I have had the privilege of posing this question—Who’s in charge of value in your organization?—to thousands of leaders around the world. I’m usually met with a momentary staring ovation, and then someone will inevitably shout out, “Everyone!”
Really? I live in California, where I’m told everyone “owns” the Golden Gate Bridge. I would like to sell my portion; unfortunately, I encounter what economists call the tragedy of the commons.
If everyone owns something, no one does. No one has an incentive to protect and maintain the value of the asset in question.
Pricing is far too important to the viability of the company to be left to mediocre pricers. No other area—not cost cutting, efficiency increases or growth – can have as large an impact on profitability as pricing does.
It is time for organizations to recognize that if they are serious about pricing commensurate with the value they create, they need to establish a core group of enthusiastic pricers to establish pricing as a core competency within the firm.
Appoint a Chief Value Officer
To understand value, we have to understand the customer. This is not accomplished with more accurate cost accounting, better project management or any other internal initiative. Companies have a wealth of information on how long things take and what they cost; they have a paucity of metrics on the value they create for customers.
Someone needs to be in charge of value. BMW has a Customer Experience Officer, responsible for the entire BMW experience, from decision to purchase, to service and trade-in.
One question that continually comes up is, what are the traits of a successful chief value officer (CVO)? The acronym LACEY is a useful framework for identifying what characteristics are essential for a successful CVO:
An organization will never rise above its leadership. CVOs implicitly and explicitly understand that the firm’s prices are the language in which they strategically communicate value to customers.
Perhaps, the first important characteristic of a successful CVO is high self-esteem; they believe that their company’s services are worth every penny they charge. There is great nobility in being paid what you are worth.
A CVO must have demonstrable leadership skills, while also commanding respect and creditability across multiple functions within the firm. They will be responsible for communicating the importance of pricing and value to the media, thereby negating price wars within the industry.
The CVO has to view pricing as an enormous opportunity for the firm to create and capture value, rather than a limitation imposed on them by the market, which they have no control over, just like the weather. Pricing is far too important to assign to narrow minds. Pricers have to be intellectually curious, constantly learning, reading and studying why humans behave the way they do.
Look for a CVO who is moving through the five levels of learning: awareness, awkwardness, application, assimilation and art. Pricing is an iterative process of the mind and it will always require human judgment.
A CVO that does not have the support of the CEO is destined to be feckless. Effective centralized pricing has to have total authority, which needs to be vested in one individual so there is one throat to choke.
The CVO should report directly to the CEO, sending a powerful message throughout the organization that the leaders are serious about value and pricing.
Since this is a relatively new skill in the marketplace, talent is presently hard to find, and firms will have to develop it internally. If resources are limited, the best advice is to read. There are many excellent books on pricing. Make every member teach what they learned, and what they think the firm should do differently as a result, to their colleagues.
As Professor Ernest Rutherford, the man who split the atom, said: “It’s true we don’t have much money so what we have to do is think.”
Also, as with any new initiative, there is bound to be inevitable mistakes, failures and setbacks. The CVO must be committed to the process. Pricing is hard, but so is training for the Olympics, or anything else worth doing. Obtaining a competitive advantage is never free. Determination and commitment defeats diffidence.
The CVO has to take a stand for the customer, constantly asking how the company can provide more value. They have to be willing to experiment and cannot be prisoners of the past. Having the mantra that “That is the way we have always done it” should inspire nothing but contempt from CVOs.
A CVO will constantly be on the search for new ways of doing things, all the while eliminating procedures and processes that do not add value to the customer. This is the CVO mandate.
I will admit a certain amount of uncertainty as to the implications of this last characteristic. I am not suggesting that you cannot teach an old dog a new trick. Instead, research on age and innovation suggests you should not expect an old dog to innovate a new trick to add to the repertoire.
If organizations want innovation and dynamism, they will have to give more authority and responsibilities to their youthful team members. At the very least, some people in their twenties or thirties should be on the value council. Organizations, like people, tend to calcify with age, and youth can keep the blood pumping at a more vigorous pace.
No doubt they will make more mistakes and incur more failure, yet risk is where profits come from. What is the alternative? Ossification is not an option.
Not Final Thoughts
It is often said that we get what we measure. If this is true, isn’t it time we measure what we want to become? Who in your company is measuring value?
If you are competing against a firm with a CVO, you will be at a severe competitive disadvantage. The Roman God Janus had two sets of eyes, one to see what lay behind and the other to see what lay ahead. A CVO is an outward-looking position, with duties carried out in a world of risk, uncertainty, innovation and faith in the future, where value is solely arbitrated by the customers your firm is privileged to serve. If the only set of eyes you possess look behind you—at historical costs, hours, activities and efforts—you are destined for a perilous future.
So, who is in charge of value in your company?