Thoughts on ways to improve the management of professional services firms

Tuesday, October 18, 2011

The importance of simple questions in assessing technology

A week or so back I watched You've Got Mail with eldest daughter. Released in 1998, the film centres on a couple who meet via email unaware that they are clashing in real life. 

Kathleen Kelly (Meg Ryan) runs a small independent bookstore, while Joe Fox (Tom Hanks) is a member of the Fox family that runs a chain of mega book stores and is planning to open a store near Kathleen's. It's quite fun, but what struck me re-watching was just how quickly business models date under the impact of technology.

In 1998, the big issue was the survival of the independent book stores in the face of the mega chains. Thirteen years later Borders collapsed under the impact of the internet. The online challenge is especially pronounced in publishing and book selling, but it is affecting all aspects of retailing. 

Here in Australia, the Sydney Morning Herald reported today on a new survey suggesting that internet spending in this country would exceed $A37 billion by 2013. A week back in the continuing patent wars between Samsung and Apple, a Federal Court preliminary injunction that prohibited the sale of Samsung's Galaxy Tab 10.1 in Australia saw a surge of Galaxy sales as Australian customers used the internet to buy in other jurisdictions.

In quite a bit of my writing I have tried to warn about the excessive hype attached to new technology. For every business that has succeeded in a big way, there are many more that have failed.

Further, many firms outside the new technology areas themselves have done considerable damage to their businesses through the misapplication of new technology. Costs may have been cut, but at the expense of customers and customer loyalty. The Australian banks that cut their branch networks to save money had then to invest heavily in rebuilding those same branch networks.

One of the key points in considering the application of new technology is that initial impacts are generally less than expected, the longer term effects greater than expected. Computing and communications technologies do create businesses on the supply side, but it is the enabling effects of those technologies that have the greatest long term impacts.

Borders collapsed in part because its customers were enabled to buy books in new ways independent of bricks and mortar and specific store visits. In Australia, Borders survives as a pale online shadow of its former glory.     

I am not sure that analysis of new technology needs to be all that complex in a general sense, although specific applications may be very complex. The single most important questions are actually quite simple:

  • who will benefit from the new technology and how?
  • who might lose from the new technology and how?

Take the Australian bank case.

The banks were expected to benefit from bank closures because it would reduce costs. The losers were customers who lost access to the closed branches. In certain cases, transactions and transfers, customers did benefit from greater personal flexibility. In other cases, customers simply drifted away from the bank. The banks ended by losing because they weakened their single greatest asset, direct contact with a previously loyal customer base.

The business cases put forward within the major banks to justify their actions centred on the expected gains to the banks. "Hard" number could be attached to the proposals. The "softer" questions about customer reaction in the longer term were not addressed.      

Postscript

On the Samsung/Apple issue, see Asher Moses' $30m tablet black hole: Harvey Norman hits out at Samsung ban. Apple blocks Samsung, consumers but elsewhere, Australian retailers suffer!

Postscript 2

Just recording two things:

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