benefiting from network strategies in the digital age: 2.5 day program

Yoram (Jerry) Wind The Lauder Professor and Professor of Marke9ng

Director, SEI Center for Advanced Studies in Management

Academic Director, Wharton Fellows Program [email protected]

Presented to Wharton Fellows Jerry Wind, SEI Director Barry Libert, SEI Senior Fellow October 29-‐31st. 2014

1 copyright, OpenMaVers, LLC

The material in this curriculum is the property of Wharton’s SEI Center and OpenMa<ers, LLC and

shall not be reproduced and/or distributed without our express authorizaDon


NOTICE

Agenda for Wednesday evening, 10/29/2014

5:00-‐7:00pm I. Wayfair

7:00-‐7:30pm Travel

7:30-‐9:00pm II. Introduc0on, dinner, ini0al design of a supply network, group presenta0ons and discussion


8:00-‐8:30am I. Introduc0on: Key challenges facing the par0cipants

8:30-‐9:30am II. Iden0fying and challenging your mental models

9:30 -‐9:45am Break-‐out Teams: Iden9fying and challenging the mental model underlying your business and revenue models

9:45-‐10:00am Break

10:00-‐10:15am III. Business models, Mul0pliers, and innova0on

11:15-‐11:30am Break-‐out Teams: Iden9fying your business models

11:30-‐12:00pm Group reports and discussion

12:00-‐1:00pm Lunch

1:00-‐2:00pm V. Transforming your business model to achieve the Network Mul0plier

2:00-‐2:15pm Break-‐out Teams: Transforming your business models

2:15-‐2:45pm Group reports and discussion

2:45-‐3:30pm VI. Reflec0ons and ac0on plans

3:30-‐6:30pm FIELD TRIP: Acquia

6:30-‐9:00pm FIELD TRIP: The Media Lab -‐-‐ Andrew Lippman

Agenda for Thursday, 10/30/2014


Agenda for Friday, 10/31/2014

8:00-‐9:00am I. Adap0ve experimenta0on and designing and organiza0onal architecture for network orchestra0on

9:30-‐12:00pm FIELD TRIP: Kayak

12:00-‐3:00pm FIELD TRIP: Berklee

3:00-‐4:00pm IV. Break-‐out Teams: Group and individual plans for a network experiment

4:00-‐5:00pm V. Presenta0on of plans and discussion

5:00-‐6:00pm VI. Final reflec0ons and conclusion


Summary thoughts

1 Key premise: Digital technologies together with new mental models drive new business models

2 Best pracDces: Every organizaDon has dormant networks that they can acDvate to drive value

3 (Really 4) steps: To drive value in today’s digital and networked age


Lessons from Wayfair Wednesday evening, 10/29/2014

A U.S.-‐based mul9na9onal e-‐commerce company. The company began selling furniture online in 2002, and now sells many other home furnishings, luggage, toys, and pet items.

Year founded 2002

# employees 2,000

Market cap $2B

Revenue $1.1B

Mul9plier 1.94x

Profit margin -‐5.29%

Business model Asset Builder

Fast facts


IniDal design of a supply network


It’s Thursday


I. Key challenges facing the parDcipants


A. Advances in Science,

Technology, and Biology

C. Broad Changes in the Business and

regulatory Environment

B. Emergence of the empowered

Consumer, employee and

investor

And do your challenges reflect…


A. Advances in science and technology, such as…

social networks…

cloud…

internet of things…

home ecosystem of the future…

wearable compuDng…

Vigo – Human energy gauge

MIT Human Dynamics Lab starts publishing in 1990

Nike+ FuelBand

arDficial intelligence…

Why Google is Involved in Deep Learning

Mobile…

personalized medicine...


B. Emergence of empowered consumers & B2B customers

Converging on Communi0es: Let me be a part of it

Converging on Channels: I want to call, click and visit

Converging on Compe00ve Value: Give me more for my money

Converging on Choice: Give me tools to make beSer decisions

Converging on Customeriza0on and Personaliza0on: Make it mine

Source: Wind and Mahajan, Convergence Marke9ng, Financial Times/Pren9ce Hall, 2001

more skep7cal than ever before


C. Other changes in the business environment

•  The changing global markets

•  Challenges facing socie9es •  The changing regulatory environment

•  The changing compe99ve environment

•  The increasing importance of networks

•  The global risks [and opportuni9es] landscape


What are the implicaDons of all these challenges?


?

II. IdenDfy and challenge your mental models


To drive value, you have to challenge and change your…

 Mental models


à What are mental models?

Let’s consider…

What just happened?

Robbery at Knifepoint Updated March 11, 2013 8:55am


The reality of the situaDon did not change, our mental model did!

Our beliefs, actudes, feelings and behaviors are driven by our Mental Models, not reality.


Mental Models What is a mental model?

Mental model From Wikipedia, the free encyclopedia A mental model is an explana9on of someone’s thought process about how something works in the real world. It is a representa9on of the surrounding world, the rela9onships between its various parts and a person’s intui9ve percep9on about his or her own acts and their consequences. Mental models can help shape behavior and set an approach to solving problems (akin to a personal algorithm) and doing tasks.


Challenging your mental models

Inner City Alterna7ve Medicine

Roger Bannister breaks the 4 Minute Mile on May 6, 1954

Source: Gallup Daily, April 2014 hVp://www.gallup.com/poll/poli9cs.aspx


What is common to these innovaDons?

Napster

Samsung SGH-‐E760

$2000 Car

MIT’s Media Lab $100 laptop

Apple iPad

Microsoft Xbox 360 Kinect

Google Glasses

They changed the mental models of their industries.


Mental models and leadership over the ages

Power

Emo9onal

Intellectual

Network

Techno

logy

Time


Four examples of mental and leadership models


The key points:

“Without changing our pa<ern of thought, we will not be able to solve the problems we created with our current pa<ern of thought.”

-‐ Albert Einstein

•  Mental Models are cri7cal.


III. InnovaDve business models and their market MulDpliers


Business models are driven by mental models

What is a business model?


Different ages, different business models

Industrial revolution -‐ 1800

Services revolution -‐ 1975

Information revolution -‐ 1990

Network revolution -‐ 2010

Tech

nology

Time


Different business models scale differently

exponential

algebraic growth

arithmetic growth

geometric growth

Time

Gro

wth


Business models scale with different marginal costs

Network Facilitators

Technology Facilitators

Service Facilitators

Asset Facilitators

The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.

The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.

make many, sell many

make one, sell many

hire one, sell one

make one, sell one

zero marginal cost

low marginal cost

medium marginal cost

high marginal cost


The four business models…

Network Orchestrator

Technology Creator

Service Provider

Asset Builder

Digital divide


…and their Revenue MulDpliers

4 Network

Orchestrator Technology Creator

8 1

Service Provider

Asset Builder

2 Digital divide


4 Network


8 1

Service Provider

Asset Builder

2

Examples of companies

Credit card companies Stock exchanges Social Networks

Biotech Software

Pharmaceutical

Retails Industrials

Manufacturing

Consultants Financial Services Insurance

Digital divide


Why “8” type business models are criDcal

Networks

Services Assets

Technology

8 Business that are 8’s scale using other people’s money, intelligence and relationships, creating less need for capital and more future opportunity for open innovation in a flat world

Digital divide


Exercise: What type of business model are you?

4 Network


8 1

Service Provider

Asset Builder

2

Investment Tangible Intangible

Orie

nta9

on

External

Internal


IV. IdenDfy your dormant networks


Networks are all around you

NETWORK CATEGORY POSSIBLE VALUE PROVIDED

Customers •  Increased loyalty/brand awareness •  Data assets about customer profile or ac9vity •  Marke9ng or product ideas

Employees •  New product and marke9ng ideas •  Opera9onal improvements •  Expert support – both internal and external

Suppliers and Partners •  Improved market/compe9tor awareness •  More efficient rela9onships •  New sales and marke9ng channels

Investors •  Sugges9ons to improve valua9on •  Market awareness •  Crowd funding solu9ons – e.g. new sources

Communi9es (geographic, business, etc.)

•  Source new employees •  Understand local poli9cs/news as it affects company •  Advocacy and support


Customers 1 2 3 4 5 6 7 8 9 10

Employees 1 2 3 4 5 6 7 8 9 10

Suppliers 1 2 3 4 5 6 7 8 9 10

Distributors 1 2 3 4 5 6 7 8 9 10

Partners 1 2 3 4 5 6 7 8 9 10

Investors 1 2 3 4 5 6 7 8 9 10

Communi9es 1 2 3 4 5 6 7 8 9 10

Other 1 2 3 4 5 6 7 8 9 10

Not at all valuable

Extremely valuable

What networks do you have and how do you acDvate them?


V. Transform your business to achieve the MulDplier Effect


What can you do to transform your business or organizaDon to benefit from the Network MulDplier?

? 40

copyright, OpenMaVers, LLC

First, think like an investor: Diversify

Assets

Services

Technology

Networks

Allocate at least 10% to building your networks!


Potential network assets

1. Choose your most valuable

network to start

2. Add a technology

platform

3. Recruit early members with content and value

4. Expand by sharing rewards with participants

Consumer networks

Employee networks

Supplier networks

Other networks

Take CARE: 4 steps to acDvaDng your networks


Case study: Nike+

Select a network: runners who want to log runs

Create incen9ves to par9cipate: ability share runs with social groups (pride and recogni9on)

Seed the network with content: mo9va9on and training advice

Connect the network: Wireless devices, apps, and integra9on with Facebook

1: Choose the network

4. Expand with incen9ves 3. Recruit members with value

2. Add technology


Case study: AT&T

Select a network: employees

Create incen9ves to par9cipate: Recogni9on of peers, face9me with leaders

Seed the network: ask managers and leaders to par9cipate

Connect the network: Online plarorm to propose and vote on ideas



2. Add technology


Case study: Nest thermostat

Select a network: high-‐end thermostat users

Create incen9ves to par9cipate: Improved energy efficiency through big data analysis

Seed the network: begin with public data about temperatures and energy uses

Connect the network: Internet networked devices



2. Add technology


Exercise: Create a new network asset

Select a network to develop. Look for one that is large, ac9ve, underserved, and aware of your company

Create incen9ves for par9cipants

to begin adding content themselves. Incen9ves could be recogni9on or shared revenus

Seed the network with content, informa9on, and products in order to grow awareness and membership.

Use a technological solu9on to connect the network. Begin with something inexpensive and quick to implement.

Discuss the following steps for a high poten9al network



2. Add technology


What will your network experiments be?

•  •  •  •  •  •  • 


VI. ReflecDons and acDon plans


Lessons from Acquia Friday 10/31/2014

A sosware-‐as-‐a-‐service company providing products, services, and technical support for open-‐source web content management plarorm Drupal. Acquia is financed by venture capital.

Fast facts

Year founded 2007

# employees 500

Enterprise customers

3,800

Total investment

$118.6M

Revenue Est. $70M

Mul9plier unknown

Business model Network Orchestratorer


Lessons from The Media Lab

The MIT Media Lab is an interdisciplinary research laboratory at the MassachuseVs Ins9tute of Technology devoted to projects at the convergence of technology, mul9media, sciences, art and design. As of 2014, it has diversified its research into neurobiology, biologically-‐inspired fabrica9on, socially-‐engaging robots, emo9ve compu9ng, bionics, and hyperinstruments. The One Laptop per Child (OLPC) was one of the notable research efforts which grew out of the Media Lab.

Fast facts

Year founded 1985

Faculty & principal inves9gators

28

Graduate students

146

Current projects 350+

Annual opera9ng budget

$45M


It’s Friday


II. IdenDfy and challenge your mental models

We cannot solve our problems with the same thinking we used when we created them.


The new theory of the firm


BeneBits of Experimentation: 1.  Learning & Better Decisions 2.  Forces Measurement 3.  Enhances Innovation 4.  Fosters an Innovative Culture 5.  Confuses the Competition

Response

x$

Response

x$

½x 2x

X

X

X

-‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐

Have you adopted the adap-ve experimenta-on philosophy? And what have you learned from the natural experiments occurring around you?

I.A. AdapDve experiment

Others?


-‐ Vision -‐ Objec9ves

-‐ Value Proposi9on -‐ Business Models

-‐ Strategies Cultures & Values

People & Competence

Value Crea9on & Network

Orchestra9on Processes

Ownership, Governance, Structure, & Network

Orchestra9on

Resources

Technology

Facili9es

Metrics / Dashboard

The Organiza9onal and Network Stakeholders

Customers Employees Shareholders Partners Suppliers

Government Communi9es

Other

How will you go about crea0ng a Crea0ve Culture and Architecture?

Address the key challenges of: •  Aligning rewards and incen9ves •  Balancing short and long term perspec9ves and resources

•  Groom and support champions •  Balancing growth of core business with experimenta9on with breakthrough innova9on

•  Bridging the internal and external silos

•  Other?

I.B. Design an OrganizaDonal Architecture & Network OrchestraDon


IdenDfy and overcome obstacles to implementaDon


Lessons from Kayak

KAYAK is a travel search engine operated by the KAYAK Sosware Corpora9on. KAYAK's products are available in more than 20 languages. The company also runs travel search engines checkfelix and swoodoo. KAYAK was acquired by The Priceline Group on November 8, 2012.

Year founded 2004

Acquisi9on by Priceline

2012

Acquisi9on price $1.8B

Revenue at acquisi9on

$300M (2012)

Mul9plier at acquisi9on

6x

Profit margin -‐5.29%

Business model Network Orchestrator

Fast facts


Lessons from Berklee

The largest independent college of contemporary music in the world. Known primarily as the world's foremost ins9tute for the study of jazz and modern American music, it also offers college-‐level courses in a wide range of contemporary and historic styles, including rock, flamenco, hip hop, reggae, salsa, and bluegrass.

Year founded 1945

Campus enrollment

4,200 students

Online enrollment 5,000 students

Tui9on & fees revenue

~$180M

Total revenue (incl. grants)

~$200M

Fast facts


IV. Individual or group plans to transform your organizaDon to a Network OrganizaDon


AcDvate your most valuable asset: your networks

Networks


Four steps to create your network mulDplier effect

Orient Assess Act Measure

Understand your current business and mental models

Inventory all your Networks and other intangible assets

Allocate capital to your networks and take small steps to insure success

Add network-‐focused key performance indicators (KPIs) to your financial repor9ng


Mental models drive business model rewards BEST PRACTICES

Drive Business Models

What Leaders believe and do How leaders measure success

How leaders invest capital

Mental Models


Today’s leaders allocate capital to technology & networks

BEST PRACTICES

Network(Orchestrator(Technology(Creator(

Asset(Builder(

Service(Provider(


Asset Builder: Using assets to manufacture cars BEST PRACTICES

1

General Motors


Service Provider: Using people to deliver services BEST PRACTICES

2

Accenture


Technology Creator: Changing the world through IP BEST PRACTICES

4

Salesforce.com


Network Orchestrator: ConnecDng people BEST PRACTICES

8

Facebook


Comparison: Amazon versus Best Buy BEST PRACTICES

Amazon Best Buy

4

2


0% 10%

30% 60%

10% 10%

20% 60%

Lesson: Reallocate capital to align with today’s sources of value

BEST PRACTICES

Yesterday Today


Mental Model

Business Model

What leadership… •  Believes is important •  Has developed their own skills •  Gives 9me and aVen9on •  Measures and reports

How a company… •  Spends and makes money •  Hires people and develops skills •  Uses and leverages technologies •  Engages with customers

Drives

•  Enterprise value •  Revenue growth •  Profitability

Value and performance

Determines

Result: Mental and business model connect to create results BEST PRACTICES


And have you considered the following implicaDons:

Existing technology we currently use

Existing technology we do not use

New technology

Existing market we

currently serve

Existing market we

do not serve

New market Exploration into new markets

Exploration with new technologies

New-category products

Next-generation products for core markets

Adjacent growth

Improvements, extensions, variants, and cost reductions

Knowledge of Technology

Kno

wle

dge

of M

arke

t

1. New mental models for making sense of the changing environment and for innovaDng your business model and strategies

3. Consumers as partners – co producers, co designers, co distributors, co marketers…

2. AcDvaDng your networks and taking the role of network orchestrator

4. Open innovaDon for all your key domains of acDviDes

5. AdapDve experimentaDon as the new strategic philosophy and lessons from natural experiments

6. Reallocate your pornolio resources to reflect the above


ReBlections and Action Plans

ReflecDons and AcDon Plan


Summary thoughts

1 Key premise: Digital technologies together with new mental models drive new business models

2 Best pracDces: Every organizaDon has dormant networks that they can acDvate to drive value

3 (Really 4) steps: To drive value in today’s digital and networked age


Jerry Wind Director, SEI Center Wharton [email protected] www.linkedin.com/in/yoramwind Barry Libert CEO OpenMaVers [email protected] hVp://www.linkedin.com/in/barrylibert

Contact info

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This presenta9on contains general informa9on only and OpenMaVers is not, by means of this presenta9on, rendering accoun9ng, business, financial, investment, legal, tax, or other professional advice or services. This presenta9on is not a subs9tute for such professional advice or services, nor should it be used as a basis for any decision or ac9on that may affect your business. Before making any decision or taking any ac9on that may affect your business, you should consult a qualified professional advisor. OpenMaVers shall not be responsible for any loss sustained by any person who relies on this presenta9on.

Yoram (Jerry) Wind The Lauder Professor and Professor of Marke9ng

Director, SEI Center for Advanced Studies in Management

Academic Director, Wharton Fellows Program [email protected]

Barry Libert CEO, Open MaVers

Senior Fellow, SEI Center for Advanced Studies in Management

[email protected]

Presented to Wharton Fellows Jerry Wind Barry Libert October 29-‐31st. 2014


benefiting from network strategies in the digital age: 2.5 day program

Technology

pm break

pm travel

pm lunch

pm field trip

pm group reports

llc agenda

thursday9 copyright

llc lessons