The world has changed, and even as world economies emerge
from the financial crisis, nothing is quite as it was before. In most markets
today the barriers to entry are low, customer expectations are high and
competition is fierce.
Whether you are selling products or services, B2B or B2C,
there is no shortage of competition. The customer has never had so much choice.
Furthermore it is easier than ever for consumers to share their thoughts about
the quality of their latest purchases and the after sales customer care. Your
brand is under constant scrutiny.
This is all driving margins relentlessly down. Businesses
operating on 40% gross margins have become the exception and not the rule. More
and more businesses are being forced to operate as utility operations rather
than high end added value. Quality cannot suffer though. If the price is too
high or the quality too low, then your customers will look to your competitors,
because somebody somewhere will be offering higher quality at lower prices.
This is the new reality.
Operating in this new reality means that nothing can be
wasted. The maths is simple. A company turning over £50 million with gross
margins of 40% can afford to waste 1% of its turnover. That translates into
£500 thousand losses from £20 million profit. When operating at just 10% gross
margin the same wastage is still £500 thousand, but now from a gross margin of
just £5m. In other words just 1% of revenue waste turns into 10% of gross
margin, this can easily turn into 50% of net profit. Suddenly 99% is no longer
good enough. Think about that for a moment. Getting it right for 99 customers
out of 100 is not good enough anymore.
Getting it right, on time, every time, for every customer is
the new normal. Getting the right product or service to the right place at the
right time for the right price is what is needed for success. The wrong product
to the right customer is wastage. The right service at the wrong time is
wastage. The right product at the wrong price is wastage. Granting credit to a
customer who is not creditworthy is wastage as is refusing credit to a customer
who is creditworthy. Each mistake eats relentlessly into the bottom line.
Getting it all right means knowing your customers,
suppliers, products, inventory levels, sales channels and getting them all
synchronised. It means getting all your processes, information systems and data
as good as they can be.
Your business processes are the means of adding value by
delivering your products or services to your customers when and where they want
them at the right price and with a minimum of fuss. Your data is your picture
of reality, on which those business processes operate. If either process or
data is wrong, you will make mistakes, and those mistakes will eat into your
margins and reduce your ability to compete. Make enough mistakes and your
competitors will be happy to satisfy your customers.
On the other hand if your business process are highly
optimised and can deal with the exceptions as well as the “happy flow” that
accounts for 90% of your business, if your data quality is high, so that you
know who your customers are, how much stock you hold, what the delivery timing
is and so on, then you will have a competitive advantage.
In this new reality, with low margins and low customer loyalty,
competitive advantage is to be found in optimised processes working on high
quality data. This combination of process and data quality allows the best businesses
to operate on gross margins that their competitors cannot afford to follow.
That is the opportunity offered by the new reality.
