Speed might not be the only way to win in the marketplace, but it sure does help. Companies are discovering that the element of speed—in decision making, delivering products and services, and communicating is one of the few bastions of competitive advantage still remaining.
Zero latency is the process of removing/reducing the time between an event and action. Those companies that can react and respond to changing market conditions faster than competitors (in a value creating manner) usually end up the first to the lunch table.
Amazon is a great case study of a company pursuing zero latency wherever possible.
Take for example Amazon’s initiative to roll out new warehouses on a global basis to compete with retailers. Currently on Amazon.com, when a customer orders a product they have shipping options including overnight delivery. However, if new warehouses are closer to customers, it’s feasible for Amazon to offer same-day shipping (by 4pm). This of course will put pressure on brick and mortar retailers that currently have the advantage of “get it right now”.
Amazon has also worked out this “time to value” concept with cloud computing solutions. In the past, if a particular company wanted to acquire hardware/software solutions, it was necessary to negotiate with vendors, sign contracts, and get products shipped, installed and turned on. Such a process could take anywhere from two weeks to two months or more. With cloud computing, it’s now a lot easier to acquire similar capabilities from Amazon Web Services with just a credit card and a checkbox for the customer agreement for use of services. With cloud computing, the time between event (the need for IT solutions) and action (gaining IT solutions) is down from weeks to minutes.
High frequency trading is another area where speed equals advantage. With this mode of trading, the key for hedge funds and investment banks is to co-locate servers at stock exchanges to reduce the roundtrip time needed to complete an equity trade. Now traders are competing with faster machines, better algorithms and faster pipes into stock exchanges. In a field where trades are made in microseconds, those who can trade faster than others gain significant advantage to the tune of millions of dollars.
Of course, there’s also a downside to speed. As business processes are cut and paste to reduce steps, and decisions are made faster and faster (nearing the speed of light) it’s much easier to make mistakes. And when mistakes are made (see Knight Capital), there is little to no time to correct them.
Speed wins, but there’s definitely a careful balance between winning (too) fast and losing slow. The key for each business is to find that balance and discover areas where customer needs aren’t being met, then work to reduce the time between event and value to as close to zero as possible.