A noted business expert offers comments on how small companies can capitalize on the changes in the marketplace.
In his book, Value Migration (Harvard Business School Press, 1996), Adrian J. Slywotzky describes the challenges companies face in a dynamic marketplace. Vice-president of Corporate Decisions Inc., an international strategy consulting firm in Cambridge, Mass., Slywotzky recently told Inc. Technology how small companies can capitalize on the changes in the marketplace.
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On shifting value: The rules of business success have changed dramatically. Fifteen years ago, size won more often than not because relative market share was almost always a good predictor of profitability. But in the past 10 years, the measure of success has shifted from market share to market value and from superior operations to superior understanding of customers. A funny thing happened because of that: large companies with huge market share were not in tune with the changing needs of their customers, so smaller companies were able to capture value from the incumbents. Netscape Communications is an example of a small company that was able to flourish in the new environment. But it's important to remember that Netscape was one in a long series, starting with companies like Microsoft, Nucor, and Southwest Airlines.
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On customer-driven business design: The most important question to ask when creating a business design is "What's important to the customer?" Small companies tend to ask that question more easily than do large companies, which often focus first on what's good for their own economies. The reason large companies do that is because they usually have a vested interest in a large asset base and a well-established way of doing business. They often work to protect those things, even if it means ignoring the fact that their customers have changed in a fundamental way. The less asset-intensive your business design, the more you're able to change when your customers change. For example, there's no need to lock yourself into a large investment that may become obsolete in a few years. That is true whether you're talking about computer systems or warehouses.
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On technology's role in the design: Small companies can use technology to make their internal operations more cost-effective than their competitors'. It's hard to imagine that Wal-Mart was ever a start-up, but it was a tiny company in the 1970s. Even though it had few resources, it worked hard to create three things: state-of-the-art computing capability, state-of-the-art communications, and state-of-the-art automated warehousing. Wal-Mart could accomplish those things because it had a philosophy-driven business design. Sam Walton did not automate for automation's sake. His technology decisions were driven by higher goals: flawless customer service and high-quality communication among employees and between Wal-Mart and its customers. Wal-Mart's strategy was in sharp contrast to that of many large retailers, who spent millions trying to automate processes before figuring out what processes were the most important to delivering high-quality service.