DEVELOPING LEADERS GEOFF SURRATT. DEVELOPING LEADERS GEOFF SURRATT.
Generating options for a new Business Model Geoff Eagleson.
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Transcript of Generating options for a new Business Model Geoff Eagleson.
How can we generate options for a new Business Model whether for an organisation in trouble or for one that
senses an inflection point in its performance?
• Unstructured brainstorming is inadequate
• Data mining is of limited value
• Market Research that assesses demand for non-existent products is dubious
• We know where to look:– Underexploited resources and capabilities– Untapped insight into customers– Future trends– Our and others’ experiences.
• What we need is a process – it is all about framing. Source: Coyne, Clifford & Dye (2007)
How do I generate options for a new Business Model?
Business Modeloptions
Leverageexisting
R & C
Leveragemarket
intelligence
Leverage insights about future
trends
Leveragethe experiences
of self and others
Generating options for a new Business ModelRoad Map:
How can we facilitate option generation? By leveraging:
– Existing Resources and Capabilities• Audits of Resources and Capabilities
– Market intelligence• Blue Ocean; Disruptive BMs
– Insights about future trends• Scenario planning; Visioning; Enacting
– Experiences of self and others• Reverse engineering; Intuition, Entrepreneurial approach.
Applied to the AGSM in 1988 and an organisation chosen by your residential team
Generating options for a new Business Model:Caveats
• This is not a “numbers game”; this is “Do or die”.
• This is more of an art than a science.
• Beware of exiting your current core too soon. (Estimated to be10% of revenue stalls by Olson et al. (2008) – Reading 3). That is, make sure that you understand the real root causes of the decline.
• Personal expectations, agendas and prejudices will play an important role.
Generating options for a new Business Model: Leverage existing Resources.
Resource Strategic Importance
Relative Strength
Sustainable Value Capture
Tangible (physical, financial, administrative, legal)
1.
2.
3.
Intangible (IP, reputation, technology, culture)
1.
2.
3.
Human (staff, customers, skills, know-how)
1.
2.
3.
VIRO: Appraising the strategic value of a Resource
Valuable?
– Relevant to customer needs; contributes to differentiation or cost advantage
Imitable?
– At risk of imitation by rivals, durability, mobility, substitutability
Rare?– “Are you, or can you aspire to be best in class among the competition?”
(Quinn & Hilmer, 1993)
Organisation?
– Organizational architecture, property rights, bargaining power, complementary resources or capabilities
Source: J. Barney, 2007 - Reading 7 in SM 1
Auditing your resources:Questions to frame your analysis.
• Identify the operational drivers through a du Pont analysis
• What are your ‘crown jewels’?
• What are your scarce resources?
• “What business are we in?”
• “What business could we be in?”
• “What business should we be in?”
Generating options for a new Business Model: Leverage existing Capabilities.
• Analyse the value chain. Product related; customer related; corporate. (Zook (2007) – Reading 5)
• Expose the asymmetries between your organisation and the competition. Who uses you rather than a competitor? What capabilities allow you able to serve these customers differently? (Miller, Eisenstat & Foote (2002) – Reading 6)
• What is the last function you would outsource?
• Think beyond functions to organisational wide capabilities.
Capabilities Audit: Start with the Value Chain
Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Inbound Logistics
Operations Outbound Logistics
Marketing & Sales
Margins
Service
Support Functions
Primary Functions
A “Core Capability” is a business process, strategically understood (Stalk, Evans & Shulman, 1992)
Functional capabilities:
FUNCTION CAPABILITY EXEMPLARS
Corporate Financial management Exxon, GEManagement Strategic control Emerson Electric
Coordinating global SBUs ABB, Shell
R&D Research capability Merck, Xerox Development of innovative new products Sony, 3M, Intel
Product Design Design capability Apple, Swatch
Manufacturing Efficient volume manufacturing YKKContinuous Improvement in production ToyotaFlexibility Benetton, Nucor
Marketing Brand management Coke, Proctor & Gamble
Sales & Distribution Order processing speed & accuracy Amazon.comEfficiency and speed of distribution Federal Express
Service Customer Service Ritz Carlton
Organisational capabilities:
• Continuously innovate– Product and services (3M)
– Processes (Toyota)
• Control– Processes (McDonald’s)
– Behaviour (Professional service firm)
• Manage information– Producing new information (J & J)
– Better analysing (Insurance)
– Sourcing and synthesising (Japanese trading houses)
– Learning from experience (Shell)
• Manage long-run structural advantages– Rivalry proposition (Oz building materials)
– Customer relationships (Pharmas)
– Supplier relationships (Bank insurance)
– Regulation (Merck).
• Renew– Engagement (Woolworths)
– DevelopmentSources: Stukey, Doman & Thwaites, 193 Turner & Crawford, 1998S
Generating options for a new Business Model: Leverage market intelligence.
• Leverage the asymmetries between your organisation and the competition: – Who uses you rather than a competitor? Why? (Miller, Eisenstat & Foote
(2002) – Reading 6)
• Use the Blue Ocean framework– Change the basis of competition– Serve those who are non-customers (Kim & Mauborgne (1995) – Reading x in SM 1)
• Devise a disruptive Business Model– What are the barriers that constrain consumption?– Who could be customers? (Christensen, Johnson & Rigby (2002) – Reading 4)
Blue Ocean :Yellow Tail’s “strategy canvas”
UninformedDrinker
WineConnoisseur
Price-sensitiveDrinker
ConvenientAvailability
How
Who
What did Yellow TailEliminate/Reduce/Raise/Create?
Eliminated
Enological terminology and distinctions
Aging qualities
Above-the-line marketing
Raised
Price versus budget wines
Retail Store involvement
Reduced
Wine complexity
Wine range
Vineyard prestige
Created
Easy drinking
Ease of selection
Fun and adventure
A New
Value Curve
Reduce
Eliminate Create
Raise
Which factors should be reduced well below industry standards?
Which factors should be created that the industry has never offered?
Which factors should be raised well above the industry’s standard?
Which of the factors that the industry takes for granted should be eliminated?
Leverage market intelligence through a disruptive Business Model. Basic assumptions:
•The pace of technological progress in almost every industry outstrips the ability of customers in any given tier of the market to make effective use of the improved versions of a product. Technologies that aren't good enough to address customers' needs at one point typically improve to provide more than enough performance for those same customers at a later point.
•Companies earn attractive profit margins when they stretch their products up-market, targeting customers in a more demanding tier who are not yet satisfied by existing offerings. A down-market move toward customers who are already satisfied by available products yields profit margins that aren't nearly as attractive.
•Innovations that help incumbent companies earn higher margins by selling better products to their best customers are sustaining, not disruptive. Sustaining innovations comprise both simple, incremental engineering improvements as well as breakthrough leaps up the trajectory of performance improvement.
•In contrast to sustaining innovations, disruptive innovations appeal to customers who are unattractive to the incumbents. Although disruptive innovations typically involve simple adaptations of known technologies, entrants almost always beat incumbents at this game because established companies lack the motivation to win.
Source: Christensen, Johnson, & Rigby,(2002) – Reading 4.
The Model of Disruptive Innovation
High
Low
Pe
rfo
rma
nce
TimeSource: Christensen and Raynor (2003)
Sustaining Innovations
Disruptive Innovations
Performance that average customers can utilize
Customers notsatisfied by current
products
Customers over serviced by current
products
Generating options for a new Business Model :Leverage your experience and think like an
entrepreneur.
Source: Timmons & Spinelli (2003)
Sources of ideas for opportunities
%Prior work 58.3 (previous role / employment, consulting project)Network
21.7 (social or business)Thinking by analogy 11.3Partner
8.7
But be aware of cognitive biases:
Novice entrepreneurs look for: Experienced entrepreneurs look for:
Novel ideas
Based on new technology
Superiority of product or service
Potential to change the industry
Intuitively appealing
Solving customers’ problems
Favourable financial returns:
positive cash flow, quick revenue
generation
Short sales cycles
Manageable risk
Potential for obtaining helpful input / collaboration from others
Source: Baron & Ensley (2006)
What personal attributes help an entrepreneur to identify opportunities?
• AlertnessA cognitive framework that assists entrepreneurs in being alert to opportunities. Those who possess such a schema show a tendency to search for and notice change and market disequilibria, to respond to information that does not match their current schemas, and to adjust existing schemas on the basis of such non-matching information.
20
• Bisociation
Personal attributes sought in leaders of new growth opportunities:
GE under Jeff Immelt requires five traits in the leaders of growth:
– External focus
– Imagination and creativity
– Decisive
– Inclusive
– Deep domain expertise.
Generating options for a new Business Model :Leverage the experiences of others.
What do all the following products have in common?
• Cirque de Soleil
• Spider Man movies
• Roller Blades.
The question you ask determines the answer you get.
• Reverse engineer and ask about a great idea: what question would have enabled me to see this opportunity first?
Generating options for a new Business Model :Leverage insights about the future.
Possible events
What we see
Reality
http://www.petatv.com/tvpopup/video.asp?video=tyson_heflin&Player=wm
The Basic Scenario Planning Process
1. Assess the current situation
2. Gather the data
3. Identify the driving forces
4. Generate alternative scenarios
5. Assess the implications for your environment
6. Assess the implicationsfor your org.
7. Define strategy & plans
8. Implement & monitor
Consider the AGSM in 1988. What options could it have considered to proactively transform itself?
• Its core business was the full-time MBA.
• It had been fully funded by the Commonwealth Government but that funding was expected to be slowly withdrawn.
• It was the first educational institution that was given the right to pay above award wages from its own income, on the condition that it instituted a performance management system “with bite”.
• What could it have done to protect its future? What were the options for a new Business model apart from introducing an Open Learning Program (the precursor to the EMBA).
Consider the AGSM in 1988:Six teams, six tools:
• Resource audit
• Capabilities audit
• Blue Ocean framework
• Disruptive Business Model
• Leverage the experience of self and others
• Scenario planning
Choose one of the organisations represented in your team and use a different tool from the one used earlier
to generate options for a new Business Model.
• Resource audit
• Capabilities audit
• Blue Ocean framework
• Disruptive Business Model
• Leverage the experience of self and others
• Scenario planning
References
Baron & Ensley, 2006
Christensen, C.M. & Raynor, M.E. 2003, The innovator’s solution: creating and sustaining successful growth, Harvard Business School Publishing, Boston, Mass.
Coyne, K. P., Clifford, P. G. & Dye, R. 2007, “Breakthrough thinking from inside the box”, Harvard Business Review, December, pp.71-78.
Stalk, G., Evans, P. & Shulman, L. E. 1992, “Competing on capabilities: the new rules of corporate strategy”, Harvard Business Review, March-April, pp.57-69.
Stukey, J., Doman, A. & Thwaites, R. 1993,”Distinctive and leveragable competencies”, in The case for core process design, McKinsey and Company, pp. 57-75.
Timmons & Spinelli, 2003