Warren Buffett once said: “In the business world, the rear view mirror is always clearer than the windshield.”
Recently, working with a company that supplies equipment to the construction industry, the challenge of looking forward surfaced as the executive team tried to determine the actions they should take to drive growth and sustain their profit margins. One of the concerns that they voiced focused upon the likely entry of new foreign competitors, both from other developed markets and from the emerging economies.
As one executive from this firm stated, “It’s not that we’re afraid of competition, but the last thing we need coming out of the recession that has gripped our industry is getting involved in a vicious cycle of price-based competition, one that will erode margins and thwart our plans for investment.”
The concern about foreign competition is not in any way a new one, but it remains a very real one. European businesses, recognizing the weakness in their home markets, are shifting attention to opportunities in the stronger economies of North America.
And in almost every industry, increasingly competent manufacturing firms from countries like China are bringing to market almost-as-good products at a great price point. There are good and plentiful reasons to worry about competitive threats.
The firm debating the challenge of new foreign competitors had developed a long roster of options through which they might address it. Some involved reductions in spending on services and sales support, directly and through their distributor network. Others involved product changes – mostly cutbacks – that would enable them to respond to pricing pressures without driving margins into the ground. Still other options involved spending reductions relating to product development and plant modernization that might help in the short term, albeit with adverse consequences in the future.
Shift in Attention
For this firm, some very important insights emerged from shifting their attention from the windshield to the rear view mirror. They engaged in a systematic process of asking their customers some important and provocative questions: What are we doing right and what are we doing wrong?; what matters most to you, in terms of the value we provide you as a supplier?; and what can we do to remain a strategic supplier in the future?
The messages that they heard from customers surprised the leadership team. They heard that their customers were well aware of comparable competing products from the foreign suppliers that they were worried about, and even heard statements of the form “Today, basically all of the manufacturers, here and abroad, offer look-alike products, all at good quality, all with pretty much the same feature set.”
The offset to that somewhat discouraging message was that customer after customer spoke about the importance of the services with which this firm surrounded its products.
“We rely on your training and technical documentation.”
“We know we can turn to your application engineers when we get into a fix.”
And they heard messages about the importance of being easy to do business with.
“Your sales support is efficient and we get the answers we want quickly and painlessly.”
“No one else provides the on-site support that we get from you and your distributors.”
The value that this firm was creating for its customers extended far beyond the quality of its products. Looking into the rear view mirror provided a roadmap for moving forward for this firm.
Reading the Roadmap
I draw two important lessons from this case history. First, while competition is always going to pose a challenge, the right response doesn’t always involve cutting prices. For this firm and others, the best response to competitors was to raise the bar, delivering better and better services and providing improved business systems, focused in the areas important to their customers.
This isn’t always the answer, as there are some markets and customers where price drives purchase decisions, but it’s wrong to assume that is always the case. It is remarkable how many firms that won customers by being “better” forget that fact when a competitor challenges them on price.
Second, like many manufacturing firms, this one learned that it was the complete solution that mattered to their customers, not simply their physical products. In industry after industry, we are seeing that the winners are often those, like this firm, that invested in a heritage of strong customer relationships, excellent services and friendly business systems.
For many firms, those elements will become even more important as differentiators in the future. For those firms that haven’t developed clear insights as to how they can embellish the overall value they deliver to customers through those means, now is the time to invest in that insight – another opportunity for a rear view mirror contribution.
It’s not always possible to dispel the fog that you see through the windshield by looking in the rear view mirror, but hearing from customers what is valued and how you can remain an important supplier helps to cut through it. Not all of the messages that you will hear will be as supportive as those heard by this firm, but in almost every case, your customers can make major contributions to identifying the directions that will yield their business and loyalty as you move forward.
George F. Brown, Jr. is the cofounder of Blue Canyon Partners Inc., a consulting firm working with leading companies on growth strategy. He is the coauthor of CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs, published by Greenleaf Book Group Press of Austin, TX. He has published frequently on topics relating to strategy in business markets, including articles in IndustryWeek, Industrial Distribution, Chief Executive, Business Excellence, Employment Relations Today, iP Frontline, Industrial Engineer, Industry Today and many others.