Posts Tagged ‘bad business models’

We “totally screwed up”: Values and Behaviors in Volkswagen business model

Tuesday, September 22nd, 2015

Value unequal behaviorVolkswagen, the world’s second-biggest carmaker admitted that it has been dishonest with customers and regulators. It has installed a software in its cars that falsifies emissions data of its diesel cars. Unfortunately, it is a perfect example where the values promised to customers and the real behavior outright contradict. And because of the mismatch, Volkswagen is in a perfect storm.

Volkswagen faces a fines up to $18bn, criminal charges against its executives and legal actions from customers. At the same time a third of its market value was wiped out or the a staggering amount of around €30bn.

The head of the US operations of Volkswagen admitted that they “totally screwed up“. And I hope he meant the deed and not the disaster afterwards.

What happened? Volkswagen had to admit that 11 million of its diesel cars could be equipped with software to cheat on emission tests. The American Environmental Protection Agency (EPA) had accused the firm of faking pollution tests and thereby cheating on regulators, the public and customers.

The case is already bad enough, but what is even worse is that the deed and the behavior that lead to the deed totally contradicts what Volkswagen promises in its value proposition.

Volkswagen states in its brand three core messages of which one is: Responsible

According to the Webster, responsible means to be “able to choose for oneself between right and wrong

Volkswagen always played the role of the company with high morals. Responsibility was their core value they wanted to pursue and used heftly in their marketing.

And cheating deliberately on emission test is just the opposite of being able to differentiate what is right or wrong. Cheating is wrong! And it is not cheating software but the whole behavior that let a whole company come up with a software to cheat. Dozens and more people at Volkswagen must have known this and did nothing against.

What does this tell us about the culture they have at the firm?

Unfortunately a lot.

And unfortunately, the car industry has a bad track record between their promises and reality when it comes to emission and fuel consumption. The car manufacturers promise low fuel consumption however, they can only be achieved in unrealistic test scenarios and not on the road. Actually, it’s legal but totally against what Volkswagen promises to be responsible.

And as a responsible company you should live up to your standards and do not try to seek loopholes in regulation to mislead customers and the public. Still car companies do.

Not your stated values are reality but your behavior in your business (model)

The deed is actually not the worst. The worst is (more…)

The offer is only one building block to fulfill the value proposition

Tuesday, June 16th, 2015

One of the beauties of the business model thinking is that we learn to see a business totally different if we really apply stringent thinking and dissect a business into its building blocks. And one of the most important concepts is that the value proposition is not the product. Why?All elements of a business model have to fulfill the value proposition

It’s not the product that creates value but the value proposition. The whole value architecture including the product, the revenue model and the team & values all have to deliver the value the value proposition is proposing.

Deadly business with a value proposition that customers and democracies need

A simple, a bit eccentric example illustrates this. Take manstopper ammunition that is for very good reasons banned by the Hague Convention in international warfare.

Manstopper ammunition does not sound like a lovable product and in terms of Alex canvas as a good value proposition?

Actually, manstopper ammunition is the offer and not the value proposition. A good, and even meaningful value proposition depends from your customers, the job-to-be-done and the benefit you create for your customers. (more…)

The missing part for business model innovation: The process

Wednesday, November 12th, 2014

Recently, I had an intensive discussion with David Siegel who just moved to Zurich. His big idea is business agility and he is so right since the missing part in business model innovation is the process moving from your current business model to a better future. He calls it business agility. We at fluidminds use Rethinking business and Entrepreneurial Design for the process.

Business Agility, Rethinking business, Entrepreneurial Design, Design Thinking, Discovery-driven planning…

Entrepreneurial Design ProcessRegardless what wording we use, what we need is a process that helps companies to develop innovative business models that customers, employees and the owners love.

Today, two processes exit in companies that could be used: the innovation process and the strategic planning process. The names of the processes suggest that they could be useful, however in reality the opposite is the case.

Why? They lack agility and experiments. Both processes have the hidden assumption that with more and better planning you can anticipate the future. Both are focused on existing products and markets. These tacit assumptions might be right for a world of sustaining innovations, in a world of more-of-the-same.

But, and that is a BIG BUT, not in a world which is radically changing. Business model innovations have a disruptive character and focus on the whole business model. There is a need for business model innovations in any industry due to the Internet, the demand for clean energy, globalization, and due to the rise of Asia.

Therefore, almost every firm needs a different approach to innovation and strategy.

The future is not about prediction but about shaping the future with agile experimentation on what works and what does not work

Regardless how much you plan, you will not predict the future because neither customers nor companies can anticipate what is possible. The only way to push for radical innovation is to accept the uncertainty and thereby accepting that with more traditional planning we can not predict the future. (more…)

Rethinking your industry logic: Cross Industry Business Model Innovation

Wednesday, September 24th, 2014

Business Structure’Our industry is unique and should not be compared with other industries!’ This is a common phrase I have heard countless times throughout my consulting career. But is it true?

Strangely enough the most successful companies become prosperous not by excluding comparisons, but by leveraging other industries success factors and applying them in a new context. Many other companies that innovated within the boundaries of their current industry logic often left the stage early. When looking at new business models it is often clear that they have not been developed from scratch. Many models that have changed an industry are merely refurbished versions of another model by another industry.

Business Model Innovation is about combining successful models from various industries as well as finding completely new ways of doing things.

Re-imagine your organisation with a different leader

When you design your future business model you need to find ways to overcome the current thinking patterns or dominant logic of your industry. Famous leaders are often responsible for defining a new way of thinking in their industry. How would Rupert Murdoch or Frank Lowry run your business? What new customer segments would Robin Hood develop in your organisation? How would Pierre Omidyar lead your not-for-profit organisation?

Google didn’t apply the business model from the software industry, yet their first product was nothing else than software packaged as a service. Airbnb.com didn’t use the business model of the hospitality industry, yet they offer hospitality services. Kickstarter.com didn’t use a banking or venture capital business model, yet they fund new endeavours all the time.

They all applied models from a different industry and combined them with a new approach that broke the dominant industry logic.

Understanding another industries business models is only the first step

Companies should always look beyond their traditional industry borders to learn. Could you learn from Nespresso’s direct sales model? Could you do the same and sacrificed some reach of your sales channels for a much more rich interaction with your customers?

Could you learn from Ikea and outsource some core activities to your customers? Could you learn from Gillette and their “razor and blade” model? Could you learn from the newspaper industry with their subscription model that makes customer pay you in advance before they get the product? (more…)

The abundance of choice. A call for a fresh value proposition: The need for the right choice.

Friday, December 20th, 2013

Ever since we have the Internet everything is abundant. So many information at your fingertip, billions of webpages, millions of articles on Wikipedia, millions of articles at Amazon and other hundred of thousands of specialized ecommerce shops with even more articles. But is more choice always better?

Abundance of choice is today the norm. That is due to the Internet. A physical shop is always limited by its physical space. The Internet knows no limit.

The right choice not more choiceWhen I started my research on business model innovation in 1997 we were pretty much alone in this field. Actually, we had no word to describe the profound changes in industry structures due to the emergence of the Internet at that time. The term business model innovation just popped up in 2000 as a pure academic accident. I just added innovation to business model, a term that emerge in the 1990s and I secured the URL business-model-innovation. Today, Google gives me 190.000.000 hits for the term business model innovation. So you have abundance of sources of information about business model innovation. However, can you use them all?

More choice the better: The value proposition of the first wave of Internet ventures

The first battle cry in e-commerce and on the web was that now people have more choice than ever. More choice, the better was the value proposition. There was no limitation any more. You find any product today on the web in thousands of variations.
Sport Conrad, one of the largest online shops for skis in Europe, (more…)

The strange business model of airlines

Monday, May 7th, 2012

The airline business is a strange business and in desperate need for business model innovation. On the one hand, more people fly than ever to prices lower than ever. IATA, the industry body, states that the real cost of travel has fallen in the last 40 years by about 60% and the number of travelers increased tenfold. Air freight has grown in this period by a factor of fourteen. (See IATA Vision 2050) That sounds like a very successful industry. Is it? However, on the other hand, airlines are notorious to not even earning their cost of capital and producing unhappy customers.

 

During the 2000s the average airline generated an EBIT margin of just 0.7%. Taken a longer perspective, the figures are as drastic. From 1970 to 2010 the airline industry generated over USD 12,000 billions of revenues in today’s prices, but only a total of USD 19 billion of net post-tax profits; a margin of only 0.1%.

Another dull figures: Around USD 500 billion of investors’ capital is tied up in the airline industry. Normally, investors would expect a return on capital of around 7-8%. Taken the 500 billion that would mean a return of 40 billion annually to cover the cost of capital. But what did the airlines earn? 20 billion or 20 billion less that the capital would have earned elsewhere. The airline industry is a big capital destroyer. Interestingly, other firms along the travel value chain like airports or computer reservation systems earned excess returns. So there is profit in the travel industry but not with the capital-intensive airlines. Airlines are a dismal industry.

So are customers at least happy? Just type in Google the search “airline experience” and enjoy all the customer stories about flights. And watch the film “United breaks Guitars” like 12 million others did on Youtube.

What went wrong and is there a solution to it? And think about it why we all hunt of low prices on traveling while we spent USD 5 for a latte at Starbucks. Why are we so price conscious on travelling and not on coffee?

Here are some thoughts I presented at the 17th international airline conference last fall in Seattle. Thanks to Nawal Taneja, Dietmar Kirchner and Rob Solomon for the kind invitation.

Thesis 1: Airlines are masters of transportation economics, not customer experiences

It seems that all airline managers are great students of economics but not of entrepreneurship and marketing. Since they have a perishable good (empty seats on an upcoming flight are like perishable goods), they believe strongly in variable pricing by exploiting the maximal price customers are willing to pay.

That sounds very reasonable at first, since who wants to argue with economists and their theoretical models, but what airlines have forgotten over time is, that if you treat customers like rational customers then you will get rational customers and extremely price sensible customers in the end.  However, there is a good reason why economics is called a dismal science. So if you follow economists, (more…)

Markets vs customer driven business model design

Saturday, September 3rd, 2011

Do you have to be market-oriented or is this again one of the buzz words that hides more than its reveals? Or should you be customer driven? Let’s take a look at the two words and concepts and see why Alex and I have chosen not the term market but customers for our canvases.

I just return from a workshop for entrepreneurs in Wolfsburg, the birthplace of Volkswagen. We used the business model canvas to focus the entrepreneurs and their coaches on the core building blocks of a business models.

Interestingly, most participants of the workshop always talked about markets, that we need to be more market oriented, that we have to conquer new markets. But is this true?

Customers pay your bill not "markets"

Markets, top-down approach

Markets are the sum of customers that spent money and therefore have shown a demand in the market. But a market is abstract and impersonal. You can not sell your product to a market. There is no Mrs Market to write a bill to and that is exactly the problem for entrepreneurs. You might be in a great, growing and profitable market but that does not mean you have one single customer who pays your bills.

Markets is a top-down approach very well suited for analyst and consultants. The market is great for analysis but not good to sell something to.

Customers, bottom-up approach

Let’s take a look at customers. As a business you need an individual client that is willing to pay for the service or product you offer. (more…)

The Art of Painting on the Business Model Canvas

Thursday, June 30th, 2011

We have a great tool for visualization of a business model: the canvas. There is a hype on visual thinking and business model design. But can the tools deliver?

In the last years, I have seen many uses of the business model canvas to real cases. Some showed astonishing results, others were disappointing. Why? Any tool is only as good as the user. A fool with a tool is still a fool. But also: A genius without the right tool might be a fool. So let’s see, what makes the difference.

Visual Thinking = Thinking with Visual aid

Visual Thinking is often mistaken as nice visualization. A bad idea does not become better by visualization. Visual Thinking is great since you think in pictures. Visualization can help to make your thinking better, to see more options and see the interdependencies among all components. But you still have to think!

There was a reason why god gave us two brain hemispheres: Visual Thinking is the combination of analytical and creative thinking. So do the thinking.

Be precise in your thinking

Due to the limited space, people tend to be pretty imprecise when filling out the canvas. They fill the canvas as if it is just a form, not the master plan for a venture or for the future of your firm. That happens particularly often in large corporations where the people are so stuck in their old thinking. (more…)

Can you copy a business model? Groupon and its clones

Thursday, April 14th, 2011

Particularly on the web, we see a lot of copies of successful business models. How many clones are there of Groupon? How many competitors and incumbents wanted to copy Amazon in the late 1990s and failed? The core question is: Is it possible to copy a business model? In this post, I will elaborate on this topic.

Business Model Copycats

During a recent interview for a bachelor thesis, I was asked: Under which circumstances is the transfer of a business model e.g. from a different country or from a competitor a useful strategy?

I must admit, I am skeptical about the outright transfer of business models from one firm to another. The reason is very simple. A business model is more than its technical components like your value chain, revenue model, your product etc. The business model also includes soft factors like the value proposition, your values and corporate culture or your core competencies. Remember the definition of core competency: core competencies have to be rare, difficult to copy and valuable.

Many strategists, VCs and purely analytical people think that it is easy to copy a business model. What they forget is that a business model is not just a technocratic combination of components, in fact, humans are involved with their values, cultures and hidden assumptions. You can copy the hard components, but the human aspect of a business model –values, culture, tacit knowledge – is difficult to copy.

Business Model transfer from Start-ups to Start-ups

The case is different for startups where (more…)

Brands are the icing on the business model

Tuesday, November 16th, 2010

How do brands and business model work together? That is a key question for successful companies because if they do not align brand and business model it will backfire, probably not in the short run but surely in the long run.

Branding is a hot topic. Brands give products the magic touch. With branding regular, normal products morph into highly desired status symbols customers are willing to pay a premium for. Branding worked very well in the last years but is branding sustainable?

Brands are not sustainable if the foundation is missing

Branding is not sustaining when you have a business model that does not support your brand or vice versa, your brand promises something you cannot fulfill. If you focus too much on branding you create over the long run, a perception gap between what you promise and what you deliver. It is like the icing on the wedding cake. It looks great but very rarely does a wedding cake taste as good as it looks.

Let us look at one example.

The Ergo Insurance Case

The German insurance company Ergo Gruppe is the holding company of the well-know household brands Victoria Insurance and the famous Hamburg Mannheimer Insurance. Lately, Ergo decided to consolidate its brands under the fresh brand Ergo. Ergo tapped into people’s discomfort that insurance companies are great in sales but very bad when it comes to ease to understand the policy condition and in the case of a claim.

From this customer insight of discomfort with traditional insurance companies Ergo created the claim “Versichern bedeutet verstehen.” or in English “To insure means to understand”. Ergo used all communication channels and very well made commercials to establish the brand Ergo among German consumers. In the ads, people ask why it is so difficult to get insured, why the agents do not take them serious. (more…)