I used to have four rules of management, until I met someone who had only two – and I see businesses prove these two every day.
When I left the law, I did a course at Colombia and one my lecturers was a great guy by the name of John Whitney. He was Professor of Business Management at Colombia. One evening we were having a meal and I thought I would run by him some of my management theory, so I said: “John, I have four rules of management” to which he replied: “Lou, I only have two.”
I thought it better to go with his two rather than my four, so I gave him the floor. “Rule number one is that the customer is always right, and rule number two is that if you can’t remember it, go back to rule number one.”
Growing businesses are sometimes so blessed with success that they tend to overlook this simple proposition. What happens is that they are so busy processing customer demands that they become process oriented rather than customer oriented. I will explain what I mean by this in a minute.
In 1973, Boeing received 275 orders for commercial jets and had a virtual monopoly in the market. In 1988 it acquired McDonnell Douglas and the combined orders of Douglas and Boeing totalled 878. In the same year, Airbus, which virtually didn’t exist 15 years earlier, received 167 orders. In 1999 Airbus received 476 orders while Boeing received 370. Airbus had overtaken Boeing and had 50% of the airline market, which was worth hundreds of billions of dollars.
The history of Boeing over those years was that it told the customer what it was going to get. The senior executives at Boeing thought they were fireproof. They dominated the market; they believed that they were producing a great product and that the customer had to deal with them because there was no one else to deal with.
Guess what? Despite the reputation that Boeing had for safety and making great planes, by the mid to late-1980s it was fielding complaints from customers about mistakes, delays, inability to be flexible to customer needs and a host of other issues. Boeing had so successfully managed its monopoly that it had orders coming out its ears and went hell bent to build planes according to its belief about what the customer wanted; but in reality, Boeing had simply become a processor of orders and had stopped listening to the customer. The complaints were intensifying and the delays in delivery were increasing, and so Boeing acquired McDonnell Douglas, mainly to add to its production capacity.
In the meantime, Airbus had designed a plane around market research and talking to prospective customers. The A320 was a fantastic plane with state of the art materials and what is called Fly wire controls. It couldn’t get into the American market which was dominated by Boeing.
Then, hey presto!, Boeing had stopped listening to the customer, had bitten off more than it could chew, couldn’t deliver what it had promised and secretly criticised the customer for being so demanding when Boeing was doing its damned best to get the planes in the air. Enter Airbus with a modern short haul aircraft, decently priced and capable of being delivered on time. Boeing didn’t see them coming and had forgotten both rule number one and rule number two.
Do you know, I see it every day. Great little businesses going like steam and then they get caught up with their own success and forget John Whitney’s two rules. They get annoyed at customer complaints. “Can’t they see that we are moving heaven and earth to satisfy them?”
The customer isn’t really interested in the problems of their supplier. They want the supplier to be interested in their business. The more the supplier is occupied in process rather than responding to the expectations of the customer, the greater the opportunity for a competitor and the greater the speed of defection.
So even though we might think we are doing a great job and working damned hard to get the products out the door, if this results in short cuts, mistakes, delays in delivery and failing on promises, it doesn’t matter how hard we are working, we have just broken the two fundamental rules of business.
I think of John Whitney ever day. Wonderful guy with two great rules.
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