"The first rule of any technology used in a business is that automation applied to an efficient operation will magnify
efficiency. The second is that automation applied to an inefficient operation will magnify inefficiency." - BILL GATES Hi Friends,
2003 is upon us! New visions, new goals, and new anticipation for what lies ahead accompany our minds and daily activities. In midst of this muddling economy, many companies are turning towards cutting costs and becoming more internally efficient.
In our last two newsletters, we have seen how customer retention can not only increase revenue but also reduce costs significantly as when contrasted with new customer acquisition. Published studies generally show that new customer acquisition can cost between 5-10 x's as cost to retain existing customers.
If you can also be low cost producer in your industry, your growth will advance when economy is moving forward, and most likely when economy is struggling as well.
Reducing your costs in good times will make you a lot of money. And when business slows down, you still make money while your competitors - who aren't as efficient as you - struggle to keep up with increased pricing pressures.
Let's take a look at Southwest Airlines, which has had nearly 30 straight years of profitability vs. United Airlines - a recently bankrupt company. According to Jeff Mayer's "Succeeding in Business" Newsletter http://www.SucceedingInBusiness.com, here are their respective cost structures:
~~~~~~~~~~~~~~~~~~~~~~~~~~~ Total Cost for Available Seat Mile
United Southwest $11.00 $7.38
Labor Cost for Available Seat Mile
United Southwest $4.60 $2.90 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~
I will agree that there is a slight difference in flight experience between two. I prefer knowing where I am going to sit ahead of time, and being able to arrive at airport only an hour before departure time. However, would I ever pay 50% more for same exact flight on United? No way! Neither would you, and that is why United is bankrupt and Southwest is a perennial leader in Airline industry despite its low frills approach.
"A decade ago, a company could aim to be market leader in its industry in high-end customer service driven segment and achieve that position. Another company in same industry could aim to become low-cost producer and dominate that segment. Today's companies realize they must be leaders in BOTH customer service and as low cost producer. This reality poses new challenges for CEOs, CFOs, CIOs and operating managers for linking strategy, productivity and competitive advantage.
Two imaginative and under-exploited routes to increased productivity can contribute to achieving these goals. First, linking technology strategy to corporate strategy by searching out ventures that offer increased productivity, lower cost and a return on investment (ROI) payback of less than one year." says Donald Laurie, in October, 2002 edition of Financial Executive International magazine.
Laurie continues, "Linking technology strategy to corporate strategy is central to boosting productivity.... Wal-Mart has understood that it must be a leader in customer service AND a low-cost producer to win in marketplace. Its business and technology strategies are inter-connected. During month when Wal-Mart became number one revenue-generating company in U.S., K-Mart Corp. declared Chapter 11 protection. The difference was a 13 percent SG&A (selling, general and administrative) advantage, gained by linking business and technology strategies - with which Wal-Mart crushed K-Mart through its pricing.
Dell Computer Corp.'s "go-to-market" and manufacturing strategy was supported by technology strategy ...that achieved an overpowering competitive advantage against Hewlett-Packard Co., Compaq Computer Corp. and others."
A couple of points that I would like to expand on:
1. LINKING TECHNOLOGY STRATEGY TO CORPORATE STRATEGY IS CENTRAL TO BOOSTING PRODUCTIVITY
It is important to note that corporate strategy is central starting point. Once a corporate strategy is established, then streamlined processes can be designed and re- engineered to execute upon defined strategy. The proper technology becomes a critical and necessary tool in enabling new efficiencies to cut costs and boost internal productivity. Properly implemented, CRM and ERP systems can significantly increase efficiencies while providing benefits only previously dreamed of.
