Customer Focus
Back in 2006 Reflex Semiconductor was a medium sized electronics business with Sales Revenue around $200 million and a respectable Net Profit of around $5 million.
The company had several hundred customers and a diverse and mixed product range.
Unsatisfied with performace the Board decided to appoint a new President of Marketing.
This guy was called Max Cutter (I kid you not) and he summed up his philosophy in his joining speech.
” Guys, I want to re-focus on our core business. 80% of our profits come from 20% of our customers but 80% of our efforts are in supplying the lowest contributing 20%” (He was obviously familiar with the Pareto rule)
“I want to re-focus our business (hang on Max, how long have you been here) by eliminating the lowest earning 20% and refocussing our efforts on the highest grossing 20% and watch this business GROW!!!”
When the clapping and cheering had subsided Max set about his business. Gathering together a multifunctional team of career oriented individuals from all levels of the organization (well, engineer level up anyway)
Pursuing a mantra of ‘All Change is Good’ they set about trimming the companies customer database, removing anyone who contributed less than 0.5% of Total Sales.
This carried on for several months.
The Quaterly results were due to be published when Max announced he was leaving the Company for a better position. Despite much persuassion and the offer of a 30% increase in salary Max left anyway. He did get a nice leaving present of a Rolex watch presented by the CEO.
The Quaterly results indicated that Sales were down to $140 million (-30%) and Profit was now a loss of $1.2 million.
Naturally, a Consultant was brought in to assess the situation and, after one weeks analysis, She reported that NO ONE CUSTOMER REPRESENTED MORE THAN 0.7% OF SALES.
The companies customer base was so diverse and its product range so varied the Good Old Pareto Rule didn’t apply in this case and Max and the team had successfully exterminated 30% of a perfectly good business.
Unfortunately Reflex Semiconductor never recovered and went bust a year later.
Max went on to get a job in investment banking and invented something called the “Credit Default Swap”….
chris@projectsguru.co.uk
www.projectsguru.co.uk
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