Chapter 6

At eight o'clock the next morning Cliff was pleased to see everyone was present in the meeting room for the planning session. Moreover, everyone was wearing casual clothes. He announced that John Flood was no longer with the company and was pleased when he saw no looks of either surprise or dismay.

"When we ended the session yesterday, we were talking about factors affecting the growth of the market. Has anyone thought of any others?"

There were additional mentions which the group discussed. After each, Cliff noted on the chart whether the net effect on market growth was up, down or neutral. He was pleased to see that participation, particularly from the sales and marketing people, had increased substantially.

Then he turned to competitor strengths and weaknesses. The first company they looked at was Ajax Industries. He explained that he was looking for three things: general characteristics and strategic thrust, strengths, and weaknesses. He defined a strength as putting a company in the top 25 percent of competitors, and a weakness, in the bottom 25 percent. The middle 50 percent would be listed, if appropriate, as a general characteristic of competitors.

One of the salesmen offered a strength for Ajax: "Strong prices."

Once again Cliff was grateful for Sandy. She had neatly sketched out a seating chart with names and organization unit shown. The speaker was a salesman named Don Peters. "Don," he asked, "what do you mean by 'strong prices'?"

"Sir, they're not one of those scuzz-bag operators always chiseling off their posted prices. Ajax sticks to its price list. They call the tune in our business, particularly to OEM — original-equipment manufacturers."

"Okay, Don, I'll record that Ajax is the price leader. Folks, what I heard Don say is that Ajax establishes prices, and everyone else prices off them. Does anybody disagree?"

Jane Miller spoke up. "I disagree! Ajax never leads. They just follow on price moves. There's no way they're the price leader!"

Cliff smiled at the girl. He noticed that she looked like she had not had much sleep the night before. For that matter, Steve Muller looked like he was in real pain. It appeared to be a combination of the fast trip from the Coast with a two-hour west-to-east time change, coupled with very little sleep the night before.

"Jane, I'm sorry. I'm afraid you're wrong for a change, and Don's right. A price leader is the guy who determines if a price change sticks. Do you remember the primary steel industry years ago before steel imports and electric furnaces started to eat their lunch? In those days, U.S. Steel was the price leader. The company almost never initiated a price move. Moves were usually initiated by small mills. But everyone watched what U.S. Steel did.

"If the small company put prices up and U.S. Steel followed, all the others moved, too, and that became the new industry price. If Steel didn't move, the smaller company quickly retreated. Now, Jane, who was the price leader? The little company that changed the price first or U.S. Steel?"

"I was wrong," Jane responded. "I guess I'm not awake yet this morning. It's obviously Steel, and I agree with Don. Ajax is the price leader."

"Don," Cliff said, "I want to come back to something else you said. I didn't record a strength for Ajax for 'strong prices, ' and I want to talk about that. First, I should have stressed something at the outset. Everything on these sheets we're working on is from the point of view of the market, not us or our competitors. Unless we're dealing with a weird market like high-end perfume, the market always prefers low prices to high prices. How the seller makes money — or if he does — is his problem. It may not be nice, but if the buyer can get what he wants free, he'll grab it in an instant.

"I once had a client in a chemical business. He was demolishing his two competitors, primarily with low prices, and they didn't have the first clue how he could do it. The answer was very simple, but they didn't know it. My client was known to use a totally different process to produce the same product all three sold. What they didn't know was that my client's raw material was a waste product generated in the production of a best-selling antibiotic. While they paid for their raw materials, my client was paid five dollars a ton to take his, with the antibiotic's manufacturer paying for transportation besides!

"By the way, the pharma company thought it was getting a great deal, too. Before my client came along they had to pay twenty to twenty-five dollars a ton, plus transportation, to get rid of the stuff. They were delighted. Now, put yourselves in the shoes of my client's competitors: How can you compete on price when you're buying your raw materials against a guy who is paid to take his? The answer is: not easily. They're likely to be at a major cost disadvantage. Do you all see what I mean?"

The group had listened to Cliff with some surprise. Finally, they conceded that high prices for Ajax was a weakness, not a strength. The discussion moved ahead and covered the other competitors in the market including captive producers and U.S. plants of overseas-based companies.

They had taken a break at ten o'clock and finally reached the lunch hour. Cliff was very pleased with the progress that had been made. He smiled to himself when he went into the same private dining room. The cold buffet was the same as the day before. The only change was the kind of soup offered.

After he took a seat Sandy sat down beside him. "Cliff," she said, "if I understand this process correctly, we're going to move from this discussion to find out what we need to do to win in the business we're in. Then we try to figure out what changes have to be made to do it. Is that right?"

"Sandy, that's exactly right. What we're really doing is stripping away all of the tinsel and ornaments to see what the tree — the basic structure of our industry and our company — is really like. Operationally, we're always bogged down in detail and day-to-day crises, so we almost never look. We're looking now."

The meeting reconvened and Cliff shifted the subject to the basis of competition: How does a company win the game. He explained there are usually a small number of factors — normally only three to five — that determine success.

"Folks," he explained, "this section is absolutely critical! If we don't get this section right before we set our strategy, everything is wrong. We won't win and can't win because we will be focusing on the wrong things. When we complete it, the list will tell us what we need to do. Our strategy will be the things we intend to do to make it happen. Again, as in the discussion of strengths and weaknesses, it's from the point of view of the market!

"So I don't want to hear 'high profits.' The market couldn't care less about our profits. If they can get a better price from us, they would just as soon we didn't make any. This is the list of things to be done. How we achieve them — and make a profit — is what our strategy is all about. Understand? Now who wants to start?"

Steve Muller offered the first suggestion, "Cliff, how about low prices?"

Cliff grinned at Steve. "I'm sorry, Steve, I'm afraid I set you up for that with our earlier discussions. But let's talk about it: We said customers prefer lower prices to higher prices. However, we also see Ajax winning the game: They have the leading market share, they're gaining share and they're the price leader, yet we dinged them for high prices.

"Are you starting to see how this process works? We're trying to get concepts to add down and add across in the same way an accountant works to get his numbers to add down and across. Clearly, we're missing something. It's axiomatic that a company can't be winning if it's doing important things wrong. So how is Ajax winning with high prices?"

At this point, Bill Stevens spoke up. "I think what we're missing is the price-quality equation. When we talk price we're assuming the products are equal in quality. I don't think they are. I think Ajax delivers consistently high quality that can create savings for the buyer. He can save on quality assurance, component testing, warranty claims, and his general reputation.

"Let's face it: If one of our valves fails in service, who takes the hit with the customer? It's certainly not us. Most people don't even know we exist. Magna Motors, or whoever we sold our valve to, takes the heat. It's their engine, after all, not ours. Does this make any sense, Cliff? I don't know a damn thing about strategy. I can't even spell it, for God's sake!"

"Thanks, Bill," Cliff responded, "I appreciate the comment and what you just said certainly does make sense. There's one point I want to pick up on, and that's participation in these sessions. The reason you're all here is I believe you all have something to contribute ... and I know you have a lot to learn. When we finish, you need to know what our strategy is.

"More important, you need to understand it! You can only develop that understanding through this kind of participation. If I didn't stress it enough before, I'll do it now. No one is being graded in this session. The grades come afterwards, when you're out performing in the factory, with customers ... wherever.

"One more thing: there are no dumb questions. The only dumb question is the one that isn't asked. If you're confused, it's entirely possible it's because we're not clear ... or our bright idea may not be nearly as bright as we might like to think it is. Now, what about Bill's idea of a price/quality relationship?"

The discussion continued through the afternoon, looking at price history, market segments — it turned out that the export market was growing rapidly but Murphy was ignoring it — production facilities and other factors. Cliff finally turned his attention to Murphy Manufacturing. As they looked at the company's position in the industry over time, the erosion of its position became very clear. Cliff adjourned the meeting when he got to Murphy's strengths and weaknesses.

Sandy came up to him and said, "Cliff, you look absolutely beat. It's obvious to me what you're doing up there is tiring as hell. It's really the mental equivalent of patting your head and rubbing your belly, isn't it? It's really a hell of a lot tougher than it looks! Could I buy you dinner? Please?"

Cliff had collapsed into a chair after standing all afternoon. He pretended to prop up one eyelid, and smiled at her. "Sandy, you're great. I scarcely have the energy to get down to my car. I'd love it!"

She smiled at him and said, "There's an ulterior motive. Jane drove me in this morning and then went off with Steve. I think they're both so tired they may actually sleep tonight. Anyway, I need a ride home ... again."

"It's a deal!" Cliff said, "provided you drive." Reaching into his coat for his car keys, he put them in her hand.

He was asleep almost as soon as he got into the car. The next thing he knew his shoulder was being shaken. "We're here," Sandy said, "but I'll be damned if I'm going to carry you up to my apartment. Feel better?"

Cliff blinked and smiled. "Much better, thank you. Now where would you like to eat?" He looked at himself and suddenly remembered he was wearing casual clothes. "I'm afraid it can't be too swanky, though, with me dressed like this."

"Come on in," she said. "We'll figure out something."

They went up to her apartment. Cliff was very impressed. Although it was only a fraction of the size of Stephanie's he liked it much better, but he couldn't quite figure out why. In addition to its larger size, Stephanie's had its magnificent view over Lake Michigan, while Sandy's, a low-rise, just looked out on a quiet residential street.

Suddenly, he understood. Stephanie's was decorator-dramatic: beautifully done by an expensive decorator for a dramatic effect which had been achieved. Sandy's, on the other hand, was also exquisitely decorated but with an eye to comfort. He asked about drinks and made two while she went to her bedroom to change. He sat down on the sofa with his drink.

The next thing he knew, Sandy was shaking his shoulder again. "Dinner's ready," she announced.

Cliff looked up at her and realized she was again wearing what she had worn the previous Saturday — tight Levi's and her Michigan sweatshirt. Once again, her lovely auburn hair was pulled back in a ponytail.

"I'm sorry, Sandy. That was awful! I just sat down ... and that's all I remember. Please believe me! It's a tribute to the comfort of your furnishings, not a comment on the hostess." He noticed that his untouched drink was now water.

She smiled at him. "It's just as well," she said. "It kept you from being underfoot while I got dinner ready. I hope you're not tired of steak? That's about the extent of my culinary ability, except for opening cans."

Sandy had set the table in her small dining area. It was apparent to Cliff that she was using her good china, crystal and silver. He supposed she inherited it from her family. The table was beautiful. Sandy brought out jumbo shrimp cocktail with Arnaud's sauce and Cliff expressed his surprise. "This is the strangest looking steak I've ever seen. And this is Arnaud's sauce from New Orleans, isn't it?"