To Many Companies, Value is Like Bald Men Arguing Over a Comb

Not relevant, inconsequential and a mere abstraction. Value is something that is talked about, written about and thrown about as part of many quality deployments.  But it is something that is seldom measured.  And, lacking the measurement capability, it loses its management power.

Many enterprises are still product focused and not market focused.  In the absence of a direct line of sight to the market, value and quality are diminished as a management goal.  Quality becomes conformance and value becomes economic value to the firm – not the customer.

Value is a strong leading indicator of market share and top line revenue growth.   It is essential in the development of strategies to grow the business.  The market’s definition of value becomes an information platform for directing the different strategic and operational activities of the fir.  Market focused organizations that listen to the voice of the market (VOM) are actually inviting the buyer to the planning and management table.  These are the firms that are best in market – they are the market leaders, not the followers.  They are the disruptors that change the way an industry operates and subsequently, they dictate the terms of competition.

Followers embrace the contented theory of consumer behavior that posits the preeminence of customer satisfaction – a happy customer is a loyal customer.  This is a myth that is continually debunked by organizations that question the conventional wisdom and challenge the herd mentality.  They are looking for innovative ways to run their companies – especially after what they had been doing wasn’t working.  Why keep spending money on solutions that don’t solve problems.

American businesses have reached a decision point in their operational evolution.  They have to decide whether they are ready to compete or play catch up.  In global markets the one driver of business is value – the interaction of quality with price.  Offering superior quality at a fair and competitive price is the recipe for dominating markets.  This is a universal truism – not a current fad.  Adam Smith in Wealth of Nations talks about the importance of value.  Basic business students learn that value is the essence of any exchange – the buyer is willing to part with money in exchange for a product or service that provides superior quality at a good price.  He or she will assess the purchase by asking a simple but incredibly important question – “Is the product or service worth it?”  Failure to pass the worth it test means that your brand or brands are relegated to the poor value heap that has been populated by such iconic companies as Kmart, Ford, Quasar, and others too many to mention.

Value is a powerful force that continually reshapes companies, markets and industries.  Either you learn to manage value or you become of victim of value.  The first step is to develop the capability to measure it and with this capability comes the additional capacity to manage it.  What will differentiate companies in the future will be those that are value leaders from those that, like bald men arguing over a comb, treat it as an abstraction.

Expand Supply Chain Thinking to Include Value

Supply chains are occupying a significant portion of news lately.  I assume that this simply is reflective of the concerns that managements have regarding how to manage these systems.   There are a couple of issues here that I think need further comment.

First is the ability of supply chains to add to the manufacturer’s competitive value proposition and drive further gains in market share.  Value is the best predictor of market share gains.  It drives share because of its ability to attract new customers and keep current customers.  These are the two components of market share.

Many manufacturers are product focused and fail to understand that value is a flow that runs throughout the manufacturing system and to the distribution system to the market.  Their assumption that value at the point of production automatically equates to value at the point of consumption is erroneous and inhibiting.  Their focus is solely on the product and not other factors that are incredibly important to buyers such as the sales experience (at the dealer level), product support, parts availability (in a timely manner), field service, shop service, warranty, billing, etc.

Currently, or so it seems to me, the issue of supply chain management has focused principally on the cost aspects of supply chain management rather than on the alignment of the supply chain with the rest of the value delivery system.  In other words, how does the supply chain drive market share gains?  This will of course, vary from industry to industry and company to company but aligning the supply chain in a value adding capacity offers an opportunity for a differential value advantage that cannot be readily neutralized, promising best in market status to the firm willing to take on the challenge.  Difficult?  Yes!  Innovative? Indeed!

The second issue has to do with the inputs that the supply chain provides the manufacturer.  Typically these include factors such as components, parts, materials, etc. – the stuff of production.  Again, I would suggest that this represents a limiting product focus.  But what about market information?  Why isn’t this part of the supply chain conversation?  Why aren’t manufacturers concerned about managing this incredibly important component to their strategic and operational well being?  I think I have already answered my own question.  They are product focused and not market focused.

Here’s the kind of information that their supply chain management efforts should focus on:

• How does the market define value?
• How does my value proposition compare to the value propositions of my competitors?
• If I am not a leader, what do I need to improve?
• If I am a leader, how do I leverage my leadership position to dominate the markets that I have targeted?
• What information systems do I need to deploy to monitor my value proposition?

Think about it.  Why is information that can drive my market share not part of my supply chain concerns when a part is?

Ten Symptoms of a Market Follower

No company, at its inception, seeks to be an also ran – a follower.  There is only one leader and to become a leader you have to be able to answer the following questions.  If you can’t, you are a follower.

1. Market followers can not define how the market defines quality.

2.  Market followers don’t know how important quality is to price in the market’s buying proposition.

3.  Market followers do not know how the market defines value.

4.  Market followers do not know what their competitive value proposition is.

5.  Market followers do not know what their competitors’ value propositions are.

6.  Market followers do not understand competitive value gaps and what is causing them.

7.  Market followers do not know how loyal their customer base is.

8.  Market followers do not know how vulnerable their competition is and what the basis of that vulnerability is.

9.  Market followers don’t know whether any changes they make are actually showing up in the market place.

10.  Market followers do not know how willing their customers are to recommend your products or services to others.

Are you a market follower?

 

Inside a Six Sigma marketing Kaizen

Whereas many traditional kaizans are focused on an internalized small improvement opportunity, SSM kaizans are outward looking and are focused on how the organization can grow its market share in targeted product/markets.  These events catalyze an ongoing process to continuously improve the organization’s value delivery system.  Value is the best leading indicator of market share and top line revenue gains.

The kaizen begins with a review of the voice of the market delivered through a competitive value model such as the one shown below.

This is a value model for wireless telecom services offered in a regional market.    This model identifies and prioritizes the critical – to – quality factors (customer focus, technical competence, etc.) that form the value equation.  Customer focus (.394) is the most important CTQ followed by technical competence (.361), product features (.148) and billing (.098).  This information is specific and highly actionable and capable of driving enhancements and improvements in the organization’s competitive value proposition.

It is market focused meaning that it captures the market’s evaluation of the comparative performance of the different competitors operating within a specific product/market.



These performance evaluations highlight the advantages and disadvantages (strengths and weaknesses) of the organization’s quality and value offering.  But they do something even more important.  They target people (salespeople, order processors, delivery people, etc.), products (handsets, antennae) and process issues (order processing, delivery, repair, etc.) that lead to improvement and enhancement opportunities.  If an organization (AT&T) is a leader then the kaizen will provide direction for leveraging their leadership position and increasing its dominance in the product/market by extending their value advantage over rivals.  If the organization is a challenger or a follower (XYZ) focus is on improving specific people, product or process capabilities to close the value gap between itself and the product/market leader.

Linking the different CTQs to a value stream highlights areas where either improvements or enhancements can be made.  These changes are made at the direction of the voice of the market, not at the direction of some internal dictum.  In effect, you are inviting the market to take a place in the kaizen event and allowing them to tell you where you need to make changes in order to provide superior value delivery.

The Six Sigma marketing kaizen is a powerful approach for improving and enhancing the organization’s brand value in targeted product/markets.  But it does something more.  It catalyzes employee effort and concentrates their collective focus on value driven management to grow market share.  In this case, a growth of over 5% in one year!

Value Leaders Dominate Markets

In a new article appearing on the IndustryWeek website, “Viewpoint: North American Manufacturers Missing Out on International Opportunities”, Dr. Luca Majocchi, Managing Director Meccano S.p.A.; Dr. Alberto Sacchi, President, Federmacchine; Dr. Luigi Serio, Director, Fondazione Istud warn that American manufacturers are missing out on international opportunities.  This is particularly true, according to the authors, regarding small to medium sized American manufacturers.

This has been a concern of mine for a long time and I think the authors of the study are dead on.  In fact, in my book, Best in Market: The New Imperative for American Manufacturing, I argue that a new business model, one that focuses on value creation and globalization, has supplanted the older domestic paradigm.

Amid all sorts of discussion regarding tax rates, trade agreements, enterprise zones, etc. one thing remains constant.  American manufacturers, to be successful and dominate in those markets that they are targeting must learn how to identify, create and deliver value better than their competitors.

Value is a universal selling proposition.  Buyers world wide are looking for a product or service that is “worth it” or one that offers the “best deal”.  This will change from product/market to product/market and U.S. manufacturers must develop the capacity to understand how these markets define value.  Fortunately, the techniques exist and in fact, have been developed right here in the U.S.  There is an available differential advantage waiting for those manufacturers who want to remain relevant and vibrant within the global economy.

These value measurement and management techniques are at the core of Six Sigma Marketing – a fact based, disciplined approach for growing market share in targeted product/markets by providing superior value.  Tools such as the product/market matrix, the Competitive Value Model and the Competitive Value Matrix are essential to defining value and understanding the value gaps that individual brands have and how to grow those gaps or shrink them, depending on the strategic situation.

We have known for quite some time the power of value to drive market share and top line revenues.  Now is the time to unleash the power of value before other countries learn how to use it.  As the authors of the study point out, “ But waiting is not an option, given the fact that competitors in China, India, Brazil and other emerging economies are moving fast to fill the void.”

US Manufacturing Needs Six Sigma Marketing

There is grave concern about “Made in America” especially during this current economic downturn.  There is little doubt that the manufacturing sector in the US will rebound.  But when they do they will face an additional challenge – How to catalyze demand for their products?

Six Sigma has reached its limits as a tool for reducing defects and costs.  US productivity is unmatched.  However, organizations must grow in order to survive.  And, many manufacturing organizations are not comfortable with the means of that growth.

As a consultant to the Maryland World Class Manufacturing Consortium for several years, I have identified several problems that limit manufacturing growth.  Granted the universe is somewhat limited, but I would bet many of these issues are also relevant to manufacturers across the board.

First, many manufacturers do not understand markets and market segments.  During one session with manufacturing executives, I asked, “How many of you rely upon market segmentation?”  Few raised their hand and one volunteered, “Segmentation has not helped us at all!”  I followed with, “What segments have you identified?”  Response:  “locomotive, big truck, and specialty vehicles.”  I pointed out that these are products and not markets.  Markets are made up of people who buy products.  No wonder their segmentation did not work.

Second, many manufacturers get wrapped around their tails when they think about products and product lines.  Example, one manufacturer of coatings considers the following as three different product lines:  1) low cost, 2) medium cost, 3) high cost.  Here again, this is symptomatic of a product focus.  Substitutability is the hallmark of a product line.  That is, products within a product line are substitutable, products between product lines are not.

What is the upshot of this lack of understanding of markets and products?  It makes the planning and deployment of a marketing plan virtually impossible.  Six Sigma Marketing begins with a Define stage in which the organization identifies and prioritizes specific product/markets for targeting.  Products and markets comprise the two factors that drive revenues and market share – the principal objective of Six Sigma Marketing.

Third, the culture of many manufacturing companies blinds them to specific opportunities to grow the business on a systematic basis.  In Mississippi where I live they have a saying, “Even a blind hog will root up an acorn.”  A product or production focus blinds many manufacturers to the dynamics of markets making growth serendipitous instead of systematic.  Six Sigma Marketing impels the organization to focus on markets and their value needs.  Value is the best leading indicator of market share and, understanding the organization’s competitive value proposition and the product/markets’ CTQ (critical-to-quality) factors provides highly actionable information for growing share and achieving market dominance.  Manufacturing firms are typically dominated by engineers who traditionally have an internal product focus.  Seeing beyond the walls of the factory is difficult if not impossible.

Fourth, because of the internal product focus, value is defined from an equally internal product perspective.  Value is often defined as product features and tends to ignore some of the more important aspects of the market’s value equation.  Issues such as product support, the role of dealers, agents, and brokers, parts availability, and technical support often surface as key CTQs.  Too often this myopic view of value can lead to over-engineering the product and putting an upward pressure on costs and subsequently price.

Production depends on consumption, a fundamental relationship in the macro exchange process.  Manufacturers will have to learn how to grow and serve their markets if they are going to survive in the long term.  Six Sigma Marketing provides a familiar approach for doing so.  It is a systematic, disciplined approach that relies on data to grow their market share by providing superior value to targeted product/markets.  The seeds of the decline of the US auto industry were sown decades ago because of their failure to understand value and provide the necessary quality that their markets demanded.  Ford admitted this value and quality problem in the tag line that was found on all of their ads – “At Ford, Quality is Job One”.  Unfortunately, it’s taken a long time to convince the car buying public of this!

Six Sigma 3.0 is Six Sigma Marketing

Don Lindemann (DuPont) and Gene Lieb (Customer Design Support, Inc.) teamed up to offer their thoughts on what they call Six Sigma 3.0 but what I have been calling Six Sigma marketing.  The essence of their insights appeared in iSixSigma Magazine (November/December 2010) and focuses on four elements:

1. Returning to a focus on Customer Value
2. Sharpening the competitive view
3. Communicating quality
4. Driving and enabling change

I think they are dead on, if not a bit tardy.  Six Sigma Marketing is a fact based, disciplined approach for growing market share in targeted product/markets by providing superior value.  IT has evolved in response to an inability on the part of traditional Six Sigma to respond to the needs of real value creation and delivery and growing top line revenues.  Traditional Six Sigma does not have the tools necessary to provide the necessary information to drive value enhancement. Critical to value creation and delivery is the ability to drive the voice of the market (notice I didn’t say voice of the customer) to those critical organizational areas that create and deliver value.  This information has to be in a form that uses can actually deploy it to change people, product and process improvements and enhancements to manage the organization’s competitive value proposition.

Six Sigma Marketing employs a set of unique value measurement and management tools that drive market share gains.  These tools include:

• The product/market matrix that focuses attention on the key growth opportunities facing the organization
• The Competitive Value Model that captures the voice of the market and how buyers in the targeted product/markets define value.
• The Competitive Value Matrix that identifies value gaps and provides opportunities for value improvement or enhancement.
• The Customer Loyalty Matrix that asses the degree and nature of loyalty of an organization’s customer base.

These are powerful tools that will require BBs and MBBs to adjust their thinking and analytic capabilities to turn the power of Six Sigma from an internal focus on cost and defect reduction to an external focus on growing market share.  The companies that master Six Sigma Marketing will have a significant advantage over their competitors.  Whether you call it Six Sigma 3.0 or Six Sigma Marketing, it is the next generation of quality management.  Get on board.

To learn more about Six Sigma Marketing check out www.6sigmarketing.com and www.drivingmarketshare.com.