Corporate Structure | The Value Factor[c] How Global Leaders Use Information for Growth and Competitive Advantage

Though business fundamentals aren t changing, the ways we think about and structure our businesses do need to change if we are to compete and grow.

Mohanbir Sawhney

One leading expert who has done a lot of thinking about the changes we can make is Mohanbir Sawhney, McCormick Tribune Professor of Technology at Northwestern University s Kellogg School of Management. His insights into how we need to approach our businesses are invaluable. Sawhney says we need to recognize that what he calls relational equity is the new wealth of the corporation. The intangible value of the relationships a company builds is in many cases more important than the tangible things that are measured on the balance sheet. The result ”companies are structured around the things on their balance sheets, around assets and objects, instead of around the relationships, which are the most valuable assets of the company.

Companies, Sawhney says, need to become as efficient at managing relationships as they are about managing things. Corporate structure needs to reflect this new mandate . He points out three old ideas that drive current structural norms and that stand in the way of success.

Product superiority drives success. This, he says, is an outdated notion and should not dictate corporate focus and structure.
Product differentiation distinguishes between competitors. Wrong, says Sawhney. Products have become too complicated for customers and for the most part competitors have reached feature parity.
Complexity in the product portfolio provides choice and range that attract customers. Not so. The number of customer segments has not increased commensurately with the number of different products. Instead, customers are inundated by products with indistinguishable variations.

We need, Sawhney says, to understand and measure the value of relationships. For example, he suggests five new approaches to quantifying customer value.
Total value over the relationship s lifetime.
Potential value , including potential revenues from products and services a company could offer in the future as well as existing product lines.
Profitability of the relationship.
Insights a customer can provide have value. The knowledgeable feedback on new products and marketplace trends that, for example, early adopters can often offer is a valuable resource.
Influence a customer wields over other customers has value. Opinion leaders and influencers are most valuable for the business they can bring in, not for the business they do with you.

All relationships ”with partners , customers and employees ” appreciate, depreciate, are subject to risk and have option value. We need to replace the balanced scorecard with a relational scorecard. Replace the product lifecycle with a relational lifecycle. Structure our portfolio of relationships, not products.

Restructuring to reflect this change of focus does not mean destroying the functional or product silos around which most companies are structured. It involves making the silos permeable to information sharing. Information is the lubricant in all our relationships. We need to structure and manage our companies to capture and use the extensive information we can harvest from our relationships. But Sawhney s analysis does not stop there.

Capturing and using relationship information quickly, doing business in so-called real-time, is the Next Big Thing touted by the business media. The analysts call it the Real-Time Enterprise. Sawhney cautions against jumping on the bandwagon and prescribes the following reality checks:
The idea is not new.
The capability is not real, yet. Change will necessarily be slow and incremental.
To achieve real-time is not about the single company. It requires seamless connections between suppliers, partners and customers.
Real-time is not about speed. It s about speed for a purpose ”creating additional value.
Technology is not the solution. It is a tool.
To achieve real-time is not the right goal for every company.

The bottom line is to maximize the potential of our information resources by developing effective methods of capturing important data and then to find the most valuable way to use the information resources gleaned from our relationships. There is no one- size -fits-all solution, but to succeed every company needs to work toward the new relational paradigm.