Thursday, August 28, 2003

On-Demand Organizations

IBM is pitching these days the idea of an "on demand organization". It's a clever campaign. It simultaneously is talking about the need to think about Dell as a prototype for business and also their new offering of on-demand computing. When you think Dell, you are looking at how you can transform your organization to:

1. Take advantage of telecom networks like the phone and the Internet;
2. Not get stuck with slow moving and often depreciating inventory;
3. How you can focus on creating the highest possible customer value by selling the best product at the lowest possible price.
4. How you can customize value propositions to create high value and obtain high repeat purchase.
5. How you convert the fixed costs and attendent risks of your business into variable costs and even more importantly, how you can be an incremental cost on someone else's cost structure.

These are important issues today. Most companies underestimate the importance of repeat customers. In many financial services organizations, a small number of customers account for for in excess of 100% of the profits. If you want to destroy a competitor, target their profitable accounts. If you want to increase your profits, make more customers profitable.

And most companies underestimate the cost advantage of high repeat purchase. You can spend less on marketing and sales, sometimes an even more important issue that driving down production costs.

Alistair Davidson

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