Flip (4 page)

Where to next is guesswork, but perhaps it will be fingerprint or voice recognition only, no need for a key. Or, wackier still, your car will know what you smell like and open and start upon sensing your uniqueness. (That is probably not a visualisation you needed just now.)

The point is that what we are satisfied with today, we will not be satisfied with tomorrow. A satisfied need no longer motivates. Once a need is met we move up our hierarchy and start desiring more and more of less and less practical things. Things that were once a desire rapidly become a necessity. Or, in business terms, features that once differentiated your product in the market fast become the price of entry as competitors rip off, copy and enhance your own innovations.

In autumn of 2006 the Pew Research Center in the US, a non-profit, non-partisan 'fact tank', reported on the percentage of people who consider various items a necessity in life. Not nice to have, but a necessity. Here are a few selected items from that report:

• car, 91 per cent
  
• home air conditioning, 70 per cent
  
• cell phone, 49 per cent
  
• television, 64 per cent
  
• cable television, 33 per cent
  
• high-speed internet, 29 per cent
  
• flat-screen television, 5 per cent
  
• iPod, 4 per cent.
  ³
  

High-speed internet is barely a decade old, and it has only had a critical mass of users for less than five years, yet already just under 30 per cent of people surveyed in a random sample said it was a necessity for their life.At first glance you may think the 5 per cent who call a flat-screen television a life necessity should stop taking drugs and join the real world, but if you do this survey again in five years, as no doubt Pew will, it will be more like 25 per cent saying a flat-screen television is essential, and 5 per cent saying one in each room. Expectations keep rising higher and higher.

The way you treated your customers and staff up until today will not be good enough tomorrow. You need to keep getting better, and with the compression of time you had better start getting better a whole lot faster too.

In closing this chapter, I will say again,
change is not new.
Hopefully now you have a clear understanding of exactly what is changing, and are beginning to see the impacts these changes are having on your business.Within this context, let's now explore the
flips
and how to turn them to your advantage.

Five Things To Do Now

1. Hold a solo brainstorming session and write a list of all the ways the compression of time and space affects your business.

2. Think about complexity. What impact does it have on your business? More importantly, what impact does it have on your customers? Now think about strategy: how can you alleviate some of that complexity by simplifying existing services or offering entirely new products and services?

3. Nominate someone from your team to become a red-tape renegade. Give them six months to cut as much bureaucracy and complexity from your internal communications and the interactions you have with your market as possible.

4. Ask yourself, 'What do we currently do for our customers as an added bonus that may become the "price of entry" in our market in the next few months or years?' Start thinking about how you can add new value to the same market.

5. Present the findings of the above four activities to your boss, or better still the executive team, and make some recommendations for the business.

Think you've got an edge on your competition? Think they've got one on you? Think again. That competitive advantage, whatever it may be, is disappearing as you read these words.

Maybe to your immediate disadvantage, maybe to your immediate advantage, but in either case the advantage you or the competition gain will be temporary and provisional.

Want to know why and how that has become a fact of life? More important, want to know how to flip that fact to your advantage? Keep reading.

GOING, GOING, GONE: THE CASE OF THE DISAPPEARING COMPETITIVE ADVANTAGE

A friend of mine had a successful business in Sydney, manufacturing point-of-sale materials and displays out of perspex.Walk into a shoe store looking for Nikes or Reeboks anywhere in Australia, or even a consumer electronics store looking for a new camera, and you would likely find a product in that store made by my mate. At least that was the case a decade or so ago.

He had a good thing going by anybody's standards. Then one day everything started to change. Perspex made in China trickled, and then flooded, into the market.

As I sat with him having a coffee in his office toward the end of this tumultuous period, he said to me, 'Peter, I just don't get it.What am I doing wrong?'

He probably meant it as a rhetorical question. But I stood up and walked to the wall behind him where he pinned up family photos, Far Side cartoons, inspirational quotes and that kind of jazz. Holding pride of place in the middle was a piece of traditional workplace humour, a sign that said in block capital letters, 'FAST, GOOD, CHEAP – PICK 2.'

My friend thought the sign was funny, but it also expressed a business philosophy that had served him well over the years. Perfection's not possible, and as Mick Jagger sang, you can't always get what you want. If you try hard, you can get what you need, so long as you don't ask for too much.

I took a red marker, crossed out the '2' and replaced it with a '3'. That was my way of saying, 'Getting what you need is yesterday. Today is getting what you want. And too much is never enough.'

My friend had built his business by making good-quality products and responding promptly to his customers' needs.

Compared to the Chinese imports, his products were not cheap, but he thought he had a quality advantage and could match anyone on efficiency and speed of delivery (at least initially anyway). As it turns out, many of my friend's customers thought his quality advantage was superfluous. The Chinese goods were more than well enough made to last through their normal span of use in a fast-changing sales environment, where customers are eager for the next new thing and merchandisers replace their displays and point-ofsale materials frequently.

Behind my friend's wrong assumption about his quality advantage was a mistake about time and the pace of market change. It was two mistakes, really. One mistake was thinking the greater durability of his product was actually an advantage for most of his customers, rather than being increasingly irrelevant given how fast market trends change. The second mistake was in thinking he was a fast enough manufacturer and supplier to hold his market share on that score. The Chinese manufacturers turned out to be much faster than he was as well as much cheaper, and were good enough on quality to rapidly erode his market share. Not only that, but over time the Chinese imports arguably began to match the quality he once built his market position on.

My friend's mistake wasn't unusual. It was business as usual. The standard advice in business textbooks is that you can't lead your league on fast, good and cheap, so you should concentrate your efforts to excel and establish competitive advantage in one category, be average or good in a second category and don't worry too much about lagging in the third category.

But remember, today's customers increasingly 'Think AND, Not OR'. In a world of global oversupply, global underdemand and nonstop technological change, they get more of what they want faster and faster all the time. In the case of some of the most profitable businesses of our time (think of successful product launches such as the Apple iPod, Nintendo Wii, Toyota Scion or the latest Nike shoe), customers get more of what they want before they know they want it.

The four forces of change that I discussed in chapter 1 – especially the fourth, increasing expectations – are the cause of this change. The bottom line, as you can see from my mate's example, is that the more variety, the better quality and the faster service customers enjoy, and the more information that is available to them about you versus the competition, the more finicky, demanding and impatient they become. In that context, competitive advantages quickly turn into competitive necessities that rivals can copy and adapt for themselves.

For you as a businessperson, that situation desperately requires you to flip on its head any notion that fast, good, cheap – pick 2 is sufficient in today's market. It is 'Fast, Good, Cheap – Pick 3' as a minimum, plus something above and beyond these three necessities where genuine competitive advantage will be found.

In order to really grasp this flip and implement it into your day-to-day operations you must understand:

• To compete in any market, being fast, good and cheap is table stakes, the price of entry.
  To achieve competitive advantage, you must lead the league in at least one category and be industry standard in the remainder.
  
• To sustain competitive advantage, you must commit to a perpetual cycle of innovation.
  Fast today is not fast enough for tomorrow. Good today is not good enough for tomorrow. Cheap today is not cheap enough for tomorrow.
  
• As a business goal, customer satisfaction sucks!
  If you're ever going to move beyond satisfying customer needs to fulfilling customer wants, which is where the big profits are, you've got to be fast, good, cheap and
  more!
  

When I tell executives, 'Customer satisfaction sucks!', they look at me like I'm crazy. If anything is accepted business wisdom today, it is that customer satisfaction is paramount.

Yes and no. Bear with me while I split a very important hair.

My cable television provider recently called to ask if I was satisfied with my new package. Well, the service does what they promised it would do, but I'm not going out of my way to tell people how great it is. Instead of five television channels with nothing on that I want to watch, there are 105 (or something like that). I need digital television service if I'm going to get the most out of my high-definition flat-panel television. But I don't want lots of channels. I want one that shows what I want to watch.

Lots of channels satisfied my need, but it didn't fulfil my want. The cable television industry as a whole is a classic example of company needs and wants being out of alignment with customer needs and wants. New digital video recorders such as Foxtel's IQ and services like TiVo are going some of the way to addressing this disparity, as are cable television packages offering you the ability to choose your dominant programming such as sport, movies or some other genre that interests you. The programmers, the television networks and the cable television providers want to aggregate dozens and hundreds of channels into tiered services that only seem to fulfil customers' desire to watch what they choose when they choose.

That's the subscription model the industry wants. And some customers are probably perfectly happy with it. But other customers aren't going to be happy until they get à la carte pricing that enables them to pick and choose only the channels they really want to watch, or until they can freely choose high-definition video from millions of sources streaming over the internet. Over the next few years, as YouTube continues to grow, and more households opt for digital video recorders like TiVo, I suspect more and more customers will choose to program their own television viewing rather than settling for the cable television industry's programming packages. Channel 7 has negotiated with TiVo to bring this DVR to Australia, much to the displeasure of media buyers, who say it will reduce the number of people who watch ads – but the viewers will like it no doubt.

This will of course happen as technology not only gives customers more and more choices outside the traditional television providers' control, but as peer-to-peer networks also allow users to get recommendations from people they know and trust, so they can sort through the limitless choices efficiently. The internet video distribution network from NBC Universal and News Corporation, in collaboration with AOL, MSN, MySpace and Yahoo!, anticipates that future and represents a savvy response to the popularity of YouTube.

The NBC Universal–News Corp. network is a brilliant flip on the entertainment business as usual, and I have more to say about it in chapter 6, 'To Get Control, Give It Up,' and in chapter 7, 'Action Precedes Clarity.' The general point I want to make here is that customer satisfaction measures your ability to deliver what you have conditioned the customer to expect, not what he or she really wants. And that leaves you vulnerable to a competitor who will supply that want with a positive, memorable, mind-blowing customer experience, something that exponentially raises the standard on fast, good and cheap, and instantly creates a whole new level of customer expectation.

FASTER, BETTER, CHEAPER, OR, YESTERDAY'S GREAT IS TODAY'S GOOD AND TOMORROW'S UNACCEPTABLE

Once you recognise the 'Fast, Good, Cheap – Pick 3' dynamic at work, you begin to notice it everywhere. I want to point you to some of the best current examples of it among Australia's and the world's leading companies. But first let me tell you what happened to my friend's perspex business.

When I crossed out the '2' in his 'Fast, Good, Cheap – Pick 2' sign and replaced it with a '3,'my friend got it instantly. He had been flipped and he knew it. So without any detailed plan (he is the kind of person who showed me that action precedes clarity), he began to act differently.

He stopped trying to stem the losses from his broad old customer base, and he began to concentrate on serving only the most profitable customers. This quickly led him to a much more specialised focus serving specialty and high-end retailers and letting the Chinese imports have the mass market. In effect, he evolved his business model via action, without too much planning (he was desperate), to one in which key accounts were all that mattered. This is a strategy that Professor Noel Capon of Columbia Business School has shown to be a crucial component of success for many of the world's top companies, such as IBM, Xerox and Citi (see Professor Capon's
Key Account Management and Planning
for a great primer on this subject).

In my friend's perspex business, the result has been to boost margins. He can now continue to charge more for his products than the Chinese imports cost, while delivering faster service and better quality than ever before. This may sound like he has picked
fast
and
good
, but still not
cheap
. No, he has picked cheap – cheap
at the price
. The customer's sense of a product's cheapness can be expressed by the ratio of value to price. Customers feel a product is cheap at the price – not when they pay the lowest possible price, but when they feel like they have received great value and a good deal on all measures, including price.

My friend's customers pay a premium for his products, but they get exactly what they want. What they need is just a properly sized and shaped piece of perspex.What they want is getting that from someone with a deep understanding of their needs and the ability to finetune the product offering to their specifications. Together these factors make my friend's premium pricing a bargain in the minds of his most profitable customers. He is indeed fast, good and cheap.

His next challenge, if he really wants to be a flipstar, is to 'Think AND, Not OR', and to work on selling a high volume of high-margin products. Because who says there needs to be a trade-off? Apple after all sold millions of iPods at a 30 per cent price premium over other Mp3 players.How? Well as you will learn in chapter 3, 'Superficial is Anything But', $400 is a bargain if the item makes you feel cool.

Before moving on I would like to give you an excellent example of how 'Fast, Good, Cheap – Pick 2' has become 'Fast, Good, Cheap – Pick 3'. The original brand identity of McDonald's was as fast and cheap. For a long time that was all McDonald's needed to be. Of course, the food had to be good enough to satisfy customers' needs for a meal, but that meant it had to taste good enough, not be nutritious enough. During the decades when McDonald's grew into one of the world's biggest brands, nutrition was not a subject most people knew or cared about.

Rising affluence in the world's developed economies changed that. A satisfied need no longer motivates (remember the fourth force of change), and the more affluent society as a whole became, the more concerned and interested the public became in the nutritional quality of food.

More and more of the most affluent, highest spending customers became nutrition obsessive, and accordingly even junk food was marketed – dishonestly most social critics would say – as containing healthy ingredients, being 'no fat', and so on.

Macca's customer offering of a fast meal that only costs a few dollars and tastes good, but is not that good for you, began to exhaust its growth potential as the new millennium began, to the point that one quarter they even made a loss. The company was also under increasing pressure from consumer groups, public health advocates and governments to offer healthier food. And as the decade wore on, McDonald's endured a lot of negative publicity from exposés such as Eric Schlosser's bestselling book
Fast Food Nation
and Morgan Spurlock's documentary film
Super Size Me.

Facing those two challenges, Macca's first responded with its New Taste Menu, which offered customers many more options – and by all accounts flopped. Variety, or in this case more fast food that wasn't good for you, was not what customers wanted. What customers wanted was fast, cheap food that was healthier. The breakthrough came with Salads Plus, which drove hundreds of thousands of new customers each month into McDonald's restaurants in Australia. Of course, these customers did not eat only salads. They also bought lots of soft drinks and fries and burgers, too. The more recent additions of the Deli Menu, which I personally love, and the McCafé have extended these good results in the Australian market. Macca's is now fast, cheap
and good.
Even more recently they have managed to get the Heart Foundation to give its well-branded 'Tick' to a number of McDonald's menu offerings. Cynical as you may find this, it is a superb strategy from a very proactive company. I've read that some stores' sales are up nearly $1 million per year following the launch of Salads Plus.