Link Up or Lose Big

Tom Peters

Link up or go bust. American Airlines’ and United Air Lines’
reservation systems put People Express out of business, not the
dingy Newark North Terminal. The computerized reservation systems
allow AA and UAL to exercise enormous influence over the most
important customers, the 23,000 travel agencies that use their
scheduling software.

In 1975, distributor McKesson Corp. (then Foremost-McKesson,
Inc., a hodgepodge conglomerate) began investing more than $100
million in a computer network to link it electronically (via a
hand-held programmable computer that plugs into an ordinary phone
line) to its 14,000 independent druggist customers. The handheld
computer, part of a system called ECONOMOST, allows 24-hour-a-
day, instantaneous orders by customers; the independents can now
match or do better than the chains on price and availability.
Arch rival Bergen Brunswig Corp. soon followed suit.

Since 1975, McKesson’s drug division has grown from less than $1
billion to almost $5 billion. The independents, once thought
doomed by competition from the large chains, are now growing in
number by 5 percent a year.

Over the years McKesson has “thickened” its linkages to its
customers. ECONOMOST has a mind-boggling array of sisters and
brothers. ECONOPLAN assists McKesson’s retailer-customers with
inventory management and shelf-space allocation. ECONOCHARGE
provides credit cards for the pharmacists’ preferred customers;
it features printed statements and flexible payment cycles
ECONOCLAIM abets the processing of prescriptions for third-party
(insurance company) claims. ECONOSURE is a business insurance
system. PHARMASERV is an instore computer system, including
software and peripherals, that works up patient profiles,
catalogues dosage recommendations and speeds customer service.

Taken together, these systems and many others add immeasurably to
the pharmacist’s ability to do business — and inadvertently,
their dependency on McKesson. McKesson, as well as American
Airlines and United Air Lines, want to make it hard for their
customers to leave!

Economists have an obscure term for all this: “first mover advantage.”
It is derived from classic cases such as oil pipelines. Whoever builds
the first oil pipeline from point A to point B has an extraordinary
and lasting competitive advantage. There is no incentive for a second
pipeline builder to move in for a long, long time, because the first
pipeline builder’s “marginal (incremental) cost” of moving a bit more
oil is almost zero.

The “first mover advantage” is more potent than ever today. The most
significant competitive race going on in many service and
manufacturing industries is to establish electronic/telecommunication
linkages into customers’ business establishments. To be blunt, once
you get your electronic “hooks” deeply embedded into the customer, you
will be (if you are at all imaginative) in a commanding posture for
years to come.

Many are moving fast to emulate pioneers such as American
Hospital Supply (which has done the same thing with hospitals
that McKesson has done with pharmacies). Trucker P-I-E
Nationwide, via its IBM-compatible Shipmaster software, links
itself to shipper/customers via a PC modem. Aetna Life & Casualty
Co. is among financial service firms establishing tight and ever-
thickening electronictelecommunications links with its network of
agents.

Numerous manufacturers are demanding such links from their
suppliers, in the name of so-called Just-In-Time inventory
management, where inventory is minimized via carefully
coordinated, low volume, regular supplier deliveries. But the
wisest strategy is the proactive provision of
tight linkages.

Direct electronic/telecommunication linkages are just one form of
connection. General Electric Co.’s multibillion-dollar industrial
plastics business has followed another strategy. It has pulled
together its little respected, widely dispersed customer service
reps into a centralized, powerful, computer-supported Sales
Service Center in Albany, N.Y. Eighteen highly trained Customer
Service Coordinators are now “customers’ advocates.” The
operation is the centerpiece of a top-management strategy to make
service and responsiveness the prime competitive advantage of the
group. Service Center boss Paul Jones admits the guiding
motivation was to do it before some competitor did so.

The GE case will eventually include sophisticated and direct
electronic linkages, like the McKesson and American Airlines
examples. But today it prominently features the second and third
attributes of an effective linking system — attitude and well
trained people.

The Customer Service Coordinators are unabashed heroes in the GE
group’s organization; their significance is strategic. Likewise,
the new GE attitude toward customers is fast becoming one of
partnership, replacing what sometimes had been a stormy
adversarial relationship, where haggling over price and delivery
were the staples of daily life. To offer more than the
customer asks is now the order of the day.

It adds up to systems, people, and attitude aimed at constantly
thickening direct linkages with customers in the name of
instantaneous, customized responsiveness. If you are not moving
decisively in this direction, you are at risk and probably headed
for serious trouble — soon.