This is the third installment in my series of blogs about the implications on sales of Tracey and Weirsma’s great book “The Wisdom of Market Leaders”. Last week we talked about companies who compete based upon “Product Leadership” (see below) and today we’re going to discuss those who compete on Organizational/Operational Excellence… from the sales perspective!
If you remember, your target market is smaller than you think because certain customers will want different things from their vendor. So, even though you may target “small to medium sized businesses with more than fifty knowledge workers in New England”, certain customers will want certain things from their vendor and other companies will want other things. You, as a vendor must decide upon which of these definitions of value you will compete, and thus organize yourself and run your business. As the authors so beautifully put it:
“If a company is going to achieve and sustain dominance, it must first decide where it will stake its claim in the marketplace and what kind of value it will offer its customers.”
The three types are:
- Companies who compete on “Customer Intimacy.” These companies appeal to those customers who look for “the whole product” and want a vendor who will understand their business and their needs. IBM and Nordstrom are such companies.
- Companies who compete on “Operational Excellence.” These companies appeal to those who look for the lowest total cost. Staples and Acer are such companies.
- Companies who compete on “Product Excellence.” These companies appeal to those who look for the latest and best products. Apple and Lexus are such companies.
So, what are the characteristics of companies who compete on operational excellence? Operational excellent companies focus on offering the lowest total cost. Sometimes that means the lowest product cost, but not always. For Wal-Mart it does mean lowest product cost, but for FedEx it means lowest total cost.
Customers and prospects sometimes differentiate between the tangible product cost and the intangible costs.
- Does your local 7-Eleven provide the lowest product cost? Hardly. But, when convenience is considered it many times can be the lowest total cost.
- Why does Toyota run ads touting the fact that their 98% of their cars sold in the last twenty years are still on the road?
- Why does Maytag advertise about the fact that their repairmen are lonely?
So, how does a company who competes on operational effectiveness operate? Well, for starters they are highly regimented and follow strict formulas. Everything that deviates from the norm adds friction to their operation and adds cost; and when cost is added they can no longer compete on total cost.
A few years ago I worked with the corporate division of Staples. Staples is a company that competes on operational efficiency. Their product costs are just a few percent more than the absolute lowest cost you can find anywhere, but, when you add in the ease of doing business with them they are certainly the lowest total cost provider.
I remember interviewing a bunch of their best corporate sales reps trying to determine their best practices. The best always said the same thing: “we are not sales people as much as we are logistics people. For our customers we make sure that they are never out of toner in their Wichita office. Although we are not the lowest absolute cost on that toner, the value we add to their operations is significant.”
So, from a sales perspective, here are some thoughts if you compete on operational excellence.
- Sales people must be very disciplined and trained to not deviate from standard practices.
- Qualifying is critical. You need to find the customers who want the lowest total cost and not the ones who want “one-off” stuff or who need hand-holding.
- Working in teams is essential. Sales people need to be interchangeable. Sometimes combination of inside and outside sales teams work well.
- Customer service behind the sales team needs to be flawless. Friction in the system in terms of dealing with returns and customer complaints is deadly.
- Never have sales! Variety in price is bad for business. You will train your customers to wait for price. Think Wal-Mart’s “Everyday Low Prices”.
- Sales people need to always be thinking about how to drive cost out of the system. Remember the Staples sales people who think of themselves as logistics experts as much as product experts.
As usual, I would appreciate hearing from you on your thoughts on this topic.