VALUE MAPPING
FACTSHEET
Businesses are using value mapping to focus their efforts, cut costs
and deliver better products and services.
Introduction
The most successful and most profitable businesses are those
that respond to the needs of their stakeholders.
Value mapping aims to help you understand why your
customers buy from you and to identify which of your
suppliers are most valuable to your business.
Read on for more on value mapping and what it could do for
your business.
INTRODUCTION
1
WHAT IS VALUE MAPPING?
1
ASSESSING
YOUR CUSTOMERS
2
ASSESSING
YOUR SUPPLIERS
6
VALUE MAPPING
FOR YOUR BUSINESS
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FURTHER HELP AND ADVICE 14
Who this document is for: anyone interested in improving their
procurement and concentrating on their most profitable customers.
It covers: what value mapping is, its role in procurement and
sales, and how it can help your business become more profitable.
What is value mapping?
Definition
Value mapping is a way of understanding your stakeholders
to enable you to target your most profitable customers, forge
better relationships with suppliers and reduce costs.
It also aims to help you focus your business’s efforts on
creating value where it is most relevant to your stakeholders.
In other words, it helps you to deliver what your customers
and your suppliers want.
The concept
Who and what are critical to your business’s performance?
It seems like a straightforward question, but the attempt to
answer it goes right to the heart of business management.
It raises a whole range of secondary questions like: why do
your customers choose you over your competitors? Which
of your suppliers are most important to your business?
And how can you improve productivity?
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VALUE MAPPING
FACTSHEET
Imagine a business. Sales are strong, but not growing as fast you’d like.
Employee morale is moderate and several senior staff have left. You have
strong relationships with suppliers and good customer loyalty, but recent
technological changes in your industry have left you worried that your
competitors are going to eat into your market share.
So, where do you start? And which areas do you address first?
This brochure gives you a framework that you can use to tackle these
questions. It starts by looking at how you can evaluate your customers and
suppliers to find ways of improving your profitability before moving on to
how you make sure that your business is meeting your stakeholders’ needs.
The benefits
Businesses that have used value mapping have reported that the
benefits include:
●
increased business focus and productivity;
●
improved margins and profitability;
●
the identification of new revenues and clients;
●
improved customer loyalty;
●
improved profitability by identifying and concentrating on the most
profitable clients;
●
improved ability to raise capital for the business; and
●
greater awareness of the need for an exit strategy for business relationships.
Assessing your customers
Aren’t all customers equally valuable?
The straightforward answer is: no. While competitive prices, innovative
products and high levels of customer service are strongly associated with
business success, it’s a mistake to believe that you can keep all of your
customers equally happy, and profitable.
Some customers can seem, to put it bluntly, more trouble than they’re worth.
No matter how good your company, some customers will pay late, complain
regularly, change specifications without notice or make excessive demands
on your aftercare support. If you have customers like this, you need to review
their value to the company. Are they potentially profitable customers who
need handling differently? Or are they customers who will never be satisfied
and will always cost your business more than they should?
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VALUE MAPPING
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Even those customers who aren’t classic ‘problem customers’ may not be
hugely valuable to your business. Imagine if you ran a bank. One of your
customers is a wealthy executive who earns £70,000 a year and pays his salary
into a current account. He’s been with the bank for twenty years and considers
himself very loyal. On the face of it, he might sound like a valuable customer.
But, if he never runs an overdraft, he clears his credit card balance every month,
writes a lot of cheques, and prefers to visit his bank instead of using the online
services, then he’s unlikely to match the bank’s profile of a profitable customer.
What makes a customer valuable?
It is those who spend the most or buy most often? Is it those who complain
least or who buy your highest margin items? The answer will vary according to
a whole range of factors like your business model, your number of customers,
your profit margin etc.
Generally speaking, though, the first place to start is with profitability. In some
businesses, just a few customers can be responsible for almost all the profits.
Airlines are a good example: business travellers make up only a very small
percentage of the people on each flight, but the prices they pay make them by
far the most profitable customers for airlines.
Many business writers have applied Pareto’s theory of income distribution –
which claimed that 80% of income in a society will go to just 20% of people –
to business profitability. They say that 80% of a business’s profits are
generated by only 20% of customers. While this isn’t true of all businesses,
it highlights some important points:
●
Not all customers are equally valuable;
●
Simply increasing customer numbers is no guarantee of improved profitability;
●
Business have to identify and retain their key customers; and
●
Losing customers isn’t always bad, provided they’re your unprofitable ones.
CRM
Customer Relationship Management (CRM) is an increasing popular way of
identifying a company’s most profitable customers. It’s a business philosophy
that aims to gather and use information about your customers so that you
can improve the service that you offer, strengthen relationships with them
and identify opportunities to increase the amount of business that you do.
The centrepiece of a CRM programme is usually a customer database
supported by powerful analytical software that helps to highlight unseen
buying patterns or sales opportunities. You can read more about CRM on the
Achieving best practice in your business website.
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VALUE MAPPING
FACTSHEET
Understanding your customers
CRM is excellent at amalgamating your data and identifying opportunities for
cross- and up-selling. However, it doesn’t give you a real psychological insight
into what makes your customers tick – it only allows you to compare sales of
items already in your database. In other words, it doesn’t tell you how your
customers feel about every other purchasing option they have. Just because
they buy from you frequently doesn’t mean they are loyal and happy.
Typically, businesses will identify customers who purchase X amount of times
in a given period as being their most loyal. This doesn’t tell you anything about
their unmet needs or untapped potential profitability, though. It may be that
that repeat customers come to you simply because they dislike you least.
A great example is Dyson’s introduction of the ‘bagless’ vacuum cleaners.
For several decades, vacuum cleaner design changed vary little – with a
handful of big players offering similar products. Then the Dyson came
along and met an apparent need that other manufacturers had either not
recognised or not thought important. It became clear that a great many
buyers weren’t completely satisfied with the performance of their vacuum
cleaners and, in only a few years, Dyson seized a large share of the market
and forced the traditional market leaders to re-evaluate their products.
The customers that they had thought so loyal were simply waiting for
something better to come along.
Redefining your relationship
Getting more out of your customers, isn’t just about selling more to them.
Technology is making is easier than ever to change the nature of your
relationship with customers.
One of the many benefits of the internet, for example, is that businesses have been
able to introduce online ordering. Not only is this more convenience for customers,
but it allows the companies to shift much of the administrative burden to the buyer.
Customers will input their financial and delivery details directly onto your system,
without the need to speak to one of your salespeople or visit a branch or office.
This sharing of effort can dramatically reduce costs – and businesses can pass
some of the savings on to your customers.
This highlights another factor that makes some customers more valuable than
others – their open-mindedness and flexibility. If you can look at your
customers and identify which might be willing to adopt new ways of working,
they can help you pilot new systems and processes that can make your
business more efficient.
You can read more about e-business on the Achieving best practice in your
business website.
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VALUE MAPPING
FACTSHEET
New customers
If it’s important to understand your customers, it’s also important to recognise
that the most valuable customers may not yet be customers of yours.
What does this mean? Well, often efforts at value mapping customers are
restricted to reviewing and analysing existing customers.
Of course, as markets and competitor offerings change, and your client base
grows older, it may be that the customers who are potentially the most
profitable aren’t yet on your books. For example, as the music industry has
become more competitive, with the cost of promoting records rising, illegal
downloading increasing and the average age of record buyers falling, some
record companies have made a conscious decision to find new customers.
Sanctuary Records, for example, focuses on signing older artists whose back
catalogues it re-releases and repackages. The company then targets these at
an older age group who are less price-sensitive and more likely to buy
expensive box sets and re-mastered albums.
The lesson is that, like many decisions in business, you need to balance the
benefits of specialisation with the need for diversity. In other words, you have
to balance the risks of not identify your most valuable customers with the risks
of focusing too closely on them.
Valuable as they are, because customer complaints and compliments only tell
you how current customers feel, they shouldn’t be the sole measure of how
well you are delivering value.
What do customers value?
When you assess your customers’ value to you, you need also to be aware of
your value to them.
Keeping customers happy isn’t just about doing things quicker, cheaper and more
reliably. Purchases are complex psychological decisions that involve numerous
factors – not all of which are apparent to either the supplier or the customer.
To deliver improved value to them you need to try and understand the factors
that contribute to a purchasing decision. And this means trying to look beneath
the surface and identifying not just what your customers report that they care
about, but their unspoken needs as well.
Researching your customers
Businesses that spend money on branding and advertising sometimes lose
sight of the fact that customers often have only partial knowledge of their
business and have perceptions formed on the basis of a few key interactions
and experiences. In other words, how you present yourself and would like to
be seen is not the same as how you are actually seen.
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VALUE MAPPING
FACTSHEET
You have to ask a range of questions: who are your customers? What are they
like? Why do they choose you instead of your competitors? When and how do
they buy? What do they think about you? What needs and expectations must
you meet to earn their loyalty? And, which of these needs are most important?
Finding answers to these questions requires that you benchmark yourself
against your competitors; maintain a good knowledge of market
developments; and have a range of ways of getting information about your
customers. This can be anything from informal channels, like discussions at
trade shows, to more formal programmes like focus groups, written and email
surveys, personal interviews etc.
You can read about understanding your customers’ needs and ensuring that
your business is meeting them in the ‘Value mapping your business’ section
later on in the brochure.
Assessing your suppliers
How well do you know your suppliers?
Businesses spend vast sums on customer research – trying to better understand
their needs, their desires and their purchasing patterns. Generally, though,
businesses spend comparatively little on getting to know their suppliers.
Given how vital suppliers are, this is an area that needs addressing. If you
don’t know who your most valuable suppliers are or how important you are
to them, then you may be missing opportunities to cut costs and operate
more efficiently. You may also be running unnecessary risks.
What counts as value to you?
Before you can map your suppliers, you need to know what it is that you want
from them. While all value should ultimately be reflected in improved
profitability, the measures of value aren’t purely financial. Many businesses
assess their suppliers by measuring their contribution to some or all of the
following criteria: increase customer satisfaction, reducing total costs, reducing
time to market, product enhancement, innovation, risk sharing, and sustainable
development.
The right kind of relationship
When selecting and negotiating with suppliers, it’s vital that you understand
the relative importance of your business to them and their business to you.
Here a ‘customer preferencing analysis’ can help to establish how a potential
supplier views your business.
If your business is both valuable and attractive to your supplier then you’ll be
regarded as ‘core’ – a position that means your business is likely to be able to
negotiate better service and terms. Conversely, if the relative value and
attractiveness of a contract is low, you’ll be seen as a ‘nuisance’, which makes
good service less likely.
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VALUE MAPPING
FACTSHEET
You should perform a ‘customer preferencing analysis’ on each of your suppliers.
Attractiveness
of account
Customer preferencing
High
Development
Core
Nuisance
Exploitable
Low
Low
High
Relative value of business
Customer preferencing can be combined with a ‘supply positioning’ – which
helps establish the importance of the goods or services you are sourcing.
Supply positioning
High
Strategic
critical
Tactical
acquisition
Leverage
Risk
Bottleneck
Low
Low
High
Value
With a customer preferencing and supply positioning complete, you can look
at matching the right suppliers to the right supplies. For example, if your
supply positioning deems an input as ‘strategic critical’ then you’d want to
find a supplier who perceives your business as ‘core’. Or, if an input that has
high monetary value, but you regard it as having a low strategic risk to your
business, it is a ‘leverage’ situation – ie, you can use your purchasing power
to shop around for the best deal.
You can read more about customer preferencing and supply positioning on
the Chartered Institute of Purchasing and Supply’s website at www.cips.org.
Getting better deals
The more you know about your suppliers, the better informed your purchasing
decisions, and the great savings and service improvements you can secure.
It is, therefore, worth reviewing all your supplier business to try and unearth
information that might increase your ability to negotiate favourable terms.
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VALUE MAPPING
FACTSHEET
●
Check that different parts of your organisation aren’t unknowingly using the
same supplier.
●
Review supplier names and locations to reveal if you are using different
arms of the same company – sometimes larger organisations have separate
trading names for different services.
●
Research suppliers to see if two or more are parts of the same
corporate family.
●
Compare supplier and customer lists to see if some suppliers are also
customers. By comparing the value of sales and purchases you may be
able to give yourself greater leverage with them in negotiations.
●
Investigate what else your current suppliers offer, in case you can switch
more business to them and consolidate your account.
What should you look for in suppliers?
The following is a list of common criteria that businesses often use to
assess suppliers.
●
Management style – can you work with these people? You need to be sure
that you have a mutually compatible way of doing things. Conversely, if
you are assessing an existing supplier, you need to check that historical
relationships aren’t getting in the way of your business moving forward.
In other words, does your friendship with your supplier obscure the fact
that you are not longer getting exactly what you need from them?
●
Company culture – have they got the right ethos? Do they have the same
aims and goals as you? Are they as committed to quality, service and
innovation as you? Can you build the trust necessary to prosper together
and resolve equitably the inevitable snags and hitches in any business
relationship? Will they give you an SLA that meets your needs?
●
Competitiveness and value for money – how do they stand up against
their competitors? It’s worth mentioned at this point, that, increasingly,
businesses are using their competitors as suppliers – and forming
alliances and joint ventures in different markets to capitalise on specific
knowledge and capabilities.
●
Track record – do they have a history of delivery and a reputation for
reliability? With outsourcing an increasingly popular option, you may also
need to consider a supplier’s public image. For example, could a negative
public perception of your supplier tarnish your own business’s reputation?
●
Financial security – are they strong enough financially for you to be able to
depend on them? Credit check all your suppliers and don’t assume that large
organisations are necessarily more financially secure than small ones.
●
Quality systems – do they have the systems and processes in place to give
you the assurance that they can deliver what you need? Can they deliver
against a set of mutually agreed performance indicators? Are they accredited
by a performance management body, like ISO or Investors in People.
●
Innovation – are they receptive to change and willing to instigate it themselves?
Are they willing to improve their delivery system, plan collaboratively, or become
more flexible? Could you outsource some of your non-core functions to them?
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VALUE MAPPING
●
FACTSHEET
Location – how important is their proximity to you? Is transport time or ease
of face-to-face meeting important to you? Are you keen to be seen supporting
local businesses?
Value mapping and risk management
Like any strategy that seeks to concentrate the efforts of the business, value
mapping carries some risks.
Many businesses, for example, pursue the goal of supplier consolidation or
winnowing out unprofitable customers. While these can be enormously useful
for creating a much leaner, more focused and profitable business, they can
leave the business exposed.
A business with only a small number of suppliers, not matter how good they
are, could face greater problems if one of those suppliers goes bankrupt, is
acquired by another business or experiences some kind of catastrophe – like a
warehouse fire. Likewise, a business that seeks to acquire only a narrow profile
of customer may be more vulnerable if a competitor produces a new offering.
Because value mapping, if done right, will change your business, the decisions
you take need to be taken with on eye on risk management.
Risk management aims to identify and control, or minimise, potential problems
that a project or policy might face. Using risk analysis, cost benefit analysis
and other tools, risk management aims to help businesses plan a response to
the potential problem – through such things as insurance, security or changes
to procedures.
Of course, the greater the level of risk, the higher the potential reward.
This means that eliminating all risk can be costly or stifling for business –
which is itself a form of risk.
You can read more about risk management at www.businesslink.gov.uk.
Value mapping your business
Value mapping your business begins and ends with stakeholders. Everything your
business does should flow from their needs and aim to deliver what they want.
For this to happen, performance measures have to be closely tied to the
activities and assets that add value. To help you identify these activities,
this section contains a framework (see diagram) that shows the value
creation process in a business.1
1
The framework was created by Business Excellence International Ltd with the support of the
DTI’s Small Business Service.
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VALUE MAPPING
FACTSHEET
This form of value mapping has its greatest impact when used across a whole
organisation. However, it can be used on business units, departments and
work teams, even down to an individual employee.
STAKEHOLDERS
Value needs assessment
Strategy and objectives – review, map and integrate
Predicted value outcome mapping
Value driver assessment
Value driver mapping
Refine and develop measures
Communicate and target energy
Value outcome assessment and reporting value
It can also be used either as a standalone tool, or alongside existing tools
and techniques like the Excellence Model, the Balanced Scorecard, and
Investors in People.
The different stages are:
1. assessing value needs;
2. strategy and objectives – review, map and integrate;
3. predicting value outcomes;
4. assessing value drivers;
5. mapping value drivers;
6. refining and developing measures;
7. communicating and targeting energy; and
8. assessing and reporting value outcomes.
1. Assessing value needs
Only objectives grounded in the needs of stakeholders will ensure long-term
success. Understandably, then, the first stage is to find out what your stakeholders
want. In practice, this is an information gathering exercise – it could be anything
from research into how competitive your prices are, to focus groups with suppliers
to explore how you can work more effectively together.
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VALUE MAPPING
FACTSHEET
Once the information gathering is complete, you’ll need to weigh the relative
importance of the stakeholder needs. Some needs may conflict with others –
for example, suppliers may want longer lead times, while customers may
want quicker delivery. Because not all needs are realistic, or desirable, it’s a
balancing act.
2. Strategy and objectives – review, map and integrate
In too many companies, the strategic objectives sit in isolation – guiding
principles with no direct connection to each other or to the day-to-day running
of the business.
Successful business objectives should:
●
arise out of stakeholder needs – see the section on ‘assessing value needs’;
●
be connected to the business’s operations – it needs to be clear how they
will be implemented; and
●
be mapped against other objectives – because some objectives are more
important than others, objectives need to sit in a hierarchy. In other words,
you need to know how one objective affects another and what order they
need to happen in for the others to be achieved.
3. Predicting value outcomes
How will you know if your strategy is successful? Value mapping uses a
system called ‘predicted value outcome mapping’ – where you predict when
the value will be realised and how much energy and resources you will need.
Each value outcome is assessed on the basis of a number of factors. These
include cost, manpower requirements, training, time demands and the degree
of change. These factors are reflected in the horizontal position of the value
outcome on the map.
4. Assessing value drivers
A ‘value driver’ is any activity or asset that contributes towards the value
outcomes you want for your business and its stakeholders. This can be
anything from leadership and people to policies and processes.
If you think of your business as a network of cause and effect relationships,
then value drivers are the key areas of the network – the causes that have the
biggest effects. By identifying these causes, you can concentrate your efforts
where they will have the greatest impact.
5. Mapping value drivers
There is no point measuring value drivers if your staff don’t understand their
relevance and purpose. Measurements that exist only as statistics in reports or
presentations won’t galvanise staff and achieve results.
Value drive maps are one solution for helping bring performance measurement
to life. They won’t be able to make sense of badly considered strategic
objectives or badly designed targets, but they can communicate performance
targets in a simple, visual way.
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VALUE MAPPING
FACTSHEET
6. Refining and developing measures
Every business grows and develops over time. Its products and services
change; its competitors change; its processes change and technology changes.
The sensible response is to try and create a flexible, proactive approach to
performance measurement, and to ingrain a culture of value measurement in
your company. Everyone needs to understand that the purpose of the business
is to provide value to the stakeholders and that performance measurement is
an important tool for helping this to happen.
7. Communicating and targeting energy
Poor communication is one of the greatest barriers to business improvement.
Too often, staff feel that change is imposed from above without any
understanding of how it affects their job, and without a good explanation of
what the change is for or why it is necessary.
If you want your staff to focus on the right things, like the company’s strategic
objectives and the needs of customers, you need to help them understand
what their role is in improving the company’s performance.
8. Assessing and reporting value outcomes
Measurement is a continual process not a one-off activity. Just as you
first assessed value needs and predicted value outcomes, you now need to
gauge how well you’ve done and whether you are providing greater value
to your stakeholders.
The most successful businesses realise that communication is essential to
building loyalty and developing profitable business relationships. You don’t
just need to deliver value to your stakeholders; you need to let them know
that you’ve done it, and that you want to continue to do so.
Checklist
The following points will help you map value in your supply chain. If you need
help or advice on any aspect, visit the Achieving best practice in your business
website at www.dti.gov.uk/bestpractice.
SET GOALS FOR YOUR VALUE MAPPING
Agree specific, measurable objectives for what you want to achieve, such as
a percentage increase in sales, an increase in the average order value or higher
customer satisfaction.
ASSESS YOUR CUSTOMERS
●
Assess profitability – a long-term relationship isn’t always the same as a
profitable relationship.
●
Analyse their habits – collect and analysis data (perhaps using CRM) to
identify sales opportunities and to provide improved customers service.
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VALUE MAPPING
FACTSHEET
●
Understand their needs – how much do customers know about you
and your business? What do they feel about your products and services?
Are they loyal or are you simply their least worst alternative? Conduct some
research – like surveys, focus groups and face to face interviews to find out.
●
Examine your relationship – business relationships are always in a state
of flux as customer needs, technology and products and service change.
Is it possible for you to change how you work with your customers?
Can you give them more control over the relationship while cutting costs
by moving to online ordering and account handling?
●
Compare current and possible customers – how is the market changing?
Do you need to change your customer profile to improve sales or to guard
against the changing tastes or needs of your existing customers?
ASSESS YOUR SUPPLIERS
What do you value?
Decide what you need from your suppliers:
●
increased customer satisfaction;
●
reduced total costs;
●
reduced time to market;
●
enhanced products;
●
innovation;
●
risk sharing; or
●
sustainable development.
Establish what kind of relationship you have
Perform a ‘customer preferencing’ analysis and a ‘supplying positioning’
analysis to establish how important your business is to your suppliers and
vice versa.
Look for savings
Investigate your purchasing company-wide to unearth information that could
help you negotiate better deals with suppliers.
Profile your ideal supplier
Draw up a list of the different attributes that you want from different suppliers:
●
management style;
●
company culture;
●
competitiveness and value for money;
●
track record;
●
financial security;
●
quality systems;
●
innovation; and
●
location.
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FOCUS YOUR BUSINESS ON VALUE
Everything your business does should flow from the needs of stakeholder and
aim to deliver what they want. Follow the eight steps:
●
assessing value needs;
●
reviewing strategy and objectives;
●
predicting value outcomes;
●
assessing value drivers;
●
mapping value drivers;
●
refining and developing measures;
●
communicating and targeting energy; and
●
assessing and reporting value outcomes.
MANAGE RISK
Whether it’s reducing the number of suppliers you use, targeting new
customers or changing your processes, ensure you properly weigh and guard
against the potential risks of your strategy.
Further help and advice
Benchmarking
●
Best practice benchmarking – guide on benchmarking and an online tool
based on the DTI-sponsored International Benchmarking Study.
Website: www.dti.gov.uk/bestpractice/management/benchmarking.htm
●
Benchmark index – a computer-based, fully-facilitated, performance
measurement tool, aimed primarily at SMEs.
Website: www.benchmarkindex.com
●
PROBE (Promoting Business Excellence) – a CBI-run suite of four best
practice diagnostic and benchmarking tools for all aspects of manufacturing,
people management, environmental, health and safety management and
service excellence.
Website: www.cbi.org.uk/probe
Other sources of advice
●
Business Excellence International Ltd - a performance management
consultancy specialising in value growth solutions. The company works
across a variety of industry sectors and successfully developed and
piloted the value mapping approach.
Website: www.think-value.com
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VALUE MAPPING
●
Business Link – the brand under which the DTI’s Small
Business Service provides services to small and mediumsized businesses in England. Contains a wide range of
business advice.
Website: www.businesslink.gov.uk
●
CIPS – The Chartered Institute of Purchasing and Supply
is a UK-based international education and qualification body
representing purchasing and supply chain professionals.
It publishes free papers on all aspects of purchasing
and supply.
Website: www.cips.org
●
CRiSPS – The Centre for Research in Strategic Purchasing
and Supply exists to identify and research contemporary
and future aspects of supply management.
Website: www.bath.ac.uk/crisps/
●
SCMG – the Supply Chain Management Group at Glasgow
University is a consultancy specialising in Supply Chain
Management as a business philosophy.
Website: www.scmg.co.uk/default.htm
For more information on Achieving best practice in your business:
● Visit our website at www.dti.gov.uk/bestpractice
● Call us on 0845 015 0010 to order from our range of free
best practice publications or visit www.dti.gov.uk/publications
● Contact your local Business Link advisor by visiting the website at
www.businesslink.gov.uk or calling 0845 600 9 006
FACTSHEET
Examples of products and
companies included in this
leaflet do not in any way
imply endorsement or
recommendation by DTI.
Bear in mind that any prices
quoted are indicative at the
time it was published.
Published by the Department of Trade and Industry. www.dti.gov.uk
© Crown Copyright. URN 05/551; 03/05
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