Business leaders are constantly challenged by revenue and profitability objectives, customer growth goals, market shifts and competition. Leaders know success depends on identifying and maximizing new opportunities, deploying the best talent and tools, and ensuring the organization is well aligned to consistently deliver top-notch products and services.
Value retention and cost control aren’t optional.
Creating innovative and differentiated new products and services – that meet financial targets – is no small task.
Leaders approve the strongest, most innovative, product/service concepts. This triggers product/service development, typically including production timeframes, cost, revenue and margin forecasts, launch plans and timing. All elements leading to launch receive intense focus and review.
Sound familiar?
However, for organizations reaping the maximum value of new products/services, “launch” is one of multiple essential actions. Strategic customer and partner relationships can drive considerable additional value. Focusing solely on “launch” results in lower actual outcomes than were possible. “Value leakage” describes this unfortunately common reality.
Two significant examples:
1. Innovation-fed launch of new products/services
Plans to optimize execution are minimal. An articulated strategy for helping customers learn enough about the products and services to purchase commitments is often lacking. Frequently, product/service introduction serves as initiative conclusion. Plans to optimize execution and beyond are minimal.
2. Poor supplier/supply chain management
A recent Deloitte study 1 evaluates value leakage within outsourcing. Their study showed 72% of respondents believe they do not have the right tools and processes to manage vendors. And 49% indicated they aren’t effectively staffed with the skills needed for the task.
When companies outsource several issues often lead to not achieving the full expected value of the supplier relationships. Issues begin at the time a supplier agreement is created. Overarching issues are failure to manage suppliers beyond controlling selected factors and specified contracts.
Costly issues include:
a. Ineffective communications
b. Unexpected cost increases
c. Invoicing and clerical errors
d. Slower speed to market
e. Insufficient capacity (including ability to scale up and down)
f. Specialized resource availability
g. Incomplete compliance documentation
h. Unclear management roles and authority
i. Unmanaged supplier performance
A recent Chief Executive 2 article addresses this issue.
Value Leakage – Innovation
A new product/service sales plan isn’t enough. A comprehensive process is crucial. It must include initial ideas through development; marketing strategies; value proposition (including methods for customers to measure total product/service value); sales strategies and sales training; plans and execution – integrating customer service, tech-support, custom versions, add-ons, and whatever else your customers value and are willing to pay for.
Defined organizational capabilities, with explicit differentiating factors your customers’ value is critical to realizing the full value of your organization’s capabilities.
Value Leakage – Supply Chain
Sirion Labs recent article 3 quoted an International Association of Outsourcing Professionals (IAOP) survey where 63% of respondents reported supplier contract value loss of 25% due to poor governance.
Value leakage was primarily attributed to:
1. The “pre-signature” element of the outsourcing arrangement receives the majority of attention – with little focus on long-term management.
2. Outsourcing contracts are frequently negotiated without operations input and feedback. Yet once signed, operations staff are generally responsible for contract management.
3. While contracts can be highly detailed, lengthy and complex, “post-signature” contract management frequently lacks advanced technology and automation tools needed. In fact, Excel is currently the most common tool. (The “pre-signature” phase routinely incorporates advanced technology, automation and other tools.)
Looking Forward
Considerable financial rewards are attainable by organizations focused on the entire value the company offers. Using available advanced technology, automation and other tools in customer relationships and supplier contract and relationship management will streamline the process. ROI and swift investment payback together make a very compelling case.
Action Items:
1. Evaluate your company’s innovation and product/service development process to determine whether it incorporates value capture and retention elements in all potential areas. Strengthen any weak areas. Reassess annually at minimum to add new potential value opportunities that may arise.
2. Ensure you have the right talent in key areas to oversee potential value capture and retention. Hire and/or develop as needed.
3. Assess your supply chain/supplier management processes thoroughly to ensure they encompass all pre- and post- signature components of supply management, are staffed appropriately, and are able to utilize the most advanced technology and tools available.
4. Confirm employees in all areas of the company understand the issue of value leakage and how they can help add to and/or retain value. Consider establishing an incentive program for employees who identify new ways to capture and/or retain value.
Sources:
1. Smarter Sourcing Governance – Improve the Value of Your Service Provider Relationships , Deloitte, 2015
2. Thull, Jeff, Is Value Leakage Sabotaging the Execution of Your Strategy? , Chief Executive, February 26, 2016
3. Marais, Claude, Technology Revolution in Contract Management to Deliver Bottom Line Value , Sirion Labs, August 10, 2015