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How to Determine Appropriate Performance Measures During Mergers (cont'd)

Customer Perspective

The purpose of a customer assessment is straightforward: how does the organization determine how to best service existing customers and attract new ones as a combined entity. Key questions to be answered in making this determination include:

  • To what extent do the two merging entities have customer bases that overlap?
  • How will the overlap be managed (i.e.- who will be the main point of contact / relationship manager for each customer in the new organization)?
  • What does the acquired company currently do that delights its customers? What do they do that causes them to lose customers?
  • How does the acquired company communicate with its customers?
  • How are sales and marketing accomplished, and to what degree of success?
  • What opportunities for cross selling exist based on the merger and how can they be leveraged?
  • How will key customer measures be defined for the future?

In-depth project plans are recommended to help answer the first two questions. A transition team focused on customers should be formed to determine how to best deal with these issues. A key performance measure will be tracking the progress of this team. A planning-based measure can be created by having the team establish a timeline with milestones to measure against. As the team executes its plan a periodic scorecard should be issued that includes predicted versus actual. This can take several forms. For example, if the team is 45 days behind schedule the scorecard measure may read -45. Alternatively, if the team has achieved 7 of 10 milestones the scorecard may read 70%. The 'right' format is a matter of personal preference.

A tool that is extremely useful when conducting a customer assessment is the system map. It is designed to provide a big picture overview of how a company interacts with its customers and how successful it is in meeting customer needs. The system map will help the team answer many of the rest of the above questions and establish additional performance measures. Consider the example of a large software company that has just acquired a smaller "boutique" type of organization. The acquired unit was very entrepreneurial, very profitable, and didn't have a lot of processes and structure. They were successful primarily because of their creativity. The goal of the acquiring unit is to integrate them into a more structured environment without quashing the entrepreneurial spirit. Below is an example of how a system map might be used to evaluate how the acquired unit interacted with its large customers, who typically requested extensive customization of product.

In the diagram above, the box in the middle contains the company name, and the oval in the middle on the right contains the customer segment under analysis. The box in the lower right-hand corner provides an analysis of what the customer wants and how well we are meeting their needs. The right hand side of the diagram also analyzes interaction with customers. The Feedback from Customer box describes the various mechanisms for gauging how customers let XYZ know what they like / don't like. The Feed Forward to Customer box illustrates how XYZ lets the customer know what to expect in the future (advertising is a classic example, though not listed here) from XYZ. Finally, the right hand side denotes the key gap in the eyes of the customer and postulates what the internal causes of the gap are.

The left hand side of the system map analyzes key suppliers and their impact on XYZ's ability to deliver to the customer. It begins with a listing of all key suppliers in the ovals in the middle. Note that the suppliers are labeled A-B-C. The box on the lower left lists what XYZ expects from its suppliers, with each expectation coded to the applicable supplier. Again, the interaction is analyzed via feed forward and feedback. The text on the middle left denotes the most important supplier-side gap and what the impact of the gap is on the company and its customers.

This particular example contains a wealth of information pertaining to the selection of performance measurements. For example:

  • The customer gap analysis reveals that XYZ has a poor track record of meeting deadlines. This is the number one problem in the eyes of the key customer segment, so it will need to be monitored in the future.
  • Feedback typically comes in two forms: formal and informal. Formal feedback is regular, scheduled, and initiated by the company. Informal feedback is not regular and is initiated by the customer, usually only when something is very wrong. Note that XYZ has only informal mechanisms for feedback. There are no customer surveys, opinion polls, etc. This represents an opportunity for performance measurement in the future that in this case could lead to better product development.
  • The feed forward to customers is informal as well. This could lead to customers setting unrealistic expectations. In this case it could reflect that XYZ is not communicating deadline information properly and it is resulting in customers perception that the company is not measuring up.
  • The supplier side reveals that customers are also a main supplier. This is true of almost every IT application, as the user needs to provide the product specs up front in order to receive the desired product down the road. Note that customers are not communicating needs clearly, which is resulting is a poor percentage of products being viable on the first try. "First run" percentage is therefore a key performance measure and firming up the communication process may be a means to drive it in the appropriate direction.
  • The supplier side reflects excellent vendor performance in meeting deadlines. This is critical since it implies that meeting customer deadlines is an internal problem versus an external one. Monitoring vendor performance may remain a key measure, but internal measures should take precedence in the short term.
  • The text on the far right provides insights into which internal areas need to be further analyzed. Product development may be a process that requires definition in the process assessment. Ditto the sales process, as it appears sales is selling before they know what XYZ can actually produce.

It is recommended that a system map be constructed for each main customer segment to account for potentially different needs of different groups. Combining system map analysis with traditional measures such as customer retention, customer addition, and share-of-wallet will result in a healthy set of customer performance measures. Note that the definitions of a retained customer and a new customer may need modification in light of the merger. It must be decided if the customers of XYZ, for example, count as new customers for the acquiring company or retained customers of the combined company.

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