One of my favorite people once taught me the mantra of "Busy is not a Strategy". So many businesses use the wrong metrics or KPI’s when measuring success of the business. For brick and mortar companies, their eyeballs tend to deceive them and they use that as their main metric (we were so busy). For other industries it is market share. How many widgets can we sell. The problem can be using the wrong KPI’s along with having the wrong culture can lead to an unprofitable business.
I have implemented the “Busy is not a Strategy” with resounding success before. We had a casino/hotel in a declining market that had 1,800 rooms. They were moderately successful considering their location, but they were using the wrong metrics. Their KPI’s were hotel occupancy and casino revenues. Now anyone who knows the casino/hotel business is going to ask, what is wrong with those metrics? They had good casino revenues for the market and an occupancy of 87%. Most anyone would love these numbers. Plus, they were really busy.
When we took over the business strategy of the property we saw to get these impressive numbers, there were a lot of giveaways and very low hotel room rates. To drive the wrong metrics, they were servicing a large number of unprofitable guests. The belief was if the hotel is full, more profits would eventually flow to the bottomline. There was just one problem, the other centers of business were not large profit centers and the customers coming in at very low hotel rates did not gamble, because they didn’t have a lot of money.
To increase profits, we decided we were not going to busy, we would focus our attention on the best customers and try to drive more frequency from these guests while sacrificing the low-end of the business. This resulted in decreased occupancy and decreased casino revenues. Uh oh. Hotel occupancy went down to 44% and casino revenues were down 10%. The operators were crying “the business is being ruined”. Even competitors were coming over and asking the operators “are you going to be able to remain open until the end of the year”. There was pure panic. That was until the financials came out. EBITDA was up 100% for the quarter.
By focusing on the best and most profitable customers, this property saw increases where it mattered most, the bottomline. How did this happen? The expenses to drive the KPI’s that were important to this property were astronomical. They were essentially competing for market share instead of profit. What happened through time, is the best customers started to come more often as that was the new focus of the property. Casino revenues started to increase through time to levels much higher than before the strategy change, however occupancy remained at 44%. They did this by focusing on:
- Increase frequency of their top tier from the players club
- Increase hotel room rate
- Target giveaways to the more profitable sector of the database
- Increase customer satisfaction of the best customers
This is very similar to what I see is happening in the phone industry. There are many manufacturers and most of them are focusing on “Busy” as a strategy. Now the metrics for busy in this industry are phones sold and market share. Android accounts for approximately 80% of the worldwide market share for phones sold. Yet when it comes to profit, that metric is almost reversed. In fact it is a lot less than 20% in the last quarter. So how can this be?
The phone manufacturers are selling basically the same thing. They run Android software that they manipulate in small ways, but all the apps are compatible with their competitors. This creates an experience that cannot be differentiated in any way but price. This is the same thing that happened in the PC industry. All manufacturers ran the same operating system, Windows, and they had to compete on price which forced them to make deals of adding bloatware onto their machines that destroyed the customer experience. This is where the phone industry is heading. When price is the main differentiator, businesses eventually will go out of business unless they can outlast the competition.
So these OEM’s sell many millions of phones to increase market share which leads to… To what? I don’t know. From what I have read these manufacturers have a decent amount of customers that are buying new phones, but they are buying them for the price. So the manufacturer sold an unprofitable phone so they can gain a customer who will buy another unprofitable phone. That doesn't sound like a sustainable strategy. There is nothing that differentiates the experience of the customer enough to make that return customer more profitable. It is a vicious cycle.
The only company that is running a different strategy is Apple. Apple is making almost all of the profit in the phone industry by having a differentiated product that is customer focused. Apple is doing the same thing in the PC industry, their Macs account for about 10% of the market, but more than 50% of the profits. Apple has been able to run the “Busy is not a Strategy” strategy to ultimate success. Sure Apple sells a lot of phones and they would like to sell more, but these sales are the outcome of their strategy, not the focus. Apple has a culture that is design focused which leads to a product that has a better customer experience.
Apple is dominating the phone industry because they do not bow down to the marketshare gods. They focus on the customer first through their design culture. They make profitable, differentiated products which bring in the majority of the profits in the industry, which then allows them to spend more money on R&D to create more products and services to keep their customers in the ecosystem. These customers buy new phones at a nice profit which creates a beautiful cycle. All because Apple is NOT implementing “Busy as a Strategy”