“If I were to ask you to imagine a tsunami, you’d probably picture a massive wave. Which isn’t inaccurate, but tsunamis start out as tiny ripples in the ocean before they get stronger and eventually grow into something that can have a devastating impact.”
In business, spending — and overspending — can be a lot like this. It starts out fairly small and insignificant, until it grows into something that you can’t contain.
This was one of the opening statements from Matt Lawlor, futurist and business strategist at Futureworld and the keynote speaker at the ITWeb Brainstorm and BCX Enterprise Forum held at the Mount Nelson Hotel in Cape Town this week.
Lawlor explained that the world of business, and the world in general, is set to face more disruption and innovation in the next 20 years than we have seen in the last century. And these changes force businesses across all industries to review their strategies and come up with ways to do things differently or run the risk of being left behind.
The world of business, and the world in general, is set to face more disruption and innovation in the next 20 years than we have seen in the last century.
Matt Lawlor, Futureworld.
By 2026, the average tenure of companies on the S&P 500 Index is projected to be about 14 years, a significant drop from 33 years in 1965 and 20 years in 1990. This means that the battle for relevance is well and truly on, noted Lawlor, addig thta businesses must focus equally on planning for the future and reassessing current practices to retain customer loyalty.
Of rocket ships and hotdogs
“If there are only two things that I want you to remember about this presentation — and they might seem a little strange — it’s rocket ships and hotdogs,” said Lawlor.
Elon Musk’s SpaceX has made significant strides in reducing the cost of space travel by rethinking its approach, he explained. It has managed to cut the average cost of a rocket launch by focusing on identifying the biggest costs associated with launching a rocket into space – that is the cost of building a brand-new rocket for every trip. Today, SpaceX develops rockets that can be used more than once. “And they backed up this novel concept of making reusable rockets with an extremely tight control on costs,” he added. Where NASA sees a cost overrun of around 90% on an average flight, SpaceX’s cost overrun is just 1.1%.
He went on to highlight Costco, a membership-based wholesale retailer, and their infamous hotdog and soda special. “In the 80s, Costco realised that if people are coming into their stores to do some shopping, they’re going to get hungry.And so, they started selling a hotdog and a refillable soda for $1.50.” Since launching the promotion about 40 years ago, they haven’t increased the price of this combo by a single cent, because this has become something Costco does to make the shopping experience more enjoyable for its customers. “And let’s be honest, if you’ve eaten a hotdog and enjoyed a soda, you’re more likely to spend more time in the store and spend more money.”
But how have they managed to keep the price stable? One way is by starting to produce their own hotdogs, rather than buying them from someone else. And they’ve also redesigned their food courts to speed up the amount of time it takes to buy a hotdog, which, in turn, lowers their servicing costs. “It’s about the hotdog but it’s also not about the hotdog, because to be able to buy this super cheap hotdog from Costco, you need to be a Costco member, which costs customers an annual membership fee.”
Spending money to deliver value
Delivering the event’s second keynote address, Dr Fazlyn Petersen, a senior lecturer in the Department of Information Systems at University of the Western Cape, explained that you can’t reduce your costs if you don’t understand what your value proposition is and what value you add to your customer. You also need to know what makes you money, she added.
“Drawing on Matt’s Costco example, they’re happy to make a loss on their hotdogs because they know that this offering keeps their customers happy, gets more people into their stores and more people equals more money.”
It's about understanding what your customers want and then spending money on activities that provide the most value to them, Dr Petersen added. This makes it easier to prioritise where you spend your budget, she continued.
People still think of technology as a competitive advantage, but everyone is doing the same things with technology... The real competitive advantage comes when your tech investments are directed smartly.
Pragasen Pather, Sun International.
Pragasen Pather, Sun International group CIO, learnt a lot about strategically allocating budget during Covid-19. When the country went into lockdown, Sun International was one of the businesses most affected because they couldn’t operate. But rather than giving up, they put several strategies in place to keep the lights on even though they weren’t making any money.
Speaking during a panel discussion at the event, Pather explained that Sun International’s approach to innovation without driving up costs is all about embracing different levels of innovation – incremental innovation, radical innovation and disruptive innovation. “Play the game, win the game, disrupt the game,” he said, noting that all of this is done to increase revenue in different ways.
For example, Sun International’s latest disruptive move has been the launch of what Pather terms an ‘omnichannel gaming experience’, which makes it possible for people to gamble anywhere, online. And the easier it is for people to gamble, the more money Sun International makes.
People still think of technology as a competitive advantage, but everyone is doing the same things with technology, he said. The real competitive advantage comes when your tech investments are directed smartly and in a way that allows you to improve processes, up efficiency and do something a little different.
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