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MTV's
popular reality television show, Pimp My Ride, where a lucky
owner gets his car totally customized to fit his own
particular tastes, should be the business model for GM,
Volkswagen, as well as many others in a variety of industries.
It could certainly make it interesting for their competitors.
Competition
can be a wonderful thing. It provides the basis to measure
performance, accelerate improvements, and importantly, a
source for the best practices information many of you profess
as the Holy Grail. To be fair, measuring yourself against
others isn't necessarily a bad thing, unless you also want to
be like them, albeit a little better for sure.
The
problem is fairly simple: in the absence of a compelling way
to differentiate themselves in the market, many companies are
relying on being the same as their competition, only better if
they can, to attract increasingly demanding and fickle
customers. Meanwhile, margins shrink because cost reductions
haven't kept up with price reductions. Industry Week reports
the average return on capital invested for US manufacturers is
around 13%. As an investor who considers risk, you would
almost be better off putting your money in treasury bonds.
Unfortunately,
this problem isn't confined to any one industry. AutoWeek
reports that ArvinMeritor is following the lead of two of its
competitors by dropping the parts division to concentrate on
its "core" business. McKinsey reports the German
Telecom industry has suffered a tremendous reduction in
margins across the industry as almost every business followed
the lead of a deep discounter in the mid 90's. The list can go
on. Having been in over a hundred manufacturing facilities in
the past few years, I believe the problem is epidemic. Add to
this the challenge faced by US manufacturers from the
increasing capabilities of Chinese manufacturers and it spells
trouble, unless….
US
manufacturers need to find a way to differentiate themselves
in the customers' minds and refocus their strategic thinking
in support of that differentiation. O.K., everyone knows that,
you say. You're right, but not everyone acts on it. Those that
do, do well. Think Dell and Toyota. However, even there, as
competition tries to be more like them, the race of the
diminishing margins starts.
What
do customers want? Everyone from Alvin Toffler to Faith
Popcorn has been telling us, for the last twenty years or so,
that the customer wants what he/she wants, not necessarily
what somebody else wants. Plus, he/she doesn't want to pay
more money for it than the perceived value and he/she doesn't
want to wait to get it. The market of one is growing and
manufacturers who have found a way to supply it quickly are
seeing their businesses benefit. Think JC Penney and Lowes. In
fact, there are a lot of businesses, large and small, with the
potential to do extremely well in the market of one. Job shops
which are in tune, physically and emotionally, with their
customers are examples. Theirs is a visionary strategy suited
for the twenty-first century.
Henry
Mintzberg* wrote about it in his book, The Rise and Fall of
Strategic Planning, (The Free Press, 1994). He feels the
visionary approach to strategy implementation is a more
flexible way to deal with an uncertain world. Vision sets the
broad outlines of a strategy, while leaving the specific
details to be worked out. So, when the unexpected happens,
assuming the vision is sufficiently robust, the organization
can adapt; it learns. With a specified plan of "me
to-ism", in contrast, serious adaptation becomes much
more difficult. Thus, changes that appear turbulent to
organizations that rely heavily on incremental improvements
may appear normal, and even be welcomed, by organizations that
prefer the visionary or learning approach.
Mintzberg
places heavy emphasis on flexibility and responsiveness to
changing conditions. He feels this is accomplished by
projecting a common vision to all parts of the organization,
energizing those closest to the process to form strategies
that help achieve the vision, and learning from the
adjustments that are a natural part of business life in
today's market place. He offers this definition, "We
believe the strategy making process is better characterized as
a process of learning-formation in place of formulation, if
you like. People act in order to think, and they think in
order to act."
After
a hundred years of production-centered mass production, first
batch then lean, the customer is finally influential enough to
say to organizations, "This is what I want and if you
don't have it I'll punish you" (by forcing price cuts,
discounts and incentives, or buying elsewhere). Wise
management will hear this message. A flexible and responsive
business rapidly adjusting to today's market place becomes the
new Holy Grail. Maybe they could get Xzibit, Pimp My Ride's
host, to be their spokesperson.
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