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Thinking about customers and flow

I spent the first 23 years of my life in Calcutta; I lived there, and only there, between 1957 and 1980.

We didn’t have a television set at home. If we had had one, it wouldn’t have been of much use to us. In those days, especially in Calcutta, electrical power was a luxury, with “load-shedding” the normal order of the day.  Hurricane lamps are very useful things, especially in hurricanes. But they don’t power TV sets particularly well.

We didn’t have junk mail at home either. Or anywhere else for that matter. But the mail did arrive, every day, and at least once a day. Which is more than can be said for the mail today.

When it came to luxuries like cars, our choices were almost Hobsonian. Homegrown equivalents of 1950s Morris, Fiat and Triumph dominated; in the East of India, you could buy a brand-new Ambassador, based on the Morris Oxford II and III, or you could buy something second-hand, often an Ambassador. Or you could take a taxi. Which was always an Ambassador.

In those days there were no supermarkets in India; shops were primarily local and unbranded. And what they stocked, we bought. Sometimes aided and abetted by advertising in newspapers and magazines, on the ubiquitous hoardings, and on radio; but more often than not, “choice” was dictated by what was available at the local shop. So most of the time we asked for things by generic name rather than by brand. Things like tea, coffee, sugar, salt, we bought all of them “loose”. Brands did exist, but mainly for the drugs of the day: petrol, headache and pain pills, cigarettes and alcohol.

I think it must have been a time when “manufacturing”, in the industrial sense, was focused on core industries like iron and steel and transportation and communications and energy. India was emerging. So we had the unusual situation where, for example, it was cheaper to buy handmade clothes and shoes, as opposed to “manufactured” branded and labelled goods. Every neighbourhood had a tailor and a cobbler. You had to travel to get to a clothes shop or a shoe store.

Choice was not something we thought about. Availability and proximity were what mattered, and the local shopkeepers plied their trades honestly; mark-ups were moderate and acceptable.

Sustainability was a by-product of our underdeveloped status. We drank our unbranded freshly made tea and coffee out of mud cups that were completely biodegradable; plastics were expensive, so all our groceries were packed in paper bags, usually made from recycled newspapers. Our clothes were made of cotton; our shoes from local leathers; we even used a mixture of dried dung and straw as fuel, and didn’t think twice about eating food that had been cooked over the dung cakes.

When we bought things, they were expected to last. And they lasted. None of this planned-obsolescence nonsense. When something broke, you got it repaired. If you wanted to, you could repair it yourself. Parts were cannibalised as needed, or even made from scratch. A Maker paradise. People didn’t go and buy something new because there was something new to buy. When you did buy something new, the first question you were asked was “what happened to the old thing?”.

Similarly, our underdeveloped status meant that our diets were pretty good as well. [Of course there were many challenges. Infant mortality was still unacceptably high; many diseases hadn't been conquered; droughts and famines affected food supply; neither sanitation nor hygeine was perfect; pollution was on the rise. Yes there were many challenges]. Yet. Despite all that. No electricity, no fridges. No frozen foods. Mainly vegetables. All fresh. No preservatives added. Where there was meat, it tended to be lean.

And people walked a lot. Walking was normal and natural. It’s something I’m trying to bring back into my life, I’m on a 10,000 paces every day plan and I am loving it.

So let me summarise. A lot of what we bought was produced locally and sold to us locally. There was little choice involved. Prices were reasonable. Stuff was made sustainably, and stuff lasted; what didn’t last was made to last through repair, often inventive, sometimes cannibalistic; packaging was kept to a minimum; manufactured goods were only just entering the consumer environment.

The past looks brilliant through the spectacles of nostalgia, doesn’t it? And if I knew it all sounded rose-tinted, why then did I bother to write this post?

Long answer. Long post. Long overdue.

I’m writing this because I think it’s important for us to understand the sheer scale of the changes we are seeing, and the incredible pace at which those changes are taking place. Changes which herald a new world, changes which nevertheless mark a renaissance.

Changes around and about the customer.

The customer. The person who makes sure there is a business. No customer, no business. As Peter Drucker said, and as I’ve repeatedly quoted him, the purpose of business is to create a customer. Someone who has a relationship with you enough to come back and do more business with you. Someone who will provide you with her custom.

Somewhere in my head, influenced by all I’ve read, influenced by all the people I’ve listened to and spoken with, businesses are also inextricably linked with one other idea, that of division of labour. Someone pays you something for doing/making/providing something instead of doing/making/providing that thing yourself. Initially, when we lived in small communities and settlements and villages, with limited means of travel and trade, the communities tended to be self-sufficient as much as possible, constrained only by nature, via the environment and hinterland and climate. Then, as we moved on to larger people-aggregations, as migration became more affordable, scale started entering the equation. Inventions begat scale. And step-changes followed, changes we  thought of as revolutions. Agricultural. Industrial. Whatever.

With all this geographical separation and scale it became possible to create monolithic business structures, based on serendipity as well as skill; serendipity in “ownership” to scarce resources, and skill in building monopolies in consequence.

Power slowly moved away from the customer, as, one by one, access to factors of production and distribution became scarcer and scarcer.

And all this led to an interesting outcome. Without access to factors of production or distribution, the customer could not control a key aspect of the market.

Pace.

The pace of a market is controlled by its active participants; for much of the time since the Industrial Revolution,  this pace has been set by the manufacturer; since the dawn of mass media, some of the control of the pace has moved to the distributor.

Manufacturer. Distributor. Anyone but the customer.

Scale begat lobbies. And lobbies begat regulation. And somehow or other these regulations enshrined the new status quo, of pace being set by manufacturer and distributor not customer.

Everyone understands about seed drills and ploughs and the automation of agricultural machinery and of the science that went into better seeds and irrigation and fertiliser and growing methods. Everyone understands about electricity and transport and iron and steel and assembly lines and vertical integration, and even the science that went into better methods of production at scale.

And then. And then we go into a bit of a blur. People use terms like “services revolution” and “information revolution” willy-nilly. And then they don’t want to deal with the outcome, an outcome that has been written about for decades by people far more knowledgeable, far more learned and far more articulate than I am.

The information revolution is a services revolution. One that reduces search costs, contracting costs, transaction costs in general. One that takes every market and undoes the vertical integration that underpinned the monopoly or oligopoly. One that does this by creating sets of horizontal layers and then reducing barriers to entry to each horizontal layer.

Initially it was a communications revolution, allowing us to find people more easily, people we trusted, people who knew about stuff. Phones, networks, mail, that sort of thing. And then, as the internet evolved and begat the Web, more things became connected, became indexed, became searchable, became findable. And now everything can be connected.

Initially we had the power to speak at the edge; then the power to publish; then the power to shift time (record and replay later) and space (connect remotely); more recently we’ve started acquiring the power to make. Again. [Reminds me of a cartoon I saw recently. Two Americans talking. One mentions that for the first time, non-whites outnumber whites in the USA. Within earshot there are two American Indians. And one of them remarks to the other "...for the second time".]

Today, the customer is setting the pace of change. Again.

And businesses are in the business of serving. Serving customers. Again.

To do that, in a world where digital infrastructure rollouts and evolution accelerate commoditisation, businesses have to become more and more responsive to customer needs and wants. Business have to listen to the customer, gain insight from what is said, then know how to respond; how to adapt, to reform, to refine.

At a level of abstraction, I believe it’s what John Hagel, John Seely Brown and Lang Davison meant when they said we’re shifting from stocks to flows, from experience-based organisations to learning-based organisations.\

In that sense, “stocks” are aberrations. Frozen points in time where change did not take place. Time when change did not need to take place, since customers were unable to request those changes. Time when change was artificially prevented from taking place. The market sets the standard. And the customer was disenfranchised from that market. Now that the customer has voice again, the need to listen and respond has become an imperative. That’s what “flows” represent.

You cannot be in the customer flow unless you’re able to sense, to make sense of the information gained, and to refine what you do as a consequence of that sensing. That’s what makes an organisation a learning organisation.

This is what I believe the authors meant in the Power of Pull: it’s a state where the customer dictates the pace of the market. We can invent whatever we like, but the invention means nothing until customers say Yea. Until customers adopt it and use. [And in today's world, when customers then recommend the service to friends and relatives].

This theme is also borne out in a more recent book called The Three Rules: How Exceptional Companies Think. In summary form, the three rules the authors quote are: Better before cheaper. Revenue before cost. No other rules. The focus on quality and adoption are essentially metrics that put the customer first. What I also like about this book, and about The Power of Pull cited earlier, is that the theories are based on detailed empirical evidence.

Customers want to be able to decide what they want, when they want it, where they want it, how they want it. Customers want to be able to provide active feedback on their wants, needs and experience, on how they can be served better.

And, now that customers can do just that, they are exercising that right.

They are deciding the pace of the market. Again.

Let me know what you think. I’m already working on a number of follow-up posts on what it means to be in the customer flow, and you will help me learn about it via your comments, observations and criticisms.

Posted in Four pillars .


6 Responses

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  1. clive boulton says

    This Power of Pull. I’m observing a shift to zero marketing for risky products like mature ERP systems. With prospective customers kicking tires and buying based on customer recommendations and comparisons.

    More preferably newer customers prefer to buy modules rather than frameworks, because there is more choice in selecting exactly the flavor needed. One module can be swapped out for another. Where as buying a framework based system locks customers into endless contracts and low ability to adapt and evolve.

    Within the architecture of software we see this in the shift to polyglot based systems and the emergence of the small model development based around Node.js

    Of course CIOs fearful for their jobs are still buying the most expensive software from IBM and Oracle etc, rather than take on any risks. Startups haven’t been building systems from commercial software for about 5 years. Startup developers movement looks more like the maker movement connecting directly with suppliers for small modules. In businesses we see results of this pattern in platforms like Azure and Heroku.

    Coda. The Morris Oxford was a platform for the Ambassador, why did it fade away?

  2. Mona says

    I chose to go back to grad school mid career to focus on understanding stocks to flows transition. The field of system dynamics helped me understand what matters the most as a technologist, as a product manager. Two years later I applied the concepts in my thesis, using stocks and flows on the role of customer experience in technology markets. This notion of moving from stocks to flows from John Hagel, John Seely Brown and Lang Davison, combined by the fundamental shift from deterministic to probabilistic information era signals a new epoch. One in which many businesses will not adapt to and hence survive.

  3. Ben Tremblay says

    Alas …
    … we overthrew the democratically elected government of Chile on my watch.

    “Customers” couldn’t possibly hold my attention, as an organizing principle. Truth? if I had had only that, I’d very definitely tossed myself off a high bridge.

    For me, it’s about citizens.
    HeyHo …

  4. clive boulton says

    @JP Do you think it is possible to remake distribution based on flows?

    The distribution for consumer basics like milk have been consolidated into huge processors where milk of all types of quality are poured into vats and packaged into stocks without regard to customer. Thus farmers with quality products can’t reach discerning customers and vice versa.

Continuing the Discussion

  1. Changes In Indian Economy And The Customers · Global Voices linked to this post on August 4, 2013

    [...] and entrepreneur JP Rangaswami looks back at the changes in Indian economy, from a mixed economy combining features of capitalism [...]

  2. Changes In Indian Economy And The Customers | OccuWorld linked to this post on August 4, 2013

    [...] and entrepreneur JP Rangaswami looks back at the changes in Indian economy, from a mixed economy combining features of capitalism [...]



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