To Be Everything To Everyone - Foundations
Construction Equipment Distribution magazine is published by the Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada. AED membership also includes equipment manufacturers and industry-service firms. CED magazine has been published continuously since 1920. Associated Equipment Distributors
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SECTION: Foundations

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To Be Everything To Everyone

Written By: Matt Di Iorio

Article Date: 03-01-2007
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.

The fatal flaw of the "select the right customer" model.

We hear the mantra over and over from the management gurus of our time. Tom Peters shouts, "Stick to your knitting." Jim Collins says, "Do what you can be best in the world at." The only guy that doesn't seem to get this concept is the one walking through your door with a fist full of dollars and an unmet need: the customer. I was recently enjoying great food and conversation with some dealer and manufacturer executives when a friend of mine said, "You've got to have the discipline to walk away from the small customers, particularly those that might pose a credit risk." I naively responded that business would have to be pretty good before I walked away from a customer; there simply aren't enough of them to go around. If some of the folks that want what I have are small or have credit issues, I'll simply become better at managing the transaction and the potential risk. (It's easy for me to prognosticate since I no longer have skin in the game.)

Michael Treacy and Fred Wiersema, authors of "Discipline of Market Leaders" suggest market leaders succeed by choosing a value discipline and sticking with it. Although there are, I think, problems with their model that I will address later, making distinctions between operational excellence, product leadership and customer intimacy is a useful exercise when defining your strengths, aligning your team, and allocating the resources necessary to convert a value discipline into competitive advantage.

National rental companies fit neatly into the operationally excellent category as defined by Treacy and Wiersema. These firms focus primarily on the efficient use of capital assets. They strive to be the low-cost leader when it comes to fulfilling short-term equipment needs and achieve their goals by sharing assets among stores and providing quick and convenient transactions.

The construction equipment channel of distribution generally leaves the attribute of "product leadership" to the folks that design and manufacture the products. That said, dealers have never been more involved in the design of new products than they are today.

As far as Treacy and Wiersema are concerned, dealers that market equipment that is highly technical often share their supplier's passion for innovation. The products they represent are often so innovative that extensive onsite training is necessary, which affords a unique level of differentiation in the marketplace. Some dealers focus on process-related innovation, which, for our purposes, would also fall into the product leadership discipline.

Treacy and Wiersema's "customer intimate" model is very similar to the total solution relationship-oriented business model recommended in "Lean Solutions" (Womack and Jones, 2005). However, Womack and Jones combine the value disciplines of operational excellence and customer intimacy by suggesting the supplier needs to have close relationships, as well as the critical mass to efficiently spread assets over a wide variety of consumer needs, thereby leveling demand.

If Womack and Jones' asset utilization model is correct, dealers must either possess the capital structure, assets and competencies necessary to be a complete solutions provider, or network with other organizations that enable them to perform as if they did.

Another potential strategy involves selectively choosing customers so the additional resources required to solve customers' problems are minimal. The fatal flaw of the "select the right customer" model is that it doesn't address the possibility that customer needs are constantly changing at different rates and in different directions.

Only you have the answer...not Tom Peters or Jim Collins and certainly not me. Perhaps the correct answer has less to do with which value discipline you choose as with how well you execute the one you have chosen.

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