e01Valuemigration-sent

© 2000 Manoj Chawla

Value Migration


Value Migration What is value migration?

The three phases of Value Migration

Business Design

Competition

Value Migration Patterns

Where is Broadcast / BS?


Value Migration

Based on book by Adrian Slywotzky

Harvard

Founder of Corporate Decisions Inc, Boston

Vice President and member of the board of directors of Mercer Management Consulting, Inc., one of the world's leading global corporate strategy consultancies, with a staff of more than 1200 located in 17 offices throughout the Americas, Europe and Asia


What is Value Migration?

Value migration is the flow of value from outmoded business designs to new ones that are able to satisfy customer’s most important priorities.

Value is driven by business design not technology McDonalds did not invent the Hamburger or Fries

Value migration is dependent on the fundamental assumptions of business design


Value Migration - The Three Phases

•Limited Competition

•High Growth

•High Profitability

Value Inflow Value Stability Value Outflow

•Stable Profits

•Stable Market Share

•Stable Market Place

•Competitive Market Place

•Declining Sales

•Low Profits


Value MigrationIBM

0

20

40

60

80

100

120

140

160

80 82 84 86 88 90 92 94 96

Year

Ma

rke

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e i

n B

illi

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of

1994 D

oll

ars

Intel/Microsoft

-5

0

5

10

15

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25

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80 82 84 86 88 90 92 94 96

Year

Ma

rke

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1994 d

oll

ars

Intel

Microsoft

Within a decade, IBM and DEC lost $80billion in value while new

specialised business designs gained $80 billion


Generic Reasons for Value Migration

Evolving Customer Priorities

Changing Customer Choices

New set of customers

New Competitor Offerings (non

traditional i.e. outside the industry)

New Designs

Customer Wealth

Customer Power


Business Design? Value is driven by Business design not

technology

McDonalds did not invent the Hamburger or Fries

BS Did not invent :-

Video circuits

Servers

Switches

It does control:-

Contracts & Pricing

Customer Service Wrap

Delivery


What is Business Design?

Business Design is based upon :

“A set of Basic Assumptions about Customers & Economics”

Some Basic Assumptions follow which profoundly influence the designs strength & viability >>>


Business design (1 of 2)

Fundamental Assumptions How are customers changing?

What are customer priorities?

What are the profit drivers?

Customer Selection Which customers do I want to serve?

Which ones will drive growth?

Scope What products/services do I want to sell?

Which activities to do inhouse v outsource?

What skills do I have / need?


Business Design (2 of 2)

Differentiation What is my unique value proposition?

Why should the customer want to buy from me?

Who are my key competitors?

How unique is the competitor offering?

Value Recapture How does the customer pay for the offering?

How are my shareholders compensated?

How do I add value?


The Business Design Profit Curve

Stability

Profit Generated

by Business

Design

Time

Value

Inflow

Value

Outflow


Question?

Do you think a new prestige car manufacturer could enter the market & win against BMW &

Mercedes?


Business Design comparison

Product focussed

Rigid manufacturing system

Backward integration

Technology and scale drive success

There is only one way to do business

Customer focussed

Flexible manufacturing and selling

Specialisation

Customer understanding and business design drive success

Innovative improvement is possible

Traditional Auto Toyota (Lexus)

Key Elements

Key Assumptions


Who are my Competitors?

From Tunnel Vision to Radar Screen

How wide do I look?

Who are competitors today?

Who will they be tomorrow?

Are they even in the same industry / sector?


The Competitive Field

(Tunnel Vision)

•NTL

•Globecast

•SIS

•MCI/Worldcom

Normal Field of Vision

Non traditional competitors

(Barbarians at the gate)

Non traditional competitors

BT BS


Competitive Field

(Radar Screen)

•NTL

•Globecast

•SIS

•MCI/Worldcom

•Canal Plus

•Sky Digital

•SES

•Yahoo

•Easynet

•Cellnet

•Vodafone

•Microsoft

•Colt

•Level 3

•Akamai

•iBeam


Some Key Value Migration Patterns

1. Multidirectional Migration

2. Migration To No-Profit

3. Blockbuster Migration

4. Multicategory Migration

5. Integration to Specialisation

6. From Conventional Selling to Low Cost Distribution

7. From Conventional Selling to High End Solutions


Integrated Steel

Mills

Foreign

MillsMinimillsPlasticAluminium

1. Multidirectional Value Migration

Reasons

New Customers

New Priorities

New Substitutes

Steel Industry

Beverage

Cans

Car

Bumpers

Value migrates from one to several business designs simultaneously


2. Value Migration To No-Profit

Reasons

Deregulation

New set of competitors


Price sensitivity

High fixed costs

Industries evolve into a profitless business

following external events. (i.e..Deregulation)

Regulated

Low price sensitivity

Mostly business travel

High Profit

BA,KLM etc

Deregulated

High price sensitivity

No frills

Low profit

The Airline Industry

Refined model

Easyjet, Go, Buzz


Value migration as result of a radical new business design3. Blockbuster Value Migration

Reasons

Going for ‘the big one’

Only the big ones are profitable

Careful customer selection

Focusing resources

•Discovery is random

•All products profitable

•Doctors = Customers

•Regulator = Obstruction

•Focussed R&D

•Doctor & Regulator customers

•Intense Project Management

Pharmaceutical Industry E.g. Merck

•Price Sensitive &

•Managed Health care

1990-2000Pre 1970 1970-80’s


IBM : 1960’s - 70’s

IBM 70’s - 80’s

Intel MicrosoftCompaq Dell Novell HP IBM

Value flows from one business design to several specialised ones

4. Value Migration from Integration to Specialisation

Reasons Focus

Changing Customer Priorities

New customer set Example : IBM

4

Integrated Mainframes

OS licenced to Microsoft

Separate Specialists


Value migrates from traditional business designs to new business designs

which cater to changing customer priorities

5. Multicategory Value Migration

Maxwell House & Starbucks both started selling Coffee Beans

Starbucks saw higher value retailing “Gourmet” coffees

Reasons Convenience

Changing customer priorities (less time)

Fashion

New customer needs

Starbucks : From Coffee Beans to Café Latte

•Fresh whole coffee beans

•Commodity

•Customers are stores

•Low profit

International chain of Café’s

Premium product

High Profit


6. Value Migration From Conventional Selling to Low Cost Distribution

Reasons Changing Customer

Priorities Price

Time

Proximity

Reliable Quality

Increased customer sophistication

Value migrates from business designs using direct selling to

business designs offering smart products

Specialised

Less competitive

prices

Traditional Retailers

All products under one roof

Reliable quality

Proximity

Wal-Mart / ASDA


Commodity

Solution

Outsource

Product

Value flows from commodity to solutions

7. Value Migration From Conventional Selling to High End Solutions

Reasons


Home made Pizza

Flour, Vegetables etc.

Frozen Pizza

Mcain,Iceland etc

7

Pizza+Wine Takeaway

Pizza Delivery Pizza Restaurant

(eventually market has all products)


How does BS fit?


Value Migration - The Three Phases

•Limited Competition

•High Growth

•High Profitability

Value Inflow Value Stability Value Outflow

•Stable Profits

•Stable Market Share

•Stable Market Place

•Competitive Market Place

•Declining Sales

•Low Profits

BS Overall ??

SMS

DCMS ?TTV ?

IOU


The Business Design Profit Curve

Stability

Profit

Generated by

Business

Design

Time

Value

Inflow

Value

Outflow

BS Overall?

DCMS?

TTV ?

IOU


Broadcast Industry Evolution

Commodity (to 1985?) Special Needs (85 - 95?) Added Value (95 - 99) 1999 on?????Point to point PAL Network Global OU Network Int. Fibre

Space Segment Switching SDV / 601 SMS / CMS

Tech Analogue C Band Uplinks Perm & Temp (OBs) Compression / Muxes Streaming

Satellite Networks Enctyption IP / Internet

TES' & Flyaways Network Management File Transfer

Higher power satellites/Spots Higher Availability DWDM

Multi - Channel Non-Real time

NVOD / ASI

Digital Storage

Cust BBC BSkyB Sky Digital Zee TV (SMS)

ABC BSB Canal Plus UM&E (ATM)

CBS BBC Fox Kids Interpacket

ITV ITV Middle East Broadcast Easynet

MTV Open Interactive

DTTV

ITVA

Notes Not Price Sensitive Increasing Competition Newer smaller entrants Mixed IP & Video

Specialist (Maxsat / Brighstar) Lower Cost Base Compete on content

Technology Led BBC / Energis EPG / SI management Interactivity increasing

No competition / High Cost Increasing Volume TV & Data mixed e-Business

Low Volume Quality Crucial Service Packages Internet Broadcasting

Quality Important Pick - n - mix (Sky OU) Bandwidth > Commodity

Price sensitive Service is value add

Quality Critical


Commodity

Solution

Outsource

Product

Value flows from commodity to solutions

BS Migration From Conventional Selling to High End Solutions

Reasons


PAL Ccts.

Switching &

Networks

7

Network + Management

SMS/Network/DCMS


BS : Some Recent Comments (1 of 2)

Fundamental Assumptions

How Are customers changing?

What are customer priorities?

What are the profit drivers?

Customer Selection

Which customers do I want to serve?

Which ones will drive growth?

Scope

What products/services do I want to sell?

Which activities to do inhouse v outsource?

What skills do I have / need?

“I do not know who my customers

are for New Products” Awayday

10/5/00

“I’ll come back to Caching as I don’t really

understand it” Awayday 10/5/00”

“I am targeted to sell ITV &

OU” Awayday 10/5/00”


BS : Some Recent Comments (2 of 2)

Differentiation

What is my unique value proposition?

Why should the customer want to buy from me?

Who are my key competitors?

How unique is the competitor offering?

Value Recapture

How does the customer pay for the offering?

How are my shareholders compensated?

How do I add value?

“I have funding to launch a global

Internet TV channel this year” NAB

2000

Who can I talk to about video

streaming” 50% visitors NAB2000

“We need more people &

training to sell & support

new products” Awayday

10/5/00


BS - The New Business Design

Product Focus?

Training?

Resource Allocation

Objectives

Over to Manoj >>>>>

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