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TAIL WAGS DOG?

TAIL WAGS DOG?

30 November 2017

I was struck last week by two stories sharing common beginnings but very different endings.

First off - the unfortunate Provident Financial.  PF, it now turns out, relied on a team of door-to-door sales-ladies to issue sub-prime loans and collect the interest and repayments.  Presumably someone looked at this salary heavy activity and decided that the company could disrupt itself by sacking all their front-line staff and replacing them with code.  This brilliant strategy was intended to have the double-whammy effect not only of drastically reducing costs but also of adding the soubriquet of Fintech to the company's description. 

Meanwhile, just over a year ago, Accenture bought digital agency Karmarama to howls of protest from many an observer.  "How could such a clash of cultures ever work?", they were both warned.  (Such views being fed partly by the paranoia of a digital media industry going through yet another existential crisis).

The results are now in.  PF's share price suffered "..among the biggest one-day sell-offs in blue-chip history." (City AM).  It turned out that it was not so easy to replace humans with technology in PF's business model as the company experienced a 70% loss in cash flow.  And Karmarama?  They have grown revenues by 30% in a sector that is at least stagnant if not slightly declining.  Karmarama has benefitted from Accenture's deep client relationships and has thrived whilst be allowed to maintain its "hermetically sealed culture".

Lessons

1.         The most important link in your business is the relationship you have with your customers.  Obvious - but obviously not obvious enough.

2.         Digital tech can be complimentary to your business but it can also be highly corrosive.  Test and learn how to bottle it correctly.

3.         One dimensional strategies that focus heavily on cutting costs at the expense of value proposition do not always (in fact rarely) work.

4.         Most of the time, technological change works best when it compliments human relationships; not when it replaces them.

Yours with 20:20 hindsight,

JM

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