Commoditization: It's Simple Supply & Demand
Posted by ablack on Feb. 17, 2015 / Subscribe 0
Commodity. It’s a simple yet elusive word. We all have an image in our mind of what a commodity is, but we rarely stop to think about what the word really means. Before you continue reading this post, I want you to stop and think of something that you consider a commodity. What is it that comes to the forefront of you mind? An orange? A household object of some type? Or maybe you think of a commodity as something more complex…something that might come off an assembly line…
The first thing that comes to MY mind is the 1908 Ford Model T. I instantly envision hundreds of them coming off an endless assembly line; one after another after another. Each one is exactly like the last. They all have the same features and options; they all do the same thing. And they all cost exactly the same amount, which at the time happened to be substantially LESS than the vehicles that came before them. More than anything, though, I think it’s the image of uniformity that makes me associate the ‘T’ with a commodity.
But here’s the thing…that image is entirely wrong. In fact, the Model T wasn’t a commodity at all. It was the world’s FIRST mass-produced automobile. And as such, it was tangibly different than every other vehicle that came before it. It used completely interchangeable parts. It came in one color with one set of features and options. And it sold at a price point that made a personal automobile accessible to the middle class for the very first time in history.
So, did the Model T commoditize a small luxury automobile industry? Or was it actually a new and far superior product, unlike anything that came before it that created an entirely new market?
As it turns out, each and every one of the Model T’s that rolled off the assembly line was a vastly unique and differentiated product relative to every other available transportation option in the market at the turn of the twentieth century. The Model T single-handedly eliminated hundreds of small automakers and virtually wiped out the American street car not because it was a commodity, but because it was simply BETTER.
When we think about commoditization of the design industry, we tend to approach it solely as a marketing or business development problem. We look for answers in the things we do every day. We tell ourselves that there is something wrong with our proposals; the graphics, the content, or our personnel bios. Or we assume there is something wrong with our website, our messaging, or that we need better storytelling. Sometimes we’ll even point to our business development decisions (like maybe we just need a better go/no go process).
While all these things may be true, usually the issue runs much deeper than that. When we start with the “day-to-day” things, we’re often trying to solve a structural problem with a cosmetic solution. To say it more clearly, the foundation’s cracking and we’re busy painting it. In order to deal with the issue of our commoditization, we have to be willing to acknowledge a few readily accessible facts:
Architects (and to a lesser extent, Engineers) are increasingly LESS rare.
If our Model T example shows us anything, it’s that something isn’t a commodity simply because it looks the same. Something is a commodity when there is a ready and ample supply of substitutes for it. Anything that is increasingly available tends to be less valued.
If an architect is an architect is an architect (not really true, but clients often behave this way), then it is important to note that there are more Architects now (relative to the general population) than in the entire history of the profession. “In fact, in 2010 there were as many architects in the USA as there were ushers, lobby attendants or drywall installers.” (Source: Architectural Blatherations, The Economics and Demography of American Architects)
While upcoming population shifts (for instance, retiring baby boomers) may affect this fact slightly, chances are good that these macro economics won't change the actual issue substantially. Whether we like it or not, being an architect or an engineer will continue to be increasingly less rare and less special than it once was. It's much easier for a client to find a substitute for your services than it used to be...that is, unless we change the nature of the service in some way.
The Great Recession was abnormally deep.
The construction activity that occurred prior to the recession was artificially high. As a result, it broke the historic and naturally cyclical pattern of the industry, which inevitably created a much deeper and more pronounced trough. At its bottom, total U.S. construction spending was probably at least 40% off of its pre-recession peak. (Source: Rusty Sherwood, Senior Consultant at FMI Center for Strategic Leadership in 2014 during the 2014 ENR Webinar,Perfecting the Pivot)
What this tells us is that the challenge of differentiation goes much deeper than marketing. It drives down to the very heart of the firm. It cuts into everything we do; from the markets we choose to serve, to the services we provide, the nature by which we provide them, how we choose to present ourselves to the market, and the very approach we take to attracting clients and projects.
If we as an industry are really going to differentiate ourselves in 2015 and beyond, we have to build something that is tangibly UNIQUE from every other option currently in the market. In essence, we have to invent our very own Model T. Impossible, you say? Not really. There is a model (pardon the pun) called the “4P’s” that virtually any A/E firm can use to accomplish this goal. And I’ll be presenting and talking about it (utilizing examples of over 30 well differentiated firms) at the upcoming SMPS Southwest Regional Conference. To learn more, check out the Session Overview. Or better yet, attend in person and we can chat face to face!
About the Blogger: Jason Mlicki is a Principal at Rattleback, a marketing agency for professional services firms. He has been advising architecture and engineering firms for over 15 years and has been building interesting LEGO structures for almost 40. He is an NPR “Car Talk” junkie, a serious fan of BBQ and an aspiring author of children’s books.
0 Comments