P71 Hardball Innovation Taking the Best

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  • In this podcast I share another case study from the book Hardball, Are You Planning to Play or Playing to Win? It is Published by the Harvard Business School Press.
  • This is a case study about the Ford customer service division which at ne time was struggling. The division’s revenues were flat and only about 10% of dealerships were growing from their service operations. What made these results even more concerning is that in general the aftermarket parts business tends to grow faster than the original equipment market.
  • This division supplies aftermarket parts and instruction on how to repair Ford vehicles.
  • Several attempts to fix the business failed. They tried to focus on quality – “fix it right the first time.” They tried setting a goal of 100% service satisfaction – that didn’t go so well.
  • They thought about opening Ford auto care locations separate from the dealership like Jiffy Lube and Midas. Internal dissension concluded this was a bad idea.
  • They finally got fed up and established an executive team to solve the problem. They did a lot of good things – they collected information, assessed their competitive advantages and disadvantages, identified best practices, and ultimately explored options for reinvigorating growth. In the collecting information faze, they discovered challenging numbers. First year Ford car owners had less than half their maintenance done at the dealership as compared to 70% for Honda. The more they looked, the more Honda jumped out as having best industry practices.
  • At this point in time, Honda was doing something that now all dealers do. They grouped a bunch of service requirements, established intervals when they should be done, and did bundle pricing. Honda marketed these bundled services with signage in the dealership and marketing mailers. In their marketing, they made a strong case for why Honda vehicles should be only serviced at Honda. Their service marketing actually became a platform for regular interaction with Honda owners, which served to create a happy customer willing to buy a Honda a second time.
  • When the Ford team realized this, they went from fixing a problem to creating a true business growth opportunity. Egos and pride tried to derail the effort to mimic Honda. But ultimately the idea was to good to not pursue the bundled service approach. They overcame some of the internal resistance by taking the Honda program to a higher level. This is where a sense of ownership and pride kicked in.
  • Unfortunately, the path to implementation was not easy. The culprit was again company culture. Company engineers were not comfortable or supportive of putting a variety of services into one bundle and at the same interval. The engineers argued that each of the components had a different ideal interval. Engineers were getting close to derailing the entire program when another executive made a compelling argument that the needs of the customer trumped the engineer’s needs.
  • Having gained internal agreement, the next challenge the team faced was convincing their very independent dealers to join the program. In their dealer presentation, they focused on customer loyalty comparisons between Ford and Honda, the bundled service approach Honda used, and the customer sales and ownership lifecycle.
  • Very quickly dealers realized that they could increase annual service revenue by over $200,000 with almost no additional expense. Fairly soon dealers realize that they were crazy if they didn’t do this. The overall dealer’s counsel supported the bundled service approach. With this overall support, they were on the road and fairly soon had 3400 dealers signed up for the program.
  • In the next four years, Ford’s customer service division achieved double-digit growth. This was an indirect attack on Midas, Pep Boys and other independent garages that had been taking service business away from Ford dealerships. Soon into the program they added tires to the program and went from selling almost no tires to selling 1 million tires.
  • The authors conclude by saying, “Ford had learned that it’s never enough to copy the details of someone else’s successful program. It’s essential that your organization create anew and develop genuine passion for it. The growth team felt the passion when they did their research and realized the size of the opportunity.”
  • The authors mention some specific conditions when this approach of using another company’s best practices is a way to benefit your business.
  • First, they advise to “copy only when it will enable you to gain leadership.” Ford took what they learned from Honda and made it better and made it their own. That enabled them to make a dramatic turnaround in their service business. Companies that copied others but failed to gain leadership include IBM and Kodak which entered the copier business with me too products and failed miserably. Kmart copied Home Depot when they started Builders Square and failed. These examples highlight what I call the arrogance of a brand name. Some companies think their brand-name is so strong that they do not need a competitively superior product just a brand name that they consider superior. All too many times, customers see right through this. In the the case of Ford Motor Company, they were more competing with their previous version of delivering service than any competitive company. There was the indirect attack component –if Ford owners would use Ford service more then it would take business away from Jiffy Lube and Midas.
  • Second, the authors state, “borrow when it will facilitate the indirect attack.” If you copy someone else, don’t then turn around and compete directly with that someone else. If you borrow, consider using the me to version to compete with another company and target customers. Ricoh created a me to version of Xerox machines and used this version to compete in different distribution channels and with a different price and service models. Since Ricoh did not go directly against the profit sanctuary of Xerox, Xerox largely ignored their initiative.
  • Third, the authors underscore the importance of making the copy your own. It is okay to borrow best practices from someone else, but to be really successful you then need to tailor these best practices to your business and culture and set a new, higher level for these best practices. In effect, you raise the bar for best practices and become the new recognized leader. This not only has a significant business benefit, but also helps greatly with the cultural issues. When done right, the copy can become a source of inspiration and pride, because you took someone else’s best practices and raised them to a much higher level.
  • From an innovation perspective, there’s a lot to like here.
  • When we are helping a client with innovation, as a part of our deep dive into the business we always look for best practices around the world as they relate to the client’s need. You don’t always find something either worth copying or that’s a good fit for the client company. We often use best practices used by other companies as excellent stimulus in a creative session. The stimulus is a starting point, not an end point. We use the stimulus in combination with other inputs to use the creative session to take all the ideas and make them better and make them a great fit for the client’s unique needs. In a way, this is taking the best practices of another company and making them your own, except that our process greatly facilitates not only making them your own but making them better.

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