In an award-winning Harvard Business Review article ("Time -- The Next Source of Competitive Advantage," July 1988), George Stalk Jr. wrote, "Like competition itself, competitive advantage is a constantly moving target. For any company in any industry, the key is not to get stuck with a single simple notion of its source of advantage. The best competitors, the most successful ones, know how to keep moving and always stay on the cutting edge. Today, time is on the cutting edge. . . . In fact, as a strategic weapon, time is the equivalent of money, productivity, quality, even innovation."
In that article, and in a subsequent book, "Competing Against Time: How Time-Based Competition Is Reshaping Global Markets" (with Thomas M. Hout, Free Press, 1990), Stalk, 48, now a senior vice president at the Boston Consulting Group (BCG), launched the concept of time-based competition -- a way of doing business that he had witnessed in Japan. The main idea: An organization that eliminates wasted time in manufacturing, services, new-product development, and sales and distribution will cut costs, serve customers better, reduce inventories, and enhance innovation. In many respects, that insight prefigured the reengineering movement: Both concepts looked at a company's operations as a horizontal, end-to-end system and sought to eliminate unnecessary slack. Yet it was an insight that needed the digital revolution to reach its full potential.
"In the 1950s, MIT's Jay Forrester showed how time delays in a simple business system would produce huge distortions in the system's response to changes in demand," Stalk says. "That was a big 'aha!' When I wrote my article, in the late 1980s, I believed that you could take a large chunk of time out of any system, without using computers and networks. You could rearrange the factory floor, reduce equipment-setup times, use Japanese-style kanban to cut inventory, and substitute shipments of less-than-full truckloads for full truckloads in your distribution system. You could change your business practices to cut waste and not have to wait for computer systems to catch up with you." In fact, Stalk says, companies made enormous improvements in the 1990s, reinventing whole industries and closing the gap between U.S. and Japanese companies -- all without waiting to make major IT investments.
But now, Stalk acknowledges, work redesign and the digital revolution have combined to meet the competitive imperative of speed: "We've reached the point where the two need to go together. In fact," Stalk says, "today you can't be fast without IT. Simply faxing production schedules back and forth between manufacturers and suppliers isn't enough. People in every part of the production system need to be able to peer into one another's production schedules to share information and to make decisions in real time." To find out more about how digitization has supercharged time-based competition, Fast Company interviewed George Stalk in his office in Toronto. Here are his six principles for digital companies that want to compete on speed.
Digital speed casts a stark shadow.
There's no doubt that, in the past, competing on time created performance differentials. But as real as those differentials were, they usually improved things only 20% or 30%. When you move into the digital world, you attach a supercharger to speed as a competitive weapon. The difference between those who get it and those who don't is no longer incremental -- it's a quantum leap. And once that disparity becomes apparent to some consumers, word spreads to others.
It can be as simple as a computer-aided automotive-service center that repairs your brakes, rotates your tires, and changes your muffler in one day instead of the standard time frame, which may be two or three days. It can be a Web-based retailer that lets you effortlessly order something on the Net and receive it the next day -- compared with the old retail experience of searching stores for the goods you want. The digital experience is faster, easier, smoother -- and the difference is stark. Once you've experienced digital speed, you ask yourself, "Why should I tolerate an inferior experience from a traditional supplier?" And if that's your reaction, you know that a lot of other people have the same feeling.
Digital speed appeals to a company's most profitable customers first.
Most financial institutions share a common misbelief: Because only about 35% of all households own personal computers with modems, they assume that there's no problem. These institutions don't think that there's enough market penetration for self-service banking and financial services to threaten them. What they don't understand is that consumers who use PCs for personal banking today used to be those institutions' most profitable customers. In this case, the cream really does rise to the top -- and if traditional financial institutions don't perform for those cream-of-the-crop customers, those customers will go elsewhere. It's simple: If you don't make the leap to digital speed, you end up with a customer base that spends the least and costs the most to serve.
Digital speed is infectious.
We originally saw this phenomenon with the quality revolution. Consumers realized that they could have a high-quality car, and before you knew it, they expected high-quality everything: high-quality electronics, high-quality kitchen products, high-quality personal services. Now we're seeing that same infectiousness with respect to speed. Once you know that you can have something tomorrow, you ask, "Why can't I have everything tomorrow?" And, increasingly, the answer is "You can." Whoever delivers what you want the next day is going to win.
Digital speed simplifies complexity.
Let's face it: Both work and life have become much more complex. Digital speed allows you to navigate through that complexity on your own terms. If you want to take control of your own financial services, you can go to the Charles Schwab Web site and do lots of individual transactions quickly and effectively -- and all in one area of the site.
Digital speed shrinks the distance between the information and the decision. It gives you a new ease with which to navigate the multifaceted task of juggling your life. As a result, consumers can shift their desire from simply completing a transaction to getting the most out of each transaction that they do.
There's another unanticipated consequence of digital speed: Consumers option themselves up, not down. They buy more, and what they buy has a higher margin. Often, when consumers are dealing with complexity and choice, they run out of time, they run out of patience, and they run out of trust. They don't believe that salespeople are really interested in helping them. Digital sales takes all that uncertainty away by enabling rapid responses to "what if" questions. Whether they're buying books, computers, appliances, or groceries, people spend more when they sell products to themselves.
Digital speed resegments segmentation.
In the old days, before omnipresent digitization, slowness protected market segments. Consumers who were willing to wait a long time for the best price became one segment. Then you had another segment of consumers who couldn't wait for the best price and who were therefore willing to pay a premium. Now speed and digitization are collapsing existing segments -- one segment can get the best price and next-day delivery; another group gets a good price but receives its order today -- and also creating new, unpredictable segments.
The bigger challenge is to detect emerging segments that require new and different calibrations to measure them. Consumers are creating niches in places that companies never even knew about. Historically, companies simply bundled their offerings and made those bundles available to well-defined market segments. Today consumers are busily unbundling those offerings and finding the best provider for each component of the bundle.
As consumers unbundle these offerings and begin to make their own decisions, another new challenge will emerge: Companies will witness behaviors and choices that they could not have predicted. The templates that companies once used to organize consumer behavior don't work anymore. Income, location, and demographics no longer explain consumer behavior. As consumers buy things faster and assume more control over the buying experience, they'll start displaying new and different behaviors. All of a sudden, past behavior will stop being a good predictor of future behavior. Eventually, in digital sector after digital sector, consumers will begin to resettle into identifiable clusters. But those clusters will look very different from old-style clusters.
Digital speed is about de-averaging competitive advantage.
A company that manages its business through averages is a company waiting to be hammered. Let's say that a vice president reports an 8% return on sales. If I'm his company's competitor, I just lick my chops! And if I'm on his team, I get very worried. What the VP means is that parts of the company had a 30% return on sales and other parts had a minus 20% return on sales -- and that he doesn't know, or doesn't want to talk about, which part is which.
As digital speed fractures markets, customer groups, and distribution channels, averages give you an increasingly inaccurate picture of your business performance. The areas in which you have an advantage become obscured by the areas in which you are disadvantaged. And because you can't tell the difference, you don't know how to respond, how to build on strengths, or how to jettison your weaknesses. You need to de-average everything: the market, competitors, technology, and costs.
Digital speed is all about information. Ultimately, digital competitors must be able to tell the difference between creating valuable information and just creating information. There's money in almost every business situation today: in using a car's own electronics to improve how it's serviced; in managing credit-card transactions; in dealing with maintenance cycles in the airline industry. In any industry, a company that can harness the output of digital information to speed up its operations is going to outperform competitors, create new standards, and make a lot of money.
Alan M. Webber (email@example.com) is a Fast Company founding editor. George Stalk Jr. (firstname.lastname@example.org), a senior vice president of The Boston Consulting Group, established the firm's Toronto office and is responsible for BCG's worldwide Innovation, Marketing, and Communications Group.