Of course, Richard Brown and his colleagues at Eurostar are very happy about this. But so are the British taxpayers, who now have real hope of getting out from under the burden of economic loss they’ve shouldered year after year since the 1994 ribbon cutting at the entrance to the Chunnel. And so are environmentalists, who know that travel by train produces one-tenth the pollution and greenhouse gas emissions as equivalent travel by jet.
Other, less obvious benefits from Eurostar’s revival have begun to turn up. Thanks to Eurostar’s growing leadership of cross-Channel travel, Richard Brown has been urging British government officials to scale back plans to expand regional airports. (Eurostar, they estimate, now replaces some 250,000 short-haul airline trips every year.) “We are not saying the country doesn’t need any new runways at all,” Brown says, “but one or two fewer is not trivial.” In an era of growing resistance to airport growth because of financial, environmental, and noise pollution concerns, that’s not trivial at all.
Today, thanks to the focused leadership of Richard Brown and the cumulative, long-term effects of more than a decade of effort to capitalize on the insights yielded by demand variation, Eurostar is finally showing signs of fulfilling its demand-creating potential.
It’s a good thing—since a whole new wave of business challenges is already confronting the company.
One is the reappearance of the old nightmare of service breakdowns. In December 2009, just days before Christmas, five Eurostar trains became disabled, stranding more than 2,500 passengers and disrupting the travel plans of one hundred thousand more. The fiasco delayed Brown’s planned promotion to the job of chairman of the newly consolidated Eurostar International Limited.
At the same time, a brand-new competitive threat is emerging. In June 2010, the European Commission’s watchdog agency charged with ensuring competitive markets gave its approval to the long-planned conversion of Eurostar into a single, unified business entity—on condition that the Chunnel line between London and Europe be made available to competing companies. Interest in competing with Eurostar was immediately expressed by NedRailways of the Netherlands, Air France, and Germany’s Deutsche Bahn.
It will take time for competing railroads to launch cross-Channel service; commercial runs probably won’t begin until 2012. But Brown is already pushing back aggressively. He has spearheaded a series of new initiatives to push Eurostar up a steep trajectory of improvement, hoping to get several steps ahead of the growing expectations of customers as well as the capabilities of the new competitors. New marketing and sales initiatives designed to connect the dots for a wider array of traveler types have been announced, including “dynamic packaging” of tickets in partnership with Virgin Atlantic Airways and one-purchase connecting fares to Switzerland.
Brown has also been urging the British government to begin mapping plans for a High Speed 2 connection between London and Birmingham, England’s major business center in the north. And in October 2010, Eurostar announced its intention to spend $1.1 billion on ten new high-capacity, higher-speed trains from Siemens and to expand service into a wide array of Continental locations.
The work of the demand creator is never done. But the best ones recognize that a de-averaging of the market is a demand explosion waiting to happen. One wonders what Eurostar’s next de-averaging move will be.
PEOPLE ACCUSTOMED to “supply-side thinking”—which is the way most of us think—tend to hate customer variation. It makes their lives more complicated—all those many differing needs to address, each requiring special thought and attention.
Demand creators are different. They love variation because it gives them many opportunities to serve more customers even better, matching products to wants and needs with even greater precision and finesse.
But they also know that addressing variation isn’t easy. It can be complex, tricky, and expensive. So over time, they’ve invented several differing strategies for cost-effective variation:
1. Create product variations, preferably with a high ratio of common components to keep costs down, as Apple has done with the iPod (available in versions ranging from the $49 iPod shuffle to $399 for a high-end iPod touch).
2. Create a platform with add-ons that fit individuals’ particular needs, as CareMore has done with its common service infrastructure and multiple “plug-in services” for conditions from diabetes to congestive heart failure.
3. Provide organizational solutions—dedicated personnel capable of tailoring the product to particular needs and ensuring it works, as Bloomberg and Tetra Pak have done with their thousands of global experts who work closely with clients to customize their services.
4. Use proprietary information to personalize the product offer, as Amazon and Netflix have done with their recommendation engines, driven by previous customer purchases and ratings.
5. Launch a new division or business, when necessary, to serve a different kind of customer, as Nestlé did when diving into the espresso market with Nespresso.
Five different strategies for meeting five different kinds of customer variation challenges—what else would you expect from demand creators who have evolved so very far beyond one-size-fits-all?
*British paranoia on this theme actually persisted well beyond the Victorian era. The late business historian Robert Sobel liked to tell the story of the job created by the British government in 1803, under which a man was hired to stand on the white cliffs of Dover with a spyglass and ring a bell if he saw Napoleon coming. The job was finally abolished in 1945.
†The world’s longest railroad tunnel, the Seikan Tunnel in Japan, connects the islands of Honshu and Hokkaido; it is almost 54 kilometers long, about 3 kilometers longer than the Chunnel. Planning for the Seikan Tunnel began in 1955, a year after five ferries sank in the strait during a typhoon, killing 1,430 passengers. It opened in 1988 after almost two decades of work that claimed the lives of thirty-four construction workers.
‡Ferry service across the Channel is also available, but the number of travelers who use it is relatively minuscule.
7.
Launch
The Achilles’ Heel of Demand
TODAY, HYBRID CARS and their all-electric descendants are at the forefront of automotive innovation. Thanks to their fuel efficiency and eco-friendly image, a growing array of these alternative vehicles have sparked steadily growing demand from drivers around the world.
Yet very few of today’s hybrid enthusiasts would be able to name the first mass-produced hybrid automobile sold in the United States or correctly guess the date of its launch.
The car was the Honda Insight; it was launched way back in 1999, and from day one it boasted, according to the Environmental Protection Agency, an amazing highway fuel efficiency rating of seventy miles per gallon.
The Insight was a remarkable breakthrough by any measure. So whatever happened to it? And why didn’t the Insight trigger the demand revolution that later hybrid vehicles produced?
As for the first question, the first-generation Insight sold a mere 17,000 units worldwide before production was stopped in 2006. A redesigned Insight, introduced in 2009, has done reasonably well in Japan, ranking fifth in sales in that country during its first twelve months, but enjoys only tepid demand in the United States (fewer than 21,000 units in the year 2010).
As for the question why, there are several answers. To begin with, the first-generation Insight looked like a science project that wasn’t ready to leave the lab; the two-door hatchback didn’t even have a backseat. The New York Times said its styling “suggested Popeye’s friend Olive Oyl in her ankle-length dress. The rear fender skirts seemed frumpy.” Other reviewers, even those, like the auto analysts at Edmunds, who appeared eager to find reasons to praise the innovative vehicle, offered a host of additional complaints: “Downsides include rear wheel skirts that must be removed before running the Insight through a car wash or when a flat tire needs to be changed, and aluminum body panels that are expensive to repair and replace, which bo
osts insurance premiums. Mountain dwellers will lament the rapid pace at which the battery pack’s charge depletes, leaving them with a low powered gas engine to labor up grades.” Edmunds’s road test editor warned, “Passing is not something to be attempted much; even a Toyota Corolla is a speed demon next to the Insight,” and its features editor reported, “With gusts over 40 mph, the Insight felt like a kite on wheels.… Large gusts would literally send the super-light Insight careening into other lanes. Not a fun time to say the least.”
Although the Edmunds reviewers claimed, “We’re impressed with Honda’s technological tour de force,” their write-up ended up pleading for mercy for the little car: “Look at it this way. Insight … is about conserving resources, not blazing trails.” Honda later said the car was “experimental,” which doesn’t explain why it was ever moved beyond the car-show circuit into the real-world marketplace.
Honda is an outstanding company with an impressive track record of innovation. Yet the Insight, which could have been one of Honda’s greatest triumphs, has been at best a disappointment. It’s a story that is all too typical of the unpredictable world of demand, in which new product launches result in failure many times more often than success.
This painful reality of launch failure must have been in the minds of the members of the board of Toyota when they were asked, in 1993, to green-light their own proposed hybrid vehicle project.
In a world of unpredictable and steadily depleting petroleum supplies, the idea of an ultra-efficient hybrid vehicle was enormously appealing. But it would also be extraordinarily expensive to develop, especially given the fact that the Toyota engineers were hoping to achieve an even greater level of fuel economy than the Insight claimed; the estimated development cost would be at least a billion dollars. And as the fate of the Insight would demonstrate, the odds of commercial success for a car using this unfamiliar new technology were low—in the case of the Toyota hybrid, they were no better than 5 percent.
When asked why he would take a billion-dollar bet on such a long-shot product, Toyota’s Takeshi Uchiyamada, the leader of the project task force, replied by comparing it to one of the most audacious engineering feats of the past century: “If the Americans succeeded in going to the moon, we can succeed with this car.”
Going to the moon was a long shot embraced by a bold young president in response to a global challenge by a determined adversary (the Soviet Union)—the kind of organization-risking bet few team leaders are willing to take. Would Uchiyamada be able to make it work? Would Toyota be able to avoid the fate that befell Honda?
LAUNCH IS the Achilles’ heel of demand. It could be the launch of a new product, a nonprofit organization, a government program, or an educational initiative. All project launches are attempts to disturb and change reality. Yet the vast majority fail, leaving reality untouched. The new product goes unbought; the idealistic nonprofit falls short of its goals; the government program doesn’t reach the people it was intended to help; the educational initiative falls on deaf ears. And the demand that the launch team hoped to elicit and satisfy never materializes.
Even the best-managed, most successful organizations in the world often fail at launch. Consider the U.S. launch of Fresh & Easy Neighborhood Markets by the British food retailer Tesco, which is rightly considered one of the smartest companies in the world. Tesco spent three years painstakingly preparing to launch its new store format in the southwestern United States, even building a separate warehouse with a complete model store inside to test different design variations. Tesco observed customer behavior exhaustively, watching shoppers as they navigated grocery aisles and filled their carts. Tesco ended up creating stores that offered fresh and healthy products, everyday low prices, fast and convenient self-service checkout, and a relatively small (ten-thousand-square-foot), easy-to-shop format.
Observers and commentators predicted a great success. When Tesco launched the new chain in California, Arizona, and Nevada in November 2007, the plan called for 200 stores within two years. Targeted sales were $200,000 per week. Yet actual sales averaged just $50,000 per week, and only 115 stores were opened before Tesco halted the program for further study.
What went wrong?
Despite all of Tesco’s intense research and analysis, there was a fundamental misreading of the American consumer. In addition to everyday low prices, consumers wanted coupons. They also wanted cashiers to talk to (rather than automated checkout machines), they wanted to use their credit cards (which Fresh & Easy didn’t allow), and they wanted a host of other features that Fresh & Easy didn’t provide. What Tesco believed customers wanted and what customers actually wanted turned out to be two very different things.
Tesco’s experience is not the exception—it is the rule. Alongside Fresh & Easy in the annals of failed launches by great organizations, we can list Walmart’s entry into Germany, IKEA’s entry into Japan, Nokia’s N-Gage game system, Apple’s first MacBook Air, the Sony Librié e-reader, and literally hundreds of others—as well as, of course, the Honda Insight.
Actual failure statistics for project launches are hard to verify, although the estimates provided by knowledgeable industry professionals are distressing enough. Experts say that 60 percent of Hollywood movies fail to earn back their costs. Sixty percent of company mergers and acquisitions end up losing money rather than making it. Information technology projects such as computer system upgrades fail at an estimated 70 percent rate; venture capital investments fail at 80 percent. New food products die on the vine at 78 percent; new prescription drugs at more than 90 percent.
Is there a way to change these long odds? If you’re a would-be demand creator, whether you work with a for-profit or nonprofit organization, a government agency or charitable group, can you change the odds of success on your next project launch from 20 percent to 80 percent—or even better?
Perhaps. But success requires changing the genetic thought-code that controls and dooms the typical launch. It requires moving far beyond business as usual, and applying a unique organizational structure, an unusual mix of resources, and a healthy dose of fear. It requires the single-mindedness, toughness, and daring that enabled the team behind the Apollo program to achieve John Kennedy’s goal “of landing a man on the moon and returning him safely to the earth.”
Most important—and most difficult of all—success requires overcoming some of the innate characteristics that make us what we are. It requires conquering human nature.
WHEN WE EMBARK on a launch, we believe, deep down, that the odds are pretty good. That’s why we begin the project in the first place. But we’re wrong; the odds are unknown and, in all likelihood, terrible. As managers, we generally have great confidence (otherwise we wouldn’t even try)—but often that confidence turns out to be an illusion and a liability.
In their 2003 article “Delusions of Success,” Dan Lovallo and Daniel Kahneman describe why people overestimate the odds of success on any project. “When forecasting the outcomes of risky projects,” they write, “executives all too easily fall victim to what psychologists call the planning fallacy. In its grip, managers make decisions based on delusional optimism rather than on a rational weighing of gains, losses, and probabilities.”
In other words, when the true odds of success are 10 percent, we think they’re 40 percent. When the true odds are 5 percent, we think … well, we just refuse to believe it.
Lovallo and Kahneman offer a useful prescription to repair this cognitive bias: Get the data. Track down actual figures on launch failure rates for your company, your industry, other industries, or projects similar to yours. The numbers will be fascinating—and sobering.
As an example, Lovallo and Kahneman describe the time one of them worked on a major new curriculum project for high schools in Israel. A team of respected academics and subject experts was recruited. Early in the project, the team members were asked to independently estimate the amount of time they’d need to complete the project successfully. When their sealed estim
ates were revealed, they ranged from eighteen to thirty months.
One of the team members had his doubts. Rather than simply accepting the group’s projections, he decided to get the data. He researched the histories of similar curriculum projects and discovered that—when they were completed at all—they invariably required between seven and ten years of work. The consensus prediction of around twenty-four months was off by at least 250 percent.
The point of getting the data isn’t to create an atmosphere of negativity or despair. It’s to encourage members of the launch team to take a realistic look at the obstacles they face. The point is to turn an Achilles’ heel into a secret weapon through a systematic approach to improving the odds at every step of the process. The point is to cultivate the “imagination of disaster” (in critic Susan Sontag’s words), then create a whole range of highly effective antidisaster initiatives.
Data alone won’t fix the situation. Chances are good no one will believe you—or the data. It’s called the Semmelweis Reflex. Ignaz Semmelweis was a Hungarian doctor perplexed at the high incidence of infant deaths from puerperal (or childbed) fever in Vienna in the 1840s. An innovative controlled experiment yielded the solution: If doctors washed their hands with a chlorine disinfectant before interacting with patients, the incidence of death was reduced dramatically.
Unfortunately for Semmelweis, and for generations of families, his work preceded Louis Pasteur’s studies of germ theory. Because Semmelweis’s idea clashed with their assumptions, few doctors believed him. Semmelweis died in an asylum at age forty-seven, his insights wasted.
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