X-Factor Directors Beware

An open letter the corporate managers

Dear Director

For all but a few company directors, the breathtakingly successful money making machine, The X-Factor, must have seemed as much a fairy tale as father Christmas. That is until Jon and Tracy Morter, launched a successful campaign to prevent The X Factor notching up yet another Christmas number one and replaced the top spot with Rage Against The Machine, a rap metal act.

At that point the rules were broken. All that marketing investment, with an average of 16 million people watching a brand on line every week, surely must mean that it will be the brand leader.

BBC News Entertainment correspondent Colin Paterson said “It is simply one of the biggest shocks in chart history.” Bookies for the last few years have only been taken bets on who would be Number 2, because X Factor always won by a clear margin. It only took a campaign from a Husband and his Wife, to take away the strangle hold that Simon Cowell had on the festive charts.

Rage Against The Machine had set two new records, for the first single to reach Christmas No 1 from purely download sales, and for the fastest selling download single ever. This is not because everyone suddenly got honest a British Phonographic Industry (BPI) survey has revealed that despite stringent measures for controlling illegal music download, one in every three consumers still get their music via illegal web sites.

This is a really high profile warning. It is alarm bells sounding for every board room.

Why is this?

It is because Internet agency, transparency, richness and reach, crushed the establishment and established management thinking in a few days.

This is not a new phenomena, all manner of industry sectors have been changed by the internet.

Cast around and look at retail banking or fashion or logistics and distribution, or perhaps the mail. Even the darlings of the digital age are being caught off guard.

The UK’s first home online banking services were set up by the Nottingham Building Society (NBS) in 1983. But it was not until 2007 that the electronic banking system changed banking forever in an unusual financial panic event. A banking panic is a systemic event because the banking system cannot honour its obligations and is insolvent. Unlike the historical banking panics of the 19th and early 20th centuries, the current banking panic is a wholesale panic, not a retail panic.

Like the Christmas number one, the nature of the event was unexpected. It was a manifestation not so much of the web but of the internet at work. Big internet enabled systems are essential but their use has to be managed.

No one believed you could sell clothes online but today Jaeger said its online retailing operation now ranked as its second largest store after Regent Street in London. The ‘Threshers’ name is to disappear from the High Street tomorrow as the remaining stores close because of online competition.

2010 will continue to be tough for retailers, according to a new report from the Management Consultancies Association (MCA), and yet online retailing will continue to outperform high street shops. But we will continue to see manufactures spend more on Point of Sale than Point and Click.

Should the public know what is in the warehouses of transport companies? UPS.com makes a virtue of declaring the most up-to-date information about the status of shipment. Shipment movement information is captured each time a tracking label is scanned in the UPS delivery system. This is serious transparency and a different way of managing. But when will we see it applied to the last mile delivery or how long will the Government be able to support Royal Mail's pension deficit of £6.8bn before a big change upsets the apple cart.

“Everyone is selling something they don't have possession of, and the cost and revenue are not linked,” said Andrew Bud, chairman of mobile billing company mBlox at the Future of Mobile event, run by Westminster eForum in October. “There will be an initial boost but it will then come crashing down, unless there is a radical change in the business model,” reported eWeek in the wake of a huge data failure by O2 this weekend.

The OECD presented evidence three years ago of blurring of the distinction between manufacturing and services (PdF). It’s simple to understand why. Manufactured goods are, by historic standards, wholly reliable. When buying a car, does one buy the design, an intangible, the chassis, engine or wheels? No. We buy the service package. The regular servicing, the automated fault finding from the on board computer and so forth. Do you really know where your car was made? Did the engine come from South Wales or Mr. Tieyan (Tony) Xing from Shanghai Tongxiang? You see, I know his name but not the name of the company representative from Ford at Bridgend. Trading with Mr Xing is fast and I buy from the man not the company.

So that is how Jon and Tracy Morter upset the marketing traditions of more than a century. They are people more real in Facebook that Simon Cowell with 177,000 fans with whom he can have no conversation at all (too many people).

By comparison the Morters have lots of interesting people involved and offering stuff and a manageable number of friends and the interesting Rage Factor page and site.

We have, after a very long time, reached a tipping point. The levels of involvement of ‘the commons’ are such that they have real power. The power is irresistible the Bastille will eventually fall. This is as powerful as the near revolution that brought about the Reform Acts combined with the advent of the Edmond Burke’s forth estate. It is a power that will be more potent because it is still evolving in very dramatic ways ten times faster and, after a pretty average period of development, sooner than most believed.

The lessons are all there. If you are a traditional company or not:

• The next internet event will affect the most conservative industries as well as the most ‘with it’.
• Your company will have to face a very big marketing and organisational shock soon.
• The internet is now being taken over with masses of information not of your making but about you, your company and its stakeholders and its impact is direct and fast.
• Someone in your organisation must be monitoring the internet in real time.
• If your company managers do not have digital plans for 2010 ask them to justify why not.
• If you do not see significant re-structuring of management budgets and personnel deployment this year, you should ask why your organisation is immune from Internet effects – and get back a very convincing argument.
• Take down the silo walls when talking about the internet because its affects everyone (young and old, men, women, skilled and unskilled, graduate and school leaver).
• There are no digital experts but there are some well informed people who try to understand.

Last year was the last year to experiment, that window is now gone. It’s time to take the internet very much more seriously.