Flip Read online

  INCREASED SOPHISTICATION OF TECHNOLOGY, SYSTEMS AND PROCESSES

  The technology, systems and processes that you and your competitors use to access and service the market keep becoming more sophisticated. It is commonplace to buy things such as a server, laptop or software only to find that the tool requires an update – or even worse is completely obsolete – before you have even integrated it into your existing business processes and trained your team how to use it.

  To share a personal example, I have spent serious money and time configuring my own business systems so I could get the information I need from the database whenever and wherever I want. I can't tell you how challenging it has been to get members of my team to understand how the technology works and also to get me the exact information I need. Just when I thought I had my finger on it, online customer relationship management (CRM) programs such as Salesforce.com may have gathered enough momentum and critical mass to make my locally stored data a business process of the past.

  This both excites me and hugely frustrates me. I'm sure you have had similar experiences.

  LEGISLATION

  It is not just new technology, new choices and empowered staff and consumers that are leading to increased complexity. It is legislation as well. Consider the following two examples.

  The Sarbanes-Oxley Act of 2002 (SOX), named for its key sponsors in the US Congress, is American legislation on corporate financial reporting enacted in the aftermath of the Enron, Worldcom and other business scandals. Because of the global reach of the US economy, SOX has serious global impacts. For example, its strict guidelines on independent auditing of financial results have greatly complicated things for both non-US and US companies, especially in terms of their relationships with the four major global accounting firms.

  And this is to say nothing of the complexity of tax legislation around the world, especially for multinational companies with operations that span the globe. I read recently that the US tax system (the Internal Revenue Code) is 7500 pages and contains three and a half million words.

  The second is a more grassroots example: a takeaway restaurant I visited the day after attending a friend's wedding.As you might expect, I was suffering from a rather serious hangover, and I went to buy a kebab to try to settle my stomach.When I asked them to cut my kebab in half, they said they were not allowed to do so because of hygiene regulations. They even pointed out a sign they had posted to that effect. I told them they were off their rocker and wondered if it wasn't just an excuse to avoid extra work. But a week later I was doing some consulting for the Institute of Environmental Health and I related my experience to a former chief food inspector, who suspected, but could not say for sure, that cutting the kebab in half wasn't forbidden. Now if a former chief food inspector doesn't know for sure, I obviously can't blame the takeaway restaurant proprietor for trying to stay on the safe side of things.

  All of this bureaucracy and complexity tends to lead to paralysis. In the face of the confusion you do less. But taking less action is often counterproductive. Managing confusion is usually a case of doing more, not less, at least initially.

  3. INCREASING TRANSPARENCY AND ACCOUNTABILITY

  As my reference to Sarbanes-Oxley may suggest, the flip side (I couldn't resist) of the increasing amount and complexity of information flows is increasing transparency and accountability. The digital information technology revolution has put global access to information in the hands of literally billions of individuals, who can share that information with each other at will. I have talked about how much knowledge and exchange of ideas takes place, and how much additional complexity it creates for companies as they try to manage their databases. Even more important is that information technology puts the power to obtain and share data in the hands of the individual.

  The constant upswell in information, misinformation, complexity, ambiguity and confusion thus does not increase opportunities to hide your mistakes and misdeeds. It actually has the opposite effect, subjecting you to increasing transparency and accountability.

  It is a little weird really. You would think that people have enough to do, given how 'busy' everyone is and how overloaded they are with information, without worrying themselves about your actions. Again the opposite seems to be true. There are always people ready to catch other people's mistakes with today's information technology.When they find mistakes, or what they think are mistakes, the very same technology allows them to spread their knowledge and opinions to literally the whole world. There is a good chance they are in the cubicle outside your office, bored out of their tree and looking for something more interesting to do.

  Accountability is being forced onto businesses in three interconnected ways:

  Top-down accountability. This is where legislation such as Sarbanes-Oxley and government oversight are being introduced to make businesses more accountable for their behaviour. In the near future legislation on new behaviours such as carbon offset trading will shed an increasingly bright light on companies' environmental impacts.

  Lateral accountability. The existence of competitors in your marketplace gives customers the ability to 'talk with their feet' when they don't feel as though you are meeting their increasingly intangible and constantly changing desires.

  Bottom-up accountability. A grassroots movement (be it word of mouth or mouse) can have a big impact on your reputation because of a positive or negative experience people have had with your brand.

  Let me give you an example of these three elements playing together. A bottom-up movement has led to a growing awareness of issues related to climate change and the impact business has on the environment. This growing awareness creates an opportunity for a company to differentiate itself (or on the flip side for a consumer to discriminate against a company) based on its level of 'green-ness'. Take Westpac's 'every generation should live better than the last' campaign. In 2003 it was the first Australian bank to join other leading banks around the world in signing the 'Equator Principles', promising not to finance projects that endanger local communities or the environment. A consumer may now keep competitors of Westpac accountable by not doing business with them, because they have not been as transparent and 'green' in their behaviour.

  Or consider that these days even the world's largest companies might find themselves at the mercy of two teenage girls armed with a high-school chemistry set. Ribena, for a long time a staple drink of pre-teens and young kids the world over, was advertised by manufacturers GlaxoSmithKline as containing four times the vitamin C of oranges.When two 14-year-old science students from New Zealand, Anna Devathasan and Jenny Suo from Pakuranga College, Auckland, conducted an experiment to measure Ribena's vitamin C content, it came up terribly short.

  The girls' concerns were originally disregarded by the company, but a local TV program picked up the story, and it eventually ended up online. Not long after, the New Zealand Commerce Commission brought fifteen charges of false and misleading advertising against the company in the New Zealand District Court.

  So bad was the PR from the fallout that across the Tasman Ocean, in Australia, the company made a massive 'voluntar?' change to their packaging, and the managing director of GSK went on national television in a series of ads, making an apology.

  GlaxoSmithKline are the world's second largest pharmaceutical company, with global profits over £7.8 billion, and they have basically been held to account by two 14-year-olds with a bunsen burner and conical flask!

  This is just one example of how new technologies are empowering ordinary individuals and increasing bottomup accountability.

  4. INCREASING EXPECTATIONS

  The fourth force of change results from the other three and in turn feeds back into them: increasing expectations for faster, better, cheaper products, for more varied options and for greater transparency and flexibility in response to customer needs and wants. Let's consider the following product timeline.

  Twenty years ago it was standard to have two or three keys for your c
ar – one to open the door and start the ignition, one to open the boot and perhaps another for your fuel cap. This evolved into just one key for both door and ignition and a button inside the car for access to the fuel cap.

  In an attempt to further improve the user experience, luxury car manufacturers decided to save drivers the immense effort required to stick a key in a lock and offered remote keyless entry, allowing the driver to press a button to unlock the door. Then they would need to put that remote key into either a traditional ignition and turn the car on or more recently hit the start button.

  Now even this is too much and you don't even have to take the key out of your pocket. The car automatically senses the key in proximity and when you place your hands on the door handle the car unlocks instantly. Then, leaving the key in your purse or pocket you hit the start button and the engine fires up.Not only that, but some leading cars will automatically reconfigure the seat and mirror settings based on the programmed owner of the key. To top things off, keyless ignition moved in the space of a few months from a luxury car feature to one available on mass-market cars such as the Nissan Maxima.

  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.

  2 FAST, GOOD, CHEAP – PICK 3

  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.