Thursday, April 20, 2006

Disintermediation demands a new relationship management framework

What is the big common issue for car manufacturers, TV stations, retail groups, recording studios, salesmen and banks?

It is the word disintermediation.

I would also add a new and emerging framework for relationship management. We now have to think about this Brave New World.

The anticipated closure of the
Peugeot car manufacturing plant at Ryton near Coventry is indicative of the disintermediation of Intellectual Property assets and physical assets. The proposals that are on the table suggest that it will be more cost effective for Peugeot to build a new factory on a 'greenfield' site to manufacture its new car models.

The actual factory and machines have a money value based on either their value in an open market or the discounted cost of the original purchase cost.

The value of the processes involved in the manufacture of components and the assembly of cars is not so easily valued in money terms. Neither is the value of the inter-personal internal relationships and the relationships with other publics like customers, suppliers, local government and institutions.
Some of these intangibles (
procedural knowledge) can be relatively easily transferred in the form of instruction books and computer programmes but others, such as relationships with employees take time and the responsiveness of the whole enterprise to customer demand is even more difficult to re-create and therefore value.

What is common between all the assets is that their value is only accessible through relationships. This is not as easy to see when dealing with tangible assets (relationships with machines is irrelevant but training operators to use the machines dependant on relationships). As a result the relationship cost of transferring is seldom included in the cost of re-building a factory at another locations. However, being able to transfer so much Intellectual Property and its dis intermediation from the physical factory is very important.

As for a car factory so to for a bank.

The Economist has taken a good look at the International Monetary Fund and has found that it too is being disintermedaited.

It says: “Apart from generating reams of analysis, the fund's job is to furnish foreign exchange to countries that have temporarily run short. It can call on about $220 billion of hard currency in the first instance. That sounds like plenty. But some of its former customers now have big, shiny fire-engines of their own. These countries have even begun to pool a small fraction of their combined hoard, under what is called the Chiang Mai Initiative. The build-up in reserves reflects a lasting anxiety about financial markets, but also a lingering distrust of the IMF.“For all its mystique, the fund is at bottom just a financial middleman, as Michael Dooley, of the University of California, Santa Cruz, has pointed out. As such, it is always hemmed in by the threat of disintermediation. Countries such as Japan, China and South Korea can either lend to their neighbours through the fund, or they can bypass it and lend to their neighbours directly. Giving Asian countries a greater stake in the fund would encourage them to make use of it."

So we can see big banks having to worry about relationships because they threaten to force disinternedation at a pace that may be uncomfortable.

But what of sources of Capital?

It may seem to be a strange place for commercial banks to find comment about its competitors but made the point quite clearly this week.

Zopa is making waves. Put simply, it is a web-based borrowing and lending exchange that is seeking to do to away with bank managers. It will disintermediate them.Behind Zopa are some of the people who launched Egg, the Internet bank. This is how the idea is described in the article:

“The idea is that you get credit scored (they use Equifax) and then - if you are a lender - put in an offer to lend a certain amount, over a certain time, at a certain rate. There is then a 'buyers market' - people looking to borrow money, and those with a lower credit rating go down the path of borrowing at a higher rate.”

The job of the relationship manager in creating trust and developing relationships with lenders, borrowers (not to mention regulatore and a host of other publics) should not be underestimated. These are good times for communications and relationship management experts.

But what of other industries? Television can't be disintermediated surely?

I picked this up from
Rocky Mountain News this week.

“ABC announced last week that as of May 1, the network will make four of its hit shows available free on its Web site. The entry of the women of Wisteria Lane into cyberspace comes after CBS had unexpected success with Internet broadcasts of the NCAA men's basketball tournament - with more than 5 million viewers - and Time Warner launched in2TV, which streams vintage TV shows such as Growing Pains and Welcome Back, Kotter. At the cable industry's convention in Atlanta last week, much of the talk swirled around a fancy term, disintermediation - which basically means the fear that customers might decide eventually to drop their cable service and just watch TV on the Internet instead.”

Keeping audiences means being part of the New Communications revolution.

And shops?

GUS chief executive John Peace is talking about disintermediation.
Says the Daily Mail. "Cutting out the middleman," he explains, sounding out every word like a patient schoolteacher, after realising ordinary people do not use such language. He is describing why the next wave of Internet ventures is likely to be more successful than the bubble stocks of the 1990s.

His interest in the property portfolios of retailers and their home in the hight street weighs heavily as does the need to maintain value added as all around GUS is disintermediating.

Greg Lindon notes that
even the disintermediators like eBay are threatened by disintermediation.

Meanwhile and mainly in the US, says the Guardian, there has been an explosion of activity related to people making their own videos (with digital cameras or even camera phones) and uploading them, at no cost, to any of dozens of new websites. The biggest of them, claims that 30m user-created videos are viewed every day. They vary from the banal to the unexpected as people let others see them making music, reading diaries, snapping celebrities, doing citizens' journalism or putting up five-minute films, often in serial form. This follows the big success of, enabling photographs to be shared globally, and (now thought to have been purchased cheaply by Rupert Murdoch at $580m) in enabling millions of youngsters around the world to communicate about anything and create music. Both websites have spawned imitators including, with a claimed 6 million members, and to which up to 4.5 million people in Britain have joined since its launch last year. Yet another one, started by Harvard drop-outs, is providing similar social networking to universities.This should not blind anyone to the astonishing world-wide phenomenon that is taking place in which anyone can communicate with another like-minded soul and consumers have suddenly been enabled to become producers. It is possible there will be a disintermediation of entertainment in which a new generation of people who write books, make films, music, poems, art or whatever can publish - or sell - their output directly to people who want it. This prospect has been opened by the expansion of broadband and the plumetting cost of data storage (enabling the websites to store almost unlimited videos and films without charging). Technology and creativity are marching hand in hand.

David Reynolds adds:

The personal computer and the Internet have largely eliminated the need for distribution through CDs and retail outlets. Users aren't buying entire discs full of crap music but instead are buying Brittany's sole decent song and mixing it in with other music.

Now, artists can set up a remarkably capable home studio for less than one day in a commercial studio with comparable quality and they get to own the equipment instead of merely rent it.Consider the process of buying a car. Not too long ago, the buyer walked into a show room and was at a severe disadvantage to the salesman. Now, buyers are more prepared to go head to head with a sales rep. Buyers know what the markup is, they can research specific option packages and the dealer cost of those packages. Buyers can have access to the back end rebates available to dealers. In short, buyers now have information parity with sales reps.

One sees here a need for considerable understanding of relationship building and communication is the promise it to be fulfilled in trusting relationships.

The Public Relations industry has a long way to go to grasp this nettle and opportunity.

It is a big challenge when coming from so far behind.

Picture: Brave New World