Magazine article Financial Management (UK)

The Consumer Association: One Reason Why Traditional Approaches to Business Planning Often Fail to Deliver Is That Companies Aren't Nearly as Customer-Focused as They'd like to Think. Mike Walker Ventures beyond the Balanced Scorecard with Customer-Driven Planning and Activity-Based Costing. (Finance Customer-Driven Planning)

Magazine article Financial Management (UK)

The Consumer Association: One Reason Why Traditional Approaches to Business Planning Often Fail to Deliver Is That Companies Aren't Nearly as Customer-Focused as They'd like to Think. Mike Walker Ventures beyond the Balanced Scorecard with Customer-Driven Planning and Activity-Based Costing. (Finance Customer-Driven Planning)

Article excerpt

A critical issue facing all businesses is how to deliver superior value to their customers at the appropriate cost. The customer-driven approach to business planning provides a logical process that systematically maximises value for both customers and shareholders, and it uncovers the critical measures for the balanced scorecard. Activity-based costing (ABC) supports decision-making by analysing cost and value by attribute for external and internal cost objects.

Traditional planning approaches do not seem to be working. Three-quarters of managers questioned in a 1999 survey in Harvard Business Review, for instance, thought that their companies' planning processes were unsatisfactory. Robert Kaplan and David Norton, the developers of the balanced scorecard, state that a business should "start by translating its unique strategy into a balanced set of key objectives, which can be broken down into operational terms". Yet it can be argued that the balanced scorecard is an effective way of measuring strategy rather than a means of deciding strategy.

One problem is that businesses are not truly customer-orientated. Four decades ago Ted Levitt, professor of business administration at Harvard, complained that industry "only researches the customer's preferences between the kind of things which it has already decided to offer". Unfortunately, many organisations still don't obtain or use solid customer data because they think they already know what the customer wants. In fact, this "fuzzy front end" is a major cause of business failure.

Customer-driven planning techniques that were first developed in Japan in the 1960s as quality function deployment (QFD) have now been adopted around the world, especially by manufacturers, defence companies and governmental organisations. QFD is used for variety of applications, including product, business and process development, planning Six Sigma and software design. Its users include AT&T, DEC, Kodak, General Motors, Hewlett-Packard, Kimberley-Clark, Motorola, Procter & Gamble and Toyota.

The CD-MAP process has adapted and enhanced QFD to integrate it with market research and market positioning, strategic analysis and policy deployment. The process involves both qualitative and quantitative customer research techniques to provide a deeper understanding of the marketplace. It also uses neuro-linguistic programming techniques to understand the customer and identify other relevant issues. Quantitative research is then used to provide statistically valid information on customers' priorities and perceptions in each major customer segment.

The process then analyses the data to solve the fuzzy front end by determining the precise market position that will best achieve the organisation's vision. Business planning without first determining this position is really a ease of "ready, fire, aim"--if you don't know what you're aiming at, you're highly unlikely to hit it. Market positioning is in fact the core of strategy. Only when this is decided can operating and functional strategies be determined and deployed. The logical planning sequence is therefore vision, market positioning, enabling strategies and then action planning.

Traditional planning approaches often only include market positioning as vague thoughts about how products and services will be sold, which is worse than useless. There are many positions available in the marketplace and the trick is to find one that optimises your organisation's advantages. The devil is in the detail, so it's important to specify exactly which customer groups should be targeted (market segmentation), the superior value in the product or service that will maximise the organisation's competitive advantages (the value proposition) and the focus of marketing communications. In the private sector, "superior value" translates into "delivering more value than the competition", while in the public sector it means delivering more value than before. …

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