Tim Wood Powell     The value of knowledge

I read the following headline recently in the Wall Street Journal:  “Consumers crave [PRODUCT], but [PRODUCERS] enjoying their best profits ever are reluctant to switch.”  (The words I’ve bolded here were specified in the article, but I’ll get to that in a minute.)

Headlines reminiscent of this have been written many times in business history.  They are often prelude to disaster in the form of self-imposed obsolescence.

Regarding Kodak, for example, one might in the late 20th century have written [digital technologies] and [film manufacturers] in the respective slots.  The profitability on film was so great that Kodak persisted in making and selling it, and famously did not invest soon enough in a switch over to digital. This was a titanic strategic blunder from which the company never recovered, eventually filing for Chapter 11 bankruptcy in 2012.

Willful ignorance

It happens constantly, in all industries, that consumer preferences migrate — sometimes so slowly that it’s hard to notice — until the change has become the new normal.  It’s more noticeable in B2C industries than B2B, but it happens in the latter too.

What makes these changes especially difficult to respond to is our near-universal tendency to gloss over and ignore that which could be unpleasant — or even fatal.  Our “all good news, all the time” corporate cultures make it tempting to look the other way and hope such problems will resolve themselves before metastasizing.

On the other hand, companies that have an innovation philosophy that demands that they “Obsolete ourselves before someone else does” have the upper hand.  Intel and Jobs-era Apple were famous for thriving under such regimes of continual, relentless self-betterment.

You are what you eat

In the case described in this article, the PRODUCT is [antibiotic-free meat] and the PRODUCER is [conventional ranchers].

We are living through a major shift of US consumers toward a heightened awareness of what we put into our bodies and what effects it has on us.  McDonald’s and other major fast-food purveyors have redefined their menus toward chicken, fish, and the like.  Big Cola companies are going through a tectonic consumer pivot toward more healthful drinks — the sale of bottled water has just surpassed that of sweetened soft drinks.

It has been widely publicized, in both the medical press and the general media, the effect that antibiotics added to livestock feed has on humans.  The effect, put simply, is to increase resistance to the healing effects of antibiotics among humans ingesting antibiotics in this roundabout way.  The drug-saturated chicken that you eat may not make you sick, but it may make it harder to cure infectious diseases that you get from other sources.

As a rule, we want to take as few antibiotics as possible until we need them to cure an infection — because at that point, we need them to work.  So consumers are “demanding” this — by voting with their dollars in favor of brands (like Perdue Farms) that have embraced the antibiotic-free approach.

Milking the dying cow

If you try to fight the future on shifts in consumer tastes, you will lose out in the long run.  The best you can hope for is to be the last buggy-whip manufacturer standing.

You can, however — as the article implies — win in the tactical short run by continuing to milk the dying cow as if nothing were changing.  “The money is too good” is one of the most-invoked and compelling excuses not to change. Who doesn’t want to make money?  But as tempting as it may be to persist in flogging a fading business model, this strategy typically serves the personal interests of its proponents more than it serves the interests of the enterprise as a whole.

Companies that fail to build the capabilities to (1) see these changes coming and (2) react swiftly and surely, condemn themselves to eventual sub-par performance and even obsolescence.  Board members and/or stockholders of such companies should demand better performance.

The competitive whipping-boy

Management is often tempted to blame their own shortcomings on the competition.  “We were beaten by the other guys” sounds more plausible and compelling when reporting sub-par results to the Board and shareholders than, “We failed to see what was going on with our markets.”  And it definitely sounds better than, “We left open a market opportunity so big that our rivals used it as a competitive runway to ramp up—and then beat us at our own game.”

The latter is a better description of what usually happens.  Speaking frankly, it is irresponsible and lazy behavior—and avoidable, with some reasonable level of investment in market intelligence.

It rarely happens that the competition beats us without passive support from us.  The competition does not somehow hold “magickal powers” to determine our fates and fortunes.

In the end, it’s not the other guy who beats us.  We beat ourselves with how well — or poorly — we serve our current and future customers.

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