Collaboration Driving Profitability

Deloitte: "Digital loyalty networks'' streamline supply chains, improve customer satisfaction

New York  February 12, 2002  "Collaboration" may have been the most overused marketing tagline of 2001, but beyond the hype, global manufacturers moving to collaborative, relationship-based networks of trading partners are actually proving more profitable than those still employing traditional supply chains, according to a new study that examines value chain networks in the technology sector.

The study, from Deloitte Research, a division of consulting companies Deloitte & Touche and Deloitte Consulting, highlights the benefits of what the consultants term "digital loyalty networks." Such networks represent a new type of business model, where partnerships of companies provide a complement of products and services to meet their customers' needs in a profitable manner, one customer at a time, Deloitte argues.

What does a digital loyalty network look like? As an example, Deloitte cites a computer hardware company that partners with a software company and a management consulting company to solve a customer's need in a given area, such as human resources, supply chain management or manufacturing. The partners collaborate to deliver  for each customer  a superior, differentiated experience that meshes with that customer's unique requirements. By solving a customer's need as a collective group, the partnership creates a loyal customer, Deloitte argues.

As a result, the consultants conclude that companies that create and maintain "digital loyalty networks" are 81 percent more profitable than those with below-average supply chain collaboration and sub-par customer loyalty.

Released today, the report, entitled, "Competing on Collaborative Customer Solutions: Differentiation in High-Tech Digital Loyalty Networks," also showed that companies with loyalty networks are significantly more successful than companies with excellent supply chain integration but mediocre customer loyalty. In fact, they are twice as profitable and up to four times as likely to show superior shareholder value, sales growth, market share and return on assets.

"The complexity of technology has made it virtually impossible for a single company to be everything to its customers," said Doug Tuttle, global high-tech leader at Deloitte Consulting. "The technology companies who succeed in the maturing technology marketplace will be those that build and maintain 'digital loyalty networks,'"

Citing a technology industry example, Jeff Balentine, industry leader for Deloitte & Touche's Technology, Media & Telecommunications (TMT) Group, equated the supply chain in a digital loyalty network to an ecosystem: "The supply chain becomes an ecosystem, with companies dynamically working with key partners to provide industry vertical solutions, not just hardware and software. This collaborative approach creates a new value proposition that will differentiate the companies that adopt the digital loyalty network business model and help build unbreakable customer loyalty."

Balentine continued: "Like an ecosystem, the digital loyalty network is a complex set of nodes, but there's a simplicity to each node. Digital loyalty networks optimize the entire ecosystem, from the supplier end to the customer. It's about building tight bonds of loyalty on all sides by consistently delivering successful solutions in a consistently profitable manner."

"Loyalty networks are human-centric, not bits and bytes," Tuttle added. "They are built on relationships and expand beyond a company's own four walls, using technology to enable the relationship, not as the center of the business."

In fact, Deloitte asserts that digital and IT capabilities are paramount for a successful implementation of a digital loyalty network. A well-developed digital platform with strong customer relationship management (CRM), supply chain management (SCM) and e-business capabilities, and the ability to share and use information linked to customer loyalty, are essential components, the consultants argue.

"Partnering across the value chain enables a company to deliver collaborative customer solutions that substantially differentiate it from the competition, while providing results-oriented, cost-effective solutions to customers," Tuttle explained.

The study found customer relationships improved by 50 percent for early adopters using digital loyalty networks. "'Loyalty networkers are far more likely than their competitors to report exceptional performance on their goals of overall customer satisfaction," Tuttle said.

Tuttle said that, to succeed, customer loyalty strategies must be flexible and dynamic, and elements that drive loyalty are likely to vary from customer to customer and from solution to solution.

Companies that operate under the digital loyalty network model invest in information technology to improve supply chain efficiency and responsiveness, producing what Balentine termed "impressive" results: an across the board 30 percent increase in performance in the three key areas for supply chain success: inventory reduction, parts shortages and speed of new product introduction.

The combination of customer loyalty and supply chain collaboration is essential to generating this level of success, according to the report. In addition, loyalty among partners and customers is essential to success and will become more so as technology continues to become more complex. "Ensuring the right balance between customer loyalty and profitability, customer requirements in terms of partners, products, and services and total supply chain costs is a challenge, but it will be the root cause of business success today and in the future," said Peter Koudal, director at Deloitte Research. "It must be done  one customer at a time and over time."

According to the study, in order to build and maintain an effective digital loyalty network business model, companies must be able to:

- Effectively pull together the key data and analysis needed to drive differentiation, including information about each customer's loyalty, profitability and requirements, as well as a holistic understanding of partner and supply chain capabilities and costs to serve each customer.

- Have the ability to develop and manage a flexible portfolio of partnerships that can efficiently satisfy and deliver success to customers one at a time, over and over again.

- Transmit and use real-time information about customer loyalty requirements and supply chain costs throughout the network to effectively create collaborative customer solutions for differentiated customer experiences.