As a budding economist, I was initially awed by the market mechanism: the invisible hand that encourages innovation and leads companies to efficiency levels that grow our nation’s wealth. Observing underlying economic principles at work never ceased to amaze me as a college or graduate student. My learning journey in economics was not unlike that of a science student seeing beauty in the laws of nature. What I have learned in decades of practice and observation however is that outcomes are only as positive as the underlying motives of decision makers in the private and public sectors. And in this regard, “Houston, we have a problem.” Over the holidays I read a Wall Street Journal article, “Counterfeit Cancer Medicines Multiply.” As the price of cancer drugs rose, they moved to being 8th among the top 10 drugs targeted by counterfeiters, according to the…
John Deere – Branding and business models at their best
The most powerful brands offer more than a unique, hard-to-copy and relevant value promise embracing both tangible and emotional benefits. They are also about more than the brand’s personality, although I will admit to loving beer brand Dos Equis “most interesting man in the world” personality. The best brands appeal to a shared aspiration that speaks to our deep hopes and dreams. When the organization’s actions authentically reflect this aspiration, you have a magical brand, like John Deere. Yes, the John Deere. The heavy off-highway equipment company serving the construction, farming and other earth-moving markets. Its award-winning communications campaign, You’re On, teaches many brand and business model strategy lessons. Start with Deere’s construction industry homepage, where you’ll see the message “Who says man cannot move a mountain?” as a Deere machine moves earth on a landscape surrounded by mountains. What a welcomed contrast…
The yin and yang of business model innovation
The following quote (courtesy of a blog post by Esther Dyson, savvy internet investor) should be posted on billboards next to every large company, especially in Japan where once-great electronics giants face the Herculean challenge of reversing an accelerating decline. “Without order, planning, predictability, central control, accountancy, instructions to underlings, obedience, discipline — without these things nothing fruitful can happen, because everything disintegrates. And yet — without the magnanimity of disorder, the happy abandon, the entrepreneurship venturing into the unknown and incalculable, without the risk and the gamble, the creative imagination rushing in where angels fear to tread — without this, life is a mockery and a disgrace.” ~ E. F. Schumacher, Small is Beautiful Chico Harlan’s recent Washington Post column describes the “free fall” that Sony, Sharp, Panasonic and Toshiba are experiencing. They “once controlled the industry, outclassing and outselling their U.S….
Does your business model strategy recognize the facts?
Leaders often fail to recognize the underlying facts that will transform their markets, which creates opportunities for disruptors who work 24/7/365 for a share of the leader’s business. The economy’s move from the Industrial Age to the Information Age created three new facts that leaders must heed. Let me use newspapers as an example of an industry that ignored facts at its peril. FACT: Digital technology allows the creation of the same benefits at a lower cost. All markets evolve to the lowest cost solution, period. So it’s no surprise that the lower-cost way of communicating information is dominating media markets. But newspapers did not heed the call. The Internet has demolished printing presses and scale economies as a barrier to entry into both sides of the newspaper business model (information for readers and an audience for advertisers), with new entrants offering opportunities…
Product-Service Business Model Best Practices
I had occasion this week to look through a number of business-to-business manufacturers’ websites and noted the growing role of services in company offerings. Some services link directly to the products (e.g., financing or warranty services). Others are complementary – e.g., “buy our power generation products and our service team will help you minimize your carbon footprint.” The additions of services to products make sense in a world where products are increasingly commoditized by excess global supply, growing customer power and a flood of copycat offerings. More and more of these services are must-have additions to a product line because customers have come to expect them. And that means product manufacturers best not remain stuck in product-centric business models. Furthermore, because its getting harder to differentiate individual services, product manufacturers best be savvy in how they add services. There are two myths associated…
Are your business model decisions aligned?
I had occasion this week to look at a number of different frameworks containing questions that help you design and innovate business models, each one developed by an insightful strategist and each offering advantages. While they varied in details, there was a singular logic that leaders, charged with ensuring their company is competing with winning business models, could benefit from. To illustrate, a story might fit the bill. All Pleasant Rowland’s advisors argued against her desired channel strategy. A former schoolteacher turned grade-school textbook writer, Rowland wanted to create a doll that would help mothers keep their daughters’ attitudes and dress younger, longer. An aunt herself, Rowland had observed how contemporary culture encouraged girls to consider make-up and the like at earlier ages than had Rowland. Rowland wanted to sell the doll through direct marketing (just catalogues at the time) in lieu of…
What JC Penney didn’t understand about the role of price in business models
Wizard of Oz protagonist Dorothy captures the shock of her post-tornado world in the memorable line, “Toto, I’ve a feeling we’re not in Kansas anymore.” Ex-Apple retail wizard Ron Johnson, now CEO of JC Penney (JCP), must be saying “I’m not in Cupertino, California [Apple’s headquarters] anymore” as he discovers the challenges of transforming his new employer’s retail stores. The first head has already been chopped: merchandising and marketing leader Michael Francis left JCP after less than a year on the job. We’ll now see if Johnson, who created the “shabby chic” value promise at Target and the stellar shopping and learning experience at Apple, has the chops to fix a troubled company in a category with excess supply. I thought Johnson had a great idea – reinvent the department store, which had offered wonderful shopping experiences when local high-end stores dominated the…
Reviving local retail through business model innovation
In the new Broadway-bound musical Hands on a Hardbody, ten East Texans seek to reverse their hard luck lives in a competition to win a Nissan truck. In one song, Used To Be, the contestants lament the loss of independent stores across Texas. “How will we know when we’re home,” the cast croons, “in a land filled with Walmarts and Walgreens and Wendy’s?” The musical captures much of what is hurting in America, the retail landscape being but one example. Office Depot, Staples and Office Max for example displaced local office supply stores while Walgreens, CVS, Walmart, Target and other national chains displaced locally owned pharmacies. National retailers then pressured manufacturers for cost reductions, creating ruthless competition that’s driven every last penny and non-essential US job out of consumer goods companies’ cost structures. The change from local to national had advantages. A developer…
Disney’s forward-looking business model innovation
Disney’s recent decision to restrict products advertised on its child-focused media properties might not appear to be business model innovation in the classic sense. But it is. With that one decision, Disney is redefining how, where, and why they will do business with other companies, and offering a leading-edge value promise to consumers. In reading societal tea leaves correctly and taking bold action, Disney will advance its financial and social value. Starting in 2015 Disney will restrict advertising on its child-focused TV channels, website and other media properties to brands that meet a strict new set of federal nutritional standards. The decision will reduce Disney advertising revenue from brands like Capri Sun™ drinks and Kraft Lunchables™, foods that may be fun to eat but not good nutrition. Concurrently, Disney will reduce the salt content of meals served at its theme parks and engage…
MIT-Harvard edX disruptive business model
Higher education in the US has reached a breakpoint, where underlying and conflicting trends force an abrupt and often unexpected change in how a market works. The conflicting trends for education are that families’ and governments’ ability to pay for rising college costs has fallen at a time when individuals, states and our nation need higher education more than ever. Typically, when products become more expensive, consumers buy less. But the demand for college education continues to grow as wages for lesser degrees largely erode. So, what will give? When I was an MIT economics doctoral student, we learned that services like education, healthcare and government would increasingly represent a higher share of GDP because they would never achieve the efficiencies observed in manufacturing and agriculture. One teacher even referred to this expected outcome as the “Europeanization of the US economy.” But today’s…