McDonald’s new CEO, Steve Easterbrook, accepted a huge problem as his to solve. The former darling of the fast food industry is losing customers. First quarter revenues fell 11 percent. And unlike IBM, which uses share buybacks to maintain earnings per share (EPS) growth in the face of declining revenue, McDonald’s EPS plunged over 25%. Meanwhile, McDonald’s ingredient costs, wages, and healthcare expenses are rising, thus making a quick turn-around challenging. As worrisome, franchise owners are rightfully upset. So what happened? McDonald’s failed to stay relevant to consumers, forcing the behemoth into catch-up mode. But being late to the party extracts a price. Former customers who had ruled the chain out as it fell behind might consider McDonald’s as a meal option again. But winning new customers’ will require more than closing gaps. McDonald’s is curbing antibiotic use in chickens, for example. It’s…
Disrupt your business model before you’re disrupted
A well-known case study by Harvard Business Review documents how Dow Corning elected to disrupt its own silicon business rather than allow competitors to steal market share by offering lower price points. The story is worth retelling because Dow Corning’s business model innovation keeps evolving to meet the needs of price-driven customer segments. As the information age took full hold in the 1990s and markets globalized, Dow Corning recognized that its high-end offering of services surrounding its product left the growing number of price-driven customers shopping elsewhere. “We recognized that a number of product lines were becoming commodity-like, and customers were no longer willing to pay a premium for them,” comments 20-year Dow Corning veteran Stacy Coughlin, an architect of the 2001/2 business model innovation project that created a price-driven brand, XIAMETER. Now the head of Global Marketing Communications for this brand, Coughlin…
To disrupt an industry, solve a costly problem with a new business model.
Writing on July 4th, I applaud a nation that produced a Rashaun P. Sourles, a compelling young man on a mission to improve health care and disrupt inefficient sales channels. Sourles grew up in a working class neighborhood and achieved top selling ranks at Johnson & Johnson, a Fortune 500 company. Sourles grew frustrated as one of J&J’s pharmaceutical representatives, with the considerable wasted time (up to 80% a week) spent trying to find, contact and set up meaningful exchanges with clinical and administrative decision makers. Had he been in the industry decades earlier, the hurdles would have been much lower. But an increasingly consolidated provider community now severely limits access of pharmaceutical representatives to clinicians to drive more volume over fewer drugs, thereby lowering costs. The barriers also reduce “hard-selling” – selling based on factors other than patient outcomes. In fact one-quarter…
Business model evolution is job #1 in today’s copycat economy
Madison-based TomoTherapy, a health care technology innovator, has sold out to another niche radiology technology company, California-based Accuray. The combined company will be better able to afford the direct sales and service forces and R&D investments critical to success when selling against radiology leaders like General Electric (GE), Varian Medical Systems and Siemens. Accuray’s superior financial performance made it the acquirer. Many in the region had hoped when TomoTherapy went public at a high valuation that it would join Epic and Promega as mid-sized companies headquartered in our region anchoring Madison’s biotech community. Had TomoTherapy evolved its business model strategy, it just might have succeeded. Instead, a plummeting then flat stock price led to the sale and, with it, an anticipated loss of high paying management jobs from Madison. TomoTherapy invented a break-through niche radiology product that enabled higher doses of radiation to…