THE MYTH OF SAVING YOUR WAY TO
GREATNESS
Eroding the possibility of a sustainable future
By Professor William A. Fischer. (March, 2007)
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THE MYTH OF SAVING YOUR WAY TO GREATNESS | Eroding the possibility of
a sustainable future
It seems like every time I turn around these days, another firm that I work with has just
launched a new campaign to cut costs. Call it “Operational Excellence”, or “Leanness”, or
just plain cost-cutting – a fool’s dream for most. It’s not that it’s not a good idea, it is, of
course; who could ever be against cost-management? The big problem is that costcontrol, not to mention cost-leadership, requires great and consistent discipline, and most
firms that I see lack the requisite discipline. They also lack the vision, and the leadership,
that are central to this, and, so, their efforts reaffirm the old adage that: “You can’t save
your way to greatness.”
Beware of “cheaper”
In fact, the emergence of the Chinese manufacturing colossus has rendered a costleadership strategy cornerstone pretty-much obsolete for most Western firms. Other than
Dell, there are few Western manufacturing companies that have, in fact, achieved market
leadership these days, on the basis of low-costs. Quite the contrary, mindlessly cutting
back on the distinctive competencies of the corporation, in an effort to be “cheaper,” will
almost always erode the possibility of a sustainable future. Instead, the mass mobilization
mania of cost-cutting, driven from below by focused performance measures, will, all too
often, lead to disaster. Witness, for example, the recent “scares” suffered by Japanese
airline operators, following the outsourcing of airplane maintenance to “low-cost” Chinese
contractors.
The Starbucks experience
What springs to mind, in particular, is the recent memo that Starbucks’ Chairman, Howard
Shultz, sent out to his top team decrying the diminishment of the “Starbucks experience”
as a result of the unintended consequences of operational efficiency measures. The
memo, itself, is an amazing statement of strategy, and leadership [the memo can be found
at http://starbucksgossip.com/], of the sort that is so lacking in most corporate
environments today. Shultz deplores the lost of “romance and theatre” that accompanied
the adoption of automatic espresso machines, as well as the loss of aroma and the sound
of bean-scooping, that disappeared with the introduction of flavor-locked packaging for
the raw-materials of the coffee being brewed. He even worries about the loss of the “soul
of a neighborhood store,” as a result of many of these same decisions. These are details,
but it is the details that matter. If “Strategy is choice,” then the efficiency choices that were
made in the pursuit of an ambitious growth strategy, may well have resulted, through
accretion one by one, in a threat to the promises that lie at the heart of the Starbucks
brand.
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THE MYTH OF SAVING YOUR WAY TO GREATNESS | Eroding the possibility of
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Also it is worth noting that it is the Chairman who is raising the issue, not middlemanagement. Nor, given their same-store sales increases of 6% [fourth quarter 2006], is it
the customer – yet. It is the guy at the very top, who, incidentally, is also taking
responsibility for being part of the management team that made these choices, and is now
calling for correcting them. This is sober and responsible leadership. What makes it even
more amazing, is that it is being worried about in an organization that Business Week
ranked 10th, this very month, among it’s annual listing of “Customer Service Champions;”
and which Fortune ranked 16th among its 100 Best Places to Work, for 2007.
The lessons for all of us from Starbucks' experience are profound:
Cost-control needs to be controlled. Left on its own, the mindlessness which often
accompanies such crusades can attack the very essence of the brand-promise, and
destroy distinctive competencies
Senior management are ultimately responsible for whatever the outcome of such
initiatives, and they should act quickly if they suspect a wrong turn in efforts – being wrong
is correctable; being gone is not
Growing opportunities are probably a more promising path for Western firms, than
reducing costs. Enhancing offerings, and charging more, rather than paring offerings and
getting trapped in a downward margin spiral, is a better way to go.
Professor Fischer is director of IMD’s Driving Strategic Innovation (DSI) program. He
teaches on the Orchestrating Winning Performance (OWP) program and the Program for
Executive Development (PED).
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THE MYTH OF SAVING YOUR WAY TO GREATNESS | Eroding the possibility of
a sustainable future
RELATED PROGRAMS
DRIVING STRATEGIC INNOVATION - http://www.imd.ch/dsi
Faster Innovation Across the Value Chain
Program Directors William A. Fischer and Charles H. Fine
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For senior executives or teams who are crafting innovation strategies and
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Speed up market commercialization of innovative ideas that are
strategically important
- Identify innovation opportunities in your value chain and learn how to better
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PROGRAM FOR EXECUTIVE DEVELOPMENT - http://www.imd.ch/ped
Building Global Leaders
Program Directors Martha Maznevski and Allen Morisson
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Learn to drive performance in a fast-changing global environment
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Discover how to build a better business: gain skills, create networks,
inspire others
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IMD - www.imd.ch
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