(00:00:00) It's a pleasure to welcome all of you to today's meeting. I would also like to welcome our radio audience throughout the Upper Midwest who are hearing this program on Minnesota public radio's midday program broadcast of Minnesota meeting are made possible by the law firm of Oppenheimer wolf and Donnelly with offices in Minneapolis. St. Paul and major cities in the United States and Europe. Minnesota meeting is a public affairs Forum which brings National and international speakers to Minnesota. members of Minnesota meeting represent this communities leaders from corporations government Academia and the professions Minnesota meeting is now celebrating its 13th year in the marketplace of ideas. We're pleased to have with us today Michael Tracy corporate strategist and author of The discipline of Market leaders. Mr. Tracy is an internationally known expert on corporate strategy and business process transformation. Through his client work with Fortune 500 companies and research studies. He conducts with the management consulting firm of CSC index Inc. He is pioneering a whole new approach to customer industry and competitive analysis and how companies should respond. The Cornerstone of this new strategy called value leadership is the notion of unearthing customer value. Mr. Tracey holds a PhD in management science from MIT and was professor of management science at the Sloan School of Management at MIT. I've personally had the opportunity to work with Michael on a variety of projects at the st. Paul companies and I found his counsel to be extremely valuable. I anticipate that you will gain some Keen Insight today as well. Following Michael's presentation questions will be addressed from the audience Jane Maris executive director and Gloria mcclenahan of Minnesota meeting will move among you to manage the question and answer session and you may use the slips of paper on your table to jot down questions for. Mr. Tracy now, please join me in a warm welcome for mr. Michael Tracy. (00:02:49) Thank you, Doug. Good afternoon everybody. This is the interactive part of the program. Good afternoon much better. I'm going to move over to the to the screen so I can use it for a minute. I will tell you that I am on a mission and I am on a mission. To try to change some of the thinking that drives a lot of the organization's here in the room that today have told us that they are Market leaders and that today have told us that they are confident of their success. I feel like I am at a point in this mission where the folks who embrace the quality movement were 30 years ago 30 years ago quality was a concept in this country that was much talked about and very less often implemented. It was a concept that companies paid lip service to and of course that we sell quality products. We committed to Quality. We believe in quality, but the reality was it took some foreign competitors to teach us some very hard lessons about quality and for American companies to embrace the notion and implement it and really drive it deeply into their organizations. It took people like damning. It took people like Crosby to show organizations how to actually go about taking the concept and driving it into reality. Well, I want to talk to you today about another concept that basically everybody pays lip service to and that very few companies actually embrace as their daily basis for that how they operate their organizations and the concept quite simply is a concept of being a value leader that in your Market committing your organization to delivering absolutely unmatched value to the customer day after day after day. A lot of companies claim that their value leader and very few companies in this country successfully back it up. Now what is a value leader a value leader is a company like Walmart that can commit itself to a particular kind of value in their case price. And really demonstrate day after day after day that in their Market they have the best prices. Value leadership is a company like Microsoft or until this is committed to having unmatched value not through prices. But by having unique breakthrough product capabilities that allow their clients to use their products and do things people were unable to do have in the past. That's what Sony is committed to being a product breakthrough leader. Value leadership is not about playing it safe. In fact, it's not about playing and organizing and operating your business for the benefit of shareholders and that frankly swims entirely against mainstream management thinking today. The Harvard Business School has spent the last 50 years ingratiating in this country a notion that we manage organizations for the benefit of shareholders. All the market leaders that I've studied that my co-author and I wrote about in the discipline of Market leaders. Do not focus on shareholder value. That is not the focus for how the organization's operated. Because shareholder value is just one of the places in which people compete for value. Look at who in your organization is demanding value your customers. Absolutely and your customers will be totally dissatisfied next year with what you're offering is good value this year because customers expectations continue to rise simply look at your personal life. Look at what you consider to be an acceptably good automobile today versus what your standards for a car were 10 or 15 or 20 years ago. I submit in any of you that own old cars know this is true that if you brought even the best automobile from 1975 or 1980 into the market today people would laugh at how poor the quality is people would laugh at how inadequate the handling the styling and everything else is the Auto industry a highly competitive industry has seen better value every year in those products in safety in quality in design in everything. Customers will never be satisfied. They are always expecting more and what Market leaders do by being uniquely better delivering value is they purposely raise customers expectations? To a level at which they and only they can adequately satisfy them when Federal Express arrived in this marketplace with the ability to deliver my bags my packages my envelope overnight with perfection. It changed forever my perception of the airline industry. And the way they handle my baggage. Why is it why is it that if I fly from Boston to Minneapolis, I have a far greater likelihood of my bags arriving with me if I send them by FedEx through Memphis than if I simply ask the airline to keep them on the airplane with me. It's because one company has built itself to deliver a particular kind of value at unmatched levels. FedEx is values very clear. It's not overnight delivery all the overnight firms do that. The unique thing about FedEx is absolutely positively it is the certainty the hassle free service that they provide is their particular Hallmark. It's what's made them a great firm. So great leaders in markets, raise customers expectations always there's a demand for better value. Certainly. We know shareholders demand more value and shareholders have never been as aggressive as they are today in going to management teams and saying we absolutely demand changes in this organization to allow us to get better value. Employees have fundamentally in The Last 5 Years in many large organizations gotten the short end of the stick. We have seen in this country extraordinary shift toward greater more efficient mechanisms for doing business. We've seen this concept of re-engineering roll through and the concept is a great idea. The problem is that the reality has been not so much fundamental re-engineering a process as it has been downsizing layoffs and fewer people doing the work of many. Ask your employees weather today. They are as certain that they see a career for themselves in this organization through to retirement as they did a decade ago and what you'll see in company after company is the trend line is down. And it employees do not perceive that their organizations are places where they can get enriched jobs personal skill development and growth and the kind of salary growth, but they're hoping for but that situation can be righted our employees like our shareholders like our customers demand more of a year. So, how do you do it? How is it that some companies are able to in fact deliver better value in all three dimensions every year. Let me give you some examples Southwest Airlines now, there's a tough industry the airline industry Southwest Airlines delivers outstanding value as we know in terms of prices. They are typically a hundred dollars a seat cheaper than their competitors Southwest Airlines is the only airline in the country profitable in each of the last ten years and the employees are herb Kelleher adore him and a door that company. Intel Intel has the most aggressive product Innovation capabilities in the microprocessor business until far and away is the most profitable firm Intel has the most excited turned on and and and and fun-loving employees in that whole industry you look at market leader after market leader after market leader. What you find is that all of those components of value are satisfied and are not intention if in your organization there is tension between delivering value to customers versus value to shareholders. Should I give my customers lower prices better service or more Innovative products or should I book the prophets? Where should I put the investment or tension between your employees and the deal they get versus shareholders and customers then I assure you you're not a market leader. All right. Only Market leaders are in a position to actually be able to afford and to fund better value in all three dimensions how they're able to do it for one reason. And the one reason is that what is common to all Market leading organizations is that the way they operate their business their operating model is uniquely better. Then that of their competitors they have devised a way to run the business such that the overall design of how they do work is simply strictly Superior. Let me give you an example a company that burst on the scene about five or six years ago. His company called Dell computer and I'm going to use them there in the personal computer business for the reason that the personal Computing industry changes so quickly that you can see many different models of how to operate in very short periods of time the Computing industry personal Computing industry is moving. So fast, one of the things you notice that anyone who works in it is that they aged a lot faster than the rest of us. All right, they age more like my dog than like me because of the pace of change that takes place in that industry. Let me show you how Dell computer burst on the scene their unique value incidentally was a very simple proposition 30 to 40% lower prices that Was their game they weren't selling more complex computers better ones worse ones. Their service wasn't better or worse. Their focus was unique value through price. traditional personal computer manufacturers IBM Toshiba Compaq NEC operated in a very traditional manufacturing model Dell computer designed their operating model with three fundamental differences difference. Number one, they did not sell through the normal personal computer dealer system because for their customers those dealers didn't add value they sold direct using 1-800 services to reach their clients with much much lower cost. Second and more importantly every manufacturer in the industry at the time ran their assembly on what's known as a build to inventory basis. They predict and demand they create a production schedule. They make the machines put them in warehouses and then sell them through their dealers. Dell computer 100 percent of its business was built to order there was no inventory. They only made the machine when they got an order they get an order today four hundred machines. They make them tomorrow. They ship them the following day. That was the regiment it took all of that cost out of the system and on the back end of their business where they dealt with all these suppliers of power supplies and keyboards and screens and everything else where they had to worry about the ordering the shipping and the billing What Dell computer did was give that whole complexity to their suppliers and said there's our warehouse. You keep it full. We're only buying the parts when we have an order. So when I need to make a hundred machines, I'm going to reach in and pull out a hundred power supplies. That's when I'll pay you your job is to figure out how many to keep in the warehouse. It's not my problem amazingly suppliers found that that was a less expensive way for them to do business because they got very smooth and steady demand from Dell. The result was Dell computer burst on the scene became a multi-billion dollar player before companies like Compaq could alter their operating models. So they too could deliver exceptional value and start to stop Del success the key in most organizations. I submit most Market leading organizations. The key to success is building a way of operating your business a design for your business that is uniquely better than that of your competitors that the principles the rules that you have to live by are basically these you must to throw to grow and thrive in your Market. You must be committed to putting the best value in the marketplace. Even if it's too good a deal. You know, why does Southwest Airlines charge $100 less for a seat? Why don't they just charge 10 or 20 dollars less? Isn't that good enough? Why does Walmart insist on such low prices? Walmart is an 80 billion dollar retailer. What would happen to Walmart's profits this year if they raise prices one percent? An item that they're selling today for two dollars and 32 cents would now cost two dollars and thirty four or two dollars and thirty-five a 14 and a half dollar item would now cost $14 in 65 cents who'd notice. What would a 1% price rise due to Walmart's bottom line this year? Calculate the number for me. See many of you listening calculate that number and say no no, no 800 Millions to Big. Let me calculate it again. But that's what the number is Walmart could make 800 million more dollars this year with a 1% price rice. Why are they so stupid? As the not take the money. What is it about those people what Walmart understands is that if all the game is that they are playing is transferring value from customers to shareholders, which is what a 1% price rise would do. All they have done is stolen from future growth to fund current profits and there is no long-term gain in that too often companies play the shell game of stealing value from one place and delivering it somewhere else rather than playing the very hard tough difficult game of committing the organization to having a uniquely better operating model and committing the organization to improving that way of operating every single year so that it is the increasing efficiency and effectiveness of the way you operate That is what actually funds improvements in value for everyone the story about Walmart and its success is not just a story about low prices. It's not a story about their distribution Acumen and cross docking and all these things. We've heard and and locating in the Hinterlands. The real story about Walmart is a story about a company that for the past 20 years has never stopped innovating has never been satisfied with the way that it operates and in each of the last 20 years has been wholly and completely committed to that second rule making value better every single year. This is the track. We got to get more businesses on this is a track by the way that makes a five dollar box of cereal an embarrassment. Right, not a marketing success. Why can I buy a calculator for less money than I can buy a box of cornflakes today. Help me understand that. right five dollars for a box of cereal is a marketing Triumph and a strategic disaster. Because it is essentially booking profits that you have not earned by delivering value. And that's a very tenuous position to be in now. Values of word that I have used repeatedly but value means different things to different people and it means different things to each of us depending on what we're buying and what the circumstances are and you cannot be the best at all components of value. To Intel to Microsoft to Starbucks Coffee to Sony to glaxo value is best product to Nike. I live or die based on having uniquely better uniquely better product capabilities. To 3M. I have to continuously fuel Innovative product because if I don't have uniquely better product, I certainly don't have best value because I'm not focused elsewhere to other firms to into to Walmart to Southwest Airlines. To Federal Express to this little company 800 Flowers biggest florist in the country who delivers unmatched convenience the ease with which they can order and your flowers. They're delivering best total cost not best product. They're saying look my products and average product. But my price or my hassle-free service is outstanding or reliability like matech. The total cost of ownership will be the lowest with me. And there's a third set of companies that focus on a different kind of value. These are companies like Johnson Controls that recognize that the very very best product in the hands of a customer that doesn't how to use it effectively is not the best value. These are companies that recognize the cheapest product. If it's not the one you need isn't value Johnson Controls out of Milwaukee sells these heating ventilating air conditioning controls in a room like this large hotel room or in this whole building. They know that what the hotel wants are two things higher quality low energy cost. That's the objective. Whether they have the most sophisticated thermostat on the wall is frankly irrelevant whether it is the lowest price thermostat is irrelevant if what they're after is Energy Efficiency and air quality. So their focus is around providing the expert advice design skills installation skills maintenance programs so that you get the best total result the best total solution. And it means they don't have to be focused on having best product or lowest price. This was IBM during its twenty to thirty years of unequaled success. This is a whole range of companies pioneering a different way of delivering value, not through product but to embracing a total solution now just a last thing then it will open it up for a few questions what Fred Fierce man, I found and what we wrote about in the discipline of Market leaders. Is that is that Behind These distinct kinds of value you find different very highly focused corporations or business units to be more specific. If I look at those firms that focus upon best total cost whether it be Federal Express or Southwest Airlines or Charles Schwab or 800 Flowers. What I find is that they subscribe to an identical set of principles around how you op how you design those businesses. They are highly centralized highly standardized very directed. They do not throw the word empowerment around Loosely. These are not learning organizations. These are implementers operators where it is at the headquarters that most of the Brain Trust lives. This is a command and control environment with a team oriented culture not a risk driven culture. Not a client driven culture internal teeth. What we find across a wide range of Industries is that you tell me the kind of value you're trying to achieve I can tell you the fundamental design principles that you must subscribe to if you're in fact to build an operating model that can profitably deliver value at unheard-of levels and the operating model for best total solution. What we call customer intimacy model is night and day different from the operational excellence model for delivering lowest-cost customer intimacy is client-driven. It is a learning organization. It is not focused on end to end product delivery. It focuses on completely different processes as the core of its business and the third kinds of firm Johnson & Johnson 3M and others product leadership firms. Are again internally organized in a completely different way. finally simply from empirical observation not from any theoretical construct Fred fearsome, and I have come to conclude that you cannot you cannot easily succeed in trying to be the leader in all dimensions of value that there are internal inconsistencies demanded by the various design principles. And that what the successful firms appear to have done the market leaders that we've observed is that they've identified that one dimension of value around which they are going to go on a 20 year Journey continued driving to the lead and continuing to set the pace for everyone else in their industry in that dimension of value organizing our business around those principles and then are only trying to achieve parity levels threshold levels in the other two dimensions. Many companies I deal with say no. No we lead in value in all three dimensions. The truth is that in almost all of those discussions? What I discover is that they're not operationally excellent. But they're operationally competent. These are fine people doing a decent job to be efficient. They're not customer intimate in the sense of delivering a total solution, but they're very customer responsive. They have some good value added services and smart and effective Sales and Service forces. But by no means are they at a point of saying boy, we can actually take over a client's problem and make it ours. And they're not product leaders, but their product differentiated. They've got some new and improved in different things to say like everybody else in their Market. And too often companies that say either my clients demand that I be everything. Or say we are leading everything in fact or Stuck in the Middle. They are excellent and outstanding at nothing. But they're very highly competent firms with a set of initiatives to improve efficiency to improve Innovation and to improve client service. And what these firms are is firms tremendously at risk not from the competitors that they have known and competed against for decades because those firms typically are just like themselves who they are at risk from our new entrants who build an operating model that delivers added value at an outstanding at an unheard-of level. And simply tries to hit thresholds in the other dimensions that new entrant will not take all of your customers. They'll only take your profitable customers. Okay, they don't want them all. And we've seen that in the airline business the Triumph of Southwest over American and United and Delta and all the rest. We're seeing the chemicals business the Triumph of she met and Formosa over down and Dupont and all of the rest. We've seen it in the credit card business where AT&T based on delivering unmatched value, not one and three quarter percent interest rates per month not 50 dollar Annual fees, but decent value has gone from zero to the second largest credit card company in the country in less than two and a half years 14 million households. Carry that card and use it. on a regular basis the threat to companies that say they're the best at everything. Comes from companies that will choose to focus and be outstanding at one thing and take those kind of clients away those kind of customers away. All right, let's let's at this point then open it up for some further discussion some questions. We have some people moving through the audience with good with microphones. Thank you Michael for our listening audience on Minnesota Public Radio. You were listening to Michael Tracy corporate strategist and author of The discipline of Market leaders speaking to the Minnesota meeting on the station's of Minnesota Public Radio. We have a first question here from teary Troy who's the chairman of real estate equity? As a owner of a small business, I listened to this thinking that it excludes anything except very large corporations with extremely large Capital to invest in one of these three strategies. I uh, I actually think not I ideal on a daily basis with the Goliath of American industry with the really large corporations and I will tell you the truth is that from the position of the Goliath some of whom are here in this audience today? The David's are the ones that are winning it is the small companies headed toward becoming large that appear to have so many of the advantages and there seemed to be a couple of reasons for that. One reason is that what large companies have to exploit of course is scale and wealth. All right, very dangerous things to get in the way of scale and wealth Small companies though have equal but different advantages in entering into any particular market. So let me take us an example. Let us say that we were to compete against Office Depot or Walmart or another one of these Powerhouse operationally, excellent low price retailers and I own a business that competes with their business. Let me give you a couple of rules if I'm a small business person of what I have to do rule number one stay out of their way. They are not all things to all people. They are focused on a particular kind of value for goodness sakes pick something else. All right, not all customers want low prices pick a different value that is where you choose to be outstanding. Second you got to hit the parodies though. I don't have to have their prices, but I have to be within Striking Distance of their prices. Probably on the items that are almost icons of pricing. So if I'm competing against Office Depot, of course, I want cases of copier paper and pads and a few other things that people will really check the pricing on I want those things to be close to Office Depot price, even if I have to drive across town buy it from them and simply resell it at cost to just because that's not where my business lies. What's most important though is how do I probably in the dimension of customer intimacy? How do I present to my clients an offsetting but equally outstanding value? I can do it in the office stationery business because what I understand is that those firms are delivering price, but their customers out there who would be willing to recognize that their total cost of office supplies is a lot more than what they pay for them. Because they have inventory sitting in cabinets. They have they have administrative people who deal with the buying of it in the paying for it and all of that costs money. What if I could provide a service to those small and medium businesses that shop at Office Depot and say look I'll take care of all your needs you don't need a minister of people for this will take care of not just supplies but office furniture coffee service a whole series of different things. You might need will focus on a total solution and will meet their price in some of the price sensitive items. But we have outstanding value in this other dimension. It is critical for a small business to find a different dimension of value. Last thing to say is that the means for achieving leadership in the dimensions are clearly different for small companies for large companies. The means of achieving operational excellence is typically with very highly centralized and sophisticated computer systems that help replace labor with technology. small firms aren't going to do that but small firms have the huge advantage of keeping it simple avoiding bureaucracy and being able to buy not those brand-new assets that cost a lot of money but those secondhand assets and other things that I can use but a large company couldn't deal with it's hard to compete with a large company in a technology driven product leadership Marketplace. This is true unless I choose a narrow Focus where I can be absolutely outstanding in the face of competition from Nike and Reebok another company. It turns out has gone in and captured almost a hundred percent of the gymnastics shoe business because that's its entire and complete and utter focus is gymnastics and it's literally a part of the culture. Of that sporting event. Nike can't get into that market because of this firms focus and proud. So you need extraordinary focus on a niche and it is a natural advantage of smaller companies to be customer intimate with their clients because among other reasons you have access in small companies to the most senior people in the organization and smaller companies often have the built-in flexibility and can-do attitude that allows them to embrace a broader set of services than a large company can typically provide so you don't seek success as a small firm in the same ways, but I think the principles of being a value leader of picking something different than your competitors of focusing on a very homogeneous set of customers is equally valid. Thank you. Mr. Tracy. Our next question is from David Andreas president of National City Bank. Can you cite any examples of companies that have that you've noticed if switched from one value discipline to another and how they went about implementing that yeah switching from a particular value discipline to another is an extraordinarily difficult task. If you are trying to switch from being a leader in one discipline to a leader in another and the reason is that the design principles by which you are say operationally excellent. Are in fact so inconsistent with the design you need to be say customer intimate. That's a very difficult job and not one that many firms have a need or a desire to accomplish. What a number of firms do though. Is this they were once operationally excellent. They have over the years degraded so that they are really only at threshold levels of operational competence today. They're really not the leader and not typically because they got worse simply because others got better and what was once a leadership position is now just threshold. Those firms that in fact are in have allowed leadership to degrade the threshold do have the opportunity to shift its focus to a different dimension and drive out in that Dimension, but it's tough even there. It's tough because although you've allowed your skills to degrade to the point of being at threshold the truth. Also is that all the vestiges of what once made you great still run through your people run through the culture run through the control systems in the measurement systems and all the rest and it takes a very conscious effort to change that discipline many organizations. I have dealt with recently in the Pharmaceuticals business are making a major effort to become customer intimate with the healthcare providing community. Why well because they can't get the prices they want for their drugs netted out and they have not had the rate of innovation in Pharmaceuticals as a product leader that they once wanted most of these pharmaceutical firms fundamentally misunderstand what it takes to be customer intimate see what they would like to do is they like to wrap around their drug product some level of value added service that somehow distinguishes themselves from all the other drug companies that have me to drug products. So there are seven of them with an antibiotic where they're all about the same money, but adak they like to become customer intimate to sell more antibiotics. It's not customary see that's that's threshold. That's customer responsive what customer intimacy means today in Pharmaceuticals. It means actually going to Health Care Providers and saying look, let's forget about any biotics for a minute. I want to I want to actually be in the business of being an expert advisor to you around infection Management. In fact, I will go so far as to be willing to carve out and take financial responsibility for all the all the infection costs in your system some companies doing this today. They're going to Health Care Providers and saying let me carve out asthma all managed all of asthma for you. I'll take all the Financial Risk on asthma and guess what they're going to use my drugs, but you shouldn't care about that more importantly. I'm going to put in place all of the processes by which asthma gets managed and I'll take all financial responsibility. That's customer intimacy. And you see when faced with that with moving beyond a threshold to real dramatic leadership. Those hard choices make an historic product leader get a shiver down your spine. They don't want to do that stuff. It's just like being operationally excellent many firms operation competent. Let me tell you the hardest thing about being operationally, excellent operational excellence companies know that variety kills efficiency, and as a result, they shrink back and minimize the range of products that they offered you ever notice it on a FedEx after all these years of success in billions of dollars a service all the products. They sell you can check off on one side of their envelope, you know, do you want 10 o'clock afternoon or second day. Is it a letter a box or a tube? They're just a few choices. Now, these people are not brain-dead, right? They could they had lots of ideas for new products. It's just that they have a discipline that says if we have too many kinds of products will mess up what we're great at. Or look at McDonald's you don't do much. You don't get served at McDonald's your way. You get served at McDonald's McDonald's way because they know that they are driving very efficient see so they can deliver back to you low-cost think of the Rules of Engagement you get into a McDonald's. What's rule number one lineup. All right for your benefit, I don't think so. All right rule number two get to the counter. Know what you want. Next time you go to McDonald's get to the front of the counter say oh your name Dan. I'm in a crazy mood. I don't know what I'll have. What do you think? They're not built to do that? Third rule. Don't order off menu. You don't want a pickle. Not a problem. Get your seat. Take it off. Fourth rule once you finished eating clean up your mess. All right, your mother couldn't get you to do that McDonald's. Did you see every operational excellence company does business their way not the client way and that's a hard Choice. Most firms would make Southwest Airlines Pack Light buddy. You're carrying it because we don't do baggage right eat ahead of time because we don't do meals and if you and your buddy want to sit together get there early because we just hand out seats in the order in which you arrive and this year they've dropped and ticketing no tickets. You can get a reservation you show up at the airport. They find the name of the computer. They swipe your credit card through get on board. You don't need a ticket. They're going to save a hundred million dollars. Guess what they're going to do with the hundred million dollars. They're going to fund this year's better value because constant Improvement in their process is what allows them to fund better better better value every year and open the gap between them and everyone else. So you see if you've gone all the way down the road to making hard choices to really wiring yourself up that way changing to some other discipline is real tough. But if you're stuck in the middle, it's easy. Thank you. Michael. Next question here from Tom Lindquist. Who's the director of communications that Unisys? One of the tasks that I have is to develop and crafts communication strategies to the various stakeholders get a shareholder customers employees government broader Community. I'm wondering if you'd mind commenting on how Market disciplined leaders communicate to all those shareholders. And I guess I was toying with the idea at one point of time and of writing another chapter to your book in terms of how well I think those companies probably integrate all of their messages and communicate as Juan but if you'd comment it it is something that I have not until your question pondered very much, but let me let me give you something just strikes me right off the top of my head when I think when I run through the list of companies that I admire so much because they are the ones setting rules in their industry. One of the things that's very observable is that those companies whether it be herb Keller and Southwest Airlines or Walmart or Intel or Starbucks coffee? All of them? One of the things those companies do is they really celebrate their idiosyncratic way of operating they turned their limitations, you know, the fact that you don't get meals you don't get baggage into features, you know, they like talking about how different they are. By focusing on the on the design of how we operate the operating model that becomes a central thing that is communicated to every constituency. So Kelleher spends endless hours talking to his employees about how we operate. And why that's important to you why that's important to you. And how the way we operate is the way we are able to uniquely deliver value to customers. So explaining to the employee constituency watch how we operate what's in it for you and what's in it for those other constituencies and why that's important to you as well. So you hear inside a lot of Market leadership firms, for example the discussion about profitability. Really becomes a discussion inside the firm not about those shareholders always demanding more. It's a discussion about the fact that if we're to continue to grow and Thrive, we need access to the capital markets. We need more people willing to put money into our organization. We can only accomplish that if we take care of the people that have already put some money into this business. They don't try to create absurd rates of return. In fact this it's almost as bad to have to hire growth in share prices to have too low because it sets the wrong expectations, but I also see those people when they communicate to shareholders, they're also communicating heavily. It's about how we operate that's important. And here's why we deliver value to that constituency. Here's why we deliver value to these constituencies. It's in your best interest for us to do that. In other words to common factors one is communicate the operating model. The second is explained each constituency the critical importance of balance. I've having a balanced perspective on who gets what it's why by the way. I'd read stories like the Takeover of Chrysler. Who will pay the price certainly as the customer? Because the Auto industry is about to go through the next major wave of innovation. It's going to take enormous amounts of cash. And if that cash is being used to fund shareholders instead of being used to fund the next generation of automobiles. We know exactly where Chrysler will end up in 5 years. And of course that money is ultimately also coming out of employee value. And it's stories like that that that that really disheartened me not because I don't think somebody should have a chance to take a run at a large corporation. But because it upsets the balance of the various constituencies who all have a stake in getting value out of the Improvement in that organization. Thanks Michael. Next question here from Jack Thomas. Who's the head of Technology at American Express financial advisors? Would you describe some of the characteristics of the operating model that would focus on customer intimacy certainly customer intimacy and in it it It's a model. Let me put up a very complex chart. It's a model that has the following characteristics. Number one. The the organization is built around very entrepreneurial client teams, because to the customer the person I work with on a regular basis is at least half the value of that. I get actually out of that organization if I'm a hotel owner building a new hotel and Johnson Controls is heavily involved in all the design all the installation and maintenance those people. I work with it. Johnson Controls are where I'm getting the value. Customer intimate firms always have the highest level of quality in their sales and service for us in the industry the very best people work there because it's a very field and client driven organization highly attracted to those people. The brain trust is out there in the field a very complex job for customer intimate firm is to create learning across client teams because you're doing very different things in different clients. And what you want to do is cross fertilize and get the learning going because that's how you stay sharp. And you stay one or two steps ahead of your customer just like Consultants, right you borrow ideas from the really smart clients and you share them with the dumb ones. That's how you learn. You don't make stuff up on your own you'll learn by getting a breadth of experience. The culture of the place is client field driven very empowered front line by empowered. I mean these people have real control over many of the profitability variables in the account relationship. These are companies that probably don't know their transaction profitability, but they know their customer profitability. Because they have a view of a lifetime value of customers. They're willing to in fact invest lose money in certain transactions. As long as the whole relationship makes sense. There are three levels at which you focus on unique value one is offering expert advice to the customers problem. Second is being willing to take responsibility for the problem and actually take it away and say look I'll take care of it. I will in fact financially be at risk for solving this problem on your behalf. Thirdly. They're willing to tailor and customize their Solutions. Let me give you one specific example for an caught corporations in the private label soda business. In fact almost all major grocers in this country used caught as their supplier private label soda, what they are is a customer intimate supplier to the grocery Channel. What caught knows is that most Grocers don't understand how to manage private label because in the custom consumers mind, it's cheap in both senses of the word low price low quality, and that's not value. That's just paying less and getting less. And the trick and private label is to have low price high quality equal to brand name products. So what caught does is goes to Grocers and says we're here to really help you completely reconceptualize which products you want to have private label categories in we have the largest in aisle taste testing capability in the country will not allow you to put a product on the Shelf. If it doesn't at least equal or better every branded product on the Shelf. It's not worth tarnishing your image in blind taste test. It has to be Coke and Pepsi. They have a very sophisticated design skill, they'll come in and redesign all private label packaging throughout the store, even though they only Supply soda and a few other things because they know the integration of the design theme is very important in these very sophisticated design and packaging because they know that communicates quality to Consumers the launch of the product. The relaunch is taken over by caught completely. So it's safe ways. They gave out seventy six thousand six packs to the employees did blind taste tests at night and turned Everybody on to the fact this is a great product. Turn them into sales reps. They launched the product and move it to 34 percent market share of their soda sales in a market where moving 1% is hard. They've been Rock Solid at Safeway at 34% ever since interestingly caught does all of this for its clients and then sells them the soda gets paid for the soda caught doesn't actually make the soda. They subcontract that to bottlers. Caught doesn't even make the concentrate that gives the soda. It's taste they buy that from RC Cola. Right, but Cod is delivering a total solution think of them as the architect and the general contractor. And then they take care of managing the subs, but they don't have to do the work themselves. This is the Hallmark of customer intimate firms writes a very client-driven very Revenue driven. And if you look at the very best of the financial planners kind of industry, you're from they have customer intimate relationships with their clients because they don't focus on the products. They're selling what they focus on is what are the life themes kids to college saving for retirement taking care of your parents. What is it? You're worried about. Okay. Now let's do give you some expert advice around how we build their for a plan for you savings investment tax risk all of it to help you reach those life objectives. Once I've done all that with you then of course, eventually we'll get down to the level of saying okay know which products should we invest in? But by then most of the values already been delivered and you can in fact invest people in a lot of different ways. That's what customer intimacy is about. It's embracing the whole problem. Not just trying to sell a product.