Introducing new offerings into your product or service repertoire is a classic way of attempting to establish new growth platforms. One of the key decisions you need to make is whether you introduce the new offerings through a standalone business model ring fenced from the core or use incumbent model processes, systems and operating habits to launch. Combining a start-up and operate lifecycle stage is doable but not without some pain. My experience of late is that adding something new to a well understood and functioning business model is often more difficult than expected. Business models take time to get “run in” and are quite sensitive to how or where you augment them. The subtle process, business rule and skill requirements of the new offerings produce not previously required challenges and hence new competency requirements. The process of getting to grips with these new skills takes time and often causes new managerial tensions.
My stratospheric back of an envelope précis on business model morphing, is as follows:
- Business model efficiency is fragile at the best of times, even for well established and understood plays. I am always surprised how changing seemingly small elements often create dynamics that management battle to sense and make sense of. Well oiled models may have their thoughts anchored in efficiency or customer retention/management. Introduce a new product or service that requires a different set of selling or support capabilities and the operating status quo becomes stressed. New problems arise that existing remedies are not well suited to solve. This is especially the case when the new offerings are leading edge.
- Often the new “new” does not have an established commercial model yet. Companies have entered the space pressurised by innovation hype, the promise or hype of emerging technologies, new competitor activity or board growth pressure. Early plays are out there but are searching for an archetype too profitably scale. The strategy is configure, test, learn and adjust until you find what works. The objective is cracking a repeatable proposition and associated operating model and not necessarily making hard returns. This seems to drive the efficiency anchored number carrying suits crazy as missed business plan milestones pass them by. Predictable numbers steeped in repeatable process is what makes big machines work. Tension between the established and the new starts to emerge. This requires facilitation.
- Plays that launch within existing models capability systems face subtle tradeoffs. Many of the steps within the value chain look relatively similar. On closer examination there are usually (combination of) different cost drivers, skills sets, different buyers, new competitors, channels and management systems. Take the creative function within the advertising world. Developing the underpinnings of a 1 minute TV commercial and writing an HTML 5 app for a mobile campaign are quite different challenges. Not only are the skills different but the campaigns are built for a different purpose.
- Each business model creates, distributes, captures and leaks value for different reasons. Staying with the above example digital communications create and distribute value is different ways. By its very nature digital is cross platform and engagement/interactive centric. Cross platform puts much more emphasis on integration strategies and technology smarts in order to execute. The strategy and campaign design job (Common to both traditional and digital models) seems to hide some subtle but easily underestimated challenges – A campaign may require multiple partners, disparate technology pillars, different customer calls to actions and engagement rationales. Trying to integrate cross platform interactions (TV to Mobile to Web) builds in more complexity into a morphed advertising model.
- Business model elements that are critical to model A working (e.g. Customer engagement layer) become table stakes in B. Sure you need them but they offer very little differential value! I am thus of the belief that unless the differential capabilities required to make two models work are the same, keep them apart.
- I firmly believe that companies compete their competency systems. This is the sum total of their resources, process, operating habits and values. Up-skilling existing resource is not easily achieved. Hardened operating logic gained through years of progressive optimisation is practically “undo-able”. The incumbent and new roles need to figure a way of getting new stuff out of an old model. The new offering team typically have to educate both their internal colleagues and process owners but also their customers, while learning on the job. This requires constant work.
- Dominant logic always wins out. The “company way” usurps the new offerings requirements despite assurances to the contrary. Hidden assumptions, embedded decision making processes, performance rewards and problem solving have been inculcated over the core business running in process. Giving new offerings a chance to explore the boundaries of the incumbent model takes managerial consciousness and strong leadership.
Some business models are 4X4’s and some are formula one racing cars. The more specialised the application the more fine tuned the systems. Morph the incumbent model when the model outputs and configuration complexities have reasonable fit. Else, standalone.