October 12, 2004

Excerpts: Hardball - Part III

By: 800-CEO-READ @ 4:43 PM – Filed under: Management & Workplace Culture

Once the scouting team has identified a few anomalies and analyzed them, the next step is to distinguish between those anomalies that signal a potential business opportunity from those that are one-time events or have no potential for wider application. The key is to examine the pattern of unusual performance over time. The customers who consistently buy high volumes or the market that outperforms the average year after year are, by definition, not random. Is there an underlying cause that can be identified and then replicated elsewhere?
Here are a few examples of the types of anomalies that might catch the eye of a scouting team:
  • Medeco, a manufacturer of high-security locks, has average sales per household in major Canadian cities that are twice the average of its sales per household in the United States, even though Canadian cities are generally safer than those in the United States. Why? What drives those sales in Canada?
  • MEC, a consumer electronics brand, is considered a commodity in Japan, where their products sell at a discount to Sony and Matsushita. In the United States, MEC products sell at a premium through specialty retailers. Why?
  • Steetley Industrial Distributors has a branch in Oshawa, Ontario, whose gross margins are the lowest of all Steetleys branches, but the branchs sales per employee and return on investment are the highest. Why?
  • Mitsubishi Heavy Industry (MHI) often competes against Combustion Engineering for contracts to design and build steam boilers for electric utilities. MHIs win rate is on the rise. They, unlike all the other competitors in the industry, start the design work before they have even won the contract. Is that why they win so often?

Finally, the team needs to understand the precise mechanisms that animate the anomalies they have identified. Exactly what is causing the unusual pattern of performance? What specific features of the product, or the local environment, or the customer experience or operations are bringing it about? Dont accept the usual, too-easy, off-the-top-of the-head explanations. Its not enough to know, for example, that a particular customer has been loyal for years; you need to know precisely why. (If Radt had accepted that the Chicago merchants had a special relationship with the Brokaw rep, he would not have discovered the real cause of the sales anomaly.) This requires the analysis of internal data and of customer data as well, and may require field interviews with customers, and with their customers.
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.