Rethinking your industry logic: Cross Industry Business Model Innovation

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? Continue reading Rethinking your industry logic: Cross Industry Business Model Innovation

Karstadt: Death of a legend (business model)

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)

It is the customer!

The typical answer from managers to the question “What is the purpose of your business?” is: “to make money”. Well, that is to some point right but the money comes from customers and therefore the purpose of a business is to find profitable customers. And financing your sales to your customers is only sustainable when you see the cash in your pockets in the end. That basic purpose got lost over the last years of shareholder value thinking.

I gave last week a workshop on business model innovation for a large Swiss technology firm. The firm is well entrenched with its customers, you can almost call the firm a purveyor to the court for some customers. But times are changing and therefore did the new management arrange a workshop on customer centric business model innovations.

The first question I asked was the classical Peter Drucker question: What is the purpose of your business? And I got the typical answer from the senior managers: “To make money or to make a profit.”

That is of course right but: Where is the money coming from? How can you earn money for your shareholders without somebody who pays you? Where is your salary coming from? Is it really the company or where is the cash coming from?

It’s the customer, stupid!

It is amazing how few say it is to create and keep profitable customers.

It is simple, it is a hard fact:

“It is the customer where all the money comes from.”

It is the customer who helps you to pay your salary. It is the customer who finally pays the dividends to your shareholders. Without a customer you can not have the top line (revenue) in your profit & loss statement to pay for all other items that come under the revenue line. Continue reading It is the customer!

Money as the only differentiator

“We have to pay so high salaries otherwise we don’t get the right people” is often heard from firms even in the crisis.  Particularly the failed banking industry was very good in this salary death spiral. Salary was seen in this market as the only differentiators with great results.

I always wondered why the so highly paid managers could not find other reasons than money. Are they so uncreative that they had only the pricing mechanism as the only marketing tool in their recruiting process? Did they ever think about who they hired when money is the only reason why one should work for a particular bank? Can you develop a long-term oriented, customer centric bank when you have soldiers of fortune as employees? Have they every thought about what kind of culture they have created in this process? Have they ever thought about the customer experience they have created with a recruiting policy like that?

Well, the bankers will tell you they were driven by the short term orientation of the investors and the financial market in general. They will tell you that everybody was doing it so they had to do it as well. Continue reading Money as the only differentiator

How large companies react to the crisis

The current crisis could be a great start to rethink your business, but large companies do the opposite. Besides the usual and essential task to save cash they push their business units into more controlling and reporting of the existing business.

Today, I had a long chat with an executive from a business unit in a large company. We talked about the reaction of the headquarters to the financial crisis which is hitting his business hard. He is very busy in the moment to cut unnecessary costs and to save cash wherever possible. At the same time he is spending a lot of time with customers to find new projects. Besides pressure on the margin customers have canceled orders but his position is still better than of his competitors due to his excellent customer relation.

At the same time he feels that his business model is too similar to the strategies of his competitors. Continue reading How large companies react to the crisis