Competing by Intelligence

Competing by Using Intelligence – Putting the Customer First

In 1996 Barnes and Noble had declared victory. Their Big Box approach, based on the scale and efficiency model had put the rest of bookselling on the run. At the time, Amazon was just starting out. Now, only 7 years later, Barnes and Noble is a second tier player when compared to Amazon. Amazon has changed the rules of bookselling and traditional booksellers cannot match the shift. The difference is not only that Amazon uses the web and can extract lower costs and offer greater customer convenience and choice. The big difference is that Amazon has created a new type of customer relationship. Amazon has put the customer in charge of marketing by giving the customer the power, through the review process, of telling other readers what is worth buying or not. Coupled with its unmatched capability of using the readers’ own searching and purchases to build predictable buying profiles, Amazon is moving away from a method of retailing that depends on smart marketers to predict what should be stocked and sold. The point of the Amazon offering is not the web per se but the revolution in culture where the customer truly drives the process. The technology is merely the enabling force that enacts this shift in culture.

In 1996 Compaq was the PC leader. It had beaten its rivals by offering better value and better quality. But by 2002 Compaq had been taken over by HP. Today Dell is the unchallenged leader in the field. Like Amazon, Dell has used the web and networking technology to reverse the normal sales process. At Dell it all starts with the customer order. Dell do not kid themselves that they know enough about the future to predict demand or therefore inventory. They have therefore designed their system to respond to events. With less than 3 days of inventory, Dell is indifferent to rapid changes in inventory value and to changes in fashion that it cannot predict. Again the issue is not primarily technology. The technology is available to all. The difference is that Dell has made the shift in culture to use the technology to put the customer first. Dell’s traditional competitors have no response available unless they can shift their own culture and have the courage to drop their legacy investment. Dell will expand this model beyond PC’s into other areas just as Amazon have expanded beyond books.

In 1996 big box “Category Killer” retailing was the way to go. Large specialized inventories and massive choice were going to crush the competition. Specialty Big Box chains such as Home Depot seemed to be the future. Now they are largely in trouble. The competition is Wal Mart and EBay. On the surface they both look different but they are not. They both know something that most of us don’t. They know that you can’t plan successfully over time what people are going to want. They look different but share this idea. One operates from a box and the other from the web but the cultural DNA is the same. Wal-Mart know that big is good but unlike the Category Killers they have set up their logistics to be demand driven. Their stores work back from the point of sale to re-supply and to inventory management. Everything is a network to Wal-Mart. EBay, don’t sell anything at all. Nor have any inventory. They set up safe and trusted communities of interest which make it safe for 3^rd party buyers and sellers to do business with each other. Amazon are going down this route as well. Most other retailers “Market”. That is they decide at the top what you and I will buy. Then they make it and then they sell it to us. What EBay and Wal-Mart know is that over time this is impossible. Wal Mart is eating up the Category Killers. EBay is now being used by traditional retailers as a point of sale. They are both so large that it would be hard to consider taking them on.

In 1996, United Airlines was the industry leader. It was the founder and key to the Star Alliance and had the largest route network in the US. Its size gave it power to lock in hubs and spokes and to attract alliance partners. In 2002 United sought bankruptcy protection. Southwest Airlines, by rejecting a complex mixed fleet, hub and spoke systems and large scale reservation systems is one of the few airlines in the world today making money. The others are European based discount airlines such as EasyJet who use the same business model of simplicity and web based booking. In Europe Airlines using this model have overwhelmed the traditional National carriers and are now not only more profitable but larger. Traditional Airlines are not able to make the changes that are required to respond.

All these competitive challenges are variations on the same theme. They have stopped trying to predict what customer want in detail and have set up intelligence systems to respond immediately to customer needs. They have become learning organizations. This is their objective – they add the technology as a tool to facilitate this strategy. Those that work like this are destroying their competition.