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January 14, 2013

Gauging the Digital Journeys of Consumers

Posted by Puneet Gupta (View Profile | View All Posts) at 9:59 AM

Enterprises and their consumers exist in a sort of symbiotic relationship. And this arrangement is particularly relevant for digital consumers. 

They wait for products to come to market with the utmost anticipation, camping outside stores the night before the debut of a new digital product not unlike teenagers trying to score tickets to the concert of their favorite band. Digital consumers are opinionated, too. They devour such products and services and have no qualms about telling the manufacturers whether or not they've met their expectations. It's for that same reason that enterprises benefit from this unique relationship. Digital consumers are enthusiastic about their products and an important aspect of the corporate research & development agenda is predicated on the journeys of those consumers.

That's why we're fascinated by a recent study published by two Columbia University professors. One of them, Garrett van Ryzin, is a business school professor; the other, Klaus Lackner, teaches at the university's School of Engineering and Applied Science. Their project began when they were considering a question often posed by investors to engineers: Does it scale up? That is to say, there is a long-held assumption that industrial production and operations benefit when enterprises move to increasingly larger scales.

But is this always the case? Is bigger always better when it comes to gaining efficiencies within organizations? In a recently published summary of the two professors' work, the logic is as follows:  One hundred 10-ton dump trucks would require a lot more drivers than a fleet of 10 hundred-ton dump trucks. By scaling up, the capital cost per unit goes down, as do operational and labor costs.

But the professors discovered that the opposite can be true when it comes to the digital world. Remember the era of the supercomputer, when science and industry were focused on creating larger and faster machines? "By the mid-1990s," says Professor van Ryzin in a recent interview with a campus publication, "it had become cheaper to network the capacity of [central processing units] and memory from large numbers of personal computers and computer workstations rather than relying on a single microprocessor."

A similar scaling down in size is behind the genesis of Hadoop. In fact, it parallels the supercomputer example. After the era of high performance supercomputing, companies were mapping data across thousands of servers. There was a lot of work involved in taking all of the results and mapping it so that you could see everything and just how you got there. Hadoop was the result of an open source project where computer scientists created a whole ecosystem around sets of relatively small servers and enabled them to do a tremendous amount of data collection and processing. The end game was that it saved a lot of money by scaling down. And in some ways was a blow to the era of the supercomputer as well.

Corporate teams are always investigating whether automation technology has evolved substantially enough so that it can be cost effective to operate smaller units rather than larger ones. In some ways, what this seismic shift in thinking has done is to create more of an analysis of scope than scale. Think about it: Organizations were accustomed to building one huge database to track consumer preferences. The clip-and-save supermarket coupon was less about passing on savings to a housewife than it was about a food retailer determining what kind of advertisements struck a chord, and with whom.

In that same spirit, nearly every person you see on the street is carrying a mobile telephone that becomes a scaled down (but very potent) device that feeds those same retailers small nuggets of information about consumer preferences. Today it's not so much the scale that matters but the scope of the data. With online activity gauged to send out millions of consumer insights a minute, the scaled-down device nevertheless is as far-reaching in scope as it's ever been.

There's no denying that the digital consumer has had a hand in encouraging this seismic shift from large to small. By now we've all heard (ad infinitum) about the influence that digital consumers have had on social media and the online world. But their recent journeys appear to be having profound effects on how companies organize themselves and discover efficiencies. 

So the next time you hear someone mention "economies of scale," just ask him what kind of scale - large or small -  he's talking about.

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