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Businessman:
This is a nice philosophy, it rolls off your tongue in a pleasantly Zen-
like way, but as laudable as having no preferences may be it simply
isn’t practicable. In business we
must
have preferences. Let’s begin
with the enterprise itself, the reason that we’re able to compete to
sell our products and services to folks who might want to buy them.
No company can be all things to all consumers. For example, when
we hear Nordstrom we usually think about unbeatable service
whereas when we hear Walmart we tend to think of unmatched low
prices, right? Imagine for a moment if Nordstrom wanted to go head-
to-head with Walmart to compete on price. Could they be successful
in that endeavor or do you think they would they get sideways with
the culture they have carefully nourished for over 110 years, and
crash and burn in the process?
Clearly all businesses must build a strategy that helps them
differentiate themselves from their competitors in order to win market
share, and then carefully focus all their efforts toward bringing that
strategy to fruition. It’s vital to focus on what we’re good at. Straying
too far from the path tends to end badly. Consider the AOL/Time
Warner merger by way of example. Lots of things went wrong,
including cultural clashes and lack of synergies between the two
heritage company’s business models. Ultimately this led to over a
hundred billion dollars in lost capital, an unprecedented disaster,
before the union between the two companies was finally dissolved.
Undoubtedly a merger between Nordstrom and Walmart, were one
to be attempted, would end just as badly. Not only are their business
models and cultures totally different, but also the very things that
makes one enterprise successful could easily undermine the other.
We can all control costs, but to drive the lowest prices in the industry
while simultaneously delivering the highest customer service is
virtually impossible. It’s kind of like the old adage, “You can have it
right, you can have it cheap, or you can have it fast… pick two.”
There are too many trade-offs to accomplish everything all at once.
Similarly, at a macro-level the three main methods of standing out
from the competition include focusing primarily on (1) operational
excellence, (2) customer intimacy, or (3) product differentiation.
[23]
We
might
be able to get two out of three, but no one can have it all.
In fact, most companies can only do one of three really well. Here’s
how they work:
1)
Operational excellence is defined as providing customers
with reliable products or services at competitive prices that are
delivered with minimal inconvenience. To succeed with this
strategy an organization must become world class in
continuously improving efficiencies in order to drive profit
margins since they are primarily competing on price.
Companies that excel in this space include Walmart, UPS, and
Dell.
2)
Customer intimacy is defined as precisely segmenting and
targeting markets, then tailoring offerings that exactly match the
demands of customers in each niche. To succeed with this
strategy an organization must be brilliant at combining detailed
customer knowledge with the flexibility to respond quickly to
almost any need. Companies that excel in this space include
Nordstrom, Kraft, and Home Depot.
3)
Product differentiation is defined as offering customers
leading-edge products or services that consistently enhance
their use of the merchandise. To succeed with this strategy an
organization must be exceptional at understanding what their
customers value most and then boosting the level they come to
expect beyond what any competitors can provide. Companies
that excel in this space include Apple, Johnson & Johnson, and
Nike.
For long term growth and profitability we must be exceptional at
harnessing our organization’s strengths while minimizing our
weaknesses. This means that we need to be focused like a laser
beam on our strategic imperatives. This not only necessitates
preferences, but requires near religious devotion to implementing
them. In the most successful organizations the company’s vision,
mission, strategy, and tactics are all aligned to assure that one of the
three aforementioned strategies is communicated and carried out at
all levels throughout the enterprise. Where I work, for example,
virtually every leader has a print out of the company’s management
model which summarizes our corporate strategy hanging over his or
her desk, in part because our job performance is measured based
on adherence to that plan.
Organizations must identify and build up their core business, design
a reasonable path forward that makes them grow, and then exercise
prudence in straying beyond their carefully charted route. For the
most part new products or services need to be extensions of existing
ones rather than branching out in an entirely different direction as the
AOL/Time Warner merger attempted to do.
Take Honda, for example. At heart they are an engine company.
Those engines might run anything from power equipment to
motorcycles, cars, or trucks, but everything they do is based on
expertise in designing, building, selling, and servicing world-class
engines and the vehicles powered by them. Were Honda to venture
into building rocket engines or aircraft propulsion that might be a
stretch technologically, but at least it would be an understandable
one based on their business model. On the other hand, any attempt
by them to enter into the entertainment, software, or consumer
electronics industry would be a gigantic leap, undoubtedly a highly
problematic one. Odds are good that venture would fail because it
strays too far beyond their core competencies.
In business we must have preferences. Our companies and our
careers depend on them.
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