How to manage several business models at once?

Facing stiff competition from new business models, regardless if it's new or incumbent organizations, is a challenge for any company. Customer loyalty is jeopardized, profits and cost structures are under at risk and careers can go overboard. Developing new business models is a challenge of its own, but how should my organization respond to the challenge of a disrupting business model in conjunction with our existing way of doing business?


Netflix is an excellent example of a disruptive business model. It works in two ways; first it operates over the internet avoiding fixed costs and local administration, secondly it uses the collective intelligence of its customers to make recommendations based on past rentals. Combined Netflix offers their customers simple and easy movie rentals with much higher viewing experience. How to combat that for an existing video rental business?
Should we:

• Focus on the segment that wants local video rentals taking the risk that they eventually will switch over to the Netflix model?
• Setting up a new business that competes head-on with Netflix taking the risk that we never will be able to do it better than Netflix?
• Creating a completely new business that disrupts Netflix and thus puts us ahead of Netflix taking the risk that our current business will cease to exist?

The text book guide is to either focus on a smaller segments that are not interested in the Netflix model (Porter) or setup a completely separate business with its own value-chain attacking the disruptor (Christensen). 

My take on this problem is to analyse the basic need that the current business model caters for. Can we continue serving these customers so well that they will never switch? If that is the case then change the existing business into clearly market that value and let the other customers leave for the disruptor. Then we have a healthy business that clearly provides a stable customer value that will continue to be there. If not doing this radical step quickly you risk loosing so much money and credibility that there is no business worth restructuring.

Then launch a series of separate businesses as experimentation. You don't know if the disruptor will eventually succeed or if it will create new opportunity and need for other business models. These experiments should both compete head-on and disrupt the disruptor. What's important is that each of these businesses operate separately from the others with its own culture and value-chain where it is necessary according to the business model (customer value, revenue model, cost structure, partnerships and profits). Cooperate with the rest of the organization realizing economy-of-scale where the business model does not mandate it. 

When facing disruptive business models one must be clear that the disruptor is starting small and moves fast. When the disruptor becomes large enough to threaten your existing business it is generally too late. The best prescription against this is to continuously run business experiments in small scale in different locations involving parts of the organization. Then you will try out market opportunities, find better cost structures and be ready for disruption yourself.

Inspiration for the post is from MIT Sloan Management Review article What to do against disruptive business models?

IT driven innovation

IT becomes a major driver behind increased speed and results from innovation. With manufacturing becoming a commodity and marketing increasingly hard and expensive many organizations are turning to innovation as the new revenue source. Innovation can create higher valued products from existing manufacturing capacity and simplifies marketing through improved experience.

IT greatly speeds up innovation and increases the effect in four areas:

• Measurement. How do you measure the current state of affairs?
• Experimentation. What is the value of this idea?
• Sharing. Who can benefit from my new knowledge?
• Replication. How to scale the new innovation throughout the organization?

These areas are important as separate activities and most organizations do one or several of them. They reinforce each other further magnifying the effect from each area. Improving measurements gives you better data easier and cheaper. Experimentation thrives on faster and cheaper measurements. Sharing those results further increases the value across the organization. Replicating successful business innovation enables faster scale ups and shorter time to market.

Measurements is radically improving the way we collect data and sort it. Nano data from click streams, emails, discussion boards, web trends, CRM, supply-chain, etc. Business intelligence is tapping into this area; needs to tap into the very bits and pieces of the nano data and make it available to the organization.

Experimentation through IT tools based on improved measurements. Measurement both to feed into the idea generation and to evaluate the effect from different ideas. Retailers can use IT to efficiently instruct different displays and then use improved nano measurements to follow up sales and profitability. New business models can use IT to track the consumption of goods and services through RFID tags on individual levels.

Sharing the results of experiments and the measures improves others to innovate. They don't have to invent the wheel again, can get the exact data measure setup, sharing ideas that for some reason failed (sometimes the most important aspect as failures seldom gets documented and less often shared).

Replication of innovations once they've been evaluated and proven is the key to successfully reap the benefits. The first three areas help organizations find and nurture new innovations. IT makes it possible to take that innovation and roll it out quickly and seamlessly. IT drives replication of business processes themselves. An example is how a bank is replicating a new loan process across all branches, a new customer return policy, displaying new food products in a retail store. Measurements enable the follow up of how well replicated the innovation is.

Collection of nano-level data is the foundation for IT driven innovation and replicating the innovation across the organization enables fast time to market.

Cognitive Surplus

What did you do before the web? How was it possible to find a restaurant in those days? During breaks - what did you discuss?

The world used to be disconnected and communication was one-way - from producer to consumer (unless it was from Aunt Annie - then it was totally wasted ;-)). We consumed what others were producing - clothes, food, houses, TV, radio, music, etc. Today we still consume what others produce - with the big difference of us being able to search for what we would like to consume - gone are the days of mass-market consumption. Using Chris Anderson's words - The Long Tail becomes the new Mass-market. We still consume - but not the same stuff. And that's why we have so few common things to discuss.
The even bigger difference that emerges is that we nowadays not only consume - we produce - and for free!

Instead of just passively consume what others produce - we now turn our time and energy into producing. The time previously spent on TV alone represent 1000h/year. That passive time is now slowly being turned into creativity - especially among younger people. Contributing to blogs, wiki's, Twitter, Linux, Facebook, etc are the new time-killer - and this time we fill it with thoughts, creativity and true dialogue. Spare-time previously spent on TV is now being redirected into creativity.

In the future each of us have some 1000h/year to spend on creativity. Shall we continue to watch TV and passively consume what other produce or start contributing ourselves? This extra spare time is what researchers call the Cognitive Surplus - the current passive time possible to turn into creativity. All Wikipedia entries represents some 100 million hours compared to 500 billion hours of TV in Europe and US - there is a large pool of time potential out there. Combined with our drive to do things that are engaging, interesting and because they're the right things to do. Spare-time, sharing technology and motivation of interest will enable us to become more creative - creating new topics to discuss during breaks (not because we have to - just because we want and we can).

Which Wikipedia article will you contribute to tonight?

Instead of TV why not read any of the following for more inspiration:

• Great spare-time discussion between Shirky and Pink on Wired
• Cognitive Surplus by Clay Shirky
• What motivates us: Drive by Daniel Pink

Watch your extreme customers

Your extreme customers are leading you into the future - explicitly - if you just care to watch.

The Chinese appliance manufacturer Haier uses their maintenance and repair guys to watch what customers are doing with the appliances. Where are they used, in what environment, who is using them and for what purpose. When a lot of washing machines got clogged with dirt they did not just assume the customers were stupid - they investigated the root cause. What did they find? That their customers were cleaning vegetables in them - can you clean clothes you should be able to clean vegetables seems to be the logic. Did they put big warning signs on the appliance - DON'T WASH VEGETABLES? Did they sue them or tell their customers it was their own fault?

No they changed the design to enable washing of vegetables as well as clothes. They watched what their customers were using their products for, listened to why they wanted to use it that way and then changed their behavior and designed a machine meeting the needs. Did customers notice what Haier did? Were they happy? The answer was loud and clear - market share in rural China went from single digits to 24% in 3 months in a market growing exponentially.

How do you start listening to your extreme customers?
First of all, in an article in Harvard Business Review April 2010 issue (Behold your extreme customers) researchers found that only 8% of managers cater to the needs of extreme consumers - so you will be pretty alone. Your extreme consumers can be engaged through for example:

• Let customers take ownership. Let the customers form communities, groups and influence/control product development. Lego took a whole new route after gathering their most devoted users and developed Lego NXT, the Robot Lego.
• Ask customers for help. Involve extreme customers in focus groups, ask them to test products to the extreme or suggest new designs.
• Sponsor events. Extreme events targeting the extreme customer. Costume dressing parties, all-you-can-eat festivals or invitation only parties where you must prove you're an extreme customer.
• Share consumers’ stories. Share in papers, advertising or on the web the most extreme usage of your products. Let your extreme customer become the hero.

How can you let your extreme customers drive your product development, marketing and brandbuilding?

What is a disruptive innovation?

Any organization that faces increased competition needs to sit down and decide whether they should go after volume and low margins or find some new hunting ground in a niche market.
Sometimes the competition has done that already. They jumped on the disruptive technology allowing a totally new price point to be met opening new previous untapped markets. Apple did it with iPod where they set a new business model and customer value proposition including a different profit model (making money on the scrap instead of music).
When we look around, which disruptive innovations do we see entering the marketplace?
I can think of at least two;
Tata Nano:
By thinking totally different about how to make a car Ratan Tata managed to create a car with a totally different price-point. Does it work in Europe or US? No of course not. Once Tata Nano climbs the value ladder will it work? Of course it will. What will happen to existing manufacturers? They will have to be squeezed in the upper right value corner. There will be no way for them to compete. Not because Tata is making such a great car but because it has a totally different Value Proposition and profit model run by a company with a different culture. This is disruption.

Google Nexus One:
Compared to Tata Nano Google is doing something different here. They attack the current value network of phone manufacturers and mobile operators. Currently you sell a phone subsidized with a subscription for 12, 18 or even 24 months fixed pay. The theory goes that you switch phone more often if you get it cheaper and then the operator gets you used to high monthly bills. Since Google is only interested in getting high penetration for its Android platform to sell more advertisements there is no need for profits on the actual phone. There is a new profit model here and value network. But is it bold enough compared to Apple and is it disruptive enough as Tata Nano? Currently I don't see those things clearly enough to determine if it is a truly disruptive offering or just a me-too.

How business model innovation changes the game

Are your customers buying your stuff the regular way, by the hour or by volume? If your offering has a limited added value that might be a good way of charging based on cost. Charging based on value is of course a much better model for everyone, both you and your customers. This is sometimes called business model innovation when you switch from charging based on cost to charging on value. In a recent IBM CEO study more than 80% said business model innovation was a top priority during 2009.

As you can imagine its easier said than done. Not many companies changes their business model until they're forced by competition or customers. Look at the music industry and torrents ...

Today a small company in Gothenburg, Sweden, won the second place in Venture Cup 2009 called AdFreight. Their idea is simple yet changes the game for internet shopping. They basically sells the space on the parcels to advertizers. When you receive the parcel there is custom ads printed automatically on it. Now freight can be free simplifying both internet shoping and enabling efficient advertising. Not just by getting customer cycles, but more the goodwill you get when paying for the freight. A completely new experience where you as a customer gets something of real value when getting exposed to advertisements.

So what is new in this you might ask? Well, it is a combination of a new advertising model where a third party picks up the tab and for internet based businesses to sell the freight space. For advertisers it enables them to get undisturbed time with the customer where he or she is devoted to your message while opening the expected package.

A true win-win building goodwill for advertisers and enabling internet shoping to truly differenciate itself by adding an additional value that in-store shoping will have trouble copying.

Släpp innovationen loss, det är vår! – Hur SOA möjliggör lättrörligt införande av innovationer

I dessa tider av aktiekurser som smälter som snö och företag som drar i handbromsen finns det en sak som är viktigare än någonsin tidigare, innovation. I havet av snöslask och lera reser sig de envisaste snödropparna som trotsar kyla, väder och vind och likt glänsande renaste pärlemor sträcker sig mot solen. Likt dessa kylans trotsare ger innovation organisationen bränsle att ta sig vidare och möta kundernas behov. Det är dags för oss alla att stå upp och transformera våra team, nätverk och organisationer. Det våras för innovationen! Låt innovation bli din heliga graal och vägvisare mot ljusare tider.

Genom globaliseringen har tillgången på kunskap, resurser och en vertikalisering av värdekedjor drastiskt sänkt tröskeln för att gå in på en marknad sedan början av 90-talet. I och med den pågående lågkonjunkturen finns det ett stort överskott på tillverknings- och transportkapacitet i världen. Hur skall då en organisation särskilja sig från mängden och samtidigt erbjuda ett högre värde till marknaden?

I en studie som IBM (www.ibm.com/enterpriseofthefuture) genomförde med VD:ar sade sig två tredjedelar fokusera på affärsmodellsinnovation för att ta sig upp i värdekedjan. Ökat värde för alla parter nås genom att erbjuda en kombination av affärsmodell och nya tjänster och produkter. Kännetecknen för innovativa organisationer är att de låter affärsmodellen driva förändringen, har strategiska samarbeten utefter hela värdekedjan, använder teknologi för att skapa förändring, integrerar IT i hela organisationen och involverar kunden genom innovationsprocessen. Utmaningarna för en organisation som satsar på affärsmodellsinnovation är inte främst att komma på nya sätt att göra affärer utan hur man skall integrera modellen med sina existerande affärer, processer och samarbeten med partners, leverantörer och kunder.

Det finns som tur är metoder att arbeta med för att fokusera på det stöd som ger störst affärsvärde och som ger en strategisk lättrörlighet. Detta för att kunna möta och omfamna nya möjligheter som affärsmodellsinnovation ger. På så sätt underlättas integration med existerande processer och affärer internt och samarbeten med partners, leverantörer och kunder.

Verksamhetsarkitektur eller Enterprise Architecture, EA, är metoden som möjliggör för en organisation att identifiera, prioritera och, kanske viktigast av allt, att kommunicera de digitala processer som bäst stödjer affärsvisionen. EA skapar en plattform för exekvering som öppnar upp och prioriterar de investeringar i IT stöd som ger störst strategisk värde. Genom att titta på var organisationen befinner sig idag, det IT stöd som finns tillgängligt och vart man är på väg skapas ett beslutsunderlag för hur man tar sig till önskat läge med störst affärsvärde. Strategic agility handlar om att lyssna till behoven, genomföra strategiska förändringar i tid och att fokusera på de IT investeringar som ger värde. I Strategic agility ingår förmågan att samtidigt hantera:
• Resource Fluidity – Förmågan att snabbt sätta in resurser där behovet finns
• Leadership Unity – Förmågan att fatta kollektiva beslut på kort tid
• Strategic Acuity – Förmågan att se och rama in möjligheter på ett nytänkande sätt

Service Oriented Architecture, SOA, är nyckeln till att realisera en verksamhetsarkitektur för att tillvarata nya affärsmodeller genom ett fokusera på arkitektur och struktur framför teknik. SOA möjliggör inte bara affärsmodellsinnovation genom att flexibelt och med hög grad av återanvändning integrera de nya affärsmodellerna och processerna i den existerande verksamheten. SOA öppnar också upp organisationens interna processer och informationskällor som möjliggör fördjupat samarbete med partners, leverantörer och kunder. En SOA baserad arkitektur tillhandahåller ett väldefinierat gränssnitt som ger en sammanhängande informations- och säkerhetsarkitektur, spårbarhet och kontroll.

Med fokus på Enterprise Architecture och SOA skapar vi en plattform för flexibla affärer och processer genom att prioritera de värdefullaste IT investeringarna. Vi kan i det nuvarande kyliga klimatet blomma ut som pärlemorglänsande snödroppar och ta nästa steg mot affärsmodellsinnovation, samarbete och ökat värde för oss, våra partners och inte minst våra kunder.

När skall du ge dig ut på sökandet efter just din innovations-graal?