The Price of Admission--and No More

The city of Irving, Texas recently invited me to address an audience of politicos, government employees, and citizens about the state of today’s marketplace. The speaker who preceded me was none other than the honorable Henry Cisneros, the former Secretary of Housing and Urban Development. Cisneros made a telling point, that as citizens, we expect that government services “work”. We expect potholes to get filled, parks to be usable, garbage to be collected, fire departments to quickly respond, and so on. If city administrators do all this well, they hear nothing from the citizenry. But if they don’t do these things properly, they hear plenty. Why? Because doing the job with zero defects is now expected. Citizens have raised the bar on the minimal performance of city government.

The same is true in the private sector. It used to be that if a company raised its quality standards, good things like customer loyalty, rising income streams and competitive success would automatically follow. Not true anymore. All practicing managers know quality is vitally important, but they also know (or ought to know) that quality on its own is no predictor of corporate success. Quality is simply the price of admission in today’s marketplace. Customers assume the products you provide them will work, that you’ll meet specs, that you’ll deliver on time, that you’ll be available for some help after sale and so on. If you can’t do that, you’re dead. But if you can do that, you simply get to play in the game with everyone else. Not win, but play.

If you stop with quality, even zero defects quality, you’re surviving at best—certainly not thriving. If you’re not providing breakthrough product features, extraordinary design, exceptional customized service—the kinds of things that make your company unique—then simply having zero defects will keep you mired in mediocrity. In an article I wrote 10 years ago, I quoted an astute consultant whose biting comments on “quality” still ring true today: “Automobile manufacturers strive to improve fuel efficiency. Detergent makers become intent on improving the whitening power of their products. While these certainly are not unwise targets for improvement, they are unlikely to move a second-tier firm into a leadership position.”

And that, by the way, is why the empirical results on the impact of programs like TQM (Total Quality Management) and Six Sigma are so underwhelming. This may come as an unpleasant surprise to ideologues in this area, but the reality is that apart from a few famous success stories like GE under Jack Welch, the data show that fewer than 30% of quality interventions have yielded appreciable (or any) boosts in profitability, customer loyalty, or stock value. Whether you’re talking TQM or Six Sigma, there’s a lot more to competitive success than providing roughly the same level of quality which everybody else is doing. And, by the way, even zero defects is not particularly relevant if you’re making a flawless product that’s becoming a low-margin commodity because it’s available everywhere. Or if you’re making a product that nobody wants any more.

Don’t misunderstand. Quality is absolutely necessary. It’s the price of admission in today’s market arena, and it's essential to pursue. But it’s not sufficient for competitive success. You have to be providing customers with a something that they find “wow!” and “gotta have!” I wish more leaders would concentrate on those latter issues rather than assuming that zero defects, reliability, and internal efficiency on their own will save the day.

What Makes For a Great Plan?

In my October 11 blog I described a strategic planning session in which seven executives of a major U.S. corporation realized that their own actions perpetuated the corporate culture they wanted to change. In today’s blog I want to share with you some of the properties of the actual plan they developed which I believe will lead the company to a successful turnaround. I don’t need to divulge any particulars or break my oaths of confidentiality. All I have to do is to tell you that the plan not only had fiscal integrity, but also demonstrated five distinguishing properties:

1. Minimalist: The plan had only four mission-critical strategic priorities, ones the team agreed were non-negotiable for delivering competitive success. Any plan with more than five “priorities” winds up prioritizing nothing, and the results wind up as mediocrity or steady state. There’s a clear limit in the amount of resources and attention necessary for genuine commitment and breakthrough performance. So fewer priorities are better.

2. Unambiguous: The plan with its mission-critical strategic priorities and rationales was succinct (3 pages), clear, lucid, unmistakable, understandable, and easily communicable. No ambiguity, no fuzziness, no professional obfuscation, no excessive verbiage, no thick documents, no 100-slide power point presentations.

3. Bold: The plan and priorities represented a direction that would make the company externally unique compared to what competitors are doing, and internally unique (different) relative to how the company had conducted business in the past. Any plan that is basically “more of the same” guarantees that you’ll have exactly that: more of the same.

4. Inspiring: The plan and its priorities excited the team. It generated the “fire in the belly” effect. The executives were eager to get out there and make it happen. Any plan that is developed as a job “task” and viewed by leaders with uninspired analytical detachment is guaranteed to have minimal impact.

5. Offensive: In the past, the plans had concentrated on protecting the company’s market share and defending its customer base from competitors. This plan went on the offensive. It focused on creating a new market, attaining organic growth that outpaces the industry’s growth, and attracting a sizable portion of competitors’ customers. And in a nice play on words, the plan was so offensive that it would be “offensive” to competitors. Any plan that is defensive is by definition reactive and one step behind the competition.

6. Sponsored: Strategy without execution is simply a nice document. Each executive (other than the President) volunteered to sponsor one of the four strategic priorities (obviously, two of the priorities had two sponsors). Criteria for sponsorship had nothing to do with the executive’s current job, function or experience. The only criteria that counted was the personal passion of the executive for a particular initiative, as well as his/her personal commitment to do whatever it takes to help make that initiative happen.

Does your company’s strategic plan have these properties? Maybe it should.

You Can't "Train" Merit

I was privy to an interesting breakthrough last week. I was sitting in a planning discussion with seven executives of a major U.S. corporation. We had developed a pretty bold turnaround strategy which everyone felt good about. The major concern about the plan had nothing to do with external competition. It had to do with the company’s internal culture. As one executive put it: “Our culture rewards longevity and reliability more than performance and contribution. We’ll never achieve our new goals if we don’t change the culture.” Trouble is, they’d been trying to change the culture for years, with frustratingly slow progress.

After listening to the “cultural change is hard” litanies around the table, I said “yes, it’s hard, but why has it been so hard in this organization?” With some obnoxious prodding on my part, we finally got down to the nitty gritty reason: The executive team had been giving lip service to the issue of performance merit. They’d send out memo’s about it, they’d invite speakers to discuss it, and they subsidized leadership training programs for mid- and director-level managers about why and how to develop a merit-based culture. These were good steps, but they were not built on a good foundation. Without a solid foundation, a house remains fragile. So does a culture, except in companies, the foundation is at the top, not the bottom. If high-ranking executives don’t live and breathe the message of merit in their decisions and actions, all the memos and books and training in the world will have only marginal impact.

As the President concluded: “We seven will have to role-model entirely different behaviors.” Bingo. Breakthrough. The executives agreed that individually and as a team, they would adopt a new discipline: Hire only the most talented people—and pay more for them if necessary. Clearly articulate the new merit-based cultural and competitive expectations to everyone, explain the strategic rationale for those expectations, and identify the kinds of criteria, standards, values and behaviors that will be judged as “high performance.” Reward people—whether compensation, promotion, project assignment, recognition, etc.—based primarily on their performance and contribution. That means that a high-performance manager with two years’ tenure will get the promotion before a mediocre-performing manager with ten years’ tenure. That means that a manager or employee who “meets expectations” and no more will get little if any year-end bonus, while the high performers will get a fat one along with a fat set of public accolades. You get the idea.

We agreed that the executives would not promote a punitive Darwinian culture. You can’t build a high-performance culture if people are intimidated and scared. In the spirit of “servant leadership”, the executives agreed to make sure that people got the kinds of support (personal care, information technology, training, and such) to help them succeed. But ultimately, they agreed they'd have to walk the talk on this stuff. They would have to follow through and hold people accountable. They’d have to suffer the consequence of having some people upset and angry with the outcomes.

The executives understood that if they did these things, the memos and training sessions would have payoff. If they didn’t do these things, there’d be no foundation for the change—just a lot of wasted training dollars and a lot of cynicism, along with a perpetuation of the old culture. A particularly poignant “aha!” came when the executives looked at each other and realized that it was precisely the second scenario that had been occurring in their company over the past few years.

Was I Wrong About Google?

In my August 16 blog (“Google Dominating Microsoft? Gimme a Break!”), I argued that Google’s mission wasn’t to dominate Microsoft but to dominate search. I thought I made a pretty compelling case, but over the past few weeks, the explosion of new products, services and alliances makes a lot of observers wonder about the company’s real motives.

Google’s latest forays include some pretty compelling products (like internet telephony and blog search), a partnership with NASA (which will involve Google’s building an enormous campus on a former military base), and a proposal to provide San Francisco with free WiFi. The buzz is strong, to the point that a recent BusinessWeek cover story examined in breathless detail the exodus of 100 “top talent” Microsofties to Google.

So was I wrong? Is Jordan Rohan, an analyst for RBC Capital Markets, right? He says that “Google has pulled off the greatest obfuscation in the history of Silicon Valley: Everyone thinks they’re a one trick pony” when in reality, they’re “going after Microsoft in a big way.” Rohan was quoted in a San Francisco Chronicle lead story that was ominously entitled “Tech Titans Ready to Brawl: Google, Microsoft Look to Square off on Net and Desktop.”

Well, Rohan and the Chronicle may be right, but I still think I am. Google execs are smart, and challenging Microsoft directly is dumb. Remember that Microsoft is ten times Google’s size in both revenues and profits, and its flagship quasi-monopolistic products Windows and Office are still growing at a 15% annual rate. The installed base is deep and worldwide.

Second, when I wrote that Google wants to dominate search, I didn’t mean that it would be content to simply be a little search engine. What I meant was that Google wants to be the primary player in helping us organize and customize the available information on the Internet. That’s a pretty big mission, but it doesn’t mean that Google want to be a Microsoft-plus-2%. There are plenty of new unchartered paths towards achieving that mission without trying to be another Microsoft. Further, as one executive of rival search engine Ask Jeeves notes, Google’s new products are products “that can be searched.” Google seems to be staying true to its mission.

Third, I believe Marissa Mayer of Google Consumer Web products when she says her strategy is not to kill Microsoft but to look for areas where Google can create some new value for users, and if the results get into product spaces that have been owned by other companies, well—so what? In my own research, I’ve found that the best companies are less concerned with beating competitors than with staying ahead of the pack by creating new products and markets.

Does that mean that Google might one day come up with a Web-based alternative to Office? Possibly. Would that hurt Microsoft? Definitely. Remember how Salesforce.com’s fast, flexible, and cheap web-based customer relations software seriously wounded Siebel’s entrenched business?

But again, I think that what is really happening is that Google is simple an innovation machine that is continuously building upon its expertise in searching and organizing the Internet. The company has a ridiculously entrepreneurial environment, where individuals can take 20% of their work week to work on whatever pleases them, and where tiny teams of three can have a real impact. Obviously, some of these innovations will get into areas deemed sacred by companies like Microsoft, but that doesn’t mean that Google executives spend a lot of time figuring out comprehensive strategies to topple Microsoft.

One warning: In my upcoming book Break From the Pack, I document how companies that try to be all things to all customers do worse than those who focus on dominating select slices of the market. That’s one reason that Microsoft trails Google in speed, new product introductions, and growth. If Google starts trying to control the Web, or starts looking like a “one stop Internet shop” with something for everyone, it might find itself looking like Microsoft—overly complex, unclear in its priorities, and financially stagnant. If that happens, Google would be in trouble, because it doesn’t have Microsoft’s reach, legacy, or its $40 billion cash hoard.