Chief Investment Officer
building a sustainable competitive advantage
The overwhelming response to my newsletter made my week! Thanks for all the encouragement, great comments and outstanding ideas (some of which I'll share at a subsequent article). Attached is my next contribution, developed from observations of master chef Thomas Keller. There is much to learn from his success, and the lessons are readily applicable to our industry.
Thanks in advance for sharing with me your reactions, comments and insights.
Have an awesome ( and delicious) week,
Building A Sustainable Competitive Advantage
Lessons from Thomas Keller, Owner and Chef, The French Laundry Restaurant
The French Laundry is a unique restaurant. It has been touted as the best restaurant in America, a world-class establishment, and it has stayed at the top of this faddish business for ten+ years. It has been named in a recent survey the third best restaurant in the world. Customers continue to flock to the restaurant and make reservations months in advance. This sustainability is unusual in the hospitality business, so I investigated further.
Thomas Keller has several tenets that result in the restaurant's super performance over time. They also apply to banking, and, I believe, if well executed, do create a sustainable competitive advantage.
- Obsession with perfection.
Keller settles for nothing but 100%. He expects perfection in everything he and others at the restaurant do, and will accept nothing less. This is an audacious expectation by any standard, and especially so by banking standards, where some accept 80% of a mystery shop as a passing grade. Banks also do not expect 100% customer retention, but the Ritz Carlton does.
Expecting nothing but perfection is the first step toward achieving it. Otherwise, one is assured NOT getting there. The Ritz Carlton may not get 100% customer retention, but it will get closer to it if this is the standard that if the expectation was 95%. Similarly, Keller trashes green beans that were lovingly trimmed and blanched if there were overcooked by one minute, something most humans could not recognize. Another outstanding perfectionist chef, Jacques Torres of Le Cirque's fame, would throw away some of his Napoleon sheets because they were not evenly baked and the crunch would vary by bite. It sounds obsessive, and it is. Sustainable competitive advantage requires such dedication and audacity of expectations.
- Using the best ingredients.
Keller never compromises on ingredients. He has his own cadre of wild mushroom gatherers, his own sources for meat, poultry and fish, and even established his own bakery because the quality of otherwise available bread was not to his standards. He offers six kinds of salt at his restaurant because they provide different flavorings to the food. He accepts nothing but the best.
As a result, the food, even if simply prepared, is incredibly delicious. The carrot soup is more carroty than a fresh carrot bought at the supermarket, and even a simple salad is delectable. This is not only because of Keller's creative genius. It is also because he puts the best to work.
In banking, however, we certainly settle for less. Our production facilities, our ingredients, are people. Yet we often hire a teller without appropriate qualifications or attitude because it's the only way the branch can be opened Monday morning. When the team is not perfect for the job, when we don't hire the very best people to do the work, the results are short of perfect as well.
- Use technology innovatively.
Everyone uses technology in the kitchen, from the over to the mixer. Thomas uses technology where other people don't, where he gets the most "bang for the buck". For example, in making sorbets, he uses a photoelectric tool that measures the amount of sugar relative to fruit pulp in the sorbet. This ensures that the sorbet is not too sugary (which will create crystals in the mixture that will interfere with the smoothness of the sorbet), nor too tart (which will make you pucker up). This technology yields perfect sorbet texture every time. This, combined with creative sorbet ingredients (recently we had a spearmint sorbet that was divine), builds a sustainable competitive advantage.
The parallel in banking is clear. We all use technology, but few of us use it in a differentiated fashion. Community banks in particular use technology in an effort to match the larger banks' offerings and as a defensive tool. What if they used technology to develop unique systems to serve the special needs of a specific customer segment in their market? THAT would create a competitive advantage, which, coupled with consistently superior service, will yield a sustainable competitive advantage.
- Delivery and presentation.
The food at the French Laundry is extraordinarily pretty. Much thought is given to presentation and delivery. For example, the plates are all white, so as not to distract from the natural colors of the food, which vividly come out in Thomas' presentations. Chef achieves height by piling six or seven consecutively smaller plates on top of one another to serve a dollop of beluga caviar on piping hot custard. The food is not only delicious, but it is presented in a way that highlights it without being intimidating.
Banks do not spend much time thinking through delivery and presentation. They focus on efficiency, transaction time, overall "look", but delivery and presentation in the customer experience sense are much lower on the list. Consequently, banks' delivery is largely undifferentiated. This presents major opportunities to those community banks who will focus on this element first and deliver on it!
- Effective teamwork.
Kitchens are known to be temperamental places. Tempers flare, accidents happen and, in general, the place is usually tense. While the French Laundry is not exempt from such moments, the work itself is highly collaborative. The creative process involves everyone on the kitchen staff, and credit is given generously for dishes created and executed. Whenever I'm in the kitchen, in awe after another spectacular dining experience, Thomas invariably credits one of his chefs with the dish I'm raving about. In truth, the kitchen team works together to continue to create new dishes, both simple and complex, and to challenge each other to think out of the box.
The process of creativity is a tough one. Decision-making is also a difficult process. Both are much enhanced when done in a team rather by a solitary individual. The right team makes both processes much more effective. Individually, all of us have strengths and limitations. Even Thomas Keller, the great chef, recognizes that. In the right team, the skill sets are complete and the group well rounded such that no decision is lacking for the right perspectives. Individuals have limitations; teams do not.
- Practice, practice, practice .
Outstanding chefs never stop practicing. Jacques Torres still make croissants every morning (he's been doing it since he was 15 years old) to make sure he doesn't lose the touch. Thomas Keller, a restaurant and business owner at this point, spends time in the kitchen touching every single dish before it goes to the dining room. Both don't let up even one day on using the honing their skills.
Bankers, on the other hand, are loath to practice. Once they get the product line down, they rarely refine their sales presentation, role play with each other or think up new approaches unless the old ones don't work anymore. This contributes to us falling short of our potential.
- Manage the entire experience.
The food at the French Laundry is good enough that it will attract customers for years to come. But one of the things that makes the restaurant unique is the attention to the entire experience. The restaurant is small and unimposing. It is elegant but not overdone. The chairs are comfortable but not especially designed for the restaurant. There are no paintings on the wall. The flower bouquets are small and almost whimsical, made mostly from flowers in the restaurant's garden. The wait-staff is well dressed but not too fancy. The place feels comfortable, not stuffy, even thought he food is world-class.
Thomas made sure that his guests were comfortable, that the food is not overshadowed by plates and garnishes, and the silverware is functional but not too fancy. It makes for a unique experience: top notch food but without the stuffiness. This goal was in his mind first, then the restaurant was created to achieve it.
In Rome there is a fantastic gelato place called Giolitti. It has been in the same family for four generations and it has been serving incredible ice cream for 103 years. I wondered how did this specific Gelateria achieve this distinction. Fortunately, having eaten unspeakable amounts of ice cream, I got to meet the owner, signore Giolitti. When I asked what he attributes his success to, he mentioned the purity of the ingredients, the history of the recipes, but, most of all, the feel of the place. At Giolitti, people stand in line five person deep and get their ice cream cones, only to stand outside, mill about and enjoy the entire experience.
I asked Senior Giolitti whether he would open a place in the US. He said that Americans eat ice cream differently; they put it in boxes and take it home. He envisioned another customer experience altogether, and would not compromise that. The result 100+ years of being the best ice cream store in Rome, and going strong.
Very few banks manage the entire customer experience. We have so many moving parts, so many customer touch-points, that the task is daunting to many. However, those companies that focused on the desired customer experience first and then executed that, did exceptionally well. Starbucks sells an experience, not a cup of coffee, and so does Disney (happiness and a positive, safe environment for all), Southwest Airlines and others. I'm hard-pressed to name a bank that sells the experience, and look forward to the time when it happens.
The lesson from Thomas Keller is clear: Have the vision first, then build to realize it without compromise. Continuing vigilance will ensure that success will continue. It is a tough proposition to follow, because it requires continuing investment, resisting temptation to cut corners, and it's hard work. But it works.