Category Archives: Market Culture Inaction

Why Home Depot failed in China

home depot lacked customer insight in China

Just because a business works well in the US provides no guarantees of success in international markets. How could a company as successful as Home Depot not be able to make a success of it in China? (the WSJ reported it just decided to close its remaining 7 stores)

The key reason is a failure to really understand the chinese customer landscape. Home depot works in the US because labor rates are relatively high and there is a strong do-it-yourself culture that leads people to take on even major renovations without professional help.

Not so in China, with a large pool of low cost labor and a frenetic work ethic most chinese would prefer to pay someone to get the work done. The neither have the time or desire to “do-it-themselves”. When you add these economics to the picture it clear the model would not work, at least for now.

An interesting contrast it provided by IKEA which has been growing successfully in China. It also has a do-it-yourself model but there appear to be two differences:

Firstly it offers customers a low cost assembly service, those customers that want the lowest possible price can do it themselves, for a little more IKEA can arrange assembly.

Secondly, according to Forbes contributor Helen H. Wang (an expert on China’s middle class) Ikea provides the new chinese home owner an education in how to furnish their home in a western style. Given the growth in new home ownership in the last 15 years there a many new consumers looking for stylish, low cost ways to furnish their new homes.

The nuances of different markets are difficult to pick up, unfortunately for Home Depot there appears to have been a major customer preferences trend against them. How could they have avoided this costly error?

If they had a customer focused culture their first approach would have been to understand the chinese consumer in a little more detail. This may have uncovered what in hindsight seems obvious and saved them significant time and investment.

Often deep customer understanding can only come from launching and operating in a market. In this case I believe they could have done a better job by testing a SINGLE store more thoroughly rather than expanding too quickly. They could have started small and built out their strategy and store expansion plan on a much stronger foundation – one that customers wanted.

If your interested in developing your skills so you don’t make the same mistakes Home Depot has we have two free online courses here that may be helpful:

Course: el001- Understanding Value

Course: el002 – Uncovering Customer Needs

What do you think? Could Home Depot have done more to have averted this costly mistake?

Employee engagement is simply not enough

Engaged Employee

Employee engagement is an important measure for many organizations. It does provide an indicator as to whether employees are willing to go the extra mile in their work, something that is only driven by passion and meaning in what you do.

However, in today’s business environment it is not enough.

Why? Customers don’t really care how engaged you are in your work unless your are providing them with something valuable.

It reminds me of a trip I took to Paris years ago. My wife an I decided to catch a train from the Gare de Lyon to the south of France and I needed some help to get on the right train. Recognizing an information center, I walked in to find it empty apart from 3 staff at the counter.

Now my french is not as good as it should be (having a French mother!) but I could understand that the 3 staff were passionately discussing their weekend. This went on for about 3 or 4 minutes while I stood patiently infront of them. When there was finally a break in the conversation I tried to get their attention. One of the employees finally begrudging came to answer my questions. Ironically she refused to speak English so I was forced to muddle my way in French to finally get the answers I needed. It reminded me of the quote:

“This job would be perfect if I just didn’t have to deal with customers”

Now I recognize the french have some of the lowest scores for customer satisfaction in the world but my point here is that these employees were fully engaged in their work, no question they seemed very happy to be there. However they had not connected their work with their real reason for being there, to serve customers.

I am not against employee engagement but the goal needs to be higher than that. Employee engagement must intersect with customer engagement for it to be a worthwhile initiative.

7 ways a lack of customer centric culture destroys business growth

Don't let a lack of customer focus cost your organization

Being a business that is focused on real value for customers is often talked about by CEOs but in our experience only sincerely acted upon by a few.

Its not enough to just believe in an idea, one must act to make it happen. A key reason for this failure to act is the lack of understanding of the economics behind customer centricity.

Fundamentally customer centricity is about building a sustainable profit generating capability for the organization but there is also a downside of not acting to create this type of culture.

Here are 7 ways of calculating the cost of a lack of customer focus:

1. The CEO loses touch with the marketplace.

As businesses grow on the back of an original powerful value proposition, success can disconnect a company with the marketplace.

A recent example is Netflix’s decision to raise the price without a perceived increase in value for their customers. The result was the loss of 800,000 customers in one quarter. Let’s assume it cost them $150 per customer, (based on this great case study by Neil Patel of KISSMetrics), that was a $12 million dollar investment wiped out in one quarter. Ok so many of those customers would have contributed revenue during their time with the company but what about the impact on Netflix’s reputation? How much will it cost to attract new customers going forward $175-200?

2. Customers start leaving the minute they have a better alternative

Are your customers “hostages” to your business? Do they have alternatives and if they did would they stay?

AT&T faced this challenge recently when the iPhone was opened up to Verizon. Prior to this transition, market research firm ChangeWave, conducted a survey of AT&T customers that found 26% of them planned to switch.

It is unlikely this many customers would switch but let’s do the math. I will assume each customer is worth $2400 (based on $100 per month – 2 year contract). Assuming they have approximately 15 million iPhone subscribers, 26% represents 3.9 million. So the customers at risk are worth approximately $9.4 million over two years

3. Customers refuse to pay higher prices

Loyal, happy customers will pay more for your products and services. They feel good about doing business with you and get value from what your offer. But there is a risk of loss if you try to increase prices or even hold prices in the face of competition without increasing customer benefits.

Two companies that have experienced this recently are Best Buy and Bank of America.

Best buy are under enormous pressure from the online retailers, specifically Amazon who are turning Best Buy into a showroom for products they sell at a lower cost online. Best buy’s only way forward is to offer more value, provide service customers will pay for, create an experience that is better and keeps customers coming back. To date this strategy has been working but with some recent feedback from a blog post from CEO Brian Dunn it shows they still have a long way to go.

Bank of America recently found out the hard way that customers don’t like price increases without a perceived increase in value. Charging a customer for something they used to get for free is an emotionally charged issue. It is a violation of expectations and Bank of America ultimately had to reverse its decision to start charging a monthly fee on debit cards.

4. Negative word of mouth makes it expensive to attract new customers

Negative word of mouth used to be limited to the spoken word but with social media and the web an integral part of our lives there are multiple places to express our dissatisfaction with companies.

Given we believe what other people say about a company more than what the company says about itself, the influence of negative comments is a powerful headwind for companies trying to acquire new customers. Just ask Vonage.

Vonage had an opportunity to be the “Apple” to “Microsoft” the “Virgin Airlines” to “American Airlines” in the telecommunications world. A high value, low cost alternative to the traditional telephone companies. But since its launch it has come under fire not only for poor quality phone service but has been attacked for its aggressive marketing and poor customer service.

The bottom line is Vonage’s cost per acquired customer went up by 7% in a single quarter during 2008 –  a time when it was plagued with many of the negative word of mouth issues highlighted above. Vonage’s CEO at the time Marc Lefar said the company’s expenses to secure new customers were “not acceptable”.

5. Your best staff leave

When companies lose a focus on their customers, employees lose hope and often the best leaders look for other rising stars.

Companies like Research in Motion, HP and Kodak come to mind. When the best people leave usually their teams are quick to follow and this further exacerbates the problems.

6. Your business stops growing

Businesses that have lost customer focus and become mired with an internal or product focus stop growing. They may have a core service or product that is still in demand but they tread water not able to create new value to either attract new customers or have existing customers buy more.

An example that comes to mind is Microsoft, which has appeared to stand still for the last 10 years after a period of unprecedented growth. Microsoft is clearly still an incredibly successful and profitable business but our expectations have changed, we expect it to grow like Google or Apple or Facebook.

Here is a good article outlining the reason for Microsoft’s stagnation, essentially it is more about expectations and competition than anything else. The market does not believe Microsoft knows how to create ongoing value for its customers better than the competition.

The bottom line for Microsoft is that is has essentially stopped growing relative to its competition.

7. You go out of business

The last outcome of a lack of customer focus is business closure. When companies do not change with shifts in customer demands they fail.

Two examples that come to mind are Circuit City and Kodak.

Circuit City was caught in the middle between the online leader Amazon’s rise and the big box leader Best Buy’s aggressive expansion.

Kodak’s demise has come from a tectonic shift it was not willing to make. The writing was on the wall as soon as their original digital camera project was killed by internal fears of the impact it would have on the film business. So instead of Kodak cannibalizing its own business its competitors did.

The costs of not having a customer-focused business are immense.

As competition increases and continues to filter into every last industry across the globe; the need to have a culture that is willing to shift with the external trends is going to be crucial for survival.

 Ultimately it is the customer centric culture that will win.

Yesterday’s customers

Adam Hartung recently wrote about the costs involved in essentially defending the status quo. In the below chart it clearly shows Microsoft investing significant R&D funds and getting little return.

Chart from Business Insider:

RD cost MSFT and others 2009

In our world view this is clearly a case of a inwardly focused culture that has lost touch with the market and its customer base. The only way to grow is to attract more customers, sell existing customers more or provide more value you can capture with higher prices. It appears that Microsoft is continuing to serve yesterday’s customers, when there was really only once choice for office productivity software. As markets have opened up, Microsoft has been left behind relying on its old formula for success.

Now there is no question  the investments Microsoft has made has ensured the survival of its core business to date. But the question remains where is it heading? With the shift to the cloud and free applications and services online and the rise of streamlined coding and simplified products (think 37signals) how much value can be added to word processing, number crunching and presentation software?

Clearly its time to do something different but can it unlock the shackles of its corporate culture and connect with the next generation of customers?

BP’s corporate culture?

With the dramatic events of the past few weeks unfolding in the gulf of Mexico as a result of the oil spill I have been reflecting on BP and their response to this crisis. BP in recent years has been aggressively looking for new ways to grow, despite top line growth their bottom line over the past 5 years has been relatively flat. There have been some arguments that BP’s focus on cutting expenses may have lead to lapses in safety.

What ever the case what is important now is how BP responds and the message that sends to its customers. Certainly the media coverage to date has been highly critical and negative of BP and in particular BP’s CEO’s response. Judging by their actions this is probably with good reason.

Although they have a tight rope to walk between investors, customers and the community they operate in surely their priority must be to make the best of the worst possible scenario they now face.

The oil spill has devastated many thousands of people’s lives and BP have been slow to grasp the implications of the extent of the issue.

Let’s take a look at their actions so far and what a company with a strong market culture would have done instead:

1. They have consistently under estimated the size of the leak and been slow to provide information to constituents.

– A company with a strong market culture is transparent, admits the truth about problems and focuses its energy on getting them resolved ASAP.

2. The have invested heavily in gaining the top spot on google searches for the word’s oil spill, presumably in order to try and control the media story.

– A company with a strong market culture realizes it cannot control the media or customers, it controls only the actions it can take to resolve issues

3. They have been slow to pay compensation to fisherman and business directly impacted.

– This is obviously a complex issue, however, the way BP has responded has lacked the urgency necessary to send a message that the company really cares about those that have been impacted. Companies with a strong market culture quickly grasp the issues and get on the front foot in resolving them.

4. The US CEO of BP has not been to the oil spill area (50 days after the incident began).

– Another clear statement that the issue is not important enough to warrant his time seeing first hand what the impact has been. Great market culture leaders quickly get a grip on the issues facing customers and take action

Actions of any company ultimately reflect the culture of that organization. Do you think BP has responded appropriately so far?

What GM Couldn’t Learn From Toyota and Why

GM has been losing market share for more than 50 years. It has known about its reliability and quality problems for many years and has not been able to do anything about them.

The source of this story is “This Amercian Life”, here is a quick summary:

“A car plant in Fremont California that might have saved the U.S. car industry. In 1984, General Motors and Toyota opened NUMMI as a joint venture. Toyota showed GM the secrets of its production system: how it made cars of much higher quality and much lower cost than GM achieved. Frank Langfitt explains why GM didn’t learn the lessons – until it was too late.”

There were 16 high potential managers that were sent to NUMMI to learn the lessons and take them to the other GM plants around the country. What they found in the other plants was a corrosive culture so embedded and change resistant that most of them decided to leave GM, the challenge was just too great.

Some of the culture related issues they faced included:

Change resistant – the workers liked things they way they were, they were well paid and did not necessary have to work hard for their compensation, why change?

Seniority – the managers like things the way they were, compensation was linked to a hierarchy and many workers had waited years to be moved into management. When they became managers they did not want to accept any change that may reduce their seniority. More people reporting to them meant more power, Toyota’s team based approach would undermine these hierarchical structures.

Team Work meant telling on each other – there was a perception that team work meant calling out under performers and this was seen as unfair and negative.

GM was very departmentalized (silos) – there was a lack of ownership and connection between individual department success and overall success. When plants tried to implement “Toyota” methods they were not supported by the broader GM organization. GM simply did not understand the deeper system Toyota had developed around the factory floor.

Combative nature of relationships with suppliers. GM was used to aggressively competing with suppliers to get the best terms not working on collaborative solutions where both parties maximized their benefits from the relationship.

GM’s Market share went from 45.5% to 22% over the past 30 years – it was a significant but slow decline that did not generate real urgency. Complacency had set in.

GM’s decline is an incredible example of a corporate culture so internally focused that decline was an inevitable and it seems almost unstoppable.

Was this inevitable? What could have been done to turn the situation around?

The short answer is strong leadership that connected everyone’s role with customers and clearly articulated the individual benefits of being customer focused and market-driven.

Why corporate culture is the canary in the coal mine

In days gone by it was possible for larger businesses to hide their corporate culture from customers. There were less interaction points, no social media, one way communications that could be carefully orchestrated and controlled.

Those days are well and truly behind us, corporate cultures are exposed to the elements and many of them are not pretty. What often stands out to customers is the lack of co-ordination between departments, “am I talking to the same company?”. This is usually the result of a lack of understanding of the real customer experience and how to manage that across multiple departments.

A tool we have developed as an early warning signal (our Canary) for executives is called the “Market Responsiveness Index”

This tool helps executives gain some insight into how the organization’s culture maybe enhancing or hindering its strategy implementation and ability to drive business performance. It specifically addresses collaboration (1 of 7 market-driven behaviors), and allows executives to benchmark their performance against top firms around the globe.

Results indicating issues in collaboration act as a signal and catalyst for executives to address these issues or face the consequential poor business performance.

What is your canary in the coal mine?


For those of you unfamiliar with the term, here is an explanation from WiseGeek:

“Life for an actual canary in a coal mine could be described in three words – short but meaningful. Early coal mines did not feature ventilation systems, so miners would routinely bring a caged canary into new coal seams. Canaries are especially sensitive to methane and carbon monoxide, which made them ideal for detecting any dangerous gas build-ups. As long as the canary in a coal mine kept singing, the miners knew their air supply was safe. A dead canary in a coal mine signalled an immediate evacuation.”

87% of CEOs are not creating adequate value

My business partners, (Sean and Linden) and I recently completed writing a new white paper with the title “The Truth about Profit Trends: What CEOs need to Know and Do” , to date it has been garnering a lot of interest.

It outlines some worrying trends related to company’s return on assets over the past 40 years and identifies some of the reasons behind these.

One of the key findings was that 87% of CEOs are simply not creating enough value. Given the CEO’s role is to drive the organization towards its vision and enable it to fulfill its purpose by creating value for its customers this is a worrying trend. What is stopping CEO’s from creating value?

The short answer is company culture, many firms have lost competitiveness due to an internally focused culture that kills innovation and eats strategy for breakfast. Without addressing culture CEO’s cannot be successful in creating the positive change necessary to succeed in today’s hyper-competitive global marketplace.

You can access our new whitepaper from our new resources page here.

Do you embrace the competition or shut it out?

We had an interesting peak inside the Microsoft culture recently through an article on the WSJ “Forbidden Fruit: Microsoft Workers Hide Their iPhones

Here is a summary of what happened:

“The perils of being an iPhone user at Microsoft were on display last September. At an all- company meeting in a Seattle sports stadium, one hapless employee used his iPhone to snap photos of Microsoft Chief Executive Steve Ballmer. Mr. Ballmer snatched the iPhone out of the employee’s hands, placed it on the ground and pretended to stomp on it in front of thousands of Microsoft workers, according to people present.”

As a result we had some interesting discussions at our team meeting yesterday, particularly around the message being sent to employees. Essentially the message is “Don’t use competitor products even though they maybe better than ours” In fact ignore competitive products and focus on our own products even though the don’t deliver as much value.

It may be a bitter pill to swallow but by embracing competitive products it does allow for a deeper level of insight into how to create something event better. Without understanding the customer’s experience with competitors companies become myopic and cannot create a better vision of the future.

How could Microsoft’s CEO have handed this differently? What was his goal?

Is Google focused on the right things?

Google recently launched a new social networking service called Buzz. The launch reveals blind spots for Google that have resulted from a corporate culture focused on engineering excellent but lacking in the type of insight necessary to develop new value for existing and potential customers.

The concerns raised by users were fairly predictably related to privacy issues but were overlooked by Google. Google’s unprecedented success in its core business has given it the luxury of exploring a wide range of new business from productivity and communications software to a recent entry into the handheld device market. However, to date it has arguably failed to have any significant impact with the new businesses apart from Android which is certainly getting the attention of Apple (Apple recently sued HTC a maker of Android operating system phones).

To me this points to a need to balance Google’s product culture with a stronger emphasis on the external environment, in particular customer behavior in order to better anticipate how customers will react to new products and services.