Siisi’s keynote on finding a balance between growth and profitability was interesting. He’s with Textron. One of his opening points was about the futility of businesses continually squeezing suppliers for lower costs. For example, if GM squeezes its suppliers too much, they can’t be profitable and will no longer be a supplier. Instead, you need to think creatively about value creation.
In this model of seeking new business, you create a Reference Value based on the price your competitors are currently charging for their product or service. Then you think creatively of alternatives that can meet the customer need differently. Add the economic value of positive differentiators, where you are creating extra value. Subtract the value of negative differentiators, where your offering doesn’t quite provide what the competitor does. If you do it right, you’ll create a Total Economic Value (TEV) for your potential customer that’s higher than the Reference Value, and can charge a price that splits the difference.
Siisi used the example of Snap-to-Connect hydraulic connectors, which are an alternative to threaded connectors. Instead of taking 60 seconds to connect, they take 3 seconds. Multiplying that 57-second difference by $50/hour times 160,000 connections, the savings per connection is $.87, for a product that costs $.50. Not hard to see why sales have gone to $100 million over the last eight years.
Kevin Hoffberg, who is moderating the blogging panel on which I’ll be serving tomorrow, has detailed notes here. He’s also leading our next session, a Peer Counsel roundtable.
