Times May Have Changed, but the Basic Rule of Business Has Not

The fundamental goal of any business is to fill a market need in a way that meets its perception of value.

I know, I know, it’s so obvious you can hardly even call it advice, but before you roll your eyes, have a look at some of the businesses that got this wrong in 2016:

Beginning in January 2016, the value of iconic Australian retailer Dick Smith Electronics fell 80% before the company collapsed only two years after listing on the Australian Stock Exchange. Masters, Pie Face, Laura Ashley, Meredith & Moore, Man to Man, Keystone Hospitality Group (operates bars and restaurants around Australia including the Jamie Oliver chain of Italian restaurants), BLK (a sports apparel company that supplies sporting clubs including AFL and Australian Rugby clubs), American Apparel (Australia), Australian Geographic, Eagle Boys Pizza and Pumpkin Patch – also fell apart during the year. We finished 2016 with the news that companies Howards Storage World and Payless Shoes will be unable to make it even at the busiest time of the year for retail.

They got the fundamental goal wrong and it became impossible to get the management overall right.

Thousands more businesses are heading the same way. The Commercial Risk Outlook Report released by SV Partners in August 2016, identified 17,681 businesses at risk of financial failure within 12 months. At highest risk are those in the retail, construction and professional, scientific or technical services sectors.

These businesses are failing to recognise the world has changed. A business based on products (no matter how good the range, options and features) and service (no matter how friendly, helpful or efficient) does not cut it anymore. In 2017, this business model will be irrelevant to the mainstream, lingering a while longer for those that primarily differentiate their offering by competing on price.

Blame the smartphone

The main catalyst for the change is the smartphone. Like the motor vehicle did a number of decades ago, smartphones are altering the relationship between life and work, changing the nature of commerce, giving us new ways to socialise and relax, and creating new outlets for self-expression.

When car ownership increased, what had once been novel – like going down the coast and buying things other than those available in the local stores – became commonplace, even mundane. Today smartphones are having the same effect. Products that are easily accessible are commodities, no matter how distinctive you can make their features sound.

Smartphones are also commoditising services. When we want to know if a store has a certain product in stock and how much it sells for, or see a movie, book a table for dinner, check opening times, or work out how to do something – all falling under the definition of ‘service’ – we have instant access wherever and whenever we want it.

Tech companies have upped the ante using algorithms – such as Amazon’s product suggestions, or Facebook highlighting an interesting feed based on your browsing history, or Google prompting you to leave for an appointment based on traffic updates – to deliver personalised service right into your hands. As a result, a business now has to provide more than mere helpfulness and responsiveness even to be considered a service.

So in 2017 instead of focusing on what you offer to the market, you will have to concentrate on the way your customers experience what you offer them. Products and services are transactional (and why processes are so easy to automate); experiences are interactional (meaning creating a reciprocal action, building relationships).

‘Experience’ is not service or even empathy. These come from the somewhat outdated notion of ‘customer satisfaction’, that you have to keep people happy because there will be reasons why they won’t be. Experience is ‘customer-native’. It builds on the connections between customers’ underlying emotions and motivations and their buying decisions.

Apple has been a global leader as an experience-based company. Under Steve Jobs, it focused not on what customers want, but on how customers feel. This inspired innovations like the iPod that allowed people to access their entire music collection – before they even realised they wanted to.

Shifting from the product/service model to a user-oriented model has another (really massive) benefit. It opens the potential of new markets using your existing capabilities, or new categories within your existing markets. Again to use Apple as an example, once people had iPhones and continuous internet connectivity, they moved to software, opening its iOS platform to developers to build applications. This not only created a new industry (app development) virtually overnight, it turned Apple into a lifestyle company offering everything from music, entertainment, video chat and payment services, and earning billions in new revenue.

As more businesses shift their focus from products and services to experiences, the market’s expectations for these will continually grow, widening the gap between the brands that build around the user and those that remain stuck in the past.

It’s more about people than things

Customer experience (CX) and user experience (UX) are changing the game for businesses and the opportunities are exciting. It’s a different approach to the top-down strategy/bottom-up operations that we have become used to throughout the last century, but the possibilities are virtually endless because experiences don’t sit squarely in boxes like products do. You are only limited by your ability to being more uniquely human.

When the market perception of value last century was consumption of goods and services, organisations evolved specifically to offer it. They became efficiency machines developed around the principles of division of labour. Creating experiences, where it is not simply the input of raw materials at one end and an item ready to be transacted at the other end, requires the organisation to be designed around social principles.

If we look at the enterprises that failed in 2016 we can see one thing they all had in common: a failure of management to move beyond the ‘things’ they wanted to sell to their markets’ growing expectations for self-expression.

A century ago, horse-drawn carriages lost the race against cars. Better carriage design, better horses and better drivers made no difference. Today product/service organisations are losing the race against experience-oriented organisations. Re-think your organisation to meet today’s, not yesterday’s, market expectations and stay in the race.

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