Read an Excerpt
From Chapter 2
In the summer of 2002, Martha Carr opened Coffee Xpress, a wholesale coffee and distribution center in Newark, New Jersey, with three coffeehouses in midtown Manhattan. Offering products such as coffeemakers, espresso machines, and glassware, Coffee Xpress specialized in an extensive line of firstrate coffees and teas from the Far East, Central and South America, and Africa. To serve her coffee shop patrons, Carr contracted with a local bakery to supply sweet rolls, doughnuts, and bagels on a daily basis (except Sundays). Two manufacturers one located in Michigan and the other in Milan, Italy supplied medium priced coffeemakers, which Carr
When a good thing happens in New York, of course, people talk. Lots of customers came from uptown and downtown to drink coffee at the midtown Coffee Xpress stores. The wholesale business also did well, selling to restaurants and hotels in the city and in surrounding states as far away as Virginia. As robust as its Arabian espresso, sales at Coffee Xpress brimmed to $3 million in only five years.
Then, however, the bottom line of the business sank to the bottom of Martha Carr's cup. A drought in South America sent coffee prices soaring. Competition from the likes of Zabar's in her own backyard and as far away as Starbucks in Seattle, Washington, and Peet's in Berkeley, California, threatened to turn her stagnating business into lukewarm coffee slush. And the customers . . . well, they were just too fickle and unpredictable. In confidence, Carr lamented to her staff that she had no idea how to predict what customers wanted next. One month flavored coffees were all the rage; the next,you couldn't give them away.
Carr tried to set up her own Web page and advertise her products on the Internet, but the site had disappointing results: As few as twenty hits a day brought up nothing more interesting than one user's recipe for making the perfect cup of coffee. A small but enthusiastic group of employees even resorted to door-to-door visits to drum up potential business with restaurant owners, other coffee shop proprietors, even residents in an adjacent building. Although it had moderate success, this effort proved tepid at best.
In frustration, Carr called in her team of salespeople, marketers, wholesalers, distributors, and customer service reps. "It's clear that we can't change this company around with a quick fix or two," she announced. "We ought to do some serious studying of our market, our customers, our sales and distribution channels, and those processes we need to develop in order to survive and prosper."
What Carr was asking for was an audit, but not just in the traditional sense of someone from outside coming in to look at the company's books. The word audit has its roots in the Latin audire "to hear," more precisely in the form auditus meaning "that which is heard." First applied to business in the sixteenth century when it was common practice to have public readings of financial statements that could be "audited" by interested parties, the audit is the first step in understanding the problems that confront the specific business, seeing how those problems can affect any business, and then discovering solutions often in the least expected places.
As we approach the twenty-first century, hearing both in the sense described above and in the sense of listening carefully to what customers have to say has never been more crucial. To search for best practices is to study what other companies have accomplished, to adapt their processes to your business situation, and to hear and learn about your customers' experiences with your products and services. In doing so, you should search not only for local wisdom but also for insights from across the street and around the globe. Finally, it is to share this information with people throughout your organization and with your customers and suppliers. Your search for best practices is likely to lead to a refining products to meet your customers' changing needs and wants. The best way to learn what they need, of course, is to share what you have learned with them.
The decision to audit an organization's processes does not take place in a vacuum. Rather, it is part of a carefully orchestrated undertaking specific to each organization. A best-practice review may lead to some relatively minor adjustments in a company, or it may end in what we call a full organizational transformation.
The review begins by asking the unasked questions of managers, customers, employees, and suppliers, challenging their assumptions about the marketplace as well as future directions it might take. The review studies a client's customers to find out how they define their needs. The review doesn't rely solely on the reports of sales and marketing reps but studies competitors and the degree to which they meet the needs of their customers.
The team that examined Coffee Xpress began working closely with Carr and her associates to develop a precise, unambiguous picture of the market environment what constituted the company's value chain, how the company could act faster and more cheaply, and how it could still give customers exactly what they wanted. The group discussed strategies for improving sales and decided to conduct a thorough study of coffee sales and distribution. This approach required that the team learn everything they could about the entire value chain, which begins with the coffee plantation owner thousands of miles away in Chile and ends with the coffee hound on Eighty-ninth Street and Central Park West who religiously buys three pounds of Mocha Java every two weeks.
Most small companies and a number of large companies, as Carr and her staff came to realize, are not vertically integrated. They have only the slimmest of ideas about who their suppliers are, where the raw materials come from, who can supply those items when the regular suppliers run dry, and how accomplished their competitors have become in integrating those suppliers into their own supply chains. The "market," as the folks at Coffee Xpress had originally conceived of it, consisted solely of customers either those who walked into one of the coffee shops and ordered a cinnamon roll and a cup of java, or those who mailed in their purchase orders along with a check.
Sensing their error, Carr took pains to point out that the concept of "market" deserves a much broader definition: The market environment includes not only the company's customers but also its suppliers, competitors, and those companies that can furnish substitute products when the coffee industry suffers a devastating drought. And what about those cartels of producers who might decide at any moment to roast their buyers as well as their beans? Mindful of these contingencies, the team began examining the costs of delivering various products, their link to profitability, and the suppliers' place in the delivery chain. Exploring the degree to which employees understand customer needs, the team built an encyclopedic knowledge of Coffee Xpress and developed an instinctive feel for the organization its strengths and weaknesses.
Then one salesperson in Carr's group brought up yet another matter: Congress would consider the following week a piece of legislation proposing new tariffs to punish some country for offensive international behavior. That country would no doubt retaliate by raising its export duties, forcing companies such as Carr's to raise their prices to consumers. World events could percolate smoothly for months, even years, but then someone would turn up the heat and the whole pot would boil over.
In their study, the team focused on those individual processes and subprocesses currently in place at Coffee Xpress, evaluating each step to determine how the company spent its time and money. First identifying the company's markets and customers in the broadest sense, the team attempted to understand the key forces that motivate customers to purchase coffee products and services, and then segment those customers by appropriate identifying characteristics.
Next, the team examined how Coffee Xpress designed, built, and produced its products. By evaluating the feasibility of these operations, they helped employees at the company learn how to refine existing products or develop new ones to take advantage of segments previously overlooked. After this part of the hearing, the representatives assessed the company's current marketing and sales practices specifically, its channels of distribution, pricing policies, advertising, sales force deployment, order processing, and strategies to capture customers.
The penultimate stages of the audit process included a scrutiny not only of the company's production capabilities but also of its ability to customize products and services in order to meet customers' current needs and form stable, long-term relationships with them. Once established, those relationships would have to thrive on one-to-one interaction between the company and the customer. "Points of contact" individual service representatives, salespeople, technicians, and the like would give the company with its new customer-oriented focus a means of solving problems more quickly. When shared throughout the organization, these service interactions would build cross-functional cooperation. The company could thus gain a decisive advantage over its competitors.
Finally, the team evaluated how Coffee Xpress could best manage the information that it collected about its customers" purchasing patterns, preferences, and values. Typically, this evaluatior often takes the form of suggestions on building a common database to create customer profiles, then tracking the customer's entire experience of buying, receiving, and using a product or service Through these means the team predicts how successful the company will be if it implements all of the key processes.
Copyright © 1998 by Arthur Andersen