So, we know we've got ourselves working profitably. Time to relax and enjoy the benefits.
For a short while, maybe. For the only thing that's certain is that it won't stay that way for long. Not because you lose your new awareness and skills, but because the world moves on.
Despite our wishes, everything has its time and place. Everything invented by man has been improved and substituted, and it will be the same in the future as in the past, maybe even faster. At the end of the 19th century, a railroad magnate in the USA wrote his will. He was convinced that rail was the ultimate transport, but wasn't sure of the wisdom of his descendants. So he left his considerable fortune to them as long as they kept it all in railroad shares. He died a confident man - a hundred years later they are flipping burgers.
So we need to think about where our world will be: products, markets and prices.
What a customer will want is hard to predict. Even they aren't sure. Customer needs are shaped by what they know and perceive and that means they know about now. Would you ask a Victorian housewife what she wants in a foodmixer? She has never seen one, so how could she know?
If you base your strategy on asking your customers what they will want from you in five years time, you will do more of the same, just a bit better and a bit cheaper. That might sound simplistic, but many people actually do rely purely on their customers to work out where they should go as a business. The trouble is that by the time you’ve done it, what the customer wants has moved on.
What people want is shaped by changes throughout their entire environment, without them predicting it. For example, telephone insurance changed customers' expectations of dealing with anyone on the phone. So suddenly, customers' aspirations have changed and someone else can satisfy them while you struggle in the wake.
A lot of people advocate 'sticking to the knitting': it is a much-touted phrase right now. Cut back to what you do, don't speculate. Yes it can get you back on track today and it’s great while your customers like your knitting pattern. Fashion is a fickle thing!
A large American research firm, SRI, studied companies who had lasted over a hundred years. There are actually very few of them. One of the characteristics that they shared was that they no longer did what they started out doing. Nokia started by making paper and now manufacture mobile phones, Sharp originally made belt buckles and now is in home electronics, General Electric was built on Edison's patents and now does nearly everything – notably the UK’s largest operator of store cards.
All of these stories do have a logical progression, with the companies building on their competencies to take up opportunities and move into new areas. That is why they survived. As the world changes, so must we. We must look for new and better ways to meet customer needs, for that is why customers buy from us, not because of what we are selling.
What all this means is that the customer doesn't know where they are going until they've got there and it's your job to be there first. Simple!
Be sure that if you don't someone else will. You must keep moving.
There are many stories that it takes hundreds of ideas to make one successful innovation. Which is true and might make you scared, but don’t be. Invention is about quantity, while innovation is about quality - getting it right. The Chinese have a very apt saying for this: ‘Do not be scared of moving slowly. Only be scared of standing still.’
By taking what is already out there and doing something different with it we can create the new products and markets that will bring us continued success. As Sandy Grushow said when asked why he had moved from Fox to Tele-TV and internet-oriented media start-up, "sometimes you've got to do something different to the Status Quo, especially when the Quo is losing its Status".
Pricing is the last element of this puzzle. The key to unlocking a sustainable good profit margin is keeping what you do different and desirable. Your new and exciting offering soon won't be. Why? Either it is copied (Financial products are unique for no more than six weeks) or customers get bored (A fruit machine needs to be redesigned from the ground up every six weeks as well). Once it's lost people's interest, the price will go into decline. Even if you can drive your costs down, eventually what you do won't be wanted by most of your market.
The right level of innovation is essential to maintaining a price that means that you can afford to invest in keeping moving ahead.
The good news is that innovation isn't all about spending money on glamorous technology, despite what salesmen might assure you. It’s about knowing what your capabilities are and how you can use these to do something else:
Delivery of milk to homes is declining, so milkmen looked at what they actually did and moved into parcel delivery.
Air travel was sold as a premium product, even the economy seats. Food, wine, the list went on. Then someone came up with a new offer: cut out most of the free stuff that had just kept creeping in and then establish a new market at a new price point.
It's just like product costs and customer costs: understand what you do and then being clever with it.
John is Director of Thinking at Profit Per Minute Limited. If you’d like to discuss the article, he can be contacted by phone on 01865 771329 or by email at firstname.lastname@example.org