The Myth of Excellence

Excerpted from
The Myth of Excellence: Why Great Companies Never Try to Be the Best at Everything
By Fred Crawford, Ryan Mathews

In June 2001, when Crown Business released The Myth of Excellence, we thought we had come to the end of a long, sometimes frustrating, and often rewarding journey. Myth was the product of almost three years of writing, research, and field experience, and we assumed it would have its moment in the sun and move on. Happily, we were wrong. Its essential message - that human values have superceded commercial value as the primary currency of contemporary commerce - has been reinforced significantly. The tragic events of September 11th have caused the nation, and the world, to rethink what life is about and how perishable all institutions can be. The scandals that rocked former pillars of corporate respectability such as Global Crossing, Enron, WorldCom, and Arthur Andersen have underscored and deepened what we first diagnosed as a growing crisis of consumer confidence. The gulf separating the consumer from the enterprises that serve him has widened, not closed.

Some have argued that nothing is the same since September 11th. The actions of terrorists have stripped away our ability to even feign naivety. We have tested that hypothesis in the only way we know, by rerunning our original research in the wake of the attacks on the World Trade Center and the Pentagon. We found that our conclusions were still valid. In fact, the emphasis on human values was somewhat more marked in our post-September 11th research.

A general decline in the economy during the first years of the Bush Administration also seemed to strengthen our initial findings. Consumer confidence has consistently been down; stock prices have declined; layoffs are now far more commonplace; and, as we write this on the advent of the 2002 holiday season, most businesses are more bearish than bullish about the prospects of a near-term recovery, despite the kinds of discounting we generally associate with the post-, rather than the pre-, holiday period. This overall sense of economic insecurity is mirrored by the general population, many of whom have seen stock portfolios devalued and their 401(k) plans evaporate. If we had been desperate for security, connection, honesty, and values in a universe where we tried to buffer our needs with things, how much greater does our need become in a world where things are increasingly out of reach?

Since the initial publication of Myth, we have expanded our research globally. Research conducted with 6,000 consumers in nine European nations found no significant difference between the attitude of European shoppers and the values orientation we discovered among their U.S. peers. This came as a bit of a surprise. We had anticipated a significant difference between, say, the French and the Germans or, at the very least, a significant difference between European and American shopping attitudes. Yet, the number one responses in all five commercial attribute categories (access, experience, price, product, and service) were identical in Europe and America. Interestingly, in contrast to the conventional wisdom that European businesses generally command more consumer loyalty than their American peers, the majority of European consumers were hard-pressed to identify favorite stores in many retail channels. In fact, retailers in general proved fairly undifferentiated in the minds of their customers in terms of their value propositions.

Unlike the United States, however, demography seemed a bit more important in Europe. Throughout most of the nine countries, women were much more likely than men to rate the factors related to shopping satisfaction as extremely important, while younger consumers (15-34) were less apt to do so than older shoppers. This demographic variation hasn't been seen in the United States.

We also wanted to see if our theories could be extended to the realm of consumer goods and branding. Additional research, conducted in association with Chain Store Age magazine, identified an enormous gap between what consumers are looking for and what they believe branded manufacturers are delivering. For example, 83 percent of shoppers surveyed said they strongly agreed that it was important that the products they purchase perform according to advertised claims, and 75 percent said it was important that the advertised claims they see are true. Yet a mere 16 percent said they "believe that manufacturers' claims and communications about their products are generally true." These findings point to a gap in fundamental credibility and trust. This suggests that advertising, marketing, and merchandising strategies need to be immediately rethought. We may have simply oversaturated the market. The American Academy of Pediatrics has estimated that the average American child is exposed to more than 20,000 advertising messages a year, which may help explain why some people see technology such as TiVo and Replay TV as the tip of an ad-free future.

The study, which polled 7,000 consumers, discovered that when it comes to the basic attributes of a commercial transaction the communication gap we had previously uncovered between consumers and those selling them goods and services also separated consumers and manufacturers. Our research found that a products features and functions are no longer enough to capture the imagination - not to mention the wallet and loyalty - of today's demanding consumer and that consumers respond best to makers of consumer products that incorporate basic human values into their offerings. In addition, we found hard evidence that consumer-product companies that understand what consumers really want from brands have an opportunity to strengthen their competitive position, drive top-line and bottom-line growth, and build brand loyalty.

For years, most consumer-products manufacturers have relied almost entirely on the content of their products - that is, functionality, quality, usage information, lowest price - to build their brands. But this approach is no longer sufficient. As manufacturers look to differentiate their brands in a crowded marketplace with increasingly demanding consumers, they must move into territory foreign to many of them - the world of context, or the way in which they deliver their products. Context, which lies at the heart of what we call the Consumer Relevancy methodology, offers an entirely new approach for a consumer-products manufacturer to build and strengthen the relationship of its brands with consumers, drive growth and new product development, and improve its competitive position. It also provides manufacturers with an opportunity to equalize the balance of power between themselves and their retail partners.

This is especially important in light of today's channel-blurring phenomenon. Our research found clear evidence of consumers' indifference to the notion of "channels" as traditionally defined by the retail trade, a finding with significant ramifications for consumer-products companies. When consumers were asked, for instance, to name the department store in which they shopped most often, they were more likely to cite discounters such as Wal-Mart and Target than they were to point to traditional operators like Nordstrom, Filene's, Kaufmann's, Sears, or J.C. Penney.

And in the case of drugstores, consumers rated Wal-Mart more highly than traditional channel players such as Walgreens, CVS, Rite Aid, and Eckerd. Once manufacturers understand that consumers don't care where they buy a product they can begin to adopt new approaches that don't discriminate by channel, but rather by the type of consumer served and by the fit of the retailer's value proposition with that of their own brand. This might signal a move away from the notion that ubiquitous distribution is the best distribution and open the door to creating value through limiting distribution.

What is the functional difference between content and context in the consumer-products business? Here's how each applies to the five key attributes we describe in Myth. In the case of access, content focuses on retail distribution points, while context emphasizes consumer needs' satisfaction. The issue is not how easy it is to locate a place offering a good or service, but rather whether that location presents the offering in a way that resonates with the customer. The ability to modify context acts as a differentiator in a world where so many commercial offerings tend to appear to be commodities. After all, anyone can offer a Sony Walkman for sale, presumably at the same price.

But, despite the commodity-like nature of the personal electronics world, retailers still find ways to differentiate the shopping experience. When it comes to experience, content is about consumer use of a brand; context is about consumer identity with that brand. For price, content comes down to low list, while context is about consistent value. In the case of product, content focuses on features and functions, while context puts the emphasis on inspiration. And for service, content is all about reacting and responding uniformly; context focuses on a proactive and customized approach. While content is the basis of all commerce, context gives manufacturers a competitive edge they can leverage to build their brands.

Since consumers rarely deal directly with manufacturers - except possibly to rectify a performance problem after purchase - their insights regarding brands, as we uncovered in our research are particularly instructive. The strength of their answers comes through in the consistently high scores for basic human values people expect from the makers of consumer products. The critical role played by values is among the key principles forming the foundation of Consumer Relevancy. Our research makes it clear that consumers will respond to and reward consumer-products companies that offer reinforcement of values such as trust, honesty, respect, dignity, and fairness.

Consumers are looking for products that are inspirational, empowering and that reinforce or improve their self-image. Manufacturers, on the other hand, are still by and large lost in the land of efficacy. Responding to a list of 44 statements about products, consumers rated matters of respect, trust, honest pricing, easy communications, performance-as-promised and responsive service at the head of the list. Following were the top responses to the consumer products survey:

• It's important that a manufacturer's service representative treats me with respect (84 percent said they "strongly agree").

• It's important that the products I purchase perform according to advertised claims (83 percent).

• It's important to me that products are priced honestly, consistently, and are not artificially increased (80 percent).

• When I call a manufacturer, it's important that I am quickly put in touch with a person (77 percent).

• It's important to me that the ad claims I see are true (75 percent).

• It's important to me that I can trust the manufacturers from whom I buy products (74 percent).

In short, the case for human values we made when Myth was first released has never been stronger or more broadly applicable to all businesses. As Irish Senator Feargal Quinn, Founder of the Superquinn grocery chain profiled in Chapter 4, told us this year when we asked him how his company was doing, "We are as committed as ever to the belief that in a competitive market, the customer becomes even more important. Customer service at Superquinn is the bedrock of our continued success and even more so when the economy faces the challenge of a possible downturn." Feargal Quinn is not alone. In the months following the initial publication of Myth, Record Time, the two-unit independent music retailer profiled in Chapter 6, has seen its largest regional-chain competitor close its doors while Record Time survives through rededication to keeping faith with the consumer. Since Myth first appeared in 2001, its principles have been adopted in full or in part by organizations as diverse as FedEx, Borders, Best Buy, and the Christian Booksellers Association.

As with any book, buyers have a right to know why they should read it. Our answer: In good economic times, the material these pages contain was helpful for businesses targeting growth; today, as companies battle daily for survival, it's nothing short of imperative. If you are rereading Myth, we urge you to do so with a new mindset. If you've picked it up for the first time, we suggest you read it with a sense of urgency. The need for businesses to address fundamental human values has never been more pronounced.

Fred Crawford
New York

Ryan Mathews
Detroit

"It's not what you don't know that hurts you, it's what you know that ain't so."

- Mark Twain

Mark Twain couldn't have been more right, especially when it comes to modern business strategy and execution. Over the past three years, we've conducted research that jolted us out of our personal smug assumptions about the nature of business. What we "knew" about business was keeping us from seeing the changing realities of commerce. Perhaps like you, we had ample reason to believe that we had a handle on the nature of business, a deep understanding of what customers wanted from the companies that served them, and a better than average insight into what makes commerce tick. We believed that when customers talked about price, they naturally meant they wanted the lowest price available. We were wrong. We also believed that - given a choice - customers would naturally always prefer the highest product quality. Again, we were wrong. And, perhaps most significant of all, we believed that all businesses should strive to be the best they can be at everything they do. Frankly, we discovered we couldn't have been more wrong about this, and we hope our experience sets off some alarm bells in your head.

What we discovered was that, across the globe and across all industries, businesses are spending billions of dollars sending poorly aimed - and in some cases offensive - messages to their customers and leaving literally billions more on the table each day. Instead of talking to customers in a language they can understand and find meaningful, most businesses are actually demonstrating - through advertising, marketing, merchandising, product assortment and selection, transactional terms, and service levels - that they don't respect or even know whom they are doing business with. To paraphrase the G. B. Shaw aphorism about the British and the Americans, businesses and customers are increasingly separated by a common language. The words used by both are the same, but the meanings are entirely different.

Companies large and small are offering customers everything except what those customers really want. Every business day, thousands of businesses spend millions of dollars on focus groups, surveys, and processing call-center reports, all to limited avail. In almost every trade sector, all businesses - including market leaders - live in the shadow of unforeseen competitive threats. Just consider how many load businesses, from supermarkets and sporting-goods stores to jewelry and hardware stores, spent years confident that they knew their customers and what those customers valued. Imagine how comfortable they felt and how secure they thought their businesses were, until Wal-Mart opened up in their towns and - armed with a superior understanding of customers and what they wanted - summarily put them out of business. Or imagine how confident IBM and, yes, even Xerox were that they understood the needs of the computer user, until their market dominance was usurped by "upstarts" such as Microsoft, Dell, Gateway, and Apple. Think about how Apple itself fell prey to the same trap. The bottom line: Global business - and perhaps more important to you, your business - is inexorably, and unknowingly, marching toward a crisis point.

The bad news: Today's market leaders across all commercial sectors are in jeopardy. We are poised on the brink of a customer revolution, a revolution whose demands could not be more clearly articulated: Recognize and respect me as an individual and start doing business my way. The good news: Not only can the worst-case scenario be prevented, but also companies that pay attention to the lessons we've learned can avoid disaster and take advantage of an unprecedented growth opportunity.

It's true that the demand for new business practices is edging many businesses close to crisis, but it's also true that in a world of increasingly ubiquitous product quality, increasingly similar market offerings, standardized service levels, and relatively normalized if not standardized pricing, companies that crack the customer code and break from traditional business practices stand to gain disproportionate advantage over their competition. Our mission in The Myth of Excellence is both to describe the parameters of the threat to your business as well as map out a plan for your future success.

No matter how robust or poor the economy appears, and no matter how much sales and profits increase or decrease, commercial prosperity bears a frightening resemblance to a house of cards, because customers are deeply resentful and personally dissatisfied with their commercial experiences. For the first time in history, businesses are being asked to do something other than engage in commerce. Customers increasingly frustrated with the experience of their lives want reinforcement of personal - not just commercial - values. The terms of commercial engagement have changed, and changed forever; businesses that don't find ways to engage on the new terms will fail.

As a result of misunderstanding what customers really want and how best to serve those wants, even the world's most successful businesses have bought into what we have termed the myth of excellence - the false belief that a company ought to try to be good at everything it does. Misdiagnose the problem and you almost inevitably misdiagnose the solution. Because businesses focus on increasing transactional value rather than nurturing sustaining relationships, and increasing the value of a transaction rather than worrying about the values surrounding the transaction, they almost intuitively adopt strategies aimed at becoming the best at every aspect of a transaction, an approach that leads to a lack of enterprise focus, which in turns confuses and alienates customers.

We interviewed dozens of world-class business leaders, and time after time we heard how their companies offered customers the highest-quality products at the lowest prices, providing the easiest access to sales environments that were fun and characterized by the best service available. They had spent literal fortunes customizing their products and services based on what they "heard" their customers saying, but they consistently failed to "listen" to what those same customers were really saying. When we talked to their customers, we were told a much different story.

We heard CEOs boast of how well they customized their products and services against target markets only to watch their sales slide over the next few months. We interviewed companies in the course of researching this book that went bankrupt before the final draft was completed.