Knowledge Management – The way forward.

The source of a sustainable competitive advantage for any organization is derived from the access and subsequent exploitation of resources, and today, knowledge is being heralded as the most important of such resources that is available to organizations (Drucker, 1993). For the larger and mature organizations, often process capability knowledge is the primary source of advantage, whereas for the organizations seeking to grow and out-grow competition, in addition to process capability knowledge, knowledge management focus would also include market knowledge, rapid product development, or the creation of knowledge through research. However, it is important to recognise that even mature organizations need to create knowledge to avoid falling into the stagnancy pit. This is exactly what knowledge management attempts to provide more succinctly to the organizations. Knowledge management aims are to create conditions under which competitive advantage can be maintained, by creating,  acquiring, retaining and exploiting the knowledge for the welfare of the organisation.

Knowledge management is the way organizations today are attempting to make the otherwise intangible knowledge tangible and distributable, throughout the organization, in search of the illusive competitive advantage. Today, in this evolving world where insights on data or business intelligence plays an extremely crucial role for the sustainable development of an organization, knowledge management has become a key area of focus.

Beckett et al. (2000) has provided an interesting framework by which many organizations are actually managing their data within with a growing focus to manage the data outside the organization also. Through research, the authors highlight how effective knowledge management can provide a wider scope of continuous improvement to obtain benefits for the parent organization, by providing higher quality information, better quality information, removing information asymmetry, and subsequently increasing the levels of organisational expertise which can be applied to it to create substantial improvements for the organization.

The sole focus of organizations today is to convert internalized tacit knowledge into explicit knowledge, so that it can be commoditized and less dependency is there on an individual for being the source of knowledge. With a high attrition rate in organizations across industry, it becomes extremely pertinent that knowledge once created within the organization stays inside the organization and does not become unusable once the creator of the same changes base, within or outside the organization. That is the sole objective of the initial knowledge management systems.

For improving the knowledge management practices within the organization, companies today are increasingly adopting rewards systems, collaborative systems, post-project reviews, knowledge mapping, establishing communities of practice with cross-project learning platforms, creating expert directories, competence management systems, best practice transfer, mentor-mentee relationships, knowledge fairs, formal knowledge repositories, measuring and reporting intellectual capital, knowledge brokers, social media and social network mining systems.

While it is important for organizations to understand the importance of knowledge management systems, even one aspect that many organizations often overlook is using the knowledge outside the boundaries of the organization, but within the value chain. Realizing this, the recent focus has been the development of customer knowledge management systems, where customer tacit knowledge is use to co-create value for the customer in the best possible way, and finally value for the company. Another group of stakeholders who are being introduced into the knowledge management realms are the supplier networks, where knowledge management is often used to create otherwise non-contactable value for the stakeholders. The way forward for knowledge management systems into the future is to capture the tacit knowledge outside the organization but within the value chain (and within multiple stakeholders) to create value for both.

Today, it is pertinent that all the senior executives of organizations realize the potential benefits of effective introduction and management of knowledge management systems, that can benefit the organization. Today, while organizations are facing increasing levels of competition due to the effects of greater competition, knowledge management provides an important way for organization to utilize the most valuable resource available to them, to gain competitive advantage.

Customer Knowledge Management

Coined in 2002 by García-Murillo and Annabi, customer knowledge management is the newest thing in the series of customer value management (See customer life time value management & customer network value management). Gathering,  managing,  and  sharing  customer  knowledge  can be a highly valuable  competitive  tool that  companies  and scholars have not yet considered to the extent possible it can be done. Today, the insights of the customers should be used right from the very beginning from the product development stage to the final stages of the product life cycle. García-Murillo and Annabi (2002) gives a pretty comprehensive framework of knowledge management, across the entire continuum, that a firm needs to practice throughout the  value chain to deliver value for the potential customers.

Having customer insights and managing the same through good processes and is important for getting  better and more timely design of new products and services; early warning of possible turbulence and competitive intelligence; customer commitment and loyalty; and deriving the maximum benefits from the synergy of collaboration. So how should one manage the insights customers may have effectively to draw the maximum value for the firm?

Today, a lot of informal knowledge lies in the knowledge portals available in the web.  There are so many blogs and online forums where there is a high level of potential customer engagement, through mutual exchanges of information and discussions. Knowledge management through the mining of such unstructured data is one of the surest way to capture the customer sentiments and knowledge. If the insights can be successfully incorporated into the processes while the firm is developing a product, it may be a sure gateway to success.

Today many companies are incorporating a higher degree of customer engagement activities in their relationship management strategies. It is being felt that active voice of a customer can have an effect beyond the customer’s lifetime value and the customer’s network value. The insights can be actually incorporated within the product finalization stage itself, so that the customer can be engaged and bound into a relationship, even before the product is formally launched into the market. Not only this tactic draws higher brand recognition, it paves the path for a higher relationship development of the firm with its customers. Gibbert et al. provides an excellent framework for managing the knowledge of customers through three focused strategies, namely, Prosumerism, Team based co-learning and mutual innovation.

• Alvin Toffler (1980) first used the expression “prosumer” to denote that the customer could fill the dual roles of producer and consumer. The CKM process transforms the customer into a co-value creator, endowing them with new competencies and benefaction opportunities.  It liberates the customer from the platform of only past, accumulated knowledge by stimulating the knowledge within them for the co-production of value.
• In team based co-learning, the inter-linkages with the customer base and their interactive joint learning with the customers require a higher level of engagement of the firm with the customers. Customer may be actively involved in the product refinement itself.
• Mutual innovation is possible when the firm actually starts incentivising the potential customers for the mutual creation of value. This is often feasible only if custom made products are being manufactured, and less feasible for standardized products.

In all the three cases, it is evident that there is immense benefits that can be reaped if customer knowledge management can be done to co-create value with the customers. The insights of the customers can be of extreme significance to sustainably market a product throughout the product life cycle. Hopefully, in the future, a higher degree of customer engagement will be available while developing the product itself and throughout the PLC curve.

Customer sentiment and Opinion Mining

Customer sentiment mining or opinion mining refers to the application of datamining techniques like natural language processing, computational linguistics, and text analytics to identify and extract subjective information from customer data like textual interactions (sms, emails), recorded phone calls (calls to CRM divisions) and more recently usage of products/services (website usage, etc).

There are many popular technology products for customer sentiment mining.

Typically, these products analyze e-mails and telephonic conversations to decide if it is a complaint or a query and forwards it to most suitable agent for immediate resolution thus increasing agent productivity. They can also perform both structured and unstructured data analysis to understand & quantify customer satisfaction, display customer details and past communication, prioritize complaints based on customer satisfaction level the value of the customer, update customer contact details in the data warehouse, and also helps to differentiate services to HNI and LNI clients.

Sometimes, these data-mining systems can even create customized email/sms/ automated phone call campaigns for the marketer to increase revenue from cross-selling and up-selling, analyze customer preferences post campaign-creation, analyze customer actions post email reading, generate reports to facilitate management decision making process (which can be integrated with the existing other report generation tools)and also helps to analyze productivity of agents and channels.

A feature-wise competitive analysis of the 15 most popular instruments available in the market for customer sentiment mining can be obtained on request to arpan.kumar.kar@gmail.com. The comparative report is easy to understand with charts implying a comparison of features an is priced $350 only.

Customer Lifetime Value management

Today “customer is the king” is the mantra for success for all marketing managers. But for actual decision making, the marketers (especially the relationship managers) are often poised with a simple challenge. They cannot meet the needs of of all the customers equally and satisfy them all.  So how should they prioritize how to satisfy the needs of the customer and by what means to select such customers?

The answer lies in the estimation of the customer’s lifetime value. Customer lifetime value ( CLV or CLTV ), or lifetime value (LTV), or lifetime customer value (LCV) is the net present value of the economic benefits (monetary returns in terms of cash flows) attributed to the relationship with a customer throughout his relationship with the company. The focus on customer lifetime value as a marketing metric is for placing a much greater emphasis on relationship marketing for improving customer service and long-term customer satisfaction, rather than on maximizing short-term sales.

So then, comes the big question, how do one estimate the Customer Lifetime value? The answer is presented to you diagrammatically below, in a simplified manner.

So what should be done to maximize the value from CLTV management? Let us discuss the same in this article step-wise.

1. First estimate your customer lifetime value for your entire customer base. This would enable you to make an estimate of the total revenue that the customer is likely to provide you if he/she stays with you throughout the estimated life-cycle of the product.
2. For each customer, estimate the possible churn probability at each stage and discount the CLTV value for each customer.
3. Segment the customers based on the discounted CLTV value into high net-worth individual (HNI) customers, medium net-worth individual (MNI) customers and Low net-worth individual (LNI) customers
4. Now, allocate your budget for marketing and relationship management likewise for each customer segment, to maximize the retentivity of every customer in the segment. Do remember that normally, every new customer acquisition is 5 times costlier than retaining an old customer, as had been found out through research. However, if the cost of retention of a singular customer (based on a case-to-case analysis) is more than the discounted CLTV, incentivising his churn is often a good strategy to optimize the negative effects of his network value and negative word of mouth viral effects.
5. Always try to ensure a greater deal of attention for maximizing customer satisfaction. A fully satisfied customer is likely to provide 5 times more economic value to the firm than a customer with a mid-level satisfaction level. It is also important to remember that it is better to let a customer with low satisfaction level churn rather than attempting to retain him, since such a customer has a negative return to the firm, from the customer’s network ( remember Customer Network Value? )

These are few of the necessary steps to ensure customer lifetime value maximization and optimal management of the same, through better resource allocation. Do let us know if you have any queries, we would be happy to resolve your problems.

Value Creation Strategy – Business Model

To create sustainable, long-term value for all the stakeholders of a firm, it is important to explicitly establish an appropriate stakeholder value target. However what would constitute the “success” condition for all the stakeholders of a firm would vary from the goals of individual stakeholder. For an investor in a firm, value may be seen as through higher market price of his stocks and bonds, where as, for a mid level worker, value may mean better returns in terms of satisfaction from the job, maybe in terms of pay grade improvements or in terms of job satisfaction. Although, what constitutes “value creation” may be dependent on stakeholder perception, for a generic strategic framework, there is a need to conceptualize a generic framework to achieve a target so the value may be created for the firm as a whole, in strict strategic sense.

The key to reach this target and achieve a sustainable competitive advantage is the alignment of business strategy, financial strategy, technology strategy, marketing strategy and investor strategies. One such model developed in strategic management literature is that of Strategy Maps.

In Strategic Maps framework, value is created through 3 main organizational resources, namely Human Capital, Information capital and Organization Capital.

As depicted in this model, value for a firm is essentially created through the interaction of  four processes, namely, “Operations management processes“, “Customer relationship management processes“, “Innovation processes” and “Regulatory and Social processes“. Under each process, there are lots of transaction level processes which create value. Monitoring and strategizing on the value creation of  transaction level processes is the functionality of Mid Level management in the organization which may be termed as “Ploy for Value Creation“. Focus here could be “Ploys” for improving cost structure or improving asset utilization within the firm. The objective at this level is to focus on productivity enhancing strategies.

For the executive senior management, strategy formulation for the purpose of “Value creation” would have a different focus. Their objective could be to expand the revenue opportunities through entering a new market ,  decide a growth strategy for a product or market, or focus on Business Diversification strategies. In short, the role of the executives would be to evaluate various growth strategies for the firm, which could lead to huge revenues and thus economic value creation in the near future, upon realization of the plan post implementation of the strategy.

There are many other strategic frameworks for the creation of value for businesses which have their individual merits and limitations.  Another popular framework for value creation is that of Prahlad et al. (2004)

Do let us know if you have any query.

 

Supply Chain Value Management

No doubt that the efficient management of the Supply Chain is crucial for any business, but the grasping question always comes is how does it create value for the firm? More still, how can that value be better managed so as to create competitive advantage for the firm?

While the Value Chain analysis as developed by Michael Porter in 1985 argues as being efficient for creating a sustainable platform for value generation for firms so that they may achieve competitive advantage in the industry, the proposition is not without major limitations, like all other popular frameworks in strategic management literature.

Theory of Economics is one of many possible ways to define and measure value. 

While operationalizing the definition of value, it is crucial to note whether the exchange that creates this economic value is between business entities i.e.  Business to Business (B2B) – or between a firm and a consumer – i.e., Business to Consumer (B2C).

Since Supply Chain is intrinsic to creation of economic value between business entities only, we focus on B2B value creation. There are 3 forms of value that is created in B2B type economic transactions that is widely accepted in strategic management literature focusing on Supply Chains.

1. Technical value, which is intrinsic to the resource being provided and occurs in almost every economic exchanges.
2. Organizational value, which is built upon the context of the exchange, and may derive from a range of factors such as ethical standards, prestige, reliability, and association.  This may help the organization get more than the normal economic value from the transactional point of view, in terms of helping the same to achieve some degree of competitive advantage.
3. Personal value, which is derived from the personal experiences and relationships involved in the exchange of resources and the benefits provided to the entities associated with the firms bounded by the economic exchange.

Value in supply chain gets created through the following processes:

1. Supply chain modeling must be done quantitatively and objectively. Understanding of the goals objectively is crucial for its success.
2. The major challenge in an excellent supply chain network is not to build a model but to model the sensitivity of one variable against others optimally. A simple model can work fine in many cases. However, supply chain experts (OR & Analytics Professionals) should be involved immediately when doing multi-layered inventory strategies, industrial engineers and operations.
3. The fundamental building blocks of work are the methods and standards for the tasks. Value creation occurs when the changing business dynamics can be effectively modeled regularly to drive maximum benefits. (remember the Theories of Constraints?)

So creating value from supply chain should be a major focus for all manufacturing companies.

This is crucial to improve the effectiveness and efficiency of not only the supply chain in particular, but for the overall firm productivity.

By the way, did you read the following articles?

• Complexity and Adaptivity of Buyer-Supplier Networks
• Information sharing in Buyer Supplier Relationships
• How to manage a Lean Supply Chain

These are few of our highly popular articles