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HP is their own best customer for red toner – better grab some before they run out

May 21, 2009

On 5/20’s conference call, HP’s CEO stated that the worst-worst case scenario came true and revenues were going to be off 4%-5% and not 2% to 5%. No matter how many additional jobs can be cut, no matter how many times HP uses both sides of their paper, eventually, in a sealed room, oxygen is depleted. Breathing slower gives you more time, but at some point, it’s either fresh air or don’t bother.

Oddly, as the call began, I was just finishing a discussion with one of our Business Development people who was telling me our Growth Acceleration offering was rapidly gaining speed and the reason is most executives are telling him they no longer swear by their current business models, i.e. the way they will do business to survive these next 48 months will be largely different than currently practiced and they don’t have a real handle on what it will be like. Remember the old due diligence question, “what keeps you up at night?”

Like HP, any executive not completely living on Mars has already cut costs, cut them again and is now listening to audiobooks on amputation techniques. Going forward, we’ll all have to stop cutting and start selling. The real issues of this recession (which is actually an extinction event) are – sell to whom, sell what and charge what.

We’ve all been reading and hearing about how this extinction event has affected our individual and collective go-forward thinking, which raises a serious question – how has our customer changed their thinking and do we still really understand their points of view? Not the “let’s go to lunch” type of knowing, but getting inside their heads with deep understanding. In our experience, the results can be pretty insightful. In a marketing research example, one of our moderators was exploring why an iced tea product was not taking off as planned. Distributors and bottlers loved the stuff. Turned out, consumers liked the tea, liked the bottle and liked the label. Problem was, in their minds, the 3 components didn’t go together. By deeply understanding how your customers will use your product going forward, you can ‘reverse solve’ and build a business model fulfilling their needs to a ‘T’. A very important byproduct of knowing how and when (as well as how much) your customer will purchase is the cost avoidance it enables in the Supply Chain and production floor.

Once you know what your customer will buy and how it should be packaged and priced, the next step will be retooling all customer touch points. Sales reps, in our experience, come in 4 flavors – those who sell intangibles’ vs. those who like physical products and those more comfortable selling a few big Enterprise deals each year vs. many smaller transactions. As the business model changes, the same sales reps may have to be replaced, no matter how much training is thrown their way.

The other touch point is post-sales support, which we call ‘The Reality Business’. I was once the global GM of a consulting organization inside a software vendor and once the sale was over, our job was to reset expectations without completely blowing our credibility or the sale. Like being in Congress but you still pay for parking. As offerings become more or less bundled, reseller strategies and support requirements will change, manifesting in relationship profitability and right-sizing the channel. It also alters the length of your sales cycle, and probably, revenue recognition. It means you have to recalibrate the beginning and end of a sales cycle per the new business model and it’s affect on reputation and word of mouth. Case in point – one of our Partners just the other day took his 2008 Chrysler Town and Country to the dealer for warranty work. He and his wife are repeat customers who love the car. Seems the part supplier to Chrysler went out of business and now he’s concerned not about the dealer, who cannibalized the part off a new car on the lot, but about Chrysler, itself, and their commitment to customers.

Finally, the company’s Leadership Team will probably need coaching to thrive in this new business model. Not lectures on new behaviors, but hands-on mentoring. Having personally managed operations through a period of economic upheaval leading to a revolution, the way you lead during bizarro-times is much different when there’s no revenue cushion to permit learning by iteration.

There’s a joke on Wall Street about an Analyst asking a CEO “how do you stay in business losing so much money for so long?”, to which the CEO replies “luckily we’re closed on weekends”. Unless HP (and the rest of us) rethinks basic business models, Wednesdays will remain Mom’s Spaghetti & Gravy Day, but weekends will be for replacing red ink cartridges.

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies and key initiatives as well as operating units of Global organizations. He can be reached at richard.eichen@growroe.com

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