Navigating Today's Waters

To reach your destination in business, the right navigational measures are crucial

Most business leaders use profit as the North Star, the guiding metric on their voyage across the B2B marketplace. But reliance on profit can lead in the wrong direction and cause people to do the wrong things, the result of which is diminished performance.

It is of course natural for business leaders to be inclined toward a cost and operations orientation. But that exposes them to several potential pitfalls, among them are these:

  • Profit is a lagging indicator. It represents actions taken some time in the past, sometimes in the distant past. Major organizations such as Johnson Controls ate millions of dollars in unecessary costs in terms of freight charges for years before they were identified as an unecessary drain of resources.
  • Profit outcomes give no indication about the fundamental units of competitive advantage, activities, that are contributing to customer value and which are non-value-added and therefore draining valuable resources.
  • Though profit is measured in dollars, the ingredients that make up the recipe for successful customer experiences are not. Many of the major factors that contribute to customer value are poorly captured by traditional financial accounting methods.

Where companies have made True North a well designed customer perspective that defines the objectives of the value proposition, a better way to manage can emerge:

  • Understanding of the needs of customers is improved by visualizing the array of interacting factors by which their decisions are made.
  • The cause and effect linkages between the customer perspective and the links of the value stream can be visualized which will identify inefficiencies and constraints that limit ability to meet customer expectations at the lowest cost.
  • Outcome metrics are balanced with leading indicators that are the driver activities which produce the desired outcomes
  • A discovery driven management approach can be instituted that will utilize feedback from the leading indicators to engage the organization in limited experimentation to find new inroads to customer engagement. Opportunities to increase sales through incremental initiatives could be explored for example.

What to work on and where resources are allocated is much easier because decisions can be made on the basis of impact on sales.

If an executive can come up with a breakthrough in the way the business performs a process, that can represent as an important business innovation as the development of a whole new offering.

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