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Chain-link logic - unshackling e-commerce strategy

Chain-link logic - unshackling e-commerce strategy

07 April 2017

On Jan 28th 1986, space shuttle Challenger reached 65,000ft and blew up.  We now know this was caused by a degraded O-ring - a tiny but vital part of the complex machine. No matter what else NASA had improved, nothing would have made that space shuttle perfom any better than that weak but critical component - an excellent, if tragic example of chain-link logic. “Quality matters when quantity is an inadequate substitute.” 

Some systems do not suffer the consequences of the chain-link logic.  If a builder losses a 3 ton truck then he can substitute 3 X 1-ton trucks.   But interesting things happen as a consequence of systems where sub-parts are managed separately and not seen as being part of a system and/or if there is a quality mismatch.  Have you ever redecorated part of a house only to realise that it just makes the rest of the house look even worse?  It would have been better to have done nothing.  Sometimes improving one sub-unit makes the system worse – counter-intuitive but actually, once you start to think about it, quite a common result.  When GM motors tried to improve the quality of their cars, it was no good improving the transmission if buttons on the dashboard (is that what they call them in the USA?) kept falling off.  

All these thoughts and examples are plagiarised from Richard Rumelt’s excellent book Good Strategy, Bad Strategy.  Talking about the limiting factors of such systems, he goes on to explain how a Milanese manufacturing company’s owner identified that his limiting factors were poor product, high costs and a sales force that lacked the sophistication required to beat the market.  He then realigned the business by focusing on product for a year to the exclusion of any other improvements.  Next year he focused on educating the sales force and then in the final year he worked out how to drive down costs.  He had to accept that each element needed to be isolated and fixed with little apparent gain until all three came together at the end to create a fully functioning self-reinforcing chain-link of excellence.  This took considerable leadership, an uncommon ability to take a long-term risk and the resilience to survive until the project was completed: but it worked.  IKEA can be seen as a paragon of chain-link logic – a system of huge cheap out-of-town depots, allowing a big range of excellent and beautiful products that can be driven away in a car; great logistics, great product, superb merchandising, a great price and excellent availability.  By making each unit excellent, the chance that other units benefit and become excellent, aggregates across the whole system (as long as they are of approximately the same quality).  It also, incidentally, makes it very difficult for an imitator to challenge - they have created a company that excels in all these areas at the same time.

How does this translate into the world of e-commerce when as Mr Rumelt says, “If you have a special insight into removing limiting factors, you can be very successful.”  E-commerce displays all the features of a chain-link system.  Acquisition, conversion and retention of customers can be optimised across digital marketing channels but if a fragile customer experience is destroyed in seconds by a clunky payments system or a lack of availability then it counts for nought!  Think of the effect of an over-active e-CRM system spewing out spam or even a programmatic advert served up against jihadist recruitment videos: In the very frictionless world of screen swiping, the smallest grit in CX can have disproportionate effects.  Conversely, especially as the ability to track customers becomes cheaper and cheaper, the ability to create strong self-reinforcing chains of value is within the reach of the nimblest companies regardless of size.  

For me, the fascinating lesson is that you need to have a very clear idea of your limiting factors, a very disciplined approach to fixing the whole system not just part of it (interestingly cost cutting came at the last stage in one of the above examples) and the leadership and resilience to get to the finished result.  Get it right and not only will you have delighted your customers but you will have built a complex self-reinforcing system that creates its own unique data and insight and you will be building a business that is beyond imitation and in a position of on-going and developing competitive advantage. JM

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