How Do You Spot a Burning Platform Before It Gets Too Hot to Handle?
"It’s the least loyal customers - the ones you probably spend less time thinking about – who offer the most valuable signals."
That’s the problem with burning platforms: by the time they become apparent, the situation is far more serious and deep-rooted than the visible flames suggest. The best you can do is react to the situation, not solve the root cause.
The suggestion by analysts at Berenberg last month that Next was facing its own ‘Kodak Moment’ is a case in point. Yes, on-line sales continue to grow, but not at a rate to cover the decline of the larger, capital intensive ‘bricks and mortar’ sales from its retail estate; and nowhere near the stellar growth of its young digital-only peers. I wouldn’t pretend to know the detailed context for the embattled retailer – whose share price has halved over the last 8 months – but there are some salutary parallels:
- Like Kodak, Next has been a hugely respected business, a bellwether for the category and an exemplar of a sound, well-managed commercial model.
- Like Kodak, who famously invented the first digital camera in 1975, Next was at the forefront of the changing dynamics of home selling with its directory business, and an early adopter of on line sales.
- Like Kodak, the emerging business model is in direct competition to its core business: in Kodak’s case, photographic film; in Next’s case its retail estate of over 500 stores.
- And like Kodak – if Next is facing a defining period of business challenge – the issue is not with the decisions of the last 12 months: it is the strategic choices made over the last 12 years, the priority the business put on an issue before the issue even existed.
All of which begs the critical question: how do you spot that things in the future could go horribly wrong, especially if at the moment everything seems to be going beautifully right? How do you get a business to recognise a burning platform when there isn’t one…yet?
It’s an easy question to answer with the benefit of hindsight, but so much more difficult in the here and now. In our experience across a broad range of businesses and categories there are three rules which offer a good place to start:
Make sure you look for the right signals in the right places
It won’t be a downturn in the bottom line, or even the top line; that’s much too late. Your most loyal or habitual customers, the ones that typically account for 80% of business, will be slower to recognise change, and slower still to do something about it. But once they do, you’re all but finished.
And it’s not the ‘usual suspect’ competition that you need to be monitoring most closely. They’re likely to have the same category blinkers, the same limiting assumptions, the same legacy systems. In short, they’ll be as slow as you.
It’s the least loyal customers - the ones you probably spend less time thinking about – who offer the most valuable signals. They’re less committed to the current offer so more open-minded to alternatives.
And the most dangerous competitors are category-outsiders who can start from a blank sheet and design their business from scratch. And because technology is continuing to reduce barriers to entry and increase access to customers they can do it with frightening speed
Make sure you’re looking at the right time
Perhaps perversely the best time to identify future issues is when everything seems to be going right, when you have the luxury to challenge assumptions rather than bathe in self-congratulation, and the opportunity for your response to be more proactive and considered.
But you need to have an ongoing organisation antenna sensitive to changes in customer perception, customer behaviour, competitor activity, pilots and tests, and changes in related categories, particularly changes in technology application.
And it needs to be an intelligently balanced approach: enough to stay aware, but not so much to disrupt the day job. Process plays a part, but it’s more about culture. A natural embedded curiosity - to watch, listen and extrapolate - together with the capacity to welcome and manage constructive challenge.
Make sure you’re looking through the right lens
This is the toughest part. The most difficult place to spot a burning platform is when you’re actually standing on it. You’re often the last to know.
You have to diagnose and challenge the brand experience from the customer’s perspective, not the business’. Their judgement is based on their own self-interest, not yours, and the conclusion may be significantly different.
It’s about their expectation of quality, not industry benchmarks.
You must be acutely sensitive to their frustrations, not just focus on your strengths. Particularly frustrations habitually ignored as ‘part and parcel of the category’. They might be now – they won’t be for long.
And most importantly, you must measure your success in what the customer wants, not what you sell them. The difference is critical, and if you haven’t spotted it, you can be sure someone else will.
Maybe linking this post to Next is harsh; of all traditional retailers, they were one of the first to recognise and react to the change in shopping habits, and I expect they are in a strong enough position for this not to be their ‘Kodak Moment’. But there’s a strong lesson here that even the most successful – especially the most successful – need to be alert to change.
Pride, after all, comes before a fall.