Joint Customer Planning Creates Real Value
With the MTAA Value Summit quickly approaching and World Book Day next week, I thought I would share an extract from my successful book with Gary Peacock: Managing B2B customers you can’t afford to lose. This extract concentrates on creating value through joint partnerships.
When Strategic Account Management is applied effectively with the right accounts, the long-term benefits to both the account and the supplier are considerable. The leverage created when both work together towards a set of shared strategic objectives for both businesses, results in seemingly impossible problems being solved, and at a faster rate. Working this way enables each to rise above the primal desire to deal in a relationship principally based on traditional competitive product and pricing strategies. Instead, these companies strive to work together in a relationship pursuing long-term high profitability for both.
The strategic accounts that adopt this strategy of jointly creating value create significant long-term success. Having many suppliers dedicated to improving their profitability – their own as well as those of their strategic suppliers builds a competitive advantage. So, enlightened customers engaging in such value adding relationships with suppliers are typically at the forefront of their industries.
Joint planning with key customers not only looks at value differently, but often creates some real R&D opportunities. I reflect on my days at 3M and our best new product ideas came from our top customers.
While partner customers often pay premium prices for their suppliers’ products and services, their cost of doing business together may be some of the lowest in the industry. Selecting these suppliers represents the best, most profitable business decisions that these customers can make to build market share, revenues and profitability for today and for the long-term.
Suppliers also gain in the long-term. As they understand their customers more deeply and develop a track record of helping their accounts improve their business results, they are the logical beneficiary of new opportunities that emerge. They are more likely to win these new opportunities and win them at higher prices. It is also more likely that their strategic accounts will become promoters and active referrers for the strategic supplier, helping them win more business with new customers over time. The multiplier effect of working with your strategic accounts differently and helping them improve their business results is enormous.
In most buyer-supplier relationships the responsibility to drive more strategic engagement is left to the seller. Increasingly however, buying organisations are recognising the latent potential in their supplier base. The global giant Proctor and Gamble has taken this approach beyond their existing suppliers to source ideas from millions of experts around the world.
Case Study – Proctor & Gamble
In 2000, realising that P&G couldn’t meet its growth objectives by spending more and more on R&D for less and less payoff, the newly appointed CEO A.G. Lafley, challenged P&G to reinvent the company’s innovation business model.
P&G’s best innovations had come from connecting ideas across internal businesses. After studying the performance of a few products they’d acquired beyond their own labs, they knew that external connections could produce highly profitable innovations too. Betting that these connections were the key to future growth, Lafley set a goal to acquire 50% of innovations outside the company.
The strategy wasn’t to replace the capabilities of P&G’s 7,500 R&D and support staff, but to better leverage them. Half of P&G’s new products, Lafley said, would come from their own labs, and half would come through external connections. It was, and still is, a radical idea. As they studied outside sources of innovation, P&G estimated that for every researcher there were 200 scientists or engineers elsewhere in the world. 1.5 million people whose talents they could potentially use.
P&G redefined and re-perceived its R&D organisation – from 7,500 people inside to 7,500 plus 1.5 million outside. It was against this backdrop that P&G created its ‘connect and develop’ innovation model. With a clear sense of consumers’ needs, they could identify promising ideas throughout the world and apply their own R&D, manufacturing, marketing, and purchasing capabilities to them to create better and cheaper products, faster.
The model works. Today, more than 35% of P&G’s new products in market have elements that originated from outside P&G, up from 15% in 2000. And 45% of the initiatives in their product development portfolio have key elements that were discovered externally.
Through connect and develop – along with improvements in other aspects of innovation related to product cost, design, and marketing – R&D productivity has increased by nearly 60%. Their innovation success rate has more than doubled, while the cost of innovation has fallen. R&D investment as a percentage of sales reduced from 4.8% in 2000 to 3.4%. And, in the last two years, they’ve launched more than 100 new products for which some aspects of execution came from outside the company.
Source: Huston, L. & Sakkab,N. (2006) Connect and Develop: Inside Proctor and Gambles new model for innovation. Harvard Business Review.
To create long-term strategic relationships with your most important accounts, you need to have a problem solving mindset. Focus on how you can help your strategic accounts improve their business results.