“What business are you in?” sounds like a simple question. But it’s not. How you define your business determines which direction your firm can go. Based on your answer, you define and limit your strategic options.
In a company, the business model is defined by a dominant group of people. They have a common understanding of what business they are in and how they create value. However, the business model is not an absolute reality. It’s a social construct of dominant opinion makers, e.g. your top management. This is important to understand.
By taking a different look at your business, and thereby challenging your dominant logic, you can identify more and different strategic options for your firm. But beware; by doing so, you are also challenging the top dogs in your firm.
Life is not that simple. Changing perspectives by xkcd.com
How you define your business depends on the dominant logic of your management
Considering the definition of what a business model is, it seems easy to describe the business model of a company. You can use the business model canvas (Alex Osterwalder‘s or mine) and then you describe how value is created. Often we assume that regardless of who describes the business model, we will end up with the same description. This is a mistake.
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.
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 Swiss private banks are under pressure to change their business model. It is not just pressure from other states that want to fight tax evasion via exchange of information on bank customers but also from employers that try to sell stolen customers’ data to foreign governments.
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? (more…)
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.
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 [update 22nd Oct 2010, case is not available on IDEOs homepage any longer due to redesign of page]. (more…)
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. (more…)
In formulated strategy we use a lot of words like innovative, based on core competencies, market driven, customer centric, operational excellence, best-in-class, top quality, leveraging existing brand, etc…. You named it and of course business model and business model innovation are now part of these buzz words. Are they still meaningful or did we forget the deeper concepts behind the words? Do we use the technocratic jargon to signal others that we are the experts?
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. (more…)
In workshops participants ask me what business model innovation would be best for their industry. I am always surprised about these kinds of questions.
I am not the expert for all industries. You are! You are the expert for what you are doing. The participants are the expert in their field. They know the idiosyncrasies of their industry, the hidden mental models of how their trade works. They understand the accepted rules of competition. They should know exactly what the customer values. They should have the insights in the customers’ behavior. And they should find starting points for innovations.
I am not very creative. I was not great in art at school. I was a lousy painter, my brother helped me, I must admit. I never wrote a poem or composed music. But I am extremely curious. I was a pain in the neck for many. (more…)
This video shows extremely well why companies just not need to do more of the same (MOTS) since it leads to more clutter. More clutter in features, more clutter in products, more clutter in advertising, more clutter in PR messages, more clutter of everything.
In this strange world of more of everything simplicity and clarity in your business model helps to find real differentiation, not just little differentiation but radical. Differentiation in the image, the message and the product helps but business model innovation where you create a fresh business model that is based on fresh customer insights is one key to reach this needed radical differentiation.
This video is particularly funny for all Germans that were socialized by the brands mentioned on the side line. Think that we have only limited brain capacity for each product category.
I was asked lately, when it is time for a disruptive innovation or a business model innovation? When should a company try to steer away from sustaining innovations toward a blue ocean of less competition.
Well, I would like to open this question to all of you. Please, tell me when you think it is time for change. Do we need a crisis or can we do it deliberately?
Please use the comment function for the discussion.
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