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Eschew “Received Wisdom” to gain competitive advantage

Updated on October 10, 2013

Introduction

Just in case anyone is in any doubt, “received wisdom” means the generally held belief about something. It does not, however, mean that there is necessarily any truth in the received wisdom; it may be a “urban myth”. The television programme “QI” is excellent at dispelling commonly held beliefs, exposing that there is no factual proof behind the belief at all. For example, it is commonly held that people used to believe that the earth was flat until people like Christopher Columbus sailed around it, but as far back as there is evidence on the subject, to Ancient Greece and Ancient Egypt and beyond, it is clear that everyone knew that the earth was a sphere.


In business as in the rest of life, there is a lot of received wisdom, and this blog is advising you to question more, and avoid falling into the same traps as everyone else. The title mentions competitive advantage, and businesses need competitive advantage to be successful on an ongoing basis.

An example

Competitive advantage is about doing something different from your competitors, which is seen as advantageous by your customers. It can be something as simple as, if you are in the building or related trades, for example, leaving the customer’s site in exactly the same state as you found it. The received wisdom amongst most tradesmen seems to be that they can clear up the worst of the mess and leave the customer to do the rest, and as for trashing lawns or flower beds, then that is just part of the consequences of building work. Time spent on leaving everything as you found it is wasted time, which wastes profits.


Now, I don’t know a single customer of a tradesman who doesn’t want everything left in the tidy state that the tradesman found it in. If just one local builder, for example, decided to take that approach, then their reputation would spread like wildfire, and they would be guaranteed as much work as they could handle, with the opportunity to expand rapidly to cope with the demand (assuming that the general quality of their work was good, and their pricing was reasonable). Yes, they would need to ensure that they did not push their prices up to pay for the tidying up work, and price themselves out of business, and equally they would have to ensure that they were not burning their profits up by paying their teams to tidy up, for which they were not charging the customer, but this is achievable. It is more about a state of mind, and approach, than it is about spending lots of time clearing up at the end of the day, or the end of the project.

Salaries

On a broader ranging topic, there is a received wisdom that companies need to keep their wage bills down as much as possible, on the grounds that salaries are fixed costs, and the lower you keep the costs, the more profitable you are likely to be. However, costs are only half of the equation for profit: the other half is income. There are a number of examples where companies have taken a different approach. A very successful software company in the Thames Valley has a Chairman whose approach has been to pay his staff at the very top level for their roles. As he told me, his ethos is to make his staff very happy in their work, so the whole approach is about generating maximum staff happiness. This is reflected in them being rated as one of the best companies to work for in Thames Valley. The result of happy staff is that they feel valued, so they are really supportive of the company, continually do their best, are highly creative and continually coming up with great new ideas, give the highest levels of customer service and productivity, and, the consequence of all of this is that the money comes flowing in, almost by default. Their reputation for excellence spreads and people approach them to give them business, rather than them having to constantly spend time and money on marketing.


Compare that with a company that keeps salaries to a minimum except for the most senior management, and restricts scope for creativity and self-determination through cumbersome processes for everything. There is definitely a received wisdom that this is a good way to run a business to maximise profits, because so many businesses run themselves that way. However, the staff are de-motivated, feel undervalued and not listened to, and the result is a drop in efficiency and productivity, poor customer service, unhappy customers who go to the competitors next time, and, of course, a loss of income, and thus a loss in profitability. So keeping salaries down in order to improve profitability actually has the reverse effect. Now there is far more to achieving a successful business than how much you pay your staff, but this illustrates a point that the effect of certain policies may not always be obvious, and may be the opposite of what was intended.


A company in Brazil not only published the salaries (internally) of every member of staff, but allowed the staff to set their own salaries according to what they thought they were worth. Shock, horror! ”You can’t do that, that’s a recipe for disaster,” says the received wisdom. ”Everyone will just bleed the company dry.” Well, the company was actually very successful. They created groups performing various functions, and the groups were incentivised with bonuses for performance based upon how profitable / efficient they were. If one person decided to pay themselves a huge salary, it would eat into the overall profits for the group, and thus all of their colleagues would get smaller bonuses. Thus, peer pressure meant that people paid themselves reasonably, and were very happy in their jobs because they had a a feeling of being in control of their own destiny. The knock-on effects of happy staff has already been examined above.


Another example of being different

A well-known public house chain, targeting specifically young people as its core market, used to hire only young staff who had travelled the world, and were high energy and enthusiastic. They wanted confident worldly-wise people, with good stories to tell, who could whip up a party atmosphere in their pubs and draw the young people in. They worked them very hard and paid them well, and then, after three years, they got rid of them, working with them to help them to find a new job, or set up their own (sometimes competing) businesses. Again, this goes against the received wisdom of HR policy (and is illegal now under age discrimination laws), but the chain was very successful, as their staff were always enthusiastic, energetic and happy. I heard this story from the MD of the pub chain, who spoke at a management training course I was on in the company I was working for at the time, and there were quite a few of my company’s HR staff present. They nearly fell off of their chairs at this unorthodox approach!


Examine your products

To move on from how you treat your staff, there are many ways to create competitive advantage by questioning everything you do. A very large company making a broad range of products, had a small team which took one product every month, and questioned everything about why it was made the way it was, using the materials it used, and how it could be made more cheaply and perform more effectively. It was amazing how many products were made in a particular way, using particular materials purely because the designer had randomly decided to do it that way. In some cases, there were now new materials or new manufacturing processes which provided new ways of doing things that had not been possible when the product was first designed, and in others the product had simply been made the same way for years because no one had ever questioned it, but there were always many other ways that it could have been made, features which could have been improved. The original product manufacturing brief may have been to get something produced quickly, not to optimise it for cheap materials or production, or for maximum ease of customer use, etc. By re-visiting all of their products in turn, substantial savings were made which massively increased profitability, and these were all quick wins, achieved by a small team, making relatively quick decisions – not poring over the designs for months to achieve small tweaks. They were glaringly obvious improvements once a few simple questions were asked.


Examine your processes

Processes are another area where improvements can usually be made. Particularly in large companies, which often have hundreds of documented processes aimed at ensuring consistency of quality, reduction in risk, or increase in efficiency, the processes are often over-complicated and have the very opposite effect to that intended. In my experience, if you get someone to create your processes whose sole job is to create and modify processes, then they will probably over-complicate the process, thus making things inefficient. This may be because they want to show off their process skills by producing something that looks complicated (“If it’s that complex, it must be clever!”), or because if they produce something very quickly that is very simple, then they will be seen not to be contributing much and will lose their job, but I have always believed that the best processes are the ones designed by those actually using them, because the process design will be an extra piece of work on top of their normal job, so they will do it quickly, and their vested interest will be to make their lives easier, so the resulting processes will be simple, easy to follow, and the most efficient. I only mentioned large companies, at the start of this paragraph, but having efficient processes in small companies is vital, as there is no time to be wasted. Often, the processes are self-evolving, and, because no one has had the time to stop to ask, “Why are we doing it this way? Is there a more efficient way?” the process has been allowed to become laborious and inefficient.

Conclusion

So, to conclude, you can go in to every company and ask the question about something that they are doing: ”Why are you doing this in this way?” and you will receive the answer “Because we’ve always done it that way.” or “I don’t really know – that’s just how we do it.” To be profitable long term, companies of all sizes need to continually question why they are doing what they are doing in the way they are doing it, and whether there is a better way. That has been my own personal mantra in business for 30 years, and it is amazing how much difference you can make through a constant quest to question everything and make small and quick improvements in everything you come across. All of those small improvements add up over time, and in large corporations, they can amount of £millions in cost and efficiency savings. In smaller companies, they can make the difference between staying in business, or not.

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