A story in the LA Times the other day discussed "greenwashing" – cloaking something in dubious claims of environmental friendliness to make it more appealing to customers. An example most of us are familiar with is the note in the hotel bathroom to reuse towels in order to save water. You have to wonder just how committed the hotel is to environmental protection, or whether the real motive is to save on laundry expense. In any event, the bottom line is the hotel's costs are a little lower, and so is the value of the hotel stay as the guest has slightly less clean towels.
Cutting costs by reducing the value of the product is a dangerous game. No big surprise that GM would jump on board the greenwashing bandwagon. Cost reduction at the expense of customers has been their game for as long as there has been a GM. They just don't seem to be able to wrap their minds around the idea that their competitors are not eating GM's lunch by being cheaper, but by offering better value. It takes a very healthy disregard for customer value to eliminate spare tires in the name of the environment – gas mileage to be specific – and to the have the hubris to proclaim that it really isn't a big deal because customers can eliminate any worries about being stuck by the side of the road with a flat tire by simply paying for OnStar and having someone come out to fix the tire.
The reality is that a customer will pay a little less for a hotel room without clean towels, and for a car without a spare tire. Hyping the product with a tad less value – attempting to convince customers that the loss of value was somehow in their altruistic best interests – is a strategy for losers. Whether it is with assertions that the planet is somehow better off by having them pay the same price for less value, or the customer will benefit from sporting a prestigious brand even though the product is not as good, cannot succeed.
A few weeks ago I conducted a lean management seminar – value driven manufacturing, lean accounting, and aiming the organization squarely at clearly defining and eliminating true waste were the crux of my spiel. During a break I was talking to the two top financial folks from a particular manufacturer – the only two people in the company empowered to make customer credit decisions as it turned out. While we were talking the company's top operations manager came up and interrupted us with an emergency. It seems a potential new customer had called and wanted to buy something in a big hurry. The product the customer wanted was on the shelf and available for shipment, but there was no one who could approve the new customer's credit. The customer was willing to pay with a credit card, but the customer only had a VISA card, and the company only took American Express. It turned out that they used to accept multiple credit cards, but a kaizen event had led them to determine that accepting and processing credit cards was 'wasteful', so they eliminated all but AMEX in the name of becoming leaner. Bottom line – they lost the sale. The potential customer couldn't wait for anyone to get back to the plant to review the credit, and their purchasing folks didn't have a company AMEX card. Reducing accounting costs at the expense of sales and customer requirements was hardly an improvement.
If the organization does not have a clear understanding of value, and if improvement is defined as 'cost reduction' rather than enhancement of value relative to the total cost, it is not only easy but quite common to end up nicking the bone when people attempt to cut out the fat. Reducing waste and cutting costs are not one and the same, and only reducting the cost of actual waste will help the bottom line. Too many companies have seen their cost reduction strategies generate price reduction necessities, and market share losses, as their product quality, availability and value have deteriorated.
Gray Rinehart says
Just this morning I was talking with two friends about the misuse of “lean.” When I was first working on applying quality improvement principles to education, I often spoke out against “sacrificing effectiveness on the altar of efficiency,” but now I can add sacrificing value on the altar of cost.
Another great post, Bill — keep ’em coming! Thanks,
G
Bill Waddell says
Great phraseology Gary -‘sacrificing value on the lean altar’ – don’t be surprised if you see me shamelessly plagiarize it some day.
JM says
The spare tire is an interesting question. I don’t think we should automatically assume that all customers value a spare tire as much as we think they do (I value it, but that’s just me). Times have changed and in most cases help is just a quick cell phone call away when you’re on the side of the road with a flat.
I would ask to see the analysis on customer perception of value when it comes to spare tires. Would you ever eliminate the spare tire for an F-150 sold in Oklahoma? Probably not. Would you eliminate it for a small Kia Soul that is popular with the 18-24 urban female demographic that always carry a Daddy-funded AAA card with them? Maybe.
Mark Graban says
Thought-provoking post, Bill.
When we say “value is determined by the customer”, maybe we shouldn’t mean some vague, generic customer. But what is THAT customer (YOU) willing to pay.
Should the spare tire at least be an option for the consumer to buy?
Unfortunately, what I’m saying is an argument for airlines to nickel-and-dime with you baggage fees, etc. instead of just raising fares. I can’t believe I’m inadvertently defending the airlines!
Andy Wagner says
Steel-belted radial tires have largely eliminated, or at least greatly reduced the incidence of flat tires. Spares are already gone in the European and Asian markets, from what I understand.
I would argue that the spare tire is actually an example of “but we’ve always done it that way”. When we ask why we have spares, the answer in most cases, (Kia Soul, 18-24 urban female), is that they don’t add value anymore to most customers.
My brother’s spare lays in his garage where it won’t cost him gas mileage.
Bill Waddell says
Seems to me if spare tires aren’t need the car companies should make the tires just another part of the warranty package. As long as the tires have a shorter warranty than the drive train, however, seems to me they plan to have them wear out, and most likely at an inoportune time. I have steel belted radials, and I am a AAA member, but I also have a spare tire and think it would be rather foolish and irresponsible to take my family on a trip without it.