Whenever the economy is volatile – businesses tighten their belts. This is a good thing. In better times there is a tendency to not look too hard at what is being spent. There’s more money to go around and many activities get the ‘ok’ from top management. When things are tight however, immediately the ‘luxury’ activities get axed and all hands on board deck are instructed to focus on cost cutting and improving efficiency.
This strategy worked well before – so why isn’t it working now? Why do we still see our profit margins shrinking?
You’ve probably had your time in the sun – you know – you were the first to introduce the product or service, your product was unique – and you enjoyed a strong market share with almost no clear competition. Now everyone is selling what you’re selling – doing what you’re doing. Everyone is saying that they’ve got the best quality, the greatest service and providing the best return on the customer’s investment. All hollow statements to the customers I assure you as they are hollow to you, but you are completely lost and not sure what else to do.
When you get to here, the only real solution is to slash prices. In 2002 James K. Clifton then Chairman and CEO of The Gallup Organization asked this question “Are we great customer managers or have we just talked a good game at company conferences, and at the end of the day become merely the world’s biggest price slashers?” Nine years later and that question is still a valuable and thought provoking one.
We have according to Clifton developed great expertise as “cost cutters”. We listened closely to Dr. Edwards Deming and Dr. Joseph Juran and they showed us how to greatly lower production costs brilliantly by ‘reducing variation’. Then came “reengineering” -We all did this too and it worked.
We’ve spent a lot of time cost cutting but no one is really telling us how to grow margins. We have also painted ourselves into a corner because what we now have is a customer relationship based solely on price. Sales people are having the worse times of their lives because all that they have as a factor of differentiation is price; which means basically that everyone – every product and service is just a commodity.
What then is the solution? Simply put: it is mindset – understanding it in your customers and leveraging it in your employees. In 1966 psychologist Liam Hudson (no known relation of mine) suggested that there are two methods of thinking: convergent thinking and divergent thinking.
Convergent thinking is when you use material from various sources and present it in such a way as to provide a correct answer. Pretty much like what students are required to do. They gather information from textbooks, journals and articles and transfer it to exam papers in the way they have been taught. They provide rote answers.
Divergent thinking on the other hand, involves some more creativity. An individual would bring together a broad elaboration of ideas to find a solution. Thinkers of this type tend to stretch the boundaries and let their imagination generate lots of possibilities.
Although business owners interview for skills and qualities that best suit the company or organization, it’s more difficult to interview for mindset. Hiring is risky. We believe a candidate to be a good fit and then before long we complain that we don’t understand how they think – why they’re not seeing things in a particular kind of way. The reason is as Liam said – from school, we’re taught how to pass exams not how to think.
The success of your organization does not depend on your understanding of economics, organizational development or marketing. It depends on your understanding of psychology: how each employee connects with your company and how each employee connects with your customers.
Why do employees stay with one company when others are willing to pay them more?
Why do some employees innately know how to deal with customer complaints without alienating those customers while others – in the same situation – simply don’t know what to do?
Why do some customers drive three miles out of the way to come to your store when your competitor is right across the street from them?
You need to – starting today – learn how to harness the power of human nature or you will never get off the cost cutting slide – and who knows how long you will last sliding down that razor’s edge?