The Digital Steamroller

Isn’t it amazing that in a world in which so many things are so obvious, so many people keep on ignoring the signs.

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When there is so much momentum for change so many people keep thinking “same”.

Steve Jobs had a great instinct for the signals of change and the way that one mans infrastructure in a digital age could become everyone’s…. and that uncanny ability to understand what the customer would want and to deliver it was what made Apple so valuable as a company.

We have all witnessed the changes in the distribution of music and movies. When digital technology was launched thirty years or so ago, it delivered huge benefits to the music industry. It enabled improved recordings to be made. It delivered new effects in the studio. It meant that the discs that could be created using scalable manufacturing would be less expensive per unit in raw manufacturing terms; they would be lighter in weight taking up less space which meant cheaper shipping costs; and as a windfall surprise, it led to consumers totally replacing their music collections. So the whole catalogue got sold twice! But music companies thought that it was their smarts that brought them the fabulous hockey stick growth that they suddenly experienced, not consumer choice.

As the digital wheel turned it and tools became easier to build along came the mp3 and then Napster and digital disruption broke loose. The consumers took charge….

The music companies resisted change – and quite aggressively as we all know. They still do. The new reality is that the music companies are almost totally beholden to Apple for their revenues. They don’t like it, but they have had to adapt. But Apple and perhaps Steve Jobs in particular, knew how to both anticipate and to manage consumer expectations from technology.

In retail there are a few emergent people globally who have Jobs-like vision for retail. Steve Bezos has to be one of them. What he and others like him will do next will be interesting to see. What is clear though is that retail in Australia is starting to go through the same evolution as music. Big retailers have been enjoying the margins from selling big box, big ticket items, but China’s manufacturing output means that supply is constantly looking for demand and the player that delivers big consumer price benefit while not reducing quality has to become the winner. As a result companies like Harvey Norman are experiencing the same sort of pain that the big music labels went through…¬† And while they haven’t died yet, the game is far from being over.

Now it may be useful to consider this: In the UK a year ago research was undertaken at one of the leading universities into crime statistics. It seemed to the researcher interesting that the ‘breaking and entering’ statistics kept going down, while at the same time there was continuing speculation in the media about the need for more police. The research established that indeed breaking and entering had almost disappeared, and the conclusions that were established after interviews with traditional criminals associated with this kind of crime were quite revealing. They said that because of the advent of cheap Chinese white goods in the high street stores the price differential for selling “hot” stolen items was too small to make the risk of being caught worth while!

Thievery was stopped by Chinese manufacturing. (Reported street crime went up with the main things being stolen being iPhones and other portable technology).

Retail is going through a similar wrench as the music industry and it seems to be difficult for the people in charge to come to terms with the concept that they are going to have to utterly throw away their pre-conceptions of their business structure in order to survive. They are now past the peak of the profit curve. You can read  data that has recently been published that suggests that Australian online retail still only accounts for around 1o% or less of total retail sales and think that this is not a big deal. But the macro numbers are not the issue, just as with the music business. Its the micro numbers and how they add up. Online sales are being seriously disruptive.

Bricks and mortar retailers have a totally different cost structure to the online sellers. We all know that. What is not generally understood is they also have legacy systems that they have spent fortunes on that are just not efficient enough to meet the dynamic requirements of markets now. Now retailers have to have real time knowledge of inventory, not daily reports that require batch processing of data. Ironically, the bigger the retailer, the less in touch they are with the true numbers. And the accountants don’t want to have to invest in new systems. And the systems integrators don’t want their big clients to switch. So the charade continues just as it did in the music business. Those who are in the legacy supply chain try to maintain it… because they are fearful that the alternative may be digital anarchy with the customer knowing too much and systems being able to be hacked by the crims. Its a unenviable position.

And we are about to head into an even braver new world with the advent of Additive Manufacturing. (By the way I am putting on a conference on additive fabrication on April 23rd. You can find out about it here.)

With additive manufacturing you can print three dimensional things. Its pretty amazing and is in the process of going mainstream, and it too will over the next few years utterly alter the landscape for product manufacture, for retail, and for the consumer.

What it will do first though is to provide inventors and product developers with the ability to manufacture prototypes quickly and inexpensively and then manufacture those products in the least expensive manufacturing geography. Disruption traveling up the supply chain as well as down!

There is only one place to be in this digitally disrupted world, and that is on the side of the customer. And those who understand how to apply their knowledge of how infrastructure functions and who can think laterally about the applications are going to be very seriously in demand.


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