Tag Archive for 'Business'

Growth at the Expense of Brand Value

Published
by
Steve
on September 19, 2008
in Business
. 0 Comments

On the subject of coffee parlours, today I read a great diagnosis of the growth-induced erosion of Starbucks’ brand value and, consequentially, the erosion of their growth.  Clearly Starbucks have lessons to learn about balancing growth with brand, but they certainly aren’t new lessons.  What happened?  Read John Quelch’s article “How Starbucks’ Growth Destroyed Brand Value” to find out.  Allen Roberts posted a comment that nicely sums up the value of the brand:

This maintenance of the integrity of the brand as THE vital component of the value proposition to the consumer is basic marketing 101. Starbucks when they started knew this, and practised this as if their life depended on it, as it did!  However, it is the easiest thing to compromise when the driver becomes numbers, and short term financials, as tends to happen after an IPO, as brand integrity and the relationship consumers have with a brand is not easily quantifiable, so is less visible, easily ignored by (often) new management under the pump for results who have not “lived” the brand.

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The Last Mile

Published
by
Steve
on May 19, 2008
in Business
. 0 Comments

I like the coffee from Take 5 Cafe. Beats Starbucks hands down.  I mean, when all that the Starbucks “barista” has to do is press a button to brew a shot … well, I’m sure Starbucks was aiming for infallible consistency while maximizing throughput but they lost the plot when it comes to the ceremony and “romance” of the coffee shop.  Starbucks CEO Howard Schultz admitted as much in a leaked memo:

…when we went to automatic espresso machines, we solved a major problem in terms of speed of service and efficiency.  At the same time, we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Marzocca machines.  This specific decision became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista.

The romance and theatre of a serious coffee parlour are core ingredients of the business, not last mile ingredients and Take 5 have got it right compared to Starbucks.  A beautifully crafted espresso machine, a delight to behold, is used by the barista (occasionally a delight to behold) to brew espresso shots.  The sounds of the production are classic espresso machines sounds.  Coffee aromas are untrapped in their portafilters.  European styling. Granite countertops to receive the coffee product.  We have theatre. Delivered, finally, is your coffee order and we’re now at the last mile stage.  To prevent the heat of the coffee from burning your hand and pissing you off so much you decide to sue because, ummmmm, you were never properly taught thermodynamics in high school, a sleeve is used to give you a comfortable, cool, area to hold the cup. Yep, the sleeve is one of those “last mile” items.  Take 5 have screwed up at the last mile by using an ugly plastic sleeve that feels like you’ve grabbed hold of a squid.

plastic_sleeve1

So, it looks and feels like crap.  Does Take 5 really want to have their carefully designed, eye pleasing, coffee cup adorned with such a sleeve?  What are they saving per sleeve over the cardboard variety?  0.5 cents?  1 cent?  Yes, it must be about money because I can’t believe the Take 5 management would vote for the plastic sleeve over the cardboard sleeve if the costs were the same.  Or, maybe I’m wrong, and the plastic crap keeps the heat at bay better than the cardboard sleeves?  If so, then give me the heat.

Headline news: “The Sleeve That Sunk Take 5 Cafe”.  Not going to happen and that’s not what my herniated sleeve yarn is implying.  But, no doubt, businesses loose custom beyond a sustainable level (i.e. they fail) because they’ve overlooked or ignored last mile aspects.

I’m a details guy.  It’s the nature of my job in Information Technology. So “last mile” stuff is always on my radar and I’m continually miffed at how many people and companies don’t understand the importance of hitting the ball out of the park for those last mile items.  Tom Peters wrote a book called “The Pursuit of WOW!” in which he explains how important it is for businesses to have pleasant, clean bathrooms.  If memory serves, I believe he solidly drove home the point that you’re an idiot if you neglect your washrooms as a business owner in a competitive marketplace.  You establish your business, plan your brand, build your brand, take care of all the core pieces, cut the ribbon, unveil the business …. and the “last mile” toilets, well, go down the toilet.  Sure, a majority of new business starts don’t build hole-in-the-ground toilets; unless you’re starting a business in France or China.  But there’s still a noticeable number of establishments that screw up either right out of the gate, or through neglect over time.

Speaking of washrooms, one of the premier examples of a business hitting it out of the park for their washrooms is Cactus Club Cafe.  Talk about the pursuit of toilet WOW.  The washrooms at the Cactus Club on the corner of Broadway and Ash are fantastic. Immaculate, spacious, beautifully designed and decorated, a leather couch, etc … basically a posh studio apartment with modern decor.  People talk about the Cactus Club washrooms as part of the Cactus Club experience; they add value to the Cactus Club brand. Flush with style.

What aspects of your business operate in the last mile zone AND could serve as differentiators in a competitive marketplace?  Find out, focus on them, and improve.

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Rural Sourcing - An Alternative to Outsourcing

Published
by
Steve
on July 3, 2006
in Business
. 0 Comments

Many people in the IT industry have seen the rapid growth of outsourcing as a threat. Reactions cover a wide gamut of feelings but for IT professionals whose roles are subject to outsourcing, fear and anger seem to be the prevailing sentiments; fear of job loss and anger at companies/management for outsourcing. Emotion aside, the viability of the outsourcing business model is typically analyzed from a cost savings perspective. The cost analysis has matured since the arrival of outsourcing and now takes into account many of the “hidden” factors which eroded or eliminated the value of outsourcing. Still, with maturity does not come ease; outsourcing is not something you dabble in and requires a well crafted, long-term strategy to realize savings. Ok, I’m a little off track.

From an economic standpoint, there is a strong argument for outsourcing. A couple of excerpts from Daniel W. Drezner’s article “The Outsourcing Bogeyman” provide compelling evidence in support of the economic benefits:

Catherine Mann of the Institute for International Economics conservatively estimates that the globalization of IT production has boosted U.S. GDP by $230 billion over the past seven years; the globalization of IT services should lead to a similar increase. As the price of IT services declines, sectors that have yet to exploit them to their fullest — such as construction and health care — will begin to do so, thus lowering their cost of production and improving the quality of their output.

and

McKinsey Global Institute has estimated that for every dollar spent on outsourcing to India, the United States reaps between $1.12 and $1.14 in benefits. Thanks to outsourcing, U.S. firms save money and become more profitable, benefiting shareholders and increasing returns on investment. Foreign facilities boost demand for U.S. products, such as computers and telecommunications equipment, necessary for their outsourced function. And U.S. labor can be reallocated to more competitive, better-paying jobs; for example, although 70,000 computer programmers lost their jobs between 1999 and 2003, more than 115,000 computer software engineers found higher-paying jobs during that same period. Outsourcing thus enhances the competitiveness of the U.S. service sector (which accounts for 30 percent of the total value of U.S. exports). Contrary to the belief that the United States is importing massive amounts of services from low-wage countries, in 2002 it ran a $64.8 billion surplus in services.

My understanding of the benefits of outsourcing has improved but I am still concerned that the impact is not without ill effects. What ill effects? I’ll leave that discussion for another time but for now I’ll just say that the impact of globalization and the increasing pace with which we need to adapt to globalization (e.g. outsourcing) may not be best for a balanced society.

Is there an alternative to outsourcing that can yield cost savings while supporting regional economic development? Possibly, and its called rural sourcing. Rural sourcing is defined as follows:

“Sending work to service providers in domestic locations where salaries and operating expenses are lower (such as the Midwest for the United States). An alternative for companies that want to avoid the negative aspects of offshoring.”
http://www.sourcingmag.com/dictionary/Rural_sourcing-158.htm

Ever since I heard about rural sourcing I have been enticed by the business model. On the surface, the cost savings may not appear competitive when contrasted to outsourcing, but when all the “hidden” outsourcing costs are factored in, rural sourcing may provide a serious offering. Will rural sourcing stop outsourcing? No. Can rural sourcing help revitalize regional areas that are in need of an economic boost? Can rural sourcing help retain high-skilled workers while allowing companies to save on labor costs? Yes, according to a rural sourcing company called, not surprisingly, Rural Sourcing Inc. Rural Sourcing claims to offer “…low-cost, high quality information technology services at 30%-50% cost saving while supporting Regional Economic Development“.

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