Compromise or tradeoff?

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Two seemingly unrelated posts I read this week made me think again about an issue that I think is at the heart of business strategy and leadership. Tradeoffs and priorities.

In the first post, Hugh MacLeod describes the decision Howard Schultz of Starbucks tells about in his book, Pour Your Heart into It: How Starbucks Build a Company One Cup at a Time. Sometime in the 1980’s it was a really bad year for coffee crops. Starbucks had to make a choice. Either raise prices or start using cheaper coffee. Research said that using poorer coffee will only be felt by 10% of customers (as a non-coffee drinker, this number surprised me a little) while raising prices would be felt by all costumers. This is how Hugh described what happened:

The accountants, predictably, recommended that they go with the cheaper coffee option. Numbers don’t lie etc, it was better to tick off 10% of their customers than 100% etc, cheaper coffee was the “obvious” thing to do etc etc.

Howard didn’t do that in the end. Instead, he raised the prices accordingly, and left a note in every store, telling people why his company was forced to regretfully raise their prices. And he also told them about the option he could’ve taken but chose not to i.e. cheapen the coffee.

And you know what? The customers understood his reasoning, and stood by the business.

Eventually wholesale coffee prices came down again, allowing Starbuck’s to lower their prices as well. The company weathered the storm and the brand ended up all the stronger for it. Life was good again.

Sorry, Bean Counters. Numbers do lie. Sometimes pathologically so…

The other post was written by Jon R. Katzenbach and Zia Khan on HBR.org. they describe what they call “Proud to be Cheap: The “Secret Sauce” of Low-Cost Winners”. Most companies engage in cost cutting and try to reduce costs. But some companies, Katzenbacha and Khan claim, have it as part of their D.N.A:

In a nutshell, it is a culture that is “proud to be cheap” in good times and bad. Their people cut erasers in half, turn off the lights when they leave the building, bring their lunch to work, fly in the back of the bus, and stay in Day’s Inns. More important, they are always on the alert for ways do things on the job more cheaply, without compromising quality and service standards. Nothing is wasted, nothing is redundant, and nothing is overlooked when it comes to doing it on the cheap.

These seem to be two very different stories. But actually, they are the same. It is the stuff success is made of. Tradeoffs. Priorities. Consistency. Average is the most dangerous path. If you do something, go all the way. Pure you heart into it. Make everything about your concept. Build the decision around it. Sure, at times it might not seem like a good idea. At times, everybody will tell you that you need to settle. That principles are good but they don’t provide a living or they don’t satisfy the shareholders they will say. I think it is all nonsense. Ignore Everybody.

The problem with stories about companies’ strategies and CEO’s decisions is that sometimes they seem distant. How many of us are going to be CEO or make decisions that have so much impact? In this case? Every day. Every one of us makes many choices every day. And each of these choices could be comprise or could be a tradeoff. What will your next decision be?

Elad

<a href=”http://www.amazon.com/gp/product/0788195336?ie=UTF8&tag=thecompaadvan-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0788195336″>Pour Your Heart into It: How Starbucks Build a Company One Cup at a Time</a><img src=”http://www.assoc-amazon.com/e/ir?t=thecompaadvan-20&l=as2&o=1&a=0788195336&#8243; width=”1″ height=”1″ border=”0″ alt=”” style=”border:none !important; margin:0px !important;”

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