June 9, 2001 in Barcelona: The opening night of Madonna's Drowned World tour. Recently married to the film director Guy Ritchie, Madonna and her back-up dancers rocked the first set dressed in bondage gear and tartan, designed by the French designer Jean Paul Gaultier, in apparent homage to her husband's Scottish ancestry.
Ten nights later, June 19, the tour moved to Berlin for four nights and it was quickly noticed that several of the girls in the front rows were wearing kilts that looked just like Madonna's. Except that they weren't made by Gaultier. They had been designed, produced, and distributed to stores in just a few days between shows by Zara, the Spanish retail fashion brand.
It's hard to exaggerate how radical this speed to market was in the fashion world (nowadays roughly a trillion-dollar global industry). The established business model at the time was for retailers to pre-order their entire stock for a season from their suppliers six to nine months ahead of time, or up to 20 times slower than Zara. This meant that the whole industry had to forecast, or guess, what styles and colors would be on-trend a year or more in advance. Even the greatest instincts can be wrong of course. In that same year The Gap, the dominant US fashion retailer, tragically mis-forecast trends and was left with billions of dollars worth of unsold and unwanted inventory that created knock-on effects felt for years afterward.
Speed has continued to be the key to Zara's success. Seven years after the Madonna tour, Zara (or, more accurately, Inditex, its parent company) took over as the world's largest fashion retailer. Today, it has annual revenues of around $28 billion and estimated annual profits of $4 billion (2019 figures, from the Inditex annual report). And the company's founder, Amancio Ortega, has seen his fortune continue to grow to become one of the world's six wealthiest people for the last eight years in a row, even briefly taking over the top spot as the world's richest man in 2015.
So how is Zara able to perform so fast and maintain its relevance? In a nutshell, it took the industry-standard ways of doing things and flipped them on their head. Instead of ordering, producing, and shipping large quantities of the product once or twice per year, it designs and produces fashion items in small batches which then distributes to its stores worldwide twice a week, by air to increase speed even at the expense of higher shipping costs. It uses direct and immediate customer feedback, what they buy, what they try on but leave in the changing rooms, what they say they like and don't like, etc, to tweak the next iteration of designs.
As Ortega himself has said, "The customer has always driven the business model." Even a few customer comments can cause a rapid, global response, as it did in 2015 when, according to brand strategist Martin Roll:
"...a lady named Miko walked into a Zara store in Tokyo and asked the store assistant for a pink scarf, but the store did not have any pink scarves. The same happened almost simultaneously for Michelle in Toronto, Elaine in San Francisco, and Giselle in Frankfurt, who all walked into Zara stores and asked for pink scarves. They all left the stores without any scarves...7 days later, more than 2,000 Zara stores globally started selling pink scarves. 500,000 pink scarves were dispatched – to be exact. They sold out in 3 days."
Because they only produce small quantities, they generate scarcity and demand, minimize the overhead costs and waste of unsold inventory, and create safe, low-risk conditions for experimentation. The flow of sales and customer information from the store to the design team, of design specifications from the design team to the production facility, of finished goods from production to the logistics center, and of packaged product from the logistics center to the store is circular and continuous, enabling rapid and low friction responsiveness to the customer and a low-cost approach to managing constant changes in demand. And, in turn, customers visit the Zara stores up to 5 times as frequently as the industry norm.
The Need for Speed
You might be thinking that this is a story about Madonna, or Spain, or Fashion, and of course, you'd be right. But it is also a story about Speed, which we believe is even more important to business relevance and success now, as we head gradually toward the Next Normal than it was in 2001.
Speed itself is not possible without processes and organizational structures that are specifically and intentionally designed to enable the flow, or continuous movement, of information and other valuable resources like product and money. The challenge is that most companies are simply not designed or governed in that way. Instead, they are organized to facilitate the management and control of those same resources through features like stage-gate processes, decision/approval hierarchies, and departmental silos, all of which are ubiquitous across organizations and industries. Even the directive from leadership for growth seems to prioritize size over speed. This is why any company, in any line of business or sector or industry, that is designed for movement, is worth studying for lessons, examples, and analogies.
Mobility and Continuity
What is particularly clear from Zara is now being built on the principles of mobility and continuity has enabled the company to be so fast. Not surprisingly the term "fast fashion" was coined in response to Zara's disruptive influence on their industry.
The idea that speed is enabled by mobility comes from the basic fact that a body in motion can respond more quickly to a dynamic situation than a body at rest. That's why outfielders in baseball and cricket and defensive backs in football start to move even before the ball is pitched or bowled or snapped. And that's why the first leg of an elite level 4 x 100 meters relay, which has a standing rather than moving start, typically takes 1 to 1.5 seconds longer than the other 3 legs. And that's a massive difference, the equivalent of at least 11 meters, in a sport where differences are typically measured in hundredths of seconds and millimeters.
Mobility means that information flows from a source (e.g. a complaint from a customer) to the person responsible for acting upon it (e.g. an account manager), is processed or transformed in some way to add value (e.g. an apology or a solution or a gift, etc.) and then flows back to the source (the customer) where the response (e.g. an increase in satisfaction or ongoing displeasure) is measured and fed back to improve that process. Too often that information is captured but not routed, which means it becomes static, or not transformed into value, or the loop is never closed. Paying attention to all the steps in marketing, sales, service, and other core processes and ensuring that value is always flowing through them back to the customer without being stopped or diverted is a way to build mobility and enable speed. That same need for mobility applies equally to product, money, expertise, raw material, and other types of resources as it does to information. And it applies to all companies in all industries as it does to natural systems, like people, where blockages and cessations of airflow or blood-flow are the leading causes or determinants of death.
Continuity means that this flow is ongoing, not just a single event. A Zara retail store, wherever it is in the world, receives 2 shipments each week that include small batches of new product items. Continuity means taking a process or event that typically only happens once per year or per season and that generates a single "big" deliverable, and breaking it down into multiple smaller processes that happen frequently and generate multiple smaller deliverables. For example, seasonal inventory ordering that delivers a single large shipment of product can be replaced with a Zara equivalent schedule or a Just in Time inventory system. An annual plan that includes all departmental strategies and budgets for the entire year can be replaced with a rolling plan. An IT strategy that delivers a fully functional system after 2 years can be replaced with an agile system development approach that delivers value incrementally and responsively.
In general, continuity-focused companies like Zara favor the many, the small and the frequent (Zara produces over five times the average number of product lines and manages twice-weekly product shipments in small batches to its stores worldwide) over the few, the large and the rare (Gap's seasonal orders).
These same principles apply not just to sustaining life in natural systems and individual business organizations, but also to global systems. Two of the most important inventions of the twentieth century, arguably the most important, have been containerized shipping and the internet. Like the circulatory system for the body, they both enable the continuous flow of resources around the world. In the case of containerization, those resources can be literally anything physical, from fruits and vegetables to cars, equipment, household appliances, fashion items, and so on. And in the case of the internet, they can be any type of digital content.
Moving toward Speed
Managers who need and want to take immediate action toward mobility and continuity, toward speeding up their organizations, should consider some of the following suggestions:
- Understand and rethink the basic assumptions about how you do business and, in particular, how you manage your resources to enable or drive the success of your customer, your company, and your ecosystem. Our entire purpose in writing this series and introducing the Silo and Flow models is to help you make that first, critical step.
- Remove all barriers to effective and timely decision making. Remove multi-layered approval processes. Require no more than 3 "signatures" for any approval process and put in place a default approval should an approver not act in a required timeline.
- Remove multi-month annual planning processes. It simply makes no sense to spend half a year or more planning for a year. Instead, create rolling quarterly plans. Put in place a simple process to create transparency and alignment across the organization around those plans. At Salesforce we use a V2MOM process (Vision, Values, Methods, Obstacles, Measures) with total visibility from top to bottom of the company.
- Replace stage-gate processes with stage pumps. Gates stop things. That's what they're built to do. Pumps accelerate them. Pumps create and boost flow. Use pumps and turbines as new mental models to inspire the redesign of all business processes (see here for more details on how to design business pumps).
- Decentralize and delegate, create teams of teams, as defined by General McChrystal, to develop a culture of autonomy, connectedness, and responsiveness.
- Work your smartest to eliminate, standardize, and/or automate all repeatable and low-value tasks. Prioritize all activities and initiatives, and swiftly end all projects that have achieved their goals or that are generating no value, reassigning all resources to high priority activities.
- Be prepared for more distributed and remote working. Ensure that everyone in your organization is using the same productivity and the same remote collaboration toolsets, and invest in learning how to work, collaborate, and lead remotely.
- Rethink how to assert your organization's culture and identity in the absence of a physically identifiable "center". In the past, it was easy to connect identity and belonging to an office or HQ. In the near future, we will need different ways in which to construct shared identity. Purpose and values are important contributions here and we anticipate that other shareable traits will emerge over time to help define a company's personality.
- Ask yourself if you can get customer feedback, even from quite "weak" signals, and turn that feedback into immediate product design change that is then available to those same customers worldwide 7 days later (or even earlier).
- Can you automatically direct negative sentiment from a single customer in any channel to the appropriate account manager and ensure timely response and customer satisfaction?
- Are you able to quickly support your sales organization when an opportunity is at risk of being lost to a competitor? Are automated workflows in place to ensure executive support for large sales opportunities at risk?
- Is your marketing team aware of leads in your marketing pipeline that are decaying due to lost prospect engagement or your ability to fully understand the customer journey? Do you have automated service level agreements built into the marketing lead funnel to ensure a timely response from your company?
- Does your customer service organization use a case journey map to understand and resolve friction during the path to resolution case journey? How quickly do your respond to customer negative sentiment captured via net promoter score (NPS), customer satisfaction scores (CSAT), or unstructured data that speaks to customer sentiment via social media?
- Does your e-commerce team fully understand why customers search for your products online, place the products in a shopping cart, and then abandon the process before making a purchase? How do you re-engage to complete the sale? How quickly and on what channels are the most effective to win back your customers?
- Are your digital product development processes work as fast or faster than Zara's physical ones?
Case studies are rarely as neat in real life as they appear on the page. Ironically, for a case study focused on mobility, Zara was a relative latecomer into e-commerce and is even more so in mobile commerce, a decade after pioneers were advocating a "mobile-first" approach and subsequently a "mobile-only" one.
Relevance is a moving target. Zara has been a pioneering company in many ways over the last few decades but is still not immune from this reality. It has, for instance, been a relative latecomer into e-commerce and mobile commerce.
While the COVID pandemic has re-energized the market for larger monitors, the move to mobile is set to continue. In only a dozen years since its introduction to the world, Apple's iPhone, and the entire sub-species of mobile smartphones that it has birthed has achieved quite an extraordinary reach and impact. It has reached half of all humanity in that short time. Smartphones give us our flow as individuals to a degree unprecedented by any other technology. Not only does it untether us from the landline, but it brings the world to us while we are on the move. In the early years of the Next Normal, mobile will continue to be a prerequisite for speed, and speed will continue to be the currency for business. All companies will need a compelling mobile presence and experience if they want to hit the moving target.
In our next article, we will discuss another of the flow principles that seem especially meaningful and timely, namely Holistic Success.