In Turnaround Time: Ways to Jump Out of a Slump, Mark Gottfredson and Steve Schaubert wrote a remarkably perceptive article that outlined a clear and simple process for navigating your way out of a downturn:
- Diagnose the “Point of Departure”, or where your business went wrong
- Identify the “Point of Arrival”, or where your business needs to be at the end of a period of time to be successful again
- Define a small number of key initiatives that will sequentially get you from the “point of departure” to the “point of arrival”
Ok, maybe it’s not so simple as many business have a hard time identifying, at least internally, where they went wrong, have a harder time figuring out what will make them successful, and often have the hardest time of all identifying that sequence of innovative initiatives that will take them from here to there. However, the article does note that when businesses start to fail for performance reasons, the vast majority of the time it is because they violate one of the following four fundamental laws that, despite not being built on an economic theory, do capture, in an almost eery way, some fundamental truths of business:
- Costs and Prices ALWAYS Decline
It is a basic law that inflation-adjusted costs and prices in nearly every competitive industry decline over time. Raw material costs going up? Then you have to find an innovative method of production to keep costs done, or a way to make the product from an alternative, cheaper, material, or a way to make a higher quality product that carries more (perceived) intrinsic value. (Successful cell phone manufacturers live and die by the latter.)
- Competitive Position Determines Your Options
Leaders are always in a good position to gain more market share through investment or to raise industry standards in quality, service, and innovation. Followers are stuck with doing their best to keep up until they hit upon an aggressive innovation strategy that can move them into a leadership position.
- Customers and Profit Pools DON’T Stand Still
The desires of your customers will change over time, as will the amount of disposable income they have. You need to know what your most profitable customer segment is and meet their needs.
- Simplicity gets Results
In addition to simplifying your processes, you must also simplify your strategy, organization, breadth of product line, and, most important, usability. Apple understands this well.
The authors also give you a good working definition of “point of arrival”. Specifically, it means a set of defined, numerically specific goals that can be accomplished in just two or three years. In other words, don’t shoot for the moon if you haven’t even successfully launched a rocket into space yet. Although the goals should be bold and compelling, they must be realistic. No amount of motivational speaking will get your employees behind something they know is fundamentally impossible.
Finally, they give you some advice on how to select the right initiatives to get you there. Specifically, select ones with measurable metrics that address the following characteristics of the four laws:
- Law 1: Costs and Prices Always Decline
- Cost/Price Experience Curve
- Relative Cost Position
- Product-Line Profitability
- Law 2: Competitive Position Determines Your Options
- Market Share Trends
- Capability Assets and Gaps
- Law 3: Customers and Profit Pools Don’t Stand Still
- Customer Segments and Trends
- Customer Loyalty
- Profit Pool Migrations
- Law 4: Simplicity Gets Results
- Product & Service Complexity
- Organizational & Decision Making Complexity
- Process Complexity