p4-generating options for bm

8/14/2019 P4-Generating Options for BM

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Generating options for a new Business Model

Geoff Eagleson


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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 isdubious

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)


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How do I generate options for a new Business Model?

BusinessModel

options

LeverageexistingR & C

Leveragemarket

intelligence

Leverageinsights aboutfuture trends

Leveragethe

experiencesof self and

others


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Generating options for a new Business Model

Road 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 residentialteam


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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 importantrole.


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Leverage existing Resources.

Resource StrategicImportance

RelativeStrength

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.


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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


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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?


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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.


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Capabilities Audit: Start with the Value Chain

Firm InfrastructureH uman Resource Management

Technology Development

Procurement

InboundLogistics

Operation OutboundLogistics

Marketing& Sales

Margins

Service

SupportFunctions

PrimaryFunctions

A Core Capability is a business process, strategically understood (Stalk,

Evans & Shulman, 1992)


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Functional capabilities:

FUNCTION CAPABILITY EXEMPLARS

Corporate Financial management Exxon, GEManagement Strategic control Emerson Electric

Coordinating global SBUs ABB, Shell

R&D Research capability Merck, XeroxDevelopment 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


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Organisational capabilities:

Continuously innovate

Product and services (3M)

Processes (Toyota) Control

Processes (McDonalds)

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)

Development

Sources: Stukey, Doman & Thwaites, 193

Turner & Crawford, 1998S


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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)


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Blue Ocean :Yellow Tails strategy canvas

Uninformed

Drinker

WineConnoisseur

Price-sensitive

Drinker

Convenient

Availability

How

Who


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What did Yellow Tail

Eliminate/Reduce/Raise/Create?

Eliminated

Enological terminology anddistinctions

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

createdthat the industry

has never offered?

Which factors should

be raised well above

the industrys standard?

Which of the factors

that the industry takes

for granted should beeliminated?


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Leverage market intelligence through a disruptive

Business Model. Basic assumptions:

The pace of technological progress in almost every industry outstrips the ability ofcustomers 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 existingofferings. 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 betterproducts 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 whoare 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.


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The Model of Disruptive Innovation

High

Low

Performanc

e

TimeSource: Christensen and Raynor (2003)

Sustain

ingInnov

ations

Disruptive

Innova

tions

Performance that

average customers can utilize

Customers not

satisfied by current

products

Customers over

serviced by current

products


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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)

Network21.7

(social or business)

Thinking by analogy 11.3Partner

8.7


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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)


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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


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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.


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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 wouldhave enabled me to see this opportunity first?


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Leverage insights about the future.

Possible events

What we see

Reality

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The Basic Scenario Planning Process

1. Assess the current situation

2. Gather the data

3. Identify thedriving forces

4. Generate

alternativescenarios

5. Assess theimplicationsfor yourenvironment

6. Assess the

implicationsfor your org.

7. Define strategy& plans

8. Implement &monitor


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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 thatfunding was expected to be slowly withdrawn.

It was the first educational institution that was given the right to payabove award wages from its own income, on the condition that itinstituted 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 LearningProgram (the precursor to the EMBA).


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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


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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


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References

Baron & Ensley, 2006

Christensen, C.M. & Raynor, M.E. 2003, The innovators 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 thebox, Harvard Business Review, December, pp.71-78.

Stalk, G., Evans, P. & Shulman, L. E. 1992, Competing on capabilities: the newrules 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

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