Implementing Value Management Strategies

©Copyright 2008, Faulkner Technologies Pty Ltd All Rights Reserved.

Value Management Strategy

Contracts

Customers

Opportunities

Suppliers

Channels

ValueManagementStrategy

The idea that you have to measure the most valuable aspects of a business in order to make good decisions makes complete sense to anyone running a department, division or an entire organisation. The challenge can be in putting together a cohesive strategy that makes it a regular part of the business process to not only collect information, but to define elements of ‘value’ in relation to customers, opportunities, contracts and suppliers.

Misconceptions relating to information and measurement: for many organisations, the act of collecting and organising information is often interpreted as a complete measurement strategy. For example, the implementation of a Customer Relationship Management (CRM) system is a great strategy for managing the collection of information - the names, addresses and phone numbers of customers. CRM systems can also provide the ability to construct a view of the sales pipeline, the sales history and the customer service activities that take place, all examples of solid information.

Now, while this information is useful in monitoring the business it is not always representative of the ‘value measurement’ necessary to drive the strategy of an organisation.

Simply put, having a detailed record of a customer does not always tell you that the customer is the right customer for your organisation, or is even a profitable one. What organisations can find, to the dismay of managers, is that the information that they need is not actually contained in any of the general information that they have at their disposal, simply because it is in the heads of the people who are doing the business development, managing the contracts or managing the suppliers.

The classic example of this is in managing a sales pipeline. Quite often, the sales manager or other executives are looking at a pipeline, with projected closing percentages that are set by the sales staff, which can be skewed to the positive. In this case, the sales managers generally pull sales people into meetings to review the pipeline by asking questions focused on value. Is this customer in the right market, what is the execution risk of delivering this project, is this a replicable solution/service? The answers to these questions are then mentally processed to provide the true sense of what is going on, and how valuable that sales person’s pipeline might really be.

Value Management Strategy is defining the key value points in your business and, through a continuous assessment process, getting yourself and your teams to focus on the most valuable customers, opportunities, contracts and services.



This, of course, is just one example of the difference between the collection of information, which is a good start to effective business management, and the establishment of clear points of value to a business. The real key is in getting the definition of ‘value’ clear to everyone and into the process of operating the business day to day.

You know it when we see it – sticking closely to the idea of sales/customer performance and ongoing business performance we find that people are often faced with the following types of issues:

• Sales pipelines that go from strong to weak in short periods of time

• New customers that exhibit sporadic or unpredictable buying patterns

• Customers that vary in profitability overall, or by individual project/contract

• Channels that contain both low and high producers.

Interestingly enough, many times these things happen in companies that are profitable and are growing, and it is simply through hard work and long hours that people power through the vagaries seen here, overcoming the obstacles and becoming successful.

• So why the disparity?

• Why are some aspects of the pipeline good, contributing to growth, and others never close?

• Why do some customers buy more than others, and why are some customers more profitable than others?

The simple reason is that the good opportunities and the good customers are the perfect match for the company’s competitive advantages and capabilities - the Value Points. The issue is it’s all too random. Most companies are not establishing their value points and focusing on them; they are simply putting in extra effort, which is not an effective strategy to becoming highly scalable. In some cases, of course, they are not able to put in those efforts at all, in which case the companies fail. How it works in a practical sense – so let’s follow the whole process through once, by focusing on the complete sales and performance process, looking at the questions that kick off the internal evaluation, the implementation that is necessary, and the measurement process required: The questions – what is happening or required in our business?

• Our sales team works hard, but is that work focused on strategically valuable opportunities and customers?

• Can we introduce simple measures focusing on the most valuable opportunities and customers?

• Can we show investors and stakeholders that our focus and improvement strategies are working?

Implementation – at a high level what has to happen?

• Take our hard-working sales/business development teams

• Help them assess deals, customers and contracts to find the stars

• Give everyone a simple view of the process

• Watch the company meet its strategic goals faster.



Customers and opportunity assessment – how can I assess value?

• Define value points that are key to a good sales pipeline, and ensure that all deals get measured accurately right from the start

• Define a view of your ideal customer, and ensure that all customers get measured accurately all of the time, allowing you to focus on the best customers

• Determine what makes a strong contract from a revenue, profit and growth perspective, ensuring that your account managers are generating repeat business.

Continuous measurement – how to make this a constant process:

• Score and rank your pipeline with a quick snapshot of each and every opportunity that comes into your systems

• Score and rank your customers so that you know where to spend your time and resources, marking improvements in strategy along the way.

• Score contract performance as a measure of account management success

• Provide full summary reporting across the entire sales and account area making it easy for managers to get a true sense of overall business performance.

The first step in all of this is choosing the value points that make sense for your business, and dividing those questions into ‘Initial Strategic Value’ and ‘Ongoing Strategic Value’. These questions should be part of every sales activity as well as every account management strategy. The typical types of questions are seeking to discover the following:

• Sales Pipeline - Opportunity Value – is this opportunity likely to be good?

• Customer - Initial Strategic Value – is this customer going to be strategically valuable?

• Customer - Ongoing Strategic Value – has this customer turned out to be good?

• Channel/Partner – Ongoing Strategic Value – has this partner turned out to be good?

Obviously the questions will be different for each organisation, but most companies can work out either by themselves, or with a small bit of strategic consulting, what is important or what makes for a successful relationship or outcome.

Implementation – depending on the tools you have available, you can implement these types of assessments either manually within your existing CRM system, or as a separate software application. The example to follow shows how Faulkner Technologies implements value management strategies using an online system.

In each of the next example sections we will look at some possible questions that can be asked regarding value. Remember, the value points for each business will be different but the general idea is the same, so you should be able to easily translate these into a strategy for your own organisation.

IMPORTANT NOTE – the idea is that a value management strategy does not involve trolling your systems for financial or numerical data to try and paint a picture. This is not a question of business intelligence; it is a process of asking questions of the people who are as close to the tasks as possible.

In the examples to follow, it is as simple as having the sales person answer questions about a new opportunity or customer or having the account and contract managers answer questions about the general performance of a customer or an ongoing contract. These would be the same types of questions that a senior manager might ask of them while walking down the hallway or in a general discussion of the client, these are the value questions. What you are doing now is capturing those value questions and making them part of the business process so that you don’t have to wait until the next time you see the sales person or account manager to try and determine how it’s all going.



Pipeline Example – business development and account management – generally the value points here are focused on the likelihood of winning a deal as well as the relationship to the best capability of the organisation. The idea being that the strongest scores will come from those deals that are in the right industry, are at the right price range, are secured through a certain sales process and have certain execution risks.

• Type of opportunity – this question can be something as simple as new customer or existing customer, or something as detailed as a type of product or service

• Execution Risk – this question can be a list of things that you know represent risks that can be ticked off as either present or not present

• Revenue range – this question can be a list of price ranges where you know that you are competitive or profitable, or where you can establish degrees of profitability. For example, you may have acceptable profits anywhere from $10-$100k so you do work anywhere in that range, but you also know that your best profits, in order, are $10-$25k, then $75-$100k followed by $25-$75k, so you might score those ranges differently

• Sales process – this question can be a list of sales processes that you find yourself in. Similar to the question regarding price, you may already know that you do better in product upgrades versus tender processes, so you would rate those higher.

In each case you can assign a simple score for each of the possible selections. The score is then used to order the opportunities based on the value to the organization as opposed to just the likelihood of closing.

In this online example you could embed the process into a CRM system such as Salesforce.com, or you could simply access the business process directly from your own intranet as an online tool.



Example Pipeline Measure - In the example above, it would now be possible to look at how an individual deal rates, and ranks, in regards to a determined value measurement. As well, you could then produce composite views across all of the deals in the system to see what the true value of a pipeline is beyond just the monetary amounts or expected close percentage.

Customer Example - generally the value points here are focused on how strong the relationship is, and how that customer can assist in driving the business strategically to gaining market share. The idea being that the strongest scores will come from those customers where there is a strong understanding of what you can provide them, where the continued purchasing is verifiable, and where it can be repeated to other customers.

• Reference value – this question could be related to something like how many solutions have you delivered to this particular customer. The summation being that the customers with the highest reference value are those customers where you have delivered the most solutions

• Financial capability – this question can be an inquiry as to how much money that customer has spent with you over time. You might establish ranges that lead up to a top mark such as all customer’s first sale is in the $10k range and the goal is to reach $100k, so you create some ranges in between and score them accordingly

• Champions – this question would be about how many people in that organisation would go to bat for you as a company; the more champions the higher the score

• Revenue Targets – this question would be trying to address what you had established as revenue targets for a given period, such as the next 6 or 12 months

• Overall needs – this question might be asked in the context of how many solutions have you identified but not yet delivered to this customer, an indicator of future potential

• Replicability – this question can be framed as a way of determining how what you are providing to this customer could be provided to other customers, the idea being that customers where you gain knowledge about improving or offering new services are of a higher degree of value than customers that only represent one off opportunities.



Example Customer Measure – the net result of the above questions can be scored and reported on as an individual score of a customer, as well as a total picture across the entire customer base. The idea here being that it should be easy to see where you are performing in relation to the value points that you establish. This will allow you to make decisions about which customers to focus on as you grow your business. It also serves to reinforce in everyone’s mind what a good customer looks like, which can go all the way back to the initial lead development and prospecting process.

Contract Example - generally the value points here are focused on the type of contract and the contracting process as over time you may have discovered that you perform better in certain situations as well there are often questions involving revenue and profit performance that are used to rank contracts.

• Contract type – this question might simply be a list of the types of services that you have, where you score certain contract types differently

• Contract process – this question could also be simply a list of contract types, where there are different scores

• Revenue performance – this question could be a simple question of performance at, above or below an expected level, something that it would be easy for an account or contract manager to answer as part of the account management process

• Profit performance – this question would be the same as the revenue question, a simple measure that would be easy for someone to answer but would provide good knowledge as to the value of a contract.

Note – as mentioned previously it is not always critical to have a numerical reference point to gain a value measurement. For the most part an account manager or contract manager can easily tell you if a contract is at or above a revenue or profit level because they see the information all of the time. You may of course want to verify financial performance as part of your other processes but what we are talking about here is simple access to a clear value measurement, “account manager what is the status of this contract?”, to which there is a simple set of possible responses.



Example Contract Measure – the net result of the above questions regarding a contract can in fact be very simple and can be answered quite directly by the account or contract manager. Often times it is made to be complex by trying to evaluate lots of revenue and profit numbers and applying calculations to come up with some measure of value. That is not to suggest that calculations are not valuable it’s just that sometimes it is easier to ask a simple question.

Channels Example - generally the value points here are focused on the performance of a particular channel partner. The most obvious questions would be around performance and are also very simple questions such as whether the partner is meeting, exceeding or falling below certain levels.

• Partner type – this question might simply be a list of the types of partners that you have, where you score certain partner types differently

• Revenue performance – this question could be a simple question of performance at, above, or below an expected level, something that it would be easy for a partner manager to answer as part of the partner management process

• Profit performance – this question would be the same as the revenue question, a simple measure that would be easy for someone to answer but would provide good knowledge as to the value of a partner.

• Deal production – this question might be a set of ranges relating to how many projects or sales have been achieved by this partner.



Example Channels Measure – similar to a contract value measurement process, a partner’s value can be simple and answered quite directly by the partner manager.

Key Summary Points:

• Information collection alone is not a complete strategy

• Well defined Value Points are essential in building a successful company

• Often the information that you are seeking is only available in a question and answer process

• Simple questions are often the best indicators of value

• Almost any business activity can have value points established

• Value Points are not necessarily financial or numerical in nature

• Value management must become part of the normal business process

As noted earlier in this document many organizations are successful in utilizing value measurement the challenge is that it is often a manual and individual process making it difficult to scale. It’s the reason why performance is so often related to the skill of an individual manager. Managers that ask good questions often achieve great results across their teams but when that manager leaves that ability goes away with them. It’s not that the value measurement has changed for the organization it’s just that the person asking the questions has changed and the process is no longer working at the same level. Implementing a defined value management strategy can mean that the knowledge is captured and improved upon over time.



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Implementing Value Management Strategies