I recently sat in the boardroom of a client and discussed a familiar topic when discussing strategy, the ultimate goal of a business.
As those of you who know me will know I love quotes that seem to me to sum up the essence of an issue and make concepts easy to explain (what Paul Godwin calls my trite consultancy clichés!) so I trotted out the Sir John Egan quote. “The fundamental aim of a business is to make money by giving customers excellent products and service”. Half in jest the FD a chap whose opinions are sound and worthy of respect said No!, the aim of a business was to make money full stop and if you had to do that by giving excellent products and services then that was they way you did it. I challenged that concept and asked him to tell me then a business that made money sustainably and didn’t give clients excellent products and service. Immediately another senior member of the management team also a ‘sound chap’ proposed Ryanair.
I must confess to being somewhat stumped by this as I too have travelled Ryanair and been herded like ‘self loading cargo’ onto the plane to be jammed in with the shellsuits and subjected to the hard sell for food/drink/bingo cards/fake cigarettes for 2 hours.
This kept me awake! How could a business that treated it’s passengers so differently to say Cathay Pacific (the stewardesses alone make the fare worth paying!) be giving customers excellent products and service? There was no denying it makes money, in fact it’s one of a very few who continue to make money despite high fuel costs and the depression (sorry recession). Was my whole philosophy wrong? More serious was Sir John Egan wrong? After all he built one of the most successful businesses this country has seen (before he let Jaguar go and it arguably went somewhat ‘pear shaped’) and a brand that endures worldwide?
Not much keeps me awake! But how could this be…. And then it struck me Ryanair does give customers exactly what they want. Would I fly Ryanair again? Would I recommend it to a friend? yes of course I would! It takes me where I want to go on time, reliably and at the lowest possible cost. It delivers exactly what I buy. Excellent products and service for this business model does not mean pretty stewardesses and big seats, it doesn’t mean free booze and executive lounges. For Ryanir’s customers excellent products and services means cheap travel and no frills. Sure we could argue staff could take a bit more time with you but then consider they turn the planes round in less time than it takes you to clean the car and they are at the limit of the lowest staffing levels (lowest cost) then ok that’s the way to deliver the model and I’ll accept it.
So what’s the point …. Other than the fact I can now sleep again! Well at the recent Glasstalk event I was expecting Paul Godwin to ask what he thought would be a very difficult question and what I thought was very easy one ‘if I was starting in fabrication which system company would I choose?’, that ‘Gerald Ratner’ question for a business like MBA that deals with more than one system supplier. The answer however is easy, the one which one would help me make most money!
So what then are excellent products and service for a system company? Bits of white plastic? Yes in part but that isn’t the product, giving their customers the ability to make money with those bits of white plastic is the issue, that’s the true product and service.
System companies rely for their survival on having the best fabricators and installers as customers and giving them a competitive advantage. Increasingly it seems this is less about product (innovation gets copied even quicker than ever) or price (cheap profile does not equal a cheap window in a property) than about helping their ‘Team’ of customers win. Are we about to see the era of the truly customer orientated system company? Or will we see the system companies take control of the downstream and cut out the fabricator/installer customer? Or will they, worst case simply amalgamate and reduce capacity and go back to the era of the ‘hostage’ customer? No change it seems to me is the only thing that won’t happen.
© Chris Ball November 2009/August 2106