Some thoughts this week after finishing the "Support Economy"
Culture – The new method of competition
When Henry Ford introduced mass production at the beginning of the 20th century, he not only changed how things were made, he changed the culture of the workplace. In this production culture, head office was the organization’s brain and it decided everything. Products were conceived, designed, produced and then marketed and sold. The enterprise pushed out from the centre. This model has taken over all aspects of organized life today. At its heart is a need to control the core process. Everything and everyone had to be “managed”. It was successful during a long period of relative stability.
We are so imbued with this model that we mainly fail to see it for what it is – only a model which has had a life of about 100 years. Today, we have reached the design limits of this model. More efficiency cannot be squeezed out of it and the business, social and technology environments are now changing so fast that such a model cannot react fast enough.
A new model is emerging. It is the reverse of the production model. In this new model, which we can see in the actions of new adopters such as Wal*Mart, Amazon or Dell, the flow is reversed. The customer sets the product agenda. It is the customer who decides what they want and who drives the production process back into, not simply one organization, but into a network of suppliers organized by the host company. The new model works deliberately to eliminate, or significantly reduce, inventory, such as eBay, Dell or Southwest, or to carry inventory in a distributed form in the supporting federated system such as Wal*Mart and its suppliers. With very low or no inventory, they have a compelling cost advantage.
All have remarkably sensitive customer interfaces where, at best, individual customer profiles, preferences and accrued activity and trust are maintained in real time such as by Amazon, eBay and Dell. Or, profiles are held in aggregate, where community profiles are maintained such as at Wal*Mart.
This is not simply a re-engineering of the process but a shift in culture. It involves the giving up of the idea that the market can be controlled by head office. Head office in these organizations does not pretend to be able to predict customer behaviour, instead it works to have the best sensory system possible. It uses this acutely sensitive information system to track trends and to react immediately.
As a result, the customer experience has been transformed from an outward push to an inward acceptance. It is fun to fly Southwest as well as being inexpensive. Amazon provides a community of book reviewers that pulls the customer into the primary sales position in the firm. Wal*Mart greats each customer and so on. The customer gets what they want rather than only what the firm will give them.
In a world where most of have all that we need, in terms of things, this putting the customer into the driver’s seat give them the potential for the experience of control and participation that the old system prohibits.
This is the key to understand the new model. Its value is in the experience of control and participation given to the customer. For the first time, the customer is in control and not the corporation. Once customers have experienced this, they do not go back! Conversely, in the new organization, to give the customer control and participation, head office has had to give the front line control, and participation as well. Once employees have had a taste of this they too do not want to go back.
To pull this off, these organizations have pushed a remarkable amount of decision making power out to the front line. Floor clerks in Wal*Mart can move material around the store and each store has a computer assisted re-order model that enables the store to track orders to the unique preferences of its own community. At Dell you speak to a real person who then tracks your order all the way to set up. At eBay the buyers and sellers deal direct.
If you are a competitor of one of these new model firms and you are still using the old model, you will fail. You cannot deliver the costs and you cannot deliver the customer experience.
So we see the icons of the old model struggling or even moving into bankruptcy. United Airlines, AMR Air Canada; Kmart, Home Depot; and most small booksellers and Indigo and Chapters. eBay is on track to dominate the second hand car market. Dell can take on any competition and is moving into other sectors beyond PC’s.
In the old model, you could compete by applying a simple concept – more money. By gaining access to more resources, you could use increased scale to push prices and costs down and use your increased hegemony to have power over the consumer. This is why the trend in the old model is for more scale. But now scale will not help United Airlines or Home Depot. The new model demands that you kill off your old culture, the culture that made you successful and which you know so well.