The Commodity Adoption Paradox Dr. Brad Poulson Business Systems Director, Retail Operations - Store...

“The Commodity Adoption Paradox”

Dr. Brad PoulsonBusiness Systems Director, Retail

Operations - Store Systems,Boots The Chemists

brad.poulson@boots.co.uk

Agenda

• Introduction• Share findings from research I did

in a major UK retailer

• Background to the research• Findings• Conclusions

Introduction

• My background

• Questions and timing

Background to the research

• Who architects the business?

• If a process is truly a commodity then why don’t companies just adopt it?

• The research examines the ability (logic) of organisations to adopt commodity work business processes

Overview of the casesFour case studies taken from within one major UK retailer and contain the call centres business process as the focus of the research.

They were chosen for their contrasting approaches to the business problem and diversity of the final outcomes thus encouraging theoretical replication.

The ventures were approached as independent activities and were launched during a thirteen-month period between March 1997 and April 1998.

The four cases are: Loyalty scheme (LS), Mail order (MO), Insurance (INS), Customer service (CS).

The context of ‘Boots The Chemists’

"Not many companies today can claim that their core business activity benefits from the cumulative experience of trading in the 19th, 20th and now 21st centuries."

Steve Russell, Boots Chief Executive

April 2000 - May 2003

• Boots have been operating for 132 years• 1000 stores by 1933• 1311 stores upon entering computing in 1960• Over 500 systems keep our business running• 80,000 employees

Historical context...

Jesse Boot

Lord Trent of Nottingham

Group structure

The UK’s leading lifestyle website for women

The Boots Company PLC

Boots Retail Handbag.com

The UK and Ireland businesses work together as Boots Retail

Boots Retail International operates as the international

extension of Boots Retail

Boots Healthcare International

Boots Healthcare International allows us to grow our share of the

global self-medication markets

Case Study 1: Customer Service (CS)

The first of these, Customer Service, is a redesigned internal venture That developed and implemented a new in-house call centre capability.

Boots Customer Services:

•Launched March 1997

•Effective management of customer complaint handling

•Development of a customer relationship strategy

•Centralised facility handling 1,000 calls and 500 letters, faxes, and emails daily

Case Study 2: Loyalty Card (LC)

• Launched September 1997 • Loyalty card (Smartcard)• 4 points for every £1 spent• Lifestyle positioning rather

than discount

• 14 million cardholders (93% women)

• 52% of sales linked to card• First serious step into CRM• Advantage Credit Card

Boots Advantage Card:

The second case, Loyalty Card, was a completely new venture that started with an outsourced call centre, which was later brought in-house.

Case Study 3: Mail Order (MO)

The third case, Mail Order, was another new venture but with a completely outsourced call centre.

Mother & Baby Direct:•Home shopping catalogue•Launched April 1998•1500 products•Home delivery experience•Outsourced call centre•Early Internet ordering capability•Channel learning's

Case Study 4: Insurance (INS)

Finally, the Insurance case is a new joint venture with the call centre operated by the partner organisation.

Boots Health & Travel Insurance:

Boots Insurance Services (BIS) provides a range of health and travel insurance products including: Dental; Family Health; Accident Insurance (especially for children).

Research Methodology

• Longitudinal multiple case studies (over 5 years)

• Interviews, documents, archives, observation

• ‘Involved with the culture’• Three techniques:

Activity Records (Werner & Schoepfle 1987)

Strategic Choice Analysis (Friend & Hickling 1987)

Actor Network Theory (Callon & Latour 1992)

Terminology (i)

• Commodity work business process‘A process that is not specific to any particular business, is readily obtained, and is more or less equally valuable to any number of businesses’

• Leveraged business process‘A process that, while not specific to a particular company, is more valuable to it than to others’

• Proprietary business process‘The company-specific processes around which an organisation builds a business’

(Based on Thomas Stewart 1997)

Terminology (ii)

• Inscription“The notion of inscription refers to the way technical artefacts embody patterns of use” (Hanseth & Monteiro 1998)

• Translation“Actors within a network will try to enrol (manipulate or force) the other actors into positions which suit their purposes. When an actor’s strategy is successful and it has organised other actors for its own benefit it can be said to have translated them” (Somerville 1998).

Process Inscription/Specialisation Framework

gned Black-Box

Degree of specialisation (What & How)

ProprietaryCommodity

Legacy

Bespoke

Transformation

(Low) (High)

Findings (i)

• It was concluded that while the core processes were the same across the cases:

(i) the detail of the process,(ii) the variation in the contexts,(iii) the logic of the decision process

as they evolved, and(iv) the view of the actors involved,

combined together to lead to quite different approaches in each case.

Findings (ii)

• Confirmed that no established body of common language exists (Keen & Knapp 1996)

– A ‘complaint handling’ process (CS)– An ‘account servicing’ process (LC)– An ‘order taking’ process (MO & INS)

Findings (iii)

• The research identified that there is a need to understand the closely coupled relationship between process logic, decision logic, and alignment logic.

• Processes are similar in the core but have a surround that is specific to a process, in a particular situation, at a particular time.

Findings (iv)

• A commodity process has to be seen to be a commodity by the actors in the network.

• The mix and variety of the decisions taken compounds the difference between processes.

• Decisions take place at multiple levels within a business.

Findings (v)

• As time progressed and experience was gained and the situation evolved, actors changed their views (alignment) resulting in changes to the business process

• There appeared to be little transfer of knowledge across different parts of the organisation

Movement around the framework (c) Telephony

(d) Accommodation

Black-Box

Legacy

Bespoke

Transformation

Black-Box

Legacy

Bespoke

Transformation

(e) Miscellaneous

Black-Box

Legacy

Bespoke

Transformation

(a) Software (b) People

Customer Service

Loyalty Card

Mail Order

Insurance

Movement (with direction)

Redundant component

Black-Box

Legacy

Bespoke

Transformation

Black-Box

Legacy

Bespoke

Transformation

Findings (vi)

• The three logic's (process, decision, and alignment) all have to mutually support a commodity approach for it to be successful and sustainable

Alignment LogicCharacteristics

Alignment of the actors in the network

Intermediate governanceIntermediate governance

Market governanceMarket governance

Hierarchical governanceHierarchical governance

Different actors, inscriptions, translations

ContractsContracts InnofusionInnofusion

ArticulationArticulation

Externalities/overflowingExternalities/overflowing

Deeper StructureDeeper Structure

Decision LogicCharacteristics

What & how decisions are made

Low uncertainty ‘UR’Low uncertainty ‘UR’

Many feasible decision schemesi.e. low number of option bars

SatisficingSatisficing

Slow/strategic-fast/tacticalSlow/strategic-fast/tactical

High uncertainty ‘UR’High uncertainty ‘UR’

OptimisingOptimising

Bounded RationalityBounded Rationality

Trials & pilotsTrials & pilots

Few feasible decision schemes i.e. high number of option bars

The different conditions under which decisions are made: environments, focus, criteria, time,uncertainty.

i li t

sProcess LogicCharacteristics

What the process is about

Transaction specific investment

Low Information thresholdLow Information threshold

High information thresholdHigh information threshold

Commodity componentsCommodity components

Vanilla softwareVanilla software

Process differences, focus,areas, sequence.

Cognitive DissonanceCognitive Dissonance

Information IntensiveInformation Intensive

AppropriationAppropriation

Tightly coupled(Integrated)

Loosely coupled(stand alone)

i li t

sProcess LogicCharacteristics

What the process is about

Decision LogicCharacteristics

What & how decisions are made

Alignment LogicCharacteristics

Alignment of the actors in the network

Transaction specific investment

Low Information thresholdLow Information threshold

High information thresholdHigh information threshold

Commodity componentsCommodity components

Low uncertainty ‘UR’Low uncertainty ‘UR’

Many feasible decision schemesi.e. low number of option bars

SatisficingSatisficing

Slow/strategic-fast/tacticalSlow/strategic-fast/tactical

High uncertainty ‘UR’High uncertainty ‘UR’

OptimisingOptimising

Few feasible decision schemes i.e. high number of option bars

Intermediate governanceIntermediate governance

Market governanceMarket governance

Hierarchical governanceHierarchical governance

Vanilla softwareVanilla software

The different conditions under which decisions are made: environments, focus, criteria, time,uncertainty.

Different actors, inscriptions, translations

Process differences, focus,areas, sequence.

Bounded RationalityBounded Rationality

Cognitive DissonanceCognitive Dissonance

Information IntensiveInformation Intensive

AppropriationAppropriation

Tightly coupled(Integrated)

Path dependencyPath dependency

Loosely coupled(stand alone)

ContractsContracts InnofusionInnofusion

ArticulationArticulation

Externalities/overflowingExternalities/overflowing

Deeper StructureDeeper Structure

Trials & pilotsTrials & pilots

Conceptual model of commodity business process adoption:Three central factors (Poulson 2002)

So why is this important?

• Why wouldn’t broadly similar processes located in the same overall business context adopt similar solutions in terms of commoditisation, governance, and resourcing (architecture)?

• The closely-coupled relationship between BPR and Information Technology

• Move away from in-house developments to outsourcing

So why is this important? (ii)

• The increase in use of package software within businesses

• The growth in Application Service Providers (ASP’s)

Case study key events and timescales

Customer Service

Loyalty Card

Mail Order

Insurance

Other activities/events

Customer ServiceLaunchedApril 1997

Advantage CardLaunched

September 1997

Mother & Baby DirectLaunchedApril 1998

Organ DonorScheme introduced

August 2000

‘egg’ Advantage CreditCard introducedSeptember 2000

Tesco launch Mother& Baby catalogue

Early LearningCentre

Health & TravelInsurance launched

April 1998

Mother & Baby DirectCatalogue closed31st August 2000

!997 1998 1999 2000 2001

UpgradeTelephonyOct. 1999

BOL Customer ContactIncorporated into BTC

Customer ServiceMarch 2001

handbag.comlaunchedOct.1999

Advantage Point Kiosk LaunchedSeptember 1999

Advantage Card brought totally

In-house. July 1999

Decision takento de-couple call-centreand underwriting and

move to AIG

Event Effect on Event Decision Activity Linked Events

Boots.co.uk launched December 2000

CapGemini Call centre review

Spring 1999

wellbeing.comlaunched

March 2001

Customer Service

Loyalty Card

Mail Order

Insurance

Other activities/events

Customer ServiceLaunchedApril 1997

September 1997

Mother & Baby DirectLaunchedApril 1998

August 2000

‘egg’ Advantage CreditCard introducedSeptember 2000

Tesco launch Mother& Baby catalogue

Early LearningCentre

April 1998

Mother & Baby DirectCatalogue closed31st August 2000

!997 1998 1999 2000 2001

UpgradeTelephonyOct. 1999

handbag.comlaunchedOct.1999

Advantage Point Kiosk LaunchedSeptember 1999

In-house. July 1999

move to AIG

Event Effect on Event Decision Activity Linked Events

Boots.co.uk launched December 2000

Spring 1999

March 2001

Any Questions

e-think2

email: brad.poulson@e-think2.com+44 (0)115 959 2630

‘Improving capability through research; consultancy; coaching, and personal development’

The Commodity Adoption Paradox Dr. Brad Poulson Business Systems Director, Retail Operations - Store...

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