Newsletter – November 2012

Nov 12, 2012

It is often the seemingly harmless act or words said without thinking that are most revealing of the true state of mind reigning in a company. These revelations are sometimes vertiginous. During a recent conference dedicated to the banking sector the intervention of one of the participants literally stunned us. Indeed, this senior executive of an asset management establishment openly complained about the diminution of client generated income and the resultant difficulties that created for the whole sector.
These difficulties are undeniably very real. But things get spicier when it’s explained that the audience that this participant was addressing was partially made up of the company’s customers. These same customers who for the past several years had seen the value of their holdings melt heard their service supplier openly complain about the reduction in income engendered for him. This type of comment is not only shocking; it reveals a particularly dangerous state of mind in the present economic environment.
Publications on economic theory and/or company management, as well as articles in specialist magazines abound with stories relating the challenges brought on by economic crisis and which force companies to reinvent themselves. This process of selective evolution eliminates the weakest and in the end strengthens the economic dynamism of the whole; the well known Process of Creative Destruction according to Schumpeter. All these stories have one point in common: those who endured these periods of turbulence and withstood came out better positioned for the future and held their focus above all and throughout on the customer.
The “client centered” imperative is now such a common mantra beaten as it has been into the heads of company management everywhere, that the theme seems almost trite. Nevertheless, while in numerous business sectors restructurings continue, it is still and always this essential issue which is at stake and on which the future depends. The crisis continues and it is harder and harder for leadership to catch more than just a glimpse of anything other than uncertainty. One thing’s for sure however: to lose sight of the customer and of the determiners of their satisfaction can, more than ever before only lead to failure.
To lose sight of this priority first brings degradation to the quality of the client interactions, as illustrated by the comments reported above. This degradation spreads quickly to find itself in all contact points between the company and its customers. But things don’t stop there. If we are able to admit that those who distinguish themselves in adversity do it through their creativity and innovation to find themselves best placed in times of crises, then the question is to identify the best starting point to launch the necessary reflection. All evidence would indicate to start by addressing the question of customer satisfaction at the outset as it is at this level that reflection opens onto a number of unprecedented tracks. Why?
To face the challenges brought on by the difficult economic situation, it is necessary to review the three different levels: first, the organization of the way the company’s offer is produced and distributed; next we must think about the offer itself, that is the product or the service and its characteristics; and finally consider the added value to the needs of the customers for whom this offer is intended. These three levels are like Russian dolls; each is more ample than the precedent and contains it. Each thus contains more possibilities than the precedent. Experience demonstrates this.
Let us consider the first level, that of the organization. Few examples come to mind when we try to identify companies which made a difference by innovating at the level of their productive arrangements. There is of course Inditex and its Zara brand which enjoys continuous success in a nevertheless damaged sector but this is essentially due to a more compact supply chain than that of its competitors. But, who else?  Continuous improvement of productivity is a part of the basic disciplines of the management of all enterprise and today it is very difficult to distinguish oneself by playing on this board only.
By placing our reflection at the level of the product (or of the service) we open more perspectives. Without seeking to change the main characteristics, strategies of evolution and differentiation have allowed numerous companies to gain ground against their competitors. Examples of this are abundant. Bring to mind the big German automobile makers who placed their bet on sophistication and quality, or to the wine growers of the European countries who reacted to the “New World offensive” by counting on the distinguished local vines, new methodologies and the progress made in oenology. Other success stories, although more short-lived and smaller-scale, of new concepts advanced by catering chains and distribution arose from the same type of reflection.
However, breaking free of the characteristics of the product to focus on the needs of the customer, thereby questioning the existing characteristics of the offer of the company, opens onto more of avenues for reflection. These types of reflection are more ambitious, but when they succeed, they give place to real breakthroughs which can quickly and durably change the fate of a company. The revolution of “low cost” was brought in by players who broke with the standard practices and well established reflexes in sectors then considered stable. Airline companies were the first visible examples, but quite radical breaks also took place in the automobile industry and more recently in that of service to individuals. To question the existing characteristics of the offer does not lead to lowering its scale or range. The upper hand in the hotel business is no longer defined by the size of rooms or the quality of the marble in the bathrooms, but by the capacity to answer all the requests, unique and demanding as they may be, of an extremely demanding clientele. It was also the analysis of client needs that allowed Apple to develop electronic devices which are not only designed as tools for work or amusement, but also as life objects whose users are affected in all their senses, sight, sound and touch throughout the day. As a result, the devices which “cover” the most needs, comparatively, are selling at higher prices which reflect this difference.
Opening debates and starting wide reflections at this time of no time and when every centime counts is not undertaken lightly. But as long as the focus point remains on the needs of the customer, the risk of getting lost in endless discussion is minimal. On the other hand, the alternative is much worse: reflections which endlessly go round in circles, a corporate culture which sinks to the level of “navel-gazing”, and eventually the complete loss of contact with the realities of the market.
Edgar Brandt Advisory