Discuss the six errors companies have committed in their efforts to change. Are some of these errors taking place in your companies? How could they be corrected?Based on the information in the book, what do you think businesses should do to be successful? Justify your response with information we have studied in this course.Mistake #1: Laying Off Only Lower-Level Support Staff. *Personnel decisions are made by senior and middle management —who, of course, are not going to choose themselves for outplacement. As a result, the company ends up with many chiefs and not enough Indians. Six-figure executives spend their time typing, photocopying, and faxing when they should be meeting with customers and planning strategies. Executives should prioritize entire programs, products, and markets based on their profitability and opportunity. Maintaining or even increasing the number of support staff and expanding their responsibilities makes more time available to executives to develop the business. Leave the more routine tasks to those who are best trained (and appropriately paid) to perform them. Mistake #2: Seeing the Future as an Extension of the Past. *During times of marketplace turmoil and uncertainty, some companies focus on those programs, strategies, and attitudes that worked well in the past. This provides a level of organizational comfort and eases the tensions associated with change. However, sticking to what has always worked well may, in fact, be perpetuating approaches that are no longer valid as a result of new market conditions. There should be no sacred cows when the company underachieves. Reexamine and reprioritize all of the company’s operations and activities. Mistake # 3: Not Recycling Past Ideas That Merit Current Consideration. *Whether an idea is profitable or not depends on both the timing of its implementation and the management support it receives. Something that did not work seven years ago may have considerable merit now. The market may need some products and services today that it did not need in the past. List, explore, and give consideration to all ideas. With input from everyone concerned, make a list of all possible courses of action. Some resurrected fundamentals or past failures may in fact save the day. Imagine a company deciding in 2001 that selling on the Internet was not a good idea—and being unwilling to reconsider the decision in 2015. For example, certain large bulky products are not conducive to Internet sales. But the sales can be made through the website with the actual delivery made to the store for customer pickup or delivery. Home Depot has mastered this. Car dealers are not far behind in their progress.Mistake # 4: Reducing Price Rather Than Adding Value. *Giving the customer a price discount may result in a sale. It can also encourage the customer either to expect further discounts in the future or to ask, “If you can afford to reduce the price now, does that mean that you were gouging me in the past? ” Your objective is to create a loyal market, not merely to make a sale. Pressures to reduce the price are lessened when you add value to the sale. Value-added features could include: Faster delivery Higher quality Educating customers on product applications User conferences Focus groups for product improvement Improved customer service These activities enhance your competitive position. Remember: Getting a new customer is very difficult. Keeping an existing customer happy is a great challenge. Getting back a customer that you have already lost is almost impossible. Mistake # 5: Ignoring the 80/20 Rule. *You need to realize that 20 percent of your customers provide 80 percent of your revenue, and 20 percent of your products result in 80 percent of your shipments. Less positively, 20 percent of your employees account for 80 percent of your absenteeism, and 20 percent of your customers are responsible for 80 percent of your overdue accounts receivable. Companies confuse activity with productivity and productivity with effectiveness. They try to be all things to all people. Every order receives fanatical attention from exhausted, overworked people who hope and believe that if they can just work harder, things will improve. Focus your energies on the activities that are most important. The least important 80 percent of all corporate activity results in only 20 percent of the percent. Intelligent corporate prioritizing and time management ensures that the most important work gets done. Achievement = Productivity = Effectiveness = Profitability Mistake # 6: Holding Onto Sacred Cows. *The entire business should be evaluated periodically, perhaps at budget time. Is each of the product lines and markets still providing its expected contribution? Is any product line or market consuming an inordinate share of corporate resources, beyond what is justified by present and expected future performance? What other, more profitable ventures can be implemented with underproductive resources? Should we really be in this business? Target is a company that held on to a “sacred cow” for too many years at a cost of billions. It entered the Canadian retail market by opening many stores, almost at once, and by buying an unsuccessful retail chain with over 100 locations. These decisions left it with a very high fixed-cost obligation and forced huge capital outlays before it knew whether Canadian shoppers needed Target at all. To cut their losses and close these stores required that the CEO acknowledge the mistakes, which he refused to do. His initial decision was his sacred cow. The company even forecast that they would need five more years of massive losses just to break even and it was clear that a successful, profitable future beyond those years was not assured. A new CEO was brought into Target in 2014; he closed all of the Canadian stores and got rid of the management team that had cost them billions of dollars with this terrible strategy. Understand that there is nothing inherently wrong with Target having contemplated a Canadian market entry. Nordstrom, for example, entered the Canadian retail market with two stores and is doing quite well with minimal capital outlay. The problem with Target was the execution, not the goal—compounded by refusing to rethink their proposition even after it was clear that it was a disaster. A company that had no sacred cows, GE Capital was the seventh largest financial institution in the country when the 2008 financial crisis hit. It represented 40 percent of GE’s business at that time. GE will essentially be a pure industrial company by 2018, selling off almost all of its financial businesses by that time. Mistake # 7: Relying on a Dominant Customer. *Sometimes a highly valued customer becomes too big a part of our business portfolio. This is exciting but also very dangerous. A dominant customer can disappear on no notice. They can become arrogant and dictate onerous terms including lower price and shortened delivery terms. Qualcomm lost Apple as its largest customer and is taking a long time to recover. Never let a customer represent more than 10 percent of your business, unless you have long-term contracts with provisions for lengthy cancellation notice. In the 1980s Sears was notorious for imposing itself on its smaller vendors, extracting severe price and other concessions until the vendors became financially distressed—and worse. Sears has been among the worst financial performers of all retail chains in the 10-year time frame ending in 2016. Home Depot and Lowe’s now own the business.
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