DEMAND ENGINEERING

Demand Engineering

Demand Engineering™ is a proprietary, systems-driven approach to improving a private equity portfolio company’s value, primarily through accelerated revenue growth. Demand Engeineering applies clear and integrated measures that pinpoint improvement initiatives to simultaneously promote Customer Engagement and the Employee Culture required to drive “organic” revenue growth. Demand Engineering has been developed and refined in a long-term, sustained collaboration between wRatings Corporation and LeadFirst Learning Systems, LLC, two firms with a combined 50 year operating track record of creating corporate value. Competition in the private equity industry is intensifying and, as a result, value creation is becoming increasingly more critical to deal success.Traditionally, there have been three levers of value creation for PE firms:

  1. Governance Engineering, better aligning manager’s and shareholder’s interests;
  2. Financial Engineering, valuing companies and their capital structures; and,
  3. Operational Engineering, improving specific operational elements of the firm both to reduce costs and improve efficiencies.
But these traditional levers do not address the most important element of organic revenue growth: customer engagement. The three traditional levers of value creation are internally focused. They are important, but insufficient for creating the competitive “moats” and pricing power that enables high-quality revenue growth. Enter Demand Engineering™.
Demand Engineering is a unique approach to improving a portfolio company’s value by applying clear and integrated measures for both Customer Engagement and for the Employee Culture required to promote it. Demand Engineering plays a role in each stage of the private equity life cycle, with its most critical benefits coming in the Onboarding and Monitoring phases. Monitoring continually measures progress toward the exit sale by furnishing management with an early-warning detection system that reveals whether the company will be on plan and on budget. Value Creation is extremely difficult as competitors respond to a company’s moves in the market. Assessment of customer value delivery and employee engagement shifts help to ensure the company tracks to plan and, when it is not, has the intel needed to take decisive corrective action.
What is the impact on revenue growth when companies improve both customer engagement and the
supporting employee culture? For those companies that are able to achieve a high Demand Engineering Metric™ (DEM), the financial rewards are substantial. Across the DEM levels, we found wide variations in financial performance‡. In the current database, only a small percentage of business units have reached DEM Level 6, and most score 3 or lower.
The results are clear: for most companies, there is a real opportunity to accelerate revenue growth by as much as five-fold by engaging BOTH customers and employees through Demand Engineering.

‡ Based upon an extensive meta-analysis — a statistical integration of data accumulated across many studies.The overall study included approximately 67,000 independent employee responses and approximately 215,000 individual customer responses to surveys in 1,979 independent business units.

The Demand Engineering™ system differs from traditional methods because our starting point for improvement is based on a clear definition of what success looks like: the Customer IDEAL and Employee Culture IDEAL.

With customers, we ask them to describe their ideal and what is most important to them. We also ask customers to describe competitors as well as companies in other industries that approach this ideal. Knowing the customer ideal, we can close gaps between current-actual and the ideal with great precision and efficiency. As the gap is closed, companies are able to charge more or receive preferred status with their customers.

With employees, we simultaneously measure the senior team’s preferred culture – the one it knows it needs to achieve its strategic ambition and support the Customer ideal – versus the current-actual culture. Causal Factor Analysis pinpoints those initiatives that will promote the preferred culture, one that shapes and more fully engages employees and associates to promote customer engagement and revenue growth.
Demand Engineering System

We start by leveraging the knowledge gained from our proprietary databases on how well companies meet BOTH customer expectations AND how well management develops the organizational culture to consistently do so. Combined with our field work, we then establish a baseline of how much opportunity exists as well as how much effort will be required to achieve specific financial goals.

The assessment of customer demand, competitive position, and the required employee culture converges in a pragmatic “game plan” for rapid and efficient improvement. Longitudinally tracking the customer and culture metrics creates visibility to which funded initiatives are successful, which need to be fortified, or which need to be retired.

Continuous monitoring promotes managerial foresight, and instills confidence in the management team to stay on plan and on budget.
Customer Demand and Competitive Strength

With the customer clearly in control, improvement requires us to build a unique view of customer expectations. We use a highly refined process that creates fully customized data for each client-company.

Our patented Customer Demand Profiles start with a true white-board approach, where customers and employees provide insight on customer needs, desires and future competitive requirements. This new customer ideal leads to a wealth of potential value that companies can deliver to stimulate new demand most profitably.

Based on our 5-year, 2,600 company study of 130,000 customer interviews, we discovered how companies generating the highest returns on capital were best meeting customer expectations in a way that precluded competition. These 9 “moat barriers” enable us to map the new sources of customer demand to create durable competitive strength.

Organizational Culture and Employee Engagement

Thinking-intensive talent, and the culture that encourages or restrains it drives the creation of customer value, as expressed in revenue growth, and thus deserves to be measured more rigorously and managed more intentionally by strategically minded portfolio managers. Employee engagement is an outcome of organizational culture. A healthy culture causes employee discretionary effort to engage and satisfy customers, much like an unhealthy culture causes employee discretionary effort to be withheld and customers to be neglected.

Demand Engineering activates and aligns the two powerful forces of employee engagement and customer engagement through a pragmatic, easily-implemented and measurable system.

Click here to view the Demand Engineering discussion document
LeadFirst and wRatings have combined forces to help companies optimize their financial performance using an outside-in / inside-out approach.

Since the early 1990s, the wRatings and LeadFirst research teams have continuously studied the causal and correlative relationships of customer value, employee engagement and financial performance.

We own a substantial body of evidence that attests to the practical value of the combined relationship (linear combination and interaction) between and among customer engagement, organizational culture, and financial outcomes, particularly revenue growth.

One of our seminal research reports entitled, Change the Way You Persuade, was published as the May 2002 cover article for Harvard Business Review, and another foundational, peer-reviewed paper, Customer Value Governance: The Emerging Corporate Imperative was published in Across the Board in June 2000.
wRatings
wRatings: Customer Engagement Experts

  • Operating since 1998 with a 17-year track record of success
  • Founder: research published in Harvard Business Review as the May 2002 cover article
  • US Patent 6,658,39 for research method (December 1999) with 2 patents pending
  • Continuously track how well 3,200+ companies on NYSE, NASDAQ and TSE are able to meet customer expectations
  • Proprietary database started in 2001 to track competitive strength of companies based on customer expectations
  • Work with hedge funds, private equity groups & corporations
LeadFirst: Employee Engagement Experts

  • Operating since 1982 with a 33-year track record of success
  • Founder: previously Senior Vice President of Customer Value Analytics for Bank of America
  • 32,000 senior leaders selected and developed through LeadFirst executive coaching and development programs
  • 650+ organizational cultures measured and improved
  • TalentFORCE™ Analytics primary and secondary research
  • Proprietary: DiialogOrganizational Culture Measurement & Management System
  • Private Equity firm Operating Partner
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