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ExecTech:
Heart & Soul
By Michael Alan Hamlin
February 19, 2001
Focus on share of customer over share
of market is a notion first formally documented by Adrian Slywotzky
and David Morrison in their book, The Profit Zone. Put simply, companies
that apply resources to increasing the amount of business they do
with their most profitable customers do better than companies that
seek merely to dominate the broader market.
That's because broad market domination can mean that
scarce resources are applied to acquiring and keeping customers
whose contribution to corporate profitability is marginal, and not
infrequently, even negative. Returns are far higher when the company
understands who its most profitable customers are, and what they
want.
Identifying profitable customers is much easier today
than it was just a decade ago. Enterprise systems, or what is still
called ERP, provide a company the capacity to understand with a
few keystrokes what products and customers contribute most dramatically
to the bottom line. But knowing who the customers are and knowing
the customers are two very different things.
The effort to know customers better is in part responsible
for the recent interest in customer relationship management solutions
(CRM). When a company knows its customers and understands their
needs and desires, it has a better chance of increasing the level
of business done with them by offering customers products and services
they want.
But knowing customers requires that huge volumes of
information be collected, stored or archived in a way that makes
it easily accessible, and analyzed down to the individual customer.
It's important that individual customers are understood — even
if there are hundreds or thousands of them — because the company
needs to personalize its communications. For the communications
to have effect, they must be relevant and meaningful to the customer.
Which means of course that the company must know each customer.
Unfortunately, while many companies in the Philippines
increasingly accept this logic and are beginning to collect information
on their customers using loyalty cards, frequently the capacity
to usefully store, access, and analyze the information lags. As
a result, the value of the loyalty card is merely to encourage customers
to give these companies a larger share of business by offering them
a discount.
This means that technology is being used for very uninspiring
ends, and that the full value of acquiring the information —
and the return on the investment in doing so — is going woefully
unmet. It also means that profitable, average, and unprofitable
customers alike are all being given the same incentive, one that
eats into the bottom line at that.
Since information is now commonly said to be the heart and soul
of all business, neglecting its potential means neglecting the very
core of the enterprise.
Obviously, that can't go on for long since the enterprises
that are slowest to capitalize on information will suffer the natural
consequences of ignoring the health and culture — the heart
and soul — of the business. What this means for market leaders
is that this will be a year not so much of expanding networks, but
investing in CRM and storage and archiving solutions.
So if you are looking for ways that technology will
have a fundamental impact on profitability — rather than productivity
and efficiency — look to CRM, and maximizing your return on
information by making it accessible and meaningful. It'll be good
for your corporate heart and soul.
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