creating value for your customers by becoming a knowledge organization

Creating Value for Your Customers by Becoming a Knowledge

Organization

Ed Kless

“The customer never buys a product. By definition the customer buys the satisfaction of a want. He buys value.”

-Peter F. Drucker

What is a Business Model?

How your company creates value for and capture value

from customers

“Disruptive threats come inherently not from new technology but from new business models.”

-Andrew Grove

Current Business Model

Revenue = Capacity + Efficiency + Cost-plus pricing

Current Business Model

Four Assertions

• Growth without profit is perilous. • Non rival assets are more leverageable

than rival assets.• Effectiveness is always and everywhere

more important than efficiency.• Value-led pricing is superior to cost-plus

pricing for capturing value.

The Knowledge Organization

Knowledge Organization Model

Profit = Capital X Effectiveness

X Value-led pricing

Two models

Revenue = Capacity + Efficiency + Cost-plus pricing

Current Business Model

Knowledge Organization Model

Profit = Capital x Effectiveness x Value-led pricing

↑ ↑ ↑ ↑

From Revenue to Profit

Cost

Price

Value

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

The Whale

From Capacity to Capital

Four Forms of Capital

• Financial• Structural• Intellectual• Social

Facts about Knowledge Workers

• They own the means of production.• Their organizations need them more than they

need the organization.• The office is their servant, not their master.• Effectiveness is far more important than efficiency.• Judgments are more important than

measurements.• Ultimately, they are volunteers.

From Efficiency to Effectiveness

Anti-efficiency

• Continuing education• Knowledge management/CKO• Total Quality Service (Ritz-Carlton)• Mentoring and coaching• Networking• Business development• Social media• Value-led pricing

What you can measure you can manage!

- Peter F. Drucker

From Cost Plus to Value-led Pricing

“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

-Warren Buffet

The 1 Percent Effect

- Fixed Costs + Revenue - Variable costs

+ Price0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2.7%3.7%

7.3%

11.0%

1.5%2.5%

4.6%

7.1%

McKinsey AT Kearny

The One Percent Windfall

Revenue * .01 + Net Profit

Far Niente

Causation Chain

Product/Service Cost Price Value Customer➙ ➙ ➙ ➙

Customer Value Price Cost Product/Service➙ ➙ ➙ ➙

Behavioral Economics

Anchoring

Barron Joseph von Neinbach Model

WA HF PF

C

B

A

Sage Firm of the Future Symposia

• San Francisco, CA: November 18-19• Chicago, IL: May 13-14• New York, NY: August 12-13

http://na.sage.com/fotf

Ed.Kless@sage.com