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Future Shock

Jul 6, 1999 2:58 PM   By Martin Rapaport
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By Martin Rapaport

Change is a product of time. As we move along the curve of time society experiences a developmental process of new ideas, technologies and opportunities. While the institutional memory of civilization provides the foundation for ever-increasing levels of knowledge, man’s instinctive need to express creativity through learning and the application of knowledge to the demands of society is the mother of invention. Everything about the development of man and the role of civilization points to change, innovation and growth.

While there is nothing new about the idea that the word we live in is constantly changing, one cannot ignore the fact that change is having a greater impact on our lives than it did in the past. Something unusual is going on. The world is changing faster and more things are changing at the same time. Change and development seem out of control. Our lives and economics affairs are growing increasingly complex. It is hard to keep up.

It is important to recognize that the rate of change and growth is not linear or constant. In fact, it is exponential. The world is not merely changing more, it is changing at an increasingly fast rate. The speed at which our society changes, and (at which) we are forced to adapt, is increasing faster than many of us can comprehend. The synergy between change and growth is creating a new hyper-reality. While some individuals and firms will prosper greatly in the new environment, many others will fall by the wayside due to the inability to adapt and participate in an increasingly complex world.

In the post-modern era, invention is the product of change. We react to change by creating new products. Our environment does not react to us, we react to our environment. Invention is no longer product based. In the twenty-first century, the greatest inventions will not be new products, but more importantly new systems, new ways of doing things. Man is not as busy creating new things — i.e products — as he is creating new ways to do things — i.e systems.

The amount of change generated by the creation of a new product or process is minimal compared to the amount of change generated when a new system is developed. New systems force firms to develop new products and new ways of doing business. Firms are forced to change not merely because they want to grow and do things better. They are forced to change in order to maintain market position.

Growth Driven Economy

The new economy is incredibly growth driven. New age firms thrive off the opportunity to utilize new technology to find new ways to make money. Change is the fuel that keeps them and our economy going. Our business environment no longer merely expects change, it demands it. There is no longer room for static firms. If you are not growing you are losing market share to other firms that are growing. Growth is no longer merely an opportunity, but rather a necessity for survival.

Given the fact that the rate of change increases exponentially over time, we will reach a point where the critical mass of change is so great that it destroys the notion of static markets with static prices. Markets the way we know them today will be replaced with new super-efficient transaction models that will raise competition in the goods and services industries to unprecedented levels. The idea behind “future shock” is that so much will change so fast that “normal” man will not be able to keep up. We will be forced to adapt new models of business and lifestyle.

While the role of information and knowledge cannot be minimized, much more is to be expected as we move into the future. The power behind the new emarkets developing on the internet is not merely the quantity and quality of information but rather the ability to communicate specific information efficiently. Product availability and pricing information is of great value to the firm but the value of this information increases exponentially when it is communicated to customers.

The strategic advantage offered by advanced information systems is not the mere fact that they have information but rather that they are able to move this information to customers in an efficient matter. Power comes not merely from having information but from moving the right information to the right people at the right time. The greatness of the internet is that it not only stores information, but it also moves it. In short, the information you have is important, but how and to whom you move it is even more important.

Information Management

Even in these early stages of development, it is clear that how you manage information about your inventory is as important as how you manage the physical inventory. Firms need to develop reasonable policies about how they use their information to market their products. They also need to come to terms with the fact that the flow of information from sellers to buyers is significantly increasing the level of competition in all markets. While the flow of information to buyers increases sales volume, it also empowers buyers and allows them to buy the best stone at the best price much more efficiently.

Profit margins and the role of the traditional distribution system are coming under increasing pressure as the flow of information to retailers and consumers reaches a critical mass. E-commerce will threaten the old models of selling which will eventually be replaced by information based selling systems. Stores are substituting physical inventory with virtual inventory (i.e. stone listings from suppliers). Traveling salesmen are being replaced by FedEx. Consumers using the internet often know more about diamonds then many retail salespeople. Consumers are bypassing traditional retail outlets and buying direct from dealers and manufacturers. The future is here and now.

Surviving the Future

Given the above analysis it is quite reasonable for firms in the jewelry industry to be concerned about their future. The rate of change in the “real” world is much faster than the rate of change in the conservative jewelry industry. How can our industry adapt to these new realities? How can a firm ensure its position in the future?

In the opinion of this writer there are two things firms must do to survive. First of all, they must adapt their marketing to the new information age. They must find the right way to use information about their products to sell their products. Simply put, if you are not using the internet or an equivalent information communication tool to sell your product to your customers you are going to be out of business.

Secondly, firms must add value to their products. The equation is really very simple. Profit Margin = Added Value. If you are not adding value to your diamonds — who needs you? Fortunately, there are many ways to add value. For many consumers the immediate availability of a diamond in a beautifully designed piece of jewelry is much more important than internet pricing. Education and the ability to communicate trust is — and will always be — an important way to add value. Selling exclusive brands, or more importantly, establishing your own brand in your local market will also work. The trick is to find your own way to add value and communicate this added value to your customers. Firms that add real value to the diamonds they sell have nothing to fear from the internet or anything else. In fact they should use the internet to communicate the added value to a broader customer base.

What firms should not be doing is flipping diamonds in a simple setting and expecting to make “traditional” retail markups. The diamond commodity business is going to be taken over by low-cost internet sellers. Of course, you can become a low-cost internet diamond seller as well. As one retailer explained, “In the old days we used to give away the mounting and sell the diamond. These days we give away the diamond and sell the mounting.” Frankly, you can do anything you want as long as you understand that your profit margin will be limited to the added value component of what you sell.

New Processes

The introduction of undetectable Lazare Kaplan/General Electric (GE) color enhanced diamonds is another example of change impacting our industry. While many in the industry have expressed fear and a “shoot the messenger” reaction, we are better off facing the problem head-on and waking up to the fact that new technology will challenge us in every way in the years ahead. Clearly, we must find better ways to support Gemological Institute of America (GIA) basic research so that the technology of detection keeps up with the technology of treatment.

In general, the best way for the industry to handle treatment issues is Rapaport’s three D’s: Detection, Disclosure and Documentation. If our first line of defense, detection, is unavailable, we must be extra careful to disclose the fact that such undetectable treatment exists and document our diamond purchases.

The GIA’s policy of “calling it like they see it” should be extended to “calling it like they don’t see it” and the fact that an undetectable diamond treatment exists should be disclosed in the boilerplate of all laboratory grading reports, appraisals and retailer invoices to consumers. We must disclose the fact that this treatment exists to our customers. Better they should hear it from us than a sensational tv program.

Given the fact that only $30 million of GE treated diamonds are to be sold this year and that reputable retailers know and trust from whom they are buying, disclosure should not be a great problem. A statement to the consumer that the diamond is not treated and a pledge that if any stone is ever to be found to be treated it will be replaced by an untreated diamond is a reasonable approach. Regarding documentation, it has always been a good idea for everyone in the trade buying a diamond to insist that the words "Untreated Natural Diamond" appear on all invoices. Sellers owe it to their customers to guarantee and document the authenticity of the diamonds they sell.

In conclusion, our world is about to go through a period of unprecedented change. New information, communication, and treatment technologies will challenge the role of firms in our industry. Firms that wish to survive must adapt to the new information era and they must face problems head on. They must define and focus on how they add value to the diamond product in order to justify profit margins. Firms wishing to enjoy the diamond markets of the future must promote significant change in their organizations. They must learn to embrace change and view new technology as an opportunity rather than a challenge.
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Tags: Consumers, Economy, GIA, Jewelry, Lazare kaplan
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