When the CEO of the mighty Wal-Mart asks the UK government for
protection from competition from Tesco, one fifth its size, it is clear
something significant is going on. The rise of Tesco is not because it is
better at dominating its home market than Wal-Mart is in the markets it
serves in the US. Both benefit from enormous scale and purchasing
power.
The difference is that Tesco has developed a superior lean business model
that is exposing the cracks in the Wal-Mart business model. Through its
loyalty cards it knows exactly who its customers are and what they want –
Wal-Mart does not - they have opened a range of formats to mirror
customer circumstances – which Wal-Mart is just thinking about – and
they have developed a rapid, reflexive replenishment supply chain to
serve all these formats, including home shopping.
I described a walk through their supply chain in my last letter. Quite
simply Tesco is getting more of its customers exactly what they want, and
where and when they want it at lower costs. The good news is that none
of this is a secret; competitors can follow their example. It is not an
exaggeration to call Tesco the Toyota of the grocery business. They are by
no means perfect and, like Toyota, they have not lost the drive to keep
improving all of their processes.
Another crack in a very successful business model was also exposed last
week. BMW, the proud technology-driven premium carmaker, decided it
could not develop hybrid engines alone (even though Honda is doing so).
For years Daimler Benz and BMW dismissed hybrids as the future,
claiming that diesels and hydrogen were the way forward and that they
had all the answers. In the face of the huge expansion of third-generation
hybrid car production by Toyota, BMW has joined forces with rival Daimler
and General Motors to develop hybrids in a bid to catch up. Toyota’s path
to develop a new premium position is more in tune with consumer values
than product proliferation and stuffing cars full of technology most of us
never want to use.
In every industry the business models of the mass production and mass
consumption era are broken or creaking. The “hub and spoke” airlines
dependant on feeding traffic through big hub airports are struggling to
compete with “point-to-point” airlines. Banks and telecoms firms losing
customers as they outsource customer support. Retailers and
manufacturers are beginning to question the “low cost” sourcing of cheap
products in China, as responsiveness become more critical to compete in
clothing and footwear. And maturing computer technology is even
undermining the ability of Dell’s “build to order” model to compete with
picking up an equivalent product in the local computer store the same
day.
The list could go on – add in our own experiences of waiting in queues for
diagnosis and treatment in large general hospitals and in car dealers
waiting to get your car fixed. Changing times mean it is time to rethink
these broken business models. In each case there are examples of firms
that have begun to rethink their business models. They are beginning to
demonstrate the huge potential of lean not only as an approach for
streamlining processes, but as a strategy for turning the tables on your
competitors and providing a better deal for consumers and their
employees at the same time.
In rethinking the business models most organisations naturally start by
asking what products they should make in the future, what assets they
will need to make them and where they should be located. Lean thinkers
on the other hand begin by asking who the customers are, what problems
they are trying to solve using these products and services and how best to
organise to serve them.
It is not the computer, but the combination of the hardware, the software
and the knowledge of how to use them that allow us to process
documents and send them to others. And obtaining, installing, upgrading
and replacing all these is a process involving the consumer’s time and
patience, just like production.
Following this consumption process reveals that many of the interfaces
with the provider’s process which mirrors it are broken and frustrating.
Moreover they have often been outsourced so direct contact with the
consumer is lost and there is no feedback loop to help redesign the
product or the processes of obtaining and using it.
In our
Lean Solutions
book we show how mapping these processes back
from the consumer through several layers of distributors to production
and all the way back to raw materials reveals really staggering
opportunities for removing layers of cost for all parties, including the
consumer. It really can be a win-win-win for all concerned. Better
customer service as well as greater convenience turn out to be as free as
quality in a lean system.
The ability to think back from the consumer and to design provision
systems that can solve their problems by getting them exactly what they
want, where and when they want it at minimum cost will be critical to
success in the future.
The key question will not be who makes the
products but who coordinates the provision of all the elements on an
ongoing basis to the consumer.
In the end survival in this challenging environment will depend on the
ability and speed with which firms can rethink the business models for
their value streams and write off and replace old assets that stand in the
way of progress. Firms that are too slow to change will almost certainly be
replaced by lean entrepreneurs who figure out how to make lean,
consumer-focused business models work. Will you join them or be swept
aside?
Yours sincerely
Professor
Daniel T Jones
