Carillion could have avoided problems by choosing its customers more carefully.
As Carillion filed for bankruptcy in the UK at the beginning of the year, former chief executive Richard Howson lamented the company’s fate as largely the consequence of onerous contracts they couldn’t get out. In the end, Carillion was forced into liquidation after not getting paid by a client in Qatar that owed them over a quarter of a billion dollars.
In the light of events like this, one gets reminded of how handling delayed payment or even non-payment by clients is an unfortunate necessity of succeeding in doing business in much of the Gulf region. When disputes arise and risks dissolving the client relationship, it is rarely due to any single misunderstanding or incident. By the same token, such situations never feature any simple solutions.
In trying to figure out what mistakes were made, and how things should have been done differently, the question that should have been asked from the outset is: Was the client and project suitable to take on in the first place?
What is required to achieve a certain outcome in a project is usually quite clear. Competition is, to a large extent, about taking better decisions to maximise the utility of the resources engaged. This means having the skill to predict cause and effect accurately, and thereafter to assemble the best combination of people and resources to deliver the project in hand.
Achieving this requires subjective judgements about everything from future market sentiments and preferences, as well as knowing the right degree of trust to place in your staff and business partners. Always assuming the best in a situation, and of people in general, is often misconstrued as a virtue. More often, it is a form of disguised arrogance.
The Pareto principle, or the 80/20 rule, suggests that 20% of the resources or the work effort put in is responsible for 80% of the results. The same appears to also be valid for clients and their relative value to a company. However, if we are aware that this distribution is a natural tendency, it should not be construed as an inevitable outcome when conducting business.
Rather, it is an argument for making a more conscious effort to identify and understand the needs of clients that fit the profile in pursuit of the best outcome. We must overcome our resistance to being judgmental when accepting or rejecting clients, and understand the difference between being optimistic and tolerant and simply being naïve!
Stating the plain and irrefutable fact that some clients are simply not worth the effort can seem harsh and politically incorrect. However, the truth is that, in business, as with life in general, the people you choose to associate and collaborate with determine largely how successful you will be. The same explanation goes for failure; it can usually be traced back to placing your bets, and linking your fortunes, to people and companies that led you down the wrong path.
Despite all the business jargon about delivering exceptional value, quality, and customer satisfaction, I believe that more attention needs to be paid to client selection. That is, know whom the clients are that will make you successful, and prioritise these over others! Instead, many fall into the trap of thinking that the best business strategy is to treat all clients as equal, regardless of their value. This is a recipe for long-term failure!
The idea of one dissatisfied customer or client telling at least ten others about their bad experience is often deployed as an excuse to allocate disproportionate resources on less profitable customers at the expense of your most valuable clients. It is true that the most difficult, and demanding, clients are those who believe that a strategy of constantly complaining will result in lower prices and better service. Unfortunately, that strategy often seems to work. However, the correct course of action is not to try and please these clients at any cost, but rather to avoid them in the first place.
A lesson to be learnt from respected companies like Apple and BMW is not simply competing by having a better product, but to adapt actively and communicate exactly what group of clients they target and prioritise. This makes it possible to deliver a better product and service to that select market segment. It is easy to see how failing to do this will lead to distractions, and an inability to focus.
Why is this such a common fallacy? When a company starts out, it is difficult to be too picky in taking on business. However, it is important to be wary of excessive optimism, and our natural tendency to think short-term. In larger corporations, targets are often based on sales revenue firstly, and thereafter adapting the product or service according to the price tag. This is opposed to carefully listening to, and understanding, the client’s needs and expectations in the first place.
By attempting to rope in every potential customer by being everything to everyone is not a strategy suited to growth and development. Yet, even companies that used to be market leaders fall for this temptation. Nokia might be the best example since Ford in the 1980s, which attempted to compete by having a second-rate car in every market segment. In its attempt to dominate every segment, it could not dominate a single one at the end of the day.
Airlines also offer a good lesson. Carriers compete on their reputations for having the best service, yet companies that care the least about service have fared the best in recent decades. The best example is Ryanair, which has surpassed most European airlines both in passenger numbers and in market capitalisation.
Ultimately, what defines the destiny of any business venture comes down to choosing your customers. In the long run, what that means is the same as ‘choosing your battles’. Regardless of the market segment you target and choose to compete in, what is important from the outset is how and, most importantly, to whom, you offer the greatest appeal and value for money! Or, to paraphrase Henry Ford, it is about delivering more value for each dollar than your competitor, and not less.
Copyright: UMS International Fz LLCTheme