The Fallacy of the "Market"

As we move into the early part of 2009 one of the business names shortly to be added to the casualty list is Foxtons estate agents.

Foxtons grew rapidly on the back of the London property boom and became famous for the Minis in Foxtons livery darting around the streets of London. Jon Hunt, the founder, sold the business to BC Partners for £360m just before the credit crunch. Now comes the news that Foxtons have breached their banking covenants and BC Partners have conceded that its decision to buy the business was a mistake. “As housing markets fall, so do estate agents, so we got that wrong. In hindsight, we made the wrong assessment of the market,” said a spokesman.

Well yes you did, but the really wrong assessment was not “of the market” – it was of the company itself. Jon Hunt had done a great marketing job, the company Minis were just one example. He rode the boom astutely, opening more offices, taking on more staff, positioning the business as THE estate agent in London and timing his exit impeccably – good luck to him! Yet many who had attempted to buy or sell a house with Foxtons had perceived the company as inefficient, its staff incompetent and unprofessional (remember the Put-A-Sign-on-Anybody’s scandal?) and putting its own interests before those of its clients. A bit of research amongst Foxtons’ clients and London house owners who had had anything to do with them would have revealed a business that was likely to be unsustainable other than in a booming market.

There is a mindset amongst many investment analysts and managers that leads them to believe that investing in businesses in so called “high growth” market sectors and/or with apparently unassailable market advantage in their products/services is the Holy Grail that will produce the stellar returns they seek. This leads them all too often in to over-valuing the “biggest” – because, “obviously it must have grown more”. The same immature logic has driven company directors to pursue Top Line growth regardless of expense, because it will impress these analysts who will then recommend their shares.

This is just rubbish thinking because all “high growth” sectors and any market advantage are at best temporary and frequently illusory as BC Partners experience with Foxtons illustrates. There is no substitute for being a good, well run business that has developed a high level of Competitive Strength that ensures it stays that way.

In 2003 Irish Drinks Group C&C, launched Magners Cider. Described as “a triumph of marketing” the new concept of “Cider Over Ice” swept all before it. Sales grew strongly during three successive summers and into 2007’s early Spring heat wave. Over the same period C&C’s share price grew strongly too, from €2 to €14. However in reality this was based on just two assumptions – that no competitor would enter the market and that it wouldn’t rain.

Well, S&N launched Bulmers Over Ice in 2006 and recaptured 20% of the market - and it started to rain. In two months C&C shares dropped to €6 as sales and profits collapsed. The business simply did not have the Competitive Strength to maintain and build on the advantage it had gained with its new product. Their share price is now around €1.45, their Chief Exec has gone to be replaced by John Dunsmore former Chief Exec at, guess where, S&N!

For the most spectacular example of a booming market masking fundamental weaknesses in the business, look no further than the banks!

However an example of how this works in reverse is Sainsbury’s. For some time their market share, sales and profits wilted as competition from Tesco, Asda and Morrison’s hotted up. Financial and investment analysts were forever claiming that Sainsbury’s must reposition up market, down market, sideways, anywhere where there was less competition if they were to have a future. Successive managements arrived, tried, failed and went.

Then along came Justin King, with the novel strategy of making Sainsbury’s a “better business”. The result has been growing market share, sales, profits and the resilience that will see it through the downturn, all of which had nothing to do with the market. Can you imagine the previous state of the company enabling it to introduce its expanded non-food offer and its new value lines as effectively as they have done now? As a “better business” Sainsbury’s are not only spotting changes in the needs of their customers but are actually now capable of responding.

We are not saying that the market and/or market advantage from a break through product or process will not have an effect on the performance of a business, it is just that on its own it is not as crucial as many think it is and certainly not as significant as Competitive Strength. Businesses with high Competitive Strength conditions, what we call Excellent or Free, can not only respond faster to market changes but are frequently the instigators of those changes. They can profit from high growth and continuously create and renew their market advantage.

Experience and rock solid research has proven that how an organisation thinks and behaves, the deep seated managerial and behavioural values and competences of a business, are the main differentiator of whether over time they will substantially outperform their competitors and successfully withstand unpleasant surprises.

This manifests itself in the form of Competitive Strength, a new measure of business performance.

Yes, you can actually measure Competitive Strength, either in your own business or in any businesses you are considering investing in. The Competitive Strength Report Process is the only tool available from anyone, anywhere that provides an objective measure of Competitive Strength compared to the very best in the world. The Competitive Strength Report enables a business leadership to understand where they are positioned, in comparison to the very best, where their main threats lie, what the implications are and helps them decide very clearly, collectively and speedily what they need to do. There is nothing else as fast, as accessible or as affordable.

Find out more about it on our Competitive Strength web site page – or at the Competitive Strength Report website.

Exceeding Expectations is brought to you by Steve Goodman & Tony Ericson of ChangeWORLD. For more lighthearted comment with a serious point on current business related topics go to our You’re having a laugh … seriously? and Business Bloop of the Month Award

What Westminster and Whitehall don’t want to know

In his novel “High Profile” the brilliantly laconic American author Robert B Parker mentions, quite in passing, “Tax-and-spend big government liberals” and “Spend-and-no-tax big government conservatives”. 

In Europe we would call this the choice between “Tax-and-spend big government social democrats” and “Spend-and-no-tax big government conservatives”.  I suppose that there might be an alternative such as “No-spend-and-no-tax big government”, but that option could only be for the economically reckless.

Following Parker’s logic, there is an another alternative –

No-spend-no-tax-and-not-big government.

“Not-Big-Government?”   This is so radical an idea that it is regularly declared impossible. 

Why?  There are three major factors -

Vested interests – tens of thousands of managerial jobs depend on the unnecessary complexity of big government – thousands of bureaucrats don’t want to give up their  power – millions of public employees benefit from the make-work activities that keep them occupied, pay their wages and promise their unaffordable pensions. 

Inability to innovate – the prevailing managerial ethic in the public sector, whether national or local, is to operate by precedent – they always do what they have always done (and when faced with a new challenge, they search for the nearest similarity to apply so that, once again, they can do what they have done before) – and they get what they always got – inefficiency selectively breeding even greater inefficiency.

Overwhelming arrogance of leadership – the public sector is systemised to the ultimate degree to  try to ensure that the outcome of every decision is pre-determined – it demonstrates micro-management to an absurd level – there is no trust by their leadership in the competence and judgement of public sector workers – they are led by a politicians who genuinely believe they know how people should lead their lives and do their jobs better than they do – with all this exacerbated by a media that constantly seeks to allocate blame and demand infallibility.

Given these three drivers of perception – change really is inconceivable – it has become unthinkable.

These three drivers helped kill the UK‘s Motor Industry, Shipbuilding, Steelmaking, Mining, Textiles, Chemicals and Electronics industries – and others.   The bulk of these have gone to other countries – nevertheless in the UK tiny pockets of Excellence do survive where they Think Different.  There is no “other country” to take away our Public Sector – although they have even tried to give it away.

Our Public Sector as it currently exists, and is developing, is no longer sustainable in our economy.  If it does not change, it will totally destroy our nation’s wealth.

We all know it is a problem, but the real PROBLEM is HUGE –

The alternative is so unthinkable that NOTHING is being thought!

So let’s try Thinking Different about Government. 

Let’s apply the Competitive Strength point of view to the Public Sector and see what it might tell us.

The high numbers of public reports of administrative incompetence tell us, in general, the public sector can barely control its Cost of Quality.  We know that, in the private sector, those companies with outstanding comparative Competitive Strength have moved way beyond Cost of Quality control by massively reducing their Cost of Behaviour.  We know that difficulty in managing the Cost of Quality is exhibited in the Competitive Strength condition we call Constrained  and we know that those outstanding businesses define the level we call Free.  The Comparative Strength Report tells us that the economic difference between Free and Constrained is between 75% and 85%.  It is a huge gap of enormous significance.

The significance is that it means –

If the Public Sector were to operate at the Free level of comparative Competitive Strength, it could deliver all current services for between 20% and 33% of the current cost.

Financially, that really is Not-Big-Government. And, as it happens, the cultural imperatives that drive the transformation of performance to the Free level would ensure that organisationally it could not be “Big-Government” and that the service experience would be massively better all round.

A Solution Is Possible

“Not-Big-Government” is not inconceivable.  But it won’t be easy to get there.

It will be massively different from our current doomed state. It will need political leadership of the highest order. It will require a total regeneration of ethos in the Civil Service leading to substantial changes in internal leadership and organisation.  It will demand a complete transformation of operational managerial competence in the Public Sector, national and local. It must be matched with a vigorous programme to re-distribute a high proportion of the nation’s employed base from non-productive public sector activity into nationally (and personally) enriching economic output.  There will need to be continuous change for many years but it needs to be fast, sustained and self generating - that will require the acquisition of high Changeability by thousands.  That has been demonstrated, it is not impossible.

This will need Different Thinking to get Different Actions to deliver Different Results.

Different Thinking?

The first step to be effective in the Transformation of Performance is to Decide to Act.  This decision must be unconditional – there is no need for any feasibility study, process of consensus, strategy mapping, or any of the other techniques that can be used to avoid decision. 

The first step is to decide that Something needs to Be Different, what that Difference needs to look like, why alternative outcomes must be rejected and how you will Know when the Difference is achieved.  That is all that is necessary.

The present state of our State is not sustainable.  

If nothing changes, then nothing will change.

Can we Decide to Act? 

Is there a sufficient will to survive left in our over-regulated, over-spun, over-manipulated, demoralised, dispirited, and newly impoverished population?

We don’t know.  We do know that individuals and businesses can Decide to Act.  They can elect to Transform their Performance up to the level of comparative Competitive Strength that we call Free – and they will, like those existing pockets of Excellence we mentioned before, win themselves the maximum probability of continued survival, freedom of choice, and prosperity.

You can Decide to Act, before it is too late.  

Have a look at our web site and then contact us to find out how we can help you to help yourself.