Bewildered-by-Business

The UK Civil Service vs Tesco!

Today saw two announcements. The first was Tesco revealing annual profits of £2.25 billion. The second was the Commons Public Accounts Committee predicting that HM Customs and Excise had overpaid claimants of income support by £2.2 billion ... for the second year running!

Tesco is a huge and complex organisation – its meteoric growth would have been impossible without a world-class IT and logistics system in support. Its world-wide supply chain delivers highly perishable goods at the right time, in the right quantities, to the right locations, week in and week out.

In contrast, HM Customs' IT system (provided by EDS) is clearly incapable of delivering one product – cash – in the right quantity, to the right recipient, at the right time.

In one year, a single government department has managed to ‘misplace’ as much as one of the UK’s largest companies has managed to earn. What is going on? How can incompetence on this scale be possible, let alone defended?

I’m beginning to wonder if bad service is becoming good business.

Of course, some people will always be happy paying for high levels of service, but I’m starting to think, that the vast majority really don’t care as long as they’re saving a few pounds.

Ryan Air has a dreadful reputation but continues to thrive … because it’s cheap. Tesco is selling clothes, TVs, even computers – their staff can’t offer any help but the stuff sells … because it’s cheap. Many people use shops on the high street to seek advice but then buy through the internet because they save a few pounds.

If consumers don’t value service why are most suppliers working hard to add value? Could it be that Tesco and Ryan Air have got it right and the best strategy is to offer minimum levels of service and lowest possible prices?

In fact, is ‘minimum-level’ service the ultimate distruptive technology … nibbling at the ankles of established wisdom. Maybe in a few years we will all be buying from the lowest cost producer in each industry with the service-focused differentiators all but gone?

Okay, here’s another business decision I can’t figure … eBay’s purchase of Skype for $2.6 billion (plus another $1.5 billion if they hit certain targets!).

I can understand that new channels of communication will add value to eBay’s customers but couldn’t this be done through a partnership deal?

Perhaps the decision would make sense if Skype had a promising and profitable future but as far as I can see it hasn’t. Here’s why:

Until recently, global telecommunication firms (such as BT) have avoided promoting VOIP to protect their existing revenue streams. Now that VOIP is beginning to grow they’re wanting (and needing) to get in on the act.

BT has already announced its intention to enter – it even revealed plans to undercut Skype. Game Theory suggests that instigating a price war is folly … unless you’re sure you can win!

BT and the other global telecoms already provide the infrastructure i.e. the broadband connections. As competition hots up the VOIP facility will eventually become part of the general broadband package on offer. If you get it free with BT and others why bother with Skype?

I’m sure eBay and Skype are hoping their first mover advantage will keep them ahead of the game. Unfortunately I don’t think it will!

Any views? Can anybody see something I’m missing?

Dixons has just announced its moving out of the High Street and is focusing only on e-retailing.

In short, they are:

1) moving into an area where it's almost impossible to differentiate (and at present only accounts for a tiny percentage of sales)
2) re-branding all existing stores and presumably reducing space devoted to personal electronics and increasing space for white goods - a Currys/Dixons mix.

This won't save the group any money as existing stores will continue to trade under the new Currys Digital name.

I have two questions:

a) Are they effectively giving up on the Dixons brand? E buyers only care about price, not reputation.
b) Can The new Dixons/Currys store format remain profitable given that no stores are closing?

In my view their best strategy would have been to stick with the 'bricks and clicks' format and possibly close smaller high street branches and focus instead on fewer large out of town outlets.

Is anyone as bewildered as I am?