Profits at what price? Pfizer had two choices when it discovered that each vial of its vaccine held six rather than five doses. One was to push the FDA to declare a vial contains six doses. With this decision, Pfizer would make more money. Because it gets paid for each dose, each vial could now be priced twenty-percent above the agreed-to purchase price. The premium would all drop to Pfizer’s bottom line. The alternative was to remember the original price met or beat Pfizer’s expected return rate, which would be huge given the quantity of vaccinations involved. Producing a vaccine for an unpredicted global pandemic is a once-in-a-lifetime opportunity for a pharma company. The extra dose could be a contribution, helping nations vaccinate more people than they had planned. Pfizer’s leadership team decided on the FDA route, choosing higher profits over societal benefits….
Be careful in deciding what to incentivize
Ohio State football coach Ryan Day earned a $250,000 bonus when his team beat Clemson in the Sugar Bowl. His quarterback, Justin Fields (who received no compensation), was unfortunately injured during that game. If you were Coach Day, would you have asked Fields to play in the upcoming national championship game against Alabama? A similar situation confronted Fields’ high school coach, who kept Fields out of his final game as a high school senior. The coach did not want a broken finger to damage his star player’s long-term career prospects. The high school coach placed player well-being over other measures, as coaches should. But was this true for Ohio State? I doubt it, owing to this indicator: Coach Day would earn another $350,000 bonus should Ohio State beat Alabama. But the bonus he receives for coaching his players to maintain 3.0-grade averages is…
From “Mass” to “Craft”: The new differentiator
“Mass” was the economic drive of the last few decades. Mass markets replaced national markets, which had replaced local markets. Walk into any city’s retail centers and malls a decade ago, and they looked identical. Manufacturing automation and global supply chains made goods cheaper. Clothing, curtains, bedding, hairdryers, blenders … much of what we buy has become so cheap that we throw items away rather than repairing them. My seamstress, who has been in business some 40 years, cannot believe how poorly made clothes are today. And her comments refer to the pieces she is seeing, the ones worth repairing. True, cars are more expensive. But based on their quality, longevity, and performance, they are a hell of a lot cheaper than their predecessors considering lifetime costs. And have you noticed that they increasingly look alike? IKEA brought us furniture so cheap that…
How to avoid reckless cost-cutting
The pandemic is forcing many companies to cut expenses. Many business crises require tightening the belt. But if you must cut costs, do so in the context of specific aims and criteria beyond helping the bottom line. Otherwise, you’ve reduced your future competitiveness. Case in point. Kraft. Kraft split itself into two businesses in 2012, one an international snack and confection foods company (Mondelēz International, Inc.) and the other (retaining the Kraft brand) the North American grocery item business, consisting of cheese, Oscar Mayer deli meats, etc. In 2015, Heinz acquired Kraft. Kraft Heinz’s share value has dropped by more than half since the merger. One would think that the synergies between the two grocery-channel based businesses would lead to rising value. What happened? The answer is simple. Kraft Heinz cut costs, then cut costs, then cut costs yet again in an attempt…
Changing times demand new questions and changing strategies
An environmental assessment is a critical part of any strategic planning process. Its purpose is to identify changes around your business that pose risks or opportunities for the business in light of its market position. The assessment follows the identification of Strengths and Weaknesses, creating the well-known SWOT Table. Too often, leadership teams forget the critical next step to the SWOT assessment – identifying the core strategic issues and questions facing the business. Richard Rumelt, a renowned strategist, argues in Good Strategy/Bad Strategy that “A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge” and a fresh way to build new competitive strength. Without identifying the strategic issues and challenges/opportunities, you bypass the thinking that can lead to an overarching strategy – a coherence of interdependent moves that together build success. For Walmart, the…
What if you made market and customer understanding as important as your organization’s financial information?
Financial information infuses company activities. From budgeting to closing the monthly books, from measuring progress to managing cash flows, numbers are to business what the ABC’s are to our reading. It’s no wonder then that companies large and small have invested heavily in their financial system, teams, and processes to generate financial information. Let’s call this entirety the Financial Information System. Numerical data is collected, processed, and stored in data warehouses, where it is then used to develop insight and inform decisions. While the Chief Financial Officer is in charge of this system, all employees play a role, whether they fill out expense forms, develop budgets, or make investment decisions. And all decision-makers are encouraged to use the processes’ information (e.g., making a presentation as a product manager about your category). A stellar CFO is like a great coach in winning the game…
Change is never linear. Don’t be fooled by obstacles to change or a reversal in a trend.
Liberal media sites often highlight the positive trend of solar and wind power. In contrast, Mr. Jenkins, a Wall Street Journal opinion columnist, concentrates his energy-related columns on the well-known flaw of solar and wind energy not being as reliable as fossil fuels. He suggests wind and solar will be niche energy sources. Jenkins is wrong. He has fallen into a trap called mistaken (and sometimes hidden) assumptions. Jenkins assumes the intermittency flaw is a constant. But battery technology is continually improving, and its use in power storage to solve the intermittency problem is spreading in many countries. Battery technology is advancing so quickly and effectively for automobiles that one can now reliably predict when petroleum-powered cars will become more costly to produce and run. No wonder Tesla is worth more than Toyota. There are always naysayers to change. The Kodak Board was…
Strategic Inflection Points brought to you by COVID-19
Andy Grove, the talented and legendary Intel leader, defined the term, “Strategic Inflection Points.” All leaders must embrace his recommendation to pay keen attention to such times in a company’s life. React too late, and your business will not catch up. In his words, strategic inflection points capture “what happens to a business when a significant change takes place in its competitive environment. A major change due to introduction of new technologies. A major change due to the introduction of a different regulatory environment. The major change can be simply a change in the customers’ values, a change in what customers prefer. Almost always, it hits the corporation in such a way that those of us in senior management are among the last ones to notice. What is common to all of them and what is key is that they require a fundamental…
What to do when a better competitor shows up
A high-end sports club called Lifetime Fitness recently opened in La Jolla (CA) where I live. Think high-end resort amenities located on Main Street. With an abundance of classes, machines, healthy and tasty restaurant offerings, experienced trainers, and to-die-for steam bath and sauna, this “top brand” is stealing members from other clubs and from specialty niches gyms, like the Barre, Yoga, and Pilates studios. At $200/month, Lifetime membership is expensive. But if you work out a lot and enjoy a range of activities and an occasional steam bath, it’s a deal. The low-end clubs in La Jolla, like 24-hour Fitness, will do just fine. It’s the former high-end clubs that will find themselves challenged. Not surprisingly, some here in town are now offering membership deals, hoping to beat Lifetime’s price point. The niche spin-cycle clubs and yoga studios will also have a less-safe…
5 ways to keep your brand relevant
Your business can do many vital things well. High customer satisfaction ratings. High quality at a competitive price point. Great customer experience. But if you become irrelevant to the tastes, interests, and requirements of customers, all that “right stuff” won’t matter. Therefore you must understand where markets are headed, not just what’s relevant today. Let’s think about some current trends and imagine their impact by flashing forward 30 years when the last year of the baby boomer cohort (those born in 1964) turns 96. Will gas-powered cars be relevant? Family farms (sadly)? Long-haul truck drivers? Landline phones? Printed newspapers? Going to a doctor’s office for a simple exam? Single-use plastics outside medical markets? Leaders managing brands do the work of future forecasting because they want to evolve their offering to remain relevant. When leaders fail to do so, their brand (and often company)…