Almost nine years ago I had reentered the retail business after a fourteen year hiatus. The company I joined was just beginning a zealous journey to focus on the customer. The entire organization was determined to be more “customer centric” in every decision they made. They had gone so far as to identify six demographic target profiles that they were going to cater to. The goal was to get intimately familiar with each of these customer segments so that we could offer them the “best” and most appropriate goods and services. Some of those goods and services were already available but we were not aware of which customers needed them or why. In other circumstances we needed to be more innovative and seek out or create new products or service offerings. As we sought to delight the customer, we assumed that they would reciprocate by buying more or at least more profitable goods and services.
One of those target segments that I was brought in to assist with was identified as “Barry.” He was an affluent male, with children, who most often lived in the suburbs, liked technology but needed it to “just work” and didn’t have the time or patience to fiddle with something. His high income enabled him to outsource many household services to others and allow him to focus on his priorities. Often times Barry would refer to his list of “guys” that would help him accomplish his goals – his lawn guy, his home repair guy, his electronics guy, etc. We wanted him to consider us one of his “guys” so we created several pilot stores that would line up as closely as possible to what he wanted from a retail store and we would use these stores to try new things and test our hypothesis.
Early in my work on the Barry segment we had gotten a briefing from one of our leaders who was responsible for connecting our corporate team to the retail pilot store employees. He was ecstatic about how Barry loved us! He explained to us how our rising Average Selling Price (ASP) and Units per Transaction (UPT) were great indicators of how Barry was responding to our improved experience and offering.
Both of these units of measure are extremely important to retailers as a gauge of sales proficiency but neither of them actually measure customer satisfaction!
These numbers might show a positive correlation but then again they might not? Maybe you just sold the customer more stuff or more expensive stuff that they don’t really want? The challenge with the retail model is that “customer satisfaction” is really the measure that you want but it can be costly and slow to get questions answered directly from customers about their experience. So instead we use the numbers that we have readily available as surrogates for the numbers that we really want. This fact ties back to an earlier post “If You Don’t Measure It, You Can’t Improve It.”
This is a clear example of how the pace of the retail business is out of control… each week is a new “sale” with new products and new prices. These new products and prices need inventory to be shuffled from distribution centers to store floors with new signs and new price tags printed. This is an enormous task by a sea of employees and it never stops. All of this same work will need to be done again next week with new products and new prices! Retailers try to be strategic with their quarterly plans but are caught in the spinning vortex of time – weekly, monthly, quarterly, over and over again. What did we learn from last week’s sales numbers? The truth is that we are still trying to figure that out! But don’t worry too much because we can’t affect next week’s plans anyway because print advertising takes several weeks of planning. We will instead go with what we have.
So… we will make due using the numbers that we have readily available to measure the satisfaction of the customers that we think like us.
Two notes:
• Are you involved in measuring what customers think for your organization? If so, would highly recommend the book The Lean Startup by Eric Ries (@ericries). He offers some new thinking about how to measure customer feedback in the start up process.
• It looks like Amazon has jumped on the Customer Centric bandwagon. According to a recent letter to customers on the Amazon.com website… Amazon’s “mission is to be Earth’s most customer centric company.” (See Photo)
Food for thought:
• Do your customers love you? Have you really asked them?
• Are you using customer satisfaction or another metric that is easier to measure?
• Who are your customers? Do you have demographic profiles?
• What else do you want your “customers” to be? Advocates, donors, volunteers, or all of the above?
With the dry weather this summer my backyard oak trees seem to have made a premature determination that fall has already arrived. How do I know this? By the amazing proliferation of acorns throughout my yard before August had even arrived. As fast as the acorns could fall the family of gray squirrels was scampering across my yard burying their new found bounty. Although food was abundant the squirrels were making the effort to bury these acorns for their future survival. While snow may come relatively early in Minnesota it wasn’t likely to start falling for at least three months but the squirrels weren’t waiting for even a moment to begin their work.
After a few days the squirrels had easily buried hundreds, perhaps thousands, of acorns in a few block radius. Did they really need to bury more? How many could they eat during a given year? How would they find them all? I had heard at one time that squirrels didn’t really know where they had buried all of their acorns but with a combination of their sense of smell and some random luck they would stumble upon one of their previously buried acorns. While it might make for a good story it turns out to be a myth. According to UC Berkley researcher Dr. Pierre Lavenex the gray squirrel, like most animals, uses landmarks to calculate hundreds of triangulations to pinpoint the location of the buried acorns. This is important because these acorns are going to be the food source he will need for his survival through the cold winter. I started thinking about the universality of this lesson for both individuals and businesses; the importance of rigor and planning in planting acorns for your future success (or survival).
Do we work as hard as the squirrel in planning for times of scarcity? For many people the satisfaction gained from the immediate reward can prove too tempting. Like the children’s story The Ant and the Grasshopper (one of Aesop’s Fables) it seems far too easy for the grasshopper to dismiss the efforts of the ants gathering food in the summer with “summertime is for play not for work.” Societal trends suggest that we seek immediate reward instead of delaying gratification by saving for tomorrow. We all want the new house, the kitchen remodel, the latest car, the trendy clothes, or expensive electronics.
All of these wants seem quite “normal” since this is what we witness everyone else doing. We may be fortunate enough to have the money to buy these things today but do we have our rainy day savings? Worse is when we may not have the money today be we do have access to credit that allows us to get them today and pay for them some time in the future. The challenge comes when tomorrow isn’t like today. When our adjustable mortgage rate doubles, when our bank freezes our access to credit or we lose our job and can no longer afford to make those payments. While consumers have cut back somewhat on credit card use recently it is still staggering the amount of debt we hold. In the Unites States, 46.7% of households have credit card debt and the AVERAGE balance outstanding on those debts is almost $15,000! This leaves an incredible challenge for households with high amounts of debt to pay off current bills let alone save for tomorrow when they are paying 13-14% interest on their debts.
In business, it is a little more complicated but follows the same story line. Companies have two ways of burying their acorns to prepare for the future – 1) by hording cash or 2) by investing in a sufficient amount of growth opportunities. In good times most companies will follow both strategies by shoring up the cash position on their balance sheets and by making investments in R&D, equipment, or people to grow their companies.
The challenge comes when times turn rough. Most companies will attempt to weather the storm by relying on their cash reserves to pay their bills while operating profits sag. They may extend the length of time that they can sustain this practice by reducing their expenses quickly, which usually includes cancelling any non-essential projects and laying off employees. On the other side companies are quick to stop burying acorns by cancelling orders for equipment and cutting their R&D budgets. In the case of one of my recent employers they had scrapped the entire R&D program. Instead of filling their innovation pipeline with potential opportunities where they can continue to grow their company with new products, services, or categories they have opted to horde their cash and make more limited investments in fewer near term projects. The challenge comes in when you have few growth opportunities in the pipeline and you begin to deplete your cash position you are left with no other options than to dramatically restructure your organization.
Food for thought:
Remembering back to my years in the financial industry (Morgan Stanley 1997-2003) every business unit was always looking for the “multiplier” that can have a significant impact on their business. In the failed Mortgage Bond business it was the leverage multiplier – borrow huge sums of money to invest in mortgages with the goal of “super sizing” your returns. It the Private Equity business it was the pricing multiplier that you were seeking when you were able to roll smaller companies into one larger company by shedding redundancies (i.e. layoffs) and less pricing pressure from less competition. One of my other lessons on the importance of the multiplier came within my first few weeks of joining the Firm’s MBA New Hire Training Program. The teacher was one of the Firm’s legendary Global Markets Strategists, Barton Biggs.
Barton Biggs – Morgan Stanley Global Markets Strategist died Saturday, July 14, 2012, at the age of 79.
Truth be told, the training program was three months long (an incredible investment in new employees when I think back on it) and while I had learned a lot about banking and the Firm, few things had stuck with me as long as the lesson that Biggs had imparted on the entire class, “If you can bank your bonus and live off of your base, you will be in a very good place.” I had just spent the last summer as an MBA intern at Morgan and knew that his suggestion would be quite the challenge for anyone living in the city with the expense of cabs, rent, and bar bills. I didn’t quite understand the multiplier effect that it would have later in life but at the time it seemed like great advice. I had chosen to live in New Jersey and commute into the city each day giving me a little more of an expense buffer but not much. At the time I remember looking around the room and thinking that I would have wagered that 90+% of the audience would go on to ignore his advice instead choosing to live for today and up to the lifestyle expectations of someone working on Wall Street.
Well Bigg’s advice wasn’t lost on me. Soon I had used those bonuses to pay off any remaining student loan and car debt. Within a couple of years we were actually able to continue banking my wife’s entire salary. I cannot overstate the impact that Biggs’ advice has had on my life, it has been ENORMOUS! I was recently being interviewed for a story from my business school and I was asked what advice I would give current students. This was one of my two suggestions. Having my bonus money in the bank has allowed me to take more risk in my career choices and allowed me to walk away if I ever needed to. I refer to it as my “walk away money” and it was my safety net. Years later I had read Nassim Taleb‘s The Black Swan where he refers to it as “F* YOU money” suggesting that it allows one to scream the words into the telephone receiver “before” hanging up.
Thank you Barton Biggs – I am forever indebted for the wisdom that you shared and I promise that I will continue to spread the word. Live off of your base and bank your bonus!
Where have all of the General Managers gone? HBR has recently run a couple of articles on this topic (Bring Back the General Manager – 7/10) and I couldn’t agree more with the findings. With the constant pressure to demonstrate quarterly profits and to find dollars to invest in growth opportunities, organizations have been trying to be as lean as possible. They are seeking to garner every efficiency that they can out of the system. One way corporations have done this is by merging smaller businesses into larger business groups and cutting out any redundancies with the new organization. The elimination of the general manager position in particular is not just due to the recent economic downturn but has been going on the better part of the last decade. After a few iterations of narrowing the food chain, an organization can be quickly left with too few good leaders who are equipped and able to lead a team of cross-functional business directors. These “Leaders” might have functional expertise in their discipline but they are lost when it comes to setting a vision and strategy their broader business.
Ron Ashkenas (@rashkenas) the author of the article notes that for “talented people” who want to run a real business those opportunities are fewer and fewer in large companies and so the talent leaves for smaller companies and start-ups. Ashkenas goes on to suggest that “corporations need these people too, now more than ever.” He has three ideas on how companies can help foster this cross-functional skill building:
A friend and former colleague had recently shared with me his confusion while working for a “leader” who became upset when he asked for his help in seeking a new role within the organization. My friend was looking for a position where he could grow his cross functional experience. Reflecting back on the situation my friend thought that his boss’s frustration stemmed not from his lack of loyalty but from the fact that his boss didn’t know how to help him because he too lacked cross-functional experience. His boss didn’t place a value on it. For companies to get back to full throttle they are going to need leaders with general management experience. Your not going to get that experience from spending your entire career working in a functional silo.
Is American Innovation dead? After reading Jon Gertner’s (@jongertner) recent book “The Idea Factory” that detailed the amazing frequency and impact of the innovation that was pouring out of Bell Labs back in the heyday you might think so. Just a few of Bell Labs “Gaming Changing” innovations include the first transistors; integrated circuits, fiber optics, lasers, satellites, cellular phones, and digital cameras (see complete list). These weren’t just incremental improvements in a narrow discipline but discontinuous innovations that created entirely new fields of science and engineering.
I just caught an interesting article from @ExtremeTech that detailed how the new Boeing 787 Dreamliner has introduced in-seat passenger entertainment systems that are powered by two powerful innovations: the Android Operating System (OS) and solid-state storage (69TB of storage). Are the Android OS and solid-state drives two examples of” game changing” innovations or just “incremental” improvements on previous work?
The Android OS was created as a mobile phone OS by Android Inc. co-founders Andy Rubin and Rich Miner, Nick Sears, and Chris White back in 2003. In 2005, Android Inc. was acquired by Google with everyone anticipating that Google was going to get into the cellular handset business. It might be worth recalling that at this time Apple hadn’t even announced their plans for the iPhone (January 2007) or launched the product (June 2007). The Android OS has now become part of the Open Handset Alliance a consortium of hardware, software, and wireless companies and is led by Google. While the Android OS has been primarily used in smartphone and tablet devices is has made its way into plethora of other products including: DVD players, cameras, game consoles, laptops, netbooks, smart TVs, and e-readers. What I think is more interesting is how the Android OS has moved beyond the typical Consumer Electronic (CE) devices, it has been found in watches, refrigerators, and even in treadmills. Much like how Bell Labs was able to allow ideas and innovations to marinade and mix between their different teams of scientists and engineers, through Open Source technology and consortiums new innovations like the Android OS are able to escape from one industry and cross-pollinate other industries even though they are not within the same company or on the same campus (i.e. Bell Labs, Xerox, Microsoft, Samsung, Sony, or Apple).
Solid State Drives (SSDs) were originally invented in the 1950s but shelved for decades because of their prohibitive costs are a different story. Unlike a typical hard drive that uses metal platters and a moving arm to read from and write data to those platters an SSD has no moving parts. The significant benefit from SSDs is that they have no moving parts and thus are significantly less likely to fail, use less power, and generate less heat than traditional hard drive discs. In the early 1970s SSDs returned in some of the early supercomputers from IBM, Amdahl, Cray and others but it was still prohibitively expensive and was again phased out. By the mid-1990’s SSDs were being sold for use with the military and niche commercial customers but it wasn’t until 2007 when the first consumer PC was available with a SSD. Coincidentally it was in one of the most innovative PC projects in decades – the XO-1 also known as the OLPC or One Laptop per Child project that was funded to create a $100 laptop for use in developing nations. With the cost, power and weight restrictions placed on the project the engineers had to come up with a new creative solution while every PC manufacture was focused on traditional hard drives because of their price and ubiquity.
American Innovation is hardly dead but with both capital and human resources being significantly limited in the current economic climate companies are cutting back on (or in some cases eliminating) their R&D expenditures. Incremental innovation has become more of the norm in many industries but that doesn’t mean there can’t be significant breakthroughs. Companies will just have to embrace new models for driving innovation. How does your organization drive innovation? How are you seeking outside ideas and innovations to drive your business?
Comment here or follow the same question on Quora or LinkedIn…
Recently, a friend and former colleague and I were discussing how we had both learned so much more about leadership and leading people from children than we had from any other source: training, education, or on the job experience. Perhaps the last example was due more to the fact that we were deficient in strong developmental “leaders” at our mutual employer but I really think there is something to the simplicity of working with children versus the complexities of leading in business. This simplicity allows us to take action, quickly see the results and then to adjust accordingly if we don’t get a “good” outcome. It is almost like a little mini case study where we get to practice our techniques in real time.
My friend was explaining how he had been coaching 10 year old boys on the baseball field all Summer and that just getting one of them to stop climbing up the backstop had been a huge milestone. He further described how telling the boys the importance of the fundamentals in fielding, throwing, and hitting was a start but if they didn’t believe it themselves they were never going to work on those skills when they were off of the practice field. Similarly in the business world, if your people don’t believe in the mission or don’t believe in the company values that you profess they are unlikely to incorporate them into their everyday work when you are not looking. Without the financial incentives of a paycheck or annual bonus that tie rewards to effort or outcomes the importance of each team member supporting the mission becomes imperative.
My example was learning from my children how to lead with different personality types, something that I have to admit that I am continually working on. My daughter is the older of our two children and she has always been a rule follower and very mature for her age. My wife and I would joke that she could have just raised herself since the age of three. Being a parent for the first few years was incredibly easy, almost too easy. We scoffed at other parents who couldn’t “control” their child when they wouldn’t listen or when they had the toddler meltdown. Then along came my son and yes we love him dearly but he completely rocked our confidence in our parenting skills. No longer was it satisfactory to just ask for something to be done, everything had to have a reason and that reason needed to be explained. If that explanation was not both rational and consistent with his previous understanding of the world then there would be a debate until it did make sense. We suggested that by the age of 3 he was predestined to become a lawyer with every bullet and sub-bullet litigated to its logical conclusion.
It was at this time that I started to draw on these similarities to some of the people that I had led throughout my career. Some were like my daughter and were pretty good rule followers – they knew the boundaries, they were often times self-starters, they would move the work forward and would ask an occasional question when they needed some help. Others were more like my son and needed to make sense of everything before getting on board – they would ask many questions about what was expected and when things didn’t align with their understand they would challenge you on the why these things were expected.
Expecting these questions I have changed my behaviors. I am now more prepared for my explanation thinking through the request and making sure that it does make sense. For me this was a great lesson in understanding your audience and customizing your approach and as I mentioned earlier… I am still learning!
I did a quick search to find other comments/thoughts on leadership from parents – here are a couple of good ones that I found and thought you might enjoy:
I just added a brief book review for one of my favorite reads of the last few years – The Black Swan: The Impact of the Highly Improbable by Nassim Taleb. If you have already read the book let me know what you think by leaving a comment. Enjoy! http://www.matthunt.co/reviews/the-black-swan-by-nassim-taleb/200
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