Think Before You Tinker

6 November 2009 Don Berg

Don Berg, CFO, Brown-Forman and CRM guru Don Peppers on the problems associated with over efficiency.

Strategies to improve efficiency in these recessionary times may not always have the desired effect. Brown-Forman’s CFO, Don Berg and CRM guru Don Peppers of Peppers & Rogers Group explain to FDE’s Steve Dunkerley that inefficiency can actually be a good thing for the long-term survival of the brand and the company.

In advertising its bourbon, the current Jack Daniel’s poster campaign features insights into the whiskey’s production process, matched with an easygoing, down-home philosophy in keeping with its Tennessee roots. One poster, featuring a grainy black and white picture of a large wooden vat used for charcoal mellowing, carries the strap line ‘This is no place for an efficiency expert’ and references to ‘bean counters’ who, straight suits that they are, would ‘break out in a cold sweat’ at the supposedly inefficient mellowing process.

The reference to bean counters may have FDE readers feeling slighted, but the ad poses a tongue-in-cheek re-evaluation of the value of efficiency, not just in something as straight forward as distilling whiskey, but in the broader scope of the wisdom of ‘strategic’ decisions, especially in a downturn.

As Jack Daniel’s is keen to point out, the intangible nature of its mellowing process gives its whiskey its unique taste, and any tinkering with this process risks compromising the consumer experience and therefore the brand.

According to the most recent Duke/CFO survey, meeting consumer demands and delivering on their expectations is the biggest concern for CFOs in Europe. Therefore, a greater understanding of what needs to be done at a strategic level can be gained by getting closer to sales, marketing, product development and the consumers.

Reflecting on the ad, Don Berg, CFO of Brown-Forman, the parent company of Jack Daniel’s, believes the importance of the charcoal mellowing process is key to the brand’s success.

"Jack Daniels could easily get away with tinkering with its mellowing process once, twice or even a hundred times, but sooner or later it would bring the brand down."

‘First off, let me say that as the ultimate "bean counter" in our production team, I consider this one of my favourite Jack Daniel’s ads,’ he says. ‘Early in my career, I was the FD for Jack Daniel’s and one thing I learnt early on is you don’t mess with the charcoal mellowing process, it is what makes the brand unique. It is one of the key factors that has been at the core of the brand’s communications throughout the world, going all the way back to the 1950s when the Jack Daniel’s company hired its first marketing person.’

For Don Peppers, CRM guru and co-founder of consultants Peppers & Rogers Group, tinkering with the heritage of a brand such as Jack Daniel’s would be giving into short-termism.

"A company’s focus should not simply be to deliver a quarterly profit, but also to maintain shareholder value in the long term," he says. "Short-term decisions taken on the mellowing process would be similar to the types of decisions taken during the recent financial crisis involving the trading of derivatives. It was always more profitable to create the derivative, sell it and make the commission because, after all, there is only an infinitesimal chance that any derivative would bring the entire system down.

"Jack Daniels could easily get away with tinkering with its mellowing process once, twice or even a hundred times, but sooner or later it would bring the brand down."

Neither should the trial and error that has gone into developing such a process be taken lightly.

"There’s an inherent conflict between efficiency improvement and creative innovation,’ Peppers says. ‘Creative innovation requires experimentation and failure. For every 100 failures you get a success, whereas efficiency improvement does not tolerate failure. Efficiency improvement requires eliminating variances, while creative ideas are more likely to be generated when variances are tolerated, if not celebrated."

The waggle dance

"Efficiency improvement requires eliminating variances, while creative ideas are more likely to be generated when variances are tolerated, if not celebrated."

If Brown-Forman was to pull its investment in creative innovation, such as removing the Jack Daniel’s mellowing process, it would run the risk of compromising the quality of the consumer’s experience. And in the age of Twitter and Facebook, companies failing to deliver on consumer expectations run the risk of being publically slammed and the brand devalued.

Social networking sites empower the consumer with a potent variant of traditional word-of-mouth judgements. Peppers equates this ‘feeding back’ ritual to the waggle dance performed by honey bees, whereby the bee is able to inform the hive of the location of flowers and nectar. In this regard, if the honey bee was human then perhaps it would not perform a waggle dance having sampled un-mellowed JD.

Dangers of short-term tinkering

Aside from risking brand integrity and reputation, over-efficiency can have more serious repercussions when safety is an issue.

Safety is also a key issue in transportation, where the move to improve so-called efficiency can have less desirable outcomes. In August of this year, Network Rail, the company responsible for maintaining the UK’s rail network, announced a 1,800 head count reduction programme, which has led many transportation groups to express concerns over safety. Job cuts at France Telecom (approximately 22,000 in three years) coupled with poor working conditions, have been blamed for a rising number of employee suicides (25 work related suicides among its 104,000 French employees over the last 18 months).

Scalpel instead of sledgehammer

The need for carefully considered cost management is essential in the current climate. With many stakeholders to satisfy, finance directors need to employ a precision approach to cost management instead of wielding a sledgehammer to achieve short-term goals. However impressive the initial results may seem, the repercussions in the long term can prove dangerous.

Consumers, empowered by social networking tools, are increasingly important stakeholders. Any tinkering of the product, brand, or in the case of Jack Daniel’s, the production process will no doubt be found out by the consumer who will subsequently make their feelings felt, at a cost.

Jack Daniels 2009 advert