I remember back in the 90s when Economic Value Added (EVA), People Value Added (PVA) and Customer Value Added (CVA) were all the rage. The idea was that businesses should be managed by looking after shareholders (EVA), staff (PVA) and customers (CVA) in equal measure. Sounds sensible doesn't it: Businesses should be run with the bigger value equation in mind.
But it didn't last. When the going got tough for businesses as the Internet bubble burst, the first measure to be dispensed with was PVA. Leavers were not replaced, pay rises were capped and training was cut. And when the going got tougher still, CVA was quietly dropped too, as businesses scrambled to protect EVA at all costs. Product quality and value were quietly reduced, product promotions increased and customer service was cut.
Welcome to 2008. We are at the start of what the OECD thinks will become a prolonged recession, possibly lasting into 2010. Businesses have already started to make knee-jerk cutbacks without thinking through their predicament. The same cutbacks I remember from the last recession. And the one before that too.
And there is the key problem. Businesses, or rather the managers that run them, haven't stopped to think before making cuts. They haven't stopped to think how they can prosper doing BETTER, not just by doing less
- Better Customer Focus - They haven't stopped to think which of their customers are the most valuable to them and if they should focus on these customers at the expense of less valuable ones.
- Better Value Delivery - They haven't stopped to think about how they deliver value to their customers and if they need to be delivering more value to increase customer profitability.
- Better Staff Collaboration - They haven't stopped to think about who within the organisation is involved in delivering value to customers and if they need further support to deliver even more value.
- Better Profitability - They haven't stopped to think about how this creates value for shareholders and if they can grab 'value share' from competitors making knee-jerk cutbacks.
- Better Value-based Competition - And they haven't stopped to think about how they should ring-fence this profitable value at the same time as they significantly reduce costs by applying proven tools from Lean Thinking.
As I pointed out in a previous blog post on What Private Equity Teaches Us About CRM in a Downturn [1], businesses can both increase value delivered to customers and reduce costs of doing business with them at the same time. This requires managers take a hard-nosed look at the customer value equation, at how they deliver profitable value and at who should be involved in doing so. This isn't just the best approach to take in a recession either, it is the basis of How Customer-Centricity Drives Profits [2] too.
Whilst a recession brings hard times, businesses who adopt the right improvement mindset and arm themselves with the right tools can prosper by doing better, not just by doing less. These are the businesses that will be in even better shape when the recession ends and managers' minds turn once again to growth.
What do you think? Can businesses prosper in a recession by doing better, not just by doing less? Or have you started your knee-jerk cuts already?
Post a comment or email me at graham(dot)hill(at)web(dot)de to get the conversation going.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
Further Reading:
Graham Hill, What Private Equity Teaches Us About CRM in a Downturn [1]
Womack & Jones, Lean Consumption [3]
Graham Hill, How Customer-Centricity Drives Profits [2]