Have you heard of Ruslan Kogan? I think he is one of the most exciting business entrepreneurs in recent years. I only got to hear about him when the major Australian electronics retailers started to complain about how unfair it was that a business could manufacture offshore and sell directly to consumers via the internet.
Kogan is an interesting character because he is at the forefront of change in how business is organized. As I said last week it’s hard to imagine a world that isn’t dominated by hierarchical organizations with boundaries of who is in and out, and managed by layers of staff. In the past, we have needed these organizations because they are the most efficient way to produce and deliver goods and services.
But what if IT allows us to coordinate production without the straight-jacket of an organization? What if we can set up markets and networks because we can handle a lot more information that allows us to coordinate activity and bring buyers and sellers together into a virtual market place.
I don’t know what to call Kogan’s business model because it is evolving from a firm that coordinates manufacturing and distribution to something that is more like a market maker. The following video is 12 minutes but it is worth watching. I think the real genius of Kogan is devising algorithms to bring manufacturers in China and Australian consumers together. Kogan’s job is to create the mechanisms to do this in the most efficient way so that his market is more efficient than the traditional retail firms. I’m not exactly sure how the calculations are done to choose the couriers in Australia but I am interested enough to follow this business as a major case study for my strategy courses.
It’s a form of organization, but not as we know it. In 2007-2008 Kogan achieved turnover of $3.7M with four full-time staff and nine part timers. This has grown to about $18M in 2009-2010. Maybe we should call it an ‘unorganization’. If you think that these ‘firms’ are a passing fad and we will remain dominated by big business then get ready for the shift. The power of IT isn’t just changing organizations, its redistributing economic activity away from firms and into markets and networks.
Kogan is now experimenting with variable pricing to reflect the capital that is tied up in orders with manufacturers. If I buy a product at the early stage of manufacture I can get a lower price because I am funding the production cost.
Again, he’s making a market that connects me to the manufacturer. Kogan takes his cut as the market-maker but it’s a whole lot less than a business that has to rent floor space in a mall and employ sales staff.
The major retailers are complaining long and loud about this business and hoping for government to intervene and stop ‘unfair competition’. I wonder if the dinosaurs made the same noises when the mammals appeared?
John Steen is a Lecturer in Innovation Management in the University of Queensland Business School. He blogs about innovation at the Innovation Leadership Network.