I was reading the Wall Street Journal earlier today and came across an article titled: UPS Boss Preaches the Power of No— https://www.wsj.com/articles/ups-boss-preaches-the-power-of-no-11614335402?mod=searchresults_pos1&page=1. It elicited a visceral response from me. While I understand and appreciate the need to manage the numbers, the message is wrong. Running a business strictly by the numbers does not account for the subtleties of running a large complex business— that is managing for the long term. Specifically, it does not account for the need for innovation and change. And, despite what some people think you cannot mitigate a fundamentally money losing business relationship by increasing the volume of business you do with them. So, after a careful assessment of both the numbers and the business case (was there any scenario where PW could make money) PW walked away from some very large clients and was more profitable for it. As such, people who run businesses strictly by the numbers are missing a big piece of what generates a sustainable competitive advantage.
To be clear, I was behind Price Waterhouse’s decision (this happened when PW was still PW, not yet PricewaterhouseCoopers) to analyze its business relationships and walk away from unprofitable clients. And, I would add that PW (consulting) had a need (cultural) to reinvent itself every five years or so. This kept the business relevant and was the secret to the practice’s long-term success.
At the same time, I watched a PwC partner take a client— one of the largest companies in the world— and figure out a value proposition that worked for both parties. The client was better off for PwC’s high-quality work and PwC made a return that was commensurate with the value delivered to the client. Everyone was happy.
I have seen both (walk away with cause and figure out how to make the business relationship work) of these scenarios play out many times. But I have also seen companies get lazy and walk away (sometime not even understanding what they are giving up) from potentially profitable situations with the excuse that there is no way to make money with certain clients.
My visceral reaction to the UPS story in the WSJ is the result of my observations over many years that UPS runs a business based on repeatable managed processes (periodically something that I have been accused of being too focused on) that make sure packages get delivered on time. I do not see creativity and they do not seem to balance the one overriding key performance metric with others that might just result in happier customers and a more profitable business.
Further, I wonder if Amazon would have ever gotten into the business of package delivery if UPS (and/or FedEx) had been more creative and aggressive in how they serviced Amazon. By that, I mean:
- Thought about how they could make Amazon more competitive by improving and adding to the delivery services they were providing to Amazon. After all, they have more experience, expertise and data about shipping than almost anyone in the world; and
- Being a proactive partner that actively brings the new ideas generated in the previous bullet point to their client and invests in making Amazon more competitive while ensuring that their services are a key part of that competitive advantage.
Do not get me wrong, I believe that the numbers (and data) are important. You can run a business and improve it without understanding the numbers. But successful businesses are started on good ideas that generate value for customers and those businesses only stay relevant if they continue to provide that value. No company has every saved its way to success—at least not over the long haul, i.e., cutting costs (even if it is called “improving efficiency”) is not a winning strategy unless your planning horizon is mighty short. In the end you need to: 1) understand your customer’s needs; and 2) provide goods and services that offer value and adapt as the customers’ needs change.
I close by noting that Carol Tomé (UPS’s CEO) might have a more nuanced view of the world than was presented in the WSJ. That said, the article highlighted and then focused on operational and financial metrics, not innovation or customer engagement. Once again, I understand (and am even often the champion for) quantitative measures and measurable/manageable processes. But growth and longevity are not built on those elements alone and if her focus is not broader, she is not doing either her customers or shareholders any favors.
Copyright 2021 Howard Niden
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