What is a happy customer worth? What is the value of a loyal customer? As any salesperson or broker will tell you a happy, loyal, motivated customer is worth its weight in gold. So why haven’t IT departments decided that this is the same for our relationships with the rest of the business? As we continue to march down the path of digital transformation, IT departments everywhere are striving to become flexible brokers for IT services and products. Shouldn’t we also re-define our IT strategy and operating models to prioritise our key relationships? Yes, we really should. It’s time for IT departments to look at the relationships they have with key staff from the rest of the business and treating these Business Relationships as IT Assets.
Defining Relationship Value
As marketing thinking evolves, organisations are beginning to quantify the value of their relationships and place development and maintenance of these relationships at the core of their customer interaction strategies. Businesses are spending big money on researching and analysing the psychological roots of customer behaviours. They are starting to put relationships on the balance sheet, quantifying them for corporate stock valuations and estimates of product strength in the marketplace.
Internal IT leadership should sit up and take notice. After all, we are constantly being asked to demonstrate our value and the value of our initiatives. Our customers are our colleagues, budget holders and managers who ultimately have to support what we do through the provision of resources. But somehow we seem to discount the value of developing relationships with these customers and instead believe that our value will be best demonstrated by a good relationship between our customers and their interaction with the technology we provide.
Although that may have been truer in the past. Today, and ever more so moving into the future, that view is proving to be fatal. The digital ecosystem is characterised by the interaction of many individuals at different levels with a complex network of behaviour as it relates to other people. Therefore the full scope of information related to technical requirements, customer satisfaction, unsatisfied needs, and so on, is dispersed throughout the organisation and has always proven elusive to traditional requirements gathering scope and methods.
Relationships have always been critical, but two trends are making them increasingly so in the new digital era:
- Commoditisation and Consumerisation of IT are diminishing the value of ‘internal IT’; we are not the single source of technology in our organisations. In order to provide a true ‘service’ with differentiation as a competitive edge, it’s all about the ‘experience’ you provide; the extent to which people enjoy the experience of dealing with you is becoming a major differentiator in our customers’ decision-making process. This goes from the Service Desk on up to Strategic Demand Management, how we identify opportunities in the business and initiate projects based on those visions.
- Technology is reducing the opportunity and need for people to interact personally. So when interaction happens – it is critical that it be effective and contribute to the ‘IT experience’. We remotely fix desktops, troubleshoot over the phone, push updates seamlessly into the environment. Most of ‘IT’ is now behind the scenes – so what kind of IT does your customer interact with personally? In my view, this consolidates and intensifies the interactions your key stakeholders have with IT at the strategic level. Planning with EA, working with the PMO, negotiating risk with the CISO, working with the board and the CIO – these are the interactions and relationships which need to be the most most MOST effective, provide the most value, in the new age of IT.
And this complexity, dispersion and increasing criticality are why IT needs to sit up and pay attention to how it views and values the internal and external relationships in the Digital Ecosystem.
Looking at Relationships as an Intangible Asset of IT
Intangible assets differ from tangible assets not just because they lack physical materialisation, but also because they are not identifiable to the balance sheet such that contracts can be written against them for delivery. Nevertheless, intangible assets and intellectual capital are key sources of value and the levers for superior business performance in today’s modern economic environment. They are the sources of competitive advantage and above normal financial returns for countless brands. In fact, with these intangible assets, it appears some of the basic economic rules seem to be breaking down. Here’s how they apply to IT:
- Relationships follow the laws of increasing returns. If you look at the law of decreasing returns, the more you use machines or buildings the smaller is the marginal return. For intangibles such as knowledge, brands or relationships, this does not apply in the same way. It is often argued to be the opposite, the more we use our knowledge the higher the return.
- Relationships are a Multi-Use Asset. Unlike physical assets that can only be used for one activity at one point in time, intangible assets can be used simultaneously for multiple uses at different places in the value chain. Like the knowledge to produce a specific drug, or the programming of software codes delivering an application, a brand or even the corporate culture.
- Pareto’s law doesn’t apply to IT – i.e., customers with the highest volume of transactions are the most profitable customers. In addition, Stahl et al. (2003) maintain that in many cases, low-maintenance customers subsidise those with high service demands, and this is precisely the principle of Activity Based Costing (ABC) which provides a fairly accurate means of measuring costs related to customer relationships. However, I know many IT organisations where typically the highest volume customers also make use of the greatest bargaining power, thus enjoying a better, faster or more effective service from IT. So there is no relationship-to-profit law that can measure intangible assets, yet.
Many commentators in the financial world, especially around startups and the online marketplace, view the omission of “intangible assets” from balance sheets as a glaring deficiency. They ask: How can accountants produce a financial statement that omits assets like brands, distribution and supply chains, knowledge, human capital, and organisation capital, particularly when value and competitive differentiation in modern firms comes more from these assets than from the tangible assets on the balance sheet?
Finance requires tools and techniques to manage, measure and report key value drivers and most traditional management and accounting systems were designed for the era of tangible assets. The knowledge economy overall is therefore in the need of new management methods and techniques to identify the assets delivering the most value, to visualising how these resources drive performance and tools to measure and value the dynamic interactions of these assets. In IT, we will have to wait for these tools and methods to be more fully defined and developed before we are able to include relationships as an intangible asset on our own IT balance sheet – but there are still places to start in measuring, monitoring and improving the relationship orientation of your entire IT organisation.
In the new flip-it-on-it’s-head model of IT (where relationships, service, customer experience, flexibility, sourcing, cross-systems thinking and soft skills are king), we should take the same approach and look at the quality of our relationships with our customers as an asset because assets have value.
How to Measure the Value of IT Customer and Partner Relationships?
A few key measures will start to paint the picture of the quality of your relationship map:
- Relationship Scope – the number of people in the Business or Partner organisation with whom the IT organisation wants to have a relationship (i.e. the desired position).
- Spread – the number of Business or Partner Stakeholders with whom at least one of a defined key IT Leadership Team has a relationship (i.e. the actual position).
- Depth – the number of IT Leadership people with whom each Business or Partner person has a relationship (i.e. total number of touchpoints).
- Strength – The type of relationship (Ad Hoc, Technical, Social, Order Taker, Partner, Peer) and level of Partnership (1-100) of each person-to-person relationship.
- Power – A score based on an individual’s position or role and its relevance to your organisation.
- Influence – This relates to an individual’s personal influence, independent of any role or position (e.g. force of personality).
- Customer Loyalty – The degree to which customers experience positive feelings for and engage in positive behaviours toward a company/brand.
- Customer Satisfaction – The degree of emotional satisfaction and perception in the quality of the IT services you provide.
Successful organisations monitor their customers’ attitudes and perceptions of the products and services they deliver, benchmarking performance against the competition. This information proves a valuable competitive tool to guide operational improvements; recognise and leverage strategic advantages; anticipate customer requirements; as well as identify potential issues and weaknesses. Compare this to most IT functions which benchmark, if at all, on spend/cost, process efficiency and staffing levels.
Benefits to IT Include:
- Great Relationships create IT Operational Efficiencies.
Good relationships smooth the way, clear up misunderstandings, decrease poorly defined projects from getting underway. What does that mean to your bottom line? The higher the quality of the relationship with the business overall, the greater the efficiency and effectiveness of the IT delivery engine.
- Organisations with higher levels of customer loyalty experience faster business growth and studies also show that customers often value their relationships with an organisation more than the product or service.
Extrapolate to IT – and it’s not about the project, the application or a specific IT function. CIO’s must break down internal conflict between BRM, PM, BA, EA and CISOs to work as a unified IT Team for your customers.
- Great Partner relationships increase IT/supplier alignment and can drive innovation in your organisation.
- Great business relationships provide better information to shape/steer demand. As you increase trust, you increase the depth, type and quality of information obtained.
- Understanding loyalty and customer relationship quality allow us to obtain more accurate estimates of the Return on Investment (ROI) of improvements, enhancements and innovation initiatives.
Relational intelligence must pervade every aspect of IT that touches customers and, of increasing importance, our partners. IT’s continuing obtuseness about relationships represents a glaring failure of will. We have a clear competitive advantage over vendors which is customer intimacy – based on Treacy/Wiersema strategic differentiators. While many current IT Customers or users of internal IT are captive or even hostage to our governance, policy and legacy (see Technology debt), and simply have to use what we have provided – it doesn’t have to be this way.
Relationship-Oriented IT goes beyond marketing on the front end or customer service training for the Service Desk. To gain customer satisfaction, loyalty and hence future value, we have to go beyond reliable service. Reorganising processes around relationships can be a far-reaching undertaking. Learning how to identify your most valuable customers and developing and implementing customer-centric strategies to maximise strategic value is the first step. Follow by working to develop a rich culture where your team can act in the customer’s best interest, to build the capabilities and skills of excellent relationship management and work to align demand-side processes to customer value. Each IT opportunity challenge starts with “Now what do our customers want in this situation, what is best for him or her?” IT Finance may take the short-term view of asking what all this upfront discovery and design is costing – but this is IT Demand Management at the top maturity level, where you spend the time and money needed to fully understand what your users want, what they value, who they are, what their future needs are – before you design the solution.
There is huge potential for IT organisations in flipping a technology-first model on its head. In treating your IT relationships as assets, you can increase your base potential; the range of opportunity worked on. Through quality partnerships, your networking potential and the referrals and recommendations from trusted advisors will add value to your team. What you will learn, your learning potential, will grow through the ability to tap excellent sources for quality information, insight and wisdom. And finally, the keys to the IT kingdom, your Growth Potential, the ability for IT to affect the bottom line of the organisation will also increase. What’s better than that?