All businesses exist on a continuum between efficiency and responsiveness and in the high change and unpredictable world we live in, responsiveness trumps efficiency. Business strategies that emphasize efficiency and economies of scale no longer yield the profits we seek because they are so vulnerable to unexpected or sudden changes. The very act of optimizing operations and cost structures for efficiency robs companies of the flexibility and resources they need to respond effectively to change and new opportunities.
Because of their lack of responsiveness, companies optimized for efficiency find their only option for dealing with unexpected changes is to shed employees, cut costs and downsize. Their repeated bouts of downsizing and then rehiring remind me of the attempts people make when they go on binge diets. They get some immediate short term results but over the longer run their condition just gets worse.
Many brand name companies (such as Motorola, Kodak, Ford and GM) are showing us their focus on efficiency is not shielding them from market fluctuations; their business models no longer work. Their strategies for efficiency are based on 20th Century industrial concepts like spreading fixed costs across huge numbers of units sold, long production runs, and the assumption that there is a steady, predictable demand for their products.
In reality, these things are conspicuously absent from our global economy. Companies that succeed these days are the ones able to make continuous small adjustments in their operations and product offerings as events unfold. Business success means to be “efficient enough” and concentrate instead on being highly responsive to markets and individual customers.
Toyota makes money making cars where Ford and GM do not. They prefer to use smaller more flexible machines that can be quickly reconfigured to do a range of different tasks instead of using big and complex machines that attempt to maximize efficiency in performing a single task but cannot be easily reconfigured to perform new tasks. Toyota focuses first on responsiveness.
The Internet itself is optimized for responsiveness, not efficiency. It was built to operate in a high change world. It is full of redundancy and multiple pathways from one point to another. It is composed of interconnected networks of autonomous operating units that can each sense their environment moment to moment and then respond quickly as situations change. This is what makes it so stable and scalable.
We talk a lot about innovation so it’s important to see the connection between innovation and responsiveness. Innovation usually doesn’t mean creating something wildly new and different; it mostly means continuous incremental improvement to existing products and services to better fit changing conditions.
In the business IT ecosystem of networked PCs, servers, printers and handheld devices there are a hundred opportunities every day to make constant small adjustments to help customers respond to surges in demand for existing services and emerging demand for new services. If you are a supplier of these products, what responsive new offerings have you rolled out lately? If you are a user of these products, what do you use this stuff for and what would make your life easier?
It’s important to note that all innovation, all responsiveness is information based. What is innovative and responsive to one customer in one circumstance is not so to another customer in a different circumstance. You need constant and current information about your customers and your products to know the difference. Success lies in putting this information to work to create a continuous stream of improvements and enhancements based on existing products to fit the constantly changing needs of specific customers not just a mass market.
The customer is the ultimate asset these days, not your plant or your equipment or products. The opportunity now is to apply what you know about your customers and what you know about your products to create a tailored bundle of products and value-added services that constantly evolves to best fit your customers’ needs. You combine your knowledge of your customers and of your products to become, in effect, your customers’ purchasing agent. You’re someone constantly seeking the best mix of products and services to fit customers’ changing situations, not a clever gadfly trying to sell them something they don’t need because if your customers don’t grow and prosper, you won’t either.
Responsiveness means you co-evolve products with your customers. Involve them in the process of designing new products. For instance, Xerox engineers thought commercial printers wanted printing machines with a second print engine to handle specialty jobs and inks – an idea based on industrial concepts of specialization and efficiency. Instead, they discovered what they really wanted was a machine with a second printing engine for backup to keep production going even at a lower rate until the big engine could be fixed – an idea based on responsiveness through backup and redundancy.
Think of your customers as your capital and think of responsiveness as the way to earn interest on that capital. The bigger the base of customers, the more the opportunities there are to be responsive to their changing needs. Opportunities these days quickly evolve into other opportunities; one opportunity usually leads to another; learn to ride the waves of change. Develop a reputation for responsiveness; your customers will seek you out for this very reason.
Michael Hugos
CIO at Large
Center for Systems Innovation
