When Being Right is Wrong for Your Business

Oct 1, 2012   //   by Helen   //   Blog, Strategy  //  2 Comments

 

In business, as in life, we tend to put a lot of store in being right. But sometimes being right has no value. In business, it’s not enough to be right, we need
Right or Wrong?to only concern ourselves with adding value. In fact, even failure has a value. This post looks at how adding value is a better objective than being merely right.

 

Perfectly Right

My dad used to tell a lot of accountant jokes, until I became one.
Two men are flying in a captive balloon. The wind is strong and they are blown off course until they have no idea where they are. They go down to 20 m above ground and ask a passing wanderer, “Could you tell us where we are?”
“You are in a balloon.”
So, says one pilot to the other:
“The answer is perfectly right and absolutely useless. The man must be an accountant.”
“Then you must be businessmen”, answers the wanderer.
“That’s right! How did you know?”
“You have such a good view from where you are and yet you don’t know where you are!” 

 

I’m Right, How Can I be Wrong?

Losing focus on value can lead to using the right information to make the wrong choice. Here are three stories to illustrate where value can be lost in business.. These stories are based on real life, but rearranged somewhat to protect the guilty…

 

      1. “ We’ve run out of storage. Let’s build more.”
        A factory makes lots of components in-house for their final assembly. Some are cheap and easy to make, some are expensive and have long lead times. So they make the cheap and easy parts around the clock and the expensive ones only to order. But guess what? The cheap and easy parts take up space and soon the warehouse can’t accommodate them. So, the Warehouse Manager calls for more storage space to be built, “ We’ve run out of storage, let’s build more.” He is right about not having enough storage, but wrong about building more of it. Why? Because storage doesn’t add value. In fact it costs money and takes up valuable real estate space. That space would be more valuable for other projects. So, the Production Manager says, ”Let’s just stop making so much of this stuff. Let’s cut back to one shift on that line.” So they do. Problem solved.
      2.  “It’s great for our cash flow. Let’ sell more like this.”
        A four star hotel offers their Facebook fans weekend breaks for €100 per person. Cleaning the rooms and providing the food provides them with a gross profit of €40 per person on every weekend sold. They get a great response and soon the hotel is busy with guests, who are enjoying the fantastic value and wonderful facilities in the hotel. The hotel decides to use this as a way of increasing turnover and occupancy and soon it’s a regular offer on Facebook. Their Facebook “like” numbers  grow rapidly and the manager is even invited to deliver a seminar on how they increased their  Facebook “likes”. But the hotel returns a loss for the first time ever that year. Why? Because they became sales addicts. They never evaluated the impact that selling more would have. They didn’t cover their fixed costs, and they displaced regular guests who spent more in the bar and became regulars. Most guests did internet searches before booking and the numbers paying full price dropped off. Why pay full price when you just wait until Thursday to get an offer? The hotel even  did long term damage to their reputation because  negative reviews were posted online. Their regulars found the pool crowded, the service patchy and they felt undervalued. The number of Facebook fans that a business has is not in itself a driver of profit. The hotel lost sight of where both their profit and their added value lay and sacrificed it on the altar of sales.
      3. “The internet is an important sales channel. Let’s build an online shop.”
        A shop selling safety equipment decides to put some of their range for sale on the internet, all of which are best sellers and profitable. So they spend €10,000 on a user friendly website and they get lots of visitors to the site but sales don’t materialise in sufficient quantity to make money. How did this happen? They forgot about their competitors for those ranges, sites like Amazon and eBay.  Customers are very price sensitive online, they search before they buy. Their competitors were cheaper. In their shop, they gave added value in the form of advice for which people were happy to pay extra. When they went online, they lost their added value. Internet selling is not a silver bullet.

Big Picture

It’s essential look at the big picture before you implement changes based on a fragment of right information. Ask yourself why you are doing something before you do it, and make sure that what you do adds value. Don’t pursue goals that are merely vanity metrics, but make sure to add value to your customers. Otherwise, you can be very busy indeed engaged in activities which cost you money.
Being featured in the media, winning awards and even just increasing turnover are all wonderful achievements, but they may not add value to your business. They are vanity metrics.
Frank Hannigan and Vuk Mirkovic of Razor Communications, didn’t win at this year’s Net Visionary awards. They are sanguine in the face of loss, as you can see below. In the bigger picture, they’ll still be able to add value to their customers, doing what they always do. And they’ll even have fun doing it.

I’ll leave the last word to Peter Druker:

“Management is doing things right; leadership is doing the right things.”

 

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2 Comments

  • Hi Helen,

    For me, being featured in the media and winning awards are stepping stones, whereas increasing turnover is an end goal/result.

    It would interesting to see if winning awards actually correlates with success later? Perhaps I’m just been an old cynic!

    Great post & congrats on the new site/blog!

    • Hi Niall
      Yeah, I’m a bit of a cynic too. I think that media and awards are fab but are not a predictor of success. I was reading high court petitions for last week and see an award winning company from two years ago is in real trouble, (i.e. examiner appointed).
      The danger with pursuing vanity metrics is that they take time and shift your focus. There’s an old saying – never believe your own PR – and I think if folk keep that in mind, it’s grounding.
      Thanks for commenting – it’s the first day of this new blog and you are the first commenter :) Much appreciated.
      Cheers ~ Helen

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