Category Archives: Business School Journal

Digitization of Retail: It’s Coming Whether You’re Ready or Not

There are big changes coming to the retail world.  Indoor malls are struggling to survive.  Space that was once premium is becoming costly and of little benefit to the those that inhabit them.  The retail model for the future won’t be able to compete directly with online stores in price, so value added services and convenience will be the ultimate drivers for shoppers to buy in person at any brick and mortar retail outlet. Microsoft and Accenture have created a prototype for a Smart Fitting Room concept, while consulting industry leader McKinsey & Company have provide insight on how the smart store of the future can benefit retailers.

Fast Company’s online design section gave us a glimpse of Microsoft and Accenture’s connected fitting room.  The fitting room is connected to items in the store using RFID technology.

A photo of a smart fitting room (Photo Credit Fast Company http://g.fastcompany.net/multisite_files/fastcompany/inline/2014/06/3031689-inline-i-fitting-room-01.jpg)

When a shopper walks into a fitting room, a digital screen shows them the items that they have picked out and shows them the size options and makes suggestions of other things that shopper may like.  With the click of a button, a shopper can order a different size, color, or item to try on without having to leave the fitting room.  This convenience alone will  increase sales, but as well as provide excellent data to the  stores that employ these systems.

Using this new data, a store can more easily track inventory, have a feel for how many items a person typically tries on, and even how long someone typically takes to try on items in a visit to a dressing room.  Stores will be able to make decisions about how many dressing rooms are needed, how much space is needed for clothing hangers, and even how pegs for hangers are needed.  The RFID tags will allow stores to know what routes are the most common while looking for clothing to make sure that stores have the best layouts possible and can strategically organize items around the store based on this information.  In the future, these dressing rooms can be used as a substitute for the cash register.

Despite competing with Accenture, McKinsey & Company project retail the same way.  They provide information on their projections and give advice in their most recent Quarterly Insight in an article titled Digitizing the Consumer Decision Journey.  The piece is by three of McKinsey’s Principal consultants, Edwin van Bommel, David Edelman, and Kelly Ungerman.  They describe the rapid changes in technology in retail and how a cross channel experience can change the way shopping feels to a customer.  In the article, they describe a couple that has bought its first home that needs to buy a washer and dryer.  The couple decides to utilize the websites of several big box stores before going to one with a saved shopping list on one of the store’s website.  When they enter the store, the process of ordering the item is not only as simple as it would be if purchased online, but also provides the convenience of being able to see, touch, and measure the item.  

The couple can use Google Maps to navigate to the store.  Transmitters much like the RFID tags used in the system being developed by Accenture and Microsoft, are installed near the entrance to the store. These are set up to recognize the information for the couple and send them personalized offers as well as provide directions inside the store to locate the items they are interested in.  If the couple has particular history, it may provide additional offers related to previous purchases or even specifically target a sale.  Payment and scheduling delivery can all be done electronically without having to take out a wallet.  Notification for delivery can be set with in a thirty minute period so customers won’t be stuck waiting at home all day.  

Companies need to start thinking about how they can make their stores more efficient and the data of the store of the future provides bright possibilities.  Better knowledge of your customer base, whether you are selling organic vegetables, clothing, or electronics will help to cut down on excess inventory and help create greater margins for retailers.  To make this happen, investment in people with non-traditional backgrounds from the norm in retail will be critical.  Experts in data mining, statistics, and supply chain will be crucial to being effectively using newly gathered customer data.  The value added service of having the right items at the right time is the only thing that will keep retailers competitive against online retailers like Amazon.  Retailers have to re-invent their showrooms and understand that customers start shopping far before they open the door to the store.

 

 

Where’s the Sharing Economy Headed?

I thought that the sharing economy was something very generational and that the millennial generation and those younger are interested in participating in. Thumbing through Fast Company online today, I found an article suggesting a different pictures and set out to investigate.

Globally, more than two-thirds of people want to share or rent out personal assets for financial gain, according to a Nielsen survey of Internet-users in 60 countries. Similar numbers want to use products and services from other people.

The Fast Company cited a Nielsen Study that states that 68% of people surveyed around the globe are willing to share or rent personal items including power tools, bicycles, clothing, sports equipment, cars, outdoor camping gear, furniture, homes, motorcycles,  and pets.  The study found that Millennial Generation and Generation X were the most likely to use the sharing economy globally.  Baby Boomers were willing to use the sharing economy at a higher than expected rate.  The study found that globally, 7% of Baby Boomers were willing to use the sharing economy for goods and services compared to 42% of  the Millennial generation and 17% of Generation X.

What exactly does this mean and why on earth is this important?  The markets for start-ups like Uber, Sidecar, Lyft, Airbnb, BlackJet, Neighborrow.com, Taskrabbit, and the like in the sharing economy are larger than I expected.  It also means there will be some major changes in consumption that will be a disruptive force to the global economy.

The companies I’ve listed above as well as other companies in the sharing economy may want to look to ways to gain market share from Baby Boomers and Generation X.  Marketing to these populations will have to be different from what is being used to attract the Millennial generation to these services (word of mouth primarily).  A small, but targeted traditional media campaign using things like billboards, radio ads, and print media ads would go a long way to inform these consumers of their services.

These companies provide services that both of these aging generations need, but they haven’t been told why.  For example, both of these generations may have doctors appointments, but don’t have an easy way to get there sometime.  Services like Uber and Lyft are both affordable and convenient for these users.  The ride-share business has an incredible opportunity to expand into this market as well as create partnerships with hospitals and other medical centers.

Above is just one example of how the sharing economy can develop and position products for aging generations and it barely scratches the surface.  For people who enjoy DIY projects, the ability to rent large tools from others in their area rather than a big box store like Home Depot is not only more convenient, but can help develop synergies for those planning a project.  If I plan to build a shed and need to borrow a circular saw from someone, they may have some advice I didn’t even think of.

Not everyone is a fan of the sharing economy though.  The current regulatory climate for the shared economy could be the doom for these young start-up ventures. The Guardian pulled no punches in their recent article about the sharing economy.

“Insofar as Airbnb is allowing people to evade taxes and regulations, the company is not a net plus to the economy and society – it is simply facilitating a bunch of rip-offs.”

The essential element for success for the sharing economy is to get ahead of regulations.  Companies in the shared economy will have to work together and ask to be regulated in ways that are fair and allow their business model to continue to succeed.

Beyond this, the lingering question is how to turn all of this into long-term success.  Some point to pre-recession excesses in consumption as a driver of today’s sharing economy.  Some suggest that more limited consumption in the future will drag down the ability for the shared economy to succeed.

In the end, I predict that more limited consumption will force drastic changes in manufacturing that will completely change the way we look at goods, services, and ownership.  We will own fewer things, but have access to a greater diversity of products and services.  The future won’t be about ownership, but access if Millennials have anything to say about it.

Apple Was Right to Buy Beats

A few weeks ago, Apple announced their intent to purchase Beats, a company founded by two powerful men in the music industry.  Apple Inc, the company founded by Steve Jobs and Steve Wozniak is without either of its founders today at the helm for the first time since Steve Jobs returned to the company after Apple purchased Job’s company NeXT.  Wozniak or “Woz” as some call him left full-time employment at Apple in 1987, but is still considered an employee while Steve Jobs passed away in 2011 while on leave from Apple with pancreatic cancer.

Tim Cook was pushed into the lime-light following Job’s death.  Tim Cook, who became CEO when Jobs stepped down  earlier in the year, had previous served as the companies COO.  In his new role he was was expected to be not only Chief Executive Officer, but also Chief Showman like his predecessor.  Jobs had led the company through a massive resurgence following some difficult years.  He’d repositioned the company from mostly selling to computers, to one that also excelled with selling portable devices.

“An iPod, a phone, and an Internet communicator. An iPod, a phone…are you getting it? These are not three separate devices, this is one device, and we are calling it iPhone. Today, Apple is going to reinvent the phone, and here it is. ” -Steve Jobs at the MacWorld Conference in 2007 introducing the first iPhone.

Steve Jobs introducing the first iPhone in 2007

Fast-forward to today and we’ve had seven different generations of iPhones hit the market, the successful launch of the iPad, the iPad Air, as well as changes to the desktop PC, notebook computer, iPods, and AppleTV lines.  These lines are relatively mature with various adjustments as new technology becomes available. Can’t miss features like Siri, a fingerprint scanner, and a completely re-tooled mobile OS with the upgrade to iOS7 have left shareholders and the public wondering where the innovation is for this tech giant.  Have they lost it without their fearless leader?

Enter Beats, the company founded by Dr. Dre, a rapper and music producer and Jimmy Iovine, the former recorder producer and founder and CEO of Interscope Geffen A&M record label.  Both come with a great deal of credibility in their backgrounds.

Iovine in the studio with John Lennon in 1974 (credit NY Times Bob Gruen)

As detailed in a Newsweek profile of Iovine, the son of a longshoreman started out in the record industry as a janitor.  Before long, he was working as a recording engineer up to where he is now.  The profile goes on to describe his vision for success.  Iovine recognized that rap could be commercially successful before other labels had.  And it isn’t just this, Iovine is relentless in his pursuit.  Not only that, but he’s been a partner with Apple since the beginning of iTunes according to an article in the New York Times about the acquisition.

“Jimmy was one of the first people we showed iTunes to,” said Eddy Cue, Apple’s content chief.

The Wall Street Journal revealed the Dr. Dre played a similarly powerful role at Beats as Mr. Iovine.  Dre’s obsession with making sure their signature product, Beats by Dre have the best sound possible was only one part of his role at the company.  The man whose real name is Andre Young served as a sort of eye for the company on culture despite being forty-nine years old.

According to his biography in Rolling Stone, Dre grew up in South Central Los Angeles.  He was one of the pioneers of gangster rap, working with Iovine and groups including NWA.  Dre later moved into producing music and partnered with Iovine to start Beats.

As part of the deal, Iovine leaves his long time position at Interscope, but takes on a Senior role at Apple along with Dr. Dre.  So what does Apple get beyond the talent of these two music industry titans?  This will be the first time in its history that Apple has purchased another brand not to just swallow it up.  There is a great deal of equity in the Beats brand.

In terms of hardware, it comes with the signatures headphone line, Beats by Dre.  Apple has stuck to ear-buds since it launched its first iPods in 2001.  While they are sleek and small, their are serious limitations based on their size for us in new apps.  Having an existing popular headphone brand to build off of for application for apps is a game changer, especially with recently announced changes include in iOS8 like the Health app.

The brand also comes with a subscription music service.  The popularity of the music service Pandora led Apple to launch iTunes Radio.  Unfortunately, there has been virtually no talk about Apple’s service while Spotify has gobbled up market share.  Consumers have begun to care less about actually owning music and more about having access to it (something I’d like to explore further down the road).  Recognizing changing consumer taste for the current standing music ownership model, Apple knew it had to jump in head-first to compete with Spotify, but didn’t want to re-invent the wheel.  This purchase positions them well in music business while not abandoning the current successes of iTunes.

At $3 billion, it seems that Apple bought more than tangible assets.  Apple will almost certainly have to recognize goodwill on their books for this purchase, but in return will quiet down investors after years of hoarding cash and breathe new life into the company.   Human capitol and product additions from this acquisition make me confident in Apple’s future.

 

 

The Zappos Experiment

Zappos, the Amazon subsidiary that sells shoes and clothing online announced that they would put an end to using traditional job posting boards.  This is another big step away from traditional business actions that make Zappos a unique player in the marketplace.  I think this action solves one of the biggest concerns I had for Zappos, but to understand why, we have to take a step back.

In January, Zappos announced that they would rid their company of managers and the traditional corporate hierarchy. The Las Vegas based company would move to a system called holacracy.  Holacracy was developed as a system that depends on teams, rather that typical departments. This system also distributes authority throughout an organization unlike traditional top down systems and more recently popular bottom-up approaches.  In order for this new system to work, teams must develop that can perform at a high level to complete projects using clearly defined processes, following clearly implemented governance and operations standards.

Holacracy.org has a really great graphic that encompasses everything that is part of an organization being a holacracy:

Zappos is growing quickly and had an identity that it didn’t want to lose.  They saw this as a way to keep their character.  They brought in Tony Hsieh to help move them forward under this new organizational structure.

“As we scaled, we noticed that the bureaucracy we were all used to was getting in the way of adaptability,” says John Bunch, who was brought on to advise Zappos CEO Tony Hsieh.

 

Zappos is by far the largest company to adopt this new model. Years ago, I can remember hearing about consulting firms approaching a model with some of the same elements, but not to the degree of Zappos.  A flatter organization like this could lead to innovation and keep Zappos from creating silos.  Even with these benefits, I’ve had my concerns.

My biggest concern for Zappos is created from one of the benefits.  As people adjust to the teams of a holacracy, you will have employees that will find niches that are nearly impossible to replace.  People will fill positions without titles, but with skills that aren’t typically found together in a traditional recruiting approach.  Replacing employees following turnover would not only be incredible difficult, but also incredibly costly. The new recruiting strategy Zappos is rolling out to find new employee in a huge step in the right direction towards a solution.

Rather than using typical job posting boards like Monster and Career Builder, Zappos has created a social network for its candidates.  Positions won’t be posted the way they typically are, but rather candidates will have to talk to the teams they want to join.  In the blog entry posted today on the Zappos website, the post states,

” Instead of posting jobs, we are simply asking people to find a department they are interested in and make an introduction. By introducing themselves, people get to become a Zappos Insider and can actually… you know… talk to us.”

 

Zappos is going to have the opportunity moving forward to get a better feel for fit of potential employees before they even come in for an interview. They’ll have an easier time being able to find the right applicants and free up their recruiters to work on strategies to retain some of their current employees as they continue to try to expand.

I look forward to watching Zappos expand.  I want to see how their new recruiting model will work in practice.  I’m not sure how long it will take before it makes a significant impact at Zappos, but I think it is an incredible opportunity to be one step ahead of their competition and I applaud them.  Who knows, they may be creating the recruiting model of the future.

Sources:

http://online.wsj.com/news/articles/SB10001424052702304811904579586300322355082?mg=reno64-wsj

http://www.forbes.com/sites/stevedenning/2014/01/15/making-sense-of-zappos-and-holacracy/

http://www.washingtonpost.com/blogs/on-leadership/wp/2014/01/03/zappos-gets-rid-of-all-managers/?utm_content=buffer93d6c&utm_source=buffer&utm_medium=twitter&utm_campaign=Buffer#!

http://blogs.zappos.com/blogs/zappos-family/2014/05/27/goodbye-job-postings

http://holacracy.org/

 

Driver-less Cars

I’ve been dreaming of a car without a driver since I first saw the Back to the Future movies growing up.  The thought of being able to roll out of bed and read the newspaper or eat breakfast on the way to work is way to exciting to describe.  I knew Google was doing some research on this.  I had heard somewhere that they were testing some cars, but I didn’t know  what kind of success they were having.  I found a really cool video of ones of the test rides with a blind driver named Steve Mahan.

In the video, Steve takes the car along with the team working on this technology from Google and goes to Taco Bell and the dry cleaner before heading back to his house.  While in the past I had considered this technology interesting, I hadn’t considered its benefits to society.  This technology is more than just something to give me a few extra minutes.  A driver-less car is first about accessibility for the disabled.  Think of all the people you know who can’t drive, from those that are born without sight to those with other disabilities.  According to the National Federation of the Blind in 2011, 6.6 million people in the United States reported to have a visual disability.  Giving just these people more independence would be life changing for both the disabled and their loved ones.

Beyond the benefits to blind and otherwise disabled , vehicle safety can be seriously improved with driver-less cars.  Driving accidents today are most often caused by human error. Eliminating the human elements of driving through programming will not only increase safety, but also lead to more efficient traffic patterns.  Traffic jams could become a thing of the past once Vehicle to Vehicle (V2V) communication becomes the norm.

In February, the Federal Department of Transportation announced that it would allow lights cars to activate V2V communication. Early adoption of V2V travel will be fairly simple, since the majority of cars won’t have it.  The strength of V2V systems will multiply as more people adopt it. V2V systems will one day combine complex algorithms to create routes for the greatest efficiency of all drivers on the road.

The widespread adoption of cars with major V2V systems will be only as fast as the regulatory environment and car manufacturers can implement it.  Will state and federal governments be able to charge tolls to take the most efficient routes to keep roads clear?  Will the market be slow to innovate with these new technologies, much like Kodak was after developing digital photography?  Or will these companies take advantage and make the cars of today obsolete.  If I have any say, I hope that car companies follow the words of Steve Jobs, who in an interview with Inc Magazine said, ” You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new. ”

 

 

On Internet

The idea I’ve been thinking about the most recently is accessibility to high speed internet. The UN a few years ago declared internet access to be a fundamental human right and I can’t agree with them more. Internet access is an equalizer on the same scale as the printing press and government sponsored public education.. The World Wide Web levels the playing field more than any technology that has been developed in my life time.

The striking question that seems to be facing many places is basic access to this service. In the United States, internet access is dominated by a relatively small number of service providers (ISPs). There is little challenging the current status quo of large ISPs. This is mostly due to major barriers to entry, such as infrastructure cost and upkeep. These barriers to entry leave these goliath-like oligarchs on a mantle where they can’t be challenged.

I wanted to look at what kind of challenges to existing providers exist, since I know they have been limited. Bringing internet access to low income areas and rural communities could be a game changer. While this has implications for promoting economic growth around the world, I plan to examine how this might impact Pittsburgh, while also looking at existing models where ISP giants are being effectively challenged.

The most obvious example of a disruption to the traditional ISP model has been the implementation of Google Fiber. Using advanced fiber-optic cable, Google has installed Gigabit Internet access as well as High Definition television service into the homes of people in select cities. Cities across the United States made bids to become Google Fiber cities, but only a select group have been chosen.

The reason behind Google’s expansion to serving as an ISP isn’t entirely clear. Brand recognition for this service is beneficial, but there are massive costs related to installation and upkeep of this service. Google benefits, because they provide a competitor to existing ISPs to improve their service. When other ISPs improve their service, Google also stands to benefit, since it allows users to access Google’s services more quickly. Having its own ISP may allow Google to maintain greater control over data about subscribers in given areas, especially in growing markets like Research Triangle (Greater Raleigh-Durham, NC) and Austin, TX.

While what Google is doing is great, the disruptive effects they will have will be felt mainly in areas where they expand their fiber services. Virtual monopolies by single providers haven’t faced a force that would push down prices in most areas, but it seems that this may change. Some communities in North America are solving the problem on a small scale by creating ISP cooperatives. Rather than buy internet service from Time Warner, Comcast, or AT&T, these communities are banding together to own and operate an ISP.

I’ve started thinking more about what would actually lead to consumers going to a new ISP and why they choose someone like Comcast or AT&T. I think the lack of familiarity with other options hurts. Name recognition is the name of the game in being an ISP. Having the actual infrastructure in place is key and a major barrier to entry as I described before. Creating a critical mass of members that can pay for the services and keep fees down is also key.

As the semester goes on, I’d like to revisit this and get a better understanding of what it actually would cost to bring a co-op Internet ISP to Pittsburgh. I will explore more closely existing models in the United States and Canada and consider how installation, implementation, marketing, and sales of such a service could impact the local economy. I’d like to explore closely who my potential partners could be in this and how beyond providing Internet service we can impact the economy of Western Pennsylvania’s economy. I invite you to consider a future with the PGH Fiber Co-Op.