What Do "Bad" Clients Cost Your Firm?
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If you were able to ask just one question of a client, with the assurance that the answer would give you a good indication of their level of satisfaction with your firm's services, what would that question be? Fred Reichheld's article The Microeconomics of Customer Relationships (subscription or purchase for $6.50 required,) in the Winter 2006 edition of the MIT Sloan Management Review, has the answer. It is:
"One a scale of 1 to 10 where 1 is 'not at all likely' and 10 is 'extremely likely,' how likely is it that you would recommend us to a friend or colleague?"
Depending on the answer, clients would be categorized as promoters (scores of 9 and 10,) passive (7 or 8) and detractors (6 or less.) Note that passives do not straddle the 50% or even the 60% mark. Anything less than 70% is viewed negatively.
General Electric, already the 9th largest company in the world by revenue, is using this model to try to drive its organic growth rate from 5% to 8% pa. According to Reichheld's data, a promoter has a net present value (NPV) to the firm of 1.5 and 2.5 times that of an "average" client (i.e. a passive.) On the other hand, a detractor frequently has a negative NPV. Sometimes, a surprisingly high negative NPV. The article explains how a firm can calculate these figures for themselves and also how to use them. A summary follows:
Continue ReadingHarnessing the Phoenix
0 Comments - Posted By Rob Millard In "Off the Wall" Insights , Competitive Intelligence , Culture , Innovation , Inter-Generational Issues , Leadership , Strategy 101 , Tools for Strategists , , , , , , , - Permalink -
Surely the most dramatic mythological example of rebirth and renewal, is the Phoenix (or "Firebird.") It is found in ancient Egyptian mythology, various myths derived from it and, most recently, in Professor Albus Dumbledore's study in Harry Potter.
Said to live for 500, 1461 or for 12594 years (depending on the source), the phoenix is a bird with beautiful gold and red plumage. At the end of its life-cycle the phoenix builds itself a nest of cinnamon twigs that it then ignites; both nest and bird burn fiercely and are reduced to ashes, from which a new, young phoenix arises. The bird was also said to regenerate when hurt or wounded by a foe, thus being almost immortal and invincible.
Imagine, for a moment, that you were able to regenerate your firm in this way. Miraculously, you were able to instantly transform it into an organization of the highest performance with, what's more, that performance being sustained.
Continue ReadingLove Your Dogs?
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A current Strategy+Business article, Love Your Dogs, suggests that conventional wisdom may be wrong when it dictates that resources should be focused on a businesses 'stars' while leaving 'dogs' to starve or hiving them off. (The terms, of course, come from Boston Consulting Group's famous model that divides businesses into stars, question marks, cash cows and dogs.)
This issue is a particularly troublesome topic in many professional service firms, where practice areas that may have commoditized to the point of marginal profitability are not faceless business units but one's partners, colleagues and, frequently, friends. So facing up to the need to starve or divest dogs is something that many firms simply don't have the stomach for. The result is that they are tolerated and sometimes (in the name of 'fairness') even invested in as much as high growth areas of the firm.
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