The world of commerce is growing increasingly complex as new technologies can quickly enable disruptive business models and change how customers interact with us. Innovative products and services are introduced faster and with higher frequency in all industries. Disintermediation of supply chains causes old partners to compete and new partnerships to form. At the same time, millennials with completely different values and buying habits are starting to become a substantial part of B2C and B2B buyers.
All these are examples of complex challenges and phenomena that require constantly evolving business strategies and business models to stay competitive. Historically, most of the complex business problems have been solved with complex IT solutions that, in most cases, grow even more complex over time. Complex solutions are often monolithic in their approach and require huge budgets and a lot of time and sacrifice to get implemented in the organization. Say "big-bang ERP implementation” and most that have gone through one and survived will agree.
Race cars are optimized with one single objective in mind—to be as fast as possible. If we, for a minute, consider an organization as a race car and we think about what we need to do to make it fast and competitive, most of us will not think about adding weight or designing a hard-to-use cockpit. A race car is fast because it is stripped of everything that isn't necessary to reach the goal—winning the race. A race car's cockpit only contains the controls that are needed to drive really fast and provide the driver with an unobstructed driving experience. Adding controls in the cockpit for managing a front loader, or a towbar in the rear of the car, just doesn't make any sense as it will only increase the complexity of maneuvering and add unnecessary weight that will inevitably slow things down.
Complex and bloated processes and it's ugly sibling "the enterprise model," combined with all-in-one system support, adds time-consuming process steps and tasks, whether they are needed or not. Not only does complexity make things move slowly, it also makes things hard to change and is often the cause of inflexible organizations that leave employees disengaged and unmotivated. So not only is complexity the enemy of speed, but also the enemy of flexibility and innovation.
Amazon has been growing extremely fast and is now one of the largest companies in the world. Despite that, they are still moving and innovating much more quickly than their competitors in the traditional retail space. There are, of course, many reasons for Amazon's success, but complex processes aren't one of them. In a letter to shareholders, Founder Jeff Bezos wrote: "As companies get larger and more complex, there’s a tendency to manage to proxies. Good process serves you so you can serve customers. But if you’re not watchful, the process can become the thing. This can happen very easily in large organizations." When the process becomes “the thing” you end up with the all-encompassing enterprise model and its monolithic system support.
Instead, Amazon is laser-focused on what Jeff Bezos calls "True Customer Obsession." As the Amazon example shows, staying nimble and focused can help an organization move fast, grow quickly, and stay innovative. Simplicity requires a focus that encompasses everything, from organization and processes to system support. This is the opposite approach compared with yesterday's all-encompassing enterprise model, unfocused all-in-one enterprise software packages, and big-bang implementations.
Think of your organization as a race car and strip away the unnecessary weight of yesterday and focus on what's truly important. That way you can be the disintermediator instead of the disintermediated.
Johan Boström, Co-founder and Evangelist, inRiver
Digital has evolved from simply enabling the business strategy to actually driving business strategy. One of the reasons is that digitization simplifies the removing of intermediaries from the traditional supply chain—one that typically consists of a manufacturer selling to a distributor that, in turn, sells to a retailer that sells to a consumer. This phenomenon of removing intermediaries in the supply chain—such as manufacturers selling direct to consumers by cutting out distributors and retailers—is called disintermediation. Simply put, disintermediation eliminates intermediaries whose cost to service has become greater than the value they provide.
I believe that disintermediation is, to a large extent, a consequence of the transparency that the vast amount of readily available product information creates. It empowers the end-customer and makes it fast and convenient to compare offerings by product properties and price—regardless of seller. By removing actors from the supply chain, disintermediation decreases cost and allows the manufacturer to both increase margins and, at the same time, create a direct relationship with the end-customer.
However, it is not only the manufacturers that are taking advantage of disintermediation. Retailers like WalMart and marketplaces like Amazon are also working on reducing the number of intermediaries in the supply chain. There are even credible rumors that Amazon plans to launch a global shipping and logistics operation that will compete with UPS and FedEx, thus creating disintermediation in the logistics industry itself.
In some cases, it is more efficient to use a distributor for shipping smaller orders than going direct. The economy of scale makes certain products and order types hard to manage without the services and facilities that a distributor provides. However, in most cases, it works fine to ship direct or use drop shipping, resulting in distributors being bypassed by manufacturers and retailers. However, in the transparent marketplace, brand value is rapidly diminishing, making it easier for a retailer's private labels to compete with the well-known brands from the manufacturers. Diminishing brand value coupled with disintermediation creates a threat for the branded manufacturers that they need to acknowledge and address if they want to earn the consumer’s business.
I think it is safe to say that disintermediation is affecting distributors more than manufacturers and retailers. However, all actors can and will be affected and need to rethink their value proposition and strategy. Disintermediation is eventually inevitable for all intermediaries whose cost becomes greater than the value they provide, and a big part of the value is the customer experience. As one of the key drivers for disintermediation is information transparency, it is crucial to provide more and better information than your competitors in the supply chain. There is, of course, more to it than that, especially with respect to organizational and logistical challenges. But if you are not getting found and providing a stellar product and customer experience, nothing else will matter.
Johan Boström, Co-founder and Evangelist, inRiver