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Can an "Old Dog" Learn New Tricks in our Age of Change? Yes, by Widening Its View By Brad Hosmer, CMC The following article was published in the 2002 edition of the "Handbook of Business Strategy." Successful companies are generally founded on the ability to exploit a particularly good idea. Some combination of intuition--"We could do this"; "People would like this"--and market research--"Who exactly would be willing to pay how much for precisely what?"-usually leads to the precise identification of a market need. With skill, a bit of luck, and lots of hard work, such combination often produces both growth and profits. Many mature companies, however, (I call them "old dogs") never advance beyond their original smart idea, instead becoming stagnant as their growth hits a plateau. With no further growth, profits are squeezed. Even working harder fails to yield improved results. There are many well-known victims of this ailment but one that comes readily to my mind is General Motors. While marketing strategies years ago propelled it to the top of the heap in the worldwide auto industry, today GM finds itself struggling to keep pace with an ever-changing, crowded marketplace. This time it has shown itself unable to bridge the gap between what's needed today and a now decades-old strategic vision. In contrast, the high-tech leader Hewlett-Packard has repeatedly displayed an ability to re-invent itself as its markets shift and demand new things. Recently, it even spun off its original brilliant ideas and concepts for scientific and technical instrumentation into a completely separate company, a move unheard-of in any industry Yet this action has enabled the remainder of the company to concentrate on newer markets such as personal computers, printers and digital imaging. HP had found a way to respond to changing times and simultaneously keep itself growing. The View Through a Stovepipe Why do some companies achieve long term-growth and success while their counterparts stagnate and plateau? There are many reasons but one stands tall among the rest. Here's a metaphor that might help explain: Companies that fall behind tend to view their markets too narrowly. They're like an old dog meandering down a riverbank, and coming upon a rusty, narrow stovepipe lying in the ground. They sniff a bit, then look inside. What they can see through the other end is a leaf floating serenely down a river. It's a placid scene, a quiet, uncontentious one. But if the old dog lifted its head, it would see a lot more: the river lapping against its banks, a treacherous waterfall up ahead, the stream itself dividing into a main branch and two stagnant backwater sub-streams. Many companies, acting just like this old dog, are afflicted too with their own brand of "stovepipe vision." Though they seem to pay attention to and understand their markets, their context is narrow, limited, hemmed-in. They do not see the river beyond the vista permitted by their pipe, leaving them fixated on a very tightly defined spectrum of criteria and information. The result is an accepted level of business judgment based upon scattered and disconnected information, causing failures to observe approaching threats and the discounting (or outright missing!) of important changes signaling business opportunities. Consider the case of the textile company that embarked on the development of a high performance premium fabric for the soft luggage and sport bag market. Their new fabric combined greater-than-normal durability and much-improved color retention. By all accounts, or so they thought, the product had to be a winner. When rolled out into the marketplace, however, this "dynamic" new invention was a dud. Customers in their target market expressed no interest whatsoever in purchasing (at a premium, no less) a product with these attributes. In the end, the company ceased production of its "spectacular" new product, pronouncing it a failure. What went wrong? Here was a perfect case of "old dog" thinking. The firm knew that the new product was better than the old one, so they just made it and began offering it for sale, a modus operandi the company had become long accustomed to. Over the decades, its routine had always been to create a "better" new product to replace the old by dreaming up "better" things in the lab and assuming customers would buy it. "New and improved" had done it for them time and time again. But since their last such "improve-and-sell" cycle, their customers had changed the game on them. No longer did they automatically accept so-called "better" products, now customers were content to stay with the old or jump to something entirely new. New handles and more pockets caught customers' eyes now, more so than "improved" fabrics. So the textile leader's end users showed less willingness now to ante up a higher price for the essentially (in customers' view) the same suitcase or duffle bag. No sale meant no new profits--no way! In hindsight, what should the company have done? This old dog should have broadened its view of its marketplace, conducting market research to make sure they knew exactly what its customers wanted and needed. In the old days they never had to, but now they do because new tricks are expected! Had they done so, they might have found out there was no demand for their new improved fabric, that no one cared. They then could have abandoned the project early, saving time and money, and gone on to produce a new sports bag or carry-on that accommodated their customers' changing lifestyles. How about a suitcase with a pocket for a laptop? Or a sports bag big enough for roller blades? Such improvements, they might have discovered, could have yielded the desired profits. Widening Your View Does your company operate this way, sniffing about like an old dog, peering at the world through a narrow pipe? Does it need to find some ways to get its head up, to take in the wide view of the river, and recognize both opportunities and dangers up ahead? If so, here are a few "new tricks" I would suggest for widening your old dog's view: New Trick #1: Scrutinize Carefully Your Customer List. Your customer database is where your business really lives and dies. Many old dogs, from what I've seen, allocate far too many resources toward merely maintaining their existing customer base and essentially treating all their customers alike. Sometimes smaller, marginal accounts attract inappropriately lavish attention while nowhere near enough time gets allocated to more profitable customers. The following questions can help. Use them to conduct an accurate evaluation of your current customer base so as to concentrate your firm's efforts where they will do the most good: · Is your customer list growing, shrinking, or in a state of stagnation? Determine why it is doing what it's doing. · Have any of your major customers gone away, or have new ones signed on? Why have either of these happened? · Do you pass on your unprofitable customers to other vendors? If not, why not? Why maintain relationships with customers who are not making you any money? · On the other hands, are your profitable customers being held onto? If not, what's preventing you from doing this? Decide what can you do to retain them. You may wonder how you can get this customer analysis process started. Here is a practical way to do so: First, get your I/T department to produce a customer list for each of the last five years. Most database systems can easily produce a list of this type with customers arranged by sales volume. Next, concentrate on your top 20-50 customers. Make careful note of customer companies that have vanished from the list or have been added to the list. Third find out why any formerly important customers vanished. Do the same with important new customers-what made them come your way? In addition, it's very useful to understand exactly how you continue to serve those important customers who have remained with you year after year, i.e., what makes them stay? (See New Trick #2) By following this step-by-step process, you will begin to understand the view "outside the stovepipe," that is, why you are losing, gaining, or holding key customers. This will carry you a long way toward understanding the true (and present) dynamics of your business. The main point is not to allow valuable data in your customer list to lie fallow. By scrutinizing this list, you'll gain insights that keep your customer relationships fresh, up-to-date and constantly revitalized. New Trick #2: Seek Out Customers Similar to the Best You Have Now. A colleague of mine once acquired a small, locally oriented manufacturing firm, at the time most definitely an old dog operation. One of his first moves -- a smart one, I thought -- was analyzing his customer list with an eye to identifying his new company's "best" customers. As soon as he did so, he discovered that one company stood head and shoulders above the rest. He next searched out companies that were in the same or similar businesses. By compiling a list and systematically calling upon each company to tell him what he could do for them, before long many of these companies became his customers. Naturally, they all fell into the category of "best customers" right from the start. By deliberately "widening his view" in this way, he turned an old dog into a lively, eager pup. New Trick #3: Search for Opportunities Outside Your Current Market. Unfortunately, the stovepipe approach is employed all too often by old dogs attempting to develop new markets. This is a bad idea because the entire strategy then tends to be based on limited, familiar, possibly archaic information. A classic example of this occurred in the 1980s when the PC created for computer companies a massive new market opportunity. Though many such companies misread this exploding new market, none exhibited "old dog" thinking more dramatically than Digital Equipment Corporation (DEC). Ironically, in its early days, Digital had proved a pioneering innovator but when the personal computer began infiltrating American business, DEC continued to apply its heretofore successful (but by now "old dog") thinking, and with vigor. The company "knew" that people didn't really need computers on their desks, it proclaimed, and thus they attempted only a half-hearted commitment to this market. Instead, they created a series of incompatible personal computer and word processing products, "certain" there could ever be any real need for them to share data with others' computers. They also concentrated on hardware, again filled with long-developed "wisdom" that hardware is almost by definition more important than software. Up to this point, in high-tech history, all this of course HAD been true and DEC had operated quite profitably on the strength of such principles. Meanwhile, other companies, rising competitors of Digital Equipment, went about their business busily rearranging the computer market not far beyond Digital's stovepipe view. In this brave new marketplace, everything Digital had learned and "knew" turned out to be totally wrong. Beware of the (Old) Dog How can you best avoid old dog-ism before things reach the crisis stage? In addition to the three New Tricks cited above, when evaluating or responding to a new market opportunity, take note of the following ongoing general actions: 1. Find out everything you can about the new market by asking these questions: How big is it? How fast is it growing? How are the products or services sold and marketed? Why and how do the customers buy the product or service? 2. Find out everything you can about competition in the new market by asking these questions: Who are your competitors? What products and/or services are they offering? How big are they? Who are their customers and what businesses are those customers in? How do the competitors sell and market? What are their price points? Which products lead the market? Gathering this invaluable information means tossing aside your stovepipe and taking in the widest of wide views. You will also want to be sure to rely entirely on external sources for the bulk of this information. By the time you finish, you'll have an impressive, comprehensive dossier of information that can be realistically assessed for the opportunity at hand. Armed with this info, you can make intelligent decisions about how best to attack the new market. Without such info, you run a higher risk of eventual failure. Example: I recently worked with a client company that had taken great pains to develop a novel software application. Despite an initial period of success, however, my client was finding it nearly impossible to generate further sales. By researching their customers carefully, we realized that our initial success had occurred because the company's sales pitch perfectly matched the customer's needs. This of course was no accident since the company "knew" the need their software met and promoted it accordingly. Then we widened the research to include prospective customers and encountered a very different picture. Prospects expressed very different needs from the first wave of customers that had bought our product. To this group, the company's original sales pitch was way off target, preventing prospects from visualizing how the product would really help them. Yet the software itself, fortunately, was versatile enough to meet a wider range of needs including most of those of the non-buying prospects. So by changing the sales pitch, the company made it possible to start selling successfully to the prospect group. The result was a surge of new orders. The key had been tossing out the stovepipe and finding out what other segments wanted, thus taking into account the wider view of the needs of our market. So perhaps it's time to kick away your company's rusty old stovepipe and widen your perspective. If you do, desirable new business opportunities will likely present themselves which you in turn will recognize and act upon. But fail to make this change and your firm may find itself, like that "serene" leaf, drifting uncontrollably down the river, picking up speed as it approaches the falls. Taking the wide view will prevent this, coupled with employing a few new tricks. Sidebar: A Tale of Two Dogs Old Dog #1: Why NASA Keeps Getting It Wrong! In the Wall Street Journal recently, I read an interesting piece comparing NASA with Russia's space agency. The point was made that while Russia has been willing to begin accepting space tourists (American businessman Dennis Tito), NASA has not. In fact, NASA has outspokenly railed against the idea. For all we know, space tourism may be the wave of the future, perhaps even the most logical direction toward which space development should go. It could certainly become a driving force in how decisions about space travel, launches, rockets, etc. are made. Didn't people's clamor for the car back at the time of Henry Ford set the agenda for horseless carriages in terms of style, size and purpose? Since tourism could potentially alter the very face of space exploration, NASA's refusal to so much as explore it constitutes classic "old dog-ism." If this continues, look for Russia to pull ahead in the "new space race," their lead this time filled with high innovation and a viewpoint extending well beyond the stovepipe. Old Dog #2: The Company That Did It Right! Several years ago a company was started to meet the needs of one major player in the computer industry. This company began as a "board stuffing" house, assembling PC boards with components supplied by the computer company. Over the years the company added to its responsibilities by taking care of the purchase of the components needed for the final assembly. As time went on, it began offering this service to other companies, reducing its reliance on that original, single customer. Still later, by adding many new engineering and design services, it eventually established itself as a prominent provider of a complete turnkey package of engineering, design, procurement, and manufacturing services. What had started out as a contract "board stuffing" house thus transformed itself into an integrated supplier of specialty electronic modules. Had this firm NOT consistently employed the wide view of its market opportunities, it would surely have dwindled and died. That's because its original big customer now no longer exists at all, the many upheavals in the computer industry having long since done it in. Bradley E. Hosmer, CMC, heads The Beta Consulting Group in Concord, NH, specializing in improved sales, marketing and new business development for generating profitable growth. For further information please contact Mr. Hosmer at Beta Consulting. |
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