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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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