 |
The
Gantry Group
Building Business Through Research |
Gantry
Group Newsletter
Issue No. 4, October 2001 |
|
The
Gantry Group
Building Business Through Research |
Gantry
Group Newsletter
Issue No. 4, October 2001 |
|
What is a business? The only function of a business is to create customer [value] and to innovate. (Business 2.0, October 2001, Peter Drucker Interview) The way to assess the real value of a company is not new. After years of focus on value models that are ultimately driven by share price, there is a growing awareness within the business community that the creation of customer value is more fundamental than shareholder value. While revenues, cash flow and earnings are vital statistics of a company’s well being, they are a by-product of what the company actually offers up as a product or service. If the offering does not produce ROI for the customer, it will not ultimately represent a viable business opportunity. Perhaps the best way to illustrate this important – but often overlooked – concept is to examine the circumstances surrounding the collapse of the dot-com bubble. New Economy companies that could not generate sustainable business were those that were not delivering meaningful value to their customers. Simply stated, many of these companies did not have anything to sell (i.e. completely lacked a revenue model all together) or pitched products/services that the target market had no interest/urgency to buy. As a result, valuations that were based on highly speculative multiples of projected sales and earnings (not to mention those based on comparables) were sadly disconnected to reality. Bewildered by the complexities of economic uncertainty, a seemingly onslaught of emerging technologies, and unfulfilled promises of past infrastructure investments, corporate decision-makers have been tainted into a creeping skepticism towards the real tangible value of technology spending. This could be, in part at least, because the real value of many technology sector offerings (e.g. Internet technology) is not well understood or their benefits quantified. According to Peter Drucker, “it is reasonable to expect that we have not yet really discovered what the Internet is best suited for”. And as Carly Fiorina, CEO of HP puts it: “People have figured out that technology is no longer an end in itself. It is no longer about piece parts and hot boxes. It is about putting together a solution that clearly makes a difference.” |
In their September 10, 2001 research
report, Goldman Sachs noted that among businesses in communications, financial
services and technology itself, the focus remains on ROI and preservation
of cash flow. Further, as shifts in demand are expected to manifest as
“rational, long term growth rates” for technology, it is more important
than ever for technology vendors to concentrate on providing real, quantifiable
value to their customers. Measuring and monitoring customer value creation
is critically important to all technology businesses and their current
and prospective stakeholders.
| Using primary market research as a means to reduce investment risk |
Investors and bankers ……….. must not expect high technology to translate automatically into high demand. The stranded investment in mobile phones shows that an extra ingredient is needed: the tailoring of technology to real human needs - and they are notoriously unpredictable. (Financial Times, September 7, 2001)
Further to the quotation above, venture capital investors considering new or follow-on investments in technology companies can reduce their risk by first determining the degree to which a candidate company is creating value (read ROI) in the mind of its customers. In particular, those venture capitalists who are in the process of triaging their portfolio, can use primary market research as a decision support tool when considering the risk/reward profile of follow-on investments in portfolio companies.
How does primary market research reduce investment risk? Whether an emerging technology company introducing a whole new product category or a later stage company with established market presence, conducting market research to synchronize with the needs of the customer can reduce the risk of invested capital. Market research creates the conduit to efficiently tap into the customer directly to calibrate on overall success factors, pain points and needs. In do so, companies’ market strategies become fact-based rather than assumption-based. Fact-based decisions contain less inherent risk than those based on “gut-feel.”
Primary market research can also be used to gain quantitative insight as to the extent customers are satisfied with the realized value derived from a company’s offering. Surveys and focus groups designed to identify the “value scenarios” associated with a specific company’s offering are the first step in understanding – from the customer’s perspective – where they expect the value points to reside and the levels of ROI required to rationalize the technology expenditure in the first place. Further research will then reveal the extent to which customers are tracking and quantifying the value scenarios, and to what extent ROI is utilized by the customer in making purchasing decisions.
Usability testing methodologies, a specialized form of primary research, work remarkably well for quantifying customer benefits of an offering when the offering is a “back-office” Internet enabling technology or a service delivered via the Web. By tracking how prospective customers use and react to an Internet-based offering with online usability testing technology, a company can conduct “with and without” studies to measure how well their offering actually performs. For example, if the offering is intended to streamline electronic order and payments, usability studies can quantify processing speeds with and without their offering powering the website. Such performance measurement at the customer’s end can easily be translated into recouped dollars.
Market research enables investors
to make fact-based decisions and calls about which companies to continue
funding, and which ones to guide to liquidity. In the wake of the dot com
shake out, having a credible basis for evaluating portfolio investments
is not only sound business, it is also critical to the management of the
expectations of limited partners.
| Creating Customer Value |
Question: What can be done to enhance the probability that you are delivering value to your customers?
Answer: Ask them!
Primary market research can provide answers to key questions such as the following:
Armed with this type of information, technology companies can gain important leverage with current and prospective customers – leverage that can translate into increased business during a period of tightened IT spending and greater skepticism of the real ROI of technology investments.
About Gantry Group: Founded in 1997 and headquartered in Concord, MA, we are a full-service, custom market research and advisory firm dedicated to helping companies cost-effectively accelerate the successful market adoption of their products and services – online and offline.
The Gantry
Group has been helping companies gain critical insight into how valuable
they really are to their target customers, by conducting research studies
that yield quantifiable ROI – from the customer’s perspective.
| The Gantry
Group, LLC
30 Monument Square, Suite 135 Concord MA 01742 |
Phone: 978-371-7557
Fax: 978-287-0043 Email: info@gantrygroup.com Web: www.gantrygroup.com |
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