Causality, in this context, relates to the problem of determining the primary cause of value generation. Many organisations would like to buy and sell on the basis of 'Value' delivered and received. Such arrangements tend to founder because it is all too easy for the customer to argue that events unconnected with supplier activity either caused the value to be delivered or contributed significantly to it.
This note sets out the Lucidus mechanisms that largely neutralise this issue.
Three fundamentals must play together if Causality is successfully to be demonstrated. They are:
The Lucidus tools and techniques build and make visible the complete linkage between the:
We tie specific outcomes to very specific actions, validate the relationships and values with the customer and get them to agree the numbers and actions. We do this in a far tighter way than anybody else and the granularity means that the individual 'agreements' are very narrow. The scope for external 'interference' to the outcomes is therefore far more limited than in the looser approaches usually adopted by others. So, whilst the customer could argue that overall the total outcome was influenced by other factors, the agreements fixed around each granule provides the evidence that demonstrates the case. As a minimum, this mechanism dramatically reduces the scope for debate about what really delivered the results even if it does not remove it altogether.
Because we can set out 'cause and effect' in such a tight (but operationally acceptable) way, it enables us to agree the model with the customer up front. And the nature of that agreement, using the argument above, is that granule 1 will move by x, granule n will move by y, et al - the cumulative effect is a performance increase of z. 'Do you, Mr Customer, agree that if the granules move as agreed the overall performance will be z and that the overall performance increase results from our actions?'
Our techniques mean that we are much more likely to achieve an agreement of this nature because the model breeds confidence. If external effects have achieved the results, then some of our granules will not have achieved their targets. If all granules achieve their target then there is a high probability that the improvement results from our actions. If the results are higher than we predicted then it might be that external forces have made a contribution (but see next).
Since the service provider is rarely, if ever, given 'control' of their customers' businesses, they are unlikely to be in a position to 'deliver' anything. The best they can do is 'enable'.
This means that for its agreements to stick the service provider must specify
It may be that problems of causality are exacerbated because this distinction is not as clear as it should be, that expectations are inappropriately set or both responsibilities and expectations are correctly set at the outset but cannot be maintained through the life of the agreement.
By agreeing up front the distinction between Enabled and Delivered (which the Lucidus approach facilitates) vulnerability to the causality argument is further reduced.
The causality of cost reduction is largely straightforward when using the Lucidus tools and techniques as discussed above. However, 'increased revenue' is far more problematic.
Let's assume that you have been asked to increase the revenue of your customer and that this will involve the running a marketing campaign.
It is likely that a specialist company will run the marketing campaign. It therefore follows that you will not directly affect the outcome of the campaign. The key point here is that you cannot therefore be responsible for an increase in customer enquiries since this will be driven by the campaign itself over which you have no control. You could, however, be responsible for the way in which the enquiries are handled. So, lost calls, conversion rate, cross- selling et al become significant points at which you can make a contribution. And your contribution can easily be measured as our Call Centre models can demonstrate.
The key point is that you need only sign up for the increased revenue that it can directly enable. So, when assessing your contribution, the Lucidus approach would allow you to agree with the customer the key stages of generating revenue (in this narrow context) e.g. gaining an initial customer contact, cost of customer handling, minimising lost calls, responding to the contact, responding to complaints, closing the sale, cross-selling et al. Each stage would be weighted by the customer relative to its revenue generating contribution. It then becomes possible, based upon the agreed weightings, to determine the percentage contribution that you will make to any increased revenues. That percentage is applied to the actual increased revenue to give your fee. Everyone takes the risk that the ad campaign is good enough to generate sufficient contacts.
The mechanisms discussed above result in a logically unassailable profile of Value 'delivery' and 'enablement'.
The profile of value release gives some strong clues as to what is or is not influencing the release of actual Value
If value is being delivered ahead of the changes being made by you, by definition it could have nothing to do with you. The increase would therefore be added to your profile i.e. You must still deliver its agreed profile but the actual Value profile would be higher. More probably, the take up of new business would be impacted by the constraints that your programme was designed to address.
In this case revenue would not materially increase until you have removed the constraint in which case the increased revenue would result your action and be clearly seen so to do.
Causality will always provoke debate. The debate and the amount of your fee under debate can both be minimised if:
In combination, a through c dramatically narrows the debate surrounding cause and effect and the profile of value release shows the minimum fee if each enabling granule is delivered and gives strong pointers regarding the influence that you may or may not have had on any Value variation.