Saturday, May 19, 2012

Design Progress and Delivery Shortfall: Incongruity in Porter’s Five Forces Theory

Product design continuously evolves over time to bring new features and functionality to the users or the customers. The evolution typically occurs in time phases or over generations of products. Many times the original product design would appear to be heavily outdated and user-unfriendly by the time the new design is optimized with mature stage technology. The design optimization occurs through form factor, hardware and software, all of which are designed and integrated to provide a better user experience. The design upgrade is also supported by process optimization to ensure that the redesigned product has all the right build characteristics such as fits and tolerances as well as durability, reliability and maintainability. At the other extreme, design opportunism also exists where some product attributes, whether internal or external, are tweaked up while letting others stay obsolete. The later strategy represents design incongruity which fails to fulfill customer expectations in totality. A total demand upgrade helps customers help feel the change in totality.

At times, the customer becomes incapable of asserting the demand profile in favor of a total demand upgrade as opposed to demand opportunism. This incapacity arises under certain peculiar conditions such as: (i) the customer has only a fleeting contact with the product or service, (ii) the product or service has several performance attributes of which only one is a dominant one, (iii) the customer is indigent and non-discerning, (iv) the suppliers are either monopolistic or are unwilling to update their own products or services, (v) the industry itself exists in a monopoly state, and (vi) the firm has certain attributes even within an competed industry to achieve a dominant or preferred firm status. This situation can be interpreted in terms of Porter's Five Strategy theory whereby the bargaining power of customers is weak and the bargaining power of suppliers is strong. However, the three other competitive forces can vary in their occurrence; there could be presence or lack of substitute products, there could be higher or lower level of rivalry in industry and there may or may not be high barriers to entry. The incongruity could be sharper when the product and business competition increases but without corresponding improvements in all facets of customer service.

Peaks and valleys

There are certain striking examples of technological stagnation hiding within technological modernization, even in industry settings of intense competition and liberal customer spend.

Air travel; congested comfort

Over the years, there has been a quantum leap in the technology of aircraft design and air travel in terms of larger size and greater seating capacity, higher automation in piloting, flat bed seating technologies, audio-visual entertainment, automated baggage transportation and so on. Yet, there are two areas which just stagnated in customer service through all these decades of aircraft and air travel modernization. The toilets remain congested and pitifully inadequate in terms of size, service options and hygiene levels. The food galleys and the food carriage hardware remain tight and rigid. The aircraft makers, though just two, are engaged in an unending search for technological superiority while the airlines themselves compete rather fiercely and the customers theoretically have several choices. None of these has influenced either the aircraft makers or the airline companies to offer flexible food choices, more spacious toilets and rest rooms, preferably separated for men and women, and improved leg room dispensation to the travelers. The customer power, despite there being millions of air travelers - all of them educated and well-positioned - remains woefully weak.

Drives, with clutches

The automobile has been a marvel of modern and continually improving technology. From horse power to fuel economy as well as cruise control to passenger safety, hardware and software are continuously updated to provide improved road commuting experience. Hybrid cars are leading a new era in automobile design. Yet, the inability of the automobile manufacturers to completely do away with clutches and manual gear shifts would rank as one of the shortfalls of design management. Nowhere else is it evident than in the Indian truck and bus designs which still employ very hard clutches and inefficient gear change levers (constant mesh gear boxes still exist in practical designs!). Despite the intense competition, automotive makers see an automatic transmission as a premium offering with higher price realization than as a minimum requirement for driving comfort on par with seat bags for driver and passenger safety. The customers, in their thousands, seem to be disinterested or unable to engineer a total shift towards driving comfort.

Stocking space, wasted

Shelf space in physical retail, it will be universally agreed, is important. With the spiraling real estate costs, most retailers tend to use vertical racks from ground to say a six foot level to pack their wares. Whether it is a book store, a grocery store, or an electronics store, and whether in a developed country or a developing country, the stocking and display methods are identical. As a result, most consumers do not look at the products placed below the waist level or those stocked behind other products. This not only reduces the sales potential but also leads to non-moving and expired products. Despite the severe competition in retail space, and the millions of dollars spent on malls, display formats and advertising, few retailers have innovated to ensure complete and comfortable visibility and accessibility to their merchandise. Ergonomics that is so much a part of industrial design seems to be arcane to the retail space. Neither do the customers seem to be keen on having a complete product scrutiny before making their purchasing decisions.
The above three examples from different industry sectors, all of them characterized by intense competition, great customer dependence and continuous product or service evolution, illustrate that even as technological development reaches its peaks it hides the valleys of technological obsolescence.

Economics of change and no-change

Clearly the decisions to continue to embed dated technologies and practices in modern developments as discussed above or keep renewing only the internals while keeping the exteriors dated are often dictated by the economics of change or no-change. As long as the economics of air travel are dictated by available aircraft space for seating and the minimum possible seat pitch and width as well as galloping fuel costs and taxes the incentive for providing comfort must come from quantum leaps in technological efficiency of aircraft design and strident customer demands for comfort. Unspoken, all the airlines seem to observe a unified approach in not competing for customer switch with breakthrough comforts.

The situation in respect of products like automobiles could be different. The updates to engines, gear boxes, body exteriors or internal trims in an automobile may come, however, with increased competition and a bid to switch customer loyalties. At the same time, a transportation service based on trucks and buses could prefer to consider incremental changes. The design efficiency of a transportation equipment, be it an aircraft or an automobile, need not necessarily translate itself into improved delivery of customer service based on such equipment as long as service providers see a possibility to delay the benefit delivery of design strides.

Stuck in the middle are several ubiquitous situations like the storage racks where minor innovations can provide major improvements in quality of work or business but are ignored. The reasons relate to the insensitivity of the managements to missed sales opportunities and the impatience of the customers to look for a total choice. Similar improvements in processes can improve productivity of social interactions and quality of life, both in and through various governmental and non-governmental structures but are not thought about or insisted upon. There could be several ways by which the service providers can trade with their users the benefits of eliminating periodic transaction efforts (say, monthly) for the costs of onetime payments (say, annually). A durable service quality would help the users to collaboratively work with service providers to minimize transaction efforts and costs.

Forces of collaboration

The foregoing gives us an idea that the theory of competitive forces does not always work to the advantage of either the firm or the customer. On the other hand, the behaviors of the firm and the customers are likely to be inconsistent when viewed from a. pure competitive framework. Where customer loyalty and firm offerings are driven by certain dominant dimensions, Porter's theory leads to incongruous results, simply because generic industry factors do not apply to specific customer needs. For example, despite the presence of a large number of airliners to choose from, the air traveler typically chooses only one airline because of mileage points. Similarly in respect of automobiles, ease and access of service could be a tipping point. Despite the presence of multiple smart devices, the IT security policy of a firm could limit the choice to just one vendor. The various competitive forces mentioned such as industry rivalry cease to be of importance in such instances. Monopoly firm conditions prevail with weak bargaining power for the users of a product or service.

It would be in the fitness of things for the firms to collaboratively work with the users to optimize the interplay of competitive and collaborative forces. The air transportation market has, for example, the air traveler's associations which could serve to enhance the bargaining power of the customers. Firms have industry associations for participation and constructive development of norms and standards to channel competitive forces on collaborative lines. It is important that these channels are purposefully utilized to bring about the required improvements without economics being the sole arbiter of corporate strategy or customer preferences. Similarly, citizen groups and neighborhood communities can get together on the best ways to optimize social interactions through the good offices of governmental and non-governmental agencies. The crux of the matter is that not all aspects of a firm-customer interface can be viewed or managed through a framework of competitive strategy.

Regulation as a balance

Interestingly, regulation by the Government acts as a stabilizing force when competitive or collaborative forces go astray. In India, each of the cellular service providers had significant bargaining power over the cellular telephone user until the Government of India introduced number portability. Despite the existence of several alternative service providers, the mobile telephone users had little choice as the need to switch numbers along with service provider forced the user to stay with the originally chosen telecom service operator. A more genuine choice came about when the number portability got introduced. The hand of regulators in optimizing industry-society interactions has been seen in the developed world too. The intransigent cases of design improvements showing up as delivery shortfalls also required governmental interventions to stabilize the firm-user paradigm. The introduction of EPA fuel economy norms in the USA in the 1970s or the safety standards in respect of several products by several governments fall in that category. More recently, stipulation of Basel norms for prudential bank management reflect the stabilizing nature of regulation.

Should regulation be a force that restores the competitive forces in a skewed industry or market situation? This question has no easy answers, although in one fell sweep the governments can provide to the consumers what years of apparently intense competition could fail to achieve. For example, the Governments may decide that it is in public health interest to prescribe a higher seat pitch to avoid circulation problems to air travelers. To date, the Indian Government has been using its regulatory powers with a stated social purpose. For example, banks should have certain number or proportion of rural branches or lending to priority sector should conform to certain norms, and so on. As the economy develops with a rising and articulate middle class without, however, the bargaining power, and as inequities continue vis-a-vis a super-rich class, the Government may step into more areas to simulate the impact of competitive forces. For example, corporate hospitals may be required to reserve certain free beds for indigent population. Portability of insurance and investment schemes without exit loads may be prescribed. Firms and industries as well as strategy makers need to look beyond competitive strategy to optimize technological development for a holistic benefit to the society.

Posted by Dr CB Rao on May 19, 2012

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