Place Your Bets: Winning in the Transaction Economy

It's a misnomer that Google, Amazon and Uber are tech companies first and foremost. They are disrupting various industries by focusing on efficient transactions and creating electronic marketplaces that are dynamic and efficient. It's tempting as a supply chain manager to buy into the “on-demand” economy with dynamic warehousing or freight services, paying only for the capacity that you use, and only when you need it. But there are hidden dangers.

Companies spend years creating processes that are optimal for existing capacity. Having access to dynamic markets through the “Uber of warehousing” or the “Uber of freight” means you need a disrupt and industry and create a new strategy to address two issues:

1. maximizing value from additional capabilities available in dynamic markets, and
2. dealing with increased capability of your competitors who also have the additional access to dynamic markets.

The recipe for success in the transaction economy starts with three basic ingredients:

1. Facilitate trust. Dynamic markets mean your reputation will precede you. You don't have to be liked by all your suppliers and customers, but they must trust you.
2. Assess value. Too many still focus on cost, and dynamic markets can identify cheaper suppliers. Dropping a loyal relationship over a few pennies or ruining someone else's margin for your own benefit will destroy your ability to innovate, and it will cost you more in other areas such as quality control, lost sales, reduced margins due to increased discounting, etc.
3. Have a knowledge strategy. If you want a competitive edge, you must go beyond simply exchanging information. Make sure there's a process to convert raw data into meaningful decisions. This means clearly identifying who gets what information, what they're supposed to do with that information, and clearly articulating how that information relates to your goals.

New companies who are entering markets with the goal of being a disrupter are doing themselves a huge disservice by thinking that the companies mentioned above are at their cores technology companies and that all a new company needs to do it create a new technology to be like them. Instead they need to realize that Google, Amazon and Uber are all much more than just tech companies, they are companies who focused on creating a successful transactional economy – that is the secret sauce to their success.

SC
MR