Ever since the economic crisis hit the world, many companies, and individuals for that matter, have been very concerned with their financial well-being. Across different countries there are numerous stories about companies that were forced to dramatically cut back in order to stay profitable.
In recent years most companies have been driving all sorts of programs to improve the bottom line, basically by reducing costs as much as possible.
Both operational costs (working cheaper) and capital expenditure (investments) have been reduced, in some cases to the bare minimum. Today there seem to be hardly any more costs that actually can be cut, so what do we do now?
Before answering that question let’s take a step back and contemplate about the raison-d’etre, reason for being, of companies. Are companies here to put people to work in a fulfilling way? Do they intend to create products and services for other to consume?
Yes. However, the primary objective of any company is to grow its value for the business owner; in some cases stock holders, in other cases entrepreneurs such as your local bakery. Any owner wants to be able to transfer the ownership at a moment in time and make a profit on it.
The value of a business can be quite difficult to determine. Some good indicators are the revenue and profits made. Since the start of the economic crisis, businesses have focused mainly on keeping profits up. Growing the revenue received little priority.
Keeping revenue stable seemed challenging enough to some, under the assumption that markets declined. Effect of this is that many companies today find themselves to be very lean and mean, but with little ideas on how to grow revenue again.
The answer resides in finding the right way to grow again. Growth is always there; you just need to open up to actually see it. Even in declining industries there are companies still growing their market share and the volume of sales they are able to generate.
It is difficult… well, it is not easy, otherwise everybody would be growing. There are a few simple guiding principles to bear in mind:
- Growth most often comes from outside your company.
To spot growth opportunities you should look outside of your company. Assess market dynamics and talk to customers to identify what they need.
- Find pockets of growth.
In every business the concept of up-currents applies. An up-current occurs when hot air rises. It enables glider pilots to rise high. You should look for the up-currents in your industry and understand what you need to do in order to benefit from them.
- Shift gears, and make some changes.
To achieve growth again you will need to make some changes to your business. Changes to the markets you serve, the customers within those markets, the products and services you deliver, the way you collaborate. All of these are worthwhile to consider for change.
- Your business model determines your success, not your product.
As mentioned in a previous post, a great business model trumps a great product. Do not get stuck on the details of your products or service. “Good” is good enough.
Many New Year’s resolutions have already been broken. Now is the ideal time to make a resolution and stick to it. 2013 is the year to grow again!
Most companies to whom innovation is one of the top priorities spend a great deal of time and money on their innovations. Especially when creating a new product, it seems that there are always some features to be added to improve a product, or that the product itself should have better specs.
Due to this quite regularly a project does not meet its milestones and deadlines, because the new product is good, but just not good enough. The underlying factor is the urge to make the best product possible.
Making the best product potentially shows tension with reaching break-even. Let’s not forget that innovation is, from a strategic perspective, the best route to achieving sustainable growth.
Now, is trying to create the best product out there a bad thing? In essence: no, as long as it does not cause delays to the launch date. Missing the window of opportunity with regards to market launch is one of the worst things that could happen to any innovation.
Launching early provides a company with the possibility to acquire a larger part of the potential market. Since market share is a relevant factor it is crucial to aim to gain a large market share as early as possible.
In an ideal scenario, an idea quickly transforms into a new product, without excessively high investments. New products are successfully introduced into the market, which, in turn, reach break-even fast.
Reality is often different. It can take a long time to:
- …reach a new product from an idea…
Lacking solid market insights, not involving (e.g.) customers, suppliers or other third parties.
- …launch a new product into the market…
Taking too much time to perfect products instead of good enough, not having a launching customer, lack of IP protection, etc.
- … which can cause a delay in reaching the break-even point.
Due to matters taking longer, higher investments are required which push back the break-even point. Also, the growth curve is likely to slope down due to missing market momentum.
Every innovation project should try to keep a clear view on the end result; that is, generating profitable business. Looking at innovation end to end, there are basically two main factors that could cause a project to be delayed in terms of generating profits.
The first reason is that sometimes a project needs higher investments during the development stage than anticipated upfront.
The second reason is the fact that a project can take much longer due to alignment issues, either internally or externally in case of a collaboration with partners.
Most important is to know there are things that anyone can do in order to accelerate the pace of innovation:
- First of all, make speed of innovation a strategic objective. Talking about it is one, acting upon it is what is needed.
- Manage the innovation project based on its merits. Every project should receive the management attention it needs. No more, no less.
- Ensure that required market insights are available. If not, work with assumptions and validate those as you go along.
- In case you find a potential partner that can do what needs to be done either better, faster, or cheaper than you can do it, consider hiring them.
- Drive your projects forward! Find what could give you more speed and what slows you down, and cope with them accordingly.
The points mentioned above are some simple guidelines one could use in order to accelerate innovation.
Last week, IESE Business School and Capgemini Consulting announced the findings of its annual global Innovation Leadership Study, examining innovation management strategies at organizations around the world. The study reveals that innovation leadership is becoming increasingly important, with 43 percent of respondents stating they have a formally accountable innovation executive in place, responsible for driving innovation, compared to just 33 percent last year. This rise of the ‘chief innovation officer’ suggests driving innovation is becoming a key priority for companies everywhere. However, despite this, the majority of companies (58 percent) still do not have an explicit innovation strategy in place, with most companies considered ‘innovation laggards’ (38 percent) and just 7 percent classed as ‘innovation leaders’.
The study, which surveyed over 260 innovation executives globally, suggests that while innovation is an emerging functional area within organizations, limited organizational strategies for driving innovation are impairing growth. Only 30 percent of respondents agree they have an effective organizational structure in place for driving innovation and less than a quarter (24 percent) believe innovation efforts within their companies are effectively aligned. This is mainly due to not having a formal organizational structure for innovation (45 percent) or a well-defined governance structure (45 percent) in place, or a lack of clear roles and responsibilities for innovation (40 percent). 39 percent of respondents also referenced the lack of an effective decision making process for innovation, largely due to not having a well defined process in place to prioritize and allocate time and funding to innovation projects.
The study also reveals that innovation strategy continues to be largely driven from the top-down, with only 11 percent of respondents explicitly involving employees in the strategy development process. Instead, most respondents (30 percent) indicate that innovation is driven by a combination of senior management, business unit heads and internal innovation experts, with the CEO still considered the most important source of an innovation culture (69 percent). This highlights the need for innovation strategy development in a more bottom-up manner, focused on people as the key source of competitive advantage to ensure all insights are taken into consideration.
“The study reveals a worrying lack of involvement of non-senior employees in the innovation process within most companies,” said Paddy Miller, Professor of Managing People in Organizations, IESE Business School. “But it is vital to capture all those individual insights from both managers and employees to better incorporate an understanding of the external environment in the development of any innovation strategy.”
The study also identifies the absence of a clear, well articulated innovation strategy as the most important constraint for an organization’s ability to achieve its innovation targets (24 percent), followed by a lack of understanding of the external environment (13 percent). However, while most companies lack an explicit innovation strategy, they do recognize the need to create a strong innovation culture that better enables organizational strategy. Building and nurturing an innovation ecosystem (32 percent) and formulating and communicating innovation strategy (31 percent) were cited as the most important responsibilities for innovation leaders. According to the study, for large organizations a lack of innovation governance is also a particular barrier as their size means the innovation function is often spread across the organization. The establishment of a centralized innovation office, together with thorough innovation governance that balances, aligns and enables both short and long term innovation objectives, will help large organizations to focus and streamline their innovation efforts.
“There is no one size fits all approach when it comes to organizational design for innovation, but the correlation between having formalized innovation governance in place and the reported innovation success rate suggests that there is much to gain by improving the formal mechanisms for managing innovation,” said Koen Klokgieters, Global Leader R&D and Business Innovation, Capgemini Consulting. “Although there are signs of an increased formalization of the innovation function, such as the increase in the percentage of respondents that have a formally accountable innovation executive, the levers for the formal management of innovation are largely being overlooked or underdeveloped.”
Apple’s Jonathan Ive changed the world with his designs. The Apple devices are more known because of their design, rather than the logo they carry. Looking at the device that was the first stepping stone in this for Apple, the iPod 1, many people claim their is a great deal of resemblance with Braun’s T3 pocketradio, launched in 1958 (nrc). This radio was designed by Dieter Ram, head of product design from 1955-1998.
Ram applied ten principles to good design. According to Ram good design:
- is innovative
- makes a product useful
- is aesthetic
- makes a product understandable
- is unobtrusive
- is honest
- is long-lasting
- is thorough down to the last detail
- is environmentally friendly
- is as little design as possible
Applying these 10 principles to business model design, the following guidelines are derived:
- is innovative
A good business model is unique, and therefore hard to imitate.
- makes a product useful
Using the business model, from the company as well as the customer perspective, is easy.
- is aesthetic
A good business model does not cause any irritation or confusion. Only well executed business models can be beautiful.
- makes a business model understandable
It makes the business model clearly express its function by making use of the user’s intuition. At best, it is self-explanatory.
- is unobtrusive
The business model leaves room for the user’s self-expression. Business models fulfilling a purpose are like tools that add to the quality of life of its users.
- is honest
An honest business model does not make a product or service seem more valuable than it really is. Influencing and manipulation of customers and users by the business model is not done.
- is long-lasting
A good business model avoids being fashionable and therefore never runs the risk of being outdated.
- is thorough down to the last detail
In the design sufficient attention has been paid to the details of the design, creating a true experience for customers and users. In the execution of a good business model these should implemented accurately.
- is environmentally friendly
Good business model design is aware of its environmental impact and aims to make an important contribution to the preservation of the environment by conserving resources and minimizing physical and visual pollution.
- is as little design as possible
Keeping it pure! Everything that is non-essential to a business model should be kept out of its design.
When designing new business models these 10 principle will help you to focus your effort and flow your creativity accordingly to make beautiful, meaningful new business models.
Business model innovation will be the next big differentiator for companies aspiring innovation leadership. Innovation leaders are breaking away from the pack by allocating increasingly more resources to business model innovation1. And they are right. Research has illustrated that more value is to be expected from business model innovation, than from any other form of innovation. Business model innovation has a higher impact on business results.
Guest post by Freek Duppen
As the knowledge partner of the World Innovation Forum, Capgemini Consulting has recently completed its global innovation survey on the current state of innovation. The study offers a unique perspective by looking at the differences in behavior of innovation leaders vis-à-vis laggards across five key areas (strategy, capabilities, technology, innovation function, and spending) in order to identify what drives the success of companies that view themselves as successful innovators.
The study is based on an online survey, generating responses from 375 executives (representing the full range of industries, regions, functional specialties, and seniority) and 13 follow-up interviews – to get a better understanding of the context of the findings and to add depth to the result interpretation.
In summary, this study reveals that:
- Given the strategic priority companies allocate to innovation and their corresponding spending plans, the maturity of their formal innovation governance structure lags behind considerably. To overcome many of the innovation bottlenecks encountered, it is time to establish an innovation function that is able to deal with this kind of innovation governance and decision-making.
- Furthermore, there is an enormous unlocked potential for innovation in the involvement of external parties in the innovation process. Innovation leaders may have out-paced their peers by simply being better at involving external parties, leveraging a much broader innovation network and increasing innovation potential.
- The study also shows that more value, in terms of impact on business results, is to be expected from business model innovation, than from any other form of innovation. Targeting new business opportunities in emerging markets is much more likely to be successful when approached outside of the traditional competitive landscape.
The whole topic of business model innovation receives ever more attention. Looking at what has been published recently still there is a strong tendency to focus on business to consumer (B2C), incl. cases and examples.
Business to business (B2B) seems to be ignored. Odd, because understanding business model innovation in a B2B context and being able to deliver successful models is more challenging, but also much more rewarding.
Most challenging aspect is typically the value chain. By the term value chain not the typical Porter kind of value chain is meant, but a series of interlinked activities, performed by various entities that deliver customer value.
Based on this view a value chain does not exist within companies, but amongst companies active within industries form value chains together.
Typical B2B business model innovation impacts either the positions more closely to the end users (forward business model innovation) or the positions that supply the firm that aims to change its business model (backward business model innovation).
With forward and well as backward business model innovation the current situation will change. Effectively the power within the chain and therefore the margins firms make are about the change. Nobody likes change…
Typically it seems that for most forward business model innovations it is extremely difficult not to disturb current relations with direct customers.
For innovating B2B business models a thorough understanding of all entities active throughout the chain is required. How is value being built up with each stage in the chain? Who is the captain that has most power over rest of the chain? What trends are influencing the value chain? Etc.
Most value chains seem difficult to change. The way firms have done business has not changed within recent years and leadership of companies is reluctant to start experimenting. Only in situations of entering new markets or when competition forces to apply other business models, companies step away from status quo.
Traditionally the B2B side of value chain is one that hasn’t seen much change in financials as well over the last years. Only by competition and crisis companies have been forced to lower their costs via optimization. Margins seem to be stuck; there is no room to be found to improve them.
Via business model innovation companies are able to step out of the margin squeeze and apply new ways they create and capture their value, and with better numbers. The concept is simple:
- backward business model innovation
For all resources and activities that can be sourced in a better way; more efficient, more effective or simply cheaper the cost concerned with that specific element of the business model lowers, having a direct positive impact on margin for the overall business model. Means to improve sourcing can be e.g. via new forms of partnerships.
- forward business model innovation
Value builds as the product or service that is created by the value chain becomes closer (in terms of proximity) to the end user. Leapfrogging forward has the potential to extremely grow margins. Coping with some of the challenges mentioned must be taken care off, if the goal is not to upset the current set of companies too much.
Even though the concept is simple the process itself is rather delicate. Deciding when to move forward and engage with others and partners pas proven to be critical to the business model success. If applied wrong there could be damage done to the existing models; if done well B2B business model innovation is extremely rewarding.
As stated in one of the previous posts: coping with a crisis is no sexy business. Traditional approaches to stay financially in shape concentrate around cost cutting, very often leading to reducing headcount by layoffs. Many major companies such as IBM (5000 people), Bombardier (10% of work force), GM, and many others saw themselves forced to let people go. In fear of layoffs at a French Caterpilar site four bosses were even helt hostage for several hours.
There is an other way to cope with market decline and even crisis while building stronger businesses: Business Model Convergence.
Most companies run a portfolio of products and brands, active in various markets, across the globe. In terms of business models they have numerous.
In itself this is not really a problem… as long as markets are growing. When growth seizes to a halt this can become a problem. The organization that needs to deliver all these business models is by all means not the most focused one. Maintaining all the business models is extremely challenging.
When converging business models it becomes apparent that a company basically has a few generic ones that apply to most businesses. Focusing on the implementation and how to run these effectively enables a company to distinguish between the activities that seem important and the ones that are.
Elaborating capabilities around the activities that are truly important grows a organization that understands the most important aspects within the core business models and that is able to implement them flawless.
Companies that aim to simplify their businesses first need to create an overview of all of its’ (most important) business models. From there an assessment needs to be made to highlight the main commonalities and discrepancies and captured into core business models.
Next is to translate the generic business models into implications they brings to functions and functional domains within the organization all the way till the level of concrete actions. Implement those and you will have an organization that is better able at delivering its’ core business models.
Side effect is that the business models that are more distant from the core ones are recognized based upon their true merits which enables them to choose and pursue their own business model without being forced into a core one that will not do the job.
Business Model Convergence is a way to strengthen business by simplification of the portfolio of business models aiming to build stronger businesses based upon outperforming, excellent organizations by focusing, freeing up potential to spur new business growth.
Recently one of my business contacts pointed me towards the Best Global Brands report by Interbrand. In the discussion we had on how to enable new business model implementation he posed the statement that any strong business model basically gave away one of the 4Ps out of the classical marketing mix.
Giving it some more thought there are numerous examples of strong brands, set by convincing business models that basically all have a certain WOW factor. Most of the WOW comes from an empathic component within their respective business models.
More and more companies involve their customers in their business model, stepping away from classical transactional mentality moving towards strong customer experiences. Meanwhile the relationship between company and customer is further tightened, making it almost impossible to switch, not based on product specifications, but on the firm’s lovemark.
By opening up business models to consumers of products and services companies are able to provide experiences that can be tailored to one’s unique preferences. The late management guru Prahalad labeled this as N=1 in The New Age of Innovation.
Empathic business models examples
Nescafé (#25) let’s you create coffee to your own preferences with their new Dolce Gusto system
Nike (#26) provides customers to design a tailor made sneaker based on the offered options
Google (#7) provides you everything you needs for free, you only need to provide google with your personal data for advertisement purposes
IKEA (#28) is able to offer its’ products at an extremely low price; you have to do the assembly yourself
eBay (#46) provides possibilities to globally auction and bid on running auctions detached from place and time
MTV (#54) is offering most of the content also online, so that it can be viewed anytime, anywhere
Amazon (#43) recommends products based on other people’s buying behavior
Nokia (#5) has numerous online fan communities that support users in the use of their devices; totally separate from the company
Being successful is about being connected. For this purpose you as a company do not be in close proximity of your customer 24/7, but you need to find a mechanism that they share their hopes and dreams with you.
Based on those you know where to focus and distinguish between the must-haves, and the nice-to-haves. Then find ways to involve your customers in your business model. Maybe they will not even notice, but they will appreciate it. For sure!
Recently the book Business Model Generation has received much attention. For many people it has truly caused a disruption in the way they look at Business Models. Discussing the book and the model it is striking that most people concentrate solely on how to create new business models… For most large corporations this provides challenges, they already have at least one Business Model, but most often many more. Typically Business Model are found within large organizations at the level of a Product-Market Combination.
The slides below provide some first guidance in how to optimize your Business Model; change it to better fit with the inside and outside world. Most important to bear in mind is that a Business Model in term is success is valuated by its’ customers and ecosystems, changing it requires closing the gap with requirements from the outside world and the current Business Model basis. Doing this in a more consistent way will increase performance and strengthen the brand.