So you need to know what your customer will love? What excites them? What moves them? This of course allows you to begin the process of designing a business model that delivers to both the customer and the business. Traditional business motivations are usually a push approach. But is this the future? Guest post by James Streeton-Cook
Right now, let’s make something better than what’s out there, something really cool and we’ll beat the competition and make a mint.
Since you are reading this post then we can assume you know better.
Current business thinking it is all about what the customer needs. So let’s pull out the Henry Ford standard about ‘faster horses’ for that one. Enough of the push!
Power of Pull – It’s a Lean Thing
Lessons from Lean Business have taught us the power of pull systems. »The core idea of lean is to maximize customer value while minimizing waste.«
When creating something new, some new value, be that a business model; product or service; or even a new industry platform – value is pulled into arrangement (not pushed) by Attractors involved.
The same thing happens in nature and as far as I know is current thinking for the formation of the universe. So with a bit of imagination, pull will also be relevant in business model innovation. It is a non-linear thing and most of everything is made up of non-linear systems. A river flows down hill. Why?
The pull in a good value proposition: 3 Types of Attractor
There are 3 types of Attractors to look for in your discovery, insight and understanding of what will excites your customer.
Most people want to be liked or even be loved. But a good value proposition for a firm should not attract everybody but only the ones you intend. And that means that a lot of people might even hate you.
Abercrombie & Fitch offers no women’s XL or XXL because they don’t want big women to wear their brand. Their value proposition is clear: They want the cool kids as customers. They do not consider big women as cool.
Mike Jeffries is the man behind A&F. In an interview with Salon Magazine in 2006 he told, when asked about the emotional experience in his shops:
“It’s almost everything. That’s why we hire good-looking people in our stores. Because good-looking people attract other good-looking people, and we want to market to cool, good-looking people.”
That is the reason why they offer nothing for big ladies. That is their choice. They discriminate big ladies, but you as customers have the choice as well. You are not forced to buy at A&F. I do not buy at A&F because I do like their attitude. However, they have a value proposition that is clearly distinguished from their competitors. And that is what I like and adore. They stick to their mantra even under severe pressure from the public.
Take other firms, Apple or Zara. They also discriminate. Apple’s Operating System is a closed system and either you take or leave it. At Zara, you also have no extra large sizes.
To be honest, I get a bit bored about the mantra that design thinking will solve the problems of large corporation. Well, when I go through the case studies at Ideo I am extremely impressed by their client list but not about the output. I have seen several design thinking sessions and I am not impressed at all with the output. The results are very often: More-of-the-Same but with fancier design.
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.
In the discussion on business model innovation an important point is missing: the culture in which the business is conducted. A business is all about people “creating” customers.
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. Continue reading Culture and the Business Model: We are humans
Dell announced on September 21, 2009 that it will acquire Perot System for $3.9 billion. Dell was the poster child of business model innovation. It had “invented” the direct sales model for PCs. Instead of going via resellers Dell sold its computers directly via telephone or the Internet to its customers. Now, Dell is extending its traditional business into services. Will this work?
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 [update: link no longer available]. 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.
The newspaper industry is suffering these days. Besides the economic crisis that leads to less advertising spending the traditional business model is under attack by the Internet. The large papers have reacted with large Internet activities that attract a lot of traffic. But the revenues of the online ventures are not sufficient to compensate for the decline in print. So what shall they do?
I had the pleasure recently to be invited back to my university, the University of St. Gallen, to give a speech on business model innovation in the media industry. Prof. Martin Eppler was so kind to sponsor the discussion. I used 8 theses to present my thoughts. Below you find the slides of my presentation.
The German retail and travel conglomerate Arcandor AG formerly known as KarstadtQuelle AG filed on June 9th 2009 for insolvency. It claims that the financial crisis is the reason. It had asked the German government in May for state aid but the government refused. But is the financial crisis the real reason for the dire situation? I do not think so. The business models of its retail activities (Karstadt and Quelle) are just dead. The management did not innovate on its business model and that is the reason for failure.
Most writers and bloggers take the music industry as a prime example for an industry that failed to innovate its core business model. But there are many other industries where failure to innovate its core business lead to their decline. A sad prime example of missed innovation is Karstadt, a large department store chain in Germany and Quelle, a German mail order powerhouse.
The Karstadt case is typical for a corporation that business model is dated. Instead of rejuvenating its business model or finding new business ideas the old business model is defended and by consolidating the industry even reinforced.
The next lesson is that all activities at corporate level like selling non-core assets do not solve your problems of an ailing business model. The solution must be found on the business level not on a corporate level. If you cannot fix it, than sell or close it early. Success in business is not defined on corporate level but by its business model!
In May 2009, the CEO of Arcandor, Mr. Eich asked for “a state guarantee to temporarily bridge the gap of the currently non-functioning financial markets.” [update: link no longer available] Arcandor did not want to have any handouts nor a state participation in the company. It promised that it will repay the loan “to the last penny.” It claimed that the credit crunch is the main reason for its financial stress.
But is this really true?
The only constant in retailing is business model innovation
Retail markets in general are dynamic markets where new business models destroy old ones and create new fortunes. Zara, Aldi, H&M, IKEA or Carefour all reinvented their retail category and made their owners rich. But since the whole market did not grow as fast as the newcomers, the incumbents suffered losses in market shares and sales. Continue reading Karstadt: Death of a legend (business model)
Business model innovations sound great as a strategy and if successful you can create a new market and escape the traditional competitors in your ex-industry. But the most important point in any innovation is not to have an idea, is not great execution, but the adoption of the innovation by customers. And that is the crux of business model innovation: The diffusion of the innovation. The TiVo is a perfect example.
Ten years ago the TiVo digital video recorder was presented at a broadcasters’s convention in Las Vegas. People expected that the TiVo as an easy time-shift machine would change the TV industry for ever. The great opportunity for TiVo’s users was to watch a show whenever they wanted and without commercials since they could skip that annoying part. The latter was seen as the death of the TV industry as we know it today since their revenue model is based on these commercials that nobody needed to see anymore with a TiVo. As predicted the TiVo sold well particularly as the price fell. But since 2007 the user base has fallen and the the TV industry is still existing as we know it.
It is the customer, stupid!
The Economist from April 25th, 2009 summarizes the problem with the TiVo very well: “Just because technology enables people to do something does not mean they will, particularly when it comes to a medium as indolence-inducing as television.” Continue reading TiVo: Failed Expectation
The THESUS program seeks to develop technologies and applications for the Internet of services. The program is sponsored by the German government and supported by German IT heavy weights like SAP or Siemens and technical universities in Germany.
The program is based on several use cases where technology is supposed to solve a real world problem. The aim of the program is to build with semantic technologies a new and better knowledge infrastructure. For webbies you can also call it Web3.0.