Disruption or sub-optimization? It is a dilemma that I often encounter. We want more customers and more sales. The costs must be reduced so that we can make a profit again. If I got a Dollar for every time I heard a CEO say this, my house would be too small to store it.
From a strategic point of view - for which I am often hired - I do not have much influence on the cost pattern of my client. I am hired for a strategy to generate extra customers and sales. That is sometimes difficult because often my clients want to learn how to swim without getting wet.
Sub-optimization is the easiest route
To come up with a strategy, you have to take into account many factors. But in all simplicity, it is ultimately about which specific offer you have for which specific target group and in which distinctive way you can present this to the target group.
If you have been doing the same thing for 20 years and you are slowly seeing the number of customers disappear and your turnover drop, it is difficult to change course radically. Even though this is often the only or the best method, many entrepreneurs are not ready or not prepared for this.
They opt for sub-optimization instead of disruption and continue to do what they always did. They choose the easiest route.
Disruption or sub-optimization?
Traditionally, companies with less successful businesses hired consultants who wanted to optimize all aspects of the company according to traditional management models. A little more of this and a little less of that and all together should create a healthy company.
However, what they didn’t do was ask the real question. Does the offer still match the target group, and do we present this offer in the right way?
In the 1980s, a fashion enthusiast realized that he would like to wear designer clothes, but could not afford this. When inquiring among his friends they have the same wish. With the help of different manufacturers from all over the world, he finally managed to produce the same clothes with the same fabric as the big brands of that time, but with his own label.
By not spending large sums of money on designers, developers, and media campaigns, he manages to sell the clothing well below the price of the big brands. He quickly grew into a clothing brand with dozens of its own stores where the youth of that time massively bought their clothes.
A little more than thirty years later, he made huge losses but was able to make up for it through the previously made profits. A truckload of consultants came in, and sub-optimization started. Year after year it was possible to cut something here and win something there, but the loss continued.
It turned out that due to the rise of the Internet, there was no longer any demand from the target group. No cost reduction, new designer, or media campaign could prevent his company from collapsing. It took many millions paid to consultants, millions of annual losses, and ten years of bitter misery before filing for bankruptcy. The sub-optimization did not work as is usually the case.
Disruption is sometimes the only way to survive
In the past, companies on average existed for much longer than now. Once you had a lamp factory, you could make a living out of it for decades. The rise of Internet technology and online platforms can suddenly knock down the established order. Who would have thought that a small app such as WhatsApp would make it so difficult for large telecom companies?
Disruption does not mean that you have to let go of everything that was there. In the first place, it asks you to be open to the real question. Do you still have a fundamental right to exist or does a new right to exist need to be developed? If you do not dare to rediscover yourself in this time of technological progress, you will already fall behind the facts within a week.
Technological progress is growing exponentially. With that, some companies based on technological growth can also grow exponentially. Unlike traditional organizations! Because, by definition, sub-optimization stagnates progress in an era where it is so desperately needed.