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. For brick and mortar companies, their eyeballs tend to deceive them and they use what they see as their main metric (we were so busy). For other industries it is market share. How many widgets can we sell vs our competition. 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. 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 to measure business performance. Their KPI’s were hotel occupancy and slot revenue per machine. 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 observed something troubling. To achieve these impressive numbers, they were doing an inordinate amount of giveaways and had 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, profits would eventually flow to the bottomline. There was just one problem, the other profit centers of the business were not designed to drive a significant amount of profit, but were to serve the gaming customer and the customers coming in at very low hotel rates did not gamble, because they were coming for the activities, not the gaming.
To increase profits, we decided we were not going to be busy for the sake of being 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”, because their wrong metrics were showing a decline. 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 are 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:
- Increasing frequency of their top tier from the players club
- Increase hotel room rates
- Target giveaways to the more profitable sector of the database
- Increase customer satisfaction for 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 basically selling the same product. They run Android software that they customize 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. 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? From what I have read, these manufacturers have a decent amount of customers that are buying new phones, but they are buying them based on price or over aggressive incentives. So in essence, the manufacturer sold an unprofitable phone to gain a customer who will eventually buy their next phone based on price or an incentive. Since all apps are compatible across Android if purchased through Google Play, there is nothing keeping the unprofitable customer on their platform. They can switch with little to no penalty. That doesn't sound like a sustainable business. 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. They are 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” to drive profit-share. 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 generate the majority of the profits in the industry, which then allows them to spend more money on R&D to create better products and services to keep their customers in the ecosystem. These customers buy new phones at a nice profit which creates a beautiful cycle of repeat customers and high satisfaction, all because Apple is NOT implementing “Busy as a Strategy”.