Business Model Alchemist

I found it interesting to discover that design thinking has found its entry into the Mekka of business thinking & leadership: the WEF in Davos! Bruce Nussbaum of BusinessWeek posted a blog about it and calls for some inputs regarding the impressive panel he is moderating in Davos. The session runs under the title “Prepping for the Post-Knowledge Economy” and really takes business design thinking to the center stage:

Having digitized, “right-sized” and globalized, companies are competing
through innovation and differentiation. Design strategy offers the
opportunity to build not only better products but also better systems and
processes.

I am really curious to see what the designated panel of Tim Brown (Ideo), Klaus Kleinfeld (Siemens), Philip H. Knight (Nike), Barry S. Sternlicht, (Starwood Capital Group), Edward J. Zander (Motorola) and Richard Quest(CNN International) can tell us about design thinking from prominent decision making spheres.

Hmm, while writing these lines I have to admit that despite the current comfortably mild December temperatures on the roof-deck of my new home in Chiang Mai, Thailand, I miss the cool winter breeze of Davos and the sunshine on the peak of the Jakobshorn that I used to enjoy so much…

The business model of your company is subject to continuous change and influence from external pressures. As a knowledge worker and business designer it is your role to constantly reflect on how to adapt your company’s business model to this changing business environment. In this post I discuss some of the major pressures that directly or indirectly influence your business model and illustrate them through simple examples. I mainly look at 5 pressures coming from technological change, competitive forces, changes in customer demand and changes in the social or legal environment. While this might seem obvious very few companies constantly scan their competitive environment for these 5 forces acting upon their business model.

1 – Technological change. Understanding the transformational potential of technology for your company’s business model is not an option anymore. It is a must. This does not mean you should be driven by technology, but it means that you should be on the outlook on how it can reinforce or transform your business model.

Examples: Retailing has been transformed by the web: Established retailers such as Walmart and Tesco are now among the most successful Internet companies, because they added a new distribution channel to their traditional business model. The music industry is a most-cited of being turned up side down by the digitalization of sounds and images, because its players are incapable of finding new sustainable Internet-era business models.

2 – Competitive forces. A second-major pressure on a company’s business model comes from its competitors. Competitors may be well known and established adversaries or new and unknown incumbents disrupting entire markets. Increasingly competitors also emerge from completely different fields to compete in an established market with a very new business model.
Examples: In mobile phone manufacturing established players like Nokia, Motorola and Samsung are fiercely battling for market share with roughly similar business models. In the field of voice telecommunications new kids on the block like Skype are rapidly disrupting the market by offering free or cheap voice over the Internet (Skype’s business model) based on an entirely different business model. But most interestingly sometimes competitors emerge from two very different industries to compete head to head with different business models. This happened when Telcos and Cable TV operators both started offering so-called quadruple plays to the same segment of cusotmers: TV, Internet access, fixed-line telephony and mobile telephony all out of one hand (quadruple play).

3 – Customer demand. Pressure to adapt a company’s business model may obviously also come from the customer demand side. Changes in consumption patterns, revenue increases and “fashion changes” are just some of the possibilities I would like to mention.

Examples: The shift from fixed-line to mobile telephony might be seen as technological change, but it is a nice example of how this relates to changes in customer demand. The fashion industry is a domain which is constantly submitted to changes in customer demand. Companies like Zara have been extremely successful by designing a business model around detecting customer fashion tastes and immediately adapting their offer to that (Zara’s business model).

4 – Social environment. Sometimes the social environment and social mood can influence the business model of a firm. This kind of pressure is particularly studied in stakeholder theory. For instance, if a company’s business model is centered around low cost production in developing countries it might draw the attention of militant non-governmental organizations (NGOs) that could mobilize public opinion against the firm. Ultimately the social environment always has an indirect influence on customer demand, be this by shaping people’s values, their everyday behavior or their attitude regarding technology adoption.

Examples: Nike was subject to activist accusations regarding the ethics of its operations in Vietnam. Subsequently, NGOs put a lot of energy in mobilizing consumer boycotts against Nike. A completely different example of the social environment is the position of the elderly in a society. Traditionally, families have looked after the oldest members of a family. This is still the case in many parts of the developing world, but has changed a while ago in western societies. Demographics in general should be monitored when thinking of the future of one’s business model. Don’t forget that in Japan and large parts of Europe retirees are already one of the most interesting market segments.

5 – Legal environment. Often changes in the legal environment also make it necessary to adapt your business model. These changes may sometimes come from unexpected places such as consumer or environmental taxes or patent laws.

Examples: Taxes on gas or SUVs may shift consumer demand to new and innovative vehicles, such as hybrids or even solar energy cars (I am still waiting for this shift here in Thailand…). This may even lead to an increase in the use of the public transportation system. The introduction of new privacy laws can make some business models that extensively rely on customer information without the customer’s explicit accordance illegal. Anti-spamming laws may (hopefully) wipe-out business models based on sending out large trunks of unsolicited mails. Regulating advertisement over mobile phones may limit the range of possible business models in m-commerce.

While these 5 forces may seem obvious there are still relatively little tools to constantly scan and map a company’s environment. Simply maintaining a list with the five categories outlined above is a simple, but useful start…

If I were to offer the truth, what would my business model be? This might seem like a strange question on a blog dedicated to business model design. But when I was reading Harold Pinter’s Nobel lecture for the Nobel price in literature price this weekend I was wondering how I could make the link to my blog to justify a posting… And the weekend justifies something “less serious” and more intellectual… doesn’t it?

Pinter ends his lecture in Stockholm with the words:

“I believe that despite the enormous odds which exist, unflinching, unswerving, fierce intellectual determination, as citizens, to define the real truth of our lives and our societies is a crucial obligation which devolves upon us all. It is in fact mandatory”.

So if our value proposition were to offer the truth, which customer segments would we address in order to strive? Ourselves? Our neighbours? Politicians? Business leaders? Religious leaders? Mr. Annan? Mr. Bush? The Pope? Mr. Mbeki? Mr. Gates? The Dalai Lama? And through which channels would we reach them? What customer relationship would we put into place to continuosly offer Pinter’s real truth to them? What activities would such a true business model require? What capacities would we have to master? And which partners would be the best positioned to make our business model work? But then… what would this cost? What are the revenue streams? Could we offer the truth at a profit? But then again…

“to define the real truth of our lives and our societies is a crucial obligation which devolves upon us all. It is in fact mandatory”.

So let’s start the week with knowing what our real obligations are and what is mandatory in the week ahead of us. By the way, don’t forget to allow yourselfs 45 minutes to watch Harold Pinter’s Nobel lecture.

Today I came across trendwatching.com, an interesting company that made me aware of a trend they call “minipreneurs”. This stands for consumers that are increasingly participants instead of passive audience. They write there is …

… a vast army of consumers turning entrepreneurs; including small and micro businesses, freelancers, side-businesses, weekend entrepreneurs, web-driven entrepreneurs, part-timers, free agents, cottage businesses, seniorpreneurs, co-creators, mompreneurs, pro-ams, solopreneurs, eBay traders, advertising-sponsored bloggers and so on.

I found this an accurate observation and believe integrating this trend into business model design creates a real competitive advantage. A while ago I have written about this in the context of business model innovation at the bottom of the pyramid. Companies in developing countries that market to the Poor have been particularly innovative in weaving their customers’ minipreneurial drive into their business design. Grameen Phone of Bangladesh uses microcredits and village women to sell their phone services. Anand Milk Union Limited of India has made their consumers to milk producers and exports to the world. N-Logue of India uses minipreneurs to sell Internet services to their customers through a vast network of kiosks… and so on.

In the context of OECD countries it is particularly the Internet companies that have been able to integrate minipreneurship into their business design. Google has explicitely opened up their databases of content (e.g. google Earth) to web developers to let minipreneurs come up with new business ideas. Bloggers on the most curious issues make an earning through placing targeted google text ads on their websites. Amazon has long ago made the affiliation model popular by mobilizing thousands of small, specialized and often personal websites to market Amazon books. eBay lives of minipreneurs that make their auction platform their business infrastructure… and and and.

Most interestingly for businesses I think minipreneurship points to a general social evolution in rich countries: Only few people have the luxury to chose a job they love. Most people are not terribly satisfied by their day jobs that often leave their dreams unfulfilled. It is only after closing the door to their workplace that they live out their full potential, mostly in their hobbies. Now minipreneurship allows some of them to make at least a modest earning or living on those hobbies… So companies that will allow people to liberate themselves from their day jobs to fulfill their dreams by creating a space for minipreneurship will be able ride what trendwatching.com calls one of the next megatrends.