VIEW FROM THE TOP
As results from a poll of 500 CE readers show, quality still reigns as the number one priority among CEOs. The question is, how can you win competitive advantage in a market where virtually every major competitor produces top quality at a relatively low cost?
November 1 1989 by Chief Executive
Time will soon be replacing cost and quality as the critical factor for achieving and maintaining competitive advantage. In the 1970s, cost-cutting was the main objective. Then, as downsizing became a way of life in the 1980s, the focus shifted to quality. At the moment, we are on the crest of the quality improvement wave, as companies begin to turn out products and services for which high quality is a given.
The next wave? We asked United Research, a New Jersey- and London-based management consulting firm that helps companies implement change, to analyze our survey results to find out. The answer: shortening the time it takes to conceive, develop, manufacture, and market quality products at an affordable price.
To find out what CEOs think about time-related concepts of management and their potential impact on the future, Chief Executive asked its readers if they believe in the profit impact of market strategy (PIMS) theory. PIMS theory maintains that the first company to market with a relatively low-cost, high-quality product gets 50 percent of market share, the second gets 50 percent of what remains (25 percent), the third 12.5 percent, and so on. Some 60 percent of CEOs believe in this theory.
The survey drew responses from CEOs in a broad spectrum of industries, ranging from manufacturing and transportation to finance, service, and insurance. The size of their companies also varied: Some had sales of less than $50 million, others had sales of more than $3 billion. Although the sample may be skewed toward those who already believe in the importance of time-based management, the survey also attracted responses from dozens who have not yet bought into time-based concepts.
Our survey revealed that many CEOs have already come to realize the importance of time as a competitive weapon. When asked to identify the most important thing companies can do to increase market share, 30 percent pinpointed developing new products and shortening product development cycles as their top priority (see Figure II). Thirty-five percent listed “Improve quality” and almost 20 percent singled out “Improve service,” showing that quality is still the prime concern of most CEOs.
Though quality still dominates, shortening product development cycles is clearly gaining more attention. A majority of respondents saw it as a critical, if not one of the most critical, factors for their companies’ future success. And their expectations reflected this conviction. Most CEOs think they can achieve a 10 to 20 percent reduction in time to market in the next two years, and a 20 percent or greater reduction in the next five years; almost a third are so ambitious that they are aiming at a reduction of 30 percent or more in the next five years. The trend is obvious: While quality is the number one priority, time will soon be coming to the fore (see Figure III).
Will the reductions in the product development cycle projected by the CEOs be sizable enough to catch up with and surpass the competition? In the new competitive environment, making incremental changes here and there will not make much difference. Are companies prepared to make the changes required to drastically reduce cycle time? You cannot just tell your employees to “do it faster.” To compete in time, you must change the entire way you do business. That demands a completely new attitude toward change.
In the past change was viewed as potentially disruptive, a threat to the status quo. Now that rapid change has become the status quo, management must see it as a rich source of competitive advantage; an opportunity to be welcomed.
How do CEOs rate the importance of their companies’ ability to change? We asked them to list the most important requirements to achieve competitive leadership in their industry and we found the answers encouraging. Once again, most still put quality highest on the list, but many also placed emphasis on establishing lean, effective organization structures, and on ensuring the continuing ability to make change happen more quickly (see Figure IV). This is good news: It shows that the top leadership of
Yet at the same time, most CEOs think there is much progress to be made in this area. When asked how good their organizations were at making change happen, their answers ranged from “very good” to “very poor,” with most between these extremes of confidence and pessimism (see Figure V). The majority recognize that they have a long way to go before they are fully ready for the near-term challenges of the next decade. Out of the many companies that are eager to move into the future, those with the ability to effect rapid change are rare. But companies must acquire this ability if they want to reduce the product development cycle faster than their industry’s best.
Business improvements come in waves. Through their responses to our survey, our readers have made it clear what the next wave will be: making organizations more responsive to the fast-paced demands of the marketplace.Will