Have you heard of Ruslan Kogan? I think he is one of the most exciting business entrepreneurs in recent years. I only got to hear about him when the major Australian electronics retailers started to complain about how unfair it was that a business could manufacture offshore and sell directly to consumers via the internet.
Kogan is an interesting character because he is at the forefront of change in how business is organized. As I said last week it’s hard to imagine a world that isn’t dominated by hierarchial organizations with boundaries of who is in and out, and managed by layers of staff. In the past, we have needed these organizations because they are the most efficient way to produce and deliver goods and services.
But what if IT allows us to coordinate production without the straightjacket of an organization? What if we can set up markets and networks because we can handle a lot more information that allows us to coordinate activity and bring buyers and sellers together into a virtual market place.
I don’t know what to call Kogan’s business model because it is evolving from a firm that coordinates manufacturing and distribution to something that is more like a market maker. The following video is 12 minutes but it is worth watching. I think the real genius of Kogan is devising algorithms to bring manufacturers in China and Australian consumers together. Kogan’s job is to create the mechanisms to do this in the most efficient way so that his market is more efficient thant the traditional retail firms. I’m not exactly sure how the calculations are done to choose the couriers in Australia but I am interested enough to follow this business as a major case study for my strategy courses.
It’s a form of organization, but not as we know it. In 2007-2008 Kogan achieved turnover of $3.7M with four full-time staff and nine part timers. This has grown to about $18M in 2009-2010. Maybe we should call it an ‘unorganization’. If you think that these ‘firms’ are a passing fad and we will remain dominated by big business then get ready for the shift. The power of IT isn’t just changing organizations, its redistributing economic activity away from firms and into markets and networks.
Kogan is now experimenting with variable procing to reflect the capital that is tied up in orders with manufacturers. If I buy a product at the early stage of manufacture I can get a lower price because I am funding the production cost.
Again, he’s making a market that connects me to the manufacturer. Kogan takes his cut as the market-maker but it’s a whole lot less than a business that has to rent floor space in a mall and employ sales staff.
The major retailers are complaining long and loud about this business and hoping for government to intervene and stop ‘unfair competition’. I wonder if the dinousaurs made the same noises when the mammals appeared?
Yield management applied to inflight shipments. I’ve been waiting for someone to do this.
It’s a really smart idea.
Hi John,
I find the most interesting thing about this phenomenon is the potential effects that it may have on our perception of value of existing industries. At the end of the day, success appears to be driven by transparency, value for money and exceptional customer service.
Quickly some major distribution/delivery providers seem rather underutilised with enormous potential for increased revenue from service growth. Similarly, shopping centre behemoths with a heavy dependence on boutique and niche retailers should also be nervous. If you were to take even a small proportion of book, shoes, clothing, furniture and electronic retailers from the tenant list, all of a sudden you have a much less attractive shopping centre.
After pondering the list of retailers at my local mega centre, the few truly safe businesses may be hairdressers, beauticians and the like. Very little traditional retailing requires physical contact. So those who fail to actually deliver retail excellence, or those whose retail promises are not supported with quality after sales service, (many Telco’s) should also be anxious.
The defensive attitude of some major retailers seems to be compounded by their dismay at the current increase in national savings, darn selfish customers! Surely this is a good thing if customers are purchasing comparable quality at the same level for a cheaper price.
I’ve been thinking for a while that there is a real opportunity now to innovate organisational boundaries/structures that is potentially pretty groundbreaking.
Hi Rohan
I agree with everything you are saying here. I still hold Harvey Norman shares but only on a value basis. They are certainly not the growth stock they were five years ago. Westfield is under siege too.
The reaction of the retailers to Kogan was comical. How dare those pesky consumers look to the internet for better value for money! We should get government to pass a law against that….
The r
The reactions from retailers, Harvey in particular, has been not only comical but stupid. In the sense that it has given Kogan a huge amount of free publicity. When someone asks you what you think of a much smaller competitor, the correct answer is “never heard of him”.
Gerry Harvey really put petrol on the fire there! I’m sure Kogan would love to see Harvey et al. having another go at shutting him down.
@Tim
Roll in a transition from assets to mobilisation as the foundation we build businesses on, and I’m with you.