Business Model Alchemist

After my last post on new business models for strategy consulting Carlo Arioli pointed me to the latest issue (11) of Insead Quarterly (p.10-14), which carries an article on new approaches to strategy consulting.

I was particularly interested in a paragraph at the end of the article based on some of the ideas articulated at The Next Practice, a consulting company founded by business guru C.K. Prahalad:

the best talent for strategic innovation is to be found within client firms. They act as strategic and operational coaches, both stretching and supporting client teams as they seek answers on their own, rather than as classic consultants. This co-creation of strategy starts within the client company, but may also involve various other stakeholders. [...] there is rarely need for a big consulting team; a few enablers are sufficient to drive the learning process in a very Socratic way. The promised advantage for the client is knowing that it will be able to fully internalise the relevant issues and their management.

I was intrigued by this because “strategy co-creation” is one of the fundaments of the value proposition of arvetica, the consulting boutique that I am helping to build. In fact, we aim at being a sort of catalyst for our clients. This means for each specific issue we bring in adequate and up-to-date methods and trends to help our clients reflect on, clarify and design their strategy and implementation plans. We do this in structured group thinking sessions which we facilitate. The outcome is a concise strategy for a specific issue together with an action plan that starts the next morning. In other words we always try to reconcile a long term view with short term actions…

I’ve been silent on my blog for the simple reason that I’ve been focusing on my most recent step in my professional life (and I am still trying to maintain something like a work/life balance

In fact, a month ago I joined Stefano Mastrogiacomo at his company Arvetica and I will contribute to its development. Arvetica is a consulting boutique that builds on a creative & design approach to strategy, while heavily drawing on existing knowledge (body of methods, processes & concepts), co-creating strategy with clients, fostering innovation, contributing to new knowledge creation and building tailor-made training.

Currently we’re in the process of developing our strategy, offer and action plan for the coming 3 years. During this process I came across a paper that describes the emergence of new business models in the strategy consulting arena: “Disaggregation of the Value Chain: Emergence of New Business Models in Strategy Consulting“

The paper observes 4 major drivers of change in this area:

• democratization regarding access to information & data (Web, etc.)
• narrowing skill gap between strategy consultants and their clients
• clients are becoming more demanding
• increasing competition in the strategy consulting arena

Then it outlines an industry value chain disaggregation into four generic components:

• knowledge building
• project setup
• strategy development
• strategy implementation

Finally, the paper concludes with “four promising business models”:

1. traditional integrated strategy consultancies, such as Bain, Boston Consulting Group, Roland Berger or McKinsey
2. large strategy implementors, such as Accenture Braxton or Bearing Point
3. knowledge builders such as newcomers Pipal or Evalueserve
4. networkers, such as incumbent Cardea and a-connect that bring in a completely new business model: these companies focus on specific roles like setting-up projects, project coordination, consultant selection, while outsourcing all the actual strategy consulting work to other companies

What is funny about the paper is that arvetica can’t be categorized among any of the groups because we seem to function differently. I will write more about our strategy and business model in a future post.

In the meantime, if you want to visit arvetica in Geneva or find out more about our work don’t hesitate to send me an email… It would be a pleasure to me to show you our 220 square meters of collaborative creative space (brainstorming rooms, “living room”, strategy library, etc.)

While I still continue to work on business models, innovation, strategy design and strategic management, my sectoral focus is now on the private banking industry. The reason for this is a longer consulting assignment with a big Swiss player, but also my interest in domains that are likely subjects to industry change and disruption. So don’t be surprised if you will increasingly find my illustrations coming from private banking.

During my readings about the evolution and potential changes in the private banking sector I came across a couple of interesting examples from a business model design perspective. For instance, Walter Berchtold, CEO of the 2nd largest Swiss bank outlines an interesting case in the European Wealth and Private Banking Industry Survey 2005 by IBM.

Berchtold describes how the banking giant is aiming at leveraging the company’s different business line’s potential by bringing them closer together through an integrated business (re-) design. In this particular interview he explains how their private banking division can benefit from already existing investment banking business. With this he simply means that customers involved in an investment banking relationship with Credit Suisse have a lot of potential to become clients of their private banking operations. Berchtold outlines:

We look after bringing the bank closer together in terms of cooperation between the private bank and the retail and corporate bank with a view to exploit cross-business opportunities

and

We want to work more closely together with our investment bank particularly on an international scale and to attract further net new assets. We can capture the potential of the international markets by leveraging high-end clients through their investment banking business

In terms of business model design Berchtold has done nothing else than scan the company’s existing customer segments to evaluate their mutual potential for Credit Suisse’s other value propositions. Before the business re-design Credit Suisse offered private banking services to wealthy customers independantly from the investment banking division who offered investment banking products to their corporate clients. After the re-design the private banking division saw the investment banking division’s corporate customers as a pool of potential customers to be leveraged (don’t mix this up with cross-selling, which would mean that the investment banking division would sell private banking services).

DESIGN CHECK: Business Design for Optimal Customer Leverage

Though this may all sound relatively obvious, many companies do still not sufficiently leverage their various customer segments and relationships that are served by different business lines. They think in business line silos rather than company business models. So how can this be helpful for your business? I propose you go through the following steps:

1. Make a list of all of your company’s value propositions (product & service bundles). In the above example this would be “private banking services” and “investment banking”;
2. Make a list of all of the customer segments the company is interacting with. For the Credit Suisse case this would be “High Net Worth Individuals” and “individuels representing a corporation”;
3. Draw a line between each value proposition and the customer segments it is selling to. For our case this is sketched out in the above drawing and is “private banking services”- “High Net Worth Individuals” and “investment banking” – “individuels representing a corporation”;
4. Analyze why certain value propositions are not connected to certain customer segments and evaluate if it wouldn’t make sense to connect them and thus leverage these existing customer relationships by doing more business with them (either by cross-selling or by referring them to other business lines);
5. Finalize by connecting the missing dots.

If you are reading this blogpost the probability is relatively high that at one point or another you have been drawing boxes and arrows on a whiteboard to sketch out a business design – either regarding business processes, business model, strategy or product/service design. This means that you are certainly familiar with the beauty, but also the limitation of the whiteboard.

If you have the time to check out the video below you’ll see that whiteboard drawings are dramatically improving. In the video the whiteboard incorporates built-in simulation capacities – in the example case for physics. However, with a little imagination I can perfectly see how this could be applied to the business field. Drawings of boxes and arrows could have built-in simulations in the domains of workflow and process design, but maybe even business model and strategy design.

To me it looks like the video example outlines how the foundations for tools for real-time business model design and manipulation are being laid (I wrote more about the topic of real-time BM design here and here).

I believe this is really really relevant, since Biofuels/Ethanol could be THE disruptive innovation to replace the multi-billion oil industry… Have a glance at Vinod Khosla’s presentation at Google TechTalks in the below Google video. It really made me think, since this would be a hell of a disruptive innovation with a positive “green impact” (just look up the numbers of the size & profitability of the oil industry).

Vinod Khosla is a venture capitalist considered one of the most successful and influential personalities in Silicon Valley. He was one of the co-founders of Sun Microsystems and became a general partner of the venture capital firm Kleiner, Perkins, Caufield & Byers in 1986. In 2004 he formed Khosla Ventures.

By the way, the quotes I liked best from Vinod’s presentation:

People will buy it because it’s cheaper. The green will be for free.

and

It’s amazing, the biomass belt is the largest where poverty is worst in this world (and that’s where ethanol could be produced and create new economic opportunities).

ABSTRACT
On Wednesday, March 29th, by invitation from our co-founders and CEO, our special guest, Vinod Khosla, visited Google to deliver a tech talk about the emergence of ethanol as a viable, market ready, and competitive source of renewable energy.

On the Ethanol Bandwagon, Big Names and Big Risks
http://www.nytimes.com/2006/03/26/business/yourmoney/26etha.html?_r=1&oref=login

Last month I wrote about value proposition design and provided a word template and image to structure the description and design process for a company’s value proposition.

I also mentioned that I liked Kim & Mauborgne’s approach of the so-called “strategy canvas” to describe a company’s value proposition. I find their approach particularly interesting because it allows to (visually) compare one’s value proposition with that of competitors (I wrote more about their work in a review of their book “Blue Ocean Strategy“, which you can buy here.

In this post I am a little more practical and briefly describe the “strategy canvas” through a short example and provide a template that you can use to design your own canvases for your own value propositions and industries.

In the image above I outline a rough example of a strategy canvas in the telco industry by comparing the value propositions of Skype (a consumer VoIP software), a Swiss fixnet operator (Swisscom) and a mobile network operator (Orange). This is purely for illustrative purposes (so don’t criticize me on the content …

On the x-axis you find the key factors of competition/value differentiation (calling costs, chat/IM, SMS functionality, etc.). On the y-axis you find a rating of how each company performs regarding each key factor. For example, Skype has free (or very low) calling costs (rating = 0), while Swiss Mobile operators still have very high calling costs (rating = 6). Or, Skype performs relatively low in terms of mobility because it doesn’t really work on mobile phones yet and online on laptops or PDAs (rating = 4), while mobile phones are the embodiment of mobility (rating = 9).

Overall this gives a very nice picture of each company’s value proposition profile and putting them on the same graph allows for a nice comparison.

I made a simple generic strategy canvas design template in a MS Excel spreadsheet that you may want to use to visualize your value proposition and those of your competitors. When I apply the strategy canvas and the template in a consulting project I use the following project:

1. Assemble a group of people from different company backgrounds (e.g. top management, marketing, engineers, etc.) to discuss value propositions and strategic differentiators;
2. Let each person individually brainstorm and write down (approximately) 10 key factors of competition and differentiation regarding the company’s value proposition. Let them write each factor on a post-it note;
3. Stick all the post-it notes on a board/wall;
4. Re-group the post-it notes into groups of similar factors;
5. Reduce to 7-10 factors by getting the people to select the most important factors;
6. Then let them rate how the company’s value proposition performs on each of these factors (e.g. low price, wide distribution network, etc.);
7. Let the group define the core competitors;
8. Then let them rate their competitors’ value propositions performance on each of the factors;
9. Compare all the value propositions;
10. Discuss the visualization.

At 12:56 GMT+1 My wife Marli gave birth to a wonderfull little girl called Malina. I don’t have the energy to write more because I am overwhelmed by emotions…