For McDonald’s, the recipe for success for 50 years was simple – more stores. And they built them, all over the world. A half century later, what happened? There were too many McDonald’s. No surprise there.
McDonald’s executives recognized the old formula didn’t work anymore, so they slowed down growth. They renovated existing stores, implemented a revised training program, and rewrote the menu. In other words, they shifted the company’s focus from supply (that is, more stores, more burgers sold) to demand – that is, the demand of its customers for service, quality, product offerings and cleanliness.
It’s a happy story for fast-food lovers and McDonald’s shareholders. But changing the culture of a company, especially one as mammoth as McDonald’s, isn’t easy. Yet that is exactly the challenge facing American industries, say Rick Kash and David Calhoun in their book How Companies Win.
It’s a point that vendors of products and services should keep in mind. But it’s also instructive to IDN executives, as they seek to respond to the demands of their communities and payers; and to supply chain executives, as they seek to improve their service to their internal customers.
There’s a fundamental shift taking place today, say the authors. It’s a shift from a supply-driven economy to a demand-driven economy. A company might offer a great product and the best supply chain too, but if customers don’t want it, or if they can get the same thing from a competitor, that first company will lose ground. “At the end of the day, whoever satisfies demand the best, profits most,” write Kash and Calhoun.
“The great companies of the past have always taken an historic innovation – AT&T with the telephone, Ford with cars, IBM with computers – and then consolidated control by defending their distribution arm at all costs. But the fastest-growing companies of today, such as Apple, Amazon, Facebook, Twitter and Google, don’t focus nearly as much on distribution channels. Instead, their businesses are built around consumption models, and their single-minded focus is on building relationships to their family of consumers to earn their trust, to expand their role in their consumers’ lives, and to enlist them in everything from product design to service. These twenty-first-century enterprises are as focused on constantly improving their levels of trust with their customers and consumers as they are on the degrees of efficiency of supply.”
“In an era of oversupply, it is now imperative that you construct a framework in your company that encompasses and aligns everyone toward meeting not just the current, but the latent and emerging demand of your highest-profit customers and consumers,” write the authors.
“[G]reat companies see trends and recognize patterns forming in their markets, their category, among their different customer segments – and even outside their businesses, in adjacent markets and across the entire culture – to develop hypotheses about what those customers will want,” they write. “Only then are they in a position to query customers – and even then, only the right customers – and begin to align current strategies, resource allocation, products and other offers to intercept this demand as it approaches.”
Are we indeed in an era of oversupply? Yes, say Kash and Calhoun. In 2008-2009, “[f]or the first time in their histories, most of the world’s manufacturers faced a world in which demand could no longer be depended on to grow inexorably far into the future. Instead, demand was actually shrinking or flattening dramatically in almost every category.” Demand may be starting to return to some markets, but they say “there is no evidence that we will see again – at least not anytime soon – the kind of continuous growth in demand that we enjoyed for six decades after World War II.”
JHC readers need only look at their own facilities and IDNs to see how these forces are in play there. Providers are seeking desperately to reduce costs, and will probably continue to do so as the industry moves further and further away from a fee-for-service mentality, which rewards them for doing more procedures and hence rewards their suppliers for selling more products and equipment.
And in the sense that contracting executives are suppliers of services to their internal customers (department heads, clinical staff, etc.), they face the same challenges as manufacturers. Alas, after spending all these years perfecting their internal supply chains, contracting executives may be finding that those same internal customers need help not so much in getting products and equipment quickly and reliably, as they need help avoiding the need for some of those products altogether, as they try to keep their own budgets down.
All this isn’t to say supply chain isn’t important. According to Kash and Calhoun, it is. But it’s merely the ante to play the game.
Figuring out the ‘why’ of your customers’ decisions
Working in new ways with customers – for vendors as well as supply chain executives – will be a hallmark for success in the future, according to the authors.
“At best, a policy that is reliant on ‘asking the customer’ can enable you to keep up with the competition, but never get ahead of it,” they write. “Our belief is that the key to success today is to develop a hypothesis about the future of demand while it is still forming.” That’s because demand forms long before potential customers can even articulate their needs, they say. “Anticipating demand is one of the greatest sources of competitive advantage any business can have.”
Companies – like healthcare organizations – will differentiate themselves not merely by identifying their customers’ purchasing habits, but more important, the reasons those customers make the decisions they do.
For vendors, success in identifying demand leads to profitability. “The foundation of any successful pricing strategy is to price to demand, not to markets,” write the authors. “Driving meaningful differentiation in your products is what separates you from competitors and what commands pricing premiums.”