According to a report by RSM Robson Rhodes Business Consulting called The Silent Scream of the Unloved Customer British blue-chips would make 35 per cent more profits if their businesses actually gave customers what they wanted. Looking at the FTSE100 alone, that would add up to in excess of 20 billion GBP per year. The report found that 80 per cent of customers think that companies do not fully meet their expectations. You can get the report by asking them nicely.
With 20 billion to play for in the UK alone, there’s got to be a business opportunity there somewhere.
The end of the summer heralded the arrival of three management related documents on my desk, my review of the materials by
Forrester and CurrentAnalysis can be read here.The McKinsey Quarterly reader ‘Strategy for Volatile Times’ was the hardest to analyse since it had a selection of different areas that it focused on loosely bound by the title of ‘Strategy for Volatile Times’. It reminded me of a executive fortune cookie jar or the track listings of those ‘Now that’s what I call music’ compilations from the 1980’s.
I found the ‘Managing for improved corporate performance’ article by Lowell L Bryan and Ron Hulme most interesting. First they make the first assumption that ‘for a company to perform well’ (what I assume they mean by corporate performance) ‘Any definitions must revolve around the notion of results that meet or exceed the expectations of shareholders.’ Basically the thinking is defensive, about husbanding resources and defending the company’s existing position (value rather than growth). So don’t look for people who follow this credo to develop the next market killer like the iPod. With this in mind the authors tried to provide an engine for innovation within the company by recommending a regular review process called a ‘corporate performance council’ of senior executives to meet monthly to get the school reports on ongoing projects and filter out new ones for promotion. This is similar to the existing processes done already at large corporates such as Shell. It also stacks the dice against the geeks and boffins who hold the key to many of the ‘insanely great’ ideas.
Their model for corporate performance is what they call BASICS:
Build new businesses – (apparently focusing on your core competences is now out of fashion in management consultancy circles). Much of this approach could be construed to be more indicative of a growth focused company rather than value focused
Adapt the core – make sure that the core business keeps up changing times and keys into your new businesses as necessary
Shape the portfolio and ownership structure – actively manage the business of M&As, divestitures and financial restructures to maximise shareholder value
Keep an eye on crucial strategic functions
No, I don’t have a clue how they got BASICS out of that lot either. Secondly, is it me, or are the critical BASICS activities listed above the ones that would be like wasps round a jam pot for the big consultant firms like McKinsey?
In the 1970’s through to the present day the English Disease referred to the reputation of a small minority of football supporters from England with a penchant for violent behaviour, the likes of which has not been seen in the US since the Rodney King riots.Within the technology sector there is another English Disease, this has been touched upon by Mike King, managing director of Johnson King in this op-ed which ran in Tuesday’s FT Creative Business. I would argue that it merits as much if not more attention as the organised violence of English football hooligans as is gnaws away at the future prosperity of the UK.
This disease is a chronic lack of ambition and vision and manifests itself in different ways:
- Mike complains that British start-ups are reluctant to invest in marketing and PR to enhance their reputation and grow their business. They often do not recognise the value of it and even where they do, the pathetically low budget put into marketing is below the critical mass required to deliver results. There is a similar attitude whether the management team are novices or drawing down a serious package as an ‘experienced entrepreneur’. Yet the most respected businessman for these people would be Richard Branson; a modern-day Barnum who built his empire with large doses of shameless self-promotion. Mike owning a PR agency was particularly interested in this aspect of the equation! However this is only a small part of the picture.
- Funding is not forthcoming; venture capital in the technology sector is based on trying to achieve a ten-fold return on the money. UK start-ups have lower expectations of themselves, they do not share their American colleagues dreams of being the next Oracle, Apple, Microsoft or IBM. Consequently the technology business is trapped in a self reinforcing prophetic circle, a black hole with an expanding event horizon sucking away the vision and dreams. This in turn encourages the fund managers to husband their limited cash as much as they can by cutting back on ‘unnecessary expenditure’ on things like marketing and looking for an early exit strategy through acquisition or technology licencing agreements. It is not because the UK does not have the expertise and the smarts:
- US chip pioneer LSI Logic was founded by Wilf Corrigan, a Liverpool docker’s son made good
- Apple Computer’s sizzle is in large part to a product design team headed by Geordie designer Jonathan Ives who has designed every successful product from the original bondi blue iMac to the latest iPods
- Cambridge boffin Alan Turing was arguably the inventor of first programmable computer and laid down the defining test for true artificial intelligence
- LCDs: liquid crystals were invented in the UK, but made Japanese companies rich
The problem is that the disease is pervasive, it affects the value of houses, how much your future pension is going to be worth and what jobs the UK citizens of tomorrow are likely to have. The FTSE has underperformed US rivals for the past decade because it does not have its share of high-growth technology companies. Vodafone and mmO2 is just a seller of wireless services, just as much a merchant as supermarket chain Tesco, Lastminute.com is an e-tailer echoing the Napoleonic-era cliche of Britain as a nation of shopkeepers. ARM Holdings, the UK’s leading chip company, is a chip designer that can barely be described as a medium-sized enterprise. Software company Autonomy is noticable only for its lack of peers. Cambridge’s Silicon Fen is actually a laughable Silicon Sahara with precious few oasises.
With such a poor technology sector, money for investment sloshes around in management buyouts (with the intention of trying to squeeze more value out of mature businesses), a cash bloated property market and overseas where entrepreneurs generally have more vision. Thus setting the UK up for economic underachievement ad infinitum. Instead the UK will be an economy based on the export of a small amount of golf sweaters, rainwear, antiques and pre-prepared curry cooking sauces. It would be side splittingly funny if it wasn’t so tragic.
RTE programme Primetime carried a great introduction to a scandal in the UK and Ireland that mirrors the Savings and Loans scandal that gripped the US in the 1980’s. During the 1980’s, Savings and Loans companies (kind of equivalent to building societies in the UK and Ireland) bought complex financial products that they did not understand. Many of these blew up in their faces taking down their institutions, while the large banks such as Solomon Smith Barney and Goldman Sachs made fortunes of trading commissions, advice fees and various revenue opportunities from assembling these financial timebombs. Michael Lewis documented is process in his book Liars Poker.The same thing that happened to big money happened to individual homeowners in the UK and Ireland. People seeking a home loan were sold an interest only loan and a life policy that would pay off the principal and leave them allegedly with a bonus at the end. Much of the projections were over optimistic, the financial institutions got fat off transaction fees, commission, setting up charges and fund management fees. The first years endowment premiums on a 25-year loan went in fees, often the cost of the transactions were masked from the consumer.
Now financial institutions have had to write to consumers telling them how much of a shortfall they will owe at the end of their policy. In many casese it is alleged that the companies willingly missold the financial products to customers with data that ther actuaries knew to be false. This situation has also encouraged a breed of jackals who buy early surrender policies from distressed home owners and fund them through to completion in expectation of a more realistic return. The home owners have already taken a hit upfront on all fees associated with the endowment policy.
For those of you who have got a bit hot under the collar over all the swindling we have gone on about, I would recommend having a look at Akiyoshi Kitaoka’s photographs of Japan. They are absolutely stunning.
I went to my friend Jo’s wedding the other month and later wrote on this blog about The Gift Registry: a wedding present service that seemed like a good idea at the time. The high concept was that the site kept the wedding list online which could be compiled from items stocked by a number of good quality department stores. Guests bought the bride and groom gifts they wanted, the company delivered and the wedding was less hassle from a gift wrapping and carting the present to and from the venue point of view.
Today I received an email from the bride and groom that the business had gone bankrupt together with advice to get a refund from my credit card company.
In my phone call with Jo what surprised her was that a dot.com with a sensible business proposition could go under, we are so used to dot.com being part of the mainstream shopping experience now that many people tend to forget that in the late 1990s Amazon was making a five dollar loss on each shipment. A similarly good prospect was CD retailer Boxman.com, who purchased CDs from the cheapest legitimate suppliers across Europe, and distributed centrally from a warehouse in the Netherlands, they then passed on some of the savings to the customer. Boxman was let down in the operational department by poorly implemented software from IBM. Travel site and gift e-tailer lastminute.com improved dramatically with the appointment of retail management guru Alan Leighton as chairman. The moral is that even with a winning business idea, operations expertise and processes are critical.
Here is a link to an article on the demise of The Gift Registry from Accountancy Age.