Business Model Alchemist

Yesterday I came across an interesting headline showing the rise of co-branded mobile phone special editions – an interesting business design evolution in the mobile phone industry. The magazine Elle is launching the Glamphone in collaboration with Alcatel. The Italian fashion brand Dolce & Gabbana has launched a limited edition of a phone called “Liquid Gold”, which is a special pure gold version of a Motorola Razr V3i. MTV seems to be launching a mobile phone with Samsung. The luxury watch maker Tag Heuer of Geneva, Switzerland will launch a model in 2007.

All this alliance activity between strong brand names from fashion, entertainement and mobile device manufacturers strongly reminds me of John Hagel’s concepts of the unbundling corporation (subscription required). About unbundling Hagel says on his blog:

In a nutshell, [...] most enterprises today are an unnatural bundle of three very different kinds of businesses – infrastructure management businesses, product innovation and commercialization businesses and customer relationship businesses. By trying to manage the inherently conflicting demands of these three businesses within a single enterprise, executives undermine the potential for profitable growth.

In the mobile phone market two areas, infastructure management and product innovation have already unbundled a while ago. The former is mainly managed by mobile network operators (voice & data services), while the latter is managed by device manufacturers (and their OEM partners). However, network operators, such as Vodafone, Verizon or Orange, currently do not only manage the infrastructure, but they also master a large chunk of the customer relationship. With regard to Hagel’s concepts these two areas may be likely candidates to unbundle in the future.

The alliances outlined above might be an indicator of this. Brands such Elle, Dolce & Gabbana and MTV have a much stronger following among their respective market segments than the catch-all brands of mobile operators. Modelabs, a french company, is already capitalizing on this trend and has developed co-branded phones for the Elite model agency and other brand names. The company has a turnover of 150,9 million Euro.

Overall value creation would probably be higher if this unbundling really took place on a large scale – and it would have important implications for business design and business models in the mobile phone industry. For the time being, however, I’d guess that mobile operators will do anything possible to not lose their supremacy over their customer relationship…

This August I have been analyzing the competitive environment, the value proposition and the potential customers for SKY-click, an innovative call center solution based on Skype and developed by a Swiss start-up company based in Geneva. This company is really pushing innovation in the call center industry and has created a product that has quite a lot of disruptive potential (disclosure: I was hired by the company for a short-term consulting assignment this August).

What impressed me most about SKY-click was how little time and effort it takes to set-up this virtual call center. No additional hardware investments or software costs are required. This becomes possible because SKY-click runs on a company’s existing infrastructure of computers with Internet access. All that is required is that you have Skype installed on your computers. This ease of set-up is quite a jump from traditional call center solutions, which required hard- and software installations, consultants, complicated configurations and, and, and, …

The new breed of virtual call centers only require the registration of an account, the configuration of a couple of agents/operators, and some simple links placed within your website. Then you are ready to go. It’s done in little more than a blink. In the tradition of Web2.0 companies SKY-click gives you free access for a month so you can play around with and test the solution (after that you pay approx. $10 per call center agent per month). Since it’s so easy to set-up it’s worth a try…

What is interesting about this virtual call center solution is that SKY-click has many characteristics of a disruptive technology or innovation, a concept defined by Harvard Professor Clayton Christensen in the 90’s. An innovation, product or process is considered disruptive when its utilization allows the design of new products, services, and processes at substantially lower prices. Typically, during an initial phase, disruptive innovations are seen as unattractive by established industry players during their emergence because they are not valued by mainstream customers and because they have low projected profit margins. Therefore, products that are based on disruptive innovations are generally proposed by small and innovative companies to niche markets. The proposed products are often cheaper, simpler, smaller, and, frequently, more convenient to use. Yet, during the initial phase they tend to under-perform established products in mainstream markets. However, with their establishment in new small markets, small scale innovations raise the innovation’s performance and they start to invade established markets and conquer a dominant position.

If we look at SKY-click from the angle of a disruptive innovation we can observe:

• It’s a solution that will first appeal to small and medium-sized companies SMBs with no call center because it’s so easy to set-up and doesn’t require any investments. This is the space where SKY-click could gain a foothold market.
• It has most of the features of traditional call centers, such as call queuing, routing, agent/operator management, call reporting, etc.
• It runs at substantially lower costs because it uses new popular Internet technologies, such as Skype and Ajax
• To a certain extent the features have not all reached the quality of enterprise solutions – a fact that is likely to rapidly change with the adoption of the solution
• At the same time SKY-click brings new features to the market that traditional call center solutions lack – and that at much lower cost.
• An important new characteristic of Call Centers 2.0. is the integration between a company’s website and its call center. Visitors click on a button on a website and are seamlessly connected with an agent. In addition video connections are possible.

Of course there are competitors in this field of Call Centers 2.0. The biggest ones are eStara and Liveperson, which have both signed up several corporate giants. However, they seem less disruptive despite the fact that they have also introduced new features to the field. A substantial difference between SKY-click and its competitors is the pricing that runs at a fraction of the both eStara and Liverperson. Then there is the ease and speed of set-up. With SKY-click you can instantly set-up and test, whereas with eStara and Liveperson you have to ask for trials, you have to talk to sales reps and you have to negotiate prices in function of your company’s size. This all is less appealing (and even intimidating) to SMBs…

Personally, I’m curious to see if SKY-click can develop a strong foothold market entry with customer segments that are neglected by the large players. To date almost 1’000 accounts have been created. Early adopters could be big eBay sellers could rapidly adopt the solution since Skype has been swallowed by eBay – this would give SKY-click a boost. Also, an interesting foothold market could be SMBs in India, China, Brazil and Russia, the so-called BRICs countries, which’s economies are growing at reckless speed. Many companies in these markets are looking for simple low-cost professional solutions to set-up call centers for the first time. The next step after establishing a foothold market and continuously improving the solution will be the attraction of new lucrative market segments leading to the potential disruption of established players.

To be continued…

The above graphic shows how SKY-click has pushed the value frontier by building on popular Internet technologies such as Skype. Compared to other competitors it can offer more value at a lower price – this is a disruptive innovation at work…

Companies implementing innovation programs often forget to focus on their employees. These programs are often top-down rather than inside-out trying to harness the innovation capacities of each and every employee in the company. In this blogpost and the accompanying image I try to show that there is another way by outlining an “Innovation Competence Process”.

The image illustrates the process which is one specific way to tap into the innovation capacities of people in and around a company by building on an approach coming from knowledge management. I learnt about this approach from Geoff Parcell, formerly at BP and author of the best seller “Learning to Fly: Practical Knowledge Management from Leading and Learning Organizations Organizations“. At BP Geoff helped to save millions of dollars through a particular people-centric knowledge management process and then he was brought into UNAIDS to help apply the approach to HIV/AIDS. I worked with Geoff at the Constellation where we applied the approach to HIV/AIDS, Malaria and Diabetes. It was a fascinating experience.

However, I think the process has enormous value for many fields, such as harnessing innovation capacities in companies. Why? Because it builds on people’s strengths and their existing experience and it aims at putting these people in connection with others to learn & share.

In a nutshell the Innovation Competence Process can be broken down to five steps

1. Appreciate: the most important basic principle of this process is the true appreciation of everybody’s capacity to contribute to innovation – from the secretary to the CEO. Innovation can come from the centre of a company or from its periphery – empowering and encouraging people to participate in the innovation sphere is essential. Though this might sound mundane this rule is violated time and again, because hierarchies and titles prevail.
2. Self-Assess: Once the basic principles are set, the group seeking to improve its innovation competences should proceed to a self-assessment done in an open participatory discussion (the process only works if everybody has a say and is listened to…). A set of statements such as “we include everybody in the innovation process”, “we regularly brainstorm” or “we frequently try out new things” should be discussed and ranked on a scale from 1 (“we acknowledge the necessity”) to 5 (“is a natural process in our organization”). For example, if a department realizes that they should try out new and innovative processes to achieve better results they would rank themselves at level 1 for the question “we frequently try out new things”. Check out the self-assessment framework (pdf) we had used for AIDS Competence on the Constellation’s website. Replace the title by “Self-Assessment Framework for Innovation Competence” and replace the statements to be disscussed by issues relevant to innovation and you’ll get the principle (give me feedback if you try to set-up such a innovation self-assessment framework – I can help you).
3. Prioritize: The outcome of the self-assessment is the recognition of strenghts and weaknesses in the innovation process of a group or organization. Naturally, the self-assessment exercice should be followed by the constitution of an action plan to improve innovation competence. It answers the question of where an organization puts its energy. Resources should only be put in 2-3 areas to avoid non-realistic and unachievable plans. Doing the same self-assessment as outlined above a few months later shows if any achievements has been made. This follows the important rule of “you have to be able to measure it to manage it” and gives a powerful visual representation of changing innovation competences within an organization.
4. Reach Out: After constituting the action plan and prioritizing the group should reach out in order to find others that can share their experience. For example, if a department realizes that they need to try out new and innovative processes to achieve better results they should look for other departments inside their company or other groups outside the company that have become champions in overcoming lethargic states in process innovation. Finding theses countreparts to learn from works best if they have also gone through a self-assessment – the assessment will show that they have ranked themselves very highly.
5. Connect, Share & Learn: After finding interesting countreparts based on the self-assessment of one’s innovation competences the energy should go into connecting, sharing and learning. There is nothing more powerful than benefitting from the experience of somebody who has already gone through similar issues and problems… Obviously, a group should also share its innovation strenghts and experience with others. The basic principle here: Everybody has something to learn and something to share.

So why should an organization go through all the hassle of such an “Innovation Competence Process”? I believe for three reasons. Firstly, innovation on a small and large scale has become indespensable for any organization that wants to stay competitive. Secondly, this process taps into the existing strenghts of an organization, allows it to connect with others within and outside in a focused and efficient way. Thirdly, this process has a built-in simple way of measuring progress in increasing innovation competence…

This is my first blogpost from a driving train on my new UMTS/WiFi-enabled Acer Aspire 5652AWLMi Laptop (UMTS is a mobile wireless broadband standard… which makes my daily commute survivable As promised this means more short “quick posts” on topics that intrigue me.

This morning an newspaper headline got me to think on how businesses will have to increasingly integrate volontary social standards into their business design. The short headline I came across was saying that the largest Swiss retailer Migros is urging its toy suppliers to comply with the Business Social Compliance Initiative (BSCI). On its website the Bruxelles-based initiative describes itself as:

… the broadest common retail, industry and importers platform in Europe for monitoring and improving working conditions in all supplier countries and for all consumer goods. In this context, BSCI is proud to present its first Annual Report 2005, which is intended for all those for whom corporate social responsability matters and who believe that the business approach is the efficient and practical way to implement successfully social standards.

Migros’ move and insistence towards its suppliers is an interesting sign indicating that the company is sensible to its customers’ social values. This is important since the company has an overall turn-over of 20 Billion Swiss Francs. Yet, it’s still a weak signal for the overall industry because Migros’ roots are traditionally interwoven with responsible social behavior. In addition the toy sector is a natural candidate for such an initiative because it involves kids (that represent the future generation…)

However, this drive towards volontary socially responsible behavior of companies clearly indicates that today’s consumers are better informed and are gaining more and more power over how companies can behave in public. This has been a natural consequence of the Internet and available information. The recent rise of blogs and so-called grassroots journalism has given this development another push.

What does this all mean for companies and their business design? I think it could translate into consumer brands that will have to link up with social responsibility brands and labels. Many Swiss companies have actually signed up to the intiative because the Swiss customers pay a lot of attention to such norms. Another impact could be the way companies build relationships with their customers. Corporations will have to become more transparent and give their customers access to such sensible information as how they produce in supplier countries around the world, etc. I believe that those that comply will be rewarded with a stronger brand image and those that don’t will increasinly come under attack by consumer groups.

Jess McMullin of bplusd has posted an interesting reflection and quote on “being a generalist“. I believe he has hit the nail right on the head and has touched on one of the most relevant developments for people engagin in business & design.

There’s a seduction to being an expert, an assumption in society that credibility relies on deep (and narrow) expertise. However, for people operating at the edges, intersections, and overlaps where innovation thrives, being a generalist is far more powerful.

Jess’ quote illustrates that being a generalist nowadays is harder than ever before despite their powerful role in business & innovation. Generalists that can connect seemingly distant pieces to a coherent whole and are characterized through their analytical brilliance first of all impress people that are like them. Yet, to survive and strive in a world dominated by specialists they have to become what I call the “specialized generalists”. These are the people that have an open mind, a multi-disciplinary approach and are capable of rapidly acquiring specialist skills and knowledge in a minimum of time.

Today broad thinking, general knowledge and the mastering of a set of conceptual tools alone is not sufficient anymore. Why? Because a generalist with these skills might be able to come up with interesting and innovative ideas, but he will not be able to convince and seduce the specialists. To truely succeed, getting a following among the latter is indispensible.

Thus, the “specialized generalists” has to be able to perform a split between facilitating a mulit-disciplinary approach and seducing teams of diverse specialists with a display of deep knowledge. If he can achieve that, I believe he will be able to unluck hidden creative potential and achieve impressive cross-fertilization among disciplines, diverse teams and domain specialists.

There is already quite a buzz around these types of “specialized generalists”. Tim Brown of the design firm Ideo and author of “The Art of Innovation” takes it from the other angle. In an article in Fast Company magazine (hat tip to Scott Weisbrod for the reminder) Brown writes about the specialist who is able to break out of his discipline and apply the lens of a generalist. He calls them “T-shaped people”:

We look for people who are so inquisitive about the world that they’re willing to try to do what you do. We call them “T-shaped people.” They have a principal skill that describes the vertical leg of the T — they’re mechanical engineers or industrial designers. But they are so empathetic that they can branch out into other skills, such as anthropology, and do them as well. They are able to explore insights from many different perspectives and recognize patterns of behavior that point to a universal human need. That’s what you’re after at this point — patterns that yield ideas.

In my own experience I realized that I have to be able to seduce domain specialist with concepts that are familiar to them if I want to engage in a worthwile discussion. Talking directly about a topic I’m interested in rarely leads to a lively discussion, while tackling exactly the same topic from the specialist’s starting point often proves successful. However, this only works when I can give the specialist the impression that I understand the rules & functioning of his domain. I experienced this again and again during the conferences I participated in when I worked on my PhD dissertation on business models.

By nature the topic of business models is interdisciplinary because it covers areas ranging from marketing, to operations over finance and technology. While still at academia I participated in business strategy and information systems conferences, but sometimes I even went to events close to software engineering. At first, I felt terribly insecure because I didn’t really fit into any one of these disciplines. But with time I realized the power of not fitting in – I learned about the concepts applied in one area and started to see their potential for another area. However, it was an eternal struggle to stay knowledgeable enough in each domain to be taken seriously by the so-called specialists…

This struggle still goes on in my current business design practice. However, it is a struggle I quite enjoy since I can learn about new concepts and knowledge day after day…

(T-photo by Theresa Asereht found on Flickr.com under a creative commons license)

I’ve been absent from blogging for one month now. The blogpost I wrote last Saturday on IKEA’s business model was lost in cyberspace…

Anyways, today I bought a new laptop that will let me catch up on blogging again. Why? Because I bought an Acer Aspire 5652WLMi that has an integrated UMTS card and which I purchased together with a data subscription of Swisscom, one of the three Swiss mobile telco operators. This allows me to be online while I commute, while I drink my coffee at the lake or while I take the boat… It’s simply amazing! Luckily, my wife enforces a laptop ban from time to time

My new laptop always switches to the fastest connection in reach, be this a WiFi or the UMTS network. Of course I’ll miss my ultra portable Dell, which was only 1.2kg… But since that Computer is coming to the end of its days after 3 years of travel around the world (including Africa & SE Asia!), I’m happy to discover my weightier 2.8kg always connected Acer.

Hope I can entertain you again with more business design thoughts in the future!