Professional Documents
Culture Documents
1999
Tasadduq A. Shervani
Liam Fahey
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Processes,
Marketing,Business
Value:
Shareholder
and
Embedded
An
Organizationally
of Marketing Activities and
View
Discipline of Marketing
the
The authors develop a framework for understanding the integration of marketing with business processes and
shareholder value. The framework redefines marketing phenomena as embedded in three core business processes
that generate value for customers-product development management, supply chain management, and customer
relationship management-which in turn creates shareholder value. Such a conceptualization of marketing has the
potential to introduce dramatic shifts in the scope, content, and influence of marketing in the organization. The authors highlight the implications of an organizationally embedded view of marketing for the future of marketing theory and practice.
ofMarketing,
is anassistant
A.Shervani
Department
professor,
Tasadduq
Babson
LiamFaheyis anadjunct
ofTexasatAustin.
professor,
University
(U.K.).
University
CollegeandCranfield
Processes
ShareholderValue/ 169
Sample Subprocesses
Product Development
Management Process
TABLE 1
Within the Three Core Business
Supply Chain Management
Process
Ascertainingnew customerneeds
Designing tentativenew product
solutions
Developingnew solutionprototypes
Identifyingand managinginternal
functional/departmental
relationships
Developingand sustainingnetworks
of linkages withexternal
organizations
Coordinatingproductdesign activities
tospeed up business processes.
Processes
Customer Relationship
Management Process
Identifyingpotentialnew customers
Selecting and qualifyingdesired
suppliers
Determiningthe needs of existing
and potentialnew customers
Establishingand managinginbound
logistics
Learningabout productusage and
application
Designingand managinginternal
logistics
Developing/executingadvertising
programs
Establishingand managingoutbound
logistics
Developing/executingpromotion
programs
Designingworkflow in
product/solutionassemblyDeveloping/executing
service
programs
Runningbatch manufacturing
Developing/executingsales programs
Acquiring,installing,and maintaining
process technology
information
Acquiring/leveraging
Orderprocessing, pricing,billing,
technology/systemfor customer
contact
rebates, and terms
Managing(multiple)channels
Managingcustomerservices such as
to
installationand maintenence
enable productuse
must connect to the three core business processes previously noted in at least two (highly interrelatedand reinforcing) ways. First, it must do so as a discipline. Second,
individual marketing tasks must be connected to specific
subprocesses within each core business process and to coordinating, integrating,and streamliningthe work inherent
in subprocesses across the core business processes. We
briefly outline each way.
Marketing as a discipline. Processes are meaningless
when viewed in isolation of those people chargedwith implementing them. Typically, a team of individuals creates,
manages, and drives each process, irrespective of the
process's level. Thus, teams guiding each core process must
be infused with marketingcapability,that is, the means to
bring a marketingperspectiveto every subprocess.Unfortunately, in the case of many firms, attainingthis goal will necessitate a significant transitionand transformationfrom a
product-dominatedto a market-drivenview of each core
business process.
Although PDM, SCM, and CRM processes can be
viewed as prime drivers of both customer and shareholder
value, their design depends on the macroenvironmentaland
competitive factors within which they exist. Changes in this
environmentaffect the role of marketingand necessitatealterations in process design. Such change has become continuous and disruptive and has dramatic implications for
marketingtheory and practice.Although others have noted
many of the same marketplaceshifts (for example, see the
compilation of essays in Lehmannand Jocz 1997), we emphasize five that we believe broadlycharacterizethe com-
TABLE 2
Marketplace Shifts: Impact on Business
Processes
Business Processes
Product
Development
Management Process
Supply Chain
Management
Process
Customer
Relationship
Management Process
Fromproductfocus
Manage relationshipswith
customers solely as a
means to sell, deliver,and
service the product
To customer functionality
focus
Manage relationshipswith
customers as a means to
learn about theirneeds
and how best to satisfy
them
Fromproductdifferentiation
Customersas the
focus/recipientsof products
and relatedadvertising,
service, sales activities,
and so forthto establish
productvalue superiority
To solutioncustomization
Workingwith individual
customers so that the total
solutionis tailoredto their
individualneeds
MarketplaceShifts
Fromtransactions
Identifying,targeting,selling,
delivering,and servicing
customers as independent
transactions
To relationship-based
intimacy
Developingrelationshipswith
externalsuppliersfor next
generationof supplies
Developing,fostering,and
leveragingrelationships
withindividualsand sets
of customers
Fromstand-alone
competition
Completedependency on
own knowledge,expertise,
skills, capabilities,and so
on
A tendency to emphasize
ownershipand controlof
each supply chain element
To networkedrivalry
Leadingand participatingin
multiplenetworksto
spawn, nurture,and
integratethe development
of productsthat otherwise
wouldbe impossible
Leadingand participatingin
multiplesupply chain
networksto create
supplies that otherwise
would not be possible,
enhance supply chain
efficiencies, and so on
Developingand managing
a networkof relationships
withother entities (such
as rivals,channels, end
users, and market
professionals)to identify,
reach, and satisfy
customers in ways that
otherwisewould be
impossible
Fromeconomies of scale
An emphasis on resource
use efficiencies in
designing and developing
products
An emphasis on efficiencies
in vendor relationships,
inventorycontrol,logistics,
production,and so on
An emphasis on efficiencies
in all phases of marketing
activities
Leveragingresources to
create productsthat serve
interrelatedcustomer
Leveragingall marketing
resources to create the
types of customer
segments/markets and
returns
multipleforms of product
and marketlinkage
ShareholderValue/ 171
the
ShareholderValue1173
Business
Processes
TABLE 3
and Drivers of Shareholder Value
Business Processes
Product Development
Management Process
Customer Relationship
Management Process
Acceleratingcash flows
Speed up adoptionby
channels and original
equipmentmanufacturers
Speed up adoptionof
components and supplies
Reduce orderdeliverycycle
time
Reduce time to volume
Enhancingcash flows
Supplychain process
reengineeringto minimize
costs (e.g., by reducing
margins
Cannibalizeexisting
problemincidence rates)
Reduce workingcapital
productsby higher
throughjust-in-time
price/margininnovations
methodologies
Simplifieddesigns to reduce
Reduce capitalinvestments
costs
Customerinputsto eliminate
by outsourcinglow valueadding elements of the
unnecessary features and
costs
supply chain
Use marketinformationand
Sharingmodulardesigns
forecasts to reduce costs
across productsto reduce
and inventoriesand
costs; reusingdesigns
enhance capacity use for
Acquiring/licensing
higher-valueproducts
technology
Design for manufacturability
(e.g., dynamicpricing/yield
and assembly to reduce
management)
costs and time
Supporthigh marginswith
brandedproductsand
superiorservice
Cross-selling parts,
consumables, and
complementaryservices
Maximizecustomer value
(and revenues) by
assembling customer
solutions (including
competitiveproductsand
services)
Acquirecustomers;grow
installedbase
Refine the qualityof
customer base (to reduce
receivables and inventory);
customer management
Lowerproductlaunchcosts;
lower sales and service
costs
Reducingrisk(vulnerability
and volatilityof cash
flows)
Customer retentionand
loyaltyversus acquisition
and attractionprograms;
loyaltyprograms
Increase customer switching
costs by bundlingproducts
and services
Excellence in deliveryof
intangibles,experiential
attributes,and services
Leverage market-based
assets (value networks)
Customereducation/training
programs
Leasing programs
Price concessions for longterm deliverycontracts
Cross-selling parts,
consumables, and
complementaryservices
to
Productdifferentiation
enable higherprices and
with a small set of its most demandingcustomersto generate potentialsystem architecturesthat may be radicallydifferent from prevailing designs. Such intense customer involvement is intended to avoid the animosity and
subsequenttime-consumingredesignsthatoften occur when
potential solution concepts first are developed by product
development personnel and then presented to customers
(Eisenhardtand Brown 1998*; House and Price 1991*). A
failure to manage time to marketresults in false starts,delays, and missed opportunities.These are sometimes extremely costly in terms of both time and money.
Reducing cycle times in each SCM subprocess contributessignificantly to customersgetting the rightproducts
in the desired form and getting them faster. Reducing time
to market, time required to commercialize products, and
time to volume are driving mantrasin most organizations.
Yet an absence of marketinputs and perspectiveall too often retardsthe speed of commercializationand thus the receipt of cash flows. To get productsto marketfaster, firms
increasingly select suppliers that are willing to develop
componentsand specialized inputsjointly and offer the suppliers inducements to speed up component development.
When viewed as transmittingdata and informationrather
thanmoving physical goods, even some SCM subprocesses,
which may not have evident or obvious connections to customers' needs, requirements,and interests,such as inbound
logistics, internal logistics, and assembling components,
contribute to speeding commercialization and sustaining
market penetration.Electronic data interchangeand Internet-based communications networks now instantaneously
connect marketdata, such as sales dataand locationof product sales by store outlet and geographicregion, to suppliers'
production schedules, logistics firms' delivery timetables,
and internalmaterialshandlingroutinesthrougha virtualintegrationof the supply chain (Magretta1998*). At the other
end of SCM, understandingchannel motivations enables
firms to createthe rightprogramsto educatedistributorsand
the right incentives to streamline and speed up outbound
distributionand, thereby,adoptionby channel partners.
Most companies understandthe importanceof time to
marketbecause of the time value of money and competitive
uncertaintiesalong productlife cycles. Yet many such companies fail to realize that inadequateattentionto barriersto
marketacceptancecan delay productadoptionand diffusion
and, thus, cash flows. Such CRM subprocessesas advertising and promotionbuild more rapidproductawareness,entice early product trials, and promote repeat purchases.In
addition, customers adopt and refer to branded products
more quickly (Zandan 1992*), market seeding facilitates
diffusion of innovations(Jain,Mahajan,and Muller 1995*),
and networkexternalitieslinked to the size of the customerinstalled base foster market acceptance (Arthur 1989*).
Each of these results supportscash flow accelerationbased
on CRM.
Unfortunately, companies often balk at spending
amountsfor channel and marketdevelopmentthatare an order of magnitude lower than product development costs.
Cooper (1993*, p. 26) finds that, in the case of industrial
new productdevelopment, 78% of total effort as measured
by person-dayswent to technological and productionactiv-
Discussion
The ability of marketersto influence marketplaceperformance will be increasinglydependenton the extent to which
core business processes are infused with a marketingperdata. The need
spective and shaped by marketing-generated
to adopt a cross-functionalperspectivewas underscoredby
a workshop sponsored by the MarketingScience Institute
thatfocused on managementof corporatefault zones (Montgomery and Webster 1997). Paperspresentedin this workshop emphasizedthatmarketingsuccess or failureno longer
can be denominatedonly in traditionalproductmarketperformancemetrics such as sales and marketshare.Marketing
investments and commitments must be assessed for their
impact on efficiency and effectiveness of business
processes, financial outcomes, and creation of shareholder
value. In the discussion that follows, we focus on the implications of this framework for marketing theory, practice,
and teaching.
Implications for Marketing Theory
Although marketingscholars long have issued innumerable
admonitions to stipulate, test, and accumulate marketing
theory, a recent plaintive cry manifest in the literaturehas
called consistently for new theories that embrace new concepts and variables that address how and why marketing
succeeds or fails (Lehmann 1997*; Webster 1997*). Extending existing theoretical frameworksmay no longer be
sufficient to reflect marketplaceshifts and guide marketing
practice in the fundamentallynew competitive context and
conditions that will characterizethe new millennium.
The frameworkpresentedhere offers a potentiallyfruitful approachto developing marketingtheory that expressly
responds to emerging change in both organizationaland
competitive contexts, with the intent of explaining success
and failure (Anderson 1982; Day 1992*). Although extensive conceptual and empirical work lies ahead, the framework presentedhere suggests that marketingscholars must
addressthe following more explicitly:
*Thespecificationof intraorganizational
conditions,specifically core businessprocesses,as a componentof marketing
theories;
of cause-and-effect
*Thepostulation
linkagesbetweenmarketing andthedesignandexecutionof corebusinessprocesses;
*Thepostulationandtestingof cause-and-effect
linkagesbetween core businessprocessesand both marketplaceand
valuevariables;and
shareholder
to the enterprise,
contribution
of marketing
*Thevalue-added
in termsof meetingorganizain whichvalueis denominated
tional prerequisites,marketplaceperformance,and shareholdervalue.
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