Forget technology - that's not what's changing your business!
Guide to episode
- To react to change, you have to focus on the real change and not just a symptom
- Toys-R-Us didn't fail because of Amazon or the internet - their model failed to adapt
- Technology doesn't actually change anything - stop using the excuse - it creates conditions that enable buyers and markets to shift their expectations
Hi, I'm Ed Marsh. Welcome to this episode of Signals from the OP. In the Signals, I talk about issues that I believe are of strategic importance to industrial manufacturers, particularly in terms of revenue growth.
Today's topic is one that really sits at the intersection of strategic planning and revenue growth, and that has to do with the ability of a company to discern the kinds of changes that are going to really impact their business, not changes that are just environmental, but the changes that will fundamentally affect the way they do business.
Andrew McAfee book, Machine, Platform, Crowd, tells a great story that I particularly enjoy, coming from the Northeast, where we've got a lot of traditional mill buildings. He talks about the advent of electricity. And when electricity was introduced to manufacturing, all these mills, which are located on rivers because that's how they obtain their power, all these mills were excited to install big electric motors in the basement.
The mindset was you had a single power source that provided power for the entire plant, which was transmitted vertically with big leather belts and then horizontally down each floor with big leather belts to each machine. So it made sense, of course. If you had electricity, now you weren't subject to some of the challenges of hydro power. You could put that motor in your basement and continue to run.
Well, in retrospect, that's silly, right? There's a lot of issues associated with building those vertically, which you had to do to accommodate that power source, but there was inefficiencies. And the change really happened when a few companies figured out they could miniaturize the motor and put individual power sources on every machine in the factory. That was the breakthrough. So we think, "Well, geez, electricity changed business?" But it didn't. It was the insight that you could take a motor and put it on each machine.
Over the course of the last week, there's been a lot of stories about the demise of Toys "R" Us. Many people are attributing it to the internet and to Amazon. They say Amazon killed Toys "R" Us, and you know, all of this was precipitated by the announcement last week that they're finally closing all their U.S. stores and kind of breathing their last breath.
Now, any Gen-Xer or a Millennial that's had experience with Toys "R" Us as a parent and/or as a child can tell you that the reason that the store was successful wasn't because the internet hadn't been invented yet. The reason the store was successful was because a trip to Toys "R" Us was an activity. It was like going to a mini theme park.
Now, of course, birth rates were high, and so there was a lot of young people that needed entertainment, a lot of parents looking for entertainment for their kids. Of course, people bought toys as a by-product of those trips, but the trip to the store, the experience, the overwhelming joy and excitement that came from being surrounded by such a massive array of toys was the essence of Toys "R" Us, and that's why kids and parents found it to be a satisfactory and enticing destination and retailer.
So the internet came, but the internet isn't what undid Toys "R" Us. Expectations for entertainment changed. If that was your trip to kind of a mini theme park, and your expectations for entertainment became more sophisticated, the problem is Toys "R" Us never kept up with that. The stores deteriorated, or maybe they remained the same, but that was relative deterioration, and the charm was lost.
They didn't understand the changes that were happening with the buyers and the market. And I see, often, companies blame the internet or blame technology for what's happening around them without really understanding the change. Technology enables changes in buying behaviors and market expectations. Technology itself doesn't actually change anything.
Companies have to seize the opportunity. Companies have to visualize what could be achieved. Companies have to articulate that, create the demand and sell it, and that means other companies are standing by assuming things aren't changing while they are. So the real key is for companies to focus on understanding the change that's going to matter to their business, and that means not necessarily something specific to them. It could be really understanding the dynamics impacting their customers.
Or maybe further downstream, their customers' customers because those are the kinds of changes that are ultimately going to impact them, and that's where they can either miss threats or preempt them, depending on how proactive they are or miss opportunities or seize them, again, depending on how forward thinking they are.
Increasingly today, the half-life of management acumen and the half-life of business models are both really rapidly decreasing. That's the nature of the kind of disruption that we're facing. So companies, from directors and boards and advisers through the executive management team and mid-level management, need to understand that discerning the real change that's going to impact them becomes one of the most critical business functions they have.
And that's difficult for people with their heads down, dealing with priorities day after day. It takes a special set of strategic tools within a company and a mindset to step back, take the 30,000 foot view, whatever analogy you want to use, but to see the context.
If you enjoy this kind of a contrarian look at key issues that are facing manufacturers in terms of strategy and revenue growth, I'd welcome you to join me on a periodic basis as I release these Signals from the OP videos. You can sign up at signalsfromtheop.com. Thanks very much for joining me. I'm Ed Marsh.