Value Propositions

It's easy to be seduced by the drama of the Internet: instant connectivity, real-time conversation, free software, virtual companies, high-profile IPOs, and volatile stock markets.

David Bovet, 51, and Joseph Martha, 49, both vice presidents at Mercer Management Consulting, are just as excited about the Internet as the rest of us are. But if you want to see the impact of the Web, they say, don't look on Wall Street or even in Silicon Valley. Instead, visit factories, warehouses, and retail stores -- elements of the supply chain that runs from the moment a product gets designed to the moment it gets delivered to a customer. That is where the real business revolution is taking place.

Responding quickly to customer choices, Bovet and Martha argue, requires a new approach to business design -- a strategic model that revolves around the creation of "value nets." Over the past year, the two men have studied 30 companies with products that range from office furniture to footwear, from auto insurance to cement. Their conclusion: The combination of demanding customers and Web-enabled business models is making the old supply chain obsolete -- and is creating something far more compelling.

Their findings are captured in a new book, Value Nets: Breaking the Supply Chain to Unlock Hidden Profits (John Wiley, $29.95). In an interview with Fast Company, Bovet and Martha offered five value propositions that are reshaping the relationships between companies and their customers.

Proposition #1: Your only choice is to give customers smarter choices.

Bovet: Customer expectations are exploding. Today, almost everyone wants customized products -- right away and bundled with convenient services. You don't have to listen very hard to hear what customers expect, even of traditional companies: "Why can't I buy an automobile the same way that I buy a Gateway computer?" "Why does it take two months to design and deliver furniture for my new office?" "Why do I have to deal with four suppliers to solve a single business problem?"

The companies that win in this environment will be the ones with business designs that begin and end with customers. It all comes down to choice: Customers want products and services that meet their unique requirements, and companies need to know how to deliver on those choices quickly.

Martha: Of course, choice isn't always easy to manage. Customers love choice, but they can be overwhelmed by too much of it. That's why we value the concept of a "choiceboard," a term that was coined by our colleague Adrian Slywotzky. A choiceboard is a Web-based tool that allows for real-time, two-way interactions between companies and their customers. It's the front end of what we call a "value net." It lets customers design exactly the products and services that they want -- including attributes, components, prices, and delivery options -- and then it communicates those choices to the company's fulfillment engine. But here's the key point: Choiceboards aren't just about creating more choices -- they're also about creating smart choices. Companies like Dell, Gateway, and Weyerhaeuser use choiceboards to manage demand and to balance demand with supply.

Dell became famous for this approach long before the Web became as important as it is today. For years, Dell's telephone reps would find out right away if the company was running low on, say, a specific memory module. In real time, the order-entry person would know to offer customers an upgrade of that module for less than the item would regularly cost -- giving buyers far more value for their money and steering them toward a product that was actually in stock.

Gateway gives computer buyers three points of entry to its value net: "Click, call, or come in." Whether buyers go online, call Gateway's toll-free order number, or walk into a Gateway Country store, they will encounter a choiceboard that offers controlled choices and that feeds information into Gateway's fulfillment infrastructure.

Proposition #2: Faster is better -- that is, if customers will pay for speed.

Martha: Everyone knows that customers want things faster. But what do we mean by "speed"? Speed means instant gratification and high-velocity response. It can mean receiving an urgent document overnight, or settling an insurance claim right at the accident scene. It can also mean bringing new fashions to store shelves within a week of their being designed.

That's why we find Zara, a trendy Spanish clothing retailer, so exciting. The apparel industry is notorious for building up buffer inventories everywhere, because it has to predict fashion swings months before clothes hit store shelves. A wrong guess can mean a strategic disaster.