Kohlberg's 3 Levels : Business Ethics

There is no such thing as absolute ethical standard in business. It is indeed on a case to case basis and sometimes follows no logic. There can be many rules, guidelines, rights granted by an organization, the government or by society or religious gurus. But it remains undecided and complex for each and every situation.
There can be many perspectives to look into a particular situation or series of events or occurrences. The perspectives are
1> Individual level
2> Corporate level ( very relevant for businesses)
3> Systemic level ( where the larger society or the government or maybe the whole country is involved)

We often see in our Bollywood movies where the hero , a victim of injustice fights against the system. But that is merely the legal aspect. Deep ingrained is ethics and in many of the situations all the three (individual,corporate and system) are to blame.

Out of the many theories one that is very interesting is Kohlberg's 3 level theory. Is this a good theory to go ahead in case of a confusion and an ethical dilemma ? Well this theory is not fail proof and there are some criticisms about this. The theory approaches ethics from a justice standpoint where different cultures, different countries can have different approaches.

This theory is based on a life cycle of human development from Pre-conventional states to the Conventional States to the Post Conventional state. With each level , the power of thinking increases and the ability to think and articulate from different perspectives and viewpoints increases.

LEVEL 1	STAGE 1	Obedience & Punishment	This stage is mostly manifested by children. Elders teach them to follow a certain conduct in the absence of which they are punished. This is an elementary state of mind of the child who tries to follow the best way in his/her own realm. Very few of them remain in this state when they grow up. But in certain situations most elders still shift back to this stage.
	STAGE 2	Instrumental and Relative Orientation	A sense of individuality develops. It depends heavily on the culture and the surroundings. Children recognize that in addition to their own needs they need to follow certain principles for their near and dear ones. This is a very important state because the mind starts to mature and grown up can actually recollect the virtues learnt at this period consciously or sub consciously.
LEVEL 2	STAGE 3	Conventional sense of moral	The stage evolves from a chasm of innocence to a new world of family and friends. But it still remains within the boundaries of the known environment and conformance and obedience take control. However this is the inception when the mind starts to revolve and go beyond the boundaries set by the conventional world of family and friends.
	STAGE 4	Law and Order orientation	When the mind finally leaves the boundaries it meets new constraints of the laws of the society and the land and the religion. A delinquent mind can severely affect this development because it doesn’t get answers to its questions any more. The cultural evolution lays its foundations which remain till death for most individuals.
LEVEL 3	STAGE 5	A thought leadership stage	Very few people go beyond thinking about themselves and their immediate near and dear ones and start thinking of opinions and arguments of other people. The intellectual capital or intelligentsia consists of this stage where politics, beliefs, values trespass each other.
	STAGE 6	Moral Guru	A stage where leaders evolve to become thinkers. A universal stage where great people of great nations have thought in a different way, the way that became the societies or nations way in future. This state may conflict with rules and principles and challenge the conventional with abstract arguments to judge good or bad.

It will be interesting to note where Corporates will fall according to this theory, most probably at stage 4 of level 2. Some of them may be at Stage 5 of level 3. Corporates are very particular about ethics and they conduct audits annually to prove this point. This is useful in several situations ,for example
- To attract new talent into a growing organization
- To attract investors
- To attract customers who want to do business with a good guy

But if you are any one of the three stakeholders(employee, investor or customer) stop and think. There you can judge for yourself if you want to do business or not. In the first step you can evaluate yourself as an individual in a Kolhberg model. Then you can evaluate the organization or its individuals in the same way. If you observe there is a sync then there is a match. This can even be fine tuned with situational aspects. What actually to and how to evaluate a particular situation? Ask these questions for each perspective and see if your evaluations match.

For example a simple framework like this can be used.

	Caused it/ Helped to cause it	Could have attempted to prevent it	Had capability / authorization to prevent it	Did it with full knowledge	Did it with his/her own free will
Individual
Corporate
System

How does these tables translate in real life and in real situations ? Probably there is no time or frame of mind to do so but an analysis can be useful for avoiding and reducing the type 2 errors , accept something or do something that is unethical.
A corporate can come in the top ranks of a ethics survey but it is for itself to evaluate and see if it behaved like a Level 3 when it had the opportunity.

HOW TO CREATE A BUSINESS PLAN

TEMPLATE:- Use this template to create a business plan

SECTION 1: THE PROBLEM

• Defining the Pain Points
• Who feels the pain?
• What is the extent of the Problem?
  
• Customer validation of Pain points

SECTION 2: THE SOLUTION

• The Solution in Detail
• Logistics of Fulfillment
• What is new in the Solution
• The Value Provided by the Solution

1. CUSTOMER VALUE PROPOSITION
2. CUSTOMER VALUE
3. PRICING Strategy

• How to ensure Quality of Service?

1. CONNECTED ACTIVITIES
2. IMPLEMENTATION
3. CAPABILITIES
4. SUSTAINABILITY

• Business Idea Validation : Potential Customer validation

• The Framework

SECTION 3: THE MARKET

• Total Addressable Market

1. COMPETITION (PORTER's 5 FORCES ANALYSIS + INDUSTRY OVERVIEW)
2. GO TO MARKET STRATEGY including Contingency Plan
   
3. MARKETING & PROMOTIONAL STRATEGY

SECTION 4: THE TEAM

• The Founders Profile
• What is the team good at doing?
  
• Advisers and their Profile

SECTION 5: OPPORTUNITIES AND THREATS

1. SWOT ANALYSIS
2. VIDE ANALYSIS
   

SECTION 6: COST STRUCTURE

• What is the Break Even Period?
• Financial Statement to validate Break Even
• Financial requirements Breakup

CUSTOMER MANAGEMENT

The marketing strategy of a typical B2B company lets Product Managers, Account Managers etc to converse or deal with potential large clients. Unlike a B2C scenario there are some differences in B2B.

B2C vs B2B

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- In B2B there are fewer customers. So increase in market share has to come from 'share of wallet' of each customer

- In B2B customers are more informed and advanced than B2C.

- In B2B there is no one decision maker. There are many stakeholders. Identify them

- Demands in B2b segment are derived demands of B2C segments. An indicator that India has now 500 million +mobile subscribers indicates mobile telephony and associated business is going to be important in B2B.

- Business buyers have to make more complex decisions. There are lot of things that play in the minds apart from cost and product performance.

- Typical selling cycles are very long.

Thus B2B sales follow a unique pattern

1> Prospect -> initially when a RFP, RFI, POC, Demo, ITB stage is on there is a prospect to add a new customer to the block to buy some product.

This is "Switching Stage".

2> Customer -> When the sales is made ,say for 100,000$ an initial sale may not be significant for the seller or the buyer, but it is an important step.

This is "Switching Stage" to "Satisfaction Stage". Most customers switch at this stage if they are not satisfied.

3> Client -> Multiple repeat purchases makes the customer a client. Generally the next 5-6 purchases depends on the satisfaction levels of the first product. It is very important to manage customer issues at this point. The new sales can be cross sells or up-sells.

This is "Satisfaction to Trust Stage". The client starts believing that the company has the cpability and intent to give good products.

4> Supporter -> After buying over several million $ of products if the customer is still happy he will spread the word, typically to 6 other important sources. An unhappy customer can talk to potentially 15 other sources. It is thus very important to make good cross sells.

This is "trust to commitment stage". The client's trust has to be reinforced each and every time. This will show that the good product and service was not luck but company strategy implementation.

5> Advocate -> An advocate goes beyond spreading the good word of mouth. They actually start working with the company to improve the solution.They start believing in the solution themselves."This is committment to loyalty stage"

Any company at this threshold should be careful not to develop a nexus or fall a victim of anti trust cases. At this stage the strategic views are intertwined.

6> Partner -> They become involved in the marketing and selling decisions of the company.

Thus a customer who becomes a partner is the best possible outcome of customer loyalty relationship.

The above steps merely reflect how the customer relationship grows at each stage and doesn't stop just with customer retention or repeat sales. It is important for the product manager/tme to manage the customer for profit and for relationship in different ways.

The bonding with the customer happens in this way

1> Financial Bonds -> Much of it is done via discounts, bundling, loyalty programs etc. This is a penetration strategy and helps to get an account. This is easily replicated by a new entrant or a rival.

2> Social Bonds -> There are personal relationships to build. Faceless names should be removed and interactions encouraged. Sometimes sales and POCs reach this level where customers feel free to call TMEs/PMs etc to ask for additional stuff, some more changes, some more clarifications etc. This should be encouraged. It means the social bonds between two people are getting created. It is more difficult to break than loyalty points.

3> Customization Bonds -> The social bonds turn the TMEs/PMs and the customers into a learning relationship. Both parties learn and share details intimately. Customers ask for customizations and the seller can become flexible and know what the customer wants, why he wants it and more. This is POC or post sales. Once a customization is done customers feel they are locked in and want more.It goes beyond social bonds and much stronger to break even if the original employees leave.

4> Structural Bonds -> This is much after the sales. Account managers must take care of the customer and their issues. It must be noted that 70% of customers defect due to perceived indifference. Their voices are not heard. So the A/C managers should look into joint investments and shared processes.

Bonding Self questions

1> Whether the request is within the control of the company

2> Whether the request is not within the scope of the company.

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The OLD concepts via the NEW

OLD = Product Marketing ( Brand Management, USP )

THEN = Segment Marketing (Enterprise ,SP )

NEW = Customer Marketing ( customer loyalty ,share of wallet)

There are two approaches

1> A particular set of needs of all customers

2> All the needs for a particular set of customers (Cisco,IBM - solutions)

For any such dealings the costs-benefits of the company can be like this

1> Acquisition -> -ve

2> Base Profit -> Same for all customers every year

3> Revenue Growth -> Increases over the years for each customers

4> Cost Savings -> Increases every year for each customer

5> Referrals -> Increases over lifetime of customer

6> Price Premiums -> achieved with customer loyalty

Note: ABC must be used to gain proper advantage of customer lifetime value

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How does the Process happen ?

IDIC framework -> Identify,differentiate,interact,customize

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Straight Rebuy -> Buyer reordering without any modifications

Modified Rebuy -> Buyer wants to modify product specs,prices,terms of suppliers for next set of materials

New Task -> Buyer buying for first time

Systems buying -> Packaged solution from single supplier ( for turnkey ops)

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Strategy for KAM (Key Account Management)

1> Pre-KAM -> Identify accounts that have potential to become key accounts

2> Early KAM -> Explore opportunitites for the KAM customers.Examine strengths and weaknesses of customers

3> Mid KAM -> Increase in relation with Top management than Sales people.

4> partnership KAM -> Sensitive commercial information is shared. Joint problem resolution becomes the focus

5> Synergistic KAM -> Joint venture in the market.

6> Uncoupling KAM -> End of partnership to prevent a cartel and too much dependency

KANO MODEL

KANO MODEL is a simple model whose inputs can be used to create and measure software quality.

The concept of Kano model arrives from the fact that a product evolves in this way

Core Product -> Generic Product -> Expected Product -> Augmented Product -> Potential Product (See below)

In this evolution process a measurement of quality is traditionally one dimensional. For Example Performance is “Goodß or à Bad “ or Customer Satisfaction is High or Low etc

Kano model tries to evaluate quality on the basis of 2 dimensions. It broadly translates to 3 important types of features

1> Basic or Must Be or the Dissatisfier -> Features customers will not tell us unless something is missing or wrongly done. Product comparison is not done here, if a feature is missing customers will not even consider this product. This is a POP (Point of Parity) area.

2> Performance -> This is where customers speak most and compare products. All traditional models use this approach only.

3> Excitement/Delighters -> Customers do not talk about this, and are mostly unaware of such features. This is where demos can delight a customer and in turn make it a competitive advantage over other products. This is what we can call POD(Points of Differentiation)

4> Dislike -> Some stuffs we can do without

There is another important thing to note. A must be (Dissatisfier or hygiene) factor is noticeable only till a certain point, beyond which there is no use of improving the feature because customer satisfaction doesn’t improve much. However in case of a Delighter beyond a certain point the customer satisfaction increases exponentially.

The fun part of this is that most features evolve as a delighter, over time become a performance metric and before the next year becomes a Must Be. Software Products and features are copied too easily and too fast. A POD can be easily copied or substituted to a POP where it yields no more advantage to the company.

Using responses from a focus group or a complete survey one can clearly figure out the details of a product.

We can find out how satisfied or dissatisfied a customer is using these equations’

• Users’ satisfaction coefficients = (A + O) / Total responses

• Users’ dissatisfaction coefficients = (O + E)/ Total responses

These results can be carried on further to create a QFD and measure detailed aspects of quality. But that is another story.