October 11, 2004

Excerpts: Hardball - Part II

By: 800-CEO-READ @ 7:17 PM – Filed under: Management & Workplace Culture

Brokaws growth strategy was based on an insight about their anomalously large market share in Chicago. Such anomalies exist in all businesses, but you are more likely to find them in businesses that are characterized by high complexitythose that have a diverse customer base with many segments, defined by volume, product variety, and customer type. The more diverse your customer base, the more likely it is that the standard process cannot be forced to fit all possibilities and that one or more customers will present an anomaly. The diverse base, however, will also make it more difficult for management to see the anomaly, because so much information is available. There may be many inconsistencies and aberrations, and it will be impossible to investigate all of them. Diversity will be further increased if you have multiple layers of distributionselling through wholesalers and retailers, chains and independents, online and through catalogs. Multiple levels of distribution increase the number of customers and make it more difficult to identify the nonstandard behaviors that have potential for exploitation.
Mature businesses, complex or not, are also fertile breeding grounds for anomalies. Companies in mature business are often set in their ways, resistant to change, and have become prisoners of existing customer relationships. They have become expert at ignoring or dismissing anomalies and, if they see one, might be unable to exploit it or respond if a competitor did so first. Sometimes you get lucky and stumble across a useful anomaly, but hardball companies go looking for them in an organized way. This is best accomplished by a team whose task is to look for anomalies, analyze their causes, estimate the profit potential they represent, and come up with recommendations for exploiting them. The team should be composed of people from finance, business development, marketing, sales, and operations. They should be given eight weeks or so to identify two or three interesting anomalies. Their specific tasks include:
  • Assess the companys productivity across many parameters,(e.g., sales and margin per employee, territory, account, product,service).
  • Investigate the practices and activities ofthe various players in the business: distributors, sales reps, territories, and service techs.
  • Develop histograms (bar graphs showing classes and frequencies) of productivity of revenue, cost, and profit drivers.
  • Identify and investigate the outliers, such as the customers who buy or sell a great deal more or less than the average. What is their story?
  • Spew out ideas about the strategic opportunities that might be embedded in these anomalies.

Reprinted by permission of Harvard Business School Press. Excerpted from Hardball by George Stalk and Rob Lachenauer. Copyright (c) 2004 by The Boston Consulting Group; All Rights Reserved.