Commoditization by Compliance

I find it ironic that firms complain about commoditization while, at the same time, working very hard to achieve it. I'd like to give them the benefit of the doubt, to suggest that they do not recognize that the very things they seek to do in order to be innovative lead to commoditization, but the connection is so obvious that I can't accept that anyone would fail to recognize it.

Consider this: all the major firms in a given industry likely subscribe to the same sources for market research - which leads them to the same conclusions, which leads them to implement the same strategies. If a new study suggests that consumers show a strong preference for orange-scented cleaning products, every manufacturer is led to add the same scent to its product, and they all end up doing the same thing. None of them gains an advantage or establishes distinction.

It's likely true that firms can come to the same conclusion even by doing independent research. If firms all ask consumers the same question, the consumers should be expected to answer the question in the exact same way to any surveyor who asks. And if the samples are statistically representative of the population, even asking different groups of people the same question yields the same answer - and the results of the research lead firms in the same direction.

That is to say that not all instances of apparent imitation are directly imitative. Certainly, some of the firms (particularly the smaller and less innovative ones, and likely quite a few large firms who claim to be innovative) simply look to their competition and copy whatever they are doing, assuming it to be based on sound research. But even when a firm is large enough to do its own research and places a great deal of effort into being innovative, chances are that its competitors are doing the same research, coming to the same conclusions, and moving in the same direction even if they are wholly unaware of it.

In some instances, commoditization is aggressively pursued by adopting "industry standards" for a product. It may also be pursued by seeking to model existing operations after a pre-packaged process model: if two firms are both using Six Sigma and TQM, chances are their practices are the same, and their products are the same. The same can be said of using the same technology infrastructure products.

That may not always be significant: my sense is that when a system is applied to a business process that is not at the core of an operation, its impact on product may be incidental. If two firms that produce similar products both run their warehouse by the same logistics theory and use the exact same software to manage their inventory, it doesn't necessarily mean their products will become commoditized. Or if the accounting departments both use the same information technology system for counting the beans, it does not necessarily have an impact on product.

But then again, it cannot be entirely discounted: similarity of logistics may lead them to adopt the same packaging for their products, which carries through to the very design of the product itself (to accommodate the packaging requirements). Similarity of accounting systems may be even worse, as management decisions are informed by accounting data, and if the calculations and reports are identical, it homogenizes their perception of their operation as a whole.

When it comes to differentiation in the eyes of the customer, which is really where it counts in terms of whether a product is perceived as a commodity, firms should be extremely circumspect of the information, systems, and tools they are using. For example, two firms that use the exact same ecommerce infrastructure will be delivering a commoditized experience to the customers who use their site, in the same way that two firms who use the same molds and resins will manufacture products that are physically identical to one another.

This is a bit of a quandary: it certainly makes sense that a company should seek to implement the best practices, but the best practices are the same for every company in the same industry. As such, all companies are inexorably drawn to do the exact same things in the exact same ways as every other firm, commoditizing the product and drawing all industries toward commoditization and monopolization.

I likely need to do a bit more reading and research in this area - as it seems a quagmire without a clear solution, but a critical issue to corporate strategy and experience design.