Comments

I think that post paints the picture with a very broad brush. This is just not always true. Example: a major supplier to a major automotive OEM receives about 25% of the business from the OEM for certain products. The two companies have a very good relationship. Nothing adversarial. Lots and lots of cooperation, 360 degree benchmarking, training and education opportunities, problem solving together, etc. The other 75% of the business for the supplier's products go to three competitors of the supplier. Why? Because the OEM has determined that they will never single-source any component. They may have had bad experiences in the past with single-source providers, there may be pressure from global purchasing to make suppliers compete, therefore keeping costs low, etc. Just because you have a good "we" relationship with your customers does NOT mean they will pay more for your products or give you all of their business. Maybe it works that way in the small office oriented business, but not in the big leagues.

Posted by Mike at June 25, 2008 11:17 AM

And what if not even "We" constumers are willing to do business??

Posted by fd at June 25, 2008 11:19 AM

Agree Mike. I can't completely disagree with Steve's premise, but clearly with large corporations the pressure is now on price. I work with a lot of tier one suppliers, and good, long term relationships are being tossed because the supplier can't reach the price point the supplier is willing to pay. I really want to believe that value trumps price, but clearly there has been a shift in the marketplace. I have even noticed some of my associates in the service industries are cutting their prices, sometimes drastically.

Posted by Mike Neiss at June 25, 2008 2:41 PM

There is thruth to these two Comments--but I side with Steve overall. While you may not be able to get a premium price, the value of superb relationships is at its highest during a downturn--and could well be the source of expanded business with old customers.

Posted by tom peters at June 25, 2008 3:07 PM

I side with Steve too. In response to Mike #2, I defer to Deming. Paraphrased: The value of the relationship outweights the temporary nature of price.

I like the "we" concept because it implies planning alignment as well. This means we are both planning together, envisioning new/novel uses for my product in their business. win/win.

Posted by Ron at June 25, 2008 3:24 PM

It all boils down to how you interpret the word, "reasonable." Steve starts by asking if you're getting all the business you reasonably could but then talks about missing out on 75% if you've only got 25% of it, i.e. clearly implying that you should aim for 100%.

Another factor to consider is that, from the supplier perspective, if you've got 100% of someone's business, how much is that of your's? So, if you've got 100% of someone's business but that's 80% of your business, how comfortable are you with that situation? What happens if, despite all your efforts, people move on and someone decides on change for the sake of change: where does that leave you? The pat answer is to go out and get more business so you're not reliant on him but it isn't really that simple.

I agree with the idea of We relationships. I agree that developing existing business and referrals is much more effective than cold calling. But I also worry about one size fits all solutions.

Posted by Mark JF at June 25, 2008 4:08 PM

Ron,

Deming paraphrased: The value of the relationship outweighs the temporary nature of price.

Mark JF: The value of the relationship theoretically outweighs the temporary nature of price but a short-termist, next-fiscal-quarter besotted world often puts price first anyways. (And then pinches all the good ideas and creativity you put into the tender to pass them onto someone who bid 4 cents lower.)

Posted by Mark JF at June 25, 2008 4:13 PM

Ron, Dr Deming was of course quite correct....but he wasn't exactly embraced by American businesses. And I am not disagreeing with Steve...simply pointing out that I believe that in the manufacturing marketplace, price trumps relationships. At least among the big three. Ask Julie Brown at Plastech... In the service industry, I agree it is primarily relationship as long as you provide a superior product. As a service professional, if I have to drop my fees I fear I have fallen into commodity hell...and that aint a place I want to be

Posted by Mike Neiss at June 25, 2008 4:29 PM

In Mike #1's comment, where the customer wants to split the business between four suppliers, 25% may actually 100% of what's reasonably possible. However, this is usually not what I see in the real world. Whenever I see any of my clients in situations where customers want to multi-source, certain suppliers always end up getting a disproportionate share of the business. It's never allocated so cleanly.

And yes, there are many situations like Mark JF mentions where you don't want one client to be too big.

But I'll stand by the basic premise: Most businesses have significant untapped latent profit in their existing customer relationships, and this untapped value dwarfs the scale of the current economic downturn's effect on these firms.

Posted by Steve Yastrow at June 25, 2008 4:52 PM

As a non economist I ask greater minds than mine on this Blog a genuine question;

How much of ‘downturn’ is in the head?

If we keep ‘talking up’ an economic ‘downturn’ does it become the reality?

A Labour MP here in the UK got himself into hot water this week for suggesting we ‘ordinary’ UK citizens are far too ‘miserable’ about the economy and we should be 'happier.'

The cynic in me says it’s easy for him with his £90,000 ($180,000) salary to tell everyone else not to be so miserable … but sadly I have to kind of agree with him …

If we keep on telling ourselves how bad things are with our economy does it become the perceived reality?

Self fulfilling prophecy is the expression that keeps coming into my head with all this stuff. But then again .... I only see things simply.

In summary - Is all economic theory in reality rooted in psychology?

Posted by Trevor Gay at June 25, 2008 5:02 PM

Here's another angle to look at this from: Consider a customer whose business with you has decreased this year. Now, consider how much business that customer is giving to your competitors.

Simple (inspired by Trevor, Dr. Simplicity) example: You own a restaurant. One of your regular customers came in 3 times/month for breakfast last year, but has dropped to 2 times/month this year. His overall frequency of breakfasts eaten in restaurants has dropped from 9 times/month to 6. So, he's still eating 4 meals with your competitors. Get 25% of his remaining business, and he's back to last year's levels with you. (Get 50% of his remaining business, and ...)

Posted by Steve Yastrow at June 25, 2008 5:49 PM

Steve, the biggest competition for that restaurant could be the customer eating at home. So, know the customer and don't worry too much about the competition. Look for ways to entice them back (that doesn't necessarily mean taking a bigger loss on the meal.) And, I'm with ya on untapped potential in the existing customer base. Way too much marketing effort is expended chasing new businss while companies neglect their existing customers (which is even more stupid in economic downturns.)

Also - while people will almost always find a way to buy what they really want (even in B2B, there's still people with emotions making those decisions) - I advise clients on "value pricing" - and it's a great way to market - but eventually you will bump up against people only have so much money, no matter how much they love you or want to buy from you.

I always hate seeing the kneejerk reactions in bad economic times (and "bad" is often a matter of perception, versus reality in many industry sectors. The needs are still there; the customers are still there; the wheels are still turning...) Big companies start whacking small competitors on price, laying off sales and marketing people, and generally cutting off a lot of noses to spite their shareholders' faces.

Small companies go into "bunker" mode and stop doing anything, hoarding cash. The time you should be going all out for new customers and new opportunities is during bad times (ideally, you market all the time - and don't wait until things are bad.)

Down off my sole proprietor, consultant soap box now!

Posted by Mary Schmidt at June 26, 2008 9:14 AM

Mary - I like your soapbox. Stay on it!

The bunker mentality makes people resort to old habits ... Like focusing on trying to buy customers with brute force marketing tools, instead of building relationships with customers. (it's hard to build relationships when your head is buried in a bunker, avoiding shrapnel)

More later - the iPhone keyboard starts to irritate me after 50 words.

Posted by Steve Yastrow at June 26, 2008 6:17 PM

Steve – I’ve just been reading a wonderful article that my good friend Dave Wheeler pointed me toward. The article is called ‘Achieving Breakthrough Performance’ and you can read it in full at this link – well worth a read.

http://www.ssireview.org/articles/entry/achieving_breakthrough_performance/

One of the four principles of great leaders according to the authors is simplicity – so I am pleased needless to say. I just love this extract from the article giving a wonderful illustration of simplicity in action - don’t you agree?

“To understand the benefits of simplicity, consider an example from the automotive industry. Hal Sperlich is an automotive legend. He led product teams that created the Ford Mustang and the industry’s first minivan for Chrysler. Both were runaway hits, generating billions of dollars in profit for their makers. Sperlich was successful because he realized cars had to stand out on only three dimensions and could simply be competitive on all other dimensions. He got this insight by observing customers, who when asked why they bought a particular vehicle could seldom remember more than three reasons, even immediately after buying the car.

Sperlich’s insight also applies to strategies, processes, and organizations themselves. Human beings can’t effectively focus on more than three or four things at once.”

Amen! And thank you again Dave Wheeler (you are a star!) for sending me the link.

By the way Steve - thanks for my promotion to “Dr” – does that mean I can wear a white coat, a stethoscope round my neck and act like I am God? ... Only joking you Docs out there :-)

Posted by Trevor Gay at June 26, 2008 7:40 PM

If American businesses "didn't exactly embrace" Deming, it simply points out the ignorance and arrogance of American management.

Donald Peterson, CEO of Ford during their remarkable turnaround in the 1980's attributes their success to Deming and his system. "We are moving toward building a quality culture at Ford and the many changes that have taken place here have their roots directly in Dr. Deming's teachings" per Petersen. Ford lost close to three 3.3 billion from 1980-1982, became profitable in 1983 with 1.9 billion and increased profitability each year through 1988 when they banked 5.3 billion. Deming clearly advocated developing "arms-around" relationships with suppliers, external customers(their feedback was used in the process and product design and development) and silo-busting...removing the barriers that prevented information and interaction between internal departments. Quality leads to lower costs. Lowering costs would enable some of the savings to consumers, whom Deming knew were key to profitability.

That management didn't embrace Deming is no surprise since he believed the "system", not the worker, was responsible for 85% of the defects. Building the quality into the process required getting the front line folks involved in all facets of design, development, and production! Looks like it worked to me!

Price might trump relationships in manufacturing today ,,which perhaps could be the reason why the Big Three are in the shape they find themselves in.

Posted by Dave Wheeler at June 27, 2008 3:02 AM

Many things are happening. The greatest dynamo to the world’s economy and balance is the U.S. None in his right mind can think differently unless WWII and WWI meant not a thing.

I am into many things. Some are called trends. I have said that subtle trends are forces with an awesome drive. But many, because of being subtle are not seen nor acknowledged. Clearly, some people who wish to be blind by reasons of own gusto pay no heed to powerful, forceful, intersecting trends. When you ask one of those, How do you see yourself in 5 years from now? They go silent and silently in denial. They get bewildered because they don’t know the immense amount of sustained and increasing CHANGE is instilled (bathed) on to the society.

These days, on the other hand, your professional service firm must adapt so much that some will make it, but not all. Future adaptation is good to be seen well in advanced by practicing scenarios.

Institute alliances to lessen the requirements of capital. To make an ally in another country, one especially growing and that can use your expertise. Place the highest premium on technical knowledge and scientific knowledge, knowing how so many processes work out. These and their interrelationships are difficult to identify.

Make an invention or captured a business, link it to your company’s stake. Sell a percentage of that stake to re-instill en R&D+I. Scan around for the above and other. Think wild and weirdest. I keep seeing many and many and many doing copycats of each others.

These are the ones that don’t read 15 management+business+branding books in a month. These are the ones who are afraid to look for a qualified consultant. These are the one who don’t speak to their bankers. These are the one who has bestowed their brains with training not blended.

Do you think that a doctor in mathematics is only going to study mathematics, physics, and chemistry? No way! He will have an inquiring mind on many subjects from humanities, industry, sciences, theology, fine arts, so that he makes his “INTELECTUAL CAPITAL” more rounded and more efficacious when it comes time to solve a daring problem at work.

Many people do something MANUALLY. One thing for him or her could be to get some assistance to make the “SOLUTION SOLVER” in an automated item, namely software. Out of which he can sell many copies, regained the financial strength, and start up a new business.

Yes, for this business situation in the U.S. we will have to use every legitimate resource, braking forever with the past. Other countries like those in Europe are in 95% the same shape.

Across the board in the Western World, I see society vanalized to my migraine. Children with or without the best resources preferred not to study and be taken away by their distractions. If, with their distractions, they could raise Google_2, great.

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I see a great deal of people who don’t wish to get prepared further and counting on what teachers at college and university told them.

In Japan and China and South Korea, the study and academic preparedness habits have become so ingrained that children and youth in general wish to pay any price at all to be the greatest genius in the world. Relax, their respective countries will be there to make sure that their desires crystallize.

Posted by Andres Agostini (Andy) at June 27, 2008 5:57 PM

Dave, I am not defending the price over relationship position, just trying to introduce a little reality into the discussion. And it is not just the big three. I was fortunate to lead the team that brought Dr. Deming into a GM division. So when I say he was not embraced, I can provide first hand testament. GM cherry picked..did spc, visual management, etc...but just like with the Toyota production system. they did not do it all. And Donald Petersen always said, again first hand, it was design that saved Ford during his tenure. That "jelly bean car" as Roger Smith called it, the Taurus, was Ford's breakthrough back then. And of course the wonderful design team that drove the innovation. Mary Walton is worth a read on this.

Posted by Mike Neiss at June 27, 2008 6:54 PM

Mike...my apologies. What I should have made clear in the first sentence "I agree. American management didn't exactly embrace Deming." What you saw first hand at GM, I saw first hand at many Air Force Bases across the country. The majority of the training we did for our Senior Leaders was focused on Deming and the 14 points and some dude named Peter?...Peters? in a video talking about a couple of companies in different industries who, like the Japanese, focused on quality and excellence as a means to growth and profitability. Manager's didn't embrace Deming because he saw them, not the front line folks, as the piece of the puzzle that needed to be "fixed" because they controlled the time, resource, systems, processes that produced the poor results

The Rafael Aguayo book "Dr. Deming, the American Who Taught the Japanese Quality", talks of the joint GM/Toyota venture in California where this particular plant in Full production was much more efficient and productive than other producing the same vehicles. He says this was done with the same people, same equipment, same everything...except plant management. The five Plant Leaders were from Toyota and treated people like....people!

Your comment regarding Donald Peterson crediting design that saved Ford during his tenure is right on point. It was this piece that usually began to sell our Colonels/Generals on the process because it made sense to them because of it's "simplicity". As you know, this was the piece that was done completely differently than it had been in the past and Deming's influence was apparent. Team Taurus...a team made up of folks from each discipline or department rather than each piece done in isolation and passed along. They "benchmarked" competitors vehicles and incorporated their design features...the "jelly bean" shape, from Audi I believe. Customer feedback...they took proto-types to dealerships in some cases and let the consumers check it and make suggestions. Same with the assemblers on the line to cut down on damage to the parts, finish, and re-work. Little things, simple things, the biggest change being in attitude. As you point out...it didn't work in GM because "they did not do it all". You got that right...as you always seem to do.

I have watched and used many of these leadership and management practice and have seen first hand how can, in the hands of credible and committed leaders, really improve performance, productivity and profits. They have a model in Ford that shows terrific results...is the problem with Deming's methods or arrogant and ignorant leaders? Ford's leader commits to it and turns a company around. His peers don't...Why????

Posted by Dave Wheeler at June 28, 2008 1:31 AM

Think about yourself as a consumer, and ask how the companies you do business with could get much more of your business. In my case, three things come to mind:

1)A restaurant that has great brunches, but awful coffee. If they'd fix their coffee, they'd probably get 2X my business.
2)A local pizza place that has decent pizza and great Greek salads, along with some of the most unfriendly waiters I've ever encountered. If they'd upgrade the waiters, they'd get 3X my business.
3)I have Comcast on-demand service, which has an extremely cumbersome interface for finding, starting, and restarting programs. I'm never going to be a huge TV watcher, but if they'd improve this interface they'd probably get 2X on-demand business from me.

Posted by david foster at June 29, 2008 9:35 AM

David F, I think Steve's point is made. How come it seems so hard for those three organisations, especially the restaurants where you're actually in the damn place, to find out what they could do to improve things for YOU?

Posted by Rob at June 30, 2008 1:06 AM

Getting to know the customer (and his or her needs) is of greater importance in the current economic climate than ever before. I was at the Forrester Research Financial Services Forum last week, and this point was made again and again. And relying on c-sat surveys isn't enough. I blogged about it at:
http://www.1to1media.com/weblog/2008/06/seeking_customer_atisfaction.html#more

Posted by Kevin at June 30, 2008 9:40 AM

Rob...I actually think it's harder for the restaurants (well, at least for restaurant #1) than for Comcast. Things like coffee are matters of taste...probably there are at least some people who atually like their awful coffee...and it would be a nontrivial but worthwhile exercise to figure out what stuff is loved vs tolerated vs hated.

The awfulness of the Comcast interface, on the other hand, must be obvious to all...surely Brian Roberts (CEO) and his dad (founder) watch their own service...indeed, I think I saw something somewhere where Brian remarked that the interface was sucky. Why doesn't he make them fix it?

Posted by david foster at June 30, 2008 5:07 PM

David, my point was that the act of getting some immediate feedback from you was inherently easier for the two restaurants. Thing is, restaurants tend to do the "how was your meal?" thing mechanically, not as a genuine feedback enquiry. If 75% of the first restaurant's customers thought the coffee was awful, and only 5% thought it was actually good, with the rest not worried either way, they could potentially be looking at a whole heap of extra business for a very small change in the offer. And probably larger tips as well, coffee being literally the taste in people's mouths at the end of the meal. But unless they ask, they won't ever find out. And asking seems so simple, direct and personal in those circumstances.

Comcast, don't know enough about it to have a view.

All the best

Posted by Rob at July 3, 2008 3:18 AM