The Chief Value Officer - An interview with Stephan Liozu
Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.
Stephan Liozu plays an important role in the global pricing community. As the Chief Value Officer at Thales he is creating the archetype for a new role desperately needed at B2B companies. As an author he has not only written some of the most important and practical books on pricing, but rallied others to contribute to make sure that a wide range of voices are heard. He also plays an important role as an educator, giving talks and leading workshops for the Professional Pricing Society and organizations.
Ibbaka interviewed Stephan April 12th, 2021 to get his most recent insights.
The interview was led for Ibbaka by Steven Forth.
Ibbaka – Can you share a little bit about your career and how you became a thought leader around value and pricing?
Stephan – This is my 30th career year and most of it has been with industrial companies in the manufacturing space – large groups, international groups, family-owned businesses. I moved through the ranks of sales and marketing and when I was in my mid-40’s I started managing businesses and became the CEO of a division for a German company.
Throughout my career, I had been informally exposed to pricing and value and it was not until 2006 when I started to pay attention to pricing and developed a strong interest in it. At that time, I had been VP & GM for Freudenberg Nonwovens, we deployed Six Sigma pricing and I found that fascinating. I wanted to go back to school and get a doctorate at the time, it was a topic I wanted to explore. Pricing strategies and the value quantification subjects were interesting and I began to read books by Jeff Fox.
Fast-forward to today, where all I do is value and pricing. I kind of fell into pricing by chance just being interested in profitability and how to improve things. No one wanted to pay attention to pricing, so I thought I would jump in and see what I could learn.
Ibbaka – Why don’t people pay more attention to pricing?
Stephan – First of all, when you go to school and get a business degree, you will touch on pricing when you take a product management class or economics or accounting. Frankly, it is not attractive and what you study in those classes is painful. It just touches the surface and isn’t taught in a way that is attractive. They don’t talk about value-based pricing, value quantification or strategy. And they don’t teach the design of pricing models. They talk a lot about optimization and make it very quantitative.
Because of this, people go back to work after their MBA with only a very basic knowledge of pricing.
Only a fraction of schools had pricing electives before the boom in analytics, and now they have replaced the few electives they had with data analytics or data mining. There are even fewer pricing electives today than there were five or ten years ago.
I’ve been giving lectures at business schools over the past few years and students are far more interested in the strategic and value aspects of pricing than in the narrow quantificational and pricing optimization questions.
Ibbaka – Your current role is Chief Value Officer at Thales and I know you have been talking about this role for quite some time. What is a Chief Value Officer and what do they do?
Stephan – It is an emerging role and only a few in the world have taken it on so far. You have more people in the VP of value, value-realization, value-creation roles. This is especially true in healthcare where value delivered has been a critical topic for years.The Chief Value Officer role is one I have worked to create in industry..
The Chief Value Officer is responsible for the value galaxy. Pretty much everywhere there is going to be an interaction with the customer and a discussion on value. Imagine when you go to market. Business functions like innovation, marketing, pricing, customer support are all involved. Amongst all these functions, who is accountable for customer value ? But value to customer is, or should be, the top priority for companies. In addition to all the business functions I mentioned, you have to have someone on top of the value management process. This includes value-creation, value quantification, value documentation and value capture (in price). This is what I do. I manage the value management process across all the functions to make sure we are addressing customer value from a process standpoint, a skill standpoint and a tool standpoint. At the end of the day, it is all about the value capture. Value capture depends on pricing.
A Thales, I did not ask for the role to be called CPO (Chief Pricing Officer), because most of what we’re doing entails value work. Eight percent is value management and 20% is pricing per se. This may change in the future, but CVO is a better role description for what I am doing.
Ibbaka – You mentioned this is a rare role at this point, who are some of the other companies that have CVO and are they doing the same job as you?
Stephan – SAP and Salesforce have had a CVO. I don’t know if SAP still has this, but I know Salesforce does. They go into more on the side of value engineering and business value analysis. They are very important to customer success in the software space, and they focus on making sure you calculate and deliver the value you promised through your deployment and implementations.
There are a few CVOs in law firms and like I said, the healthcare industry does have a lot of VPs responsible for value. I’m a very creative person and I wanted to design a role that really matched what I like to do and what the company needed at the time. I proposed the CVO and they agreed.
Ibbaka – What are some of the critical skills that a Chief Value Officer needs?
Stephan – Most are non-technical skills. Change management, storytelling, persuasion are skills that you need to convince the organization to work with you. Because you are touching on so many functions, you really need to show a sense of urgency and demonstrate why it is important to pay attention to value. People understand that and if you are in business, you need to understand your customers and must bring something to them. Most of the time they don’t understand the theory and practice of value, that it is a formal process with technique and tools.
The Chief Value Officer is a change agent. You must be credible and have a deep understanding of the theories and methods. I’ve been studying this for the last ten years, not only through all the publications I’ve written, but through my field research. This brings credibility. People will listen to you when you show that you know what you’re talking about.
Another skill is to know how to be less theoretical and more applied. Value can be subjective and changes quickly as the context changes. You can quickly show people what can be done with the right tools and knowledge.
I do not do training myself; I am more into action learning. Workshops, real projects, working with real customers and delivering an outcome, these are the ways to learn. When you go into value capture, which pricing is part of, you need to get a little more technical. There is software that can be used and you have to understand the mechanics.
Ibbaka – What have you seen change in how people view value and pricing in the last 5-10 years, and what is going to change moving forward?
Stephan – The fundamentals are the same. What has changed is how you apply value as we are moving away from the product and more into services and data. That makes value calculation and value understanding more difficult. Data and software are intangibles that you cannot touch and do not get delivered as a package. A lot of the teams are challenged by this and don’t know how to frame value and quantify it.
On top of this, you have a second trend which is the experience movement that is asking “what is the value of experience.” We are moving into the digital world, moving into the experience economy, and that is more complicated as far as the value of work is concerned. There has been less published on this. If you look at all of the academic work which serves as a foundation to the work we do day in and day out, there isn’t much written around the importance of experience to value management.
This is why I started to work on things like data monetization, a wider definition of value quantification and even how value is captured, designed, and shared in digital platforms. This is an empty space.
In the future, there will be more work to be done on analytics and AI (artificial intelligence). The other pressing issue is the management of hybrid business models that combine products, software, data and services. That is a new set of complexities for the value gurus.
Ibbaka – You are a prolific author. Which of your books would you suggest people start with? Is there a logical progression through your books you would recommend?
Stephan – The basic one is, Dollarizing Differentiation Value, this is the one that describes the six-steps of value-based pricing and gives you recipes and examples on how to go through the steps. Towards the end you have a lot of discussion around culture and value mindset.
For people who are more advanced and know the concept of value, I would recommend, Value Mindset: Accelerate Your Value Transformation by Changing Your Mindset. This book gets deeper into how you get inside the skin of people, how you get to change personally, change the routine and frame of mind of people. It is all about mindset. Tips on how to train differently and get people in action-mode are part of this.
If you are in digital, I would get into Monetizing Data: A Practical Roadmap for Framing, Pricing & Selling Your B2B Digital Offers, which really addresses data and digital strategies. We try to tie these so readers have a full picture of what is involved.
Ibbaka – What books do you have coming up next?
Stephan – I have two books coming out this year. One of them is an industry book and I convinced a lot of the vendors, software vendors in pricing and consulting companies and some of the gurus to write a book for the C-Suite. I think the lack of progression in pricing and lack of adoption is due to a lot of what is happening in the C-Suite. The lack of realization of the need for pricing.
That book is called, Pricing: The New CEO Imperative. We have about 300-pages, 21 chapters, and that will be coming out soon. That was the first time we got the industry to collaborate and pay attention to really commit to the C-Suite and to all communicate these key messages with one voice.
In the fall a book on the Industrial Subscription Economy will be coming out. This one is on pricing and scaling subscription models for industrial companies and why industrial subscriptions are different from B2C or B2B SaaS. It is a very practical book on how to do it and to learn from the best. That is going to keep me busy this year.
Ibbaka – Earlier you mentioned universities are doing less on pricing than before and there is a gap between the academic approach to pricing and the world you and I live in. What could happen to bridge that gap? Is this an uncrossable chasm or are there bridges that can be built?
Stephan – There should be bridges built. The issue we have when pricing is talked about in universities, is that it is highly quantitative and typically within economics, operations, or finance departments. When it is in marketing, it is oriented to retail and B2C. There is no one really teaching the strategy side, the organizational side, the digital side, which are all important dimensions. These are more than 50% of the story.
Right now, pricing is only taught on the technical side. This is incomplete and doesn’t do justice to what really happens in designing or negotiating prices. You do have executive training programs that do this, and there is the option of the Professional Pricing Society. PPS have a lot of online courses and they are the best thing available right now.
One of my goals is to create an MBA of Pricing, a pure MBA within a university that has a curriculum that is well balanced. It would be taught by the best experts in the world, some from practice, some from academia, shaped by working professionals. Right now, there is no other option. If you are a pricing analyst and you have a bachelor’s degree, what are the options? An MBA in finance or marketing? There is no destination degree in pricing in the form of Master of Science or Master of Business Administration.
Ibbaka – Where do you look outside of the conventional pricing frameworks to bring in new ideas? What do you look to for inspiration and new ideas that you can apply to pricing and value, outside the conventional pricing and value space?
Stephan – There is a lot published in the pricing space. I don’t think people realize how much content is circling around. There is the work that Ibbaka does, Kyle Poyar at OpenView is doing good work as is Patrick Campbell at ProfitWell. I read a lot of papers and that already is a source of inspiration.
What I look for now is more things around the digital transformation world. There are phenomenal papers and research published by all kinds of reputable organizations like the World Economic Forum. I read widely and I’m trying to always bring back what I learn to the value and pricing space.
We need a community of thought leaders that bounce ideas off each other. I don’t think we are there yet. Right now you must search out new things on your own.
At the end of the day, I am very curious. I read quite a bit and download everything there is to download. I’m a sponge. Then in the end, your brain eventually connects all that stuff, and it comes out in a paper, a book, or a blog.
Ibbaka – Do you have thoughts on how machine learning and AI is going to impact our work in this area?
Stephan – I wrote a paper on the pricing software space and how many companies renamed themselves AI-based pricing overnight. That was very strange to me. I know we have done advanced regression and advanced quantitative methods for a long time and we’ve augmented our methodology with a lot of science. What we want to think about is reliable and choice worthy AI in pricing and not many companies discuss that.
I advise PhD students and one of them is doing some excellent work on the ethics of AI, pricing and optimization. It is fascinating to get insights into the legal and psychological aspects of pricing. This brings a lot of ideas to me on the implications of AI and the future of pricing science.
We need to be asking questions like ‘What is in the algorithm?’ ‘How do you control it?’ ‘How do you make it repeatable and predictable?’ ‘How do you avoid situations we read everyday about the pharma world?’ ‘How do we avoid the kind of surges that happen in electricity markets?’
There is going to be a difference between wild and uncontrollable AIs that lead to erratic behavior and predictable and reliable AI that will make the consumer and customer comfortable in how prices are set.
At the end of the day, we will never be able to take out human interactions. We will still have people’s judgement to take into consideration, and we need to be able to constrain these AI models and not let them just do what they want. I see a good future for machine learning in pricing, but we need a lot more research.
I published a paper recently with Joshua Gerlick, who is getting his PhD on the topic. A Conceptual Framework of Ethical Considerations and Legal Constraints in the Algorithm-Driven Pricing Function. I am wondering if our friends in the software industry and pricing are asking themselves these questions. Are they looking at how to include ethical and legal considerations in their engines? It will be interesting to see how this transpires.
Ibbaka – What is it about pricing and value that gets you so excited?
Stephan – It is an area that is the underdog. I like looking into a space that isn’t very crowded and where there is a lot to study. People do not understand pricing and I like to investigate, do research, and publish new stuff. Pricing is still new. It has been around for many, many decades but it is still new. There is a lot of resistance out there and I like the complex challenge. I like to show people that it can be done, and I take on these long-term challenges to prove that you can do it.
At the end of the day, pricing is a lever to profit.