Tag: value

Losing the Picture – The Closure of Black’s Photography

On June 9 this week, Black’s Photography announced it would be closing the remaining 59 stores in it’s Canadian chain, already down significantly from the 113 stores operating when Telus bought the retailer in 2009. I was asked two key questions this week: First, What could Black’s done to save the organization, and second, why would Telus buy Black’s in this environment?

My answers were essentially, nothing, and who knows?

Black’s market had evolved in a significantly negative direction over the past decade, as a result of a behavioral shift in their customers. This is no surprise to most of us. The vast majority of pictures taken today are experiential, and the most popular camera is a phone. GoPro cameras are up over 30%. People take a picture or video, edit it on the camera itself, and upload or share it on social media. Photography has become a self-serve hobby relying on immediate gratification.

Even hobbyist and professionals (true photographers) buy their gear elsewhere, including on-line with places like Amazon, and Best Buy. Photographers have the required edit software on their computers, there printers produce quality pictures on good paper, and they can manage their hobby or business in the comfort of their homes. Specialty store Henry’s has a more dedicated following, and has even added stores recently, but they can boast a broader selection of gear and related product and services.

There really wasn’t anything special about Black’s that offered an advantage now, or that could be built into a sustainable business in the future. Anything of interest they could have evolved into already existed with a position of strength. Black’s was an aging dog. This wasn’t a case of a misplaced innovation strategy; every business has a cycle, and this one was coming to an end.

Which brings us to Question 2 – Why would Telus buy a retailer like Black’s? There may have been potential synergies in mind, perhaps co-branding of stores or increasing Telus’ ability to participate in the boom in experiential photography. Anytime you can tap into your customers’ lifestyles is generally a good thing for a firm. Apple and Google both provide photo services in some form, so something could have evolved here given a greater sense of urgency.

Even if there was a plan, it never got the attention it needed to capitalize on any complimentary capabilities and evolve into something interesting. As a result, another fixture in the retail landscape over many decades in Canada is about to disappear in the fashion of record and CD stores, and movie rental shops.

If there is a message for leadership in all of this, it is that it is incumbent on all of us to think about who are customers are; not only today’s customers, but tomorrow’s as well. Then, we need to align our operations to providing what those customers will want. If we can and do, we may endure. If we can’t or don’t, we are done. Ask yourselves this – what are we best at? It has been a number of years since Black’s could answer that question.

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Lean vs Cheap: The Decline of Appliance Quality

Do you remember the Maytag Man, that 50-something gent in the blue uniform? The ads portrayed him as lonely, a result of the quality of Maytag appliances and few service calls. I fear the old mascot would not be able to keep up with the requirements of the new world of appliance quality, and his replacement a year ago with a younger, more energetic model is perhaps a subconscious indicator of the job’s new requirements.

Even the slogan changed, from ‘Built strong to last long’, to ‘What’s inside matters’.

Hmm. I reflect on these changes as I settle up the bill on the second breakdown of our 2012 Maytag refrigerator. The first, a few months ago, was to replace a faulty drain hose that led to ice building up in the bottom of the freezer – cost $234. The new hose was a redesign to prevent this from happening again in the future. The second problem led to a complete breakdown, as the control panel circuit board faulted out. This time the fridge was down over a week while we waited for parts – cost $316.

Our initial thoughts were that we must have bought a lemon, that low-percentage product that somehow made it through the quality control process and ended up in our kitchen. How else could we end up with $550 in repairs on a 2 ½ year-old product that cost $2,000? As I spoke to various service technicians, however, and did some broader research, the picture that emerges is very different.

Service technicians appear shocked that we didn’t buy the extended warranties on our appliances (by the way, we have had two service calls on our dishwasher as well; knock on wood for the stove). There is a proliferation of websites and forums, giving people a voice on poor appliance quality or helping them diagnose or fix the appliances themselves (e.g. http://www.appliancejunk.com). LG is simplifying their repair service, by offering a ‘One-Price’ flat-rate program, where consumers know ahead of time that any service call will only be, say, $110, regardless of the cost of parts. In one particularly troubling example, a technician told a story of touring a manufacturing plant for refrigerators as part of his training with that company, and seeing product being discarded at the end of the assembly line. When he asked, the company representative indicated that if a fridge fails the quality check, it isn’t worth fixing, so they recycle it.

So how did we get here? I like to say that the world is flat – globalization has happened. What that really means is that your organization is competing with other firms from around the world, and your customers have access to those same companies. That increased competition over the last 25 years has forced every industry through significant levels of change; firms who didn’t change perished. This is nothing new.

Whirlpool (parent company of Maytag) launched a Lean campaign back in the 1990s as part of their strategy to combat increased competition from European and Asian manufacturers. Their progress through that initiative is well documented, highlighting the good (waste reduction), bad (mass layoffs) and ugly (plant closures). Authors such as Kevin Meyer and others have illustrated the disconnect between true ‘Lean’ and Whirlpool’s cost-cutting mandate. For me, lean has always been about value, and not the cheapening of products or services (See Lean and the Duct Tape Conundrum). If value is about providing what the customer really wants and needs, then the difference between Whirlpool’s initiative and lean couldn’t be more stark.

This is an industry ripe for disruption. With declining quality across the board (when asked, the technicians indicated that Bosch and Miele out of Germany were better than most, and the Koreans tried hard to at least make repairs reasonable), someone is going to figure this out. I would happily pay a bit more for a product of quality from days gone by (remember those fridges that lasted 20 years? You may still have one in the basement, cottage or garage. Hang on to it!), or for effective and supportive after-sales service (think of Bose, Lexus and others). Manufacturers need to treat the design and engineering process as in other industries; provoke early failure in prototypes and virtual models and solve that issue before launching volume production. And, while offshoring is a fact of life, without support from corporate quality, supplier development and engineering, any offshore supplier will struggle, leading to some of those quality misses we witness here at home.

Most importantly, while the organization deals with poor quality, why not build in an extended warranty? An effective service response and resolution will in fact build customer loyalty and enthusiasm, despite the fact that the situation started with a break down.

Lean is about value, and your customers determine what value really is. Appliances may be about lifestyle to some degree, but they really are supposed to just operate well and stay in the background. Focus on quality, simplicity and duration, and this dialogue moves off the table.

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Lean and the Duct Tape Conundrum

Red Green wouldn’t be thrilled. The duct tape I had just picked up was fraying as I peeled it off the roll, separating from one sturdy strip into several skinny strips with threads hanging off the edges, making it far less effective. The ‘handyman’s secret weapon’ no longer.

Duct tape is just one of the many products out there that has been de-valued through the “Wal-Mart effect” of constant cost pressures on suppliers. Bill Marquard does a very good job documenting the price reduction of duct tape in his book, Wal-Smart (McGraw-Hill, 2007), from prices above $5 per roll to where it currently sits between $2 and $3. Some of those reductions were a result of productivity increases on the production line – shorter cycle times, less waste, etc. – but some is also the result of removing material cost – cheaper adhesive, less or thinner structural fabric. As a result, this less expensive product is also less effective.

Duct tape isn’t alone. Krazy Glue seems less crazy – the last several repairs I have tried didn’t stick as advertised. Internet forums suggest there is a lower concentration of cyanoacrylate (the functional ingredient in super glue) now compared to historical levels. Light bulbs don’t last as long, or have different colour temperatures (the ‘colour’ or whiteness of the light) in the same box. Whether it is the Wal-Mart effect or the effect of years of offshoring these products, I think as consumers we are losing in this continual battle to reduce cost. Some refer to this as leaning out the supply chain, but this isn’t a Lean approach to manufacturing – it is just cheap.

People mistake Lean for cost reduction all the time. Tell your people you are launching a lean initiative next week, and people will start dusting off their resume, fearing layoffs and the whole ‘do more with less’ approach. Lean will involve some cost reductions, but they are what I call ‘good cost reductions’ (like the difference between good and bad cholesterol). Good cost reductions are those that reduce complexity or waste within your system; bad cost reductions affect performance, morale or services that your customers have come to rely on. Good cost reductions eliminate customer anxiety and bad decision risk from having too many products to choose from, or reducing complexity in a process so an employee can carry it out with less risk of mistakes. Bad cost reductions are arbitrary and destroy employee enthusiasm and the culture around the shop you worked so hard to create.

Lean is a necessary skill in any company, and when understood and applied properly, it can be very powerful. I call lean the ‘enabler’, giving a firm the resources it needs to pursue an innovative strategy or execute a key project. When we apply lean, we focus on value – what does the customer really want? We eliminate complexity, waste and redundancy, shutting down processes, products or services that no longer add value or confuse customers.

In 2011, Maple Leaf announced it would be eliminating a number of their recipes for wieners from their portfolio – they had 78 at the time! What is more, they had 50 different sizes of hot dogs. 5-0! How many different sizes of hot dogs do you really need? The worst part was their production line was often shut down for over an hour while they switched between recipes. There is the waste. Kudos to Maple Leaf leadership for doing something about it. General Motors was forced to go through some similar efforts 5 years ago as part of their funding package from the U.S. government. They had 11 different car and truck brands at the time, with distinct tooling, engineering, sales, distribution, etc. Put a Chevy pick-up next to a GMC pick-up and most of us can’t tell the difference, yet they have distinct tooling, distribution, and other costs running into the millions of dollars.

How do you get started with lean? Start by looking at the processes your employees are engaged in. What reports do they issue that no one reads? How many meetings are people scheduled to attend every week? More than 10? Yikes! What processes are necessary but are not really done well? Look also at your product and service offerings. Like Maple Leaf or GM, do you have many very similar products on the menu that confuse customers and consume resources, or are they all distinct? Ask: Where are we wasting our time? My friend Darren tells his team to ask, “Would the customer be willing to pay for that?”

Lean is about focusing on reducing the costs, waste and complexity in our system that takes away from our ability to properly serve the customer. Do that well, and we create an agile, value-focused organization. Do it poorly, and we just have duct tape that doesn’t stick.

First published in 2013 on YouInc; re-released in 2015 on QSBInsight.

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