Apply Customer Value Analytics to Boost Your Stock Price

Who really provides the money for a corporation to fund operations? Lenders, shareholders and customers provide the money - each has a different objective. While lenders and shareholders seek a risk-adjusted return on capital, customers seek the value-added delivery of products and/or execution of services. Therefore, it is only customers who fund operations over the long-term and in doing so provide the return on capital to lenders and shareholders. In order for a corporation to meet its obligations to lenders and shareholders, it must first create real or perceived value in the eyes of customers.

So why is most financial information oriented towards lenders and shareholders, not customers? Accountants have written the rules to create transparency for lenders and shareholders, which over time has resulted in an information reporting structure that suits their needs (i.e., Earnings per Share). What, however, does that leave for operating managers, who must deliver products and services that delight customers? The common basis of financial information among investors and managers is the general ledger, which rarely does, and probably shouldn’t, provide cost and profit analytics at the product and customer levels. The general ledger is simply the book of records for the corporation, which is typically organized by both financial account and responsibility center.

If corporations recognize that the general ledger is a vehicle to manage financial accounts and responsibility centers, they will then also recognize that a separate capability is required to understand the profitability of products and customers. Why?

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