Necessary and Valuable are not the same

by BILL WADDELL

Heather Peters is not someone you have likely heard of - unless you are a lawyer, that is, or Honda.  In that case, you have not only heard of her but are probably either furious with her, or scared to death of her.  Honda, it seems, sold a couple hundred thousand hybrid Civics billed to get 50mpg.  Turns out they only got 30. In traditional fashion, the bottom feeders of the legal profession jumped in, a class action law suit was filed, Honda negotiated a deal, the car onwers got a hundred bucks and a gift certificate toward their next Honda, and the lawyers pocketed millions in legal fees.

Only Heather didn't go along with the deal.  In California small claims court, the rules are no claims over $10K and no lawyrs allowed.  Heather, being a California resident, said no thanks to the hundred bucks and filed a claim in small claims court.  The 'no lawyers allowed' rule meant Honda had to send someone from management to defend the case.  The facts being on Heather's side, she won a shade under the $10K max, and lawyers got zip.  She launched a web site to help everyone get the same deal, and the class action lawyers are facing the pathetic reality that, for years they have been getting rich while adding next to no value for their clients, and the jig may very well be up.  They are facing the brutal reality that they may well go the way of the horse and Blockbuster Video store.

In like fashion, the Super Bowl garnered some 115 million viewers, and peddled ads for $3.5 million a pop to reach them - about 3 cents a look.  The folks at Old Milwaukee, after pounding a few of their own products to get the creative juices flowing I imagine, opted out of the $3.5 million national spot and sprung for $1,500 to run a local spot during the big game in North Platte, Nebraska - the second smallest market in the nation.

   

They then followed it up with a social network blitz and to date have had better than 150K looks - about 1 cent per view, and it is getting more YouTube action than all of the big time ads.  Seems as though better than 99% of the $3.5 million ad price wasn't adding much value.

These kinds of things are happening all the time, where long standing assumptions about the way things simply are and have to be are being stood on their ear.  In my seminars I typically grab any two identical items I can find - water bottles, coffee cups, pens ... and hold them up and ask people if they would pay more for one than the other because the provider of one of them had to ship it from 2,000 miles further away than the provider of the other one; if they would pay more for one than the other if it had a higher inventory carrying cost, or had to cover the cost of a larger IT department.  Of  course the answer is no.  None of those things make the product any more valuable to the customer.

The attendees, however, quite often come back by telling me that those things are necessary - logistics, administration, IT, quality control are costs that are necessary - no avoiding them - so they are an essential element of creating the product, and therefore are an element of the value of the product.

They are an essential element right up until someone comes along and figures out how to provide the product without them.  Lawyers were necessary to right a coprorate wrong - right up until Heather came along; and Super Bowl ads were the purview of the mega advertisers, and the associate cost structure was necessary, until the folks at Old Mil had an idea.  Rationalizing costs that do not add value in the eyes of customers as necessary and unavoidable is just so much whistling past the graveyard - a graveyard full of buggy makers and Blockbuster Video store owners, with holes being dug as we speak for lawyers and ad execs, and there is apt to be plenty of room in that graveyard for you if you believe that 'necessary' and 'valuable' mean the same thing.

Original: http://idatix.com/manufacturing-leadership/necessary-and-valuable-are-not-the-same/

Comments

[Gray Rinehart]

Great post -- especially enjoyed the "select two identical items" demonstration as a way to communicate real value. Nicely done!

G

[Alex Anderson]

I hate class-action lawsuits. Almost the best example of waste in our world. In theory they keep corporations in line but in practice (as you note) they line the pockets of lawyers with very little benefit to consumers. A month ago I received a check for $.10 (yes that is 10 cents) for a class-action lawsuit I didn't even know I was participating in.
Heather is a hero!

[JM]

Not sure I follow you, Bill. I think you're trying to say that conventional tactics and their corollary astronomical costs for, say, advertising/marketing are not necessary and do not create enough value to justify the cost. Old Milwaukee took an alternative route and derived nearly the same amount of value for their advertising campaign, but did it at a nominal cost. Is that right?

In other words, advertising/marketing technically does not add value to a product or service (from a Lean purist point of view), but if you have to do it, get creative with solutions that don't cost millions but can be nearly as effective as conventional industry methods.

[David Kasprzak]

Great examples and a reminder that waste comes in two forms - necessary waste and just plain waste. Plain old waste needs to be eliminated, of course. Necessary waste must go by the wayside, toi, but it is much harder due to issues of compliance or operatiobal need (like accounting or janitorial services). Until they can be eliminated, however, these things should at least be optimized, as demonstrated in the Old Milwaukee example

[Christopher Pfeiffer]

The execs I have spoken to, whom share the "Necessary" comment, think they truly believe it until you ask; have you always done it that way? “Well no, BUT…” is somewhere in the response. I wish they could just finish the statement with: "I knew I was not smart enough to drive down the MFG costs here, so I off-loaded the issues for a short term win, and I didn't leave fast enough to avoid the current backlash...."

[Dr. Dan Neundorf]

Class action law-suits unfortunately only help the lawyers on the case. I like your analogy in regards to the two items...a question no doubt asked by millions around the globe. Great post, I enjoyed reading it.