The diamond industry as a virtual organisation

Isaac Mostovicz writes that De Beers' past market dominance in the diamond industry must be replaced with a new form of management ...

Having previously dominated diamond supply and exercised near total control over diamond distribution, the diamond industry market leader De Beers now accounts for just 40% of global diamond production and 45% of distribution. In the face of competitive and regulatory pressures, De Beers has recently sought to adapt its role from being the custodian of the industry to acting merely as a major player. However, its retreat from a position of industry dominance is creating tensions within De Beers and among industry participants.

This paper seeks to explain De Beers’ behaviour and the reaction of the industry in terms of paradox management and identifies the requirement for a new form of leadership to replace the previous monopoly situation and guide the diamond industry into a better future.

Mostovicz, I., Kakabadse, N. and Kakabadse, A. (2007), ‘The diamond industry as a virtual organisation: Past success and challenging future’ Strategic Changes, December 16(8), 371-384.

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The Poor Strive for Riches; The Rich Imitate the Poor

Isaac Mostovicz writes...

The former connection between connoisseurship and class distinction is to an extent, still existent. But the trend analyses indicate a sharp turn-around in the form of connoisseurship: the new symbol of high status in a market governed by luxury that is available to the masses is blatant non-consumption, by which the super-rich might be identified.

As David Brooks describes in his book Bobos in Paradise, the rich wear scruffy clothes and drive run-down cars. Celebrities sport clothing lines such as Von Dutch, the idea being that only the very rich or very pretty are able to pull-off trucker–style caps and tops, and still manage to look good.

So the new message seems to be that the rich have more money than they know how to spend: welcome to paradoxical luxury in the modern world.

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Last Löb

Isaac Mostovicz writes...
Martin Löb

Martin Löb

Martin Löb, master of philosophy and mathematics has died.

Löb is known for his famous ‘green cheese’ paradox.

In mathematical logic terms, the sentence “if this sentence is true then the moon is made of green cheese” is true, implying the moon is indeed made of green cheese…

So now you know.

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The Paradox of Change

Isaac Mostovicz writes...

Laurie Taylor’s ‘Thinking Allowed’ is a constant source of stimulus.

Today Professor Taylor will be talking to three social scientists, each of whom in their different ways, want to argue that the emphasis on change–not just by politicians and management consultants but also by social scientists themselves–obscures the importance of continuity.

Simply delicious. Laurie’s point is that our commitment to the myth of change actually prevents change…wedded as we are to the an equal and opposite, but suppressed commitment to continuity.

Understanding the benefits of continuity, and the downsides of change is critical to moving change…

Change requires us to affect alterations in the underlying ways that we create and then re-assimilate meaning. In the language of Zen we must change deep structure, as well as surface form.

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Paradox lost?

Isaac Mostovicz writes...

Tony Manning, former head of the Institute of Directors in South Africa, points out the benefits of identifying and undestanding paradoxes as a means of creating competitive advantage.

He advises “Begin by listing the paradoxes you face right now. Then rank them according to the impact they have on your business. Finally, involve your team in thinking about how to embrace them, to “do this and that” at the same time.

For example:

* Making profits … but doing many things that eat into your ability to do it
* Driving value up … and costs down
* Being tough … and compassionate
* Being bold … and being careful
* Taking risks … and managing risks
* Continuity … and change
* Preserving what worked yesterday … and inventing what you need to do tomorrow
* Controlling costs … and investing boldly
* Innovation … and improvement
* Keeping a firm grip on things … and letting go
* Centralization … and decentralization
* Having a strong point of view … and allowing others to express their views

This can have a profound impact on your performance. For if you manage to get your arms around tricky paradoxes while your competitors are befuddled by them, you obviously gain the edge.

p. We could easily debate how many of these are genuine paradoxes, and how many merely require some semantic shuffling, but Tony is right about the power of paradox…

Working them through demands an effective analytical and transformation process. No paradox can be resolved in isolation from personal change.

The critical element is not to create false dichotomies, but to surface the genuine paradoxes that are stultifying progress, and focus on the counter-productive ‘coping’ behaviours which result from them.

The question is not about what you can do differently, but about how you can BE different…a constant learning cycle…

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Burberry, Veblen Goods and the levers of luxury.

Isaac Mostovicz writes...

It’s worth noting that a luxury good is not the same as a Veblen good–which is an item for which demand propensity of individuals increases in proportion to the good’s increasing price, named after the most influential micro economist Thorstein Veblen.

This paradoxical outcome – pretty much a description of utopia for diamond retailers–is actually seldom found in its pure form in the real world, but is certainly present in the demand for supra-priced goods like Ferraris or Jimmy Choo shoes…

The outome of the alternative attitudinal pole ‘cheap is good’, is the so-called ‘counter-veblen effect’ which was only added much later, by Lea in 1987, but is obviously a much pervasive force in micro-economics. The cheaper something becomes, the more people want it…

There are two other interaction forces in play–whereby the overarching market conditions affects micro-economic demand.

The first of these is the snob value of a good–whereby its actual rarity and exclusivity paradoxically increases individual demand cf.. louis vuitton or chanel handbags–and then the reverse social effect–the bandwagon effect, whereby individual demand propensity increases with penetration cf. makepovertyhistory wristbands. These can be seen as the effects of preferences for belonging on the one hand, and for exclusivity on the other.

The interesting challenge for luxury brand owners is to predict the tipping point for these forces within their brand economics.

Burberry’s growth worked brilliantly for a while under the bandwagon effect, but it hit a tipping point as these de facto status-seekers and conspicuous consumers were from a social class that many legacy brand disciples shunned – the so called chav contingent.

The question is…could Burberry have reversed the bandwagon effect by apply the Veblen effect–raising the price to push out the downmarket social groups …or could it, paradoxically have reversed it be cheapening the offer–lowering the price to reduce the dissonance between the product’s pricepoint and its social status, and thus dampening the excessive consumption and damaging social prominence of its product?

It is critical, even at an economic level, to recognise that socially-motivated, and challenge-motivated individuals will require different treatment.

As with all paradox management, the answer is two optimally embrace both poles and both attitudes, thus targeting the different user groups with the right proposition. There is a real economic case here for a brand split, creating a new elite/bespoke range and also adding a lower-priced diffusion range…celebrating, rather than shunning, the chavs…

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Luxury for everyone…

Isaac Mostovicz writes...

The growth of masstige products is a well attested phenomenon–bringing luxury goods within reach of the hoi poloi. Porsche boxter, mercedes c class, jaguar x-type… the list is endless.

Edwin Collyer makes a really good summary of the phenomenon, over at brandchannel quoting a variety of experts….

Robin Koval says:
bq. There always has to be some sense of scarcity and being out of reach. Yes, you can buy a Mercedes for $30,000 or so, but the really cool one that you dream about is there next to it on the floor for $100,000…. It depends how well you can tier your offerings and reserve a special place for the true luxury consumer.

This is a typical problem with all masstige conversations. They tend to focus obsessively on the price of an item at the lever of luxuriousness, when price is just one facet of their exclusivity (you can add scarcity, sparse distribution, sourcing difficulty to this list). Exclusivity itself is just a tiny facet of luxury, and is primarily appealing to challenge-seekers, who find self-esteem in achieving their goals.

This sort of price-centred analysis fails on two levels. At a basic level it fails to acknowledge the alternative unity-seeking motivation of luxury, but also, at a much deeper level, it fails to recognise that ALL luxury is personal and relative. The masstige conversation falls headlong into the trap of seller-centric thinking, believing that producers can be manufactured.

Koval does clarify his point later in the article, when he says:
“Luxury is now more about emotion than price points. I think it will be more about mindset than wallet size or class. There will always be people for whom certain indulgences provide great meaning—whether for their badge value or intrinsic reward. And there will always be the millionaire bargain hunter as well. It’s all a matter of where your own definition of pleasure comes from.”

As Collyer says, Luxury can be a cream cake instead of a sponge.

Luxury can be a single chocolate with your evening coffee…

But the same chocolate can be emergency rations in the jungle…

The critical point is the brand owner does not determine luxury, the luxury is determined through the personal moments of intention, choice and consumption and remembrance…

Luxury starts well before the purchase, and ends only when memory fails.

The paradox here is that luxury is both utterly universal and entirely individual.

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Gem demand decline?

Interesting news out of Dubai this week. At the 5th City of Gold Jewelry Conference, business leaders suggested that a unified marketing strategy for the global gems and jewelry industry is necessary in order to prevent gems and jewelry from…

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