Growth doesn’t elude those who connect to customers

Jeff Bezos and anyone else holding Amazon stock must be pretty happy this past week after seeing the stock shoot up 15 % as the last quarter revenue was up 34%.  Grwoth and performance are the cats’s meow in capital markets!  But Amazon is afterall just an internet company, right?  Steve Henn of NPR interviewed Ben Rose, president of Battle Road Research who offered a little perspective. 

 while Amazon made $190 million dollars in profits last quarter – McDonald’s, which is now worth less on the stock market, earned more than 1.2 billion. .. the reason so many investors are excited about Amazon is that it is growing – fast.

 

Fast growth means a lot to the street, investors as well as senior managegment.  The double hockey stick, or ability to repeat performance over time before hitting the point of stagnation sounds precisely in keeping with our expectation of CEOs and yet their inability to knock them out of the park consistently puts Bezos into a very exclusive class.  

The difference in earnings for  Amazon and McDonalds illustrate that there’s a lot more to the picture. Rapid growth requires more than stepped up demand, but an ability to also step up quality, supply and  delivery efficiency, generate positive experiences while sustaining your reputation increasingly matters.  

For years, McDonald’s strategy for growth emphasized opening more restaurants to reach more customers. The problem was that as the efficiencies from scale began to stagnate , flattening the upward  trajectory of the growth curve.  As masters of scale and efficiency and even quality, the price advantage certainly helped them during the recession but by their own standards of success they recognized they needed to do more.  They turned to their innovation team and began to set in motion a series of tests that not only allowed them to upp sales per customer but returned their growth rates to an upward trajectory.  Design helped them completely shift their thinking and relinquish some of the central control and dictates allowing the individual outlets flexibility to satisfy the local tastes and prefrences from menu items to the restaurant design itself. 

 

The shift from central to decentralized control  is not merely the return of the pendulum swing. 

 John Kotter, writing for Forbes,  observing the ever-increasing rate of change and the inability of many organizations to thrive, also observed that static management principles stymie timely transformations.  What stops organizations from adapting or flexibly responding to the larger dynamics at work in the market?  

20th-century, capital “H” Hierarchy (a sort of hardware) and the managerial processes that run on it (a sort of software) do not handle transformation well.

I read this comment and immediately began to understand something I had failed to grasp.  It’s easy as an outsider to recognize and empathize with the challenges of an organization whose leadership voice the words and know deeply they they need some of that innovation. I thought it was thier lack of vision, or their inability to appreciate and value the customer experience or a series of solutions that have been echoed in innovation circles by business strategy, design thinking  and change management professionals.  What I missed was a lesson I had learned and quickly forgotten because it was a painful chapter when I worked for Fortune 50 banks and found myslef the change agent.  Most managemetn teams are responsive up the chain, and in my experience the marching orders they followed were reinforced with clear rewards for delivering performance. 

Getting to the C Suite requires making all the right moves, delivering the results that were expected and that’s the system you know. The trend to outsource was an innovation to cost reductions and creating efficienciey when what mattered was being lean and oil was bad for your diet.  Consumers adapted becasue they never did know the difference between a local company paid customer service rep who spoke english and seemed to know the score and one paid by an outsource firm and could repeat the tasks for multiple companies.  

The price for that efficiency is the loss of control, the ability to truly be agile, nimble and responsive to shifts in the market. You may have surrendered to the forces that Joe Pine describes commodotized your business, swapping out tasks to experts while stepping up the your investment in the new new thing.  

The entrepreneurs who are running circles around the larger providers can do it becasue either they control every inch of their value chain, or the are able to begin by leveraging technology that is fully integrated, seamless and allows for transparency across the system. 

Its unclear how long Amazon will be able to keep up their growth rates by challenging new business sectors failing to make the transition.  Revisiting your structure and decision-making hierarchy certainly helps ….

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2 thoughts on “Growth doesn’t elude those who connect to customers

  1. Rachel,

    Your insight that organizations are somewhat trapped by their own success is a theme that rings true to me in my observations.

    As far as ramping up the organization to handle growth, I ran across a great term on some of the VC blogs: scale. In their case, that is one of the critical due diligence questions “does the business model scale?”

    Thanks!

    • Dave
      as usual your input is a welcome addition! Interestingly, the wider principles or expanding growth need to go past scale, to address issues of sustainability and depending on the marketplace affordability. That said, scale is what literally transforms an idea into a business proposition, right? In a world dedicated to mass consumption, scale is very high on the priority list. The resource demands to deliver growth however have led many enterprises into an odd paradox, one in which their value is an expression of a more complex function. Stay tuned for another post, which might also appear on the framestretching.com site, my blog that focuses more thoughts influenced by design thinking.

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