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Marketing Decision Sciences:Marketing Decision Sciences:Building Businesses Building Businesses
and Customer Relationshipsand Customer RelationshipsNot ModelsNot Models
DiaMondSUG 2001
Mark Van Clieaf [email protected]
MVC Associates Internationalwww.mvcinternational.com
416-489-1917 / 813-891-6644Toronto • Chicago • Tampa
© Copyright 1988, 2000, MVC Associates International
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M2988.2
Customer Insight:Customer Insight:Taking Organizations to a Taking Organizations to a
Brave New World Of Customer Centric MarketingBrave New World Of Customer Centric Marketing
• Mass vs. Target Marketing & Shareholder Value
• What the Internet has taught us about CRM
• Key CRM Measurement Principles
• Three Waves of Customer Centric– Wave 1 - Loyalty / Frequency
– Wave 2 - Customer Value Optimization
– Wave 3- Dynamic Customer Management ( true CRM )
• Datamining - Customer Not Campaign Centric• Branding in a Digital / CRM World - customer processes and models integrated
• Integrating Different inputs of Customer Insight ( online & offline )
• From Analyst to General Manager the New Career Path
© Copyright 1999, MVC Associates International
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Customer Relationship Management Customer Relationship Management CRM / E-CRMCRM / E-CRM
• Has become a catch-all term for many - confusion !
• Most enterprises do not really understand the organizational / change management / metric issues of true implementation
• Forrester Research suggests the Web will assist in technology migration around legacy systems
• The web is fragmenting marketing applications for CRM / E-CRM because technology vs. client driven: ( separate suppliers / datamarts for e-mail / affiliate programs, call centers / e-promotions / banners etc )
© Copyright 1999, MVC Associates International
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A New Marketing Mindset
• One to One Enterprise– Peppers & Rogers
• The Loyalty Effect– Reicheld
• All Consumers Are Not Created Equal
– Hallberg
• The New MaxiMarketing– Rapp & Collins
• The Profit Zone– Slywotzky & Morrison
• Grow to Be Great– Gertz & Baptista
• Real Time – McKenna
• NetGain– Hagel & Armstrong
• Digital Darwinsim– Schwartz
• Futerize Your Enterprise– Siegel
• Customers.Com– Seybold
• Now or Never– Modahl
© Copyright, MVC Associates International, 1998
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Companies Want A Single, Integrated Companies Want A Single, Integrated View, But Have Work To DoView, But Have Work To Do
Somewhat10%
Not really52%
Not at all36%
Yes2%
Probably40%
Unlikely22%
Yes38%
Now 2001
“Do you have a single, integrated view of the customer today? Will you in two years?”
Source: Forrester ResearchMVC Associates International
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Marketing InvestmentOptimization Across An
Integrated Growth Framework
© Copyright, MVC Associates International, 1998
Pro
du
ct A
ttri
bu
te
Geo
grap
hy /
Cha
nnel
Customer 1) Value2) Processes3) Segments4) Information Management
Branding
Bu
nd
ling
Bo
nd
ing
Billing
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Internet Shifts Purchasing PowerInternet Shifts Purchasing Powerto the Consumerto the Consumer
• Reduces consumer search cost for information
• Reduces value of the brand that was information based
• Connects consumers with the most relevant vendors in a timely fashion
• Extracts as much value for consumers as possible
• Price will become a commodity factor and re-define its role in the purchase decision
© Copyright 1999, MVC Associates International
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Mass Marketing SkillsMass Marketing SkillsApplied to the InternetApplied to the Internet
Value AmericaeToysAshford.comegghead.comdrugstore.com
$3,323 $10,370
$1,562 $1,456$3,221
Retailer$145
$1,066$211$261$607
- 96%- 90%- 87%- 82%- 81%
Peak market cap(millions)
Current market cap asof 3/31/00 (millions)
10/9911/9911/99 7/99
Date
Stock price relative to IPO
egghead.com
drugstore.com
eToysAshford.com
Value America-100%
-50%
0
+50%
+100%
+150%
+200%
+250%
+300%
3/002/001/0012/9911/9910/99
Note for comparison: Amazon.com is 4,444% above IPO price
4/99
MVC Associates InternationalSource: Forrester Research
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Pets.comPets.comMass Marketing vs.. Target Marketing SkillsMass Marketing vs.. Target Marketing Skills
MVC Associates International
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E-Commerce vs.. E-Business E-Commerce vs.. E-Business Marketers Must Recognize The Difference !Marketers Must Recognize The Difference !
• E-Process - (automating / optimizing processes through the internet)
– Napster, E-Loan, Pets.com, E-Toy and many others
• E-Commerce (selling online through the internet)– LL Bean, AMEX, Wells Fargo, American Airlines
• E-Business (transforming the business model & value chain and becoming a customer led enterprise through the internet)
– Dell, Cisco, Schwab, Enron
• E-Industry ( transforming the industry structure through the internet - i.e. B to B exchanges )
– ( GM/Ford/Daimler-Chrysler ) = Covisint
© Copyright 1999, MVC Associates International
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Growing Shareholder ValueGrowing Shareholder Valueand Linking to Customer Valueand Linking to Customer Value
• Analysts need to be educated about new metrics to monetize the customer
base (inaccurate valuations)
• New Customer Metrics & Incentives Required !!– Depth of Relationship
– Breadth of Relationship
– Duration of Relationship
– Revenue & profitability of relationship
– Future profit potential of the relationship
– LTV
• Measures at the individual and customer portfolio level to drive shareholder value
© Copyright 1999, MVC Associates International
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Customer Centric ResultsNew Structure & New Skills
• Case Study– Reinvented Customer Centric Business Model
– 1993 - 3 million customers and NO marketing department
– 1997 - 3.5 million customers and 21st Century marketing department
– in 3.5 years 6 X revenue increase - $ today 700 million +
– in 3.5 years 2.5 X NOPAT increase with $ 10 to 15 million technology investment
– on the same # of customers ( Not Marketshare )
– just better customers and management of the customer relationship over time
© Copyright, MVC Associates International, 1998
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Analysts / Data Miners and Marketers Must RecognizeWhich Wave They Are On ?
© Copyright, MVC Associates International, 1998
• Wave 1 - Frequency / Loyalty
• Wave 2 - Customer Value Optimization
• Wave 3 - Dynamic Customer Management
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The Customer Centric Scorecard !• Are you driving a customer strategy ?
• Are you measuring at an individual level:– annual customer profitability - P&L - NOPAT $
– customer duration / attrition
– share of customer in $
– future customer potential in $
• Do you allocate your marketing investments based on customer value at the individual customer level or micro-segment ?
• Do you have a formal org. with SVP, VP, Dir owning each of the following:
– Customer Processes, Customer Segments, CIM, Mkt $
• Shared Product & Customer P&L objectives with compensation tied to 1 & 3 yr objectives ?
© Copyright, MVC Associates International, 1998
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Wave 1Loyalty Has Gone Mainstream
• American, United, Continental, Delta, Air Canada, CDN
• Marriott, Four Seasons, Hilton, Hyatt, Holiday Inn
• Dayton Hudson, Sears, Saks, Neiman Marcus, Bay
• Blockbuster, Eddie Bauer, Toy-R-US, Waldenbooks, LL Bean
• Harley Davidson, BMW, Nissan, General Motors, (Ford)
• AOL/First USA, American/ Citibank, ( Schwab / Household), (Blockbuster / Nationsbank) , Ameritech / Household, Sprint / MBNA, Hilton / AMEX,
• AT&T, MCI, Ameritech, Bell South, Stentor
• Check out Frequency Marketing’s Web Site
© Copyright, MVC Associates International, 1998
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Loyalty Program Trendsin the 21st Century
• Simplify Programs
• Control and Decrease Costs
• Make Relevant to the Customer
• Define & Measure Program Financial & Customer Results
• Shut Down where Not Adding Value to Customer & Shareholder rel’shp
• Re-position as part of broader Customer Strategy ?
© Copyright, MVC Associates International, 1998
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20%
4%
4%
4%
4%
10%
16%
27%
65%31%
4%
0 10 20 30 40 50 60 70
Percent of 51 Card Issuers Interviewed
Loyalty Programs Loyalty Programs # 2 application for Smart Cards# 2 application for Smart Cards
Stored Value
Loyalty Program
Internet Security
Micropayments
Transit
Secure Electronic Transactions
Ticketing
Electronic Benefits Transfer
Telephone
Other
Undecided
Source: Forrester Research MVC Associates International
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Loyalty Programs OnlineLoyalty Programs OnlineBut not Re-inventedBut not Re-invented
• MVC Loyalty Program Research - 1998/2000– Launched due to competitive issues NOT good business case
– No true understanding of long term financial impact on profits and balance sheet liability
– Failed to differentiate segments based on customer economic value Acquisition not retention focus - really promotional points
– Mix of hard and soft benefits not well researched and way too complicated
– Subsidized already loyal customers
– Failed to use modeling and customer information to customize reward & recognition, communications and create one to one relationship
© Copyright 1999, MVC Associates International
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Wave 2Optimizing CustomerValue & Relationship
• De-averaging Product Costs
• De-averaging Customer Value
• De-averaging Risk
• De-averaging Price
• Optimizing Product Proposition and Marketing Investments at a micro-segment or one to one level
© Copyright, MVC Associates International, 1998
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World Class Customer Information Management (CIM)
• AMEX, Capital One, Lands End, Advanta, Providian, Schwab, Fingerhut, Signature Group, First USA, etc
• Large Acquisition and Customer databases– different customer information for each that drives modeling
( descriptive, financial, predictive )
– customer valuation - real profit drivers NOT response
– targeting and tailoring of offer
– customer contact with extensive test, control and experimental design
– closed loop process with measurement, feedback and customer learning based on results and “real behavior” over time
• Cycle time 24 hours to 2 weeks - 10 million + customers
• Thousands of mass customized offers based on segmentation thru marketing technologies
© Copyright, MVC Associates International, 1998
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Too Many Marketers / Data-Miners AreToo Many Marketers / Data-Miners AreCampaign vs Customer CentricCampaign vs Customer Centric
Customer Centric Business Strategy
Customer Portfolio
Organization
Information Technology
Strategy
Customer, Product, Channel, P&L Goal & Resource Alignment
Integrated Customer, Product, & Channel Compensation
Customer Processes
Customer Segments
Customer Information Mgmt
Customer Marketing Marketing Skills
Organization Capability
Mass Customized Product Attributes & Benefits (bundling & co-marketing)
Mass Customized Channel Access & Customer Contact Process Design
Value / Risk Based Pricing Strategy & Payment Options
Mass Customized Promotion to Create Trial
Value Proposition Development
Inbound / Outbound Contact Strategy & Goals
Coordinating & Sequencing
Targeting Models & Test & Control Tactics
Mass Customized Communications Strategy & Creative Development
Customer Information Mgmt & Campaign Tape Production
Customer Contact & Campaign Mgmt
Back End Analysis, Customer Learning, & Recommendations
Customer, Product & Channel Goal
Process Evaluation
Customer Portfolio Review & Recalibration of Models & Customer Insight
Evaluation & Measurement
Dynamic Customer Focused Test, Learn, & Value CreationDynamic Customer Focused Test, Learn, & Value Creation
© Copyright, MVC Associates International, 1998
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Business Strategy
• For an enterprise with multiple product categories and or Lines of Business which business strategy ? ( i.e. FI, Telecom )
• Leveraging Customer Info to drive:– Product Strategy
– Truly Customer Centric Strategy with Dynamic Customer Management - integrates customers / products / channels across Lines of Business (LOB’s) , real time / 24 hr batch
– CAN’T do both - creates confusion of decision authorities !» optimizing value of relationship, bundled value proposition, sequencing
customer contact, relationship pricing, risk mgmt, channel optimization, etc
• Build organization, analytic strategy and technology capabilities around business strategy !
© Copyright, MVC Associates International, 1998
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Wave 3Dynamic Customer Management
• Integrates and optimizes customers / products / channels in real time ( or batch 24 hr refresh )
• FROM Period of Contract TO Life of Customer
• FROM Relationship Building TO Community Building
• FROM Mass Customized TO Ongoing Learning
© Copyright, MVC Associates International, 1998
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C-CommerceC-Commerce(Marketing Principles change from outbound communications to
in/out-bound customer interaction, customer choice & mass customizationby channel preferences and value proposition bundles)
Phone IVR E-mail Web Teleweb ITV PDA’s
• Business rules databaseBusiness rules database• Customer profile databaseCustomer profile database• Interactive history databaseInteractive history database
© Copyright 1999, MVC Associates International
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The Customer PortfolioThe Customer Portfolio10,000,000 Customers10,000,000 Customers
© Copyright, MVC Associates International, 1998
• Transaction driven customer segments related to product and channel usage and lifestage / lifestyle
Co
lleg
e
Just
Sta
rted
Yo
un
g W
ann
abee
s
Cla
ssic
Fam
ily
DIN
K
Ed
ge
Wal
ker
Aff
luen
t W
ealt
h
Die
Bro
ke
Off
sho
re
$ 5,000 per customer
Current ValueCurrent Value
negative $ 2,000 per customer
Nu
mb
er o
f C
ust
om
ers
Nu
mb
er o
f C
ust
om
ers
Ave
rag
e A
nn
ual
Pro
fit
Co
ntr
ibu
tio
n p
er C
ust
om
erA
vera
ge
An
nu
al P
rofi
t C
on
trib
uti
on
per
Cu
sto
mer
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Better Practices in Customer Value InvestmentBetter Practices in Customer Value Investment
1 2 3
4 5 6
7 8 9
H M L
H
M
L
Future Value PotentialFuture Value Potential
Current Current Share of Share of CustomerCustomer
1 2 3
4 5 6
7 8 9
H M L
H
M
L
Duration /Duration /AttritionAttrition
Do
ub
le I
nco
me
No
Kid
sD
ou
ble
In
com
e N
o K
ids
700,000 Customers
• Transaction driven customer segments related to product and channel usage and lifestage / lifestyle
TargetingTargetingYour Highest ValueYour Highest ValueCustomersCustomers
© Copyright, MVC Associates International, 1998
Current Annual ValueCurrent Annual Value
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Strategic vs Tactical AnalyticsStrategic vs Tactical Analytics10,000,000 Customers10,000,000 Customers
© Copyright, MVC Associates International, 1998
• Transaction driven customer segments related to product and channel usage and lifestage / lifestyle
Co
lleg
e
Just
Sta
rted
Yo
un
g W
ann
abee
s
Cla
ssic
Fam
ily
DIN
K
Ed
ge
Wal
ker
Aff
luen
t W
ealt
h
Die
Bro
ke
Off
sho
re
Customer Value Strategies
Future ValueFuture Value$ 5,000 per customer
Profit Potential & Value Gap
Current ValueCurrent Value
negative $ 2,000 per customer
Cus
tom
er V
alue
Tac
tics
Nu
mb
er o
f C
ust
om
ers
Nu
mb
er o
f C
ust
om
ers
Ave
rag
e A
nn
ual
Pro
fit
Co
ntr
ibu
tio
n p
er C
ust
om
erA
vera
ge
An
nu
al P
rofi
t C
on
trib
uti
on
per
Cu
sto
mer
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Data Mining To Create Optimization Data Mining To Create Optimization Customers / Products / Channel Goals & Customers / Products / Channel Goals &
Marketing Investment / ROIMarketing Investment / ROI
CurrentCurrentEnterprise / Product GoalsEnterprise / Product Goals
FutureFutureCustomer GoalsCustomer Goals==
1 and 3 Year Goals1 and 3 Year Goals• ROE
• ROA
• Fee / Revenue by Product
• Contribution Margin by Product
• SG&A / Expense Ratio
• EBIT
• Free Cashflow / EVA / SVA
Translate / Translate / AlignAlign DevelopmentDevelopment
AcquisitionAcquisition
Win-BackWin-Back
Se
gm
en
t A
Se
gm
en
t B
Se
gm
en
t C
Revenue / Cashflow
H M L
© Copyright, MVC Associates International, 1998
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CRM / E- CRM Consolidates Rules CRM / E- CRM Consolidates Rules Across Channels And FunctionsAcross Channels And Functions
FieldCall
center
Routing
Workflow
Common business rulesCustomer-handling rules silos
Web
Routing
Workflow
Personalization
Manual e-mail, phone
Manual e-mail, phone
On-the-spot dealmaking
Automated cross-
channel messaging
Dynamic cross-sell/
upsell
Automated multi-
channel
Phone-centric
Manual and auto-
queuing
Static campaign
script
MVC Associates InternationalSource: Forrester Research
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Designing Designing The Customer ExperienceThe Customer Experience
3
Color
Blue
Blue
XL
One
Size
Qty.
Green
BoardWear.com
$10 OFFyour nextpurchase
Click Here
ENTER THE CONTESTAnd Get . . .
ON TOUR NOW . . . NEW RELEASE
Buy The CD!
(Entertainment, Information / Content , Information-Based Marketing Online Purchase, Customer Service)
MVC Associates InternationalSource: Forrester Research
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Executive Level Sponsorship
• Business Strategy Customer Centric - Wave 3
• CEO & Exec team committed to 2 to 5 year infrastructure investment strategy and have vision of the future of technology enabled marketing
• Have allocated investment of X marketing dollars over Y years for proof of concept
• CEO & Exec team prepared to make tough decisions on change organization structure, marketing $ allocation, measurement
© Copyright, MVC Associates International, 1998
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Identifying The OrganizationalHot Buttons
• “ It was when competition heated up and there was significant price pressure, that we needed to better understand our customers, their needs / preferences, along with current and future value.
Database and Relationship Marketing is the key to optimizing our investments in our customers, and our customer contact strategy across multiple channels ”
© Copyright, MVC Associates International, 1998
(Vice President, Database & Relationship Marketing, Charles Schwab & Co)
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• “ We recently spent millions of dollars to Re-engineer our acquisition process and create a leading edge Customer Information Management Capability !
The Problem is very few in our marketing team, or at our direct marketing agency can provide us any leadership on how to use this customer information to impact our bottom line”
New Skills To Action the Customer Insight
© Copyright, MVC Associates International, 1998
( Global Vice President Customer Information Mgmt, AMEX, HQ)
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The Waves of Customer CentricThe Waves of Customer Centric
© Copyright, MVC Associates International, 1998
Product P&L
Product P&L
Product P&L
&Starting
Customer Metrics
Customer Value & Duration, Product & Channel
P&L, EVA / SVA
Compen-Compen-sationsation
Product Brand Equity
Relationship Equity
Community Equity
Marketing Marketing ObjectiveObjective
NotIn
Place
Customer Processes,
CIM
Enterprise Wide
Customer Processes, Customer Segments,
CIM
Customer Customer Org DesignOrg Design
Batch, Points&
Rewards, Outbound
Batch (2 wks-24hr)
Product Purchase
Data, Customer
Value Scoring, Outbound
Real Time, Integrated
Across LOB’s, Inbound
& Outbound
CIMCIM
Product Feature /
Benefit, Fixed&
Uniform
Mass Customized
Training, Service, Support
Customer Knowledge,
Ongoing Learning,
Anticipating Needs
Source of Source of ValueValue
Price, Delivery,
Convenience
Customer Support
Ease of Upgrade over
Time
Purchase Purchase DriversDrivers
Time of Sale
Annual Business
Plan
Period of
Contract
Life of
The Customer
Planning Planning HorizonHorizon
Product Centric
Product Centric
Product Centric
Migrating to Customer
Centric
Customer Centric
Business Business StrategyStrategy
Wave 1Wave 1
Frequency / Frequency / LoyaltyLoyalty
Wave 2Wave 2
Customer Customer Value Value
OptimizationOptimization
Wave 3Wave 3
Dynamic Dynamic Customer Customer
ManagementManagement
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Customer Value Organization DesignCustomer Value Organization DesignHow Would You Organize to Create Customer Value ?How Would You Organize to Create Customer Value ?
© Copyright, MVC Associates International, 1998
Customer Value ChampionCustomer Value Champion
Process / SegmentProcess / SegmentOwnersOwners
Acquisition & Activation Acquisition & Activation Process OwnerProcess Owner
Development & Loyalty Development & Loyalty Process OwnerProcess Owner
Win-Back Win-Back Process OwnerProcess Owner
College
Just Started
Young Wannabees
Classic Family
DINKs
Edge Walker
Affluent Wealth
Die Broke
Offshore
Customer Information ManagementCustomer Information Management
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Marketers / Data miners as Change Agentsin Riding Wave 3
• 50 % of the Customer Marketing teams role is about change management NOT marketing
• Barriers to Customer Centric - Wave 3 Implementation
– Failure to put your best marketers / analysts on the customer team
– No dedicated customer marketing resources / $
– No shared KPM’s between Customer & Product teams
– No shared incentives
– No Product Profitability Data at ALL
– Behind on product P&L business plan - will divert resources
– Lack of data access, architecture, user tools
– Lack of CEO & Exec Team Leadership Commitment & Understanding
© Copyright, MVC Associates International, 1998
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The New Killer B’s of MarketingRequire a New Analytic Mindset
• From the 4 P’s to the Killer B’s
• Branding– shifts from product to enterprise branding
– shifts from snap shot to positioning and perception over the customer rel’shp life-cycle
• Bundling– creates new value propositions that deepens rel’shp i.e. meta-level product mgmt
– creates competitive advantage with some customer segments
• Bonding– executes the Brand Promise at each “Moment of Truth” - Branded Customer Experience
– integrates all - touch points - links to channel preference, life-stage / lifestyle
• Billing– recognizes bundled pricing strategy / LTV / Risk
– recognizes preferred payment methods / evolving E-commerce
© Copyright, MVC Associates International, 1998
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Branding Skills For Target Marketing / CRM
Recall
Customer Satisfaction
Market Share
ROI on marketing expense
Share of Wallet
Current or life-time
profitability
Measurement
Advertising, Name Development,
Package & Collateral
Material Design, Trademark, etc
Engineering the total customer
experience including
processes, technologies &
training to ensure that each customer
touch point (call centre, mail, retail, e-mail, website, etc)
provides an integrated experience
consistent with the brand & relationship
Tools for Branding
One way communications
developing single message, image & brand
perception
Two-way customer dialogue tailored depending upon
stage of customer relationship,
customer segment,and current and
potential customer profitability
MarketingCommunication
Strategy
Initiated by the marketer
Individual product /
service level
Static relationship
Initiated by the customer & or
marketer
Enterprise level relationship
Dynamic involvement depending
upon suite of products / services needed
Relationship Between
Customer & Brand
One dimensional and channel dependent
Fixed / Static
Linked to product benefit
Bundle of products /
services and channel
independent
Flexible and customized to micro-segment
/ individual customer
needs
Linked to the brand promise
Value Proposition
Linked to the Brand
Awareness, Knowledge
& Relevance with the product
Customer Involvement & advocacy of
the brand promise
Branding Objective
Acquisition / Activation
Complete Customer
Lifecycle = Acquisition / Activation,
Usage Stimulation,
Cross-Sell new products / services,
Retention, Win-back
Branding
Mass Marketing
Branding Target Marketing
and
CustomerRelationshipManagement
Marketing Element
Customer Development
Strategy
© Copyright 1999, MVC Associates International
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The New Skills For Customer InsightThe New Skills For Customer Insight• What Are They Worth Today / Future and Risk of Loss ?
– Financial Modeling - who are the best customers and optimization of marketing investments
• What Do They Look Like / What Did They Really Do ?– Descriptive Modeling
– Customer Profiling - need , interest, preference
– Demographic / Lifestage / Lifestyle profiling
– Credit Modeling
– Web Usability Modeling / Navigation
– Site Abandonment analysis
• What Might They Do in the Future ?– Predictive Modeling
– Risk Modeling
– Attitudinal profiling
– Channel Preference profiling
• Applying the Insight for Customer Managed Relationships– Customer Strategy Development ( integrating into the customer processes )
– Customer Experience Design and Personalization, Targeting and Tracking across ALL points of customer contact
– Value Proposition Development
© Copyright 2000, MVC Associates International
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From Analyst to General ManagerFrom Analyst to General Manager
• Analyst - building models and developing insight and
• Process owner - integrating models into customer management and interaction processes and driving change ( start to own revenue / margin / ROI )
• Strategist - creating future revenue and margin streams from new products and services and owning the investment and return ( P&L ) - leading multiple function and processes
• General Manager - building new business models and leveraging customer insight
© Copyright 2000, MVC Associates International
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“ My conviction is also growing that the media and advertising industries represent an expanding opportunity for us. Anything that can affect industries whose total revenue base is many hundredsof billions of dollars is a big deal.
I think there is one more step for Intel to take to prepare ourselves for the future. We should try to derail our own strategies and reinvent ourselves. We need to update our own genetic make-up to be more in tune with the new environment.
What I now think is noise, in fact, is a strong signal that something has significantly changed. Does this seem overkill ? Not to me. Only the paranoid survive.”
( Andy Grove, CEO Intel )
What Are You Doing to Reinvent Yourselves ?
MVC Associates International