"Life Inside the Tornado": Clients, Customers and eCom
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The document discusses the impact of digital technologies and the internet on businesses and society. It argues that [1] new technologies have lowered barriers to entry and allowed new competitors to easily enter previously stable industries, [2] businesses must reinvent their strategies, operations, and organizational structures to focus on customers and revenue generation rather than just costs, and [3] society will experience changes to work, education, and leisure as digital technologies continue to converge and become ubiquitous.
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"Life Inside the Tornado": Clients, Customers and eCom
- 1. Life Inside the Tornado: Clients, Customers and eCom Richard Martin 10 February 2000 MartinR@Dumar.co.uk © The Du Mar Corporation
- 2. Tornado - or just a gust? 1995 watershed - for competition based on ‘Operational Efficiency’ Zero net competitive advantage from existing technical implementations IT had automated number-crunching, or repetitive tasks. Little assistance with running a complex business or producing distinct, quality products. Length of time to market for good ideas Industries in over-capacity offered indistinct products. In any situation a revolution was going to occur. Traditional industry response is usually in the direction of size / concentration. But industry has been caught with a double-whammy. What happened? © The Du Mar Corporation
- 3. Tornado - What happened? Whammy 1: The existing ‘problems’ remain: overcapacity, lack of product differentiation and players headed for increased concentration. Whammy 2: The rules have changed. 1. Technology - a cost of entry, not a source of competitive advantage. It is now very cheap and development times are very rapid. Cheap, rapid entry. 2. ‘Open’ flexible technical architectures had been piloted by previous ‘revolution’ in client-server (this means any machine, anywhere, any time) 3. Emergence of a global Wide Area Network or routing mechanism (and by coincidence a repository of huge knowledge and ‘virtual’ real-estate) - THE INTERNET! 4. A plethora of devices that can now conduct business. PC, TV, Telephone, Laptop, mobile phone, hand-held. © The Du Mar Corporation
- 4. Tornado - So what? ‘Costs’ didn’t just lessen at the margin - they could literally cease to ‘be’. The proliferation of end-user devices can support ‘business’ transactions anywhere. It is very cheap and fast to get started. Location is irrelevant So you just need a good proposition to compete. …and this has been seized by new players. The ease of entry of total newcomers to previously inviolate industry domains means that our existing organisation and business models face radical change - over and beyond traditional ‘coping’ mechanisms. © The Du Mar Corporation
- 5. Tornado sound-bites “Its like re-wiring a 747 in flight” - David Evans, former CIO of AON “People don’t need banks, they need banking” - MD Citibank “Business is facing the biggest revolution in the past 2 or 3 hundred years. I mean... think about it!” - Tom Peters We have experienced a greater pace of change in last decade than in last 50 years. We will experience more in next decade than in last 200. Here’s the hype… Where’s the substance? © The Du Mar Corporation
- 6. Our structure - Leavitt’s Diamond I am going to use Leavitt’s diamond to structure your journey, so we look Strategy at the tornado as it hits: Strategy Total Business People Business Interaction Technology People and…. Technology TOTAL INTERACTION of all four. © The Du Mar Corporation
- 7. Strategy - what is on a CEO’s mind? Shareholder value Costs too high Oversupplied commodity product Inefficient existing operating model Mergers/Acquisitions to absorb New Competition Impact of Technology David Evans - former CIO of AON © The Du Mar Corporation
- 8. Strategy - what can he do? Merge/Acquire Reduced Costs, increased market share, more complex business (Is this the way ahead? - cf ‘Egg’) Reposition Internal/external reorganisation; repositioning; probable acquisition strategy. High risk, low guarantees if it fails to exploit new technology. Start new model business Cannibalise some existing parallel to old business; converge old model into new. No guarantees, (no choice?) …or he can go © The Du Mar Corporation
- 9. Strategy - the proposition • Operational Efficiency? This exploits the provision of technology, but ignores the demands of their customers and their likely longevity using this business model. • The wise man puts his money on revenue generation, customer retention and process re-engineering. 50 40 30 US 20 UK 10 0 Increase Revenues Customer Retention Operational Efficiency Source: Ernst & Young • US:UK evidence shows, UK has still not made this cognitive leap. That decreases our competitive position relative to US and increases the pressure and effort to catch © The Du Mar Corporation up.
- 10. Strategy - the challenge The CEO MUST define the firm’s positioning Get the right mix of ‘clicks and mortar’ - Andy Grove CEO Intel. They must protect the legacy while making the transition. Convergence of old with new will be one of the great challenges. They need support, skills, budget They must grab control of all change initiatives to focus innovation and ‘me too’ products within the legacy STRATEGY is now the ability to implement. Have an idea: implement it: see what’s working. See what’s not. And adjust, adjust, adjust. © The Du Mar Corporation
- 11. Business - customer proposition Product led recovery. How? By customer-focussed strategy. If customer is key - what does this mean? Identification of customer types and their value to the company Identification of customer group ‘prime desire’ objectives that company can fulfil (“I don’t want to buy a mortgage, I want to buy a house”) Identification of distribution channels (Inc legacy) to service Implementation of products and outstanding 24 hour service. Goal: NOT “We are the best at what we do”, but “We are the only ones who do what we do”! Result: a move from mass production to mass personalisation © The Du Mar Corporation
- 12. Business - Operational model Old business model: Suppliers Supply chain Enterprise Demand chain Customers Buy Produce Sell New Business Model to r Customer en Re r lem ta i nto Customer p ler om Re C me Enterprise r Customer le ta i bu tor lem en to Re ta mp ler Pa ri p ile rtn ist r er D C om Co Supplier Enterprise t or Enterprise lem en t or Customer Re ta i Pa rtn er Di str ibu tor ler mp Pa o Supplier C r tn b u Enterprise tri r uto er Pa ib r Customer is to rtn str en Re er Di lem ta ile Supplier D Supplier C om p Enterprise r t or Pa ibu rtn str er Di Supplier Source: Understanding the Net Economy Revolution - Sun/Netscape Alliance © The Du Mar Corporation
- 13. Business - Competitive position Local/Physical market to Global/Virtual Mass production becomes mass customisation ‘Change’ disappears. Continuous discontinuity replaces it. Tangible assets (goods, property) give way to intangible(knowledge, intellectual property) Valid drivers: survival, drive to increase revenue, ‘neat’ proposition. Invalid drivers: Cost cutting, keeping up appearances. Do it. “No major switch is bug-free unless it is twenty years obsolete” (Tom Peters) © The Du Mar Corporation
- 14. Technology - what are the enablers? Customer / Supplier / Salesman/Employee Digital TV Mobile Phone PC Laptop Call Centre Satellite Telephony Internet Front-end operators/staff Firewalls Company Intranet Middleware Workflow Legacy Application Wrappers Legacy systems Back-end specialists © The Du Mar Corporation
- 15. Technology - what are the implications? Technology is available, but solutions largely similar. The trick is to catch customers through savvy marketing and understanding. Legacy integration is a major hurdle for existing players Vs ‘Bank in a box’. Security Open nature of interfaces increases opportunity for component-ised business - changes nature of our corporate reality and business-to- business relationships. Quick development times due to plug and go capabilities & open standards facilitate ability to bring ideas to market quickly (Internet year is 3 months). No longer lose a half-life our your ideas during your implementation (e.g. unlike client-server). BUT! Paradoxical that now that we have the technology to achieve our vision of ‘data intensification’, survivors in the new era will be those that master Creation Intensification! © The Du Mar Corporation
- 16. People - Organisation Establish a sense of urgency Create a powerful, guiding coalition Ensure coalition understands 'vision’ Communicate TEN TIMES more than you are Remove obstacles to the vision Plan and create short-term wins Do not declare victory too soon Anchor the changes into corporate culture, not vice-versa Source: Prof. John P. Kotter H.B.R. Mar/Apr 1995 © The Du Mar Corporation
- 17. People - Organisation 2 Control of transition: Evolution - not revolution - protect the legacy! (Juggle skills, budgets, politics) Customer must still see company as one entity Control ‘me too’ - opportunism Everyone in the same choir Continuous discontinuity - embeds change, maintains focus, kills politics. © The Du Mar Corporation
- 18. People - Staff Communicate: especially to those supporting legacy Learning to manage flux - and constant pressure Skills, rewards Job gains / Job losses Management: Management of Uncertainty. Critical Thinking. © The Du Mar Corporation
- 19. People - Customers Customer centric organisations: We have identified their role in shaping the new proposition Manage their journey (e.g. Security, usability, service) Look out of the box for those prime-desire statements Get out of ‘old-think’ (the Insurance Broker who said to me “I don’t care about claims” has got it wrong). © The Du Mar Corporation
- 20. People - Suppliers From Cat egory To Customer/Vendor Relationship Partner/ Team Know-it-all Skills Curiosity-driven Fixed Solution Variable/Scalable Lowest Budget Value Absolute/ Governing Contracts Mutual/ Guiding Package Product Lifecycle Internal resources Delivery Multi-sourced Family name Longevity Only as good as last customer Local Reach Global © The Du Mar Corporation
- 21. People - Suppliers - Consultants A revolution of their own. Large Consultancies are one step behind their clients on the change-curve. Implications on proposition, structure etc. For all consultants: No silver bullet solutions! eCom projects require clients to get all the basics right - that is your role. Rigour, discipline at speed! A shift to ‘advising then doing’, not just ‘advising’. Teach partners how to be “service firm” employees. (Noone at their desk, never do the same thing twice, understand exactly what benefit you bring every day, ‘grow or go’). Objectivity / Integrity. The last words in this topsy-turvy world. © The Du Mar Corporation
- 22. People - Society - Work Daily business life - what is virtual reality? Where is work? Usage of the term ‘Career’ will change - not the vertical heights possible, but breadth of ‘neat stuff’ accomplished. Full eCom rollout when the current generation of 15 year-olds has a voice and purchasing power. “Job loss” Vs “Reallocation”? Society has to reconcile how it views this. Security, data protection. Education, Invention and Emotional Quotient are key. © The Du Mar Corporation
- 23. People - Society - Domestic Technology explosion in homes - convergence of certain technologies (fax, phone, PC, TV, Stereo) and divergence of others (smart fridge etc). Radically altered leisure time - what is virtual reality? Security / data protection. Integration of legislation, monetary, fiscal measures, policies. Increasing influence of Business Managers over role of politician in determining outcome of topical issues (Euro is a good example). Funding of public services to keep pace with technology Other coincident changes not related with eCommerce © The Du Mar Corporation
- 24. Tornado or just a gust? © The Du Mar Corporation
Editor's Notes
- Business faces a watershed. The 80’s and 90’s mandate to compete by operational efficiency amongst high technology users timed-out around 1995. Technology was a rising tide that lifted all ships - not just one or two - conferring zero net competitive advantage - forcing industry to find efficiencies only at the margin. The ‘revolution’ merely automated number-crunching, or repetitive tasks and gave no assistance with running a complex business or producing distinct, quality products. It took the half-life of any good idea, just to get it to market. By that time, someone else had had the idea too and a new set of competitive criteria obtained. Industries in overcapacity offered indistinct products. In any situation a revolution was going to occur, given the above model. But the way the revolution was headed was in the direction of size (increased concentration). Indeed many companies positioned themselves in expectance of exactly this - the merger activity of the late 1990s and the dash for incorporation by previously mutually funded companies. (These processes are ongoing - QED Natwest….) But industry has been caught with a double-whammy. What happened?
- The two ‘whammies’ were: 1) that industry still had to solve the problems in the market (i.e. overcapacity / product differentiation). 2) the rules about technology use had changed: - Not a distinguishing factor amongst competing companies, just a cost of entry - A number of companies had capitalised on the key problems of the past revolution - ‘Client/Server’ - and had packaged up the technical architectures into shrink-wrapped ‘middleware’ layers that could then be deployed at lesser cost to new entrants. - These technical architectures promised great flexibility due to open nature of standards (CORBA, COM). Companies could literally employ any type of machine (brand-independence) anywhere (location independence) at any time (process independence). - The internet was promoted heavily in the United States and proved to be a cheap, virtual Wide Area Network (WAN) for companies (existing companies tied to expensive proprietary networks). Coincidentally, the internet offered a huge repository of knowledge (again, companies had invested hugely in proprietary knowledge-bases) and of virtual real-estate (worldwide shop-front). - Numerous ‘smart’ devices were entering the market that could - or had the potential to - talk over these open architectures, using the internet as the main network. The PC is only one such device; mobile phones (now WAP), another; Laptops; hand-held computers and now Digital TV. Well, “so what”, you may say.
- I hope the preceding few slides now makes sense of some of the ‘hype’ you will have heard about eCom. Here are some of my favourite sound bites.
- This may sound like repetition of former slides, except this is the real list derived for me by David Evans, former CIO of AON. I was keen to start with strategy (as opposed to technology) to dispel the idea either that Electronic Commerce is just the next fad, or just a solution looking for a problem. We face a tough, strategic dilemma (from legacy of 1980’s / 90’s). No consultant should approach eCom any other way ‘round (here’s an answer, what’s your problem?). eCom is 80% about the resolution to business problems, 20% about the use of technology for technology’s sake (conservative). Hopefully I have convinced you of this. Indeed, I have advised a small client company once to avoid an eCom offering being pushed at them by the US parent, precisely because of the ‘lack of problem’ it was deemed to address (at least in the UK at the time - Dec 1998). ‘ Stick to the knitting’ may well be an answer. It should almost certainly form part of the overall answer because of this 80-20 rule. If your existing physical distribution has efficiencies - it is not sensible to abandon these in the belief that in doing-so, one is partaking in the eCom revolution and therefore doing ‘the right thing’. US companies got caught out with this. We can learn from their mistakes.
- Not an exhaustive list, but a truism. Notice again, I have not said ‘launch wholeheartedly into eCom’ but rather ‘pick and choose what you want to put over. (Use it as a new channel, not as your only one). Some good US examples where moving totally to web was inappropriate and had then to be counter-balanced by retention of ‘useful legacy’. For example: Charles Schwabb. We will see later how important it is also to vary the proposition on the web, from what you distribute over existing channels - again to avoid cannibalisation. I am not being flippant with my last line. The last twelve months have seen some big heads roll - purportedly for ‘failure’ to address market position: Andersen Consulting (George Shaheen) Compaq (Eckhard Pfieffer) Natwest (Derek Wanless) Sainsburies - Dino Adriano (replaced by Sir Peter Davis from Pru) Baan - CEO left at beginning of January after ‘disastrous’ results Proportion of executives on company boards for less than five years has risen from 14% in 1997 to 17% in 1999. (Hay Group).