Business Solutions on Demand: Transform the Business to Deliver Real Customer Value by Mike Cerasale and Merlin Stone ISBN:0749441720 Kogan Page © 2004 This motivational and fast-paced book emphasizes that for businesses to compete and survive, they have to exceed customer expectations. The book shows how companies can increase sales and improve margins by introducing a range of solutions. Table of Contents Business Solutions On Demand—Creating Customer Value at the Speed of Light Foreword Chapter 1 - Business Strategy and Transformation Chapter 2 - Transformation in Food Retailing Chapter 3 - The Low-Cost Business Model Chapter 4 - The Solutions Business Model Chapter 5 - Transformation in the Information Technology Industry Chapter 6 - Industries transforming Chapter 7 - Business Innovation Chapter 8 - The Business Innovator Chapter 9 - Solution Creation and Delivery Chapter 10 - The Customer Relationship Manager Chapter 11 - Solution Marketing Chapter 12 - The Industry Marketing Manager Chapter 13 - Knowledge Management Chapter 14 - The Knowledge Manager Chapter 15 - Business Design Chapter 16 - Change Management Index List of Figures List of Tables Business Solutions on Demand: Transform the Business to Deliver Real Customer Value by Mike Cerasale and Merlin Stone ISBN:0749441720 Kogan Page © 2004 This motivational and fast-paced book emphasizes that for businesses to compete and survive, they have to exceed customer expectations. The book shows how companies can increase sales and improve margins by introducing a range of solutions. Table of Contents Business Solutions On Demand—Creating Customer Value at the Speed of Light Foreword Chapter 1 - Business Strategy and Transformation Chapter 2 - Transformation in Food Retailing Chapter 3 - The Low-Cost Business Model Chapter 4 - The Solutions Business Model Chapter 5 - Transformation in the Information Technology Industry Chapter 6 - Industries transforming Chapter 7 - Business Innovation Chapter 8 - The Business Innovator Chapter 9 - Solution Creation and Delivery Chapter 10 - The Customer Relationship Manager Chapter 11 - Solution Marketing Chapter 12 - The Industry Marketing Manager Chapter 13 - Knowledge Management Chapter 14 - The Knowledge Manager Chapter 15 - Business Design Chapter 16 - Change Management Index List of Figures List of Tables Back Cover Based partly on IBM’s own transformation, and partly on the transformations that IBM has helped its clients to achieve, this ground-breaking book shows how companies can increase sales and improve margins by introducing a range of solutions. It draws upon IBM’s highly readable and fast-paced, Business Solutions on Demand emphasizes that for today’s business to compete and survive, it has to exceed the expectations of its customers. With contributions from a host of why corporations need to provide business solutions to stay competitive; why business customers want to buy solutions; what it takes to move from supplying products and services to creating and delivering solutions; how you can learn from the experiences of leading suppliers of business solutions. Business Solutions on Dem and will be a stimulating read for all business leaders, sales and marketing professionals and all those committed to improving business performance. If that sounds like your business agenda, make sure this important book is top on your reading list. About the Authors Mark Cerasale is a Senior Consultant in IBM’s Business Consulting Services division. He specializes in customer management, e-business and solution transformation, helping clients to improve business performance through innovation, operational efficiency and customer loyalty. Mark’s consulting experience covers many sectors, including automotive, chemical and telecommunications, electronics and IT. For several years he was responsible for managing IBM client relationships and providing some of the world’s most successful companies with information technology-enabled solutions. Mark, together with Merlin Stone, has co-authored several articles and management briefings, and has contributed to many white papers and books. Merlin Stone is Business Research Leader with IBM’s Business Consulting Services division, where his role combines consulting and marketing with the development of business research partnerships with IBM’s clients and partners and various universities. He runs he IBM Marketing Transformation Group and is a director of The Database Group Ltd, as well as Qci Ltd, an OgilvyOne company that specializes in customer management consulting. His consulting experience covers many sectors, including financial services, utilities, telecommunications, travel and transport, retailing, automotive, energy and IT. Merlin is also the IBM Professor of Relationship Marketing at Bristol Business School and the author of many articles and over twenty books. He is a Founder Fellow of the Institute of Direct Marketing, a Fellow of the editorial advisory boards of several key journals. The CIM recently selected Merlin as one of the world’s 50 leading marketing thinkers. He has a first- class honours degree and doctorate in economics. Business Solutions On Demand—Creating Customer Value at the Speed of Light Mark Cerasale and Merlin Stone London and Sterling, VA Publisher’s note Every possible effort has been made to ensure that the information contained in this book is accurate at the time of going to press, and the publishers and authors cannot accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or any of the authors. First published in Great Britain and the United States in 2004 by Kogan Page Limited Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 120 Pentonville Road London N1 9JN Sterling UK 22883 Quicksilver Drive VA 20166-2012 USA www.kogan-page.co.uk © IBM Corporation, 2004 The right of the IBM Corporation to be identified as the author of this work has been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. ISBN 0 7494 4172 0 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Cerasale, Mark Vincent, 1969-Business solutions on demand : creating customer value at the speed of light / Mark Cerasale and Merlin Stone 1st ed. p. cm. ISBN 0-7494-4172-0 1. Business planning. 2. Strategic planning. I. Stone, Merlin, 1948-II. Title. HD30.28.C415 2004 658.4’012 dc22 2003024779 Typeset by Saxon Graphics Ltd, Derby Printed and bound in Great Britain by Clays Ltd, St Ives plc To Stefania (my wife), Vincent and Jillian (my parents) and Lisa (my sister) Mark Cerasale To my wife Ofra and daughters Maya and Talya Merlin Stone Author profiles Mark Cerasale is a Senior Consultant in IBM’s Business Consulting Services division. He specializes in customer relationship management and business transformation. For several years Mark worked as a Client Manager, providing IT-enabled solutions to some of the world’s most successful companies. As a consultant he has helped many clients to improve their business performance through solution transformation. Please visit markcerasale.com for more information. Merlin Stone is Business Research Leader with IBM and a director of QCi Ltd and The Database Group Ltd. He is a Founder Fellow of the Institute of Direct Marketing, a Fellow of the Chartered Institute of Marketing and is on the editorial advisory boards of many journals. He is IBM Professor of Relationship Marketing at Bristol Business School and a prolific author with 25 titles to his name. List of contributors Julie Adams is a Managing Consultant in IBM’s Business Consulting Services division. She specializes in organizational change management and organizational development. Over the last 10 years, she has developed particular expertise in working with companies to get the best results from large scale business change programmes, whilst minimizing impact on day-to-day business. Alan Clark is a Management Consultant in IBM’s Business Consulting Services division. He focuses on delivering business-tobusiness sales force improvement solutions. In recent years he has worked with many international companies where a key factor in sales productivity improvement has been the shift away from traditional product selling. Howard Cox is Professor in International Business History at the London South Bank University. Professor Cox recently led a two year Leverhulme Trust funded project with Simon Mowatt and Martha Prevezer investigating technology and industrial change. He has published widely, including articles in Business History, The Business Economist and the OUP book on the history of BAT, The Global Cigarette. Lucia Cuttle is Automotive Marketing Manager with IBM’s Industrial Sector division. She is responsible for marketing IBM’s products, services and solutions to the automotive industry across Europe, the Middle East and Africa. Bryan Foss is Customer Insight Solutions Executive within IBM Financial Services. Bryan works with retail banks, insurers, financial markets and other financial services companies globally. Bryan is a joint author of four other publications with Professor Merlin Stone, Fellow of the Chartered Institute of Marketing, IT editor of the Journal of Financial Services Marketing and is a frequent presenter at business conferences around the world. John Griffiths is a Client Executive in IBM’s Sales and Distribution division. He has over twenty years experience in selling and implementing complex IT solutions and services in the industrial sector. As a management consultant he has advised many major international companies on their Customer Relationship Management (CRM) strategy, knowledge management and IT strategy to support their transition from product to solution businesses. Simon Mowatt is Senior Research Lecturer at Auckland University of Technology and Visiting Fellow at the Centre for International Business History at the University of Reading. His interest is in technological change, business networks and industrial transformation. Simon has published in journals such as Industrial and Corporate Change and Industry and Innovation. Martha Prevezer has worked at NEDO, London Business School, the Bank of England, South Bank University and is currently at Birkbeck College. She has published widely on biotechnology and has coauthored several books examining the role of clusters in economic development. Glenn Taylor is a Client Executive in IBM’s Sales and Distribution division. He has 30 years experience in the IT industry, of which he spent 14 in a sales role, and has applied his skills in large enterprises as well as start-ups. Abigail Tierney is the EMEA Marketing Manager for the Strategy and Change Practice within IBM Business Consulting Services. She works with consultants, customers, academics and influencers to drive business value and deliver thought–leadership marketing. Kevin Wheatly is the Learning and Knowledge Industrial Sector Lead within IBM’s Business Consulting Services division in Europe, the Middle East and Africa. He is responsible for improving Knowledge Management and Learning across the Industrial Sector practice. He has worked for IBM for over five years in various Knowledge Management roles both internally and assisting IBM clients. Foreword Overview I wonder why you have chosen to look at this book. Maybe you, like me, have begun to sense important changes in the way that some buyer–seller relationships have developed. The growing dominance of the customer is provoking new and radical changes in business relationships: the growth of virtual businesses, networks of alliances and new, complex, long-term partnerships between suppliers and customers. If you see this in your own business or industry and want to understand more about what it takes to exploit this change effectively, I believe this book will help you. It shines a light on this new and changing world – where the boundary between one organization and another becomes ever more complex and where what is deemed valuable migrates away from products and even services towards solutions and experiences. The era of a mass-customized service – blending industrial economics and scale with bespoke outcomes – has begun. It is a world where we in IBM have already staked out a leading position and one we believe passionately will continue to develop in market after market. This book breaks new ground. It is an exposition of how companies moving down this road work to transform both what they and what their customers do. Maybe you see this phenomenon as nothing new – a mere shift in the division of labour between supplier and customer. Maybe you see this as fundamentally no different from the ancient mercenary soldier or, in recent times, the changing services of accounting, recruitment, marketing, communications, customer service businesses and many others. I see the scale and economics of this trend as something different – not merely activity substitution but the transformation of the commercial model. Making this kind of jump in a business is tough. Many know this from their own bitter experience. For as suppliers, the continually changing requirements for staff skills, technology, commercial approach, financial management and programme structure combine with the challenge of managing totally new economics during transition. Business- as-usual management approaches do not succeed, and new approaches are needed to make the change quickly and successfully. If you are considering making this change, then this book is for you. It is not a recipe, nor even a menu. It is more of a guide – to the journey towards more effective and efficient, intensely partnered relationships. I hope that it stimulates your thinking and, encourages you to be bold, and, if you are already on the journey, that it gives you ideas that enhance your speed and direction. Finally, I hope that it makes you think deeply about what you need to do to give your people and partners a more exciting and acceptable journey. I wish you success. Rod Street, Partner, IBM Business Consulting Service Acknowledgements We would like to thank the following people for their support and contributions during the creation of this book: Paul Clutterbuck, Iain Devine, Bryan Foss, Rod Street, Phil Walker, Jane Ashton, Maikel Vlugt, Alan Flack, Rob Smith, Anthony Marsella, Kevin Bishop and Julie Abbott. We also want to thank the many IBM clients whose experience of transformation we drew upon in writing this book. We are all learning together. Chapter 1: Business Strategy and Transformation Mark Cerasale INTRODUCTION Managing a successful company is tough. The pressures are greater than ever. Satisfying the often conflicting needs of customers, shareholders and employees has never been more challenging. Increased competition and unpredictable change mean it is no longer enough for business leaders to maintain a steady hand on the tiller. To succeed, they must plot a course, sail rough seas, explore uncharted waters and be prepared for the unexpected along the way. Business strategy is about deciding what to do. It requires more than best-practice benchmarking, cost-reduction initiatives and one-off process re-engineering. These are often focused on operations. Business strategy is grounded in a vision of the future and is oriented towards innovation and growth. Only when you know where you are trying to reach can you work out how to get there. A business design provides a blueprint for the acquisition and development of capabilities, enablers and the customer interface needed to create and deliver customer value. New business designs are emerging. Today’s business environment Powerful forces such as globalization, deregulation and greater access to capital transformed business during the 1980s and 1990s. New management approaches, information technology, the Internet and increasing customer power have altered the competitive landscape for ever. Customers are more demanding: some want lower costs, others want solutions. Markets have become saturated and competition in many industries is intense. Today, industries are converging and change is unpredictable. Many products and services are similar, perhaps commoditized. To succeed, companies must innovate, grow and reduce costs simultaneously. The economic growth of the late 1990s ended with a downturn in most economies. The new economy of continual growth was short-lived. After 2000, expansion plans were put on hold. Cost-cutting started. The events of 11 September 2001 and the subsequent explosion of global terrorism changed the geopolitical landscape. As if things were not complicated enough, a string of corporate scandals undermined the public’s trust in private enterprise and increased demands for greater inspection and regulation. BUSINESS LEADERS FACE INCREASING PRESSURE Nowhere is the pressure for better performance greater than at the very top. According to a survey carried out by consulting firm Booz Allen Hamilton, ‘Companies are setting higher standards of performance for chief executive officers than ever before, and CEOs are falling short in record numbers.’ Charles Lucier at Booz Allen Hamilton commented, ‘Business leaders are enduring scrutiny and pressure unseen since the Great Depression… There is no longer any safe haven for chief executives who can’t deliver superior results.’ [1 ] Corporate responsibility Charitable and governmental organizations have long been aware of their responsibilities and commitments to the communities in which they operate. Companies and their employees willingly give their time and money to charitable causes. However, for much of the 20th century it was rare to find environmental and societal issues as top priorities in most private companies. Things have changed recently. There is more awareness of equality of opportunity, ‘green’ issues and social responsibility. The many corporate scandals and financial irregularities have brought the latter to the fore. Executives are distracted by the need to satisfy new rules. The need for reporting has increased. There is some risk too that governance worries may encourage business leaders to become overly conservative at a time when more innovation and growth are needed. The need for strong leadership, moral commitment and a renewed focus on creating value has never been greater. Today the symbiotic relationship between companies and their communities is better understood. Many business leaders would concur with the view expressed by Lou Gerstner, former chairman and CEO of IBM: ‘[C]orporations succeed only if they operate in a healthy and vibrant society. They need the communities where their customers and employees live to be strong, as much as they need successful research, planning and advertising. Contributing to their communities is, therefore, good business, too.’ [2 ] The Internet enables charities, environmental groups and communities of consumer interest to come together across the world and has increased their power. Today, environmental issues influence political, economic and corporate policy-making. Some of the world’s largest oil companies are reinventing themselves to stay in tune with public opinion. They are changing their brands, adapting their business designs, executing new strategies and investing in new markets such as renewable energy. In the future, pressure from future generations may cause more change in industries deemed to be environmentally or socially ‘unfriendly’. Tough new legislation relating to the disposal and recycling of consumer goods, such as refrigerators and cars, has forced manufacturers to redefine their product life cycles. Sophisticated buyers are beginning to question the need to own products at all. There is more demand for services. According to environmentalists Paul Hawken and Amory and Hunter Lovins, ‘mere product-sellers will become suspect. Why – a prospective buyer may ask – if your product delivers its service with all of the operational advantages you claim, don’t you want to capture those advantages for yourself by owning the product and just providing me with its service?’ [3 ] Partner value For much of the 20th century, manufacturing was the main driver of growth. Economies grew along with large corporations. This growth rested on massive investment, managerial control, mass production, standardization, and the creation of large markets through lowering costs and prices. Aggregation worked. The vertically integrated enterprise became the dominant organizational model. Many of the world’s largest companies, such as Ford, owned and managed their entire value chains. They controlled brands, technology, access to markets, customers, capital and business talent. Today, competition has increased and change is unpredictable. Success depends more on agility and focus. Customers are more demanding and companies must ‘sense and respond’ to their needs. New technologies such as the Internet allow companies to come together in value networks, where scale is less important. In the past, assets and managerial structure were added to support growth. In the future, networks of companies will come together to innovate and create growth. A network economy is emerging in which success will be achieved by focusing on the very few powerful forces operating in any arena and harnessing them to create exceptional customer value. Partnering reduces costs, improves focus on core competencies, can help a company enter new markets and provides opportunities to create exceptional customer value. According to a recent report, ‘Of the 403 executives surveyed on this subject by the Economist Intelligence Unit, 65% reported that their company’s dependence on external relationships to achieve business objectives had grown substantially over the past three years. A similar proportion expected that dependence to increase significantly again over the coming three years.’ [4 ] Partnering comes with its own challenges. Most companies have little experience in finding and attracting strategic partners and building relationships with them. Successful partnerships are built on enduring relationships between individuals and groups. They require investment over time, exceptional mutual understanding, extraordinary trust and a clear sense of purpose. Employee value For much of the 20th century, manual workers were common in most organizations. Managers were concerned with how to organize their work and how to improve their productivity. Today, knowledge working has replaced physical labour in many industries. The knowledge worker, ‘the man who puts to work what he has between his ears rather than the brawn of his muscles or the skill of his hands’, [5 ] is now predominant. Knowledge-intensive industries, such as software and biotechnology, have emerged. Even industries such as manufacturing and retailing rely on more information. In many services organizations, assets such as client relationships, goodwill, ideas and talent are intangible and people-oriented. Over a decade ago, Fred Moody wrote in the New York Times Magazine, ‘Microsoft’s only factory asset is the human imagination.’ [6 ] Today, physical assets, such as industrial machinery, are rarely sources of sustainable competitive advantage. When motivated, employees create value through their ideas and their ability to innovate. The workforce, and how it is organized and managed, is an increasingly important source of competitive advantage. However, the job for life is a thing of the past. Few workers have career horizons of more than five years and many have several careers. Valuable information exists in employees’ heads in the form of knowledge – of how a process works, a machine operates or a technology integrates. Knowledgeable employees are in short supply and prone to move on if they are not treated well. As they move between companies, they disseminate valuable knowledge. Companies are under pressure to attract and retain their human assets; a ‘war for talent’ is raging. The best and most successful employees want to work for the best and most successful companies. Most employees want a career, a decent rate of pay, respect from co-workers and a boss who supports them. Some employees are even more powerful and demanding. A recent study concluded that factors such as corporate social responsibility (CSR) are beginning to figure heavily in an employee’s choice of employer: ‘there is an accumulation of evidence which shows that an organization’s reputation in the field of business ethics and CSR can tangibly affect its attractiveness as an employer. In a tight labour market, a positive employer “brand” can make a real difference.’ [7 ] The most educated, highly motivated and capable employees are in short supply. A new generation of software tools is emerging to help employers manage their costs – for example, by improving utilization rates in services industries. Similarly, tools are emerging for workforce development. These tools aim to improve productivity by enabling managers to match skills to positions and will help identify the best employees and support succession [...]... leverage information about customers, to tailor products to customer needs and to test satisfaction continuously [15 ] Understanding customer needs Some customer needs are explicit and can be quickly identified Others are less obvious and must be developed In business- to -business settings, the most common way to understand customers’ needs is via face -to- face meetings More structured methods, tools and approaches... serving its chosen customers It is not enough to wait for competitors to take the lead Only companies that are first to see future opportunities and then first to act to exploit them will achieve competitive advantage and rewards Customer value A business design is a high-level blueprint for the creation and delivery of customer value Some customers demand greater value through lower costs Customers that... disintermediation As markets evolve, buying responsibilities can shift and new customers may appear Customers needing solutions, for example, often have different roles and responsibilities from traditional product customers For solution customers, the specifications of the product or service are less important than their economics For them, value resides in the process, not the product Value is created by how the. .. aim to create customer value, should be oriented towards innovation and growth and should be based on an understanding of customer needs (both today and in the future) I argued that strategy starts with the customer I suggested that the needs of some customers are changing: some customers want lower costs, others want solutions I proposed that business leaders should attempt to transform both their... enable the creation and delivery of solutions Solutions are services-led Chapter 4 describes the emergence of the solutions business model NOTES 1 James F Moore, Predators and prey: a new ecology of competition, Harvard Business Review, May–June 1993 (quoted from Don Tapscott, Creating Value in the Network Economy, Harvard Business School Publishing, Boston, 1999 (p 139) Chapter 3: The Low-Cost Business. .. technology-rich products are connected to the Internet they become devices for providing services Value is migrating from products to services Over-supply of products and services has made customers more powerful Customers have become more knowledgeable and sophisticated, and many demand exceptional value Some customers demand exceptional value through solutions; others demand exceptional value through... multidisciplinary teams whose common objective and continuous interaction help to facilitate mutual trust The market-making role performed by the retailer is critical in making the collaboration a success In the market for ready chilled meals, the retailers control the customer interface, they understand their customers’ needs and they manage the flow of information that gives them control of the collaborative network... satisfy the needs of customers for cheaper PCs through low-cost business designs Some customers demand exceptional value through solutions Solution customers need to solve complex problems or exploit new opportunities for value creation They may not have the specialist knowledge or the resources required and often look to partners and suppliers for support Suppliers help them to understand their issues... retailers, constrained by the perishable nature of their produce, were the first to move from inventorybased systems to customer- driven systems EDI and collaborative Internet technologies enabled the various players in the value chain to be coordinated in real time This new ability to manage the supply chain allowed retailers to switch to customer demand- driven replenishment systems These systems allowed the. .. successful business strategy Peter Drucker once wrote: There is only one valid definition of a business purpose: to create a customer What the business thinks it produces is not of first importance – especially not to the future of the business and to its success What the customer thinks he is buying, what he considers value , is decisive – it determines what a business is, what it produces and whether . Business Solutions on Demand: Transform the Business to Deliver Real Customer Value by Mike Cerasale and Merlin Stone ISBN:0749441720 Kogan Page. Tables Business Solutions on Demand: Transform the Business to Deliver Real Customer Value by Mike Cerasale and Merlin Stone ISBN:0749441720 Kogan Page