It's Not Luck (22 page)

“Depends what you call a tight time limit—but six months should be sufficient.” I have learned what you can accomplish in a company in three months. Most people regard it as nothing, I see it as an eternity.

“I’m not promising anything, definitely not six months,” Trumann says. “But if you’re so sure of yourself, I’ll buy a round of drinks and then you can show us,” and he starts looking around expectantly.

“Bring the beer.”

The lunch crowd has cleared out, and the place is relatively quiet. Our waiter is gone. Trumann goes off and returns shortly, frosty mugs in hand.

“Excellent. Thanks, Brandon.” I take a big swallow, wipe off my mouth and start. “In order to significantly increase sales we have to increase the perception of value of the market for our products.”

“Yes, if you can do it,” Brandon agrees. “It’s much better than reducing prices.”

“Usually we think that in order to increase the perception of value of the market we have to come up with new, improved products.”

“That appears explicitly in our tree,” Jim concurs. “And you know how much I dislike this approach. Considering the huge investments and the low chance of success, it simply doesn’t make any business sense. I always say, let the competitors pave the way, we’ll follow.”

“There is another way,” I say. “A way that does not involve investments or high risks.”

“Now you’ve piqued my curiosity,” Jim admits. “I’m all ears.”

“We can see the alternative way when we examine what Pete has done. He didn’t touch the physical product, he upgraded something else.”

“What do you mean?” Brandon asks.

I try to explain. “From the supplier’s point of view, the product is the actual physical product. This view gives limited options for improvement. Look at it from the market’s point of view. From the market’s point of view the product is much broader. It includes the service that goes with it, the financial terms, the guarantee. . . . The product is the entire offering.”

“Makes sense.” Brandon is slowly nodding his head.

“All suppliers know that,” Jim is more critical. “Look how much importance is given to customer service these days, to due date performance, to short lead times.”

“Nevertheless,” I argue, “when we, the suppliers, talk about upgrading the product, instinctively it translates into investments in engineering, equipment, and massive amounts of time. What Pete noticed is that in order to drastically change the perception in the eyes of the market, he doesn’t have to upgrade the physical product. He can change the periphery, the section of the offer that is not the product itself. And this, my friends, can be done with almost no investment, and very quickly.”

Jim doesn’t seem enthused. Far from it.

Brandon is more polite. “I’m all for it,” he says. “However, Alex, is this practical or just a theory? I mean, it sounds great, but there’s a problem. How are you going to find out which changes in the offering will have a big impact on the clients? Changes that your competitors have not implemented yet?”

“Oh, that’s easy,” I smile. “But let me start by giving some background. Remember what is really determining the perception of value of a product in the eyes of the market? It’s not the effort to produce it, it’s the benefits derived from having the product.”

They nod their heads; we’ve discussed this before.

“We know that there are two types of benefits. Adding something positive or eliminating something negative. Look at any advertisement. Look at how a car is advertised. It’s comfortable, reliable, or comes with a great factory rebate. If you noticed, only the first one, comfort, is an advantage. The other two are the elimination of negatives.

“What is the meaning of reliable? You won’t have to take the car to a garage as often. Reliability is not a plus on its own, it reduces a negative that is inherent in having the product.

“A price reduction, or factory rebate, is the same thing. Paying is an inherent negative that comes with the product. But, if you buy ours, it will cost you less.”

“This distinction between plus and less negatives—this minus minus—is quite interesting,” Jim chuckles. “But why do you mention it?”

“Because you are putting me under time pressure. I believe that the more powerful way to increase the perception of value of the market is through bringing additional positives. But we can get the easiest and quickest improvements by concentrating on eliminating the negatives. They are intimately well known to the customer, you don’t have to persuade him that they exist, and you don’t have to persuade him that he wants to get rid of them. It’s the path of least resistance.

“Think about it, this is exactly what Pete did. First he chose to define his market as the buyer’s, since they are the ones who directly interact with him. They are the ones who, when Pete succeeds in improving their perception, can react almost immediately. Then he solved the major problems of the buyer. No wonder the buyer’s perception of value for Pete’s offering took a quantum leap.”

“Wait a minute,” Jim is on guard. “What you’re saying is that you have to know the client, you have to make sure that you address his needs.”

“Precisely.”

“I’m sorry, Alex,” he looks disappointed, “but this is lesson number one in business. Everybody is trying hard to find the real needs of their clients and address them better than the competition. I don’t see anything new in what you tell us.”

“No, Jim. Every company claims that that’s what they’re doing. But almost nobody is.”

“I’m not sure I understand,” Jim is more careful now.

“Okay. Tell me, how do you think companies find the real needs of their clients?”

“I don’t know the details, but they do it. I know that they invest a lot in market surveys, for example.”

“Excellent example,” I agree. “Only four months ago we got such a survey on Pressure-Steam’s market. Our market research department gave us a two-hundred-page document, with lots and lots of data. I bet that every UDE the clients have, especially with us or our products, was listed in tables, diagrams and histograms. A lot of benchmarking, every cross-section that you can think of was there. But do you know what we’ve done with it?”

“Probably nothing,” he admits.

“Almost. We were impressed. We even launched some activities to try and address some of the UDEs, but it really didn’t tell us anything that we didn’t already know, or at least suspect.”

“So, what’s your point?”

“My point is that you’re right. Everyone is trying to address the UDEs of the client. But compare it to what Pete did. See the difference?”

I drink some beer and wait for them to catch up.

“There is a difference,” Jim admits. “And not a small one. But I can’t quite articulate it . . . . ”

“That’s just because you aren’t so used to our terminology. The difference is that everyone is trying to address the client’s UDEs. Pete is addressing the client’s core problem.”

“Yes, of course,” Brandon says. “I have always claimed that dealing with symptoms is ineffective. We should aim at the root causes.”

“Not enough.” I have to make sure they see how it really fits together. “Root causes are not enough for me. We should try to correct a core problem, one that is responsible not just for one or two UDEs, but for a whole gamut.”

“I see,” says Jim. “And you seem to have the perfect tool to do it. The Current Reality Tree. You demonstrated to us that you can start with a list of seemingly unconnected UDEs and end up with a core problem. What a demonstration. I’ll never forget it.”

Boy, Jim sure is sharp.

I try to summarize, “Remember your concern about finding out which changes in our offering would have a big impact on the clients? Now you see why I’m so sure we will be able to do it, Brandon?”

He still fudges, but his expression is more relaxed and confident.

“So let me see if I understand your suggestion,” Jim pushes on. “First, you’re going to survey the market to get the UDEs.”

“Jim, I don’t have to survey the market, I think surveys are a waste of time and money. My people know the market well enough to come up with a good representative list of UDEs, and even if they didn’t, just meeting with two or three clients surfaces enough UDEs. You don’t need to have every single UDE to write a good Current Reality Tree, a representative sample is usually enough to identify the core problem.”

“Right. So, you are going to take the UDEs of your markets, build a Current Reality Tree, and through it identify a deep enough problem.” Jim stops and gives me a questioning look.

I nod approval, and he continues, “Then you are going to see what changes you have to make, not to the physical product, but to the offering as a whole, so that you are better addressing a deep problem of the market. This is intriguing.”

“Intriguing? It’s ingenious,” Brandon slaps the table with approval.

I lean back, and finish my beer. They do the same. After a while, Jim asks, “How do you know that you haven’t forgotten something? That you haven’t neglected an angle that might come and bite you?”

“Good question,” I say. “Let me enhance it. You know that when many of a person’s problems are eliminated, that person might change his behavior. Here we are talking about addressing a deep problem, which will eliminate a lot of UDEs. We must expect that the market behavior will change as a result. What guarantees that this change will be to our benefit? Who says it won’t boomerang on us, and after a while leave us worse off than we were before we started?”

“Good questions,” Brandon says. “But I think that with any change we have to take some risks.”

“Some level of risk is unavoidable,” I respond. “But I am too paranoid not to try and reduce the risk as much as possible. And we have the perfect mechanism for that.

“You see, once we have built the Current Reality Tree of the market, we are well aware of the underlying causalities. Then what we do is start by assuming that we are launching our new offer, and logically predict what must be the unavoidable impact on the client. In other words, we build the Future Reality Tree of the market.”

They seem to understand.

“Now we are going to use the most abused, but powerful resource that we have. At our company, like at any company, we have no lack of people whose instinctive reaction to any suggestion is ‘Yes, but . . .’ Small yes, big but. So we take this Future Reality Tree that we have built and send it to as many functions within our company as possible, asking for reservations.”

“No doubt you will get them. Piles of them.” Jim laughs.

“It is very important not to ignore these nasty reservations. Each one of them is a pearl, because if we do take them seriously, if we write each reservation as a logical Negative Branch, we can identify everything that can go wrong.”

“And a lot that cannot,” Brandon adds wryly.

“Now, the Negative Branches that lead to real hazards have to be trimmed, which means we have to complete our offerings with additional actions that will almost guarantee that the identified negatives will not occur.”

“Yes, very smart. This way, if it works, you’ll end up with an excellent offer, one that will significantly increase your competitive edge. Alex, how long should this process take?”

“I don’t know. But my guess is less than a month. I have to leave time for implementing it and getting the orders.”

“To the orders!” Jim raises his mug. We look. All our mugs are empty. Jim grabs his water glass. Brandon and I do the same, and we all join in the toast.

“Alex, what about market segmentation?” Jim asks. “This beautiful idea that came out of our Current Reality Tree? You’re not going to use it?”

Again I marvel at how much they learned from that tree. “Maybe not in the beginning, but I am definitely going to use it.”

“The point was to cause the segmentation in what is now a uniform market, not to just go after niches. Do you know how to do this, how to cause this differentiation?” Jim is relentless.

“I think so.”

“Well?” Once again, they’re getting pushy with me.

“Well, it’s quite simple.” Maybe it is, but again I wonder how to explain it so that it’s clear. “Actually, it’s a derivative of what we’ve been talking about. You see, Jim, we’ve left an open question: what is the market of a company? We can define it as the person who the company interacts with. We can define it as the companies to which it sells its products. We can define it as the companies that buy from the companies whom we sell to. Or we can go as far as describing the market as the end consumer.

“I suspect that we can do the analysis for each stage, and as we are coming closer and closer to the consumer we will get more powerful solutions. Of course, the implementation will become more involved, we will have to convince the intermediate links to collaborate.”

Have I lost them? I’d better try to answer Jim’s question quickly.

“The real interesting question is, how many Current Reality Trees should we write if we are serving two different markets? What do you think?”

“Two, I guess.” Brandon decides to participate.

“And if these two markets have overlap, in other words, it is not so clear cut where one market ends and the other starts?”