Want to build a more competitive business model by lowering labor costs? “Why then are you leaving management of healthcare benefit costs to outside health benefits administrators?” John Torinus, Jr. might ask. Torinus, chairman of Wisconsin-based Serigraph Inc. and former business editor at the Milwaukee Journal Sentinel, views health insurers as “middlemen with a busted business model.” With “a foot in both the provider and payer camps,” health insurers fail to extract best value from provider care networks that insurers need to win business. Torinus understands the value of proactive management, which may explain why the printing, in mold labeling and custom industrial graphics company he purchased in 1987 has grown more than three-fold to 1000 employees, with plants in the US, Mexico, India and China. By reinventing his company’s approach to healthcare, he’s avoided the dramatic increases in employer and employee benefit…
In Amazon vs. Netflix war, Amazon wins the battle for satisfied customers
Competition in a free market economy favors the lowest cost business model as markets mature and price-driven shoppers grow in size. Design a business model that delivers unique benefits, on the other hand, and you must also focus on efficiency. Because customers only pay price premiums for unique benefits, any inefficiency costs come right off your bottom line. Is it any wonder then that on-line retailing is growing by leaps and bounds, steadily gaining share against in-store retail? E-commerce is far more efficient, something Amazon understood in disrupting the book industry. In addition, on-line sales lower consumers’ indirect costs by saving time and gas money and, during the busy holiday season, avoiding the frustration of fighting crowds. Nevertheless, efficiency and convenience won’t overcome frustrating on-line shopping experiences. So how successfully are on-line retailers satisfying the increasingly demanding consumer? Better and better according to…
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…
The good, bad and ugly of ecosystems
Qualcomm Life, a fully owned subsidiary of Qualcomm that focuses on the wireless healthcare marketplace, is on track to create a well-tuned ecosystem to accelerate the adoption of wireless solutions. Wireless healthcare devices will identify problems in patients with chronic diseases earlier and move care to lower cost locations, thereby lowering the cost of care. About ecosystems Ecosystems – a concept appropriated from biology that’s now actively used in business strategy literature and the investment community – are loosely knit networks of organizations that serve to create whole solutions. The network operates through conscious and unconscious collaboration and competition involving the platform company and other organizations using it. Far more than a supply chain, ecosystems also include complementary product and service providers, distributors, government agencies and even customers. For example, Microsoft’s ecosystem includes multiple software and IT-service companies, educators and others that collectively…
Marketing plays a key role in strong business models
The market share battlefield and its weaponry changed considerably as our economy transitioned from the Industrial Age to the Information Age. In particular, the growing sophistication of marketers (and IT needed to support them) has been nothing short of breathtaking. The movement from the Industrial Age to the Information Age increased customer power, expanded offerings and growing competitive intensity. (See Sidebar.) As a result, both of marketing’s roles have become more important. Marketing’s tactical role is demand management, or deciding on the right channels and teeing up the awareness, considerations and positive attitudes that lead target customers to select their company’s offerings. The strategic role is to make sure the company has the right offering at the right price and margin. In the information age, marketing is transitioning from an art to a data-based science highly reliant on the strength of the IT…
“Occupy Wall Street” should applaud social enterprise business model innovation.
As “Occupy Wall Street” protests capitalism’s greed, social enterprise leaders are thankfully tapping the power of market forces to address capitalism’s thorniest social issues. In 2000, Gerald Chertavian founded the social enterprise Year Up to address the “huge waste of human capital” he observed in poor neighborhoods as a Big Brothers-Big Sisters mentor. Year Up gives a “leg-up” to youth aged 18-24 who have been disadvantaged by low income, family dysfunctions, substance abuse, or a criminal record. The high-expectations program combines a six-month professional skills training program (covering topics like writing, networking, time management, conflict resolution, and personal finance) with project-based internships that teach a technical skill. Over 85% of its graduates go on to earn $15/hour or more. A social enterprise, according to the Social Enterprise Alliance (SEA), is “an organization or venture that achieves its primary social or environmental mission using…
A Promising Business Model Innovation To Fix a Broken Pharmaceutical Industry
With venture capital flowing more slowly into the biotechnology sector, the Valley of Death (a period in which start-ups cannot secure additional funding required to remain viable) has become more deadly. Duane Roth, CEO of CONNECT, has a solution. CONNECT is a dynamic San Diego association increasing the number of San Diego start-ups and their success rate. Roth’s business model innovation aims to pull risk out of drug development, thereby bringing needed investment funds to this important US industry. In a 2010 Kauffman Foundation article Roth and his UCSD co-author Pedro Cuatrecasas call for creation of a “distributed partnering approach that would involve four distinct, independent organizations to collaborate in a risk-adjusted manner to discover, define, develop and deliver innovative products.” The significant innovation is within “define.” The co-authors advise creation of Product Development Companies (PDC), entities that combine “an experienced management team…
4 Trends Reshaping Business Models as Everything Computes
“Today everything computes. Intelligence has been infused into things no one would recognize as computers: appliances, cars, roadways, clothes, even rivers and cornfields.” So begins an IBM Smarter Planet ad in the Wall Street Journal arguing that computing must get smarter to manage today’s wealth of data. This data is not your father’s data of computer bits and bites. It now includes tweets, visual images, videos, machine output, etc. In this new world, IBM argues, computing must be: Designed for new data streams Optimized and fine-tuned to specific user tasks Managed in cloud-based solutions that offer security and flexibility Major computer models don’t change often, IBM states. But when they do change they “unleash enormous productivity, innovation and economic growth,” capturing the conclusion of economists who study Kondratiev long economic cycles. Does your business model capitalize on a rising sea of data from…
Will Netflix’ business model crash as entertainment streams converge?
Netflix’s stock price is falling, fast. My take is that the decline has much more to do with the long-term viability of its business model than the stated cause – recent defections in subscribers owing to a change in its pricing formula and a (since averted) break-up of the company into two parts. Here’s a business model lens on Netflix’s issues. Boundaries are melting in the entertainment world as content that used to be available in only one way becomes accessible in multiple ways. We can see TV shows on the Internet, read physical books on-line, use videogame boxes to watch movies-on-demand and buy hardware solutions that transfer data streams acquired on our computers to our TV screens. Hollywood’s new UltraViolet System will give consumers free Internet or cable access to any purchased DVD. What’s the implication for Netflix of convergence to one…
Are eroding barriers to entry hurting your business models?
Just 7 years ago, Motorola introduced the first thin cell phone to rave reviews and industry dominance. Yet, in a flash, it faced a flood of lower cost Asian knock-offs then lost its position to smart phones only to be bought by Google. Motorola’s engineering skills, supply chain excellence, and brand name strength were of little use in a massive industry upheaval enabled by new information technology. Google, meanwhile, moves from a once-distant competitor to posing a huge threat to Apple, RIM and Microsoft Windows. Google built mobile operating system leadership by acquiring and freely distributing Android. With its acquisition of Motorola, Google will likely become a device leader. No wonder Samsung’s reducing its reliance on Google’s Android system. In the Motorola story is the story of how the information age is making it harder and harder to win at business in the…