Desperately Seeking Added Value-The Key To Beating Your Competition
Over time the delivery of services has become increasingly commoditized. If your business is insurance, for example, you are faced with competition selling insurance that is very much like yours. If their product looks, smells and feels like yours, and they are willing to sell it for less than you are asking, your potential customers are likely to ask this classic commodity question: "A bushel of wheat is the same bushel of wheat, no matter where I buy it. Why should I pay more to buy it from you?"
Think very carefully about your business and what you actually sell. Remember that people don't buy "drill bits." They buy the capability to produce holes of a given size and depth. How many other businesses are in your market, selling about the same thing your business sells? How many of them are willing to sell it for less than you are asking? If the answer to both questions is one or more, you are in danger of becoming a commodity trader, trading in your own products or services. Commodity trading is characterized by high volatility, the need for extremely high volume to make up for extremely low profit percentages, and a high rate of failure-probably not a desirable set of conditions, and not what your business plan describes.
How, then, can you ensure that you will not become a commodity trader? The answer, especially for service businesses, is to provide added value the consumer simply cannot find in your competition. If you can provide unique added value, your bushel of wheat is suddenly different from other bushels of wheat and can bring a higher price.
This fact has been slowly dawning on a scattering of businesses throughout the marketplace, and they have begun selling "value-added" services as part of their business plans. Accounting firms have added succession planners to their traditional staffing. Hotels have added "free" breakfasts and Internet connections. Pizza parlours have added guaranteed delivery times, bread sticks, fresh-baked cookies and video entertainment to their (increasingly commoditized) pizzas.
Take a good look at your own business and at your competitors. What do you offer that adds value to what you sell? Ideally, it will be added value that your competitors cannot easily add to their own offerings, and it will not add to the cost of the basic product or service.
An excellent method of offering added value is to enter strategic partnerships with non-competing service providers in related fields. Often, this allows both partners to offer the other's services without increasing costs. An example might be an alliance between the accounting practice mentioned earlier and a succession planning firm. Since their target markets are the same, each benefits from the other's marketing efforts. Their products are complementary in function, and they can offer efficiencies not matched by other combinations of non-allied accounting firms and succession planners.
It may require a bit of thought and effort on your part to identify and develop value-added relationships to your business plan, but it can provide an important edge in your competitive market. It may eventually make the difference between keeping and losing a valued customer when someone inevitably offers to sell a product much like yours at a lower price, but without value added.
Missed Opportunities In Systematic Use Of Pre-hire Assessments
Seven managers selected for a demonstration program in early January were obviously excited as the training began. The hotels they managed had been selected because of relatively high turnover. These managers were among the best in the company, and they expected to get good results using the proven assessment programs for the properties they managed. The managers left the training with positive attitudes, eagerly anticipating the process.
Over the next three months, spot checks by telephone found the managers to be "pleased with the system." They reported "seeing it begin to work."
However, an audit of the results at the end of May told a different story. Some of the properties had used assessments throughout the five months but not for every hire. Three locations had entirely abandoned the process by late March, and one property had never even started using the assessments. (They had the applicants complete the assessment, but they never scored them.)
Reasons, explanations and excuses were plentiful. But ultimately it became clear: In a system where local managers enjoyed a great deal of autonomy, and no clear line of authority existed between corporate HR and the properties, managers would only ensure that the program was applied if they believed it was in their self-interest. HR needed buy-in at a deep level by each manager.
Determined to convince both property managers and senior management that the assessment process would work (and hoping to make it a mandatory part of the company's hiring), the HR department looked to the data for support. What they found should prove very interesting to senior management with profitability a major goal.
Where the assessments had been used in hiring, the new hire failures (They quit or were fired) were reduced by 36 percent by the end of May. Further analysis showed that at the locations not involved in the study, 51 percent of those hired between January 1 and May 31 had failed by the end of May. For the study properties, those hired without use of the assessments had exactly the same failure rate - 51 percent. For those hired using assessment information, however, the failure rate was only 32 percent. These numbers probably underestimate the potential effects of the assessment since a larger share of the people hired with assessments were hired early in the year and had more time to fail. Still, a turnover reduction of more than one third represents a substantial opportunity to reduce costs.
Systemwide, with a calculated cost-per-failure of $3,500 or more and an annual failure rate of over 141 percent among their 400 employees, the ability to reduce failures by 36 percent is a $714,000 per year proposition. Based on the costs of the proposed program, that number reflects a 1700 percent return on investment!
As the program continues over time, the expected improvement in the employee pool and gains in customer service and productivity should provide additional improvements in profitability.
