Chapter 3 – Understanding Customer Value
The Practicing Lean Accounting Blog Series are excerpts from a new book, Practicing Lean Accounting by Nick Katko and Mike De Luca. For updates on publication and purchase, please sign up for the BMA mailing list at www.maskell.com.
Customer value is best defined as the perceived benefits derived, in the eyes of the customer, from the use of a company’s products or services. When a customer buys something, the customer has one or more reasons for buying it. If the purchase meets those needs, then value is created. If the purchase doesn’t meet all of the customer’s needs, then value is not created. It is important to remember that value is about what the customer thinks, not what the company thinks.
Accounting is a highly specialized, technical function in a business. Becoming proficient in accounting requires education and practice. Accountants focus on being good accounting professionals, running an efficient accounting department, and getting work done in compliance with their company’s accounting policies and reporting requirements.
Sometimes, though, accounting can focus too heavily on compliance reporting, which stems from a very narrow definition of customer value and requirements. When that happens, it blinds accounting to what their other customers value. Accounting can be so focused on the monthly reporting cycle, along with the applicable controls and policies, that accounting assumes this information also satisfies what its other customers want. This can make accounting appear to be out of touch, isolated, or difficult to work with, and lead to accounting having a poor reputation inside a business.
The nature of accounting’s work and interaction with others tends to create transactional relationships. In Lean accounting, the goal is to put the entire customer experience first, not just the transaction. In order to do this, accounting may need to develop better relationships with their different customers to understand their needs and requirements beyond the transactions. Relationships must be developed and maintained, and that requires “people skills” like listening, communication, and personal interaction. In order to develop excellent experiences for all of accounting’s customers, accounting needs to really get to know their customers!
Understanding customer value will also allow accounting to better determine if the quality of the information it provides to customers meets their needs. This is not to say that accounting does not already have some understanding of this, which it does from a financial reporting viewpoint and typical financial transactions such as paying invoices. Diving deeper into understanding value will prevent accounting from making assumptions about the quality of the information it supplies to their internal customers.
Another important benefit to accounting in understanding customer value occurs when accounting begins to study its processes and make improvements. The principle of “flow and pull” means the goal of understanding processes is to flow the value to customers as fast as possible, at their rate of demand. In order to understand if progress is being made towards a goal, it must be measured. Understanding value will allow accounting to develop the proper performance measurements to know in real-time if value is being created and delivered.
Making improvements is not a haphazard, random process. It is a disciplined, continuous learning activity requiring the ability to distinguish between the process steps which create value and those that do not. If customer value is understood, then it’s possible to differentiate between process steps which create value and those that do not. Focusing more effort on the value-creating activities and eliminating or reducing non-value added activities results in a better customer experience, and ultimately in increased customer satisfaction.
Customer Value for Accounting’s Customers
Accounting has a variety of customers, both internal and external. Rather than address each type of customer specifically, let’s look at the broader categories of customers based on their primary interaction with accounting.
|Users of external reporting information (Senior Leaders, Stakeholders, Regulators)||Compliant with reporting requirements||Rational explanations to make informed decisions, evaluations and assessments|
|Users of internal reporting information (Employees and Managers)||Relevant & reliable information||Clear understanding of performance to make better-informed decisions|
|Recipients of financial transactions (Company Customers, Suppliers, Employees)||Right first time||Ease of interacting with accounting to understand process and get support as needed|
How to Practice Understanding Customer Value
In Lean accounting, practicing understanding customer value means having a constant awareness of the specific values pertinent to all of accounting’s varied customers. Creating constant awareness consists of three steps:
- Identify all of accounting’s customers
- Capture the “voice of the customer”
- Quantify customer value
Understanding customer value drives lean accounting transformations
Accounting’s ability to develop a deep understanding of what its customers value is what drives successful lean accounting transformations. Understanding customer value will have a direct influence on the other three foundational lean accounting practices. Understanding customer value will allow accounting to:
- Identify waste and distinguish value-added activities from non-value added activities, which will be explained in Chapter 4
- Develop lean performance measurements for its processes – and lead company efforts to develop a company-wide lean performance measurement system – in order to measure value creation as it is happening rather than waiting for customer feedback, which will be explained in Chapter 5
- Develop an understanding of what and how to improve, using PDCA, to actually serve customers better, which will be explained in Chapter 6
Most importantly, this constant awareness of understanding value helps accounting recognize that each customer is a person, not a transaction or a report, and it is the job of accounting to make every customer encounter a delightful and satisfying experience.