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Will RFID Disrupt Your Business?

Companies developing an RFID strategy need to understand whether the technology will support the way they do business—or change it entirely, says author Michael E. Raynor.
By Bob Violino
The Internet was particularly prone to being mismanaged because of this kind of confusion. In the mid- to late 1990s, it was common for the Internet to be hailed as an engine of bona fide disruptive innovation in just about every sector of the economy. As it turned out, the Internet had applications that were sustaining to some companies, yet distressingly disruptive to others—sometimes within the same industry.

Consider the experiences of Dell Computer and Compaq (since acquired by Hewlett-Packard) in the personal computer market. Compaq (itself once a disruptor of IBM) sold through third-party distribution channels. Its distributors were a critical part of its business model, because the market segment that Compaq valued most consisted of demanding corporate accounts that required frequent and extensive service.
In contrast, Dell developed a direct model that initially relied on the telephone. As a consequence, Dell had to settle for the less demanding consumer segment, which was willing to put up with less service in exchange for far lower prices on less powerful machines.

The consumer segment was Dell’s foothold. The company was able to improve the quality of support and service it offered without sacrificing the cost advantages of its direct model. And one of the technological innovations that allowed Dell to make these improvements was the Internet. By dealing with customers through the Web, Dell was able to do still better all of the things it had previously been trying to do for all of the customer segments that it had been serving or trying to serve better. Therefore, the Internet was sustaining to Dell’s business model.

For Compaq, however, the Internet was yet another disruption to its established business model. Compaq was still caught between the Scylla of its distributors and the Charybdis of Dell’s low-cost—yet increasingly service-capable—model.

In many ways, RFID bears some striking similarities to the Internet. Just as the Internet was a 30-year overnight success story, RFID has been around for decades, yet only recently has begun to dominate the headlines. And just like the Internet, RFID has sustaining and disruptive applications.

RFID’s supply chain applications have gotten the most attention, largely because of Wal-Mart’s highly visible endorsement of a widespread deployment of the technology in its own business. But this application is fundamentally sustaining to Wal-Mart’s business, which has long been based on a superior supply chain management system grounded in the practical application of leading-edge technology. The company was among the first to exploit the benefits of large-scale cross-docking proprietary satellite-based communications networks.

For Wal-Mart, as for other retailers who compete based on their supply chain efficiencies, RFID is simply another turn of the crank. The changes required to adopt RFID might be wrenching at times, but they pose no fundamental challenges to the organization’s underlying business model.

Similarly, just as the Internet was sustaining to Dell but disruptive to Compaq, RFID promises to exacerbate the disruptive pressures that Wal-Mart and other successful discounters, such as Target and Old Navy, are putting on full-service department stores.

Other sectors are characterized by a remarkable homogeneity of application. In aircraft manufacture, for example, both Boeing and Airbus have agreed on a standard for tracking parts and seem to be deploying the technology in fundamentally similar ways. As a result, neither player can use RFID to build a competitive advantage based on sustaining or disruptive innovation. In pharmaceuticals, all the major players seem to be limiting their deployment of RFID, for now at least, to a common implementation of FDA recommendations to track and trace drug shipments to reduce counterfeiting. Again, there will be no advantage found here, because advantage lies in differences, not similarities.

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