Climbing the Performance Mountain and staying there

…the Sustainable Right to Succeed

We now have undisputed evidence that more than two thirds of publicly listed companies do not create shareholder value. Moreover, a large number of those who succeed seem to derive their success from events or items over which they have very little control. A case in point is the rising share prices of oil and gas (or gold) sector companies due to a rise in oil and gas (or gold) prices in the world. And even in these “good fortune” sectors, we find significant differences in the relative performance of companies. There is also evidence that apart from a very select group of companies, it is hard to find companies that continue to perform well beyond a ten year span.

This leads us to ask whether high performing firms are the result of chance, or whether we can determine some systematic approaches to gain a sustainable right to succeed. And if so, what are the key ingredients for this success?

The Three Ingredients

If you look around and identify companies that you deal with either in your business or as a consumer, you may notice that these “successful” companies have three key ingredients.

First, they have “uniqueness” – created through identifying, creating, and maintaining a competitive advantage. Second, they display “courage” by impacting the industry they work in and thereby changing the very nature of its structure. Third, they have what I call the “stickiness” factor. By combining these three ingredients, these firms create such a powerful value proposition that clients find it hard not to do business with them again and again. These three ingredients sound simple in theory but are quite difficult to achieve.

Let us start with the “uniqueness” factor. The immediate example that comes to mind is Apple. Every product Apple has created is unique, from Lisa through to iPod and now the highly successful iPhone. However, Apple did not invent Uniqueness – not long ago, we thought that the word belonged to Sony or to Xerox. Xerox is one of the saddest stories in this regard: it actually created a word – people use to say “could you please Xerox this page for me” – and now all we hear is “please photocopy this page for me”. The point is that uniqueness cannot be taken for granted – it is something the company must strive to create and then fight to maintain.

That brings me to the second point. Uniqueness does not come from companies that have no courage. Creating and maintaining uniqueness requires a very careful and systematic approach to risk-taking that not many enterprises can afford. It is also one of the hardest things to achieve since it is fraught with failure. Consider the Apple example again; how many of us know that Apple actually came close to not meeting its payroll. Courage also requires a clear focus; everyone must know the company vision and clarity on what needs to be achieved to create uniqueness. It also requires both financial resources and an acceptance of short term fluctuations in the proverbial “earnings per share” number – not something that comes easily to a typical publicly listed firm. For example, one could argue that Sony lost its uniqueness because it lacked the courage to maintain it. In hindsight, it is obvious that the Sony Walkman should have led to a Sony iPod; instead, Sony thought that the next big bet would be the “movie” industry. It lost focus of both what its best product brought to its customers and how to leverage the digital technology to further enhance that experience.

Now assume for a minute that your firm has a unique value proposition and has the courage to maintain and improve upon it; you have the first two ingredients for success but you may be still missing the third component – creation of “stickiness”. In essence stickiness implies that your customers now find it easier to do business with you than a competitor no matter how hard they try. This is the path taken by companies like FEDEX, which provided free tracking software to shipping clerks, to Tim Horton’s offering a cup of coffee blended with a dose of Canadian nostalgia.

So where does one go from here?

When you take your team to a strategic off-site, when you draft business plans, estimate financing requirements, assist others in valuing a business case, ask yourself some key questions. Are our plans for the coming year driving us to becoming unique; is our focus on numbers preventing us from making courageous decisions; and are we building capabilities that will take our customer relationships from a stickiness level of “Scotch Tape” to that of “Crazy Glue”. And if this is not we are driving towards, then why would we expect our firm to have a sustainable right to succeed?

About the Author

Dr. Vijay Jog is the founder and president of Corporate Renaissance Group and a chancellor professor of finance at Carleton University. He is a leading authority on shareholder value creation, activity-based costing and management, and organizational performance improvement. Vijay has been published extensively in national and international journals, and has over 100 articles, monographs, and books to his credit. He consults extensively with government and private sector organizations around the world, and has received numerous awards for his research and publications, including the prestigious National Post “Leaders in Management Education” award for Ontario.

Strategy Tip…by Maurice Dutrisac

I recently read an article in Canadian Business Magazine Winter Edition describing how the IMAX Theatre executives had an epiphany. The epiphany is that they discovered how to grow sales dramatically by integrating their product with their customer needs.

For the past forty years IMAX had the best movie projection system in the world but the company was rarely profitable. The reason for this financial predicament was that the cost of the IMAX product was too expensive for film making companies and for multiplex movie chains.

For example, the movie production companies required very specialized IMAX camera and film equipment to produce a movie for an IMAX theatre. Also the multiplex chains needed an eight story high screen and a much larger theatre room to show an IMAX film. All of this was too costly and IMAX suffered through years of precarious financial existence.

The solution, which took years to figure out, was for IMAX to change their process to enable their technology to be used by film companies in movie production and for the theatre chains to use their current theatre rooms and projecting equipment to show IMAX movies. The changes that IMAX made allowed the movie house chain to convert a theatre room to an IMAX theatre at a low cost. A multiplex theatre company only had to increase their screen size by 15% and eliminate a few rows of seats in the front. Also IMAX made it easy to produce the IMAX films by remastering Hollywood movies so that they can be played with existing equipment.

What are the results of the IMAX changes? It took 25 years for IMAX to have 100 theatres. IMAX now has 440 theatres. The IMAX revenues jumped by 54% and share price quadrupled this year. Why because the IMAX customers are growing their sales for IMAX screens by 25%. Revenue and attendance for non-IMAX screens are decreasing.

As a result, IMAX has made their product offering very attractive to their clients. Please review Dr. Vijay Jog’s article in this month’s Mastermind Digest in regards to having your customers stick to you like “crazy glue.”

The key point here is that if you can make it easy for clients to work with you and make more money, you will then grow your business exponentially. It took almost 40 years for IMAX to figure out that the best mouse trap in the world that they had built was not selling because it was too expensive for prospective clients to use and make money. The old saying is “if the mountain will not come to you then you have to go to the mountain.” Putting yourself in the eyes of your clients is a factor that needs to be discussed and brainstormed at your annual strategic planning retreat. Some creativity is also required to get beyond the products and/or services that you provide. It also helps to have a trained strategic planning facilitator at your retreat.

The full article called “IMAX at the Climax” written by Joanna Pachner can be read starting on page 50 of the Winter 2009/2010 Edition of the Canadian Business Magazine.

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