Theory of Constraints Handbook - James Cox Iii [376]
INJ. 3: Identify and Build the Decisive Competitive Edge Factor
The company uses the window of opportunity created by implementing the previous injections to identify a factor in which an order of magnitude improvement will bring a significant competitive edge, and uses its improvement efforts to achieve it. With injections 1 and 2 successfully implemented, it’s possible that competitors will catch up within 2 to 3 years. This injection calls for the company to use this window to build a decisive competitive edge. The company now must identify one factor and develop it to be several times better than current performance. For example, in computers, this would be a machine that operates at 5 times the current performance or 5 times the simplicity. In air travel, imagine an airline that could get you to your destination in a quarter of the time it now takes you. It does not necessarily mean that the airplane is 4 times faster. In building a car to order, instead of 12 to 15 weeks lead time, picture such a custom-built car delivered to your door within 2 weeks. Such factors exist in every industry, but require turning a company on its head to make it a reality. It’s not only a technological challenge, but also it usually means aligning efforts in engineering, production, distribution, and marketing.
Because of this step, the company now has the potential to increase revenue well beyond its current capacity.
INJ. 4: Strategic Segmentation
Within most target markets, there is a subset that values the factor you have developed much more highly than other segments. Strategic segmentation means that you can price the identical product at a premium, when adding a guarantee or service component based on the factor identified previously. Segmenting the markets and pricing services according to this customer perception of value is the key to achieving “impossibly” high profit goals. For example, take an 8 oz. envelope and ship it with guaranteed first overnight delivery, and the fee is $44.10. Take the same envelope, using the same airplanes and trucks, but choose the standard overnight service, and the fee drops to $16.55. Put the same envelope in the mail, and the fee is 44 cents. Similarly, we have proven that some customers will pay 50 percent more for the identical custom kitchen when it’s delivered in 2 weeks instead of 6 weeks. A manufacturer of commercial aircraft will pay 4 times the standard price for delivery of critical items (e.g., custom painted emergency door handles) when it will help that manufacturer ship the aircraft a few weeks earlier.
From my observation, most companies have such market segments but fail to distinguish them in their service offerings and pricing. As a result, they have some customers who perceive their product to be “expensive” or too high priced, relative to their needs, while at the same time other customers consider the product to be a fantastic bargain.
How do you go about identifying such segments? The answer is that you must get to know your customer’s business better than the customer themselves know it. For example, in the case of the custom kitchen manufacturer, the VP of sales and I visited several dealers, and asked them if they ever got requests for expedited deliveries. “Of course,” was their answer. Sometimes, the customers (often contractors who had gotten themselves into trouble in the construction process or the dealer who took too long to finalize an order) simply tried to put pressure on the manufacturer to deliver earlier. The guilt trip of “You know how much business I give you every year?” often worked, but to the manufacturer’s disadvantage. By expediting one customer