road less traveled. Let’s leave behind those tinkering with their costs, products, and services and move into the true future profit zone. Follow the money!

What are the initiatives at your organization that require a shift in thinking?

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