As was mentioned earlier, each element of value has one or more causes, and one or more effects. Therefore, an increase or decrease in any particular element of value could have multiple different effects on one or more units or departments across a business enterprise. Because of the complex interrelationships between all of these elements, it is impossible to visually depict all of them in a two-dimensional drawing.
An improvement in order fill-rates and customer satisfaction, for example, not only increases customer loyalty, but it also tends to reduce or contain accounts receivable. It can also help to drive down advertising costs because it fosters more repeat business and word-of-mouth advertising. Likewise, reducing inventories frees up capital for rein- vestment, but it also reduces inventory carrying costs and reduces storage space requirements, which, in turn, reduces the cost of lease or rent on properties.
Sometimes an improvement in one measure could have a negative effect on another measure somewhere else in the company. Reducing inventories is generally considered a good thing, but taken too far, it could have a negative impact on order fill-rates, which results in both customer dissatisfaction and problems with accounts receivable and collections. Likewise, expanding into new markets may increase gross revenues but at the same time could dramatically increase storage and distribution costs, as well as divert working capital and other resources away from important projects supporting domestic operations.
Whenever we are diagnosing and evaluating business projects that our clients are considering, and while we are crafting our proposal of what we think they should buy, we need to be constantly asking ourselves ‘Why should they do this?’ and ‘Why else should they do it?’ in order to validate the business impact to our primary contact as well as the cross-organizational impact on other constituents throughout the company. These same exact questions (’Why should we do this? and Why else should we do it?’) are what your customer will be asking themselves before they sign your contract or issue a purchase order. If we can’t come up with some pretty strong answers to these two questions, chances are they won’t either.
Notice that, the titles of the key corporate executives are placed near the elements of value that each of them is primarily responsible for. Also notice the tall shaded ovals behind the BVH model that designate the areas of the business that these executives oversee. The executive vice president of sales and marketing (or some variation of this title) is primarily responsible for revenue, and all the business activities that contribute to selling whatever it is the company makes or delivers. The chief operations officer (COO) is focused mostly on making and delivering the products and services that are sold. The chief financial officer (CFO) has oversight of the care and use of the company’s assets, which often includes-under his or her command- Human Resources, Facilities, and Information Technology (IT). There is some sharing of responsibilities across departments, but this illustration helps us to better understand ‘who is responsible for what’ in the company.
It is vitally important that we develop our understanding of ‘who is responsible for what’ because depending on the role of the particular person we are meeting with and selling to, we need to translate the value we can help our customer derive into the language they speak in their department. Let’s take a closer look at the specific example in Figure 4.8.
If we have an opportunity to meet with an executive vice president of sales and marketing, we would probably want to start our questioning in the area of improving order fill-rates and customer satisfaction because that’s the piece of the business they are primarily responsible for. For a meeting with the COO, or someone else in the operations department, we would probably do best to start by asking about containing or reducing materials or direct labor costs. If we have an audience with the CFO, we might be wise to concentrate our questioning on reducing accounts receivable, reducing inventories, and freeing up capital for reinvestment. This is not to say that these executives wouldn’t care about issues or objectives outside their department, but this concept can help us focus on the issues or opportunities that are most important to the person we are meeting with.
We use cross-organizational discovery to learn more about other areas of the business, as well as who else within the organization might become an ally or an opponent to moving forward with any recommendation we might propose. Some examples of questions you could use while talking to the executive vice president of sales and marketing might be:
‘Your plan to invest heavily in advertising to improve brand recognition seems to support your goal of increasing market share and top-line revenue. How will this impact the ability of your manufacturing and distribution departments to balance supply with demand?’
Or . . .
‘I can certainly see how better inventory management will enable you to reach your objective of increasing order fill-rates and improving customer satisfaction. Has your CFO done any analysis on how much capital could be freed up for reinvestment or how much she could save in carrying costs in the process?’
Or . . .
‘This new ‘twenty-four-hour turnaround’ service guarantee that you’re planning to launch seems like a great competitive advantage. If your campaign is successful and you do increase sales by the projected 30 percent, how will that impact the staffing and logistics requirements of your field service organization?’
If they know the answers to these questions, that’s great! If they don’t, this is one of the best techniques I know to build a case for why you should meet with some of those other managers and executives throughout the company to learn more about the broader impact of the project at hand.