While trawling around on YouTube recently I came across a 1980s video of Tim Finn’s There’s a Fraction too much Friction and it got me thinking about the things that annoy me in dealing with businesses. I concluded that the source of my irritation is friction.
I have long observed that business has many things in common with war, and friction is probably the thing that most comes to mind as significant in both business and war.
The problem with friction is nicely put by Clausewitz:
“Everything in war is simple, but the simplest thing is difficult. The difficulties accumulate and end by producing a kind of friction that is inconceivable unless one has experienced war.”
This description of the effects of friction in war are eerily reminiscent of dealing with a large business (say for example, one of our large telecommunications companies).
The huge opportunity that the digital revolution offers is to remove friction between different parts of businesses – between customers and staff, between operational silos within the organisation, between groups who are internal and external to the organisation.
Organisations that see and act on this opportunity are the ones that will triumph in the hyperconnected future.
People who see a dedicated niche that they can service seamlessly and effectively will grow their businesses almost without trying, and customers will flock to them.
In this milieu the one-stop-shops that try to do everything – those who previously leveraged scale and centralization – are likely to suffer. This is because scale creates and does not reduce friction. Only in the past when the friction in having services and products delivered from many smaller suppliers was so great did the one-stop-shops have an advantage.
But now even small organisations can remove friction and deliver seamlessly to their customers using web and mobile applications.
Now organisations are liberated to serve customers in ways that were impossible before ubiquitous internet connected mobile devices.
Big companies that are not already offering effective online services are the new dinosaurs. It will take only the slightest change in their terrestrial trading conditions for them to sicken and die. Two examples of this phenomenon worth keeping an eye on are Harvey Norman and David Jones . It will be very interesting to see if they can evolve their business models sufficiently fast to survive.
Reduced information asymmetry is another opportunity offered by this reduction in friction. In the past companies, especially retailers, had better information about pricing of the good they sold. Now this asymmetry in access to pricing information is dying. A recent tweet from my friend Mark Pesce exemplifies this new trend
And US retailer J.C. Penney recently launched a new pricing model:
“J.C. Penney (JCP) is permanently marking down all of its merchandise by at least 40% so shoppers will no longer have to wait for a sale to get the lowest prices in its stores.
Penney said Wednesday that it is getting rid of the hundreds of sales it offers each year in favor of a simpler approach to pricing. On Feb. 1, the retailer is rolling out a three-tiered strategy that offers “Every Day” low pricing daily, “Monthly Value” discounts on select merchandise each month and clearance deals called “Best Price” during the first and the third Friday of each month when many shoppers get paid.”
Source: Daily Finance, 25 Jan 2012
The results of this pricing experiment are just starting to flow in. There has been an initial drop in sales revenue but analysts note:
“We believe our findings demonstrate that the strategies announced to transform (Penney’s) business are the right actions to take and will resonate well with consumers over time” (Source: MSNBC, Penney’s pricing strategy takes a toll on sales, 30 Mar 2012)
Against this backdrop it is amusing to see an Australian retailer’s response to market conditions – “David Jones Outlines Strategic Plan to Cut Costs” along with their very late in the day online shopping initiatives. It is especially amusing when one observes one of their chief competitors, Net-a-Porter – saying:
“It’s very easy to copy the look and feel, which people have helped themselves generously to,” Massenet said. “But we have 12 years of building ahead [of other sites] and we are sending out 5,000 orders a day as opposed to 20 orders a day and I think it’s very difficult for a business to keep up with that operationally.”
Source: Sydney Morning Herald, How to create an e-empire, 29 Mar 2012
Net-a-Porter is an excellent example of an organisation that has nailed servicing a niche, delivering good product, and ensuring a good customer experience supported by excellent customer service.
The bar has well and truly been raised for traditional organisations. And only those who work out how to reduce friction and deliver seamless service will survive.