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Thursday, February 15, 2020

Do you recognize today’s biggest business killer?

Audit mentality puts efficiency first, but innovation is what sells


Today’s standard responses business issues are limited and uninspiring, even as we stand in serious need of a steady flow of creative ideas and fresh innovations just to keep our high-tech, high-earning, and high-expenditure lifestyles in place—let alone to add still greater prosperity for more people. Cost cutting, increasing working hours, and driving employees harder and harder are all based on doing what you do today more cheaply and efficiently. But what if doing what you’re doing now, only better, isn’t enough? What is you need to offer the world something altogether new? No one ever stimulated creativity by staying longer at the office, cutting benefits, or driving people to the edge of exhaustion and beyond. If the audit mentality takes over, the future will be bleak.

Many of today’s businesses are too focused on the present and the past. Their futures are extremely short-term, usually bounded by the next reporting cycle and Wall Street’s immediate expectations. They talk about change and innovation, yet act almost entirely on making current activities less costly. It’s a kind of corporate schizophrenia: one personality jabbers away about taking on global competition through innovation and new technology; the other—the one actually in charge—assumes that the only way to succeed is by doing what is being done already, only more cheaply.

Today I read that DaimlerChrysler will cut 13,000 jobs in an attempt to return to profitability. Their sales have fallen drastically and they are running out of money. Why has this happened? Because, like the rest of Detroit’s automakers, they bet the farm on huge, gas-guzzling SUVs. Now, like their competitors in that market, the only way out seems to be to cut back hard and hope for the best.

But, wait a moment. Their product line isn’t selling and they are losing market share. How will drastic cutbacks address those issues? It may buy them time before Chapter 11 bankruptcy is the only alternative, but surely what they need most is a new, more attractive, more innovative product line?

If Americans are buying from foreign car manufacturers like never before, especially brands like Toyota, becoming more efficient as manufacturers will only help after you have a product line that more people want to buy.

That’s the wrong way around, it seems to me. Toyota aren’t successful just because they’re more efficient. First and foremost, they have products that people want to buy.

That’s the wrong way around, it seems to me. Toyota aren’t successful just because they’re more efficient. First and foremost, they have products that people want to buy. Then—and only then—they work to produce those products as effectively as they can. Can you buy an MP3 player more cheaply than the cost of an iPod? Sure. So why do Apple sell so many iPods?

The audit mentality in many companies is hopelessly inward looking. It sees only costs, efficiencies, and margins. Of course, the consumer has no interest in any of these. Unless you operate in a commodity market where every version of a product is identical, save in price, people don’t buy the cheapest product, whatever economists claim. They certainly don’t buy the one that yields the highest return to its producer. They buy what they like most, what will win them the admiration of their friends, what provides the most features that they want (not the ones the technical geeks get most excited about), and what will make them feel good about their purchase.

People want what they want—and then they want to get it at a good price. Low cost comes after desire, not before. It’s not what drives sales.

Efficiency is nowhere on this list. Nor is price. Of course, some people like to boast about getting a bargain, but few, if any, will buy what they don’t want, just because the price is good. They want what they want—and then they want to get it at a good price. Low cost comes after desire, not before. It’s not what drives sales. The corporation that can produce desirable, exciting products first—then do so in a way that prices them competitively and yields a good margin second—is the one that is going to dominate the market.

In any business, you need first of all to have a product or service that people want to buy. Then, and only then, you need to be able to provide it in a way that renders you a good profit. Today’s conventional approaches to management have it the wrong way around. That’s why we see once proud corporations reduced to survival mode: they concentrated on being the “lowest cost producer” and ignored what they were producing.

Creativity needs time, relaxation, the willingness to take risks, and the long-term vision to see something from concept to reality. When corporations truly take risks in the cause of producing ever more innovative and exciting products, no one begrudges them the profits needed to support that endeavor. We all benefit. When those same corporations try to drive up profits by scrimping and cutting back, stifling innovation and damping down every avoidable risk, with the intention primarily of rewarding financial institutions and top executives, almost any profit they make appears self-serving and excessive.

Business is risky. Investment in the future is never certain. The pay-off may take many years. But capitalism, as a system, exists precisely to provide the money businesses need to take those risks, hopefully to increase everyone’s prosperity and the range of goods and services available in the market. It is not there to wring the last few dollars from dying products to enrich a few, while allowing those with more imagination, a longer-term focus, and less obsessive interest in short-term share-price movements to take over the market.

Get together an offering that excites people. Then, when it’s out there and selling, focus just enough on keeping down the costs to maintain a solid margin.

Slow down. Take the time needed to be creative. Drive innovation, not still more stress. Get together an offering that excites people. Then, when it’s out there and selling, focus just enough on keeping down the costs to maintain a solid margin. But, whatever you do, never allow concern with efficiency to limit creative thinking about the next new thing.

The past is gone; whatever money you made then cannot be changed. The present is fleeting; it’s usually too late to change what you’re already doing, good or bad. The future is wide open; only there can change alter how things will happen. The audit mentality is a business killer. Have nothing to do with it, or it will slowly choke the life out of whatever future is open to you.


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Comments:
There is a lot of energy in this post and I must say that when I work with an organisation who is focussed on driving down costs, the competition becomes and internal affair. Parts of the same company squabble and "steal" savings from one another, and morale spirals down. This is definately not an environment where innovation and creativity can thrive.

The minute companies drive month to month results by cost reduction, is the moment growth dies.
 
Thanks for your comment, Bill. I couldn't agree with you more.

I noticed an article in today's New York Times that says much the same thing: business success is about having the best products and the best service and quality, not the lowest costs.

If the only way you can "make the numbers" is by continual cost reductions, you're already on a spiral downwards towards a very finite ending.

Keep reading, my friend.

 
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