How Does David Battle Goliath? With Great Strategy And The Technology To Implement It
The classic story of David battling Goliath resonates with any successful entrepreneur. At some point, small companies must confront large, entrenched rivals. Those big companies possess clear advantages: brand recognition, economies of scale, financial leverage and many others. Customers need a compelling reason to switch providers.
How do would-be Davids compete? They need to develop their own modernized slingshot. Technology provides virtually endless possibilities for competitive advantage. Like David, though, you need to size up your opponent and adopt the right strategy before choosing your weapon.
In the United Kingdom, a company called Ocado did just that in the exotic, sophisticated market of…grocery stores.
In the UK, the role of Goliath in this story is played by a company called Tesco. Tesco is a 100-year-old retailer, tracing its roots to a tea stand in post-World War I Britain. Today, it’s a roughly $60 billion global company with most of its business still in the UK. It employs 300,000 people in the British Isles working in 3,400 stores across the region. They credibly claim to account for millions of shopping trips each week.
Ocado was founded in 2000. It had no venerable history or brand recognition. In fact, it had no physical stores. It was created from the start as an online grocery that delivers its goods to consumers rather than serving them in a brick-and-mortar location.
Online groceries were a niche market in the early 2000s, so Ocado grew in relative safety for a time, proving its methods and building a brand. Of course, the consuming public changed its behavior as the 21st century unfolded. Online grocery ordering and delivery became a much bigger part of the total grocery market.
Goliath noticed David then and aimed at absorbing this growing online delivery segment (of course, Tesco wasn’t the only one competing for that business, others such as the UK’s Asda Group and our own Amazon saw the same opportunities). In this online segment, switching costs for customers were negligible so all the brand recognition Tesco brought with them was a threat to Ocado. Ocado managers knew they already offered a great customer experience, from the ease of ordering to the breadth of choice in fresh foods. Underlying all that success was the efficiency of their operations, a necessity in the low-margin grocery business. They made the strategic choice to focus on what might be called radical efficiency.
To say it a little differently, this David’s slingshot was an army of robots.
Ocado completely redesigned their Customer Fulfillment Centers (CFC), the warehouses where they picked and packed groceries to customer orders. Groceries are sorted into bins by categories—apples here, ground meats there, etc. Above that array of bins is an elaborate crosshatch grid of rails. The company calls this configuration “the hive,” calling to mind the honeycombed composition of a bee hive. A bee hive is buzzing with the activity of worker drones and the Ocado hive has that too.
Ocado engineers (yes, it’s a grocery store employing “engineers”) designed hundreds of robots, about the size of a small shopping cart. Those robots wheel about on the rails connecting the grid layout. They stop above an individual bin, pull the groceries they need and move on to the next bin. When they’ve completed their circuits, they go to a packing station and unload their contents, pick up their new programming and zoom off to go back to work.
Humans then confirm orders, perform quality assurance on the merchandise and do the final packing of orders. From there, the orders head to delivery vans. The latest iterations of the CFC can fulfill 65,000 orders a week and Ocado has them stationed all around the UK. They are so efficient Ocado was able to reduce the number of delivery vehicles they need in their fleet because of the ripple effects of this incredible productivity throughout the business.
The story isn’t finished yet. Seattle business people will likely note that I’ve talked about the hardware–robots, rails, bins–but not the software in this solution. The robots provide the brawn in the CFC, but the brain is a sophisticated software platform that provides the overall process control. In this video, you can see them whizzing past each other in what might look like haphazard patterns, however they are anything but random. Robots are routed for maximum efficiency based on the items in their orders. They stay out of each other’s way through this sophisticated air traffic control system.
Ocado built this software platform to compete with the giants moving into its space. It’s proving so successful that the company launched a separate business selling the platform to other retailers. In the US, Kroger signed a deal to use the system for its own battle with Amazon Prime, Wal-Mart and others.
The Amazon angle here is an interesting wrinkle in the Ocado story. Amazon started in books and now sells pretty much everything online. They built out data center capacity to fuel their growth and that capability eventually turned into Amazon Web Services, Amazon’s commercial cloud computing arm. So, ironically, Ocado followed a similar path to empowering others to compete with Amazon.
Every fast-growing company is a David that may one day come up against a Goliath. The moral of the modern version of this story is that you first need to take aim with a strategy to create competitive advantage. Then build your slingshot.
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This article was previously published on NetworkWorld on July 1, 2019.
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