Start With Why (3 page)

Intuitively we understand this. We understand that even with mountains of data and good advice, if things don’t go as expected, it’s probably because we missed one, sometimes small but vital detail. In these cases, we go back to all our sources, maybe seek out some new ones, and try to figure out what to do, and the whole process begins again. More data, however, doesn’t always help, especially if a flawed assumption set the whole process in motion in the first place. There are other factors that must be considered, factors that exist outside of our rational, analytical, information-hungry brains.

There are times in which we had no data or we chose to ignore the advice or information at hand and just went with our gut and things worked out just fine, sometimes even better than expected. This dance between gut and rational decision-making pretty much covers how we conduct business and even live our lives. We can continue to slice and dice all the options in every direction, but at the end of all the good advice and all the compelling evidence, we’re left where we started: how to explain or decide a course of action that yields a desired effect that is repeatable. How can we have 20/20 foresight?

There is a wonderful story of a group of American car executives who went to Japan to see a Japanese assembly line. At the end of the line, the doors were put on the hinges, the same as in America. But something was missing. In the United States, a line worker would take a rubber mallet and tap the edges of the door to ensure that it fit perfectly. In Japan, that job didn’t seem to exist. Confused, the American auto executives asked at what point they made sure the door fit perfectly. Their Japanese guide looked at them and smiled sheepishly. “We make sure it fits when we design it.” In the Japanese auto plant, they didn’t examine the problem and accumulate data to figure out the best solution—they engineered the outcome they wanted from the beginning. If they didn’t achieve their desired outcome, they understood it was because of a decision they made at the start of the process.

At the end of the day, the doors on the American-made and Japanese-made cars appeared to fit when each rolled off the assembly line. Except the Japanese didn’t need to employ someone to hammer doors, nor did they need to buy any mallets. More importantly, the Japanese doors are likely to last longer and maybe even be more structurally sound in an accident. All this for no other reason than they ensured the pieces fit from the start.

What the American automakers did with their rubber mallets is a metaphor for how so many people and organizations lead. When faced with a result that doesn’t go according to plan, a series of perfectly effective short-term tactics are used until the desired outcome is achieved. But how structurally sound are those solutions? So many organizations function in a world of tangible goals and the mallets to achieve them. The ones that achieve more, the ones that get more out of fewer people and fewer resources, the ones with an outsized amount of influence, however, build products and companies and even recruit people that all fit based on the original intention. Even though the outcome may look the same, great leaders understand the value in the things we cannot see.

Every instruction we give, every course of action we set, every result we desire, starts with the same thing: a decision. There are those who decide to manipulate the door to fit to achieve the desired result and there are those who start from somewhere very different. Though both courses of action may yield similar short-term results, it is what we can’t see that makes long-term success more predictable for only one. The one that understood why the doors need to fit by design and not by default.

There’s barely a product or service on the market today that customers can’t buy from someone else for about the same price, about the same quality, about the same level of service and about the same features. If you truly have a first-mover’s advantage, it’s probably lost in a matter of months. If you offer something truly novel, someone else will soon come up with something similar and maybe even better.

But if you ask most businesses why their customers are their customers, most will tell you it’s because of superior quality, features, price or service. In other words, most companies have no clue why their customers are their customers. This is a fascinating realization. If companies don’t know why their customers are their customers, odds are good that they don’t know why their employees are their employees either.

If most companies don’t really know why their customers are their customers or why their employees are their employees, then how do they know how to attract more employees and encourage loyalty among those they already have? The reality is, most businesses today are making decisions based on a set of incomplete or, worse, completely flawed assumptions about what’s driving their business.

There are only two ways to influence human behavior: you can manipulate it or you can inspire it. When I mention manipulation, this is not necessarily pejorative; it’s a very common and fairly benign tactic. In fact, many of us have been doing it since we were young. “I’ll be your best friend” is the highly effective negotiating tactic employed by generations of children to obtain something they want from a peer. And as any child who has ever handed over candy hoping for a new best friend will tell you, it works.

From business to politics, manipulations run rampant in all forms of sales and marketing. Typical manipulations include: dropping the price; running a promotion; using fear, peer pressure or aspirational messages; and promising innovation to influence behavior—be it a purchase, a vote or support. When companies or organizations do not have a clear sense of why their customers are their customers, they tend to rely on a disproportionate number of manipulations to get what they need. And for good reason. Manipulations work.

Many companies are reluctant to play the price game, but they do so because they know it is effective. So effective, in fact, that the temptation can sometimes be overwhelming. There are few professional services firms that, when faced with an opportunity to land a big piece of business, haven’t just dropped their price to make the deal happen. No matter how they rationalized it to themselves or their clients, price is a highly effective manipulation. Drop your prices low enough and people will buy from you. We see it at the end of a retail season when products are “priced to move.” Drop the price low enough and the shelves will very quickly clear to make room for the next season’s products.

Playing the price game, however, can come at tremendous cost and can create a significant dilemma for the company. For the seller, selling based on price is like heroin. The short-term gain is fantastic, but the more you do it, the harder it becomes to kick the habit. Once buyers get used to paying a lower-than-average price for a product or service, it is very hard to get them to pay more. And the sellers, facing overwhelming pressure to push prices lower and lower in order to compete, find their margins cut slimmer and slimmer. This only drives a need to sell more to compensate. And the quickest way to do that is price again. And so the downward spiral of price addiction sets in. In the drug world, these addicts are called junkies. In the business world, we call them commodities. Insurance. Home computers. Mobile phone service. Any number of packaged goods. The list of commodities created by the price game goes on and on. In nearly every circumstance, the companies that are forced to treat their products as commodities brought it upon themselves. I cannot debate that dropping the price is not a perfectly legitimate way of driving business; the challenge is staying profitable.

Wal-Mart seems to be an exception to the rule. They have built a phenomenally successful business playing the price game. But it also came at a high cost. Scale helped Wal-Mart avoid the inherent weaknesses of a price strategy, but the company’s obsession with price above all else has left it scandal-ridden and hurt its reputation. And every one of the company’s scandals was born from its attempts to keep costs down so it could afford to offer such low prices.

Price always costs something. The question is, how much are you willing to pay for the money you make?

General Motors had a bold goal. To lead the American automotive industry in market share. In the 1950s there were four choices of car manufacturer in the United States: GM, Ford, Chrysler and AMC. Before foreign automakers entered the field, GM dominated. New competition, as one would expect, made that goal harder to maintain. I don’t need to provide any data to explain how much has changed in the auto industry in fifty years. But General Motors held fast through most of the last century and maintained its prized dominance.

Since 1990, however, Toyota’s share of the U.S. market has more than doubled. By 2007, Toyota’s share had climbed to 16.3 percent, from only 7.8 percent. During the same period, GM saw its U.S. market share drop dramatically from 35 percent in 1990 to 23.8 percent in 2007. And in early 2008, the unthinkable happened: U.S. consumers bought more foreign-made automobiles than ones made in America.

Since the 1990s, faced with this onslaught of competition from Japan, GM and the other U.S. automakers have scrambled to offer incentives aimed at helping them hold on to their dwindling share. Heavily promoted with advertising, GM, for one, has offered cash-back incentives of between $500 and $7,000 to customers who bought their cars and trucks. For a long time the promotions worked brilliantly. GM’s sales were on the rise again.

But in the long term the incentives only helped to dramatically erode GM’s profit margins and put them in a deep hole. In 2007, GM lost $729 per vehicle, in large part due to incentives. Realizing that the model was unsustainable, GM announced it would reduce the amount of the cash-back incentives it offered, and with that reduction, sales plummeted. No cash, no customers. The auto industry had effectively created cash-back junkies out of customers, building an expectation that there’s no such thing as full price.

Whether it is “two for one” or “free toy inside,” promotions are such common manipulations that we often forget that we’re being manipulated in the first place. Next time you’re in the market for a digital camera, for example, pay attention to how you make your decision. You’ll easily find two or three cameras with the specifications you need—size, number of megapixels, comparable price, good brand name. But perhaps one has a promotion—a free carrying case or free memory card. Given the relative parity of the features and benefits, that little something extra is sometimes all it takes to tip the scale. In the business-to-business world, promotions are called “value added.” But the principles are the same—give something away for free to reduce the risk so that someone will do business with you. And like price, promotions work.

The manipulative nature of promotions is so well established in retail that the industry even named one of the principles. They call it breakage. Breakage measures the percentage of customers who fail to take advantage of a promotion and end up paying full price for a product instead. This typically happens when buyers don’t bother performing the necessary steps to claim their rebates, a process purposely kept complicated or inconvenient to increase the likelihood of mistakes or inaction to keep that breakage number up.

Rebates typically require the customer to send in a copy of a receipt, cut out a bar code from the packaging and painstakingly fill out a rebate form with details about the product and how it was purchased. Sending in the wrong part of the box or leaving out a detail on the application can delay the rebate for weeks, months, or void it altogether. The rebate industry also has a name for the number of customers who just don’t bother to apply for the rebate, or who never cash the rebate check they receive. That’s called slippage.

For businesses, the short-term benefits of rebates and other manipulations are clear: a rebate lures customers to pay full price for a product that they may have considered buying only because of the prospect of a partial refund. But nearly 40 percent of those customers never get the lower price they thought they were paying. Call it a tax on the disorganized, but retailers rely on it.

Regulators have stepped up their scrutiny of the rebate industry, but with only limited success. The rebate process remains cumbersome and that means free money for the seller. Manipulation at its best. But at what cost?

If someone were to hold up a bank with a banana in his pocket, he would be charged with armed robbery. Clearly, no victim was in any danger of being shot, but it is the belief that the robber has a real gun that is considered by the law. And for good reason. Knowing full well that fear will motivate them to comply with his demands, the robber took steps to make his victims afraid. Fear, real or perceived, is arguably the most powerful manipulation of the lot.

“No one ever got fired for hiring IBM,” goes the old adage, describing a behavior completely borne out of fear. An employee in a procurement department, tasked with finding the best suppliers for a company, turns down a better product at a better price simply because it is from a smaller company or lesser-known brand. Fear, real or perceived, that his job would be on the line if something went wrong was enough to make him ignore the express purpose of his job, even do something that was not in the company’s best interest.

When fear is employed, facts are incidental. Deeply seated in our biological drive to survive, that emotion cannot be quickly wiped away with facts and figures. This is how terrorism works. It’s not the statistical probability that one could get hurt by a terrorist, but it’s the fear that it might happen that cripples a population.

A powerful manipulator, fear is often used with far less nefarious motivations. We use fear to raise our kids. We use fear to motivate people to obey a code of ethics. Fear is regularly used in public service ads, say to promote child safety or AIDS awareness, or the need to wear seat belts. Anyone who was watching television in the 1980s got a heavy dose of antidrug advertising, including one often-mimicked public service ad from a federal program to combat drug abuse among teenagers: “This is your brain,” the man’s voice said as he held up a pristine white egg. Then he cracked the egg into a frying pan of spattering hot oil. “This is your brain on drugs.... Any questions?”