The discussions revolving around my post, Moving From Value Creation To Value Co-Creation, has gotten pretty interesting. I thought I’d expand on some of the discussions that are occurring both on and offline.
We talk about creating value for our customers. It’s a critical part of winning business. But we have to remember, value is exchanged between parties. (This will start to give you a clue about the expression, “there is no such thing as a free lunch.”)
Value exchange was pretty easy to understand in the “old days.” We provided products and services that had a value proposition. Presumably, the benefits, the customer received from the product outweighed the risks of doing the project and the costs. So they got “value.” Part of those “costs” was the value they provided us in the form of payment (revenue for us).
A pretty straightforward view of value and value exchange and the revenue we get will always be a core part of the value exchange. Implicitly or explicitly, there is always an exchange in the creation and delivery of value. Sometimes, that exchange is not balanced—so someone starts to get upset. For example, the customer doesn’t believe the product is performing as expected. The value exchange equation becomes unbalanced, the customer is unhappy.
But as we move from the simple value propositions, to more complex value creation and value c0-creation ideas, it starts getting more complex. The notions of value and value exchange become quite rich and deep. In moves from an exchange of money for products and services to many other dimensions.
Even in these simple transactions, there is more than money exchanged–we may get great referrals from happy customers. Having good customers helps build our reputation and credibility in our markets.
Because we are a trusted supplier, we may get preferential treatment (explicit or implicit) in future opportunities. Long time, loyal customers may get greater access–support.
But value exchange in a “co-creation” scenario is even richer. It focuses on what we learn from each other. We provide insight to our customers, helping them discover new opportunities, areas in which they can improve their business, areas in which they can better serve their customers. We get a richer understanding of the problems and challenges they face, we understand changes in the markets they serve. We get better insight into what’s happening — enabling us to continue to develop our products and service, meeting new needs.
Working together, we can develop ideas neither of us have considered before. We may collaborate in developing solutions that serve our mutual customers–both deepening our relationship, but extending the entire value delivery chain. We may collaborate in developing solutions that help their suppliers serve them more effectively, extending deeply into their supply chains.
A great client enters into deep value exchange relationships with their customers to better understand and access the needs of their customers, co-creating new products to sell to them. It’ creates $100’s of millions in revenue for both.
Another great client, developed new tools with one of their largest clients. These tools improved their engineering design and development capabilities. That client started sharing the tools with their suppliers, improving their abilities to exchange design information, reducing overall development time and cost. Soon the suppliers were using these tools as well.
Value co-creation is a tremendous learning tool, for both us and our customer. Value co-creation enables us to go far beyond the value we create with each other but into our customer’s customers, into their suppliers, into our customers and our suppliers.
These are excellent observations David. Thank you.
At the heart of the discussion seems to be the need for salespeople, supported by their colleagues, to be more successful than their competitors at facilitating the co-creation of value. If sufficient co-created value emerges in the sales process, we all earn the chance to continue the conversation to co-create some more value together. We might eventually get to the point where we all make decisions to enter into a contract for our respective organisations to continue to co-create value in the longer term, AKA closing!
With all of this discussion about the wide range of areas of co-created value as opposed to a simple discussion of revenue and cost, what does this do to conventional methods of forecasting, assigning opportunity value and prioritising pipelines? How do we give our CFO the confidence that this approach is based in empirical evidence?
Historically of course, this has simply been “revenue x probability = expected revenue” within identified timeframe.
I am aware of strong arguments about the need to translate all areas of co-created value into net present value.
I would be very interested to learn what anybody has actually seen in practise. It seems that in addition to being expert process facilitators and outstanding learners, we now need mainstream sales people to develop very sophisticated financial awareness.
This implies a need for senior colleagues in finance to become much more involved in sales. Their role would be to help to capture and to quantify the best elements of co-created value and to help to develop and negotiate the business case for the proposals.
Peter, you have a lot of important points. I’ll address a couple:
1. Co-creation changes how we sell, consequently how we forecast. The interesting thing, is that if you are truly engaging the customer in co-creation, the probability of winning and the data you look at to assess the opportunity is probably richer and of higher quality than we use traditionally (look at the dismal data on forecast accuracy).
2, Developing sophisticated financial awareness (at least for complex B2B Sales) is one of the most critical areas of skills development for sales professional. This needs to go far beyond traditional cost benefit analysis, but on impact. We can never be successful in co creation unless we have those skills.