distribution revolution (technology) & productivity

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“Making a product is just an activity, making a profit on a product is the achievement.”

Amit Kalantri

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Despite a voluminous and often fervent literature on “income distribution,” the cold fact is that most income is not distributed: It is earned.”

Thomas Sowell

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This is about distribution, therefore, it’s about technology, the internet & the transfer of goods & services.

Everything is about distribution. Everything.

Ideas.

Thoughts.

Attitudes.

Things.

Products.

Services.

Monies.

Material.

Data.

Information.

Think of each of these things as containers – containers to be shipped from one place to another. This is different than transactions. Transactions are the outcomes of distribution, i.e., I cannot make a transaction unless it can be distributed.

That said.

I purposefully open with Sowell’s quote because ultimately, while anyone can use this new Distribution Revolution world we live in you have to earn the income, revenue & profits, they don’t just come to you. I believe that point is why much of the business world is struggling with what exactly technology is and whether it truly has offered any increased economic productivity. It gets discussed as “just another channel” or a social amplification tool or an efficiency creator or, well, the laundry list of labeling is massive. To me it would make much ore sense if we simply thought of it as a distribution infrastructure change from which people should start thinking about the repercussions to people, organizations & businesses.

Given this view, one would note the internet changed the world in a couple of ways that often don’t get discussed:

 

  • Until the internet came along “everything is connected with everything” was more of a philosophical concept with strings of truth. Now, with the internet, it is truth which we need to conceptually, get a philosophical grip on it.
  • Until the internet came along everything was physically distributed now many things can be virtually distributed.

 

Within this context of these two things, retail discussions, data distribution & digital transformations, are simply smaller battles within the larger Distribution Revolution. We discuss companies as disruptors or legacy businesses all the while neglecting the fact business is always about transactions of value & distribution enables the value items to exchange hands. Business is ultimately about transactions of value, and, distribution is all about enabling the value items (goods & services & payment/$) to change hands as efficiently to as many markets as possible.

Regardless.

Think about the internet as distributing containers – of information, monies, data, goods, services & transactions.

 

Original container revolution:

The container revolution started by giving businesses a way to distribute existing products faster and cheaper. Over time it allowed business to make and distribute new products and develop new business models. Containerization not only made shipping cheaper & faster it also completely changed the whole structure & mindset of distribution. In 1956 it cost $5.83 a ton to load loose cargo onto a ship in the United States – today it costs around 16 cents a ton (36x less expensive).

The new container revolution:

The internet is doing exactly the same thing. It gives people an alternative way to distribute existing products (physical and nonphysical) and enable businesses to create and distribute new products and develop new business models.

The Container revolution brought trade to previously out of the way places which before had been too costly to distribute. Similarly the internet has made it possible to not only distribute products & services but actual work (outsourcing). The internet can distribute in a variety of ways – physical logistics as well as digitally. This creates an entirely new industry for entrepreneurs to develop products & services which can be distributed anywhere at any time.

Think value on the move.

The essence of distribution is enabling value transactions to happen as cheaply and efficiently as possible beyond simply moving value from here to there, from seller to buyer, the internet actually provides opportunity to add value to the distribution process itself.

FYI. This can also be physical non internet products & services. For example, FedEx/UPS permits you to track your package via the internet. A logistics supplier who distributes nothing they actually create adds value to its own service simply thru distribution transparency.

All that said.

Digital is just a tactic within the revolution. Internet is the enabler of the revolution

 

What this distribution revolution has done is attack distribution in a variety of ways:

 

  • Digitally unbundling value.

If distribution is value on the move it also means value can be unbundled (which has potential positives AND negatives).

Simplistically value, in the past, was created in a stacked layered way. Value was built layer by layer so that when assessed the value was seamlessly embedded in the total. The inherent strength of this methodology was value was constructed like a building in which parts were dependent o other parts.

In the new distribution revolution, the value is unbundled in a more linear way so that the individual parts can be maximized for its singular value. On a continuum both efficiency (time & investment) and effectiveness (ability to enhance value) can be manipulated on an ongoing basis, therefore, the value components can be constantly adapted to maximize the total value.

 

Productivity:

Theoretically, possibility of increased productivity occurs in 2 ways:

  • Value gets driven up higher, in totality, by maximizing the individual parts with the highest value (this can be contextually different based on unique buying experiences). Productivity gets enhanced by more effective focus on things of highest value.
  • Innovation opportunities are identified as discrete parts which can be pursued with the intent to either enhance structural (overall) value creation or intent to pursue a new transactional value creation opportunity (a ‘part’ of the value creation uncovers a new opportunity to produce something new)

 

  • Localized relevance/personalization.

Local, or localized, connectiveness is a powerful aspect of providing value to distribution. People get absorbed, and sometimes overwhelmed, by the global scope of the distribution and localizing is an easy way to make it a little less overwhelming and more, well, personalized. Which leads me to personalization. To be recognized and acknowledged as a unique individual, or a distinct one, within a huge global distribution model, triggers one of the most basic human needs (recognition as an individual). Conversely, this is the underlying belief that while being acknowledged as an individual in a huge distribution world of anonymous impersonal interactions even a little nod to who you are, your identity, your specific needs, elevates basic distribution to personalized.

I would argue this is as far as you need to go (beyond maybe “you bought this so you may be interested in his” type personalization). The latter is acknowledgment you have had a relationship with that distribution but doesn’t overstep any ‘creepy’ boundaries.

 

Productivity:

We often conflate personalization with customization. Personalization, in general, creates a level of value to the functional & brand value. The productivity opportunity resides in the customization halo of personalization. In other words productivity can be enhanced if the productivity doesn’t simply ”chase” personalization but rather uses the personalization to assess either additional products or innovations which offer complementary products (which you can sell more of at a higher price).

 

  • How does digital transformation fit in?

Digital transformation is a means to an end – an infrastructure decision. It should be viewed as “how can I distribute what needs to be distributed to either enable structural value creation (of what exists) or how it can create new value creation toward corporate vision.”

The value creation insures it meets business objectives and corporate culture (because, remember, digital transformation is dependent upon not mastery or implementation but rather culture – culture at scale means digital simply scales with culture).

In other words, unless you decide what you want to distribute and to whom and when, you cannot effectively implement digital transformation.

Productivity:

Digital transformation, implemented correctly. Offers two productivity opportunities:

  • Transactional productivity (sell more of individual products)
  • Structural productivity (cross selling of more products at a higher price – or higher profit margin)

 

  • Where does the revolution go? New business models using New old products & services

We need to stop talking about Amazon and retail industry and focus on “how can this new distribution revolution be leveraged to meet our business objective (and what business do I want to create in which the objective can be met thru this distribution revolution>? There are few capacity issues/limitations associated with this distribution revolution so if the distribution helps you meet a viable business objective you know live in a ubiquitous world.

What I mean by this is there is an entire world of existing products & services which can become a new product or service simply by viewing it thru a distribution revolution lens.

Airbnb is simply a hostel-like concept enabled by tech

Uber was the eastern european transportation model but enabled by tech

Old ideas brought to life in a new way as information, value and transactions are exchanged.

 

Productivity:

There is nothing more profitable than selling more of something you already have and know how to produce efficiently. Theoretically businesses should be able to assess stagnant or dormant brands/products and evaluate whether a new way of distribution would reinvigorate sales & engagement.

 

Lastly.

  • Not the customer Revolution, organizational revolution

I would encourage everyone to think of this Distribution revolution as having an organizational consequence (which will inherently affect customers but it is the deliverer of customer products/service which is impacted most). I would argue this is where the greatest productivity increases will appear.

The main reason we have not seen the expected economic results predicted with technology is lack of alignment between organizational design and technology benefits. One of the largest benefits of an information distribution revolution is the ‘knowledge worker’ (as defined by Alvin Toffler) can now have all the information necessary to make decisions wherever they sit with whatever title they may, or may not, have.

This is where the distribution revolution is easing its way into a distributed decision making & leadership business model. Distributed decision making inherently has economic benefits and increases productivity. The main proof point for this is The Added Value of Buurtzorg Relative to Other Providers of Home Care: A Quantitative Analysis of Home Care in the Netherlands” (KPMG: Jan 2015).

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Buurtzorg appears to transcend the usual trade-offs in health and social care: it is cost efficient and yet the ratio of nurses to clients is purposely kept low in the interest of care continuity; it generates a healthy surplus even though it employs a significantly larger than average number of highly-qualified staff remunerated at a higher than average level; it achieves higher than average employee productivity figures without centralised systems of employee control; it achieves higher than average quality of care at a cost level that is below the industry average.

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Now. This organizational design actually increases in productivity if more information, and relevant information, is distributed to employees.

This leads me to note simply removing hierarchy isn’t enough. Hierarchy has conditioned the everyday employee to not assume risk and middle management to be, well, anal. In addition current measurement models restrict decision making rather than enhance freedom necessary to make the best decisions at any given point in time. Frankly, most of us are conditioned to be passive and compliant. Successful self-managing companies have very clear structures but, culturally, are constructed with more of a belief in people taking responsibility & being accountable. Applying the Distribution revolution with a distributed decision making organizational model demands a mindset, leadership, culture and the human skills necessary to facilitate a much deeper level of productivity.

 

Productivity:

Organization change is a means to an end. Change for change sake is wasted energy. Therefore, the distribution revolution leading to organizational revolution needs to have productivity revolution consequences. Internet, to date, has not produced substantive economic growth.

I would argue that is because there has not been an alignment of business & how the internet distributes information, ideas, knowledge & things to date. Some businesses have utilized aspects of technology and distribution opportunities to make some successful economic forays into the marketplace. But I struggle to find a business that has aligned all aspects to maximize economic productivity, enhance value and, well, sell more at the highest price possible.

 

Conclusion.

Distribution is inherently about the transfer of goods & services. I have simply expanded the definition of ‘goods & services’ based on technology. I believe it is helpful to look at technology as a Distribution Revolution because, as I have been reminded over & over again, technology should be a means to increased economic productivity & enhanced value creation.

When viewed under that microscope it becomes more obvious there is a lack of alignment to best utilize the distribution of goods & services. We will not reap the larger economic benefits until we stop viewing technology as, well, technology and begin viewing it simply as a distribution model from which we align all phases in the distribution from creation to implementation.

 

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Thanks to Joost Minnaar (Corporate Rebels) and Wiemer Snijders for some valuable input as well as an older J. Walter Thompson white paper on technology.

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Written by Bruce