The classic business plan is a plan of promises. On paper the value proposition almost always sounds promising but in reality the customers have quite often a different perception of the firm, of its products or services. There is a mismatch between value proposition and value perception, the perception gap:

Why: Simply put!

1. you do not get the message across to your customers since your distribution and marketing channels are too weak or
2. you do not fulfill the value proposition you offer with your business model you actually have.

The Perception Gap

In most cases, managers will say that the first reason that they just don’t get their message over to the customer is the main cause why they cannot close the perception gap. So in their belief they spent more money on communication and sales and try to persuade potential customers that they offer the best value.

This is the typical behavior of the past where big marketing spending was having a huge impact on customer’s adaption of a new product or services. The rules was: Your business model might be mediocre but when you push your brand message long and heavily enough your potential customers finally  will buy your product. If you grab enough attention.

Unfortunately, it is not the first reason. The second reason is probably true in most cases. You got a problem in your business model. Your value architecture and revenue model does not fulfill what you describe in your value proposition. You got a mismatch between your value proposition and your customers’ value perception. You just do not deliver the value you propose.

So instead of just increasing marketing spending you should carefully analyze where you have a mismatch, were you have the perception gap and then close it.

Another Business Model Bites the Dust

During a recent GDI seminar on social media a Swiss manager complained about bad comments on the web about his firm. He asked how his firm could avoid being so exposed to criticism. A manager of amazon just answered: “If the complain is justified just make your product better.”

I can second the guy from Amazon. If you have a perception gap close it with a better business model but not just with one-way push communication. Build your whole business model around the value proposition where all components support your value proposition.

The value proposition is not a marketing term but your mission. It guides the experience you create for your customers. In German we use the word “durchgängig” to describe a perfect customer experience that is supported by all components of a business model. To create such a “durchgängiges” or consistent customer experience all components of the business model have to support the value proposition without any disharmony.The business model has to work like a Swiss clock. This is the art of business modelling! It is not a one time management activity but a continuous process to achieve perfection.

If you do not do it, your business model will be another business model that bites the dust like Blogbuster, Karstadt, like Dell or other bad business models. Better be prepared and close the perception gap!

I am following the Arcandor business case for a while and I have written about the failure to innovate its business model in the past. So a recent  article of Süddeutsche on Arcandor grabed my attention.

The German daily Süddeutsche Zeitung reports (in German) that Middelhoff is by far better of than his former employer Arcandor and its employees that have lost their jobs. Süddeutsche Zeitung cites a confidential report of the auditors from Deloitte that acted on behalf of the German Federal Financial Supervisory Authority (BaFin).

Middelhoff opens his accounts to Süddeutsche Zeitung

Middelhoff had strong ties with the former German private bank Sal. Oppenheim that lost its independence in the aftermatch of the crisis of Arcandor. Mr. Middlehoff and his wife had loans of Euro 107 million with Sal. Oppenheim. With this loan, Middelhoffs financed their participation in a real estate fund of Josef Esch. Süddeutsche writes that in the wake of the insolvency of Arcandor Sal. Oppeheim wrote down the Middelhof-loans by 37.4 million since the financial situation of the Middelhoffs were “inadequate” and that the bank needed more collateral.

Confronted with the report Middelhoff revealed his financial situation to Süddeutsche. And here it becomes interesting. We can learn a lot from Middelhoff if you believe greed is good.

Prior to his assignment at Arcandor Middelhoff was already well-off. At Bertelsmann, he received a bonus of Euro 40 million from late Bertelsmann’s owner Reinhard Mohn for selling their share in AOL Europe for exorbitant price. Later, Middelhoff got a compensation of Euro 20 million for having to leave Bertelsmann due to a dispute with Reinhard Mohn.

Due to his good contacts with Arcandor’s majority shareholder Madeleine Schickedanz he started to work in June 2004 for KarstadtQuelle, the predecessor firm of Arcandor, first as chairman of the supervisory board later as the CEO. Here, he had the chance to rebuild the business model of department store Karstadt and of the dated mail-order house Quelle AG.

Budybody Middelhoff or financial engineering cannot fix your business model

Well, he was very busy as a manager but not with fixing the core problem of the dated business model but with M&A and financial engineering. He acquired parts of the touristic group Thomas Cook and sold the department stores to external investors. And the sales of department stores become a bommerang to Arandor since its rent payments climbed substantially for its stores. And the dated business could not generate suffient cash to pay for the higher rent. The sale of the property was a relief in the short term, but death in the mid term.

And who were the investors. “By chance” one of the investors was Middelhoff’s financial advisor Josef Esch. Actually, the Middelhoffs were invested in exactly these Oppenheim-Esch fonds that bought parts of the department stores.

Honi soit qui mal y pense or you scoundrel, when you think badly of this.

The Süddeutsche states: “What helped the private person Middelhoff harmed the CEO Middelhoff”. Actually, the prosecutors in German started an investigation into the opaque business practices of Mr. Middelhoff and so the last word of justice will be with the courts.

Even better – consulting for the financially stricken Sal. Oppenheim

You might think that this is already a good business for somebody who led a firm into insolvancy. Just wait. Sal. Oppenheim who financed parts of Arcandor and some months later lost its independence due to Arcandor’s bankrupcy offered Middelhoff an advisory contract for Euro 4 million a year. The remarkable agreement was disbanded after a few months. But as the duration of the contract was three years with an option for another year, Mr. Middelhoff got compensation of Euro 10 million from Sal. Oppenheim according to Süddeutsche Zeitung.

That is quite a remarable renummeration for somebody who failed as the CEO of Arcandor.

Take-aways from the Middelhoff story

• Look at the management less for what they announce but what they achieve.
• Do not be dazzled by financial engineering or corporate strategy moves! If the business model is broken, you have to fix or sell it. Financial tricks do not help you but can even harm the future of your business.
• Culture and values are an important part of any business model. If you as a shareholder accept behavior like this, you cannot expect your employees to follow the management in a dire situation.
• A bad business model is a bad business model. Use your common sense! Management is not a magic science but all about creating and exciting customers that are willing to pay. If you do not understand the business model, stop investing in it.

The big news in Switzerland is that an informant, crook or thief – whatever you like to call him depends from your standpoint – has offered the German authorities data from 1,500 German customers of Swiss Banks that have allegedly dodged taxes. Last year, another informant stole data on 3,000 French bank clients from the HSBC branch in Switzerland and sold it to the French authorities. And in 2008, Germany already purchased data on German customers of the Liechtenstein Bank LGT. The LGT case cost the German government several million Euro but they received a far higher pay-back on its investment form all the taxes and fines that the busted tax evaders had to pay.

There will be more

And these three data thefts will not be the last. It is not only the authorities of high-tax countries like France or Germany that see their high return of investment if they buy data from informants but also there will be more willing bankers that will sell data of its customers. Why?

It’s the value proposition for the bankers, stupid!

In the business model canvas we see that we need also a value proposition for our stakeholders or partners in a business model. And that is what some banks forgot.

If you hire your bankers via a big salary you get mercenaries not trustworthy advisors to your customers.

If you use incentives that only measures the bank performance and not the customers’ than you transform even your most loyal client advisor into a short-sighted performance optimizer that cares more for its personal fortune than for your clients’ or your banks well-being.

And then you do not have to be surprised if ethics are low and your employers will be attracted by an even higher award when they become informants to government authorities or- less bad – takes your clients to his new employer that offered him more.

If you treat a human being as a mercenary be not surprised if he behave like one.

You need a value proposition for your employees that goes beyond money

The former business model of Swiss private banking relied on trustworthiness, professionalism and banking secrecy. And they had aligned also their total business model to this. Bankers were proud to work for their bank and to protect the interest of their clients. And customers trusted the Swiss banks.

But then came the hubris of the managers in private banking. They wanted to grown and be as well regarded in the banking industry as their friends from investment banking. And to do so, they hired teams from other banks by paying more salary and bonuses and selling complex structured products to their clients. The higher salaries were compensated by the higher margins the banks earned with the complex new products.

With this new game two things changed: First, you got a new kind of employees that were purely money driven and their loyalty was mostly to the money not to the bank anymore. Second, the banks jeopardized with their powerplay the value proposition they business is based on: trustworthiness.

So banks should not be surprised to see more informants (ex-employees) who will  sell data to foreign authorities. And with every new scandal the key value proposition to their current customers – their trustworthiness – will be diluted. The only solution is not to stick to the old business model but to build a new one that incorporates also a value proposition to your employees that is not purely based on money but on meaning.

Wer hat es erfunden? Novo Nordisk insulin pen

Where is the invention from design thinking that changed the industry? Where is the iTunes or the Kindle of Ideo? The problem with design thinking starts very early in the process with the problem definition phase. And that is where large corporations fail. They define the scope too narrow and than you get nice new things that sustain your current business but not new business models that rock your industry and yourself.

Ideo is a very good (self-) marketing & design firm but not an industry rocking firm. Large firms just love Ideo because Ideo just offers such a well designed process to solve the big problem of “being not innovative”. You hire Ideo for comforting yourself for not using your own common sense and your own customer insights. You just outsource your understanding of the customer to Ideo.

And how innovative are Ideo’s ideas?

Let’s take the example of the insulin pen Ideo describes on its homepage as a case. They did the work for Lilly in 1997. Well, that is not really outstanding since the Danish firm Novo Nordisk introduced the pen in 1985. So Lilly was just catching up to this formerly unimportant drug firm from Denmark that solved 12 years earlier the problem that Ideo solved for Lilly. Novo Nordisk was a business innovator. Lilly is not.

Another show case of Ideo is the modular shopping cart they did in project for the TV channel ABC. Instead of having one big bulky shopping cart they came up with a modular cart that is better suited for today’s shopping habits. Definitely, the new shopping cart is nice but definitely not industry changing. Industry changing were such firms as Walmart or discounters like Aldi. They changed the retailing industry forever. For fashion retailers examples are Zara or H&M who saw that fashion is as much logistics as it is about fashion.

Adapt the Definition phase of design thinking

We have to watch out that design thinking will not become the next management fad like scientific management. I propose we go back to what God gave us, our common sense or in German “gesunder Menschenverstand” and that we use more our curiosity why the things are the way they are. The business model canvas will help us to understand the business we are in.

The business model canvas by Patrick Stähler

What is great about design thinking that is all about imagination of the unknown. But to really challenge the hidden assumption of any business more time should be devoted to the definition phase and to the unlearning phase. Only, when you challenge the hidden dominant logic of an industry you can rock the industry. If you do so, the design thinking process can be valuable to your company.

Unhiding the hidden dominant logic by looking at the jobs you do for your customers

So the best way to start is to unbundle your current value proposition. Ask questions like which job do you solve for your customers. And quite often, to your surprise, you solve very different jobs for different customers with the same product. And with dissecting the value proposition into job-to-be-done very interesting new problems emerge on which you can apply the design thinking approach.

I have done this several times already in customer projects and it works well. I used this job based unbundling on newspapers in my recent post on “Who says paper is dead?“.

I am interested in your experience with design thinking and business model innovations. Love to hear from you.

Businesses are not a technical machine with input and output factors. Businesses are places where human beings work together for a common goal and therefore the culture in a business is a defining part of a business and therefore also for the business model.

Most definitions of what a business model is are rather technical. We talk about components, patterns, building blocks. We make a lot of fuss about how we rearrange the components as if they were just Lego bricks. We believe that having in mind a great new business model is already a business model innovation.

Where are the people?

Ups, no! That does not work. Somehow the most important “building block” of a business is missing: The human being that designs, shapes and makes the business work and the customer who has to buy into the new value proposition and pay. And here again we have the human factor. “[I]nnovation is not what innovators do but what customers adopt.” We always have to remember what Michael Schrage is saying. It is the customer acceptance that makes an innovation.

Zappos and its core values as a business model innovation

A great example to see how the culture and values can be the uniqueness and differentiation factor in its business model is Zappos . Looking from a technocratic point of view, Zappos is just an eShop for shoes with a great customer services.

But with this limited view you forget that it is not just the great customer service that makes the difference. You need people that can provide this great service. You need values in the firm that helps you to make the right decision in favor of your customers. And your values should be reflected in your controlling systems since otherwise people just do what they are measured for.

Zappos gives a great example that culture and core values is more than just having an HR department with marketing material for recruting. Check out what Zappos is saying about its culture. This culture was Amazon worth almost $1 billion when it announced it wants to by Zappos in July 2009.

Culture and values are part of the business model

I use in change project where big corporations are looking for a better business model an adapted business model canvas. The canvas uses besides the main components value proposition, value architecture and revenue model also a box for culture and values. Together with my colleague Dr. Harry Wiener who is a psychologist by training we have developed three categories that make together the culture and values of a business.

• Leadership style answers the questions: How do we lead people? How much freedom do we give them in their daily work?
• Relationship style answers the question: How do we work together with our customers? How do we work together with our peers in the firm?
• Values answer the questions: What value governs our overall behavior? What values do we pursue?

I do use the adapted version of the business model canvas not in all cases since it must fit the task.

And the more components you have the less the people really try to grasp the complexity of the business. In cases where a cultural change is not needed I sacrifices  the culture for simplicity but add the culture and value dimension as soon as the new business model is designed and the implementation process is planned.

Unlearning and cultural change

From my work experience (having been a line manager for 7 years) and consulting experience the changes in the culture and values are by far more difficult than changing the business model since the traditional business model is so impeded in the heads of all people. Culture and values have to be unlearned and unlearning is the most difficult task as we see from all big American car firms or from the bankruptcy of retail conglomerate Karstadt/Quelle aka Arcandor.

[update:] Via netzwertig.com I found the following blog post of disgruntled journalist from the German media group WAZ. Unfortunately, the article is in German but it shows extremely well how people can react to changes. The journalist discuss if – as print journalist – they can be forced to take a camcorder with them when investigating a story. That sounds ridiculous for outsiders but the traditional culture of journalist is very class oriented and a print journalist is a print journalist and therefore he/she has nothing to do with pictures or even video.

So in the case of the WAZ their strong journalistic network in the Ruhrgebiet is not only an asset for their online venture (DerWesten.de) but also a huge libility due to its traditional core values.

Even when you have the best new business model you will fail if you cannot change the traditional values that impede change. So the culture should be included on the business model canvas if you do a business model innovation in a traditional firm. Otherwise, your business transformation will fail.

I feel very ambivalent about the announced deal. First, Dell pays a premium of a 61% for Perot Systems. That is a huge premium and from my time as an investment banker at Lazard I know it is very difficult to recoup and justify such a premium. But even more problematic is that with the purchase Dell does not solve its problem with its current business model.

The deal makes sense from a corporate strategy perspective. Dell is suffering in its core business a steep fall in prices. For many years Dell was the price leader but now HP tries to undercuts Dell. The first time in the history of PCs, the new Microsoft operating system Windows 7 will need fewer resources than the previous version, Windows Vista. That is bad news for computer makers that usually expect a big boost in sales from a new operating system.

Dell’s former business model innovation

In the past Dell’s value proposition was to sell individually configured PCs and servers at a low price. Dell’s PCs were the workhorses but never art like Macs. Low-price and custom-made were possible due to Dell’s special value architecture, a classical architectural business model innovation. Dell had besides its direct sales model a manufacturing process that allowed a made-to-order production. Together with its suppliers Dell had optimized its supply chain so a just-in-time production was possible. Therefore it had a small inventory of parts and an almost non-existing inventory for finished products.

So very little capital was tied to inventory and even more important in fast industries like the computer industry where new products come to market every month, it had low write-offs on its (very low) inventory. Another plus of this business model is that Dell has had a negative working capital. Normally, you have to pay your suppliers before you get the cash from your customers. With this very special business model Dell became for a time the largest seller of PCs and servers. Now, it is No. 2 behind Hewlett-Packard.

Pressure on Dell’s business model

Dell’s business model came under pressure from different sides. On the consumer market, Apple made a great come-back with its well designed and easy-to-use computers. On this blog, Mac users have a share of 14.10%. At the same time a new product category enter the market. the net book. Net books are mini notebooks or subnotebooks that are well suited for the mobile worker that looks for a digital companion.

The net book is good for email, writing short text and surfing the Internet. Net books are even cheaper than a regular Dell, so Dell’s value proposition in its traditional business became weak and not appealing anymore to customers. Net books are a typical disruptive innovation since the traditional products overshoot the demand of normal customers. Net books are just sufficient for most tasks a normal user is performing on its computer. In the enterprise market the computer became more and more a commodity where the service component is more important than just the price.

Faced with this situation Dell used parts of its $ 12 billion cash to buy into a potentially higher margin business of Perot. Perot System is an IT service provider with a strong foothold in outsourcing in the health care industry. So from a corporate perspective the deal makes sense even when it is expensive.

Perot does not solve the problem of Dell’s business model

But from a business perspective? Will Dell now solve its problems in the computer hardware business, its core business? Will there be potential synergies to pay for the deal? Why is Dell a better owner of Perot Systems than the previous owners? Will Dell’s customers be better served by the New Dell? Will Perot’s customers be better served with Dell computers?

Well, from a business level perspective the deal is not as easy to explain. Actually, the deal looks like a signal that Dell has no ideas how to solve its issues with its classical business. Dell was once a business innovator but now the others have learned their lesson and are as or more efficient as Dell. Dell is now in the midst of a red ocean and in a red queen race. Dell cuts costs in its core business but it will not escape the fierce competition in the hardware industry unless it finds new way how to differentiate itself from its other competitors.

Dell is just in the midst of a red ocean

Actually, the purchase makes Dell even more similar to the other big computer companies. Dell is just a follower. It follows Hewlett-Packard that purchased EDS last year for $13.2 billion. It follows IBM that moved totally into services and sold its PC business to Lenovo in 2005.

Dell is not a strategic leader but a follower with an overpriced and small acquisition. And now Dell’s management is busy integrating two very different cultures, too busy doing their home work in their core business.

That is definitely not a great strategy and does not solve the problems of Dell.

And the solution

But what can Dell do? In the consumer and SME business it could move into automatic services like online backup, online recovery, and other services that are today still a hassle. And by moving in this direction Dell could also benefit from recurring revenues. In their server business why not offer combinations of cloud computing and servers, so that Dell’s customers never run out of disk space or computing power but still can control which data is in the cloud and which is local?  Automatic services and cloud computing are another disruptive technology to hardware producers. These trends usually start in the consumer and SME market and move later into the corporate market.

Lessons-learned

One can derive several lessons learned from the Dell-Perot case.

1. Business model innovation is not a position you can rest on. Your competitors will try to copy you or circumvent your competitive advantage with new business model innovations. The competitive advantage is always limited in time.
2. Once the business model innovator is the No. 1 in a saturated market the growth potential is just like the market growth. So there can be no hyper-growth business for ever.
3. Corporate strategic moves like acquisitions of a new business do not help to rejuvenate your dated business model. Even when you argue from a shareholder perspective it is easier for the shareholder to diversify his portfolio than for a corporation.
4. The solution of a dated business model innovation is not to follow your competitors since that will be a cruel red ocean. You just create more competition when everybody is following the same strategy.
5. Instead of diversifying look at the core competencies you have and look if you can apply them to new products and services that your current customers value.

I am interesting in your view of the acquisition. Please share your opinion on this deal with us. Since Dell is such well discussed case in our community it is worthwhile to discuss the change in business model. Thanks in advance!

(Question mark in the picture is by Stewf under cc license)

The idea of business model innovation was not developed at the large consultancy companies like McKinsey, BCG or booz. Probably they were too busy optimizing the current business of their current clients. And usually their clients are the incumbent in their respective business. Probably, the large consultancies are trapped what Clayton Christiensen calls resource dependency. Christiensen and others argue that you are dependent in your strategic decision from your main sources where you get your resources from and most of the time it is from your existing clients. In the case of the large consultancies the customers are the incumbents that lose the most from business model innovation.

Business model innovation as new strategy type

The idea stems from researchers like Alex Osterwalder, Gary Hamel (business concept innovation), W. Chan Kim and Renée Mauborgne with their blue ocean strategy or me. In stead of looking at the incumbents we were looking at entrepreneurs/ outsiders that created industries or changed their industries forever. While Alex and I came from New Economy side where we saw that new media allows new business models, Hamel, Kim and Mauborgne came from the traditional strategy schools at universities.

Measuring the impact of innovation is old subject but most measurement systems had severe shortcomings. For example input factors like R&D spending of a corporation were measured. Besides the flaw that input has little to do with output particularly in R&D, business model innovation do not get measured since you do not spent R&D on them. R&D is all about product innovation. Other studies measure the output of the R&D process like patents. Again, patents do not measure business or process innovation. Patents are just a sign of technological innovation. In Europe, you can not protect business models with patents.

So McKinsey started their research on an innovation performance sorce (IPS). McKinsey is still in an early phase but they say that the first results are promising. They use objective outcomes that take a broad view on innovation and take a long-term perspective. And instead of focusing on coporations they focus on business segments which in my opinion is key since the unit of competition is not the corporation but the business.

Business model innovation matter

And the results for us are promising. They state that they “found that business model innovation tended to generate bigger gains than product or process innovation, probably because the innovation was harder for competitors to copy and the advantages was therefore longer lasting.”

That is great news and we are waiting for more empirical evidence from the mighty McKinsey.

doublethink by duncan

As I have argued in my last post, I think we use in strategy and in management in general too many generic and meaningless words. And I think we use also too many meaningless graphs and pictures to say nothing as a matter of fact. Visualization does not help you if your strategy is bad. Sorry, Alex for this .

Every decent firm claims in restructuring that it is concentrating on its core competencies when divesting or closing parts of its firm. Well, and often it is the same firm that argued some time ago that it was necessary to buy this now divested firm since it wanted to offer full service to its customers. We have so many words for “Sorry, it did not work. We just could not make it work”. Why are we so afraid about the truth?

Management Newspeak

In management we have invented Newspeak. Original, Newspeak is a fictional language in the novel Nineteen Eighty-Four by George Orwell. The basic idea behind Newspeak is to remove all shades of meaning from language. While in Orwell’s novel the government tries to introduce Newspeak to the people in order to make the people more compliant to its will, in the case of management it is our own fault. We managers use our own Newspeak and we have taken all meaning out of it.

Newspeak is all about saying almost nothing with great sounding words. Every bank had its risk management system in place, used sophisticated mathematical simulations, had dozens of compliance officers, trusted well-paid analyst in their triple A ratings. And what was the result? They did not see that a mortgage given to somebody with inadequate income will always be a bad loan regardless how often you mix it with other subprime loans and regardless how much financial modeling you apply.

And I will hear now all my friends from investment banking that you can decrease the risk by pooling loans. Well, this pooling works well with uncorrelated loans but if they are all bad loans in the same market, well, then bad stays and bad regardless of how much you diversify.

For a great overview of financial Newspeak,  click here for a pdf file. It is “The [now defunct] Lehman Brothers Guide to Exotic Credit Derivatives”. You will learn everything about Credit Default Swaps (CDS), Collateralized Debt Obligation (CDO) and their modeling. The basic ideas were great at the beginning but when the bankers believed that they could escape the laws of gravity the products turned into bombs to the world economy.

And this is typical for Newspeak, at the beginning the words had a meaning but when they became popular, the meaning was diluted and lost.

Please be politically incorrect in your firm!

In Nineteen Eighty-Four the government calls a thought that is against the common way of thinking a thoughtcrime. Thoughtcrimes are thoughts that are unorthodox and outside the dominant logic.

I want you to commit these thoughtcrimes in your firms. I want you to dig deeper when people use Newspeak. I want you to fight conventional wisdom. Conventional wisdom might be shared by the masses but is not necessarily true. Use your own sense and reason.

So if somebody uses the term core competencies ask him what competence he really means, ask him what consumer benefits the competence provides, ask him why competitors cannot easily imitate the competency and ask him if the competency can be leveraged widely across many products and markets. If he can answer all these questions clearly, well than the competency is really a core competence that is valuable and that should be nurtured and protected.

Our world of business model innovation is also full of words that many of us use meaninglessly. Business model in itself is such a word. We argue in strategies that we offer a great value proposition to our customers. And, of course, we are so unique. But is that the reality? Are the customers well acquainted with our unique business model or is it a great strategy plan we want to execute or is it just fiction with no support from reality?

Be cruel to yourself, the market is much harder!

Get real! Do not mix marketing talk with strategy!

Please, do not mix marketing talk with strategy. Marketing can be about pretending. Strategy and business modeling is not about pretending or self-denial. Strategy must be clear in language and free of Newspeak. The best is not to use words that are prone to Newspeak. The best way of getting a great business model is to answer simple questions with honesty and modesty:

• What job do you solve for your customers? What value or benefit do you offer to your customers? What excites your customers?
• How do you create the benefit/ value/ excitement for your customers?
• And how do you earn money with your business?

So the first question is about the value proposition (great example here), the second is the value architecture and the third is the revenue model. Simple! So simple is the definition of a business model. And below you find the business model canvas to describe your own business.

The business model canvas by Patrick Stähler

If you want to print the canvas, you find the pdf of the Business Model Canvas here.

And if you answer e.g. that your value proposition is to offer the best service in the industry, you have to be honest about your core competencies. Do they really support the best service? And don’t forget the culture. Do you have the right values and corporate culture to support the value proposition?

And please, do not claim that you are the lowest cost-provider with the best service. I won’t believe you unless you have a great value architecture to support that claim, but even then I would be skeptical because that would be a real disruptive business model innovation and they happen to happen rather seldom.

And please remember a great strategy is not something what looks great on a piece of paper. A great strategy what works in reality!

(photo: http://www.flickr.com/photos/duncan/ / CC BY-NC 2.0)

Boring strategies

“We earn a premium on our cost of capital”

“We form the best team in industry”

“We help our customer to be more successful”

“We ensure sustainable development”

Have you found out which company has these pillars for its strategy?

Probably not. The strategy is so generic and interchangeable that it fits for almost any large company.

Are you attracted as a customer to this company?

Probably not, since so many companies claim to help customers to be more successful.

Does this spur emotions in you?

Definitely not! It is just plain boring!

How about this company: It claims that it is driven by “passion of success” that rests on “four cornerstones”: “superior brands”, “superior supply chain”, “superior talent in lean organizations”.

Do you know which company it is?

No, since it is so generic. It could stand for many companies in many industries. It is boring. It does not give the company any real purpose to exit.

Value centric strategies

So how about this:

“to organize the world’s information and make it universally accessible and useful.”

Do you think this is interesting for you?

Probably yes, if the company can fulfill its high aims.

Do you have any idea which company is behind this statement?

Probably, yes.

So how about this: “The [firms] Concept is based on offering a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.”

Interesting?

Yes, if you do not go for overpriced designer furniture.

Do you know the company behind it?

Yes!

All quotes are taken from the strategy section of the homepages of the corporations. So here is the solution.

Company 1 is BASF, one of the largest chemical companies of the world. Company 2 is Beiersdorf with its world-famous Nivea brand and with its daughter company tesa which produces the famous tesa tape (for Americans it is the European version of Scotch tape).

Company 3 you might have guessed is Google and Company 4 is IKEA.

You don’t win customers with your corporate strategy

Interestingly, all companies are well-know and have a record of success in their respective industry. But why did we think that the latter are inspiring and the former plain boring?

The latter are customer centric. These corporations put in their strategies customers first. Their business strategies focus on the value proposition to the customer. They describe what value they create for their customers and what makes them unique.

The former are corporate strategies that have an internal point of view and addresses investors and shareholders. The former are also good companies but their strategies are boring.

What can we learn from this?

• There are different layers of strategy in a corporation. All levels are important. Besides a corporate strategy, which explains which business the firm is in, business strategies must exist. In the business strategy it is where you explain your business model and try to find points that make you unique to your customers. Then the product strategies follow your business strategy. On top is the corporate strategy, then comes the business strategy and product strategy.
• It is the business strategy that makes you successful in the market place not the corporate strategy. You find customers not with the corporate strategy but with a great business model as the outcome of your business strategy! And remember Peter Drucker. For him the purpose of a business is to create profitable customers. A good business strategy is customer focused and explains the benefits in doing business with the corporation. A good strategy should not be generic but tangible for the customer. A good strategy explains your business model and what makes your business model unique for the customer.

Large corporations focused in the last years too much on their corporate strategies and forgot their business strategies. They entered new markets, bought new divisions with new businesses but too little focus was on the business aspect of the strategy of what makes the firm unique to their customers. In today’s recession the pendulum is back on business strategies since it is there where you earn money.

I made the provocative statement that you either have to be extremely creative to make good advertising for bad products or you must be schizophrenic.

Manifesto for good advertising (and good business models)

The blogpost spured an interesting discussion. One advertiser sent me an ad from Bob Levenson, a guy from an agency called DDB. The ad is from the late 1960s. It is a manifesto for good products and against tricking people with advertising for bad products.

I want to share this ad with you since it is so true also for bad business models. If you have a bad or dated business model you have to change or die as department store Karstadt did. And it is not the fault of a bad economy or because of your competitors.To use the words from the ad. You die from your own skilled hands. It is the fault of your strategy skills.

Here comes the original text of the ad. Thanks to Serge Deville for the text.

DO THIS OR DIE

Is this ad some kind of trick?

No. But it could have been.

And at exactly that point rests a do or die decision for American business.

We in advertising, together with our clients, have all the power and skill to trick people.

Or so we think. But we’re wrong.

We can’t fool any of the people any of the time.

There is indeed a twelve-year-old mentality in this country; every six-year-old has one.

We are a nation of smart people.

And most smart people ignore most advertising because most advertising ignores smart people.

Instead we talk to each other.

We debate endlessly about the medium and the message.

Nonsense. In advertising, the message itself is the message.

A blank page and a blank television screen are one and the same.

And above all, the messages we put on those pages and on those television screens must be the truth.

For if we play tricks with the truth, we die.

Now. The other side of the coin.

Telling the truth about a product demands a product that’s worth telling the truth about.

Sadly, so many products aren’t.

So many products don’t do anything better.

Or anything different.

So many don’t work quite right.

Or don’t last. Or simply don’t matter.

If we also play this trick, we also die.

Because advertising only helps a bad product fail faster.

No donkey chases the carrot forever.

He catches on. And quits.

That’s the lesson to remember.

Unless we do, we die.

Unless we change, the tidal wave of consumer indifference will wallop into the mountain of advertising and manufacturing drivel.

That day we die.

We’ll die in our marketplace.

On our shelves. In our gleaming packages of empty promises.

Not with a bang. Not with a whimper.

But by our own skilled hands.