Jim Collins was Wrong
Jim Collins was wrong……and so was I. You remember Collins. He wrote the book, Good to Great. It was a huge best seller, selling more than four million copies in 35 languages. We’re told Collins used a large team of researchers who studied 6,000 articles and generated more than 2,000 pages of interview transcripts during the five year project to develop and write the book. He described seven characteristics of companies that went from good to great, one of which was. “First who, then what; get the right people on the bus, then figure out where to go.” I disagree.
I have been teaching a seminar in the Business Leadership Center at the Cox School of Business at Southern Methodist University for the past seven years. The seminar is entitled, The Five Roles of the Chief Executive Officer. For every one of those five years I have counseled my students that the most important decision a CEO makes is who to hire, fire, promote, and demote, which is, substantively, the same as Collins’ counsel. I have changed my mind.
The Most Important Decision
The most important decision a CEO makes is how to create, deliver, and capture value. This is sometimes called a value proposition or the basic business proposition or even a business model. (In fact the term “business model” is misleading. It gives the impression of complexity, when, in fact, a value proposition should be very simple.)
The value proposition posits a business can produce a good or service that its customers either
can’t or don’t want to produce themselves for one reason or another. The value created is represented by all the costs that go into producing and re-configuring the good or service plus the margin the customer will allow. Value, both real and perceived, is greatly influenced by the customer’s need and the scarcity of the product or service.
Think Razor Blade
Both need and scarcity can be created. For need, think razor blade. Do you really need, as Gillette would have you believe, five blades to shave the whiskers from your face? For scarcity, think OPEC (Organization of the Petroleum Exporting Countries). Does the oil cartel ensure the stabilization of prices in international oil markets, or do they maximize prices through withholding supply…….making oil scarce?
So what do Gillette, ExxonMobil, Starbucks, Southwest Airlines, and Apple all have in common? It’s a really strong basic business proposition, through need or scarcity or a combination thereof. Moreover, their basic business propositions are not at all complex. Let’s use Apple as an example. There are but three elements to Apple’s value proposition. They are: own both the hardware and the software so as to control the experience from beginning to end; make usage really easy…..intuitive; and present the physical manifestation of the experience, the hardware, simply, and above all, elegantly. You really don’t want the value proposition to be any more complicated than that. Why? Because you want your customers to understand it. You surely don’t want to confuse them.
If You Don't Have It, You Have Nothing
So why is the value proposition primary? Because if you don’t have it, you have nothing. You don’t have a business. You don’t have to worry about getting anyone else on the bus; there is no bus. You don’t have to worry about whom to hire, fire, promote, and demote; there’s nothing for which to hire them; nothing for which to fire them; nothing to which to promote them, and nothing from which to demote them. There is nothing.
In Part 2 of this article piece I will discuss the role of management relative to value proposition.
