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1-Page Summary of How Companies Win
Economic Paradigm Shift
A major shift is happening in business. Businesses must focus more on what consumers want instead of simply supplying products or services to them. Previously, successful companies such as IBM and Ford had a supply-driven strategy that focused on manufacturing innovative products and then optimizing distribution channels. Today’s most successful businesses, such as Google and Apple, have a demand-driven model that focuses on the needs of their customers rather than their own supply chains. Now consumers are driving the bus instead of manufacturers or suppliers. Successful businesses listen to their clients’ demands rather than relying too much on old inventories or static plans for product development. Demand involves how well a product meets people’s immediate needs and long-term desires; it also includes its emotional and psychological impact, along with practical concerns like serviceability, branding, packaging etcetera.
Current market demand is exemplified by Microsoft’s rush to create Internet Explorer in response to Netscape’s Navigator.
Google was a major success because it filled an existing need that millions of people had but didn’t know they had. Twitter also filled an existing need, and many smartphone users found its concise messaging useful.
A four-phase transformation started with supply and demand. Demand was the focus for a long time, but supply took over in 1990. However, there was an oversaturation of companies by 2007, which led to a contraction of demand in 2008 and 2009. This created an environment where businesses had to compete for customers more aggressively than ever before, which is the fourth phase: hypercompetition from 2010 on. The key to success is finding profitable demand instead of relying on market equilibrium or oversupply.
McDonald’s Recaptures Its Old Magic
McDonald’s used to be a great company, but in the 1990s it lost its way. It concentrated too much on building new restaurants and buying other food chains instead of focusing on what customers wanted. By 2000, McDonald’s had more than 28,000 locations and annual revenues of nearly $15 billion. However, in 2002 it experienced its first quarterly loss since 1954 because it didn’t pay enough attention to consumer demand. People were increasingly complaining about dirty stores, unclean bathrooms and unfriendly poorly trained employees; they also believed that Subway was healthier than McDonald’s. In 2003 McDonald’s embarked on one of the most remarkable restructurings in modern business history by revising their entire product offering to keep up with changing tastes.
Once McDonald’s leaders realized they had a problem, they fixed it. They introduced healthier menu items and scaled back on new store openings to focus more on improving the look and service of existing stores. Their efforts worked; sales increased by 42% from 2004 to 2009, net income grew by 96%, from $2.3 billion to $4.5 billion during that time period, and in 2008 only two Dow stocks gained ground—one of which was McDonald’s.
McDonald’s completely revamped its business model during a recessionary economy. The most important lesson to take away from this is that companies must anticipate customers’ future preferences and develop evidence-based hypotheses about where their company’s demand is heading.
Understanding Demand
“What do you know about the demand of your most profitable customers that your competitors don’t know?” This question can be answered by asking four additional questions: Which customers generate most of our earnings? What unfulfilled demands do they have? How can we differentiate our products to satisfy these demands? What “action plan” will we use so employees know how to proceed?
