Volume 184: The Qualitative Advantage.

The Qualitative Advantage.

tl;dr: Quantification as an exploitable weakness.

This is the final installment in an accidental trilogy. First up was Quantitative Destruction, focused on the myopia of the quantitatively minded and the dangerous blind spots created when you try to force the messy complexity of reality into overly simplistic quantitative models. Then came The Efficiency Delusion, where I observed that corporations increasingly deprecate critical competitive competencies like marketing and customer experience by managing them for efficiency rather than growth because business leaders no longer value competitiveness as a strategic goal; instead, treating competition as something to be avoided rather than to excel at.

The problem with these approaches, however, is simple. First, as the now-former CEOs of Nike and Starbucks both found out, quantification does not guarantee success. On the contrary, oversimplistic quantification is more likely to be value-destructive than value-accretive. Second, it’s a vanishingly rare corporation that can legitimately claim to be in a ‘competitive category of one,’ which means deprecating critical competitive capabilities makes little or no sense to most.

What links these observations is that both represent exploitable weaknesses. In other words, when competitors display the traits of management over-quantification or the deprecation-through-efficiency of core competitive capabilities, it weakens them in ways that aggressive competitors can and should exploit.

There are two things competitors can do to exploit these weaknesses that require them to accept a third. First, they must treat competitiveness as a corporate muscle that requires investment and ongoing development, just like going to the gym to build real muscles. Second, they must excel at delivering the qualitative factors that typically drive customer perceptions rather than being myopically focused on quantitative dashboards. And third, they must accept a different mindset around waste in order to do both effectively.

To walk through this a little more, it’s important to understand that one of the core disconnects is between how we buy and how corporations are run. Put simply, when we buy, our perceptions are defined by the totality of the qualitative factors that add up to the experience we receive, while corporations typically manage this experience in a highly quantified and fragmented fashion. Advancements in technology and data fragmenting things further.

However, silo’d quantification can result in all sorts of crazy customer experiences, some obvious, some less so. To make the point, let’s look at an obvious example: Walgreens. (For non-US readers, Walgreens is a huge US pharmacy chain that also owns Boots in the UK.) It’s a business that’s been in trouble for years, barely ekes a profit, and just announced that it’s to close 1,200 stores.

It’s also just about the worst retail experience in the US, and believe me when I tell you, That Bar is Low.

To demonstrate how bad this experience has become, Walgreens locks away a considerable proportion of its retail inventory. Yes, that $5 stick of deodorant is sitting right there on the shelf in front of you. No, you can’t buy it because it’s locked behind perspex. Now, you must ring a bell and wait until a surly staff member, overburdened with a million other tasks, comes to unlock the shelf. However, Walgreens has also cut back heavily on staff, so good luck finding one to help you. And if they do, eventually, turn up, the chances of them having the correct key, or in fact, any key at all…maybe 50:50 if you’re lucky.

So, this creates a compounding situation. The business is struggling to make money, so it decides shrinkage is a quantifiable and fixable problem because less theft goes straight to the bottom line. Unfortunately, the fix doesn’t work because you’ve now turned your retail store into a qualitatively hellish experience, where 2 in 3 consumers say they’d rather walk out of the store and buy nothing than buy a product sitting behind a locked shelf…Worse, I don’t think I’m alone in standing in the aisle and buying whatever I was looking at through the perspex for next-day delivery on Amazon instead. This means that not only do they lose a sale that was literally in hand, but I’m now considerably less inclined to return to Walgreens in the future, making the business struggle even harder to make money…rinse/repeat.

Now, why would you lock products behind perspex? Walgreens management told us it's because of an epidemic of retail theft (which they then walked back as an…exaggeration…almost certainly used as a get-out-of-jail card for years of poorly sited and unprofitable stores, In other words, management incompetence). However, based on previous retail clients, I can tell you that when retailers lock away products, it's most often because employees are the ones stealing. And, if employees are stealing, the business has a major culture problem that needs to be dealt with, which goes far beyond a lockable perspex shelf.

Does Walgreens have such a culture problem? Well, on Glassdoor, just 38% of employees approve of the CEO, and as soon as you walk into a store, you instantly and viscerally feel the negativity. This is neither a well-run company nor a corporation with a good relationship with its employees. I’m not accusing them of theft, but I am saying that this is a good example of a corporation where you can smell how broken it is just by walking in the door.

Now, the irony, and the part that represents the exploitable weakness, is there’ll be a VP somewhere in a beige office in Deerfield, Illinois, who rarely, if ever, steps foot in a Walgreens store, but has a dashboard showing exactly how much less inventory is being stolen and precisely what this means to Walgreen’s bottom line, even as these same tactics turn consumers away in droves and act as a negative drag on business performance.

Now, if I were to compete with Walgreens, what might I do? Well, first, I might design a more pleasant shopping experience with less friction. Second, I might choose to keep my employees happy and treat them as valued assets. Third, I might realize I need a clear, compelling, consistent value proposition to guide my actions.

And, well, I think I may just have described Costco, which does in fact compete with Walgreens.

Costco is a great counterpoint to Walgreens because it shows that to be great, the customer experience doesn’t have to be premium or luxury; it just has to deliver a value proposition that customers find consistently desirable. (FWIW, I view Costco as one of America’s most consistently great brands. It’s not about the logo; it’s about management quality).

What’s also important about Costco is how competitive it is. I highly doubt Costco is trying to figure out how to avoid competition, whereas I bet a lot of leadership energy is now being applied to winning against wounded foes like Walgreens.

In addition to investing in competitiveness and having a more qualitatively holistic experience, we also need to discuss rethinking the waste narrative.

A pernicious aspect of modern leadership is the idea that we can use technology and data to eliminate wasteful activities in their entirety rather than accepting that a certain degree of waste is inevitable and that some forms are more destructive than others.

Take advertising, for example. In their efforts to eliminate wasteful media, advertisers now spend so much on data and technology intermediaries that an ever smaller proportion of their media budget makes it in front of actual human beings, wasting billions in the process.

What would you rather have? A media plan where 90c of every dollar buys actual working media, even if your message won’t be relevant to some who see it. Or, would you rather see less than 50c of every dollar make it to working media because the rest of the money was lost to data, targeting, and fraud? And while a higher proportion of the people seeing might buy, it’s probably because these were people already inclined to buy from you anyway (because this is the reality of how highly targeted media works). As an aside, there are now vastly more anecdotal examples and empirical research reports than I could possibly list showing that all is not well in the so-called performance environment of highly targeted ads. Net, net, they’re nowhere near as valuable as people think they are.

Why do I mention this? Very simply, because if you can accept that a certain amount of waste is inevitable and that some forms of waste are better than others (For example, I’d much prefer to see my ads being ‘wasted’ by being seen by non-customers than racking up huge intermediary costs. After all, you can’t grow unless non-customers become customers), then you also open up the aperture of opportunity when it comes to being more competitive and when it comes to experimenting with a more qualitatively holistic experience.

Now, don’t get me wrong. I’m not advocating for limitless spending without accountability. Instead, I’m suggesting we view KPIs more holistically, expend more leadership energy on getting things qualitatively right from a customer perspective, and accept that to be more competitive, we must invest time, energy, and money into becoming more competitive, which will inherently be a little wasteful. And while a certain amount of waste is inevitable, not all waste is created equal, so choose which you intend to accept carefully.

Ultimately, if competitors measure everything to the nth degree while missing the forest for the trees, create a terrible customer experience in the process, and naively try to pursue a strategy that avoids competition, then it creates an eminently exploitable situation for any competitor willing to run contrary to the pattern.