Month: April 2017

Amazon made a huge change in Retail and all the large retail chains feel it. The ability to buy online is a disrupting technology, even if it won’t totally shut down the retail chains  The question is how the way current retail stores are going to change in order stay economically viable.  Regular stores will have to emphasis their added-value to the products and customers for which digital stores have difficulty to satisfy.  It is similar to the small shops that succeed to exist along the big stores, because they offer personal service and specific taste that appeal to certain segments.

The focus here is on the general concept of a digital store, which offers wide variety of products through the Internet and ships the purchased items to the client. It does not deal with the need of a specific store to differentiate itself from the other stores.

Question 1: What is the power of the new technology/product/service?

Digital stores have the technology and the logistical capabilities to show variety of items for sale through the Internet, accept orders, accept secure payments and ship the purchased items to the client address.

Question 2: What current limitation or barrier does the new technology eliminate or vastly reduce?

The limitation, removed by the digital stores, is the need to go to a store to choose and pay for the items. Within the limitation there are three different sub-limitations:

1. Reaching the physical store. It takes time, efforts and money.
2. Facing limited choice, depending on the space of the store and how it is utilized, thus having lower chance to find the item of choice.
3. Limited capability to compare prices. In the store the buyer is faced with the price of that store. Even when the buyer is aware of another store with reduced price it still requires going to that store adding more time and efforts.

Amazon started by offering, to the whole world, a wide-range choice of books and CDs that no physical store is able to keep, this is on top of the ability to buy without going out of home.

The limitation eliminated or reduced by the new technology let us analyze the target market for which the new added-value is very high.

Reaching a physical store can be viewed as a burden, but it can be desirable in itself.  The term ‘shopping’ suggests that there is substantial value, for many people, in having good time by going to a store and browsing through the displayed choice.  For these potential customers the limitation is much smaller: only when there is no time, or capability, to go to a store, then there is added-value to the digital store.  For customers who “hate shopping” or customers who are ultra busy at work, the option of buying from home, maybe during the night, is a blessing.

For customers who live far from the worthy stores the value of buying online is most valuable. So, customers in rural areas are a good target.  Customers in big cities, but without a car and far away from the big shopping centers, are a reasonable target as well.

Customers who love to find the cheapest priced items, digital stores offer an advantage, because it is so easy to compare prices and find the cheapest store for a specific product.

It seems to me that second question, as verbalized by Goldratt, lacks a critical part:

What new limitation(s) are imposed by the new technology?

In other words, what are the key current negative branches (NBR) created by the new technology? Some of the new limitations might be eliminated in the foreseen future.  Others do not currently seem to be solvable, so they reduce the value.  It is of special importance to check the new limitations regarding the segment that draws the key value from the removing the old limitation.

The new possible limitations:

• The display on computer screens is not equivalent to the feeling of looking closely at the product and touching it. What might look esthetically nice in the picture might be much less attractive in reality.
• Returning the goods is always a hassle. When frequent bad quality or a mismatch between the buyer expectations and the product happen the hassle is combined with disappointment.
• It takes time, sometimes long time, until the product is received. It is always possible that the purchased item would not arrive at all.
• While there is an expectation that the price at the digital store is lower than in a store, the additional cost of shipping might increase the overall price beyond the price at the store.
• The huge available choice in various digital stores could be a curse rather than blessing. Searching for the best product might take very long time. Too much choice is often paralyzing, causing the buyer not to buy, and add the distress of wasting time.
• Lack of any human interaction reduces the confidence and pleasure of purchasing.

The key limitation that is eliminated or vastly reduced by the digital stores defines the customers, and the appropriate products and other conditions that would yield high value to those customers. The limitations of the solution add more conditions that reduce the original market segment, unless those limitations would be successfully eliminated.

However, in order to fully materialize the potential value of overcoming the need to reach a store we need to evaluate more questions.

Question 3: What are the current usage rules, patterns and behaviors that bypass the limitation?

This is a key question because it is not commonly asked. Identifying a limitation contains important knowledge about the potential value of eliminating it, but the true reference of the added-value is to compare the new situation with the situation prior to the new technology, considering the fact that people find ways to deal with the limitation by reducing its negative impact.

The way customers handle the need to reach a store is to batch many of their needs into the same trip to the shopping center, a mall, or a very large store.  The emergence of large stores, containing diverse variety of departments, greatly supports the idea of batching.  Having a group of stores, each one offering special sales and reduced prices, helps buyers feel that their time and efforts are well spend.  The malls provide ample parking and also restaurants and coffee houses to make the shopping time and efforts pleasant and even rewarding.

The digital stores need to look at the malls as the reference for the current buying norms. The batching of buying many different things at the same time creates habits that impact the buyer facing the digital stores.

Question 4: What rules, patterns and behaviors need to be changed to get the benefits of the new technology?

What does it mean to draw the full benefits of digital stores?

Certainly a basic expertise of operating the computer is required, along with good internet connection.  All safety issues have to be properly handled by the digital store and spread the recognition that buying online is safe.  The change in the behavior means the customer has to be knowledgeable enough in searching the Internet and especially the new safety rules, like when it is safe to reveal the credit card details.

The habit of batching should be grossly reduced for buying online, with the exception of buying items from the same category, like groceries.  The only slight advantage is the option of batching the shipment, but that is available only when the digital store carries all the items at its own warehouse.

Another example where buying several items at the same time online makes sense:  when browsing through the special sales offered by a specific digital store. This is especially important for people who love bargains and “real finds.”

The practical meaning is that in the majority of the cases there is no added value to batch the purchases from a digital store.

Considering that most customers have free time and they like to go out of home or work clarifies that for the majority of the customers digital stores do not fully replace the retail chains, but they add superior ability to buy specific items easily without going out of home.  So, the change in behavior is to make the differentiation what to buy online and what to buy by physically going to a store.  So, awareness to when there is an advantage in searching the internet and how this should change our buying habits is truly required. It is the interest of both the digital stores and the physical stores to lead the potential customers to recognize their unique added-value and guide them to accomplish it.

The way people choose the store itself is also a habit to be re-considered. Going through many digital stores is time consuming and saving time is supposed to be the key value.  One important factor is the brand name and the past experience in that store, physical or digital.  The esthetics of the physical store has an additional and significant impact, but the factors that create impression from a digital store are quite different.  Digital stores have to find the key factor that influences the right customers to go frequently into the store.

Attracting first-timers and then keeping them as frequent customers is a challenge for every digital store. It requires leading the customers into a unique and focused experience of looking at what they truly like; skipping most items the customer is not interested at.

Here are some characteristics for reasonable items to buy at digital stores:

• Items that are clearly defined by the picture and written description. In other words, the customer knows what he is buying.
• Items that are not commonly available in regular local stores.
• Items that are relatively expensive and digital stores are able to offer a very good price, including shipping.
• Heavy items that need to be shipped to the customer anyway.

Question 5: What is the application of the new technology that will enable the above change without causing resistance?

There are four critical factors that generate resistance to digital stores:

1. Safety/security issues.
   1. Getting the products according to the expectations of the buyer.
   2. Being certain that the credit-card details would not be used for other purposes, not by the digital store and not by hackers fishing for such information.
   3. The private data of the buyer would not be sold to someone else and would not breach the privacy of the buyer.
2. Efficient and friendly navigation, closing the deal and payment.
   • The application has to give the feeling of saving time and hassle.
     • The choice of items to be shown first is critical.
3. Proper description of the product. The use has to be certain the chosen product is what he/she likes.
4. On time and quality of the shipping process.

The current digital stores are still struggling with the above factors. While the confidence in the use of credit-cards in the Internet is getting reasonable answers, all the other issues are still open.  The difficulty to describe the features and look of the items and what are the differences between seemingly similar items is especially troubling.  Shipping is another open issue; with some new means of using drones to bring the item to its destination in the fastest and most friendly way.

Question 6: How to build, capitalize and sustain the business?

Every store, digital or physical, needs to re-think their strategy. The important starting point is identifying unique value to well-defined customers who need that value and do not get it anywhere else.  The questions so far have outlined the overall contribution of the new technology, thus pointing to various market segments and what are the key challenges.  What is required now are focused efforts to define the more specific value offered by the store to well-defined target market. This is what TOC calls a ‘decisive-competitive-edge’.

Once a decisive-competitive-edge idea is raised an analysis based on the six questions, but narrowed down to the specifics of the need and the proposed way to handle it would reveal the business opportunity.

Eventually developing the Strategy should lead to answers to the following critical questions:

1. What should the store sell? What related services need to accompany the sale? At what price? To whom?
2. How to operate the delivery in a way that would maximize the value to the target group of customers?
3. How to market the unique value? How to prevent too many competitors to copy the unique value?
4. How to answer all the concerns and reservations of the customers?

Digital stores are an example to a global change that all the players should analyze carefully in order to adjust to it in a faster and better way.  The six questions are a good tool to guide such a necessary process.

What should WE, possible future fliers, learn?

And what should the other airlines learn?

The extra brutality is not the real issue. United, or XYZ Airlines, can always claim “it is not us; it is they, police or local authority security forces”. The real message to any passenger is:

“XYZ Airlines would, most probably, fly you to your destination, provided you have a valid ticket AND provided the airline does not have something more important to do. If XYZ would fail to fly you on time, they might compensate you, or maybe not.”

Should United and the other Airlines stick to the above message? Of course they should! Because, what can we, the passengers, do?  Do we know another airline with significantly better commitment to its passengers?

Why should United and the other airlines contemplate to change their basic paradigm of trying to exploit the seats of all their flights? This is absolutely in-line with TOC, isn’t it?  Some flights have the limited number of seats as a micro-constraint.  Overbooking is an exploitation scheme, because many times passengers don’t show up and then it is a waste not to sell the seat to a paying passenger.   Now, if there is a real need to fly several crew members, because otherwise another flight might be delayed or cancelled causing very high cost, then it makes perfect sense to nicely ask some passengers to give up their seat for some compensation the airlines think is fair.

The only question is whether WE, potential future passengers, agree to this widespread win-lose scheme of the airlines.

The scope of question is much wider than this specific case.  There are many other cases where we are, very politely, asked to change our plans because it is too expensive for the airline to fulfil their commitment. The Israeli airline, El-Al, has lately cancelled, at the very last minute, many flights because of lack of pilots.  Let me stress the point: cancelled at the last minute!  El-Al management blamed the pilots, and the pilots blamed the management.  It is nice to have somebody else to blame.  Do I care who is right?  Blaming does not solve anything.

I hope some airlines would see the opportunity to develop a decisive-competitive-edge policy of behavior and make it work. I do not claim it is easy – just that it is possible!

Remember: the real constraint of any business is the market demand! If you fail to subordinate to the demand then the future demand would go down, and then you won’t have an internal constraint as well.

It is still possible to have an internal constraint, but the constraint has to be exploited only to the level that still provides good overall subordination to the market.

Let me point out that having to add crew members to a full flight is a good example of interactive constraints! Another operational wisdom the airlines have to learn.

Goldratt introduced into the TOC vocabulary the word “choopchik”, originally Russian but also used in Hebrew slang to describe a very small unimportant issue. Dealing with a choopchik could bring value, which one needs a microscope to be able to see, according to Goldratt’s illustrative description.

The obvious insight is:

We are constantly flooded with choopchiks. We won’t achieve anything substantial if we spend time of those choopchiks.  Thus, dealing with a choopchik is a major waste, because you have something much more valuable to do.

The emphasis is on our ultimate constraint of attention. The relevancy is both personal and organizational:  focus on what brings value.  When you inquire a little more into the cause-and-effect behind the above insight you realize that there is no way to achieve all the potential value you, or the whole organization, are theoretically able to achieve.  So, you need to give up minor potential opportunities for added-value, and concentrate on achieving the more meaningful ones.

Insight means a new realization is happening. If it is obvious then it is just good effective verbalization of an already existing paradigm.  However, is ignoring choopchiks truly common?

Just the other day someone told me a story about a good rational manager who spends a lot of time validating that every one of his subordinates works full weekly and monthly hours according to their contract. Isn’t it a choopchik?  Still, isn’t it a pretty common practice?

When something obvious is not common then there has to be reason.

Here is a related insight:

Dealing with choopchiks is easy and certain, while striving to achieve substantial value is risky.

In itself the feeling of risk is frightening and fear causes paralysis, which impacts the person to be active on something else. Is the risk of striving to generate significant value all that high?  Not necessarily, but one needs to evaluate the risky situation and find ways to reduce, or even eliminate the risk.  The common mean to run away from thinking about risky moves with high potential value, is to focus on a choopchik and feel good of achieving an infinitesimal value.

So, shouldn’t you challenge the risk and strive to achieve true substantial value that is part of your dream? This is what the insight of not dealing with choopchiks is all about.  The point of having a strange word to color an unimportant issue is to make it visible so we can pull ourselves and go back to what truly matters.

The more generic insight of ignoring choopchiks is to ask ourselves the following question:

Is the resulting value of what I’m busy with right now truly significant?

Personally I don’t want to write about topics that are choopchiks. I’m not always certain the topic I’m writing on is not a choopchik, but, the question certainly bothers me. So I assume I succeed to avoid many choopchiks, probably not all.

Let me remind you again of the coming TOCICO conference in Berlin. This is where the opportunities of gaining new insights are.  I hope to see many of you there, talking to each other and sharing insights.  Learning a significant insight from somebody else is a blessing.  It depends on us to be open enough to notice the insight, and then to think further how to use it for generating value.