Interview with Prof. Robert Kaplan(2)
Another value proposition, followed by companies such as Sony, Mercedes, and Intel, emphasizes product innovation and leadership. These companies command prices far above the average in their industry because of the superior performance of their products. The objectives for this value proposition emphasize the particular features and functionalities of the products that leading-edge customers value and are willing to pay more to receive. The objectives could be measured by speed, accuracy, size, power consumption, or other performance characteristics that exceed the performance of competing products and that are valued by important customer segments. Being the first–to-market with new features and functionality is another objective for such product leadership companies.
A third type of value proposition stresses the provision of complete customer solutions. Good examples of companies successfully delivering this value proposition are Goldman Sachs and IBM. For this value proposition, customers should feel that the company understands them and is capable of providing them with customized products and services that meet their unique preferences and needs. IBM offers its targeted customers complete solutions that are tailored to each organization’s needs for consulting, hardware, software, installation, field service, training, and education. Companies offering such a customer solutions value proposition stress objectives relating to the completeness of the solution (selling multiple, bundled products and services), exceptional service both before and after the sale, and the quality of the relationship between the company and its customers.
Xing Zong: Many organizations think in terms of the "lifetime value" of a customer. What does lifetime value consist? And what should companies do to get the best out of it?
Kaplan: Customer Lifetime value (CLV) is the discounted value of the net profits earned from a long-term relationship with a customer. The benefit of thinking about CLV is that a company is willing to lose money on the initial relationship with a customer when the customer first opens an account or the company does its initial technical and sales approach with the customer. It expects to get a return from its losses or investments in its early years of the relationship by generating repeat business and a long-term relationship with the customer. But companies need to check each year that its customers continue to generate profits and give the company an adequate return from the relationship.
Xing Zong: You are known as the creator of "balanced scorecard", a performance measurement system. Could you please explain the terminology?
Kaplan: Performance measurement systems perform multiple roles: communicate the company’s strategic objectives; motivate employees to help the company achieve its strategic objectives; evaluate the performance of managers, employees, and operating units; help managers allocate resources to the most productive and profitable opportunities; provide feedback on whether the company is making progress in improving processes and meeting the expectations of customers and shareholders.
Xing Zong; I am sure there are many challenges to the application of this system.
Kaplan: You are right. The challenge is to find the right mix of financial and non-financial measures to perform these multiple tasks. Financial measurements alone may have been adequate for early 20th century industrial-age companies that competed by making effective investments in physical assets and managing well their financial assets and liabilities. Companies today, however, succeed by creating distinctive value from their intangible assets as well as their physical and financial assets. An organization’s intangible assets include the following: loyal and profitable customer relationships; high-quality processes; innovative products and services; employee skills and motivation and databases and information systems.
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