Providing added value to defence and aerospace customers

Publication date: 2007

No matter what the product or service, the fundamental purpose of every business is to deliver something of value to its customers. Companies may focus on any number of competitive factors—innovation, quality, efficiency, marketing, pricing—but the ultimate test of success is how much value they provide to customers.

• Introduction
• Defining Value
• Three Core Strategies for Adding Value

Consider the current challenges that confront suppliers in the defence and aerospace industry. Suppliers face growing cost pressures. Major clients such as Defence Ministries and Prime Contractors are increasingly using price as the primary means of differentiating between suppliers. Scopes of work are increasingly prescribed by clients whereas they used to depend upon suppliers to define what needed to be done. Clients are consolidating services into fewer, larger contracts, using the higher volume as leverage to secure lower programme costs. These are all signs of the erosion of value in core service offerings. One of the foremost challenges for suppliers is to renew the value delivered to clients.

So what constitutes added value? It may be manifested in a variety of ways, but the following basic definitions should be kept in mind:

Value is the perceived benefit received, less the associated cost. Added value, then, is when one receives more benefit for the cost than was expected.

The reason these generic definitions are important is they remind us of the subtle, psychological dimensions of value:

• Value is a personal and subjective concept that exists in your client’s mind. You cannot assume what your client values; you must uncover it.
• Because value resides in your client’s mind, it may be delivered in both tangible and intangible form. What your client experiences in working with you is as important to his perceptions of value as the work products you produce.

So how does a supplier counter the value erosion of services? In studying the responses of hundreds of successful companies in a broad spectrum of industries, the following three core strategies are most evident:

1. Satisfy the unmet or emerging needs of your customer

These are needs or problems where there are limited choices of solution providers. Value is enhanced in large part because of limited supply—niche subject matter expertise and innovative solution development is extremely valuable to the client.

2. Meet the strategic needs of your customer

Strategic needs include business, financial, and competitive issues that impact the overall success of the client organization. Clients will differentiate services that meet these needs. In many cases, this involves applying core skills to more strategic purposes. In others, it requires the development of new, more business-driven capabilities to complement core services. Increasingly, this is becoming a more challenging strategy as professional service firms have captured much of this work.

3. Provide superior service

Client research indicates that about half of the value delivered to clients relates to the service provided—what the client experiences in working with a supplier. Not surprisingly, service has grown increasingly important to clients. This same trend has been witnessed in numerous other industries. As routine products and services are devalued in the mind of customers, businesses routinely turn to excellent service as a primary strategy to differentiate their companies and create added customer value. But this strategy has been mostly overlooked in the defence industry. Very few defence suppliers actually employ a disciplined, replicable approach to delivering such service to their clients.

Publication date: 2007

Solutions for Growth

To find out how your company can provide added value to your customers and attain sustained growth in European defence and aerospace sectors, contact Jeffrey Strategic.