Informing board strategy

Saturday, 01 August 2015


    Taylor Tran explains why an organisation’s customer value proposition should be a central conversation for directors.

    Being clear on purpose, customer value propositions and strategy enables businesses and organisations to grow sustainably while reducing effort and resources. For company and not-for-profit (NFP) directors, it is important to ask the following questions: “what is your company or organisation’s customer value proposition? And how does it inform strategy?”

    Peter Drucker, considered to be the founder of modern management, once said, “the purpose of a business is to create a customer”, which makes the point that, without a customer, a business simply does not exist.

    To create a customer, value must be created and delivered and as such, “the purpose of a company or organisation is to create value for customers”. “Customer” can also be defined as “stakeholders your company or organisation exists to serve”. Therefore, it is critical for boards to understand clearly the company or organisation’s customer value proposition.

    How often do boards ask their chief executive officer (CEO), “what is our customer value proposition and how does it inform our strategy?”
    In my previous role with the advisory council for the Australian Broadcasting Corporation (ABC), our fundamental interest was to scrutinise whether the ABC was living up to its Reithian values to “inform, educate and entertain” and to engage with the community at least three times a year to test this.

    In my years of doing long-term plans for corporations however, I have found that the dominant discussion around the annual planning and budgeting cycle is about how much growth, profit and market share the company is going to get in the following years and what initiatives are in place to get there.

    More often than not, budget gaps occur throughout the year and more initiatives are put in place to close the gap. Board-level agendas such as governance, risk and return are also important matters. However, the issue with such discussion is that it prioritises lag indicators of value and creates an internally focused mindset. By not focusing on the customer value proposition, companies and organisations are wasting enormous amounts of time and resources straying from the most important agenda for discussion; the customer value proposition and how it is informing strategy, and, for that matter, how such strategy is performing.

    Get back on track
    So how do you get back on track? Start by asking your CEO to articulate the company or organisation’s customer value proposition and to demonstrate how each component of the strategy and associated investments are aligned to deliver on that customer value proposition. If your CEO is not able to articulate this concisely in a very short amount of time, chances are, everyone else in your organisation is equally unclear. In such case, there is a high chance the organisation is doing a lot of “busy work” that costs money and doesn’t create value for the customer.

    In a dynamic environment of disruptive change and competitors coming in with lower-cost business models, it is critical for directors to be clear about the customer, the customer value proposition and to  understand clearly how the strategy and financial metrics are aligned.

    The phrase “customer value proposition” and similar terms, such as “brand proposition”, “brand promise”, “unique selling proposition” and “elevator pitch”, have been bandied around the sales and marketing fraternity for decades. Given that many directors come from non-sales and marketing backgrounds, the default position has been to defer this to the marketing, research or even sales departments.

    Do this at your peril. It would be a risk. The understanding of how your organisation sustainably creates value for the customer is too important to be left with marketing or even the CEO. It is the domain of the board and it should not be mired in sales or marketing jargon.

    Clarity in customer value proposition is about having a clear understanding of how the organisation creates value for the customer, in a differentiated and sustainable way versus competitors. Furthermore, it is also about having the understanding of how the organisation is delivering on this customer value proposition at every touch point. Having this concise understanding, allows directors to ask profound questions about how the organisation’s strategy, structure, systems, processes and investments align to ensure its future. Without this understanding, directors are relying on “lag indicators” such as revenue, market share and profit to assess the performance of its executives.

    This article is not about how to design a good customer value proposition. There are many good books and articles on the topic. This article is about why it should be the central conversation for board strategy. Nonetheless, it should be noted that a good customer value proposition is not about doing everything the customer wants or just what’s different to competitors; it is about delivering the minimum expectation of the customer and leveraging the company or organisation’s relative strengths, to add further value where competitors cannot. A good customer value proposition creates value for the customer and organisation.

    Your CEO should also demonstrate an understanding of the customer value proposition from both a rational and an emotional perspective. Research has found that emotions drive more actions than rational thought, even in unexpected categories such as transport and financial services. Finally, customer value propositions should be backed up by external evidence and not by claims or aspirations. Directors join boards to make a difference, not to be “busy”. Save time at the next board meeting and ask the customer value proposition question.

    Taylor Tran is CEO of customer-led strategy firm CVP Strategy Group.

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