Getting Better Isn’t the Same as Being Different

Ryan Haylett

Here's a number that should bother you. In the 1980s, R.R. Donnelley, the leader of a commercial printing industry worth more than five billion dollars, had a profit margin consistently above 7%. By 1995, that margin had fallen to less than 4.6%. And during those same years, Donnelley and its rivals were buying faster presses, running them harder, and cutting crew sizes. They got better at almost everything, and they earned less.

Dave Rowley

That sounds backwards. How do you get more productive and make less money?

Ryan Haylett

Because everybody did the same thing at the same time. This comes from Michael Porter's 1996 Harvard Business Review article, What Is Strategy? The big printers were serving all types of customers, offering the same printing technologies, and investing heavily in the same new equipment. Porter says the productivity gains were captured by customers and equipment suppliers, not kept as profit.

Dave Rowley

I think about it with software. A tool comes out that saves everyone an hour a day, and a year later it's just table stakes. You didn't get ahead. You just avoided falling behind.

Ryan Haylett

That's exactly the distinction. Porter calls it operational effectiveness: doing similar activities better than your rivals. Faster, fewer defects, less waste. Strategy is different. Strategy means doing different activities, or doing similar activities in different ways. And he's careful here. Operational effectiveness is necessary, but it's not usually sufficient.

Dave Rowley

Why not sufficient? If I'm genuinely faster than the shop down the road, that should count for something.

Ryan Haylett

It counts until they copy you. Best practices spread quickly, through competitors, through consultants, through software. Porter pictures a productivity frontier, which is the sum of all the best practices at a given moment. You can move toward it, but so can everyone else, and the frontier keeps moving outward. Then the second problem hits, which he calls competitive convergence. The more companies benchmark each other, the more they look alike. They end up racing down identical paths that no one can win.

Dave Rowley

So the treadmill is real. Everyone runs faster and nobody moves.

Ryan Haylett

And the dangerous part is that it feels like progress. You're busy, you're modern, you're improving. But if customers can't tell you apart from the next option, the only lever left is price.

Dave Rowley

So what does real strategy look like? Porter uses Southwest Airlines.

Ryan Haylett

Right. Southwest offered short haul, low cost, point to point service between midsize cities and secondary airports in big cities. Then everything else was tailored to that. Gate turnarounds of only 15 minutes, so planes fly more hours with fewer aircraft. No meals, no assigned seats, no premium classes. Automated ticketing at the gate, so customers bypass travel agents and Southwest avoids their commissions. One standardized fleet of Boeing 737s, which simplifies maintenance.

Dave Rowley

Each choice makes the next one easier. No meals means faster turnarounds, and one plane type means simpler maintenance. It's a system, not a feature list.

Ryan Haylett

That's what Porter calls fit, and it's why Southwest is so hard to copy. You can imitate one tactic. Copying twenty interlocking choices means rebuilding your entire company. Which brings us to Continental. Their version was called Continental Lite, launched in 1993.

Dave Rowley

Let me guess. They copied the visible parts.

Ryan Haylett

They did. They cut meals and first class, lowered fares, added departures, and shortened gate times. But they stayed a full service airline everywhere else. They kept the hub and spoke system, the mixed fleet, baggage transfers, assigned seats, and standard travel agent commissions. Per the University of Illinois course material built on Porter's work, Continental Lite could not afford to compete on price and still pay those commissions, but it couldn't do without agents for its full service business either. Planes were delayed at congested hubs and slowed by baggage transfers. Late flights and cancellations generated a thousand complaints a day. The airline lost hundreds of millions of dollars, and the CEO lost his job.

Dave Rowley

That's called straddling, right? Trying to hold two positions at once.

Ryan Haylett

Yes, and Porter says trade-offs are the reason it fails. Reputation gets muddled. The activities themselves need different equipment, different skills, different systems. And leadership can't coordinate two contradictory priorities. So here's where it gets close to home. Picture a custom design build remodeler with expensive project managers and master carpenters. Business gets slow, so they say yes to 150 dollar emergency handyman jobs. Master craftsman hours on a small patch job wipe out the margin, and the delays frustrate the customer.

Dave Rowley

Or a fine dining restaurant that adds third party delivery apps and discounted grab and go lunches. Now the kitchen is fielding courier tablet alerts during the dinner rush, dine in tickets slow down, and the food sits in cardboard. The atmosphere that justified the prices is gone.

Ryan Haylett

Same pattern for a cash pay dental practice that fills calendar gaps with low reimbursement insurance patients, or a tight tolerance prototype shop that takes mass stamping runs without the equipment for them. Porter points to growth pressure as the most dangerous driver. Every yes feels like revenue. Each one quietly erodes the position that earned you the premium.

Dave Rowley

So what do people actually do about it?

Ryan Haylett

Start with an audit. Look at the bottom 20% of your customers or projects from the last 12 months, the ones with the most headaches, special exceptions, and thinnest margins. Don't ask what was wrong with them. Ask which specific incompatibilities made them a bad fit for your system.

Dave Rowley

Then turn that into a short list. Three to five boundary rules your team can use immediately. A minimum project size, a lead time that isn't negotiable, no custom variations outside your standard assemblies. Your staff shouldn't need to ask the owner every time.

Ryan Haylett

And a quick fit check. Walk through intake, delivery, billing, and follow up, and ask whether each step reinforces the others or pulls in a different direction. That's your week. Audit the worst fits, write the no list, check the fit.

Dave Rowley

The takeaway for me is that getting better isn't the same as being different.

Ryan Haylett

And a strategy is mostly a list of things you refuse to do. If you want help building a smarter, more resilient business through technology, marketing, websites, automation, or strategy, you can learn more at modularity.us.