VALUE-BASED PROJECT MANAGEMENT METRICS 1
5.7 CUSTOMER VALUE MANAGEMENT (CVM)
For decades, many companies believed that they had an endless supply of potential customers. Companies called this the “door knob” approach, whereby they expected to find a potential customer behind every door.
Under this approach, customer loyalty was nice to have but not a necessity.
Customers were plentiful, often with little regard for the quality of your deliverables. Those days may be gone.
As the quality movement began to take hold during the 1980s, so did the need for effective customer relations management (CRM), as shown in Figure 5-7. The focus of most CRM programs was to: (1) find the right customers, (2) develop the right relationships with these customers, and (3) retain the customers. This included stakeholder relations management and seeking out ways to maintain customer loyalty.
Historically, sales and marketing were responsible for CRM activities.
Today, project managers are doing more than simply managing a project;
they are managing part of a business. As such, they are expected to make business decisions as well as project decisions, and this includes managing activities related to CRM. Project managers soon found themselves manag- ing projects that now required effective stakeholder relations management, as well as customer relations management. Satisfying the needs of both the client and various stakeholders was difficult.
9. “Customer Value Measurement: Gaining Strategic Advantage,” The American Productivity and Quality Center (APQC), ©1999, p. 8.
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5.7 CUSTOMER VALUE MANAGEMENT (CVM)
As CRM began to evolve, companies soon found that there were differ- ent perceptions among their client base as to the meaning of quality and value. In order to resolve these issues, companies created customer value management (CVM) programs. Customer value management programs address the critical question, Why should customers purchase from you rather than from the competition? The answer was most often the value that you pro- vided through your products and deliverables. Loyal customers appeared to be more value sensitive than price sensitive. Loyal customers are today a scarce resource and also a source of value for project managers and their organizations. Value breeds loyalty.
There are other items, such as trust and intangibles, that customers may see as a form of value. As stated by a technical consultant:
The business between the vendor and the customer is critical. It’s situational but in technical consulting for instance the customer may really value only the technical prowess of a vendor’s team; project management is expected to be competent in this case. If project management itself is adding value then isn’t that really a matter of the customer’s view of the project manager pro- viding services above and beyond the normal view of functional responsibil- ity? That would come down to the relationship with the customer. Ask any customer what they truly value in a vendor and they will tell you it is trust because there is a reliance on the customer’s business strategy succeeding based on how well the vendor executes.
For example, in answer to the question, Why do you value vendor X?, you could imagine the following answers from customers: “So and so always delivers for me, and I can count on them to deliver a quality (defined how- ever) product on time and at the agreed price”; or, “Vendor X really helped me Figure 5-7 Growth in the Importance of Value
Types of Metrics
TQM and Quality Conformance
Customer Relations Management (CRM)
Customers’
Perception of Quality and Value
Customer Value Management Programs Traditional
Value-Based
The Importance of Value
Timeline and Initiatives
1980s 1990s 2000s 2010s
be successful with my management by pulling in the schedule by x weeks.”;
or, “I really appreciated a recent project done by vendor Y because they han- dled our unexpected design changes with professionalism and competence.”
Now most project management is within the sphere of operations in a vendor’s organization. The customer facing business relationship is handled by some company representative in most cases. The project manager would be brought in once the work is underway and typically the direct reporting is to someone underneath the person who authorized the work; so in this case the project manager has the opportunity to build value with the underling but not the executive.
We discount the personality of the project managers as though this isn’t an issue. It is a major issue and people need to realize that it is.
Understanding one’s own personality and the personality of the customer is vital to getting a label of value added from a customer. If the project manager isn’t flexible in this area then creating value with the customer becomes more difficult.
Anyway, there are as many variations to this theme as there are projects since personality and other interpersonal relationship nuances are involved.
However, so much of successful project management is all about these intangibles.
CVM today focuses on maximizing customer value, regardless of the form. In some cases, CVM must measure and increase the lifetime value of the deliverables of the project for each customer and stakeholder. By doing this, the project manager is helping the customer manage their profitability as well.
CVM performed correctly can and will lead to profitability, but being profitable does not mean that you are performing CVM correctly. There are benefits to implementing CVM effectively as shown in Table 5-6. CVM is the leveraging of customer and stakeholder business relationships throughout
TABLE 5-6 Before and after CVM Implementation
FACTOR BEFORE CVM AFTER CVM (WITH METRICS)
Stakeholder communications Loosely structured Structured using a network of metrics Decision-making Based upon partial information Value-based informed decision-making
Priorities Partial agreements Common agreements using metrics
Tradeoffs Less structured Structured around value contributions
Resource allocation Less structured Structured around value contributions Business objectives Projects poorly aligned to business Better alignment to business strategy
Competitiveness Market underperformer Market outperformer
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