Give them the ride, not the car: The evolution of companies that learnt to survive

Fin24's ace book reviewer Ian Mann.
Fin24's ace book reviewer Ian Mann.

There are changes that are profound and changes that are merely interesting or even fascinating. This book describes an easily missed but profound change that simply cannot be ignored.

To understand this change, consider that more than half of the companies listed on the Fortune 500 in 2000 are now off that list. Today, companies last only 15 years before dropping off.

Then consider GE and IBM, which have been on the list since it started in 1955, and are still there.

Outcomes, not equipment

Today, however, you will hear very little talk of GE’s refrigerators and washing machines, or IBM’s mainframes. Instead they talk about "providing digital solutions". Their focus is achieving outcomes for their clients, not selling them equipment. They are not alone: Xerox has moved from equipment to information services. McGraw-Hill now offers financial services and adaptive learning systems. "They don’t really sell stuff anymore," Tzuo and Weisert explain.

Neither do the new behemoths on the Fortune 500 list - Amazon, Google, Facebook, Apple and Netflix. The common thread between all these companies is that they all recognise that we live in a digital world, and it is quite unlike the product world of the past 120 years.

As Peter Drucker pointed out, we manage what we measure, and so executive teams became hopelessly product-focused. This however came at a cost to the relationship between the vendor and the customer.

To grasp the importance of this issue, contrast Walmart with Amazon. Some 90% of all Americans live within 20 minutes of one of Walmart’s 5 000 stores, which serve 140 million shoppers a week. Walmart clearly knows how to buy and sell products, but every customer is nothing more than a vehicle for purchasing goods.

Amazon now has 90 million ‘Prime’ members (customers who get special treatment such as free delivery,) or roughly half of all American households. They pay $9 billion in membership fees and spend $117 billion each year.

Customers, not products

"The Amazon versus Walmart battle has been framed as ecommerce versus traditional retail, but that’s always been a false dichotomy. It’s about starting with the customer instead of the product," the authors note.

Walmart has no idea what you purchased last week, and no way of finding out. A focus on the customer was not built into their business model. Amazon, by contrast, does know. In fact, they know the first book I ever bought from them in 1999 – Maximum Achievement, by Brian Tracy, and they know everything I have bought ever since. (Check your order history. I just did.) The customer is the centre of their business model.

In the digital economy, customers are different: they prefer outcomes to ownership; they want the ride, not the car. The milk, not the cow. Forrester describes the new customer mindset: "The expectation that any desired information or service is available, on any appropriate device, in context, at your moment of need." Today successful companies start with the customer.

The ride, not the car

Ecommerce represents 13% of the total retail market and is growing at 15% per annum, versus just 3% for physical retail. Physical stores are not going to disappear soon or ever: they need to and will simply pivot the script to customer centricity.

Smartphone manufacture is a useful illustration. The battle is no longer over units sold, but on how phone use can be monetised. In February 2018, Apple revenue from services was $31b – enough to make services alone a Fortune 100 company. Apple’s focus is now on revenue per Apple ID over a user’s lifetime – and growing this base.

With a focus on the lifetime value of customers, suppliers must do everything to know them, their interests, aspirations, and more. This customer focus includes making it easy for customers to leave if they want to. You can certainly ask them why they’re leaving, or try to win them back, but you don’t get in their way of leaving. This demands that you constantly raise your game.

Subscribers, not customers

"You need a mindset that treats your customers like subscribers – partners in an ongoing, mutually beneficial relationship," state the authors – hence the title of this book, ‘Subscription’. To achieve this requires a change to your entire way of thinking.

According to McKinsey, the subscription ecommerce market has grown by more than 100% a year for the past five years.

Husqvarna, a 329-year-old tool manufacturer, is now offering a monthly subscription. It allows access to tools that are serviced daily, and fully charged before customers take them home. Then customers return them when they are done, no storage, no maintenance, no hassle.

Netflix, which started streaming movies in 2007, went from zero to 100 million subscribers in ten years. Spotify, founded ten years later, went from zero to 50 million paying subscribers in less than nine years. Music streaming in the U.S. now represents more than half of the US music business.

Subscribers to Ford’s Canvas programme can pick a monthly mileage plan for your car, and can roll over unused miles into the next month, much like a data plan. Everything is covered except the petrol. And your FordPass app allows you to warm up your car in the driveway on cold mornings, find and reserve parking spots, schedule service appointments, find nearby gas stations, and make mobile payments.

Move the earth

Ford has around 6% of the $2.3 trillion global automotive market, but close to nothing in terms of the $5.4 trillion transportation services market.

Surf Air, an airline operating in the Western U.S. and Europe gives it members access to limitless flights for a flat monthly fee. Together with its other travel-related perks, is growing rapidly.

SNCF, the 80-year-old French state-owned rail company, is competing against transportation start-ups like BlaBlaCar, an online marketplace for carpooling. Through clever use of its digital subscription system, it does not tie customers down, but serves them better.

Can getting rid of earth for construction be "subscription?"

Komatsu has achieved this by moving from the question: "How many trucks can I sell you?" to "How much earth do you need moved?"

Building starts with the removal of earth to lay the foundation. Manual surveys generally have a 20% - 30% margin of error contributing to the knock-on effects that routinely cause time and budget overruns.

Komatsu, the world’s oldest construction and mining equipment manufacturer, offers the ‘Smart Construction’ programme. Their drones create a 3D-rendered topographical model of the site in centimetre-level detail, calculate the exact area and volume of earth that needs to be removed, and runs thousands of simulations of possible scenarios. All in 30 minutes. They provide a finished project plan, with materials, equipment, labour, and a work schedule detailed down to the last hour.

Oh, they also feed your project plan into its fleet of semiautonomous excavators, bulldozers, and backhoes, and these giant robots basically take care of the project for you.

Subscription is a mindset that faces the reality that manufacturing is not giving way to a digital world: it is the basis on which the digital will grow. In fact, manufacturing is a stirring giant, not a relic. Rethink Detroit vs. Silicon Valley, but from a subscription viewpoint.

Insights                High +--+- Low

Practical               High -+--- Low

*Ian Mann of Gateways consults internationally on strategy and implementation and is the author of the ‘Executive Update’ and ‘Strategy That Works’. Views expressed are his own.

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