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Can’t find growth? Redefine what business you are in!

Your most recent growth strategy failed to find significant growth. You looked at organic and inorganic growth but were not able to find the growth you wanted. Where to look? In another post, “Can’t find growth? Look beyond your Industry to your Business Ecosystem!” we discussed looking more broadly at your ecosystem.

Another related but different area to explore is redefining what business you are in. How your business is defined reflects your chosen business boundaries and is often embodied in your mission, your vision, the unspoken assumption in every strategic conversation, …. , basically you would say “We are in the _______________ business!”

Business redefinition is an area where you can identify and unlock significant new sources of value yet it is neither easy nor risk free. It would be easy but simplistic to simply broaden the definition that you currently have, say from computers to computing or trucking to transportation. Of course broadening the playing field alone would yield some new growth opportunities but how do you know if you are likely to be able to successfully leverage your business into these new areas?

There are 3 steps to redefining your business:

1. What is your current definition?

2. What is my strategic context? Where I do currently play?

3. What options do I have to redefine my business and which one is optimal for me?

Below is a framework that is useful for understanding what options are available:




Here is how the process works:

What is the current definition? Single product in a single segment? Service across an industry? Business Model in a single segment? …

What is the strategic context? Where do I currently play?

Ecosystem Analysis
Trend Analysis
Economic, Environmental, Geopolitical, Societal, Technological
Competitor Analysis
History
Porter 5 forces
SWOT, TOWS

Strategy Map
Ecosystem definition
Experiences
Value Delivery Systems
Value Migration
Strategic Segments
Customer Value Gaps
Strategy Map

Strategic Options

Where do I currently play? Align the current business definition within the Strategic Context

What options do I have to redefine my business and which one is the optimal one for me?

Value: There is increasing value delivered to customers when going from providing products, to services, to solutions, to experiences and to business models. For example, the value of generating a new business model can be 1,000 times greater than delivering a single product.

Scope: As I increase the breadth of my scope, value captured increases as you serve a single segment, multiple segments, an industry and an entire ecosystem.

Value and Scope: Capturing value by delivering on both value and breadth.

Choices include:

1. Increase value of the offering within the current scope
2. Increase scope while maintaining the same value
3. Increase value of the offering and scope at the same time

An example will help to illustrate, though we will only focus on some key pieces of the work for brevity.

Company X in the Hearing Aid Industry currently offering products in multiple segments of the industry. The industry as defined by this player is hearing aid products and solutions. Visually this is where they are playing:




The segments from a consumer perspective include people with normal hearing and people who are hearing impaired and from a company perspective segments are users and non-users of hearing aids. Looking more broadly and developing a perspective on the ecosystem, we can add an additional dimension that deals with whether we are interested in hearing correction alone or wanting to look at hearing enhancement also. We can see this visually:




What now stands out is the opportunity to redefine the business from “Hearing Aids” to “Managing Hearing”. The former includes medical products that focus on correcting hearing deficiencies through advanced technology while the former includes hearing correction and adds products to protect and enhance hearing. The option exists to redefine the business at the product level or to further expand into experience management, adding some additional opportunities to grow value.

Visually, this is what the scope of the new business definition could looks like.




Business redefinition is another option in the search for new sources of growth. The key is having a mastery of what is happening in the broader ecosystem, what the business models are and likely to be in the future, whether there are disruptive forces that are at play and whether the ecosystem itself is likely to be redefined in the near future. Finally, you have to be able to deliver strategic options that balance the rewards with the risks.

You think Culture trumps Strategy? Not!

Culture eats strategy for lunch has been bandied about for many years, implying that Culture is dominant at the expense of other corporate dimensions, especially strategy. The reality is that it is not about Culture OR Strategy, it is about Culture AND Strategy and how do they work together to deliver on the corporate vision.

Taking this a step further and going beyond Strategy and Culture, delivering on the company vision requires alignment across a number of dimensions: Brand, Business Models, Strategies, Values, Behaviors and Culture, Structure and Processes and Metrics, Results and Rewards to name a few. It is out of that alignment that organizations are effective at delivering on the vision.

Although for business planning purposes we assume that Corporate Cultures are static, in reality they are not. As the company evolves through its lifecycle, from the start up phase a culture emerges that that supports and reinforces the business model but then as the business matures and even starts to decline, the culture can become a liability and hinder needed changes.

The chicken and egg question you ask? Does Culture or Strategy come first? The pragmatic answer is that culture evolves very slowly and certainly more slowly than strategies and so Culture needs to be assumed relatively fixed for shorter planning horizons unless the organization is willing to create a new organization with a culture aligned to deliver on the significantly different strategies.




Why Culture is Important AND Urgent! Culture is difficult to replicate, can be a source of enduring competitive advantage and acts as a control point that enables your business model over a long period. Intellectual Property, being another example of a Control Point, is very actively managed and tracked. Do you track your Culture? Culture is a critical dimension that needs to be actively managed – defining it, evolving it and changing it!

Examples of companies that successfully use Culture as a control point include Southwest Airlines, Virgin, Apple, Dell, … those are companies with unique cultures that enhance their business model (and brand). As elements of your growth strategy depart more and more from the current business model, the cultural dimension becomes more critical to strategy execution. Some strategies will be supported by the existing culture while other strategies will be inconsistent.




Some examples:

Corporate acquisition. Both companies had strong but different cultures. The Compaq culture eventually became more dominant but is was not aligned with the HP Business Model nor were the HP employees integrated into that culture. In the end multiple cultures co-existed with some level of friction.

You are launching an initiative to implement a new business model and an executive is assigned to lead the effort. 6 months into the project, it is clear that the initiative is behind plan and failing. The executive that you selected had a cultural profile that matched the existing business, not the new business model.

Your strategy calls for moving the company from a product to a solutions orientation and hire an executive from a solutions oriented culture. The strategy is launched but soon sales of the new solutions are significantly behind plan – the sales force culture has difficulty adapting from a product to a solutions sale.

In summary:

When thinking of Culture and Strategy, we need to move away from an OR to an AND mindset - Vision AND Brand AND Business Models AND Strategies AND Culture.

To deliver on the company vision, alignment is key. Although perfect alignment is impossible, choices have to be made about where best alignment is required and where good enough alignment is needed. In any case, alignment needs to be actively managed.

Next time you are considering strategies that move beyond the core or acquisitions, cultural assessments and culture management are some capabilities that will add significant value. The assessment will help ensure that implementation risk is understood and managed while the culture management will help define what culture you want and facilitate the required change management. Having a great Culture and Strategy is just the first step towards value realization.

Manage your Business Model across the entire business lifecycle!

There has been an explosion of posts on Business Models in the past several years. Many of those posts relate to start ups / new ventures yet business models need to be actively managed throughout the entire business lifecycle. The half life of a business model has shrink from 20 – 100 years (Railroads, steel) to 7-10 years; this means that the business model can no longer be assumed, it needs to be actively managed.

There are multiple business model schools of thought (Slideshare); they have their strengths and weaknesses so pick an approach that best suits your business and situation.




Start-up phase

Need: A “good enough” business model design that can evolve as the start up launches and learns. The leadership team needs to focus on the critical assumptions underlying the business model and document those. If you are working with an advisor, it will be important to transfer business model knowledge so that the business knows how to evolve its business model over time and can get to a solid definition before the growth phase.

In Practice: With the advent of Lean Start Up and the focus on launching a Minimum Viable Product, there has been less attention devoted to the business model. Having worked with a number of start-ups, I have found a lot of chatter around business models but very little real effort and focus on the part of the founders. There is a Ready – Fire – Aim approach to launching the business and issues start when the business reaches the growth phase without a solid business model in place.

Recommendation: The easiest way to get to a good enough business model is to use the Business Model Canvas. It provides the structure and the process to get to a good enough business model. Document the underlying assumptions so that those can be validated as the business learns.

Examples: Countless

Growth Phase

Need: A solid, validated business model design. After launching your start up with a good enough business model, get to a defined business model before ramping. Assumptions need to be validated, Customer Value Gaps need to be researched, the economic model needs to be established, the scalability of the model needs to be established.

In practice: As the growth phase starts, mind share is focused on the requirements of delivering growing demand for the product/service and putting in place all the structures and processes required to support a growing business. The business model design is often considered important but not urgent and does not get the required attention. Growing the business without a solid business model only makes it more difficult to change down the road and a flawed business model scaled up can be catastrophic.

Recommendation: Early in the growth phase, monitor the business model to ensure that is remains relevant and that new information and knowledge is used to continue validating the business model. When the first signs of maturity appear in the growth phase (business deceleration), start the business model evolution and innovation process. This activity is what will lead to the next growth phase and help you avoid reaching the decline phase.

Examples: HP Inkjet where in 1995 the systems model (Razor / Razor blades) was implemented and fueled a new growth phase.

Maturity Phase

Need: How do I evolve the business model to get back onto a growth phase or add a line of business that is in a growth phase? Can I evolve the business model based on changing assumptions and/or do I need to transform the business model? Early in the maturity phase when profitability and cash flow are there to support this new exploration is when it is the easiest to tackle thinking about evolving your business model.

In practice: The business has grown to the point where senior executive attention has shifted to internal management of the business and a focus on delivering consistent quarterly results. Customer knowledge is often obtained through many market research studies and executive customer visits. No one is actively managing the business model and often the original design has evolved due to strategies, acquisitions and operational changes that were not always aligned with the business model. The strategic context will have shifted and likely the business model is no longer aligned with the Strategic Context.

Recommendation: Without significant effort to re-establish a business model that delivers a new growth phase, the business is likely headed for the decline phase. The longer you wait the more difficult it will be to overcome inertia. This is when an external perspective is most needed, whether bringing in an expert to work with the management team or bringing in an outside team to design an evolved or new business model.

Examples: Outerwall (Redbox, Coinstar), HP Printing

Decline Phase

Need: Your market value is declining and your revenues and profit are relatively flat. The business model is in need of transformation at a time when the business is doubling down on wringing efficiencies out of the current operations. At this point the business model cannot just be evolved, it requires significant research and analysis to understand whether the business model can be evolved or if it will need transformation.

In practice: Senior executives are loath to make significant changes and want to continue their current practices – after all that is what made them successful. Changing the business model represents not only business but also personal / professional risk. Change often does not happen until a new management team is brought in to turn the business around.

Recommendation: The easiest solution is to avoid getting into this situation in the first place. The best time to put energy into evolving your business model is while still in the growth and early maturity phase. It does not appear to be urgent and important at that time while the reality is that it is a critical activity. Successfully transforming a business model is one of the hardest things to do and the recommendation would be to bring in the best business model experts that you can afford. This is not a capability that is internal within companies.

Examples: Kodak, Radio Shack, IBM, HP

About the Starcher Group LLC – We have been working Business Model projects since 2002, working with $1M to $25B businesses across 18 industries and counting. To date we have identified and designed $2.5B in value for our clients.

Demystifying Business Model Innovation

The volume of posts, articles and books on Business Model Innovation has increased significantly over the past year. It is often positioned as the holy grail of value creation, attainable through thinking orders of magnitude more complex than strategy and business models. The reality of doing business model work is still complex yet business model innovation can be reduced to 2 activities.

Looking at Business Model Innovation from a market perspective, it is rare to see business model innovation applied to an existing business. Most often, business model innovation happens with new businesses, whether inside a firm or a new start up.



Looking at the issue from the company’s perspective, an existing business can evolve their business model or they can launch a new business with either an existing or new business model. The number of companies who organically innovate their existing business model is exceedingly rare. When it does happen, it is with business models where units are run relatively independently of each other e.g. Amazon, ITW, Danaher, early days at HP, …





To further simplify the thinking around business model innovation, you can leverage a traditional growth strategy framework and add a business model dimension. This is helpful to help uncover new opportunities and make visible the greater risks involved with leveraged and new business models.





In summary, business model innovation can be reduced to 2 activities:

Evolving existing business models for existing businesses

Defining and evolving business models for new businesses

Can’t find growth? Look beyond your Industry to your Business Ecosystem!

Understanding your complete Strategic Context is now a business imperative; visualizing your business within a broader context, understanding all strategic options and determining which ones will likely generate value is a foundation to identifying growth and profit. Ecosystem analysis is an element of Market Context.

What is an ecosystem?

Drawing the precise boundaries of an ecosystem would be an academic exercise but includes, among others:

• Companies to which you outsource business functions
• Institutions that provide you with financing,
• Firms that provide the technology needed to carry out your business
• Makers of complementary products that are used in conjunction with our own
• Makers of substitute products and services
• Competitors and customers, when their actions and feedback affect the development of your own products or processes
• Entities like regulatory agencies and media outlets that can have a less immediate, but just as powerful, effect on your business.

With the transition from a siloed analog to a connected digital world, industries are being transformed, blended, and connected in new ways. Previously unrelated industries overlap and merge, and old definitions fade away into history. Car mounted mobile telephony and analog cameras used to be very unrelated until the advent of digital cellphones and digital cameras; now they are part of a new industry and ecosystem: the Smartphone. Digital SLRs and point and shoot cameras are now stagnant to decaying categories and car-mounted telephones are a thing of the past.

Why invest in Ecosystem Analysis? What is the value of this work?

• Gaining Deep Insight. You are able to truly understand the sources of value, gain insight into the ecosystem evolution and step back from the product level fog. An Ecosystem half-life is 7 – 10 years while product half-lives are measured in months.

• Developing Strategic Context (see prior post) with a complete view on what business strategies are available.

• Uncovering billion dollar opportunities, if available. Looking deeper at the ecosystem at the business model level will reveal any of those opportunities if they are present. This means iteratively looking at the business model layers of the ecosystem: Customer Value Gaps, Customers and Experiences, Strategic Control Points, Profit Models, Profit Pools, Value Delivery Systems, Current and Potential Players. Those layers are then available to overlay over the ecosystem frame.

• Having a common frame that can be shared across the organization. One component of aligning the organization is to create a common mental model and frame of reference.

What are some examples?

(Insights from the examples will not be shared here due to the proprietary nature of the work)

• Simple ecosystem sketch using jobs to be done as framework, Web Real Time Communications. We identify the most relevant dimensions of the ecosystem.





• Ecosystem frame, Imaging ecosystem circa 2004. This is the result of iteratively looking at all the business model dimensions and ensuring that they align on a common frame.




• Business Model Landscape, Imaging Ecosystem circa 2004. This is a precursor to strategy maps. A complete inventory of potential strategies can be developed from this frame.



In summary,

Using your industry as the unit of analysis might be hiding significant risks and opportunities; using a business ecosystem perspective will provide deep insight and strategic context, and identify additional strategies that might have been previously hidden. If you are looking for billion dollar opportunities, then taking the additional step of looking at the ecosystem at the business model level will reveal whether any of those opportunities exist within your broader ecosystem.

What is your Market Value story? Ask your business model!

Major changes in Market Capitalization are driven by Business Model decisions (or lack of decisions). With every major consulting firm writing about Business Models, it is clear that this is an area of great interest with senior executives. Let’s look at some Business Model stories of successes and challenges:

IBM 1975 - 2008

IBM’s Market Cap was in decline in the late 70’s, having missed the shift to minicomputers and it was only when IBM launched the desktop PC in 1981 that its Market Cap grew again. An ill-fated decision to outsource what would become the principal Desktop PC profit pools of Chip and Operating Systems to Intel and Microsoft in the mid – 80s led to a long decline in Market Cap. It was only reversed when IBM made the decision to launch its Services offering that the Market Cap grew again.





Dell 1995 – 2013

In 1995 Dell innovated the PC Business Model by offering PCs Direct to Business over the Internet. The lower prices, customization and online ordering were enough to achieve over $100B in Market Capitalization growth in less than 5 years. But without any significant means to prevent competitors from copying the model and the Dell business model ill-suited for the market shift to consumer PCs, Market Capitalization started to slide as fast as it grew and was only mitigated temporarily when Dell applied its Business Model to new categories (Storage, Printers, TVs, …). That Business Model evolution worked temporarily but was reliant on finding new categories that were commoditizing so scalability was limited. Its attempt to enter the Services business by acquiring Perot Systems in 2009 and an acquisition spree did not add any significant value as IT Services were already commoditizing.




Apple 1994 - 2016

There are two distinct Apple Business Model phases:

1995 – 2005: The MacBook franchise period that grew Market Cap by close to $100B on the strength of a vertically integrated approach and a product experience that was simple and elegant. By being vertically integrated Apple was not sharing its profit pool with specialist firms (e.g. Microsoft, …)

2005 – 2015: The iPhone franchise period that grew Market Cap by $500B on the strength of the combination of a product experience that was simple and elegant, a computing device that also had voice capabilities and the creation of an ecosystem of device and applications where Apple played the role of Keystone. As a keystone, Apple created significant value for a number of ecosystem players and at the same time kept a significant portion of the total value created for itself.

Post 2015: Apple will need to innovate its business model across new categories and the question is whether any potential watch, TV, car or other Business Model Innovation will be sufficient to offset declines in its current franchises?





Every company, big and small, has a Business Model story. There are two parts to that story. The Business Model lifecycle with Market Cap / Value growth, plateau and decline, and the Business Model decisions that can chart a new trajectory for the business, both good and bad. There are a finite number of patterns to look for, each with its own story.





Some key questions for you to ask:

What is my Market Cap /Value profile?
Why do I have this profile?
Where am I in my Business Model Lifecycle?
What is my Business Model story?
What Business Model actions can I and do I need to take?

In an earlier article “Demystifying Business Model Innovation”, I introduced the notion that Business Model Innovation can be reduced to 2 activities:

1) Evolving existing business models for existing businesses and

2) Defining and evolving business models for new businesses.

The process to accomplish this is quite simple, yet behind that process is a complex body of knowledge and experience that is required to deliver.

Business Models defined – Again!

Having worked with business models since 2002, I have seen the term go from esoteric to buzzword to ubiquitous. Many attempts have been made to define the term;

Joan Magretta in her 2002 HBR article “Why business models matter” (It explains who your customers are and how you plan to make money by providing them with value),
Wikipedia (A business model is an "abstract representation of an organization, be it conceptual, textual, and/or graphical, of all core interrelated architectural, co-operational, and financial arrangements designed and developed by an organization presently and in the future, as well as all core products and/or services the organization offers, or will offer, based on these arrangements that are needed to achieve its strategic goals and objectives.),
Investopia (The plan implemented by a company to generate revenue and make a profit from operations.),
Osterwalder (It describes the rationale of how an organization creates, delivers, and captures value.),
Rappa (business model is the method of doing business by which a company can sustain itself - that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain),
Timmers (An architecture for the product, service and information flows, including a description of the various business actors and their roles; a description of the potential benefits for the various business actors; and a description of the sources of revenues),
Slywotzky (the totality of a how a company selects its customers, defines and differentiates its offerings, defines the tasks its will perform itself and those it will outsource, configures its resources, goes to market, creates utility for customers, and captures profit. It is the entire system for delivering utility to customers and earning a profit from that activity). Multiple times, people have tried to use the term “Business Design” to try to avoid the overused Business Model language.

There are many other definitions and we could continue the list but what is clear - the words mean everything and nothing. It is why when asked what I do - Design, Evolve and Innovate business models I get all manner of reactions. So why the confusion?

The term has been used for everything – entrepreneurs know that they need a Business Model and not understanding what it is, have used it to define everything under the sun. There are also at least 4 major business model schools of thought. There are innumerable major consultancies with their own unique Business Model practices and language. There is no consensus, no single definition and things have become so confusing that some have started using the term “Business Design” to give them an opportunity at a new definition.

If defining Business Models has not worked, let try analogies!

The closest analogy I have found for business models is the field of Architecture. A Business Model is to a business what Architect plans are to a building. Each strives to achieve an enduring physical representation of conceptual plans. It used to be that buildings were designed to last past the century mark and business models could remain relevant for 50-100 years. More recently, both architect buildings and business models have seen declining lives, with some Business Models lasting less than 5 years.

The architect needs to define the parts and the system, the elements, the dependencies and the interconnections.

Strategy System drives Market Value

What does it mean to “have a strategy?” Strategy is merely a statement of intent. To create value, one has to answer some fundamental questions:

Do I understand the strategic context relevant to my business?

How do I know that I am considering all relevant strategies?

Can those strategies be implemented successfully?

What is needed is an effective strategy system! The full value is delivered as a result of using a complete strategy system. Key components include:






The Market Context identifies what strategies are available within an ecosystem and identifies a set of optimal strategies for the business. The company Vision is based on an understanding of that Strategic Context.

Decision Management connects the strategy systems elements and enables ongoing evaluation and evolution of strategy and implementation activities.

Once strategies have been selected, Strategic Planning connects potential strategies with market realities – what business results are required and what combination of operating activities and strategies will deliver on those results.

Design Strategy translates the strategy into a set of potential products, services and experiences.

Portfolio Management optimizes people, time and money investments in the context of those strategies.

Can I create value if I am missing some parts of the Strategy System? Yes but …

Lacking a Portfolio Management process, you will select a sub-optimal set of projects to work on, leaving money on the table.

Lacking a Design Strategy, how closely will your selection of products, services and experiences tie to your strategy.

Lacking a Strategic Planning process, how will you manage risk and adapt your strategies and plans.

Living with a Decision Management System that evolved through many reorganizations vs being designed, your organization’s decision making will be less effective.

How effective is your Strategy System? Are some elements missing or ineffective?