Recent History Can Guide You Through Disruption
An Inc. article recently caught my attention, “Amazon suddenly became a massive threat to Target. Then Target Did Something Brilliant,” written by Bill Murphy, Jr. I initially thought something new had happened in the ongoing battle against Amazon by big retailers but digging in I learned it was an important reflection on what Target has done since the 2001 threat of Amazon and digital commerce began.
This article serves as a great reminder that close to twenty years ago retailers, caught off guard with the societal shift to online purchasing, partnered with Amazon to provide their e-commerce solutions as a quick fix entry into the new marketplace. Companies like Borders, Circuit City and Toys R Us partnered with Amazon and all ultimately ended in bankruptcy. To be fair, there’s more than just Amazon to blame for why those companies are no longer alive. But what’s most interesting and worth noting today is what Target did early in the disruption cycle. In 2006, like the others, Target was still relying upon Amazon for its e-commerce solutions, but by 2009 they realized that if they didn’t become self-sufficient in this game changing societal shift, they could become too reliant on the Amazon juggernaut. By 2011, they launched their own platform and began competing in the digital world without support from Amazon. In doing so, they invested billions into its own culture and technological infrastructure, realizing the long-term importance for survival. It was a gamble and outsized other retailers. Toys R Us, for example, invested only $100 million into its technology infrastructure and failed to address the necessary cultural shifts. Target had its eye on long-term success and survival.
There are a couple of important takeaways from this reflection piece for directors tackling disruptive forces across industries today:
In an age of disruption, be willing to look to past shifts for guidance. Most of what is happening today has happened before in another form, you just must look for it. The Target story is a good one to understand when it’s time to invest in your own systems and technology versus leaning on someone else’s. Think about how reliant you are today on Google, Facebook, Amazon, and others. Should that change? When it comes to artificial intelligence, the internet of things, streaming media, blockchain, or data services, who you partner with has long-term ramifications. If you remain reliant on a company that can just change its pricing or rules and completely push you out of business, you face substantial risk. Every time Google, Facebook or Amazon change the way they do things, millions of businesses are impacted.
Be prepared to take big risks and make long-term investments in the face of total disruption to your industry. This is what directors are there for – to recognize the signals of change and disruption and provide oversight that management is thinking about long-term value for key stakeholders and ensure your CEO has the ability and latitude to make tough decisions. Don’t always assume buying it is better than building it. We see Amazon doing this now by investing in its own transportation division – airplanes, local distribution companies, trucks, etc. They are not going to rely on UPS or Fed Ex when logistics and shipping is such a critical part of its business.
Pay attention to culture during times of change. The natural human state is to maintain the status quo, particularly among high paid executives. In the boardroom, ensure that the culture across the organization is prepared to adapt.
As you face disruption, questions you can ask management in the boardroom:
How do we incentivize teams to regularly question what’s happening and challenge the status quo?
How do we stay apprised of competitive intelligence?
Are we relying heavily on any one company to market, sell or deliver our goods or services? What about in our supply chain?
How do you find out about future trends and report back to the board?
Do we ever abandon a plan if we determine it’s not going to work or may be outdated by the time it is completed?
How do we check for group think?
What reasonable predictions can we make about our future based upon what’s happened to other companies in the last two cycles of disruption?
How many patents do we have versus competitors? This is one of the most overlooked areas of competitive intelligence gathering in technology. I encourage all board members to understand how you compare with your competitors and this is a key publicly available metric. It’s not the only metric, but it’s an important and easy one to address. For example, a quick macro look at patent portfolios shows that Amazon has approximately 10,548, Wal Mart has 975 and Target has 1,214. On the flip side, Macy’s has only 4 and Kroger has only 30. Which companies do you think have a culture of innovation? How does your company compare to your competitors and industry influencers? If you don’t know, find out.
If you are interested in a keynote, workshop or facilitated discussion on emerging technologies, future trends, cybersecurity or cultural shifts for your next board meeting or executive retreat, contact me at email@example.com or 513.746.2801.