Target was slow to get on the e-commerce bandwagon. The retailer has spent the past several years working feverishly to catch up, in part by leveraging the value of its physical assets.
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Hopper uses a huge database of historical airfare data and daily sweeps of prices across multiple sites to predict future prices.
LEGO has created an online community of nearly one million members and is using crowdsourcing both to select new product ideas and provide their most loyal supporters an outlet to share their creations.
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Great post – it sounds like you had a very interesting internship with Li & Fung! The shift in retail supply chains from optimizing for cost to optimizing for speed is fascinating. We talked in class about knowing what you’re solving for by setting a clear objective function within your optimization framework. But clearly the objective function doesn’t always remain fixed forever! Ideally, it seems companies need to think about how the objectives of their customers/suppliers could change over time and consider not just how well they’ve optimized for current objectives but also how flexible they are to achieve alternative objectives.
The ability to shift mindsets internally and externally will certainly play a significant role in determining whether Li & Fung can turn things around. While 112-year habits are certainly hard to break, I would hope that the precipitous drop in the company’s market cap serves as evidence to employees that transformation is necessary. It would be hard to believe that anyone still thinks they can be successful without serious changes!
To stop retailers and factories from continuing to disintermediate, Li & Fung must prove that they offer specialized expertise that would be too expensive for the retailers to develop internally. Ultimately, people only seek to “cut out the middle man” when the intermediary’s value is easily replaceable. In theory, there are efficiencies to be gained if Li & Fung can create great internal processes and analytics and spread those development costs across a large customer base rather than each retailer trying to develop those capabilities themselves.
Great post JY! I also wrote about Target and worked there before HBS. I think your recommendations are very good. At least one of them has already been implemented in a major way: using stores as miniature fulfillment centers to ship orders. Over 1,000 of Target’s stores ship orders to guests. In fact, during this past November/December over 70% of digital orders were fulfilled by stores as opposed to fulfillment centers through a combination of order pickup and ship-from-store. That is a pretty massive supply chain transformation for a company that has only been shipping out of stores for a few years. As you mentioned, shipping from stores reduces shipping costs. It also speeds up the delivery times and allows customers to purchase items that are out of stock at the fulfillment center. Prior to ship-from-store capabilities, out of stocks at the fulfillment center meant the customer would likely leave the website disappointed and without making a purchase. Shipping from stores also allows Target to adapt to seasonal demand (by adjusting store staffing up/down as needed) rather than incurring the huge costs necessary to build enough fulfillment centers to meet peak seasonal demand. Initially, getting store team members on board with the idea of evolving job responsibilities was a challenge but I think the company was mostly able to mitigate that with incentives. Stores were given full credit for the digital orders that they fulfilled, meaning that stores that fulfilled a lot of orders were rewarded with higher staffing. Over time stores began asking HQ if they could increase the number of digital orders being sent to them.
I thought you also had some very good ideas about adapting the store experience. Target intends to spend billions of dollars over the next few years remodeling hundreds of stores and reimagining how stores should function in the digital age. I think both your RFID and AR ideas would be beneficial. Target was doing some RFID testing while I was there, but I’m not sure what the rollout status is. It’s especially useful for apparel which can easily get out of place on the sales floor (thus, store team members have a very difficult time fulfilling digital orders for apparel products). And given how important the home category is for Target, I think implementing some AR functionality to shop those products would be very effective. I think Wayfair has implemented some AR capabilities in their app, but I would think that technology would have an even bigger impact in a store environment.
Sources:
https://www.digitalcommerce360.com/2016/11/16/target-now-ships-online-orders-more-1000-stores/
https://www.retaildive.com/news/target-hits-a-bullseye-with-holiday-sales/514391/
https://corporate.target.com/article/2017/03/reimagined-target-stores
Fascinating post! The “A Day Made of Glass” video is very cool, it’s hard to believe that little more has come of it since it was released in 2011. Clearly Corning has a lot of ideas as to how their high-tech glass could be used to transform consumers’ lives in the future, which makes it even more perplexing that they’re so apprehensive about taking some consumer tech ideas to market (especially given the success of the iPhone collaboration). I also would have thought that the video would have been an effective recruitment tool to bring some younger, more consumer savvy talent into the organization. Perhaps Corning will never have the appetite to go after these sorts of opportunities on their own, but hopefully they can form some more partnerships with consumer-centric organizations that would be better at marketing their technology. Otherwise, they may just keep doing R&D with nothing to show for it.
Great post! I think you’re right that much of FPL’s fate will be determined by how willing they are to view digital transformation in their industry as an opportunity rather than a threat. Unfortunately, I would think that monopolies are generally least equipped to view shifting market dynamics in that way because when you already have 100% market share any shift in market dynamics likely feels like a threat. That doesn’t mean it’s impossible to adapt, just that I’d feel more confident about the ability of an incumbent to make that adjustment if they’re used to at least some competition. I would also be very concerned as to whether the same team that has thrived in a monopolistic environment will have the capacity to transition to a more entrepreneurial mindset.
On the bright side, it does sound like they have a forward-looking CEO who has done his best to not allow the organization to get too stagnant. I like the “Project Accelerate” concept because it gets employees used to thinking creatively about innovative solutions. Based on the changing market, I think the program needs to become more aggressive to think beyond simply “increasing revenues and decreasing costs” to also soliciting employee ideas regarding ways to position FPL as a leader of the industry’s digital transformation.
Great post Ross! As a sports obsessed kid growing up in a cable subscribing household, I would have found it difficult to imagine a scenario in which ESPN was at risk of falling from its perch as the primary source of sports content. It’s impressive that they had the foresight to see this coming and took action. Your final section about communicating the data to company leaders really resonated with me. The employees who are doing this sort of analysis are always going to use data to convince themselves of what’s going on, but mounds of data alone will do little to sway the company’s decision-makers. The data must instead be translated into a relatively simple and compelling story. However, it may be tough to expect that the same people who are great at doing the data analysis will also be proficient at crafting the stories that will convince the leaders to buy-in. My hope is that our generation of business leaders will at least be data savvy enough to meet the data scientists halfway rather than entirely relying on them to cater to our needs for simplicity.
Very cool post! We may need to change the way that we discuss VC success when evaluating this type of model. You mention that the company points to investments in Casper and Virsto as signs that their model is working. But in a model in which they’re making so many smaller bets, is investing in a couple of successful companies really that meaningful? For a typical VC that is making fewer, bigger bets two great picks could be significant. But if Correlation is investing in over 100 companies per fund it seems almost inevitable that they’ll pick a couple of winners and their payoff from each of those investments seems like it can’t be that huge.
Awesome post! The fact that average user time is 76 minutes/day is truly staggering. I wonder how many advertisements a reader sees in that amount of time.
The focus on the value of their recommendation algorithms reminded me of Netflix because their recommendation engine is always raised as a key element of their success. In my opinion, the value of a strong recommendation engine is even more critical for a news company like Toutiao because while there are lots of shows/movies available on Netflix, the amount of potential news stories to read is exponentially greater. And because so much news content is coming out daily and people primarily want to read the latest content, there is no feasible way for readers to identify the ideal stories to read without some analytical help. The other post about Toutiao mentioned that they’re also expanding beyond aggregation to original content – the Netflix similarities continue! Of course, a major difference is that Toutiao seems to be making a killing with advertising revenue, a good use of their personalized customer data (as long as the advertisements don’t get so annoying that utilization decreases).
Very cool idea Curtis! My biggest question is how easy it will be to convince grocery stores to embark on this endeavor. I agree that given the industry dynamics, they should be very eager to try something like this. However, it sounds to me like they are effectively being asked to pay in three different ways:
1) Licensing fee for the app
2) Provide discounts to consumers to incent use
3) Must pay someone to make sense of the data and take appropriate actions to drive increased performance (I presume this is outside the core competency of most store managers)I also wonder if there could be some issues on the consumer side because the consumers that would be most interested in one of the key value propositions of the app (decreased time in the store) may be not be willing to spend time scanning barcodes. However, the discounts are sure to be tempting to a significant percentage of users and perhaps those users can provide enough data to overcome the impact of other free riders.
Traditional grocers certainly need to try something before we are all subscribing to Amazon Fresh!
Great post! I can’t believe that the campaign delivered 12% year over year sales growth – that is remarkable! Your points regarding the negative aspects of the campaign are very interesting. I wrote about Lego and they take an opposite approach to this same situation and face challenges of their own. Instead of the Lay’s approach in which the winning flavor is guaranteed to be sold in stores, Lego only promises that ideas which receive a certain level of support will go through an official review process with the “Lego Review Board” which will determine whether the project will ultimately be produced. By going this route, Lego can avoid many of the negative results that you mentioned for Lay’s (because they won’t have to produce ideas that they don’t think will attract lasting demand). However, they risk alienating their community in instances like the one depicted in the link below in which none of the highly supported ideas are chosen for production. I guess there’s not one correct way to manage this issue, each brand must judge for itself whether there is greater risk in feeling forced to move forward with a questionable crowdsourced idea or risk disempowering the community by layering their own judgement on top of the crowdsourced results.
Interesting post! Given the extremely low number of ideas that make it all the way through the funnel to production, I’m wondering how much of the value created by this platform actually has to do with identifying new products compared to the positive brand sentiment that comes from just creating and fostering this community. I would imagine that the creators of most of the projects on the site have no illusions that their project is going to make it to production. But even ideas that don’t garner many supporters seem to receive a number of positive comments from fellow Lego fans – that alone may help the brand to keep their most loyal fans engaged!
Cool post! The graphs on the top of the post are very interesting. While Yelp’s mobile app users continue to increase, it looks like mobile web and desktop visitors have been rather flat for the past couple of years. I wonder how much of that flatlining has to do with the increasing prominence of Google reviews. When I google “Best Restaurants in Boston” I feel little incentive to scroll beyond the Google reviews as they’ve built up a pretty significant number of reviews as well. In fact, when I just executed this search Yelp wasn’t even one of the first five links on the page. The growth of Yelp’s app usage is encouraging, it seems to indicate that their content is strong enough to make some people seek out their product. But considering that app users are a much smaller portion of their businesses than the stagnant mobile web and desktop segments, I worry that their value proposition may not be strong enough to continue to attract the more passive review-seeker.
Cool post! This certainly seems like an idea that will take off. The biggest question is whether Convoy will emerge as the winner. Since it sounds like Convoy may be the early leader in this space, I’m wondering what mechanisms they can put in place to disincentivize multi-homing on both sides of the platform and grow their unique user base. Perhaps they could subsidize some sort of loyalty program in which shippers receive a discount for every x jobs booked on the platform and/or carriers receive an extra bonus for every x jobs completed. It would be expensive in the near-term but based on the results of our platform simulation it would probably be worth it if they truly believe that this is a winner-take-all market.
Great post and very interesting company! I think expanding to new geographies would be a more feasible play than expanding to the mass market. Netzun seems like it was created to solve a problem for a specific portion of the population. I have a hard time envisioning what their mass market value proposition could be that would lead mid-career professionals to choose to either multi-home or abandon LinkedIn for their platform. But the problem that Netzun is addressing for college students is real and one that likely exists in most countries. I would imagine that the platform playbook that Netzun followed in Peru (allow both sides to initially join for free to build scale and elicit network effects) would prove successful in other locations as well.
Great post! Indeed, the threat of cybercrime is constant and surely keeps many executives up at night. As a result, cybersecurity may be one of the most lucrative industries for decades to come.
Very cool post! Interesting business model and decision to go mobile only. It will be fascinating to see how the incumbents respond. Also will be interesting to see how Robinhood’s success ultimately compares to robo-advisors such as Betterment and Wealthfront. It seems like most millennials have been partial to passive investing but the opportunity to try active investing without incurring fees on every trade will certainly be enticing to many.
Very interesting post, I hadn’t thought about the way in which Airbnb might increase rental prices in popular tourist neighborhoods. It does create an interesting dilemma for regulators to consider. Are we okay with these popular neighborhoods becoming primarily Airbnb properties or should something be done to ensure that full-time tenants can continue to afford to live in these areas? It’s a really tough situation and unfortunately I don’t know how to answer it. Really interesting to think about though!
Great post! Any thoughts as to what AT&T could have done to avoid this demise? Do you think if they’d be better positioned if they’d tried to acquire content earlier? Perhaps this is similar to the Nokia case in that they saw the architectural change coming (in this case, low-cost and ubiquitous internet-based communication) but had no feasible way to evolve their organization in response.