August 26, 2005

Is Culture Critical?

The Hartman Group's analyses are usually well thought-out and nicely written, if a little on the mystical side. Today's commentary is no exception. In Costco vs. Wal-Mart: Getting Beyond Utility, it claims that Costco has created a cult -- and that this cult gives Costco a long-term advantage:

Because it's precisely the factors that make a business a cult that will give it staying power in the long run. And in this business environment one of the factors that contributes to the cult status of Costco or Whole Foods is that when you scratch the surface you discover that, SURPRISE - it's possible. It's possible for human beings to run successful companies humanly, and maybe that's something a lot of people care about.
This is not a good versus evil debate, or whether one "model" is just, but about which type of company will be successful in the long run. And there is a pretty easy way to figure this out: look at the "culture" of companies that have succeeded and failed in the past.

I just took a short look myself, and found one answer to the question of which models, and which companies, are dominant in the long-run: NONE.

Of course, there are a large number of extremely successful and historically-long lived companies, but there are far more long-term failures than successes, and many newer businesses -- especially in retail -- can inflict some mighty big pain on the once dominant firms. Are those long-term successes -- Sears, Macy's, Hudson Bay, LL Bean, Modell's Sporting Goods, Hammacher Schlemmer, Walgreens (to name a few) -- are these companies that have created a "cult" following? Well, no. They have had ups and downs, but overall they have served their customers well through incredible changes in the marketplace, but there is no cult following them.

There are a large set of people -- me included -- who like clean, quiet, convenient, brightly lit stores that offer wide selction at low prices. But I don't give a fig about culture; I care about competence and courtesy (which is sorely lacking in the closest Target and Wal-Mart stores in my area). And I don't care if you did open your first shop in Williamsburg, VA in 1699 and paid your indentured servants a living wage.

So if Wal-Mart is lacking in this cult status, count me as unconvinced that devastation awaits Bentonville. But if cult status is so important, what does Wal-Mart have to fear?

On the other hand, Wal-Mart has zero mystique. It has adopted a model toward its customers, employees and investors that is based on pure rational calculation driven by the logic of market efficiency. They have been ruthless in running their business according to this logic, and they've been remarkably successful in doing so. The only thing is that if you live by the market, you die by the market. At some point customers, employees and investors might in their own ruthlessly calculating way decide that their involvement with Wal-Mart doesn't serve their interests anymore.
Well, it's also true that if you DON'T live by the market, you will die by the market. And one can honestly write , "At some point customers, employees and investors might in their own ruthlessly calculating way decide that their involvement with [X] doesn't serve their interests anymore", and put substitute your favorite anything for X.

Posted by Kevin on August, 26 2005 at 11:04 AM