Tuesday, May 1, 2007

You Can't Save Your Way to Greatness

It seems like every time I turn around, another firm that I work with has launched a new campaign to cut costs. It’s not that it’s not a good idea. It is, of course. Who could ever be against cost-management? The big problem is that cost-control requires discipline and most firms lack that. They also lack the vision and the leadership that are central to this. Mindlessly cutting back on the distinctive competencies of the corporation, in an effort to be “cheaper”, will almost always erode the possibility of a sustainable future.

What comes to mind, in particular, is a recent memo (http//stabucksgossip. com) that Starbucks’ chairman, Howard Shultz, sent to his top team decrying the diminishing of the “Starbucks experience” as an unintended consequence of operational efficiency measures. The memo itself is an amazing statement of strategy and leadership. Shultz deplores the loss of “romance and theatre” that accompanied the adoption of automatic espresso machines, as well as the loss of aroma and the sound of bean-scooping that disappeared with the introduction of flavour- locked packaging. He even worries about the loss of the “soul of a neighbourhood store”. These are details, but it is the details that matter. If “strategy is choice”, then the efficiency choices that were made in the pursuit of an ambitious growth strategy may well have resulted in a threat to the promises that lie at the heart of the Starbucks brand.

Also worth noting is that the chairman is raising the issue, not middle-management, nor the customer—yet. It is the guy at the very top, who is taking responsibility for being part of the management team that made these choices, and is now calling for correcting them. This is sober and responsible leadership. What makes it even more amazing is that it is being worried about in an organisation that Business Week ranked 10th among it’s annual listing of “Customer Service Champions”, and which Fortune ranked 16th among its 100 Best Places to Work, for 2007.

The lessons for all of us, from Starbuck’s experience, are profound:
Cost-control needs to be controlled. Left on its own, the mindlessness which often accompanies such crusades can attack the very essence of the brand-promise
Senior management is ultimately responsible for the outcome of such initiatives, and they should act quickly if they suspect a wrong turn—being wrong is correctable; being gone is not
Enhancing offerings and charging more, rather than paring offerings and getting trapped in a downward margin spiral, is a better way to go.

This column originally ran in The Times of India, Mumbai edition, April 3, 2007.

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