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That irony is not lost on many of the high technology executives who at one time advocated disintermediating their entire dealer channel and taking their largest customers direct only to discover that trust is the greatest catalyst of efficient transactions of all (Smith, Manna, 2004, 377, 378).
Why Disintermediation Failed to Live Up to the Hype
Before discussing the reasons why disintermediation failed to live up to the hype associated with it, there are exceptions that need to be taken into account. The first is in those industries that have undifferentiated supply chains and where price and availability alone are the only differentiators, disintermediation often takes hold. Such is the case with the Indian tea market, and many sectors of the consumer electronics industries that sell on a commodity-based strategy. These are the industries most susceptible to disintermediation as the middle tier of the distribution channels don't deliver that much value-add to the sale of a product that competes just on price or being in stock or not (Dutta, Sarmah, Goyal, 2010, 531). A second area where disintermediation also occurs is in the area of services where the Internet can provide the replacement of advisor, yet the brand supporting this initiate must have earned credibility and trust to be seen as viable to consumers (McCubbrey, Taylor, 2005, et.al.). Disintermediation of the travel industry has become pervasive due to online brands becoming more trusted and seen as more convenient on a 24/7 basis compared to travel agents (Law, 2009, 770). The disintermediation of travel agents has at its basis the convenience factors, supplanted and strengthened with trust in the brands themselves. With these areas of disintermediation in mind, the factors that led to disintermediation overall failing to completely reorder and disrupt supply chains are next analysed.
Trust and the Selling Process
The more complex the user's needs are, the more challenging the products or services are to create, the greater the need for having a trusted advisor present in defining how to create viable and stable solutions to these problems. Examples of these types of needs are found in the aerospace and defence industry, where the development, specifying and manufacturing of products is often highly customized to specific needs (Rossetti, Choi, 2008, 507). This approach to manufacturing is often called engineer-to-order, and leads to a product being produced that is unlike any other in the world. Extreme examples of this including the landing gear on a spacecraft or the shielding for the U.S. Space Shuttle. These products require an incredibly complex supply chain that is often governed by specific compliance requirements to military standard specifications as well (Rossetti, Choi, 2008, 507). In this type of supply chain scenario, trust wins over price or availability, and expertise is crucial for the success of the program. The disintermediation of the aerospace and defense industry certainly is happening in the less differentiated and commodity-based products yet will never influence the more complex engineer-to-order areas where trust and expertise is as important as the product itself (Rossetti, Choi, 2008, et.al.). The concept of the trusted advisor, which has been discussed so much by professional services firms globally as part of their unique value proposition, has merit as a defense against commoditization and disintermediation. The greatest value any supplier can provide is knowledge and expertise of how to interpret customers' problems and develop workable solutions. When customers have this level of expectation from a supplier, manufacturer or service provider, this need for expertise is an impenetrable defense against disintermediation. This is where the entire argument of en masse disintermediation in the technology industry fell apart, as many industry analysts incorrectly characterized the entire industry as one that is centered on price and availability -- missing the trusted advisor roles so critical for configuring high-end servers, workstation and entire networks (Smith, Manna, 2004, 376). No Chief Information Officer (CIO) will ever buy a massive, expensive company network entirely online. That need for expertise that connotes trust was far more powerful than many of the industry analysts, authors and pundits had predicted. Trust now dominates the selling process, so much so that every social network has a series of metrics for evaluating the trustworthiness of anyone offering products or services online (Bernoff, Li, 2008, 38, 39). The need for trust will always win over the economics of disintermediation, especially in very complex, expensive and mission-critical systems and components, which are commonplace in the aerospace and defense industry (Rossetti, Choi, 2008, 507).
Revenue Follows Knowledge and Accuracy Not Transaction Brokers
The travel industry learned the hard way that expertise, knowledge, insight and personal service is what customers want instead of a transaction agent. If one were to join a group of businessmen on a transatlantic flight from the UK to the U.S. during the mid-1990s the talk would inevitably turn to the bartering, cajoling and at times use of formal authority to get the flight they needed to arrive in time to get a decent amount of sleep before their meetings (McCubbrey, Taylor, 2005, et.al.). Travel agents had become the gatekeepers for the most desirable flights and hotels, the anointed ones who could deliver hotel rooms under special discounts in four-star hotels at two star prices, and could make a traveling executive's life heaven or hell on the road (Law, 2009, 772). The travel agent had become an extension of the travel companies they represented and had lost sight of the customer. A revolution was brewing and the business travellers globally had been long overdue to exercise the power of purchasing to choose alternatives to the gatekeepers in their companies who routed them through impossible travel itineraries to save only a fraction of the fare. The fallacy of looking at the travel industry as disintermediating the travel agent completely misses this point; the real revolution was one of trust and customer experience (McCubbrey, Taylor, 2005, et.al.). When Expedia emerged and other online travel agencies did giving the customer the freedom to define their own itineraries and create entire travel schedules below the cost of travel agendas, a revolution was on (McCubbrey, Taylor, 2005, et.al.). Now this is not an economic revolution, it is a customer service one. There is a big difference. The fact that travel agents were so quickly disintermediated is a sad mile marker in the history of electronic commerce. It should be remembered as the moment when customers chose to use disintermediation as a means to wrestle control over their travel schedules again and remove travel agents who delivered little value. The bottom line of this example is that disintermediation happens when companies revert to controlling their customers through transactions rather than serving them with knowledge and expertise. Disintermediation had become a weapon of change in the hands of customers, and Expedia and other start-ups were happy to equip them with the electronic commerce tools they needed to gain their freedom.
Disintermediation was often talked about in the 1995 -- 2000 timeframe much like someone would talk about an impeding thunderstorm or blizzard. Ironically, the full extent of disintermediation never did happen and entire business models were built that was predicated on the reduced role of suppliers, channel partners, dealers, distributors and services organizations. In fact, disintermediation was more often used as a means for consumers to gain greater control of their own purchasing and experiences. The fact that disintermediation completely missed the value of authenticity, transparency, trust and accentuating a positive customer experience doomed it to fail over the long-term both as an industry dynamic and the basis of business models. The key lesson learned that trust is what pervades the growth of businesses and customer experiences are critical. These intangible aspects of a business cannot be engineering or designed; they must be part of the fabric of a business. Disintermediation lost that point and proved to be more hype than harm to many industries.
List of References
Veneta Andonova. 2003. ONLINE DISINTERMEDIATION: Differences in the Behavior of Traditional Retailers in Adopting E-Commerce. Management Research 1, no. 3, (October 1): 279-290.
Bernoff, J., and C. Li. 2008. Harnessing the Power of the Oh-So-Social Web. MIT Sloan Management Review 49, no. 3, (April 1): 36-42.
Bull, C.. 2010. Customer Relationship Management (CRM) system, intermediation and disintermediation: The case of INSG. International Journal of Information Management 30, no. 1, (February 1): 94.
Eric K. Clemons, Lorin M. Hitt, Bin Gu, Matt E. Thatcher, and Bruce W. Weber. 2002. Impacts of e-commerce and enhanced information endowments on financial services: A quantitative analysis of transparency, differential pricing, and disintermediation. Journal of Financial Services Research 22, no. 1,2, (August 1): 73-90.
Datta, P., and S. Chatterjee. 2008. The economics and psychology of consumer trust in intermediaries in electronic markets: the EM-Trust Framework. European Journal of Information Systems 17, no. 1, (February 1): 12-28.
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