With both companies being Outside In, how do their business models compare? Why Apple is the better Amazon.com View more presentations from Thorsten Faltings.
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Walk through any shopping centre and it is hard to miss the “Sale” signs out front of nearly every retail outlet. There is no doubt retailers are doing it tough right now but should this be a surprise to us. If we look around the retail landscape, there have been very few significant changes in the past 30-40 years.
Unfortunately, with this inability to adapt to change, retailers falsely believe that the only thing they can compete on is price. As prices continue this downward spiral, you could assume the winner would be the consumer; but at what cost? Prices may be going down and as a consumer, you may think this is a good thing but unfortunately, the price squeezing is also having a negative impact on the quality of products. Think of it, with the exception of LEGO, when was the last toy you bought that managed to survive longer than its batteries? Price reductions have also played a significant part in the decline in customer service to the point where today, customer service has gotten so bad that if it is not terrible, we as customers are relieved. Contrast this to consumer behaviour, which has changed dramatically over the last 30-40 years, in particular the past decade. We are now in a new are, the era of the enlightened customer. At the end of the first decade of the 21st century, this so called enlightened customer has emerged as a result of a number of factors.
There is something else to be fearful of on the horizon, successful international retailers are now establishing a foothold in Australia. These retailers have succeeded overseas and now see plenty of an opportunity in Australia and this may change things forever. One of the newest arrivals scheduled to reach our shores in the near future is Zara, the Spanish fashion company. Behind the success of Zara is a complete and total alignment to what customer’s really need. They have truly challenged the fashion industry, turning it on its head by doing something that few thought possible. Where it used to take the leading fashion retailers in excess of 18 months to get fashion to consumers, Zara’s model is all about velocity and they can now put fashions in store in less than two weeks. No more waiting to purchase next year’s fashions, at Zara you can have fashion now. Few signs of this type of innovation exist in Australian retailers. It is not too late, but Australian retailers must understand that the game has changed. It is no longer sufficient to wait for customers to enter your store because the customer experience starts well before the customer leaves their home and the experience is not over until they return. There is still an opportunity for success, but it will take a significant mind shift. It is time to stop trying to trick customers with gimmicks or over promising and under delivering; it is now time to change perspective, to look at the retail experience from the customer’s perspective, to take an outside in approach. By changing the focus to the entire customer value chain, and by making a commitment to making their lives easier, simpler and more successful, opportunities abound. And it is precisely this change and this commitment to deliver value to customers, to truly understand the needs of customers, this shift in focus toward the success of the customer that is at the heart of the success of some of this century’s most successful companies. Having lived here all my life and seen what other countries have to offer, the customer service level of Australian companies is terrible. I believe this is because Australian companies have not yet realised the importance of their customers. So many companies look inside out, that is, they are focused on themselves and are oblivious to the needs and expectations of their customers.
However, as the old saying goes, with every problem lies an opportunity and there is an opportunity for those companies that are REALLY "determined to be different" by providing exceptional service. To quote Terry Schurter, "at the heart of every customer experience are Moments of Truth. Richard Normann first articulated them; Jan Carlzon turned SAS around with them (from a $17 million per annum loss in 1981 to a $54 million profit in 1982) and subsequently wrote the book “Moments of Truth.” Innovation on Moments of Truth is fertile ground for building customer loyalty, expanding market share, and remaking entire market places. Sir Richard Branson of Virgin uses this type of innovation on a regular basis. The largest Tire Retailer in the US built their $1.5 billion business using it. State Farm lives and breathes it every day. What’s stopping us from doing the same? Nothing but ourselves..." Moments of truth are integral in an emerging business model called Advanced Business Process Management, also know as Outside In. This model puts the customer at the heart of everything a company does and aligns everything the company does to deliver the business triple crown, simultaneously reducing costs, increasing revenue and enhancing service. It's principles are also behind the success of some of this centuries most successful companies including Apple, Disney and Google. So what's stopping Australian companies from turning Outside In, well, maybe they don't know any better or maybe because service has gotten so bad that today, if it is not terrible, we are relieved. It is interesting that throughout history, there are many examples of where the first person or company that created something new were not able to capitalise on the first mover advantage and nothing is more true than in the MP3 market. At the time the iPod came out, there were a lot of MP3 devices already in the market. So what made the iPod the defacto standard?
First of all, marketing helps and when gadgets look cool, then people are drawn to them. Comparing the iPod to the generic USB-looking MP3 devices around at the time there was no comparison, the iPod won hands down. Next is the interface, the early MP3 players either had an LCD screen, the later ones had a colour screen but really did not take full advantage of it. The iPod on the other hand displays song information and provides album covers and cover flow, which is a nice touch and ads to the user experience. Next, user interaction - click buttons versus click wheel. This innovation made it easy for users to scroll through large songs lists and immediately raised the customer expectation. Once you've used it you'll never go back. Finally, the complete end-to-end experience. For acquiring MP3 files, generic MP3 manufacturers leveraged off third party systems such as Windows Media Player. This proved to be problematic. Any problems users experienced due to software updates, upgrades, software errors, connection problems and so on were not considered to be the fault of the MP3 manufacturer, nor did Microsoft take any responsibility for the problems because it was associated with a third party device. No-one owned the user experience. Apple looked at the user experience from end-to-end and their response was to provide iTunes, an application which made it easy to acquire songs on iPods and other Apple devices. Now the Apple iPod, iTouch and iPhone have become the defacto standard as mobile entertainment platforms and they have helped make Apple one of the most successful technology companies of the 21st century. Apple is definitely a good example of an outside-in company and this year, Apple was named 6th in the Millward Brown Optimor TOP 100 Most Valuable Global Brands 2009. Here is an excellent article on the evolution of Business Process Excellence. It starts with the early days of Total Quality Management, Business Process Improvement, Six Sigma, Lean, BPM and concludes with an explanation of Customer Expectation Management; an emergent management and business approach with the powerful idea of defining your business, not in terms of the goods and services you provide, but in terms of "customer expectations."
See http://bit.ly/RAYOp The combination of the latest results from the fourth annual BrandZ Top 100 Most Valuable Global Brands from Millward Brown Optimor, with the list of established BPM companies makes interesting reading:
- 7 of the top 15 companies are outside-in, with all producing positive yearly results - 4 of the top 15 companies are inside out, with all producing negative yearly results See here for full details: http://bit.ly/3NgBj |