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Management and Cost Account by Colin Drury

Over the past few decades, management tools have become a common part of executives’ lives. Whether they are trying to boost revenues, innovate, improve quality, increase ef?ciencies or plan for the future, executives have searched for tools to help them. The current environment of globalization, rapid technological advances and economic turbulence has increased the challenges executives face and, therefore, the need to ?nd the right tools to meet those challenges.

To do this successfully, executives must be more knowledgeable than ever as they sort through the options and select the right management tools for their companies. The selection process itself can be as complicated as the business issues they need to solve. They must choose the tools that will best help them make the business decisions that lead to enhanced processes, products and services—and deliver superior performance and pro?ts.

Successful use of such tools requires an understanding of the strengths and weaknesses of each, as well as an ability to creatively integrate the right tools, in the right way, at the right time. The secret is not in discovering one simple solution, but in learning which mechanisms to use, and how and when to use them. In the absence of objective data, groundless hype makes choosing and using management tools a dangerous game of chance. To help inform managers about the tools available to them, Bain & Company launched a multiyear research project in 1993 to gather facts about the use and performance of management tools. Our objective was to provide managers with:

An understanding of how their current application of these tools and subsequent results compare with those of other organizations across industries and around the globe

The information they need to identify, select, implement and integrate the optimal tools to improve their company’s performance

Every year or two since 1993, we have conducted research to identify 25 of the most popular and pertinent management tools. In this guide, we’ve de?ned the tools and how they are used. We have determined through our research the extent to which each tool is being deployed and its rate of success. We have also conducted one-on-one followup interviews to learn the circumstances in which each tool is most likely to produce the desired results.

Over time, our research has provided a number of important insights. Among them: •

Overall satisfaction with tools is moderately positive, but the rates of usage, ease of implementation, effectiveness, strengths and weaknesses vary widely Management tools are much more effective when they are part of a major organization effort Managers who bounce randomly from tool to tool undermine employees’ con?dence Hyperbole surrounding the trendiest of tools often leads to unrealistic expectations and disappointing results

Decision makers achieve better results by championing realistic strategies and viewing tools simply as a means to a strategic goal
No tool is a cure-all

We also found two other important trends from our 2011 survey:

Companies are focused on growth. About 65% of executives said their companies planned to focus more on growth initiatives than cost cutting—the highest percentage since we started asking the question 10 years earlier. Innovation continues to be a priority for executives, with 80% agreeing that innovation is more important than cost reduction for long-term success.

Detailed results from the 2011 Management Tools & Trends survey are available at www.bain.com/tools.
Our efforts to understand the continually evolving management tools landscape have led us to add four new tools to this year’s guide: Big Data Analytics, Complexity Reduction, Employee Engagement Surveys and Zero-Based Budgeting. The combination of challenging economic conditions and rising growth aspirations should make our 20th anniversary of Management Tools & Trends especially interesting. We hope that you will ?nd this reference guide a useful tool in itself. The insights from this year’s global survey and ?eld interviews will be published separately. Survey results may be obtained
beginning in March 2013 by contacting

Darrell K. Rigby, Director
Bain & Company, Inc.
131 Dartmouth Street, Boston, MA 02116
tel: 1 617 572 2771
email: [email protected]

11

Balanced Scorecard
Related topics

Description

A Balanced Scorecard de?nes an organization’s performance and measures whether management is achieving desired results. The Balanced Scorecard translates Mission and Vision Statements into a comprehensive set of objectives and performance measures that can be quanti?ed and appraised. These measures typically include the following categories of performance:

Methodology

Financial performance (revenues, earnings, return on capital, cash ?ow)
Customer value performance (market share, customer satisfaction measures, customer loyalty) Internal business process performance (productivity rates,
quality measures, timeliness)
Innovation performance (percentage of revenue from new
products, employee suggestions, rate of improvement index)
Employee performance (morale, knowledge, turnover, use
of best demonstrated practices)

To construct and implement a Balanced Scorecard,
managers should:






12

Management by Objectives
Mission and Vision Statements
Pay for Performance
Strategic Balance Sheet

Articulate the business’s vision and strategy
Identify the performance categories that best link the business’s vision and strategy to its results (such as ?nancial performance, operations, innovation, employee performance) Establish objectives that support the business’s vision

and strategy
Develop effective measures and meaningful standards, establishing both
short-term milestones and long-term targets Ensure companywide acceptance of the measures
Create appropriate budgeting, tracking, communication
and reward systems
Collect and analyze performance data and compare actual
results with desired performance
Take action to close unfavorable gaps

Common uses

A Balanced Scorecard is used to:






Selected
references

Clarify or update a business’s strategy
Link strategic objectives to long-term targets and
annual budgets
Track the key elements of the business strategy
Incorporate strategic objectives into resource
allocation processes
Facilitate organizational change
Compare performance of geographically diverse
business units
Increase companywide understanding of the corporate vision
and strategy

“Balanced Scorecard Report.” Harvard Business Publishing Newsletters, 2002 to
present (bimonthly).
Epstein, Marc, and Jean-François Manzoni. “Implementing Corporate Strategy: From Tableaux de Bord to Balanced Scorecards.” European Management Journal, April 1998, pp. 190–203.
Kaplan, Robert S., and David P. Norton. Alignment: Using the Balanced Scorecard to Create Corporate Synergies. Harvard Business School Press, 2006. Kaplan, Robert S., and David P. Norton. “The Balanced Scorecard: Measures That Drive Performance.” Harvard Business Review, July 2005, pp. 71–79.

Kaplan, Robert S., and David P. Norton. The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Harvard Business School Press, 2000. Kaplan, Robert S., and David P. Norton. Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Harvard Business School Press, 2004.

Niven, Paul R. Balanced Scorecard Diagnostics: Maintaining Maximum Performance. John Wiley & Sons, 2005.
Niven, Paul R. Balanced Scorecard Step-by-Step: Maximizing Performance and Maintaining Results. 2d ed. John Wiley & Sons, 2006.

13

Benchmarking
Related topics

Description

Methodology


Benchmarking improves performance by identifying and applying best demonstrated practices to operations and sales. Managers compare the
performance of their products or processes externally with those of competitors and best-in-class companies, and internally with other operations that perform similar activities in their own ?rms. The objective of Benchmarking is to ?nd examples of superior performance and understand the processes and practices driving that performance. Companies then improve their performance by tailoring and incorporating these best practices into their own operations—not by imitating, but by innovating.

Benchmarking involves the following steps:





Common uses

Select a product, service or process to benchmark
Identify the key performance metrics
Choose companies or internal areas to benchmark
Collect data on performance and practices
Analyze the data and identify opportunities for improvement
Adapt and implement the best practices, setting reasonable
goals and ensuring companywide acceptance

Companies use Benchmarking to:

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Best Demonstrated Practices
Competitor Pro?les

Improve performance. Benchmarking identi?es methods of
improving operational ef?ciency and product design.
Understand relative cost position. Benchmarking reveals a
company’s relative cost position and identi?es opportunities for improvement.
Gain strategic advantage. Benchmarking helps companies focus on capabilities that are critical to building strategic advantage. Increase the rate of organizational learning. Benchmarking
brings new ideas into the company and facilitates experience sharing.

Selected
references

American Productivity and Quality Center. www.apqc.org
Bogan, Christopher E., and Michael J. English. Benchmarking for Best Practices: Winning Through Innovative Adaptation. McGrawHill, 1994. Boxwell, Robert J., Jr. Benchmarking for Competitive Advantage. McGraw-Hill, 1994.

Camp, Robert C. Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance. Productivity Press, 2006. Coers, Mardi, Chris Gardner, Lisa Higgins, and Cynthia Raybourn. Benchmarking: A Guide for Your Journey to Best-Practice Processes. American Productivity and Quality Center, 2001.

Czarnecki, Mark T. Managing by Measuring: How to Improve
Your Organization’s Performance Through Effective Benchmarking. AMACOM, 1999.
Denrell, Jerker. “Selection Bias and the Perils of Benchmarking.” Harvard Business Review, April 2005, pp. 114–119.
Harrington, H. James. The Complete Benchmarking Implementation Guide: Total Benchmarking Management. McGraw-Hill, 1996.
Iacobucci, Dawn, and Christie Nordhielm. “Creative Benchmarking.” Harvard Business Review, November/December 2000, pp. 24–25. Reider, Rob.
Benchmarking Strategies: A Tool for Pro?t Improvement. John Wiley & Sons, 2000.

Stauffer, David. “Is Your Benchmarking Doing the Right Work?” Harvard Management Update, September 2003, pp. 1–4.
Zairi, Mohamed. Benchmarking for Best Practice: Continuous
Learning Through Sustainable Innovation. Taylor & Francis, 1998.

15

Big Data Analytics
Related topics

Description




Business Analytics
Business Intelligence
Data Mining
Predictive Analytics

Big Data Analytics enables the rapid extraction, transformation, loading, search, analysis and sharing of massive data sets. By analyzing a large, integrated, real-time database rather than smaller, independent, batch-processed data sets, Big Data Analytics seeks to quickly identify previously unseen correlations and patterns to improve decision making. Although it is related to traditional Database Management and Business Intelligence systems, Big Data Analytics dramatically increases the ability to process data in four major ways:




Volume: moves beyond terabytes to petabytes and exabytes
Velocity: enables real-time insights and actions
Variety: analyzes everything from click-stream data to
video streams
Variability: manages changes in data formats and information ?elds

The results help managers better measure and manage the most critical functions of their business.
Methodology

Companies start by identifying signi?cant business opportunities that may be enhanced by superior data and then determine whether Big Data Analytics solutions are needed. If they are, the business will need to develop the hardware, software and talent required to capitalize on Big Data Analytics. That often requires the addition of data scientists who are skilled in asking the right questions, identifying cost-effective information sources, ?nding true patterns of causality and translating analytic insights into actionable business information.

To apply Big Data Analytics, companies should:



16

Select a pilot (a business unit or functional group) with meaningful opportunities to capitalize on Big Data Analytics Establish a leadership group and team of data scientists with the skills and resources necessary to drive the effort successfully Identify speci?c decisions and actions that
can be improved Determine the most appropriate hardware and software

solutions for the targeted decisions





Common uses

Companies typically use Big Data Analytics to:





Selected
references

Decide whether to purchase or rent the system
Establish guiding principles such as data privacy and security policies Test, learn, share and re?ne
Develop repeatable models and expand applications to additional business areas

Improve internal processes, such as risk management,
Customer Relationship Management, supply chain logistics
or Web content optimization
Improve existing products and services
Develop new product and service offerings
Better target their offerings to their customers
Transform the overall business model to capitalize on realtime information and feedback

Davenport, Thomas H., Jeanne G. Harris, and Robert Morison.
Analytics at Work: Smarter Decisions, Better Results. Harvard Business Review Press, 2010.
Franks, Bill. Taming the Big Data Tidal Wave: Finding Opportunities in Huge Data Streams with Advanced Analytics. Wiley, 2012.
Isson, Jean-Paul, and Jesse Harriott. Win with Advanced Business Analytics: Creating Business Value from Your Data. Wiley, 2012. Laursen, Gert H. N., and Jesper Thorlund. Business Analytics for Managers: Taking Business Intelligence Beyond Reporting. Wiley, 2010. McAfee, Andrew, and Erik Brynjolfsson. “Big Data: The Management Revolution.” Harvard Business Review, October 2012. Shah, Shvetank, Andrew Horne, and Jaime Capella. “Good Data Won’t Guarantee Good Decisions.” Harvard Business Review, April 2012.

Soares, Sunil. Big Data Governance: An Emerging Imperative.
MC Press, 2013.
Stubbs, Evan. The Value of Business Analytics: Identifying the Path to Pro?tability. Wiley, 2011.

17

Business Process Reengineering
Related topics




Cycle-Time Reduction
Horizontal Organizations
Overhead-Value Analysis
Process Redesign

Description

Business Process Reengineering involves the radical redesign of core business
processes to achieve dramatic improvements in
productivity, cycle times and quality. In Business Process Reengineering, companies start with a blank sheet of paper and rethink existing processes to deliver more value to the customer. They typically adopt a new value system that places increased emphasis on customer needs. Companies reduce organizational

layers and eliminate unproductive activities in two key areas. First, they redesign functional organizations into cross-functional teams. Second, they use technology to improve data dissemination and decision making.

Methodology

Business Process Reengineering is a dramatic change initiative that contains ?ve major steps that managers should take:




Common uses

Companies use Business Process Reengineering to improve
performance substantially on key processes that affect customers by: •

18

Refocus company values on customer needs
Redesign core processes, often using information technology
to enable improvements
Reorganize a business into cross-functional teams with endto-end responsibility for a process Rethink basic organizational and people issues
Improve business processes across the organization

Reducing costs and cycle times. Business Process Reengineering reduces costs and cycle times by eliminating unproductive activities and the employees who perform them. Reorganization by teams decreases the need for management layers, accelerates information ?ows and eliminates the errors and rework caused by multiple handoffs.

Improving quality. Business Process Reengineering improves
quality by reducing the fragmentation of work and establishing clear ownership of processes. Workers gain responsibility for their output and can measure their performance based on prompt feedback.

Selected
references

Al-Mashari, Majed, Zahir Irani, and Mohamed Zairi. “Business Process Reengineering: A Survey of International Experience.” Business Process Management Journal, December 2001, pp. 437–455. Carr, David K., and Henry J. Johansson. Best Practices in Reengineering: What Works and What Doesn’t in the Reengineering Process. McGraw-Hill, 1995.

Champy, James. Reengineering Management: The Mandate for
New Leadership. HarperBusiness, 1995.
Davenport, Thomas H. Process Innovation: Reengineering Work
Through Information Technology. Harvard Business School Press, 1992. Frame, J. Davidson. The New Project Management: Tools for an Age of Rapid Change, Complexity, and Other Business Realities. Jossey-Bass, 2002.

Grover, Varun, and Manuj K. Malhotra. “Business Process Reengineering: A Tutorial on the Concept, Evolution, Method, Technology and Application.” Journal of Operations Management, August 1997, pp. 193–213.

Hall, Gene, Jim Rosenthal, and Judy Wade. “How to Make Reengineering Really Work.” Harvard Business Review, November/ December 1993, pp. 119–131.
Hammer, Michael. Beyond Reengineering: How the Process-Centered Organization Is Changing Our Work and Lives. HarperBusiness, 1997. Hammer, Michael, and James Champy. Reengineering the Corporation: A Manifesto for Business Revolution. Revised and updated. HarperBusiness, 2003.

Keen, Peter G. W. The Process Edge: Creating Value Where It Counts. Harvard Business School Press, 1997.
Sandberg, Kirsten D. “Reengineering Tries a Comeback—This Time for Growth, Not Just Cost Savings.” Harvard Management Update, November 2001, pp. 3–6.

19

Change Management Programs
Related topics

Description

Methodology



Change Management Programs enable companies to control the
installation of new processes to improve the realization of business bene?ts. These programs involve devising change initiatives, generating organizational buy-in, implementing the initiatives as seamlessly as possible and generating a repeatable model for ensuring continued success in future change efforts. A Change Management Program allows leaders to help people succeed,

showing where and when trouble is likely to occur, and laying out a strategy for mitigating risks and monitoring progress. Change Management Programs require managers to:

20

Cultural Transformation
Organizational Change
Process Redesign

Focus on results. Maintain a goal-oriented mindset by establishing clear, nonnegotiable goals and designing incentives to ensure these goals are met.
Overcome barriers to change. Identify employees who are
most affected and also work to predict, measure and manage
the risk of change.
Repeatedly communicate simple, powerful messages to
employees. In times of change, alter communication frequency and the methods to manage how a shaken workforce perceives and reacts to information: – Ensure sponsorship throughout the organization. To

allow sponsorship to reach all levels of the organization,
enlist multiple sponsors to provide all individuals with
access to—and the in?uence of—a sponsor.
– Reorganize around decision making. Develop a system
for identifying, making and executing the most important decisions. Continuously monitor progress. Follow through and monitor
the progress of each change initiative to tell if it is following the intended path or veering off course.

Common uses

Companies use a Change Management Program to:



Selected
references

Implement major strategic initiatives to adapt to changes in markets, customer preferences, technologies or the competition’s strategic plans Align and focus an organization when going through a
major turnaround
Implement new process initiatives

Axelrod, Richard H. Terms of Engagement: Changing the Way We Change Organizations. Berrett-Koehler Publishers, 2003.
Clark, Timothy R. EPIC Change: How to Lead Change in the Global Age. Jossey-Bass, 2007.
Harvard Business Review on Leading Through Change. Harvard
Business School Press, 2006.
Hiatt, Jeffrey, and Timothy Creasey. Change Management. Prosci Research, 2003.
Kotter, John P. Leading Change. Harvard Business Review Press, 2012. Kotter, John P., and Dan S. Cohen. The Heart of Change: RealLife Stories of How People Change Their Organizations. Harvard Business Review Press, 2012.

Lawler, Edward E., III, and Christopher P. Worley. Built to Change: How to Achieve Sustained Organizational Effectiveness. JosseyBass, 2006.

21

Complexity Reduction
Related topics

Description

Methodology





Business Process Reengineering
Decision Rights Tools
Focused Strategy
Repeatable Models
Spans and Layers

Complexity Reduction helps companies simplify their strategy, organization, products, processes and information technology. Reduction in any of these areas opens up opportunities for simpli?cation in others. Unwieldy complexity often results from business expansions or bureaucracies that unnecessarily complicate a company’s operating model, leading to sluggish growth, higher costs and poor returns. Complexity Reduction ?nds in?ection points where products or services fully meet customer needs at the lowest costs. By streamlining product lines, for example, companies may be able to simplify organization structures and decision making to serve their core customers better while also reducing demands on business processes and information systems. Complexity Reduction requires managers to:



Understand the sources of complexity and examine trade-offs
between operations and variety or customization for customers Identify opportunities to simplify products, organization
structures, business processes and information systems to
save costs while strengthening core capabilities and increasing the focus on customers Take steps to stem the return of complexity by reexamining the hurdle rates for new products and other expansion activities Simplify decision making by clarifying roles and processes

Complexity Reduction helps reveal hidden costs and allows companies to determine which products are making money, what customers really value and which organizational or process bottlenecks are getting in the way of effective actions, setting the stage for greater growth and increased pro?ts.

22

Common uses

Companies typically use Complexity Reduction to:





Selected
references

Identify and strengthen core capabilities
Build the business around customer needs
Create a disciplined approach to releasing new products or
services and trimming those that customers no longer value
Design an organizational structure to support critical decisions Maximize process ef?ciency
Align information systems with business objectives

Ashkenas, Ron. Simply Effective: How to Cut Through Complexity in Your Organization and Get Things Done. Harvard Business
School Press, 2009.
Collinson, Simon, and Melvin Jay. From Complexity to Simplicity: Unleash Your Organisation’s Potential. Palgrave Macmillan, 2012. George, Michael L., and Stephen A. Wilson. Conquering Complexity in Your Business: How Wal-Mart, Toyota, and Other Top Companies Are Breaking Through the Ceiling on Pro?ts and Growth. McGrawHill, 2004. Gottfredson, Mark, and Keith Aspinall. “Innovation Versus Complexity: What Is Too Much of a Good Thing?” Harvard Business Review, November 2005.

Mariotti, John L. The Complexity Crisis: Why Too Many Products, Markets, and Customers Are Crippling Your Company—and What to Do About It. Adams Media, 2008.
Seijts, Gerard, Mary Crossan, and Niels Billou. “Coping with Complexity.” Ivey Business Journal, May/June 2010.

23

Core Competencies
Related topics


Core Capabilities
Key Success Factors

Description

A Core Competency is a deep pro?ciency that enables a company to deliver unique value to customers. It embodies an organization’s collective learning, particularly of how to coordinate diverse production skills and integrate multiple technologies. Such a Core Competency creates sustainable competitive advantage for a company and helps it branch into a wide variety of related markets. Core Competencies also contribute substantially to the bene?ts a company’s products offer customers. The litmus test for a Core
Competency? It’s hard for competitors to copy or procure. Understanding Core Competencies allows companies to invest

in the strengths that differentiate them and set strategies that unify their entire organization.

Methodology

To develop Core Competencies a company must take these actions: •





Common uses

Core Competencies capture the collective learning in an organization. They can be used to: •

24

Isolate its key abilities and hone them into organizationwide strengths Compare itself with other companies with the same skills to
ensure that it is developing unique capabilities
Develop an understanding of what capabilities its customers
truly value, and invest accordingly to develop and sustain
valued strengths
Create an organizational road map that sets goals for competence building Pursue alliances, acquisitions and licensing arrangements that will further build the organization’s strengths in core areas Encourage communication and involvement in core capability development across the organization Preserve
core strengths even as management expands and

rede?nes the business
Outsource or divest non-core capabilities to free up resources that can be used to deepen core capabilities

Design competitive positions and strategies that capitalize
on corporate strengths








Selected
references

Unify the company across business units and functional
units, and improve the transfer of knowledge and skills
among them
Help employees understand management’s priorities
Integrate the use of technology in carrying out
business processes
Decide where to allocate resources
Make Outsourcing, divestment and partnering decisions
Widen the domain in which the company innovates, and
spawn new products and services
Invent new markets and quickly enter emerging markets
Enhance image and build customer loyalty

Alai, David, Diana Kramer, and Richard Montier. “Competency Models Develop
Top Performance.” T + D, July 2006, pp. 47–50. Campbell, Andrew, and Kathleen Sommers-Luchs. Core CompetencyBased Strategy. International Thompson Business Press, 1997. Critelli, Michael J. “Back Where We Belong.” Harvard Business Review, May 2005, pp. 47–54.

Drejer, Anders. Strategic Management and Core Competencies:
Theory and Applications. Quorum Books, 2002.
Hamel, Gary, and C. K. Prahalad. Competing for the Future. Harvard Business School Press, 1994.
Prahalad, C. K., and Gary Hamel. “The Core Competence of the Corporation.” Harvard Business Review, May 1990, pp. 79–91. Quinn, James Brian. Intelligent Enterprise. Free Press, 1992. Quinn, James Brian, and Frederick G. Hilmer. “Strategic Outsourcing.” MIT Sloan Management Review, Summer 1994, pp. 43–45. Schoemaker, Paul J. H. “How to Link Strategic Vision to Core Capabilities.” MIT Sloan Management Review, Fall 1992, pp. 67–81. Zook, Chris. “Finding Your Next Core Business.” Harvard Business Review, April 2007, pp. 66–75.

25

Customer Relationship Management
Related topics

Description

Methodology





Customer Relationship Management (CRM) is a process companies use to understand their customer groups and respond quickly—and at times,
instantly—to shifting customer desires. CRM technology allows ?rms to collect and manage large amounts of customer data and then carry out strategies based on that information. Data collected through focused CRM initiatives helps ?rms solve speci?c problems throughout their customer relationship cycle—the chain of activities from the initial targeting of customers to efforts to win them back for more. CRM data

also provides companies with important new insights into customers’ needs and behaviors, allowing them to tailor products to targeted customer segments. Information gathered through
CRM programs often generates solutions to problems outside a company’s marketing functions, such as Supply Chain Management and new product development. CRM requires managers to:



26

Collaborative Commerce
Customer Retention
Customer Segmentation
Customer Surveys
Loyalty Management Tools

Start by de?ning strategic “pain points” in the customer relationship cycle. These are problems that have a large impact on customer satisfaction and loyalty, where solutions would
lead to superior ?nancial rewards and competitive advantage. Evaluate
whether—and what kind of—CRM data can fix
those pain points. Calculate the value that such information would bring the company.
Select the appropriate technology platform, and calculate the cost of implementing it and training employees to use it.
Assess whether the bene?ts of the CRM information outweigh the expense involved. Design incentive programs to ensure that personnel are encouraged to participate in the CRM program. Many companies have discovered that realigning the organization away from product groups and toward a customer-centered structure improves the success of CRM. Measure CRM progress and impact. Aggressively monitor

participation of key personnel in the CRM program. In addition, put measurement systems in place to track the improvement in customer pro?tability with the use of CRM. Once

the data is collected, share the information widely with employees to encourage further participation in the program. Common uses

Companies can wield CRM to:








Selected
references

Gather market research on customers, in real time if necessary Generate more reliable sales forecasts
Coordinate information quickly between sales staff and customer support reps, increasing their effectiveness Enable sales reps to see the ?nancial impact of different product con?gurations before they set prices Accurately gauge the return on individual promotional programs and the effect of integrated marketing activities, and redirect spending accordingly

Feed data on customer preferences and problems to product designers Increase sales by systematically identifying and managing
sales leads
Improve customer retention
Design effective customer service programs

Day, George S. “Which Way Should You Grow?” Harvard Business Review, July/August 2004, pp. 24–26.
Dyché, Jill. The CRM Handbook: A Business Guide to Customer Relationship Management. Addison-Wesley Professional, 2001.
Peppers, Don, and Martha Rogers. Managing Customer Relationships: A Strategic Framework. 2d ed. Wiley, 2011. Reichheld, Fred. Loyalty Rules! How Leaders Build Lasting Relationships in the Digital Age. Harvard Business School Press, 2001. Reichheld, Fred, with Thomas Teal. The Loyalty Effect: The Hidden Force Behind Growth, Pro?ts, and Lasting Value. Harvard Business School Press, 1996.

Rigby, Darrell K., and Dianne Ledingham. “CRM Done Right.” Harvard Business Review, November 2004, pp. 118–129.
Rigby, Darrell K., Fred Reichheld, and Phil Schefter. “Avoid the Four Perils of CRM.” Harvard Business Review, February 2002, pp. 101–109.

27

Customer Segmentation
Related topics

Description

Methodology



Customer Segmentation is the subdivision of a market into discrete customer groups that share similar characteristics. Customer Segmentation can be a powerful means to identify unmet customer needs. Companies that identify underserved segments can then outperform the competition by developing uniquely

appealing products and services. Customer Segmentation is most effective when a company tailors offerings to segments that are the most pro?table and serves them with distinct competitive advantages. This prioritization can help companies develop marketing campaigns and pricing strategies to extract maximum value from both high- and low-pro?t customers. A company can use Customer Segmentation as the principal basis for allocating resources to product development, marketing, service and delivery programs. Customer Segmentation requires managers to:




Common uses

Divide the market into meaningful and measurable segments according to customers’ needs, their past behaviors or their demographic pro?les
Determine the pro?t potential of each segment by analyzing the revenue and cost impacts of serving each segment
Target segments according to their pro?t potential and the company’s ability
to serve them in a proprietary way
Invest resources to tailor product, service, marketing and distribution programs to match the needs of each target segment Measure performance of each segment and adjust the segmentation approach over time as market conditions change decision making throughout the organization

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