Monday, April 26, 2010

Is Comptetitive Intelligence Worth the Effort?

How important is it to keep an eye on your competition?  I was thinking about this question as I read an article on competitive intelligence in the April issue of Inc. Magazine [link].  Part of Inc's How To Guidebook series on business basics, the article presents several easy ways for companies to gather intelligence on competitors.  As I read the article though, I couldn't help wonder if focusing on competitors is really worth the effort.

Okay, there are some obvious reasons for knowing what your competitors are doing, but I've seen many companies take it to extremes and become so obsessed with following their competitors that it took attention away from running the business.

Lead, Don't Follow

You're in business to serve customers.  If you continually provide better products and services to your customers, you won't have to worry about your competitors.  The key is to develop a deep understanding of your customer's fundamental needs - i.e., the value your product or service truly provides for the customer.  Clearly understanding this improves your ability to create innovative ways to meet the customer's needs - something that won't happen when you spend too much time studying your competitors.

Too much focus on competitors tends to limit innovation because it directs attention toward meeting or beating what competitors do rather than finding ways to improve the value customers receive by doing business with you.  There is a strong tendency toward a "me too" mentality when you worry more about what your competitors - instead of your customers - are doing.

In other words, when you focus on your customers; you lead.  When you focus on your competitors; you follow.

As an example, when Saehan developed the world's first MP3 player, it did so based on the customer's fundamental need to listen to music from anywhere quickly, easily, and comfortably.  Until that time, the only way to have portable music was to use a portable radio (where one can't personally select the songs) or a portable CD player (which limits the amount of music based on the number of CDs the user is willing to carry).  If Saehan focused on competitors, it would have put its efforts toward developing a better or cheaper portable CD player.  Instead, it focused on the customer's fundamental needs and introduced an innovative product that changed the market forever.

So, I guess I've answered my original question.  Although it's probably okay to have a basic idea of what competitors are doing, it can easily get out of hand and interfere with innovation and customer-focus.  Becoming obsessed with customers instead of competitors, however, can lead to the development of innovative products and services that will result in competitors following you.

Thursday, April 15, 2010

More Trouble for France Telecom

It appears that the situation at France Telecom regarding the rash of suicides over the last two years has resulted in more trouble for the communications company.  Late last week, French prosecutors ordered a preliminary investigation into whether the company should be charged with involuntary homicide over its management practices, which have been blamed for 35 suicides over the past two years.  [story]

Besides the obvious sadness surrounding the situation, this action by the French government opens the issue of the accountability of companies over the way its managers treat employees.  In the U.S., there have been numerous trials related to harassment and mental anguish caused by companies and/or individuals in supervisory roles.  To my knowledge, though, there has been none related to something of this magnitude - holding a company accountable for the suicides of its employees.

I'm sure many French companies (as well as French divisions of global companies) will be watching the progress of this investigation to better understand what effect it may have on their own situations.

There has been much written about the positive effects that management practices can have on employee productivity, absenteeism, and company profitability.  We don't spend a lot of time, however, on the stress, depression, and other negative effects that company culture or management style can have on employees.

Whether or not the suicides are found to be the result of company practices (I'm sure the investigation will take years to complete), I hope that this situation highlights the need for all organizations to focus on creating a positive environment for employees and the benefits it can bring to all stakeholders.

France Telecom executives have begun to address some of the cultural issues at the company that are being blamed for the suicides.  Whatever the outcome of the investigation, it is a sad situation that hopefully will never repeat itself.

Monday, April 12, 2010

Company Purpose and Shareholder Value

What is the purpose of a company?  It's one of those questions that has been debated since the beginning of the industrial revolution.  So, is it related to shareholders?  Customers?  Employees?

While presenting at a conference a few years ago, I surveyed those in attendance to discover what they felt the purpose was for the companies for which they worked.  77% of the people who responded (243 of 315) chose money as the reason their companies existed (e.g., earnings, shareholder value, etc.).

The results were not really surprising since the financial side of the business often receives the most attention by senior leaders.  Also, the actions taken in response to a decline in earnings tend to affect a greater number of employees than when the other parts of the business suffer.

Why it Matters

A company's purpose drives its business strategies, including direction, investment related to products and services, marketing, people development, and processes.  On the highest level, the purpose drives the decisions regarding whether the company will compete on the basis of innovation, low costs, or product and service features.

A clear purpose also helps to motivate people by giving meaning to the work they do and build teamwork by providing a common focus.  Without clarity, people will define the purpose in their own terms, resulting in internal battles and a breakdown in teamwork because of conflicting ideas regarding what the company is trying to achieve.

Is it Money?

Those who have read my book or other posts on this blog know that I believe a company's purpose should be focused on serving a need in society (in other words, providing something that potential customers value).  Although it is important for any company to be financially successful, this is the effect - not the cause - of serving customers well.

For example, suppose a privately-held manufacturer of relief valves defines its purpose as, to help protect homes and lives by providing high-quality and reliable temperature & pressure relief protection.  Further, suppose that the company's focus on offering highly reliable, easy-to-install valves at a reasonable price lead to dramatic success and growth.  To grow further, though, the decision is made to take the company public.

Now that it has become a publicly traded company, does it make sense for management to change its purpose from protecting homes and lives to increasing shareholder value?  In other words, should the focus now shift from customers to shareholders?  Obviously not, but this is, in effect, what many companies have done over the years.

What Others Have Said

Peter Drucker wrote that the purpose of a business is to create a customer.  In his book, The Practice of Management, Drucker wrote, "the profit motive and its offspring, maximization of profits, are just as irrelevant to the function of a business, the purpose of a business, and the job of managing.  In fact, the concept is worse than irrelevant.  It does harm.  It is the major cause for the misunderstanding of the nature of profit in our society and for the deep-seated hostility to profit which are among the most dangerous diseases of an industrial society."

Many people may be surprised to learn that, during a March 2009 interview with the Financial Times, Jack Welch [link] referred to focusing on shareholder value as a dumb idea.  Often considered as the creator of the shareholder value movement in business (a fact disputed by Welch), he added that, "shareholder value is a result, not a strategy," and that the main focus should be on employees, customers, and products.

Serve First, Collect Later

The point of all this is to emphasize the importance of developing (and sticking with) a clear purpose - and that it is not related to making money.  Focusing on financial gain leads to short-term decisions and cost cutting that, although well-intended, tend to damage the organization's future.  A focus on shareholder value may lead to satisfied stockholders (at least in the short-term), but dissatisfied customers and employees.  A focus on the customer, on the other hand, can lead to happy customers, employees, and shareholders.

Tuesday, April 6, 2010

Fast and Flexible

As we climb out of the worst economic downturn since the Great Depression, it's looking like success will come to those companies that are more flexible and can adapt to change more quickly than competitors.  Although this has always been a competitive advantage for companies, it is quickly becoming a necessity for survival in the years ahead.

The problem this poses for many organizations is related to the fact that, as a company grows it tends to become slower and more resistant to change.  With growth comes more people, more formalized policies and systems, and additional layers of management that all contribute to a slowdown in decision-making and interfere with the ability to do much of anything quickly.

Begin by Recognizing the Need

The problem for many companies is that they don't realize how slow they've become or that the lack of speed is affecting the ability to compete.  Listed below are a number of activities where moving quicker can greatly improve competitiveness.  When looking at these activities from strictly a financial perspective, it becomes clear that they actually cost the company when not addressed.  Once an investment is made in a particular process - whether related to new product development, manufacturing, etc. - the company loses money everyday that the investment does not produce income.

  • New product development
  • Shipping products to customers
  • Building construction
  • Servicing customers
  • Integrating an acquisition
  • Expansion into new markets
  • Implementing a new ERP system

It is important to keep in mind that success in business requires more than speed.  Quality of product or service must be continually improved along with improving cycle times. There are very few markets where customers will accept substandard quality even when the product or service is delivered quickly.


In order to become more flexible and adaptive, companies must study their processes, systems, and cultures continually to identify where the delays and breakdowns occur.

On the process side of the equation, reducing cycle time requires mapping the value stream and identifying where the delays, breakdowns, and quality problems occur.  This assumes, of course, that there is, in fact, a standard process.  It is not uncommon for companies to have a variety of ways to perform similar tasks.  Sometimes referred to as the "it depends" rule, improving the process first requires defining a standard approach for how the work is to be done - and making sure everyone follows the standard - before attempting to make improvements.

Working on the process issues to reduce cycle time tends to be the easy part of improvement.  The culture must also be addressed to determine how open people are to changing processes, how effective communication is within the company, and basically why people do the things they do.

Removing the barriers that interfere with a company's ability to react quickly to changing market conditions will create a more flexible and adaptive - and profitable - company.  The key is to keep speed and flexibility in the forefront of people's minds until it makes its way into the company's operating philosophy.

Success in this endeavor can put you in an elite group of companies that manage to remain fast and flexible regardless of how large they become.