Cross-Fitness for the Organization

Contrary to conventional wisdom, proficiency isn’t always the best way to achieve a goal. Sometimes, proficiency can lead to deficiency.

Take running, for example. I’ve heard many a runners’ mantra that the way to improve running performance is to run exclusively. They run over and over, but eventually hit a plateau. Initially, the runner’s caloric output is high because the body uses more energy than normal to get used to the new patterns. As the body becomes more efficient it uses less energy to burn the same amount of calories, so the runner has to work harder to get equal output as before.

This same holds true for individuals as people fall comfortably into a pattern of behavior. Someone may get used to a specific approach, mindset or process that achieves results. The individual repeats the behavior in multiple areas. After all, why change something if it’s not broken?

There is a blindside, however, in repetition and mastery. When an individual masters something, he becomes less dependent on external resources to master the process and more dependent on his efficient mastery of the problem itself. Similar to the runner who runs exclusively, the individual who repeats the pattern requires less energy over time because the behavior has been mastered. All of the sudden, it becomes easier to develop a strategy because she’s done it before. It becomes easier to enter a new market because he relies on past experience to get him there. But in the meantime, the individual is subtly separated from the fresh insights afforded by a changing external reality.

Thus, individuals – and by extension, organizations – absently self-sustain instead of externally replenish with resources, individuals or other ways of doing things to achieve results. Processes cement around doing things the way they’ve always been done, hiring the same people or entering markets in the same way and the organization hits a plateau.

So what’s an organization to do? Well, what’s a runner to do?

Cross-fitness.

It’s counterintuitive, but if a runner wants to improve his run, he’s got to do more than just run. Moderate swimming, for example, increases a runner’s lung capacity and strength, resulting in improved speed, endurance and performance. By doing something outside of running, the individual actually becomes a better runner.

Within an organization, an individual who seeks external discovery in the unexpected advances farther than the internally oriented individual. The individual is exposed to ways of thinking, relating, approaching and executing that were not there before. All of the sudden, the avant-garde becomes the new normal, and you leave the laggards in the dust.

Filed under: Challenge, learning, Strategy, Vision

Short-term revenue gain at the expense of long-term profitability

In a Marketing State of Mind

  

Most customers like to maintain the status quo; it’s expected and satisfying when a transaction meets your expectations. It’s pleasant when one happens to exceed your expectations. And it’s maddening when one dashes your expectations, especially when it’s at your expense.

As a semi price-sensitive and exclusively devoted airline loyalty-program customer, I always fly Continental Airlines when possible in order to receive miles towards their One Pass program. When Continental joined the Star Alliance network it became possible to fly US Airways and still receive miles towards Continental’s One Pass. When the time came to purchase a ticket the US Airways ticket was slightly cheaper than Continental, so I took a chance and purchased it. Logging in today to check into my US Airways flight and confirm my seat, the seat map came up along with a message:

“You can either buy choice seats or receive a free seat [assignment] from the airline”.

I could purchase a “choice seat” (defined as all aisle seats except for the last two rows + exit row seats) for $30, or I could accept the “free seat” (defined as all other seats) from US Airways, which turned out to be a window seat. First of all, the aforementioned “free seat” wasn’t indeed free – it cost me $500 per leg of the trip. Perhaps now is also a good time to insert that for the past five years as I’ve flown continental more than 40 times, I’ve always had the choice for an aisle seat. Always. For free!

With US Airways, not only was I refused the option to choose, but I owed the company money if I wanted to maintain my status quo.

Doing business with a company is like a contract. A customer pays the company what he thinks the product or service is worth, according to personal preference or socioeconomic status. The customer holds up one end of contract while the company holds up the other end. If at any point in the contract the payer feels that the payee failed to satisfy the contract, there will be customer dissatisfaction.

In a broad sense, the fuel of a relationship between the customer and the company is the ratio between a customer’s expectations of “normal” as it relates to the product or service, and the actual outcome of the product or service. For example, I purchase an ice tea from Starbucks expecting it to taste a certain way. As long as the product tastes equal to or better than my expectations, the relationship is satisfied.

Holding all else constant:

if “expected normal” = outcome, or if “expected normal” > outcome, your customer will either continue purchasing at the same rate, or increase their likelihood to to purchase in the future. Either way, you’re looking at a positive trend and long term growth.

if “expected normal” < outcome, you risk the transaction being cancelled, a dissatisfied customer as well as a decreased likelihood of future transactions. You’re trading short term gain for long term growth.

Here is a chart that shows the three different ratios:

There is a positive trend when the customer experience meets and exceeds expectations. There is a negative relationship when expectations exceed experience.

Over time, the bar for “expected normal” can raise as interactions with the company continue. What used to be a nice service enhancement becomes an expectation in future encounters. It becomes your new expected normal for when you enter a transaction. You hold every firm selling that product/service to that level of expected normal as you make your purchasing decision. When you interact with a company that doesn’t meet or exceed that expectation, your level of satisfaction is affected.

So, back to the story:

At the $30 price for a seat upgrade, a measly 6% of the cost of the ticket, this may seem inconsequential. But it wasn’t, since I had expectations that were greater than the outcome. Not only did I reject the additional 6% aisle seat charge, I also re-allocated my remaining $5,000 travel budget for 2010 to Continental instead of US Airways. That may not seem like a lot of money for US Airways. However, look at their tradeoff: a potential 6% increase in revenue per customer for a 400% increase that they were promised sans poor experience. Now imagine that number multiplied by a greater volume of customers. Think about the magnified potential for this seemingly hasty company decision.

So, a few lessons learned:

• If you’re going to charge more money, be upfront about the cost at the beginning. It’s not a good idea to trick your customer when their switching costs are higher. You’ll get this deal, but you likely won’t get the next one. Short term gain at the expense of customer satisfaction is not good for long term profitability.
• By all means, exceed expectations so that likelihood for repeat purchase increases.
• Increasing customer share of wallet by improving customer propensity to repurchase is better than stiff-arming customers for more revenue per transaction. Both revenue per transaction and customer lifetime value should be examined together when making decisions that will impact customers.

Until next time,

Lydia

Filed under: Marketing, Strategy

Doing the right thing versus doing something right

Here’s a set of analogies for you. See if you can figure out the answer.

Effectiveness : _________ :: Function : Form :: ________ : Activity

Any ideas? I’ll give you a clue. The latter should pursue the former.

Effectiveness : Efficiency :: Function : Form :: Purpose : Activity

Effectiveness should come before efficiency, function should preclude form and purpose should justify activity. Too many times, businesses get caught up in the reverse relationship. Employees and organizations as a whole focus on improving their process or doing something better or more efficiently while forgetting to ask: am I even doing the right thing?

• Is the product my company is producing wanted by my target market? Will it be wanted next year?
• This report that I’m investing hours of time into creating…is it answering the right questions? Is it useful to my audience?
• The meeting that we are hosting, using company funds, will it be valuable to the attendees? Can we justify all of the dollars to our stakeholders?
• The internal email communication I’m sending out to my employees and forcing them to read, is it telling my workers something they need to know? Will it help improve their job? Will it ultimately improve my bottom line?
• This product that we’re rushing to market for a first mover advantage…did we test to see who wants it and why they want it? Do they want it from us?
• Will the networking event we’re hosting help us meet our revenue goals for this month?
• Does this drip marketing campaign provide a valuable offer for the audience? Or am I just trying to show activity?
• Will the focus group I plan to host tomorrow ask the right questions to consumers?
• This compensation structure I just developed, will it encourage the right behavior from my sales team?
• Is our technology solving a problem that our end users need fixed?

The CEO of my company is famous for saying “you can be the best darn buggy whip maker in town, but if no one is driving buggies anymore, you’re going to be out of business”. Those that win in today’s business environment are the ones that change with the market. To do that, you’ve got to make sure you’re doing the right thing before you focus on doing something right.

Filed under: Strategy