From Oslo I attended an economic briefing from the Chief Economist of a major European bank yesterday. It was fascinating to hear the financial crisis and recession described from the perspective of the OECD, where the recession has been much worse than in North America. For example, Germany’s GDP fell 6.5% from its peak, with its manufacturing down 25% and exports down 26%. And despite massive European fiscal and monetary stimulus, his expectation for 2010 and 2011 is slow OECD growth, as is mine for the US economy. His most insightful comment was a quote from a UK central banker, “It’s about the level, stupid,” an analogy to Bill Clinton’s 1990’s campaign comment that helped him knock George Bush out of the U.S. presidency. The gap between actual economic performance and full-capacity economic performance is so great across the industrial world that the…
Web 3.0 Demands Business Model Innovation
Will Web 3.0 shatter axioms behind your current business model? I am writing from in the future, thanks to a day with the University of Wisconsin Madison’s E-business Consortium conference. Experts are presenting the implications of Web 3.0 for marketing, supply chain management, IT infrastructure and information security. Aged-old assumptions underlying many business models no longer hold true as Web 3.0 tec hnology changes how we communicate and communications infrastructures. First, for the uninformed (count me in) – Web 1.0 – One-way Internet sites for commerce. 10M users. Gave birth to Amazon and other on-line retailers and information sites. Web 2.0 – Two-way conversations. 100M users. Gave birth to Facebook/Linked-in and collaboration. Web 3.0 – Real time instant communication. 1B users and rising. Started in 2006, it gave birth to Twitter, video, location-aware applications and cloud computing. So what? Web 3.0 will obsolete…
What’s Your Version of Out-of-the-Box?
What do J&J, Fed Ex, Morgan Stanley, Microsoft, GE, HP, Hyatt, Trader Joe’s, SW Airlines, MTV, and CNN have in common? A recent Newsweek article identifies these 11 great icon brands as US companies that started in a recession. A recent Wall Street Journal article contains market share data for different markets showing how leadership is changing rapidly. Who thought CIT and GE would lose their strong lending positions to businesses? The game changes in recessions, especially one like the present when the other side of the downturn is anything but an equivalent upturn. Consumers and businesses are in “reset mode” and their changes create new opportunities for: Followers to unseat leaders; Leaders to consolidate their industry; and, New-to-market categories from existing and new companies. Add in game changing new regulations for green house gasses – which essentially alters every comparative price –…
The Root Cause of Our Economic Mess Is Commoditization
If your business can’t offer its target market(s) differentiated benefits that matter, recognize that your business is stuck in a quicksand called commoditization. Endless cost cutting to survive the recession-magnified price discounting will only push you deeper into the muck, making it even harder to escape competing on price. You only have three smart options: Redefine your business model strategy to become the lowest cost competitor. You’ll earn profits despite market commoditization Redefine your business model strategy to escape commoditization and compete beyond price Exit the business Over the last ten years our economy’s productivity increased dramatically through industry consolidation, value chain and process redesign, outsourcing and IT investments. These changes lowered inflation, but also created pervasive commoditization. Big banks engaged in these activities and ended up as lumbering copycats of each other, earning their returns by taking enormous risks rather than having…
IBM’s Smart Is a Smart Value Promise
Image via Wikipedia IT technology companies filled business page news the last few months with press releases leading us to rethink what business these companies are really in. Cisco is moving into HP’s market space. Dell with acquisition funds in hand is soon to follow. Intel whose margins are terribly low for a company so dominant in fast chips is trying to move into low power applications like cell phones where growth prospects look brighter. And IBM whose hoped for acquisition of Sun fell through when Oracle made a surprising and winning bid for Sun must find a new way into Sun’s market space. Business model strategy predicts moves such as these. As technologies mature and become commodity-like (which is possible no matter how sophisticated a technology is), industry boundaries between technologies collapse. Companies stuck in commodity-like competition redefine the definition of the…
Capitalize on Customer Frustration with Your Industry
“What is your bank trying to sneak by you?” appeared in bold letters on my computer screen. The screen was then filled with the complex and confusing words we’ve all seen in small print documents communicating our banks’ fees and financial charge practices. I hate those documents, don’t you? In one of the cleverest business model innovations of the year, GMAC Financial Services, a $180 billion global financial institution built initially upon the General Motors’ brand, has renamed its bank as Ally Bank and redefined its value promise. Like a river seeking lower ground, Ally Bank moved right into the heart of our frustrations and forced compromises with the banking industry, offering a solution that we’ve been waiting for – a bank that’s on our side. Ally Bank’s value promise is relevant, compelling and differentiated: Bank with us and you’ll keep more of…
Value Promise and Profit Potential, Part Two
If you need a differentiated, superior value promise to win customers’ votes, how do you know when your value promise is no longer working and business model innovation is called for? Make sure you measure repeat purchases, your consideration rates and your win rates. Discover where you’re losing business and why you’re losing business, as losses signal a weakening value promise and threats to profit potential. Lost order autopsies can reveal – Nascent industries reducing customer interest in your categories Your differentiators becoming standards to be considered Non-traditional competitors entering your space Subgroups of customers exiting for simpler offerings Reduced profit margins also indicate a weakened or less differentiated value promise. But leaders too often forget that a compelling value promise creates the best context for reliable profit potential. They fix profits by cutting costs, forgetting value promise implications. A vital strategic leadership…
The 5 Core Business Model Strategy Questions
Image via Wikipedia Your business model strategy answers 5 core strategy questions about your business. Where will we compete? Who is (are) our target market(s)? What business are we in? Why will we win? What value promise (where value = benefits received less the price paid to acquire these benefits) will earn target customer loyalty? What differential advantage(s) will enable us to reliably deliver on our value promise and leave competitors unable to easily copy it? Why will we be profitable? What factors will lead our benefit-price exchange with customers to generate economic value (profits and shareholder value) for us? Wait, you might argue. Aren’t these questions product-positioning questions we ask marketing to answer? Yes. Business model innovation defines and position your organization’s entire offering. It forces you to think synergistically about your entire portfolio. In an economy in which the copying of…
Recessions Demand Business Model Innovation
Image by Calidonia via Flickr “When the tide goes out, you see who is standing naked.” (Warren Buffet) When Joseph Schumpeter described capitalism as creative destruction, he was talking about business model innovation. New or transformed companies take the place of companies that are lethargic due to size-induced bureaucracy or over-confidence. This transition, Schumpeter argued, drives a nation’s long term economic vitality and growth. Recessions are great, the economist in me argues, because they accelerate creative destruction. The business-owner in me wants this recession to end. These are downright scary times even for businesses like my own that lack significant fixed capital and an employment base in the hundreds or thousands. The wise advisor in me knows that we’re in times of rich opportunity, ripe for business model innovation. Why? Billions of new dollars in federal research and even more in infrastructure and…