Proximity
I am reading a book called Proximity by a good friend of mine and prolific Thought Leader in Strategy, Kaihan Krippendorff.
The concept is not super simple, but my intuition is telling me that there is SOMETHING there for us all. The principle of PROXIMITY is that we are able to produce goods/services closer to the source both physically AND from a time basis. I don’t know EXACTLY the application for your business, but I will introduce it to you and the team in our coming Quarterly Session and/or any upcoming innovation session we have.
Have a read of this article from Kaihan below. At the end he does bring in some diverse examples that got my creative juices flowing!
Look forward to catching up next!!
Adam
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A Strategic Approach for Meeting Customer Demand as Quickly as Possible
by Kaihan Krippendorff and Robert C. Wolcott
October 23, 2024
Talk to a group of business strategists today, and many will tell you that their organizations are in a state of decision paralysis, overwhelmed by the implications of several of rapidly developing trends — AI, IoT, digitization, and 3D printing to name a few.
We have identified one strategic concept that can help executives make sense of these burgeoning and often overlapping trends: “proximity.” Its core premise is that, thanks to digital technologies, value is being created closer and closer to the moment of demand — not just in time but also physically closer. Understanding proximity helps strategists and leadership teams across every sector see how new tools, technologies, and trends interconnect, identify what impact they are likely to have, and envision how they can manage and exploit them for success.
In this article, we explore the meaning of proximity, share examples of how it is being used, and set out four steps to help leadership teams develop their own proximity strategy.
The Trends Stopping Strategists in Their Tracks
From our research and conversations with 100 heads of strategy across a range of industries, it is clear that executives charged with keeping their organisations looking over the horizon are feeling swamped by keeping track of trends. They often struggle to separate hype from reality, think through implications of each trend, and understand which of the latest tools, technologies, and platforms will add real value to their firm.
Just think about the deluge of technological advances we have seen in the last decade alone. Connected devices (everything from tractors to fridges) are increasingly making their way into our homes, farms, and workplaces, changing the nature of customer interaction. Advances in automation, from dark factories to human-machine communication, made possible through generative AI, are forcing a rethink of the practices of everything from manufacturing to medicine. After a challenging period, spatial computing (think virtual reality or the metaverse) is starting to gain wider acceptance and show real-world, near-term promise. 3D printing’s accelerated adoption is making its mark in manufacturing, while advances in APIs are making customer data more accessible and shareable.
There’s the wider context to consider, too. Geopolitical uncertainty is leading to risk and unpredictability across the globe, customers are demanding increased speed and personalisation, while growing climate change pressures (from investors and interest groups) and costs (regulation, insurance, infrastructure, people) create a challenging backdrop.
Why Proximity Is a Clarifying Concept
With so many fast evolving, consequential trends, it is no wonder strategists and business leaders are feeling inundated. The situation is akin to the way we might look at a mosaic: As we marvel at the individual pieces and the intricacies of the pattern, we don’t necessarily consider how the elements interlink to make up the cohesive whole.
A better solution is to heed the advice of U.S. Air Force fighter pilot-turned-strategist COL John Boyd, who theorized that if we want to successfully read our environment, we must always be observing our situation, pulling things apart (analysis), and putting them back together (synthesis) in new combinations to make sense of current conditions. Put simply, if we fail to synthesize the parts that compose the situation into a new picture, we risk putting ourselves at a strategic disadvantage because we are slow to orient to the new reality.
Proximity can help. By proximity we mean that the value companies create (through products, services, or experiences) is moving closer to the moment of demand in time and space.
In other words, thanks to technological advances, procrastination is increasingly a smart choice. You can wait for as long as possible (analysis), until you have a specific customer, with a specific set of needs, before you produce or provide a product or service (synthesis). This goes beyond simply competing on the basis of speed; there is now an unprecedented opportunity to deliver personalised solutions, to a growing band of digital customers, at the point of demand.
Thanks to the aforementioned trends and technologies, there are four key shifts that enable proximity:
1. From physical customers to digital customers.
The domination of Amazon, Google, and Netflix in their respective markets is due to a large part on their ability to turn physical customers into digital customers. This shift isn’t just about delivering speed and convenience — it’s a shift that also puts continuous flows of highly valuable customer data in the hands of the firm. That data can subsequently be used by manufacturers and service providers to track trends, identify what improvements they might make to existing products, and come up with ideas for new ones. In another example, the electric vehicles (EVs) that the Chinese automobile manufacturer Chery’s customers drive, like those of Tesla and others, can constantly track information (how quickly the driver accelerates, how far they drive, when they drive, and where and when they charge), which provides a continuous real-time stream of user feedback.
This ongoing interaction with the customer empowers the second strategic shift.
2. From economies at scale to personalisation at scale.
Thanks to AI, robotics, additive manufacturing, and other technological advances, the cost of customisation is declining and the personalisation premium is increasing. We are approaching a tipping point at which building a product not for a market or a segment but for an individual user, or even use, is becoming economical. An MIT team applied the
same technology that powers Coca-Cola’s Freestyle vending machine, which can economically produce a single-serving of a personalised soda flavor, to prescription drugs. A typical car manufacturer can produce 35 cars per hour on a single line. Chery, using COSMOPlat’s advanced AI, can produce 60 cars per hour, including traditional internal combustion, fully electric, hybrids, and extender vehicles, and a variety of models using multiple different brands, according to my interview with COSMOPlat executives. Their technology allows them to rapidly reconfigure the production line, enabling each vehicle to be built to each customer’s specifications.
This ability to personalise at scale, combined with the ability to shift from physical to digital customers, enables another shift — a move from search and towards creation.
3. From search to creation.
Google and Amazon grew to dominance by helping people search for information or products that were already produced. Today, a customer’s query can lead to the creation of entirely new things. In other words, companies no longer have to produce for predicted demand; they can produce only after there is demand. For example, QuickParts, which was founded in 1999, now uses advanced manufacturing approaches located in six in-house locations in the U.S. and Europe, plus a network of partner locations around the world, to produce customised parts on-demand, close to where its aerospace, automotive, and industrial products customers need them. Similarly, Chery doesn’t have to produce a batch of vehicles in advance of sales because digitisation has made the manufacturing process so much faster, it can wait until the order has actually come in. Thanks to COSMOPlat’s technology, it has been able to shorten the order-to-delivery time frame to as little as 15 days.
From the manufacturer’s perspective, producing at the point of demand has a number of advantages. There is much less risk, because you don’t make your product until someone orders it, and it also reduces waste. Ten to 30% percent of clothing globally, for example, is never sold — and is simply thrown away. If you only produce what people order, waste would approach zero
Producers can rarely delivery rapid, personalised, proximate in today’s interconnected world without the collaboration of suppliers and complementary products and services, however. Which brings us to our fourth strategic force at play: moving from a customer-centric toward an ecosystem centric mindset.
4. From customer centricity to ecosystem centricity
The fourth shift is a historic rebalancing from a focus on customers towards to a focus that also includes partners and suppliers. As Felix Oberholzer-Gee of Harvard Business School has pointed out, the value companies create derives not just from increasing their customers’ willingness to pay, but also their suppliers’ and partners’. We are seeing, among our chief strategy officer and chief innovation officer communities, a shift from a customer-centric perspective to a more balanced ecosystem-centric mindset, which recognises that suppliers are equally important stakeholders. Companies able to establish closer, more coordinated, relationships with them can deliver more timely, personalised experiences to their customers.
In Chery’s case, the company increases their ecosystem of 2,000-plus suppliers’ “willingness to sell” by being a great partner to sell to. For example, they help suppliers improve products or services and create new ones by providing customer insights derived from their infinite flow of user data. They try not to ask suppliers to produce parts until they have an order, so there is less risk of parts languishing in inventory or never being needed. When a supplier produces a part for them, that supplier knows they will be paid because there is already a customer who has placed an order. You might say that the company is not only selling cars; it is selling orders for car components to its ecosystem of suppliers.
These four forces — digital customers, personalisation, production on demand and ecosystem centricity — are moving every industry toward proximity. What can firms do to identify near-term opportunities proximity provides?
Four Steps Towards Proximity
Our analysis has identified four steps that can help strategists and leadership teams identify potential strategic moves that proximity may offer. While some of these moves may be long-term and visionary, we have found that simple, inexpensive actions can deliver immediate advantages, too. It doesn’t require a big leap in proximity to create a substantial edge.
Step 1: Envision P=0.
Step back from your industry and envision the state we call “P=0,” the hypothetical point at which value is created at the same time and in the same place as need arises. For example, a food importer of plantains we worked with envisioned P=0, with the leadership team imagining a scenario in which kids at a middle school get hungry just as the bell rings for lunch. As they walk into the cafeteria, the plantains that had minutes earlier been seeds have gestated, grown, ripened, and then been cut and cooked, ready for the children to serve themselves and eat.
The scenario may seem preposterous but, envisioning P=0 immediately evokes barriers. The next step is to lean into those barriers and systematically analyse them.
Step 2: Assess the barriers.
This exercise predictably surfaced all kinds of barriers, including industry norms (school cafeterias tend to plan menus and place food orders in advance), technology (we can’t cut and cook plantains that quickly), regulation (we need time to conduct quality checks on the food), and even scientific understanding (it takes a plantain three to four months to grow).
Build a robust, exhaustive list of barriers. Let all the fears and frustration be spoken and heard. Then prioritise a set of two to five that, if removed, might have the greatest impact.
Step 3: Brainstorm proximity trends.
With a handful of key barriers documented, think through the trends that may open up new possibilities for removing them. Start with some of the trends highlighted above (AI, 3D printing, IoT, robotics, for example) and then brainstorm additional ones that may be specific to your sector (in the case of the case of the plantain importer, such trends include controlled environment farming, genetic modification, or precision farming).
While it is tempting to focus solely on new technologies, this can be a mistake. Technologies may enable proximity, but other trends may also do the same thing. For example, rising geopolitical uncertainty increases the frequency of supply chain disruptions, which make importing from long distances more costly. At the same time, the premium customers are willing to pay for local products, may be rising.
Step 4: Map and prioritise opportunities.
Finally, map the barriers (from step 2) to the trends (from step 3). Take one barrier at a time, and for each, tick through each of the trends asking, “How might this trend remove or reduce this barrier?” Let people brainstorm ideas: This will provide a list of opportunities to consider (e.g., using vertical farming to shorten plantain gestation times, using 3D printing create foods closer to schools).
To prioritise the opportunities identified, ask two questions of each opportunity: 1) how easy or difficult would it be to pursue this opportunity (considering technological feasibility, likely cost, time to market)? And, 2) if we were able to use this trend to remove that barrier, what would the impact be? You might plot the ideas on a 2 x 2 matrix of ease and impact. Don’t rule out potentially high-impact opportunities that seem too difficult. In our experience, it is these types of seemingly “crazy” ideas that lead to the biggest leaps in advantage, because the technologies and other trends driving proximity are moving so much faster than most people believe they are. What at first seems a joke, with a little digging, you find is actually happening.
For example, these four steps eventually led the food importer to the idea of 3D printing food with a paste made from one of their core ingredients. The idea seemed potentially high-impact, but also inordinately difficult. They were about to laugh the idea off as a joke. But instead of dropping the idea, they did a little research and found that 3D food printing technology is actually far more advanced and affordable than they had thought. So, they funded a small pilot, that led to another, that put them on a path that could potentially lead to proximate advantage.
These same four steps have led to leading edge developments in other industries, too. A law firm began exploring a combination of human and AI-enabled solutions which would enable it to deliver legal advice to clients without the need for a meeting. A car wash chain envisioned building smaller form car washes that could be operated with fewer staff, and therefore be placed closer to residential areas to intercept customers before they got to the competition. A furniture company thought of ways to do more of the furniture assembly at their retail locations, facilitated by 3D printing of certain parts, to reduce inventory, shorten customer wait times, and provide more customized options.
Proximity is more than an abstract idea. We have found that when applied systematically, it can create strategic clarity and reveal tangible, valuable, and near-term strategic moves.