The last Lean Accounting Summit contained a lot of great content but what really stood out for me was the focus on value. There is a growing realization that the critical issue is not whether you have the lowest cost, but whether you have the greatest value offering for the price you are charging, and a lot of great work is being done to have the accounting system quantify and track that.
I've been collecting lots of great stories about companies that have accomplished extraordinary results as a result of finding ways to create greater value for their customers, and one of these days I will publish them in some forum or another. They include an Australian metal working company that recognized that (1) one of their customers in the machine building business kept giving work to a competitor rather than them, and (2) that customer made machines that were technically excellent but poorly designed for manufacturability. So they went to that customer and asked if they could put one of their engineers into the customer's company for three months at their own expense to look at redesigning the machines with no strings attached – just let them look at it. The customer said OK, the metal working company's engineer completely redesigned the machine taking lots of cost out while maintaining all of the functionality. The machine builder's sales skyrocketed and they asked the metal working firm to have a look at all of their products. Needless to say the metal working company no longer has any trouble getting the orders to supply components for the machines.
There are lots of stories like this where companies that are not particularly low cost are growing by leaps and bounds because they provide such great value.
And then there are other companies that seem to have no clue.
Value is determined by the end customer in the chain. Every participant in that chain succeeds or fails as a direct result of their ability to contribute to that value, along with their ability to eliminate spending money on things that do not contribute to that value.
The clueless companies are the ones that think it is up to them to decide what is valuable, rather than the customers. Perhaps they are just out of touch with the customers, or maybe they think they are smarter than their customers and don't feel the need to ask them politely if they like their ideas for improvement like the Aussie company did. Such a company would be Pepsi.
Pepsi owns the Sun Chips brand, and in their infinite wisdom they decided to package Sun Chips in what they bill as the first 100% biodegradable chip bag available. They probably asked some customers if they would like biodegradable bags, and the customers probably said yes. After all, who would say no? It is like asking customers if they like their mothers, or if they think saluting the flag is a good thing. Who says no? What they apparently forget to ask is whether they wanted biodegradable bags if those bags were so loud you can't watch television or carry on a conversation while eating Sun Chips out of them.
This bag was a really, really – I mean really – stupid idea. Now there is nothing wrong with really stupid ideas, per se. I get them all the time. The difference is that most of us quickly back off of our really stupid ideas when confronted with overwhelming evidence of their stupidity. But not Pepsi.
The Internet has been churning with the stupidity of the biodegradable Sun Chips bag all summer. From articles and blogs to social media – and especially YouTube – the public has been both criticizing and more often laughing hilariously at these bags. And sales of Sun Chips have been falling constantly, but odds are the old men calling the shots at Pepsi can't find Facebook on the Internet if you put them in front of a computer set to the Google page and spotted them the f,a,c,e,b and a couple of o's.
Finally Pepsi has announced that they are going back to the old bags… almost. They are getting rid of them for all Sun Chips except for the original Sun Chips formula. That is the one that sells the most – or at least used to. What possible rationalization could exist for this decision? I have to assume it is a compromise of some sort. I can almost hear the decision being made at some internal Pepsi meeting … "We all know you're right Earl, and the root of the problem is that Sun Chips eaters are just too dumb to appreciate the value of these bags, but we're taking a real beating here and we need to make some money, so let's appease the rabble by going back to the old bags for the stuff no one wants, and we'll keep our beautiful new bags for the important chips."
It is not a matter of 'if' but 'when' the original chips revert to the old bags. All that remains is to see how long it takes Pepsi to figure out that what customers want is not up to them.