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1 February 2002

Find a distinct competency, then lock in

No company can be all things to all people, but that doesn't stop many from trying. How many companies do you know that are trying to "focus-across the board"?

Treacy & Wiersema, in their book The Discipline of Market Leaders, identified three distinct value disciplines. Each produces a different kind of customer value.

First is operational excellence, where the proposition is low price and hassle-free service.

Next is product leadership, where companies innovate and offer products that continually push performance boundaries.

Finally, there is customer intimacy, where companies don't focus on what the market wants but on what specific customers want. Note that choosing one value proposition doesn't mean abandoning the other two.

Managers who believe their organization is good in all three areas are kidding themselves. When you look closely, you'll find they are only mediocre in the three disciplines. There's nothing wrong with being average, but don't expect to be a market leader that way.

If you don't choose, the results become predictable. You will remain adrift in a rudderless ship, and then others that remain committed will overtake you. Not choosing means letting circumstances control your destiny and creating a managerial complexity that will result in your doing business with yourself rather than with your customers.

THE KEY QUESTION
Managers must ask themselves, "How do we compete and win in our marketplace?"

The best answer is one that will define the exceptional value your company offers customers and one that would lead to the development of an operating model capable of delivering that value with a fair return to shareholders.

If a company is fortunate enough to attain market leadership, it cannot simply rest on its laurels. One of the central rules of market leadership is: Dominate your market by improving your value year after year. To stay ahead, you have to get better and better. After all, little in business stays proprietary for long—not products, processes, technologies, or strategies. People emulate—if they don't actually duplicate—what wins. Almost all market leaders will find admirers and competitors copying their success. Companies must intensively compete with their own success in order to remain leaders, and cutting costs is rarely the answer.

Why, after all this time and accumulated history, do companies continue to do counterproductive things? Most don't seem to want to accept or learn from history. George Santayana said 100 years ago, "Those who can't remember the past are condemned to repeat it."

Many feel past cases don't apply to them. It's like they don't believe they need to follow the natural laws of physics because they're different. Some would suggest they simply don't have the discipline to follow the best practices. When times are tight, they revert back to their natural instincts and do things the old way. The old way certainly isn't what founded the company.

DOMINATION OR CUTS?
When business is bad—and many would say it's been bad in the automation industry for a while—companies tend to start downward spirals. Rather than thinking of what they could do to gain share and dominate their market, they cut expenses. We've all seen companies do this by cutting back on or completely getting rid of sales, marketing, and R&D. Is that backwards or what? How many companies ever increased sales or market share by doing that?

When you sacrifice R&D, you forfeit your long-term future. Would Intel have remained a leader if it had decided never to progress beyond an 8-bit chip?

When you sacrifice marketing, not only do you lose visibility within your market, but your sales force loses focus as well. Marketing involves establishing your brand within people's minds. Market leaders advertise heavily; that's what got them to the top. You can't scrimp your way to No. 1. And inconsistent messages generated by different people at different times are worse than no message at all.

When you reduce your sales force, you then spread your already thin sales coverage even thinner. Those that remain pick up additional accounts, and the remaining salespeople accomplish even fewer sales. Thinning paint might make it go a little further, but then you need two coats to do a decent job, and it takes twice as long.

Unfortunately, all the history and industrial examples don't stop short-term financially oriented leaders from making these decisions. If only they would stop and think back on the ideals that founded their company or what made them great in the past . . . but they probably weren't around then.

What might look good for this quarter may just be the beginning of the end.

What's really nerve-racking is when you work for an organization and see all these things happening yet can't do a single thing about it.

The choice for the brave of heart is simple: leave. If you're really brave, start your own company. IT

Behind the byline

Paul Gruhn, P.E., C.F.S.E., is the owner of L&M Engineering, a consulting company in Houston.