The vital art of giving customers what they want

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"WHY is it that Casio can sell a calculator more cheaply than Kellogg's can sell a box of cornflakes? Does corn cost that much more than silicon?" It is a good question, and just one of many that open the first chapter of a book that goes closer than most management texts to the heart of why some little-known companies are taking off, and why some big names are on the road to nowhere.

The point that the authors, Michael Treacy and Fred Wiersma, are seeking to make is that while some, albeit not enough, organisations constantly endear themselves to us, others "just don't seem to know how to please". It is not as if their managers go to work in the morning intending to fail, but for all practical purposes, they say, they have chosen failure.

The reason is that the world has changed. "Customers today want more of those things they value.

"If they value low cost, they want it lower. If they value convenience or speed when they buy, they want it easier and faster. If they look for state-of-the-art design, they want to see the art pushed forward.

"If they need expert advice, they want companies to give them more depth, more time and more of a feeling that they're the only customer," Treacy and Wiersma write in The Discipline of Market Leaders.

The important thing for those setting the strategy of companies to remember is that there is no future in trying to meet all these demands. They must decide which value they wish to highlight and stick to it.

Consequently, the oft-cited Wal-Mart, having nailed its colours to the mast of low cost, must always lead on price. Similarly, Hertz concentrates on reducing bureaucracy - to make hiring a car nearly as simple as hailing a cab. And L L Bean, the mail-order clothing company, sets such great store by service that its telephone sales reps sound as friendly as a neighbour, and so on.

Such companies do not shine in every way. They are thriving because "they shine in a way their customers care most about". If this sounds a lot easier than trying to cover all the bases, as most management gurus suggest is necessary, it is not. Such an approach assumes that the company knows what its customers value most.

Nevertheless, the book, hailed as a breakthrough on re-inventing competition from "the management consultancy [CSC Index] that brought you re-engineering the corporation" has much that should inspire managers to attempt to find out.

In researching the book, the authors studied 80 market leaders with a view to placing each in one of three "value disciplines" - best total cost, best product or best total solution. The successful companies, they suggest, literally build their organisations around whichever one they fit into.

Each demands a distinct organisational model with its own structure, processes, and culture. There are also important operational implications stemming from whichever one is selected - and the authors assist understanding them with the aid of case studies.

Most of the examples used are, as usual, American, but they are generally well enough known to mean something to the British reader. More importantly, perhaps, the authors, possibly conscious of what happened to Peters and Waterman's excellent companies, point out that media praise often turns out to be a curse. Indeed, Federal Express, not for the first time, merits a mention among the elite. But Treacy and Wiersma are also at pains to point out that the Memphis-based courier is not having it all its own way. Airborne Express of Seattle is apparently winning business by delivering "a different kind of value". While FedEx has chosen to create customer value through excellence of execution Airborne is using excellence in customer care. There is probably room for both approaches, and one cannot say whether FedEx will follow other great American success stories in falling from grace. But the consultants have a salutary point to make.

Rejecting the idea that such things are all down to fate, they suggest that "praised and praiseworthy companies often fall into decline because they fail to maintain their well-conceived strategies". Having become market leaders many firms rest on their laurels, thereby violating a central rule of market leadership: "Dominate your market by improving value, year after year."

q The Discipline of Market Leaders, Michael Treacy and Fred Wiersma, HarperCollins, pounds 16.99.