What do bookstores, movies theaters and grocery stores have in common? They are all wrestling with a competitive terrain that is vastly different than it was a few years ago. The following three examples teach some lessons you can extrapolate to your business, whether you work for a Fortune 500 company or you're an entrepreneur.
A couple of weeks ago I was standing in an unacceptably long line, waiting to pay for my purchase at one of the country's mega book-sellers. I counted ten people in front of me, six people behind me, one person working a register and a manager who was fulfilling the role of disengaged observer. After paying for my purchase, I asked if I could have a word with him. He agreed.
Anticipated a tirade, he began apologizing for his staffing shortage, but that's not what I wanted to talk about. I began: "Sir, I'm in the business of helping executives, entrepreneurs and companies create and sustain success. I'm always interested in the changing competitive environment and the pressure it exerts on established businesses. Can I ask you a couple of questions?" I could see the blood flow return to his face as he answered, "Yes, of course."
I continued: "If I can buy this book (pointing to my purchase) for 20 to 30 percent less money at Amazon, why should I buy it here?" His response, and this is no lie or exaggeration, "Personal service." I asked him to explain what he meant by that. He gazed at me as if I had a third eye in the middle of my forehead and followed with, "Why don’t you just return your book and buy it from Amazon!"
Now there’s personal service.
I recently read an article about distribution in the motion picture industry. The piece speculated about the prospective, ongoing relevance of movie theaters. It included some comments from Mark Cuban, former Internet music mogul, owner of the NBA's Dallas Mavericks and aspiring film industry tycoon. He said that in a discussion with some more "seasoned" film industry marketing executives, he wondered aloud if it might be a sage move to release films into theaters and on DVD simultaneously. I wanted to pursue my own inquiry into the subject and called an executive with the ownership group of a large theater chain. We met for lunch last month.
I asked him about Cuban's comments. He dismissed them as irrelevant speculation. It sounded more to me like a rationalization for the status quo. I then followed with this, "If movies were released simultaneously, which people would continue to come to your theaters and why?" He froze me with his glare and became instantly less cordial as his decibel level increased. "Look," he said, "it's just not going to happen!"
Are you detecting some similar themes here?
The parent of a large, mid-Atlantic grocery store chain decided, about a year ago, that this chain could no longer compete without making some dramatic strategic changes. Its costs were too high to compete with low-cost providers and its level of differentiation was insufficient to go head-to-head with the Whole Foods or Trader Joe's of the world. As strategy guru Michael Porter would put it, they were "stuck in the middle." They opted to incrementally reduce costs. This manifested itself in staffing reductions and an increase in the use of automated checkout technology. The problem is, if you’re looking for help, there is precious little to be found. Additionally, the quality of the produce has slipped discernibly. They’re still stuck.
I queried the store manager about the changes. He railed against the corporation, its remote and out-of-touch leadership and pined for the "good old days." I asked about the company's direction; he was clueless. Indifferent service and poor quality accompanied the cost reductions. Over time, I have no doubt that the rates of return on invested capital from this business to the holding company will deteriorate as well.
Here are some of the lessons from these examples that ought to serve as warnings to you:
• Companies of any size – whether they are Fortune 500 manufacturers or single location yoga studios – need to operate with a big dose of competitive paranoia. The terrain is constantly changing. You can either eat lunch or be lunch.
• The status quo is never good enough. Success is insidious in that it most naturally compels complacency.
• Any company's value proposition needs to be precise and quantifiable. Too many firms leave their strategy in the stratosphere – lofty, abstract and unsupported by fact. Remember the following: "vision" is not the same as hallucination.
• Remember the strategic questions I introduced several months ago. These ought to be asked by all managers and entrepreneurs, of themselves and others, consistently and constantly:
Who are we?
Where are we today?
Who and where do we want to be?
By when?
How will we get there?
Who is going to do what and by when?
How are we doing and what are we doing about it?
• The world is full of great "denominator managers." Draconian cost reductions are usually the first recourse of uncreative minds, almost always accompanied by insistence that quality won't suffer. Some companies pull this off; most don’t.
