Actually, Quitters Do Win!ByRaymond D. MatkowskyHumans are creatures of habit. We have our set routines. Some of us get up in the morning, have our coffee, and lazily read our paper before going to work. Some of us have to get started right away. Most of us fall somewhere in between. Habits, even when they work against us, can be hard to break. We know that we should quit but we never do. Why? Because humans find change stressful.
Are monkeys inhibiting your business?
Have you heard about a study into the behavior of apes that demonstrated habitual responses to a long forgotten stimulus? There are lessons businesses can draw from it.
The investigation began with a cage containing five apes. In the cage a banana was hung on a string and a set of stairs was placed under it. Before long, one of the apes goes to the stairs and starts to climb towards the banana. As soon as he touches the stairs, all of the apes are sprayed with cold water. After a while, another ape makes an attempt with the same result. All of the apes get sprayed. This continues through several more attempts. Pretty soon when another simian tries to climb the stairs, the remaining members of the cage try to prevent it.
The cold water is now turned off and never used again. One ape is removed from the cage and replaced with a new one. The newcomer sees the banana and starts to climb the stairs. To his horror, all of the other apes attack him. Another try, another attack. He soon learns that he is not to climb the stairs.
Another original ape is removed and replaced with a second outsider. This newcomer goes to the stairs and is attacked. The previous newcomer takes part in the punishment with enthusiasm even though he doesn’t know why! This scene was repeated until all of the original apes were replaced.
Even after replacing all of those sprayed with cold water, no ape ever again approached the stairs! Why not? Because that is the way it was always done even though the remaining primates had no idea why!
We don’t know why, but we’ve always done it that way!
These very same behavioral traits can be found in many businesses. Business strategies, production procedures, and methods developed many years ago are still in place not because they represent the “best practices” but because that is the way things have always been done. The “We’ve always done it that way” syndrome. It is far easier and less stressful to avoid changes but is it the most profitable way?
Very often a rule of thumb that you may operate by is no longer valid in your present situation. At times, just as the apes, you may not even remember why the rule was adopted in the first place, but persist using it out of habit. None of the remaining apes were ever sprayed with cold water and none were ever in danger of being sprayed, but their conditioned responses persisted. Just like the apes, there are many instances in which businesses operate by the “We’ve always done it that way” philosophy.
The Business World has changed
The world has changed. So must you! Your employees must find new and improved ways to do their traditional jobs.
Increasing this need is the advent of the Internet. It has vastly changed the economic mix that businesses operate under. Your competitor is no longer only just the big monolithic corporation or the little guy down the street, but the business from Brazil, Hong Kong or Western Europe. More than likely you may have never heard of some of them! The Internet has allowed that Brazilian concern to be just one mouse click away from your customer. With the Internet, you do not need a physical proximity to your customers. In order to keep that customer, you are going to have to be better and smarter than your competition. You are going to have to squeeze every ounce of potential from your product and marketplace. You can’t afford to be complacent and just accept “we have always done it that way!”
This new order has forced businesses to recalibrate their operations to the souped up speed, demands and opportunities of the Internet. Thanks to the Internet, businesses can do far more, do it faster and cheaper than ever before. This “New Economy” raises the bar on efficiency though. In order to remain competitive, your company will need to adapt to this new reality or perish.
Adapt or perish
How does your company adapt? First of all, you must rid its culture of the “We’ve always done it that way” syndrome. Not doing so will only hold you back! Secondly, you have to accept the fact that everything can be improved and if you don’t do it, your competition will! That great product or process that you developed today can be further improved upon tomorrow. That is simply the nature of progress. That’s what your competitor needs to do to get ahead of you and rest assured he or she is doing just that. If you want to stay ahead, you must do so also.
You only have to think about it to see the truth in what I am saying. Spend a few minutes and think of that great product that was in wide spread use ten years ago but is no longer around. Has it been replaced by something better? Probably! Did the originator of that “great” product replace it with something better or was it the competition? Think of the industries that were born, flourished, and died with the advent of new technologies.
Case history
A while back I received a request from a former colleague and a district sales manager of a major international corporation to look around his client’s facility. This client accounted for US$ 300,000 of sales per month. There was nothing out of the ordinary at this plant and the procedures used had been running well for several years with only minor changes. The problem was that the plant’s owners felt that they would have to drop their present supplier, manufacturing techniques and switch to higher priced raw materials. They felt this was necessary in order to meet the performance claims made by their competition.
Everything appeared as it should. However, it was noticed that although the plant’s production remained within predefined specifications, the variations ranged from the very top to the very bottom. An analysis of variance pinpointed operating temperature and the process’s catalyst as the prime factors. Further investigation revealed that the operating temperature was near the decomposition point of the catalyst and that this was the source of variability. By lowering the operating temperature a few degrees the process became 20% more efficient. With this minor change the client was able to meet or exceed all of the competition’s claims while retaining the use of cheaper raw materials.
The manufacturer always had a product that was potentially superior to that of his competitor. He was just not getting the maximum fulfillment from it. He would have never realized it if it weren’t for the stimulus caused by his competition.
Change can equal more profit!
There are only two ways to increase your cash flow. The first is to increase the unit sales of your goods or services. The second is to increase the amount of profit each unit brings in. Which do you think is easier to accomplish?
A 20% increase in efficiency allowed the plant owners new ways to increase profits. They had a choice of increasing their production speeds to account for the more efficient curing. They could produce more goods at a lower unit cost in this manner. They could maintain the same production speed, but lower their oven temperatures. This would reduce their energy costs. Or they could use a combination of both to tailor production to inventory levels.
Increasing efficiency affords you a great deal more competitive flexibility than increasing sales alone. When you increase margins through increased sales, all of your competitive factors stay the same. The number of units sold increases, but the profit on a unit of sales remains unchanged. The relationship between your margin and that of your competitor is unaltered. There is no competitive advantage gained.
On the other hand, improvements in efficiency opens up many options that may have not existed before. Some of these options can be used to gain a decisive competitive benefit in the marketplace, as in the situation above.
Cost reductions sound less desirable than increasing revenues through sales or market share. However, if a business operates on a net profit of 10%, then for every ten cents that is saved through cost reductions, revenue from sales must increase by US$ 1.00 for it to have the same effect on the company’s bottom line. In addition, increasing sales usually requires an increased investment (raw materials, labor, overhead, etc.). Cost reductions do not require the further investment of capital to generate a profit. Another way of saying this is that a penny saved is a penny increase in profit. Savings are pure profit.
So, What’s in it for me?
A great deal! Anyone who’s been in business for any length of time knows that trouble comes in all sizes and is constantly available. It usually takes money to correct these problems. Let me give you an example.
Long time associates know that I am a strong believer in that the best way to grow a business is to safeguard the welfare of your employees. Unhappy workers make for unhappy customers who will in turn punish your business by taking their money elsewhere.
It is no secret that in the United States health care benefit costs are rising sharply. For four years in a row, the health care premiums of all companies have risen an average of 11.2% annually. Family coverage at work now cost an average of US$9,950 per year. These costs fall hard on small businesses. As a result, thousands of small companies are scaling back or dropping coverage altogether. This I believe to be shortsighted. Health care is of major concern to employees.
The primary source of your competitive advantage is probably your employees’ knowledge. Are you prepared for that knowledge to go to your competitor because he or she offers better benefits? I doubt it.
The question remains, How do you pay for it? Remember, I said there’s only two ways to increase available cash and “We’ve always done it that way” is not one of them.
Increasing your productivity may allow to pay for those health care premiums, or repair your balance sheet. You may be able to avoid heavy borrowing or even reduce your debt. Who among us cannot find uses for additional funds?
Quitters can be winners!
Quitting the “We’ve always done it that way” mentality allowed my friend’s client to become a bigger winner than he imagined was possible. Look at your operation. Should you become a quitter too?
Copyright © 2002 Raymond D. Matkowsky
Raymond D. Matkowsky is the Chief Executive Officer of Data Stats, a consulting firm specializing in system or product improvement through mathematical and scientific modeling. He can be reached at rdm@datastats.com or through Data Stats’ web site at www.datastats.com |
