Number 14: Spring 2001

 

Building the Linear Business

By Adam Mandel, CEO of Versus

As you drove to work this morning you might have thought of Starbucks. Or even visited one. Why? Did you remember what it looks like? Smells like? Even sounded like? What do you recall about their store personnel? How did you order their products? Will you come back again? Did you think about Maxwell House coffee this morning? Its famous "good to the last drop" slogan? The ubiquitous blue can? Beyond that it becomes more difficult doesn't it? Both Starbucks and Maxwell House are incredibly successful coffee brands, yet one seems to imbue more powerful mental imagery than the other.

But did you ever think about why?

One argument would be distribution. Visiting retail stores will always represent a richer experience than consuming a packaged item. (Ironically Maxwell House began as a retail experience. It was served as the exclusive house blend coffee of the Maxwell House Hotel in Tennessee in 1892.) Yet both brands often compete head-to-head. Maxwell House has airport kiosks near Starbucks; Starbucks sells a packaged version of its blends, and Maxwell House spends millions on advertising while Starbucks spends little.

What really separates these two brands? It's a management system called linear business planning.

Linear business planning is a tool that focuses on every aspect of an organization around a single operating principle. When you sip that Starbucks coffee in its paper sleeve you're really experiencing the collective decisions of the company's purchasing, operations, human resource, financial, administrative, sales, and marketing teams pursuit of making Starbucks "the premier purveyor of the finest coffee in the world." In contrast, when you scoop from a can of Maxwell House coffee you're consuming a part of the Kraft General Foods portfolio since its management focus is capturing market-share from competitors and contributing revenue to corporate bottom line.

Linear businesses are difficult to create, and more difficult to steward. They require a true commitment on the part of management and a buy-in and flawless execution on the part of employees. In the end linear businesses are more profitable and command higher valuation because they're focused and efficient. They also become magnets for attracting and retaining top talent.

Texas-based Southwest Airlines is an excellent case in point. A search of the Internet for the lowest domestic fares in the U.S. invariably will produce Southwest. The relentless focus on low fares by Southwest Airlines has significantly changed the way many airlines operate and has had a corresponding impact on the expectations of passengers. Every Southwest department has contributed to its low fares. Purchasing decided to acquire and maintain a fleet of a common aircraft (Boeing 737's); flight operations obtained gates at second-tier airports in major cities; human resources hired and satisfied non-union labor, airport operations addressed how passengers board its aircraft. Marketing delivered appealing messages to travelers. The results speak for themselves. In a turbulent industry, Southwest is one of the world's most successful airlines. It's profitable, valued, admired, and a desired place to work.

In today's challenging business climate, managers need to question whether their company is, or could become a linear business. A positive answer may well be the difference between leadership, also-ran, or out-of-business status. If you conclude that you're not operating as a linear business, how do you become one?

Recognition of need and a commitment to change is the obvious starting point. From there some companies hire an outside organization such as Versus to objectively audit their business, market environment, systems, and staff to ultimately create an operating principal. Other companies simply re-group around senior management, chart a course and stick with it.

In our business practice, Versus engages clients not only in the creation of an operating principle, but we recommend and execute systems and programs to "get all the troops marching in the same direction."

A good example is the challenge we encountered at M-2, a fast growing chain of collision repair shops. M2 began with unique vision: create a paradigm-shift in the insured collision repair business with the promise of a single operating philosophy focused on customer service, quality, innovative pricing, and reduced repair time. With substantial financial backing it acquired independent body shops, installed professional, centralized management, and united the independent shops under a common brand name. Initial results were disastrous. Versus was hired to find out why, and fix the problem.

First, we discovered that body shop personnel were unwilling participants in the acquisitions. Our proprietary audit revealed that M2 not only purchased independent body shops but unique independent operating cultures as well. Employees accustomed in the past to shop owners assigning their work and determining their livelihood, were for the first time in their careers confronting central and distant authority. The uncertainty lead to workplace tension, rapid turnover, and poor-quality repairs. As a result M2 developed a poor industry reputation, and lost substantial business as insurers removed the company from direct-repair programs that are the life-blood of the industry.

The first step to the recovery plan submitted by Versus began with a change in expectations. M2 management agreed to our recommendation that relatively small changes could result in a dramatic, desired contrast with the rest of a negatively perceived industry. So we began by creating an employee education program, devising a unique compensation and reward program, and creating a first for the industry - a career path for body shop personnel. Second, the company committed to a new operating philosophy of "accountable care" -- the belief that it would exist as "the one car repairer that stood for people, not just metal and money." Third, the company began communicating the philosophy simultaneously to insurers and consumers, addressing customer service by installing a centralized telephone servicing system to reduce consumer delays, hiring new customer-service representatives, and redesigning physical space all in an effort to deliver its new focus.

Today, M2 is view as the most successful company in its industry.

Linear business planning can apply to any business, in any category with significant reward.

Think about it, the next time you visit a Starbucks.

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© Adam Mandel / Through the Loop Consulting Ltd 1998-2001