Financial Statement Analysis 8-Hour Course Austin, TX October 29, 2009 Click Here

The Customer Quadrant

September 2009

The implementation of the balanced scorecard model continues! For the past few months—and for fascinating months to come —we have been working on creating a balanced scorecard/strategy map/strategic plan WHATEVER THE HECK YOU WANT TO CALL IT!

And we talked about how Kaplan and Norton, two Harvard professors, created a framework for creating a plan so that we don’t have to. We can lean on what they have worked with over and over and over to show us where our thinking is a little weak, or in my case weak and non-existent.

The strategy map has four components—finance, customer, internal business processes, and learning and growth—that relate to each other in the following order:

In order to have good financial results,

You have to have happy customers.

And in order to have happy customers,

You have to have smooth internal business processes.

And in order to have smooth internal business processes,

You have to have the people and the technology to pull the processes off.

In our last newsletter, I confessed that although I am a CPA and have written several texts on accounting and finance, I really didn’t think through the money aspect very thoroughly. So I used Kaplan and Norton’s model to help me decide which financial results I wanted.

But Kaplan and Norton successfully argue that good financial results are actually the result of having a happy customer. Well, until Kaplan and Norton came along, I was only thinking of myself and how my new business would benefit me and enhance my lifestyle. And you know what self-centered behavior usually ends up with—broken, crappy relationships.

So in order to have happy customers with whom I have a long and productive relationship—I must stop thinking only about what I want and make the relationship worth it for them to continue.

So, Kaplan and Norton have again come to our rescue by giving us facets of customer’s needs to consider. We don’t have to come up with this stuff ourselves.

Obviously, it would be much better if I would ask the customer. But I have been reading a book by Malcolm Gladwell called Blink, in which he argues that you can have as many customer focus groups as you can manage, but they are usually futile because customers are unable to accurately define what they want. Case in point, he tells the story of the New Coke flop, where consumers said again and again in taste tests that they preferred the taste of New Coke to Pepsi.

When it came time to actually buy the stuff, the consumers revolted and demanded old Coke back. Seems that customers prefer a sweeter soda in taste tests, but don’t want to drink 16 ounces of it repeatedly.

So, after reading Gladwell’s assertions, I don’t feel that bad about not holding a focus group. I’ll find out soon enough what works for my customers and what doesn’t, won’t I?

Here are the product or service attributes that Kaplan and Norton lay out for us to consider. Is the customer primarily concerned with:

• Price? I certainly hope not! I do not want to play the role of “Low Cost Leader” by any means. Several CPE providers offer 1000 hours of CPE on disk for $99. I’ll never win that game. And because I am so niche-y—Government Auditing—I think I will price my products at a rate that a government auditor can afford, but not too low. I can’t price at the bottom of the scale because I won’t have a very high volume of sales (for a discussion of the tradeoff between margins and volume, see April – June 2007 newsletters at www.happycashflow.com/archives.html) .
• Quality? Yes. I think this is a major concern. I need to stay current with all standards and techniques and make sure that my products reflect that. Another aspect of quality for me is readability and enjoyability. Just because something is technically correct does not mean that it is hard to read or wade through. I want my readers to occasionally giggle to themselves and think when they are done with a chapter, “Hey, that wasn’t so bad. I learned a few things from that.”
• Availability? Yes, this is another thing online learning offers that live seminars do not. You can get the information you need when you need it, without having to wait. You also don’t have to do it during normal working hours. So I need to set things up so that even if I am sleeping or on the road, the student can still get their classes done. WAIT—did you catch that? I was thinking of myself again. Rephrase that… I want to set things up so that the student can have access whenever they want it—at home, at work, on the road, at the coffee shop. How selfless of me.
• Selection? Customers will come to me once, but won’t be able to come back unless I offer a variety of courses. So far, I have five products. I’ll have to work hard to get new products out frequently so that auditors will have a variety to choose from. I also need to find other authors, and make sure these other authors are not horribly boring.
• Functionality? My payment and quiz software had better rock and be very easy to use or I will lose customers. This is much harder than it sounds. I can’t buy a canned technology that takes care of all of this.
• Relationship
• Service? As I mentioned in previous newsletters, the less I am in touch with the customer, the more successful I will view the whole business to be. But again, I am thinking of myself and my frustration when an eighty-year-old man who doesn’t have an email address wants to take a computer-based training course. Maybe I just need to suck it up a bit and put on my big-girl pants? Let me think about this one.
• Partnership? I do have some affinity with other providers of goodies for government auditors. I should be able to leverage my marketing through these partners, just as they can leverage their marketing through me.
• Image
• Brand? Will my customers buy from me because it will be cooler to do that than it is to buy from another provider? I don’t think so. No one wears the name of the CPE provider on the back pocket of their jeans.
  
  I am so brand-unconscious that I recently drove my father to distraction. He accidentally left his MontBlanc pen in my car—the one my brother got for him in France for $300—and he looked and looked and looked for it. He reasoned that if I had found it for him, I would have given him a call to see if it was his. I had no idea what I was looking at, so I never called him. I thought it just a regular pen,  and kept it for months, letting my kids doodle with it in the backseat of the car. Luckily they didn’t take it out and throw it in their toy box or something worse.
  
  I returned the pen to him recently and he recommended that I get one because they are so impressive. In his business, yes it is a good idea to be impressive. In government, carrying around a MontBlanc pen will make you look like a pretentious jerk. So my brand will have to scream practicality and fun at the same time. Hmmm. Might not be able to pull that off. Maybe I am sort of like a slinky. Not too expensive, but pretty fun as toys go. If you have a better analogy for branding, I’m open to hearing it! Write to me at leita@yellowbook-cpe.com.

Kaplan and Norton recommend that you combine the top items from your list of customer requirements above to develop an overall market-leadership strategy. Are you trying to lead by:

• Providing the best total cost?
• Acting as product leader?
• Providing the complete customer solution?
• Creating a system lock-in?

Wal-Mart and Dell are best total cost leaders. If a customer just wants a basic product and wants it as cheaply as possible, they go to Wal-Mart or Dell. Not to Neiman Marcus and Apple.

Versace and Apple are product leaders and as such, they charge more for their products. If you want the best of the best, you go to them and are willing to pay for it.

IBM can provide a complete customer solution. If you need anything regarding information technology—software, hardware, training, consulting, data security, data warehousing, etc. etc. etc., you can go to them to get what you need.

And Microsoft is operating with a system lock-in. The vast majority of the world uses Microsoft operating systems. In this position, you have the power to set your own price. Of course, this position seldom lasts for long. Google is also developing an operating system to tap in to part of this market.

What do I want to be? I guess my best fit would be product leader. This will involve me really knowing my stuff and quickly conveying that to my customers. In this position, my main concerns from the list of customer desires would be quality, availability and selection, which are pretty much what I ended up with in the analysis.

I could also provide complete customer solutions. If you need CPE in governmental auditing, I can get it for you. Live, self-study, webinars, etc. I like this strategy also.

Good thing I am in this for the long haul, huh? All of this is going to take me a while! Maybe in ten years I’ll be where I want to be. I’ll be fifty-five and sitting pretty… I can dream, can’t I?

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Leita Hart-Fanta, CPA, CGFM
Resides in Austin, Texas and can be reached at www.happycashflow.com