Re-invent Your Business before it is too late by Paul Nunes and Tim Breene www.hbr.org
Sooner or later, all businesses, even the most successful, run out of room to grow. Faced with this unpleasant reality, they are compelled to reinvent themselves periodically. The ability to pull off this difficult feat—to jump from the maturity stage of one business to the growth stage of the next—is what separates high performers from those whose time at the top is all too brief.
The potential consequences are dire for any organization that fails to reinvent itself in time. As Matthew S. Olson and Derek van Bever demonstrate in their book Stall Points, once a company runs up against a major stall in its growth, it has less than a 10% chance of ever fully recovering. Those odds are certainly daunting, and they do much to explain why two-thirds of stalled companies are later acquired, taken private, or forced into bankruptcy.
There’s no shortage of explanations for this stalling—from failure to stick with the core (or sticking with it for too long) to problems with execution, misreading of consumer tastes, or an unhealthy focus on scale for scale’s sake. What those theories have in common is the notion that stalling results from a failure to fix what is clearly broken in a company.
Bringing back the Excitement into your business
1. Change Your Industry
One reason profits might be down is if the entire industry has been hit. If everyone else in your industry is having a hard time as well, what can you do? The answer is – change industries. Of course, you can’t very well switch to a completely foreign industry and abandon all your contacts and clients. Instead, try switching to a related industry.
No matter what industry you’re in, there are probably half a dozen side industries you could move into. If your main industry is having trouble, try expanding to a different industry.
2. Launch a New Product
Nothing brings in new energy like the launching of a new product.
Apple had been struggling for some time before the iPod came out. The Apple 3 was a colossal failure, costing hundreds of millions of dollars. The drama of Steve Jobs leaving and then coming back cost the company dearly in bad PR. But the iPod, and eventually the iPhone, changed all that. The launch of a new product brought a lot of new excitement to the table. The same applies to smaller businesses. What new products or projects can you announce that would get people excited?
3. Try New Marketing Channels
What are two or three kinds of marketing channels you’ve never tried before, that are completely outside the scope of what you’ve done in the past? For example, if you’ve done daily, why not try advertising in a college newspaper? Or buy remnant radio ad space?
If you’ve only tried buying advertising in the past, why not try partnering for a big joint venture deal? Or try guest blogging on a few big sites? One reason for declining profits might be that your marketing “formula” just isn’t working out right. Instead of making tweaks, try making big changes to see what works and what doesn’t. Changing these three things – your industry, your product and your marketing – can really help you re-invent your business and bring back the excitement once again..
25 Ways to Reinvent your Business by Mag. Marc Sniukas www.sniukas.com
Let me share 25 ways on how you can get started. It is built around the who-what-how framework. Your business is defined by who you consider being your customers, what you offer them and how you do create and deliver the value proposition. Before we start, I urge you to buy a good notebook. Keep it with you at all times. Print the strategies outlined here and stick them into your notebook. Write down everything that comes to your mind…let’s get started…
No. 1 Challenge industry assumptions
This is probably the single hardest barrier to overcome when you’d like to reinvent your business: your industry’s implicit and explicit assumptions. Industry assumptions usually define “the way business is done”, what you see as the competitive factors of the industry, what has to be offered, to whom, in what way etc. Suppliers are usually defined, just as who can collaborate with whom, whether collaboration is allowed at all, etc. What are your industry’s assumptions? What are the rules, the dos and don’ts? Be they explicit or implicit. How would you know? Well, each time you hear somebody say, “…but we can’t do that”, it’s probably due to one of these assumptions. For the next two weeks, try to write all the assumptions you can think of down. And then start to question whether this is really the way it has to be and how you could escape the trap.
No. 2 Target non-customers
When thinking about increasing revenue or developing new products I found that most companies focus on existing customers. After all marketing has always thought us that it’s better (i.e. cheaper and easier) to keep a customer than to acquire a new one. But at some point you need new customers. Luring customers away from your competitors is likely to result in a counter attack. So why not search for non-customers? People that are currently not buying your product might have several reasons for not doing so: it might be too expensive, not accessible, to difficult to operate, or they might simply not be satisfied with the current performance. In Blue Ocean Strategy, Kim and Mauborgne outline 3 tiers of non-customers: (1) Soon-to-be non-customers, who minimally use the current offering, but are constantly searching for something “better” and will switch without hesitation as soon as a better offering comes along. The second tier are the(2) refusing non-customers. These customers are willing to buy, but not at the current terms. They either find the current offering unacceptable (for whatever reason), beyond their means, or too complicated. The third tier are the (3) unexplored non-customers. They are the farthest away from the current market and are typically being ignored as potential customers by the entire industry, either because they have always been assumed belonging to another industry or are not being considered worth the effort. Think about Nintendo’s success with focusing on non-customer in the games console industry: pretty much everybody besides heavy gamers.
No. 3 Target less profitable customers
The argument picks up with the third tier of non-customers. Businesses usually look at the existing products and try to find markets that offer the highest margins. But as for example micro credit banking has shown, it might be worthwhile looking at customer segments that, traditionally, have not been found worth the effort and try to invent a product that suits there needs at a cost they can effort. Less profitable customers usually constitute a very large customer base. Think about the long tail.
No. 4 Target the least satisfied customers
Strategy No. 4 specifically targets the first and second tier of non-customers. Those who are simply not satisfied with the current offering and either use it, because there’s no alternative, or refuse to use it at all. Which of your customers are unsatisfied? What could you do to help them and offer them a better value? It helps to look at the buyer experience consisting typically of the following steps: (1) Awareness of your product (2) Evaluation of alternatives (3) Purchase (4) Delivery (5) Use (6) Supplements (7) Maintenance (8) Disposal and possible barriers along each of these steps: convenience, simplicity, risk, cost (time, effort and monetary), fun and image, and increasingly environmental friendliness, etc. Which barriers do your costumers encounter? What are they satisfied with? What not? You might again think of the Wii, which reduce the complexity of using a game console and made it a lot more fun for less sophisticated users.
No. 5 Target the chain of buyers
Instead of focusing on the buyer of your product, who is often best known, you might want to consider looking at the chain of buyers. Again the buyer experience phases outlined above might help you to identify individuals or groups of people having to deal with each of these steps separately. What is it that they are looking for at each of these steps? The result might be a total solution and experience for each of them.
No. 6 Segment according to commonalities
Businesses typically segment their customers along differences such as gender, age, status, class, income, etc. For some businesses it might be worth looking at what customers and non-customers have in common. What do your customer have in common? Are there other segments that might have the same needs, although they don’t appear on your radar (yet)?
No. 7 Segment according to circumstances
Whereas strategy No. 6 looks at the customers as such and usually uses criteria for which data is readily available, you can also try to describe what need the customers are trying to fulfill and why they are buying your product. Looking at McDonald’s the need might primarily be to satisfy your hunger. Another reason might be to spend time with friends, get the kids to shut up, escape from the cold, not having to cook, kill time, whatever. Identifying these circumstances can again help in two ways: either bring ideas for new or enhanced offerings or you can target additional customers that have the same need, but have traditionally been neglected because the industry focused on a particular type of customer.
No. 8 De-segment the customer base
It seems to me the trend has gone towards finer segmentation in recent years. Mass-customization has been the result. Think about the car industry in Europe: customers have so many choices to individually configure their car that the result is more than a million different possible configurations of a single model. Focusing on commonalities and circumstances might help to find bigger segments and simpler products and product lines as a result. Bigger segments might also be worth the effort, even if profitability is low. Instead of de-segmenting using commonalities or circumstance you might find other ways to do so.
The next post will outline 9 strategies to reinvent your value proposition
No. 9 Offer complementary products and services
Sounds like a fairly easy one, doesn’t it? Indeed venturing off into the vicinity of your current offerings might be a sound first step on your innovation and business reinvention journey. It allows for first wins, is not too risky and will probably not upset others within your organization. And you could indeed be creative regarding the kind of products and services you offer. Think about the McCafé: one could argue that coffee and cake are complimentary products to the main course. W Hotels teamed up with Bliss to offer spa facilities in its hotels and Bliss products to take home. Which complementary services would make your customers’ life easier and the buying experience a lot more satisfying? We recently bought new furniture, and I can’t tell you how happy I was the company not only delivered it, but also set it up. Anything similar you can do for your customers? Which other products do your customers typically buy along yours? Think fries and ketchup. Cars and insurance. Etc. What good would the iPod be without iTunes? Indeed Apple puts them together on its website. What products can you offer along your services? What services along your products? Offering complementary (why not make them complimentary?) might also lead to the next stage: offering bundles.
No. 10 Offer bundles
The difference between complementary products and bundles is that with bundles there’s no choice. You get the bundle and not the separate products. (Be aware that this can be annoying to some customers.) All the above examples would also work as bundles and maybe even make it easier for customers, as they don’t need to think about whether they should buy the complementary product or not. Again Apple’, recent success with its products and increase sales might be due to the fact that the typical software one needs comes pre-installed, as a bundle. Indeed computers and software often come as bundles. Just like the meals at McDonald’s do (fries + drink + burger or salad or whatever). Yes, it can be that easy!
No. 11 Offer solutions and experiences
The next step is going beyond selling products and services to offering solutions and experiences. Let’s start with solutions. Why do people buy your product? To own it, or because they want to solve a problem or satisfy a need? You might buy a watch to know what time it is, but you typically buy a Rolex for another purpose: to show that you can afford it, to make a statement, to feel proud, whatever. This in turn will require a different approach, a different product as such. There was this example (I think Clayton Christensen wrote about it in one of his books) about people buying milkshakes not because they wanted a drink, but to kill time on a long commute. UPS went from shipping boxes to offering supply chain management solutions. Emirates offers business class passengers the service of being picked up and driven to the airport. It’s not only the flight that counts, but getting to the plane is part of the solution. You might again want to look at your customers’ total buying experience from purchase to disposal to find out what it is that they are trying to accomplish and offer the according solutions.
Experiences are the ultimate! Here you’re really moving from the selling stuff to offering your customer a total experience! Think first class flights: it’s not about getting from A to B, but it is the experience that counts. Airlines are trying hard to make that kind of experience available to business and economy class passengers as well at the moment (OK…at least some do!). To make it an experience you might have to integrate the customer. It’s about offering “co-creation” experiences. Like Lego started to do some time ago. As a Lego customer you can put together your own very special box of Lego bricks. It might also require you to shift from a functional appeal to an emotional one (see No. 14). The iPhone is not simply a phone, it’s an experience.
No. 12 Look at substitutes (from other strategic groups and industries)
This might be a potential spot to get inspiration for additional products and services, solutions and experiences. The questions is why people might trade your products for substitutes from other industries or strategic groups. Why do you prefer the car to the train or a flight? Maybe it’s the frequent point-to-point departure? This was inspiration for Southwest airlines for example. Austrian railways have recently looked at business class travel to bring the experience onto the train.
No. 13 Focus on the job to be done
We touched this one already with the solutions. Clayton Christensen has brought this to our attention again. Levitt did introduce it with his famous example of the the railroads: are you in the railroad business or in the getting people and stuff from A to B business. This shift in perspective opens a whole new range of possibilities. Hilti, the Liechtenstein based producer of power tools, has recently shifted from merely selling products to focusing on the jobs its customers try to get done. In Hilti’s case this means that you no longer have to buy the tools you need, but instead you can rent them to perform the job you need to get done and return them afterwards. Rental cars is based on the same idea I would argue.
No. 14 Switch your appeal: functional versus emotional
This is one of my favorites. Think Apple. People don’t buy the iPhone simply because of it’s functions. Indeed the first version was not even state of the art! But that’s not what Apple was selling with the first version. It was much more about being cool! Recently RIM has started trying to do the same thing with it’s “Love what you do” campaign for the Blackberry 9700 bold. It’s a perfect example from positioning a product no longer based on its functions but trying to appeal to people’s emotions.
No. 15 Selectively eliminate, reduce, raise and create
This one was introduced by Kim and Mauborgne as a key to Blue Ocean Strategy. Instead of adding new features all the time, you might want to think about what elements you can eliminate, because nobody needs them anyway, which ones you can reduce below industry standards, which ones to raise and which ones to create. Have a look at the Nintendo Wii. Compared to the Xbox or the Playstation you can’t play DVDs or Blurays, no storage (eliminate), graphics are a lot less powerful (reduce), fun was raised and the new motion control technology was created.
No. 16 Expand the use of your assets and capabilities
Which unique assets do you have and how can you use them differently? This is another way for looking at the McCafé. How could McDonald’s use its prime locations to attract additional business? By offering a new solution: the McCafé. The idea is kind of the one for using core competencies. Some people think that you should start with a clean sheet of paper and forget about everything your business does at the moment. While it that can be an interesting exercise, I found that it is also a very difficult one.
No. 17 Look at the customer buying experience cycle
This is a bit of a summary of all of the above. The key is to look at your customers’ buying experience from the first time they become aware of your product until they have to dispose of it:
Kim and Mauborgne added six utility levers across these steps:
- Customer simplicity: in which of the above stages are the biggest blocks to customer productivity?
- Simplicity: in which stage are the biggest blocks to simplicity?
- Convenience: in which stage are the biggest blocks to convenience?
- Risk: in which stage is the highest risk?
- Fun and image: in which stage is there the least fun and the worst image?
- Environmental friendliness: in which stage are the biggest blocks to environmental friendliness?
So what can you do today to offer your customers a better experience and value proposition to make their life easier and really help them to get the job done?
The following 8 points looks at ways to reinvent your business model…so stay tuned!
No. 18 Reinvent the customer interface
How do you reach your customers? Do you rely on conventional channels? Is every step of the buying cycle addressed by the channels you use? How easy is it for the customer to reach you? All these areas can help you to identify opportunities for reinvention. Have you ever thought about how you interact with your customers, how easy it is for them to find what they are looking for?
To analyze how you interact with your customers you might want to think about the customer buying cycle, which typically includes the following steps:
- Awareness of your offer
- Evaluation of the offer
Which of these steps are covered by which channels? Do you even address all of them?
Reinventing the customer interface might also mean that you openly engage with your customers to co-create value in innovative experiences (This idea was developed by Prahalad and Ramaswamy in their book “The Future of Competition“. Their DART model summarizes the various parts: Dialogue, Access, Risk assessment, and Transparency.) The main point is above all the create a new interface by sharing information in a transparent way.
You might also want to think you which interfaces your company manages and which are outsourced.
No. 19 Reinvent your customer relationships
What’s the image your customers have of your company, your employees, and your products and services? How easy is it to do business with your organization? Do you offer co-creating experiences to your customers?
Creating new interfaces will surely also have an impact on the relationship you have with your customers. Treacy and Wiersema have suggested the following three images customers can have of your company:
- “Smart shopper”, i.e. you focus on operational excellence
- “Best brand”, i.e. you focus on customer intimacy
- “Best product”, i.e. you focus on product leadership and innovation.
The first step to co-creation might be an automated self-service station like the new McDonald’s automated ordering system. Although I cannot (yet) create my own burger and can easily configure my own menu, and usually much faster than if I had to talk to an employee.
No. 20 Invent new revenue streams
New revenue streams could include going from selling a good to renting or leasing it. Think about Hilti, the Liechtenstein based construction tool manufacturer (I wrote a case on them for the forthcoming “Strategy Synthesis“). Instead of only selling their tools, Hilti gives you the option of renting them. The additional services that come with this bring in additional revenues. Apple introduced the App Store and iTunes to bring in additional revenues.EasyMotion, an Austrian car rental service, doesn’t make the money on renting the cars, but on offering companies the cars as advertising space.
No. 21 Price differently
Do you benchmark your prices against competition or alternative industries? Is your price affordable to the masses? Do you think cost plus or price-minus?
Reinventing your pricing can be a powerful source of differentiation. Think again about iTunes and how music is sold now. 99 cents is a very affordable price. The same goes for most apps in the App Store. Think about the long tail: It’s no longer about margins but about volume. Besides these more innovative pricing mechanisms you have a still a range of more traditional fixed price (e.g. list price) and dynamic price (e.g. yield management) tools at your disposal. How can you creatively change your pricing? What about consultants for example not longer pricing per day, but per minute or even per hour? Lawyers have gone away from the per minute charging to offering full packages. What about selling your consulting days at an auction? Kim and Mauborgne suggest not to price against competition but alternative industries competing for your customers.
Free of charge is of course the ultimate price for any customer. Maybe someone else could pay for the services they use. EasyMotion is such an example: Cars are financed by the advertiser. The driver only pays 1.- Euro a day. Many services on the web offer a basic version for free, which are financed by advertising or those users you opt for the premium version.
No. 22 Reinvent your cost base
Does your cost structure enable a strategic price targeted at the masses? What is the most expensive part of your business? How can you drive it out? Streamlining might be one option, another might be to outsource or partner with a supplier that can offer the same service at a lower cost.
No. 23 Collaborate with suppliers, partners, the network and ecosystem
How well do you use your connections to suppliers, partners and alliances? Could you enhance your collaboration to create competitive advantages? Partnering can provide a fast way to drop cost, but the danger might be that you outsource a capability you might need at a later stage. If you can lower your cost by buying standardized components that don’t provide any additional benefits to your customers, you should certainly do so.
Networks and the whole ecosystem become increasingly important through open innovation and engaging all stakeholders in co-creating experiences as we have seen above.
No. 24 Re-assess your key activities, assets and processes
How well do the activities you perform balance and reinforce each other? This one touches on No. 23. The key here is to think about what is really a core competency you require to fulfill the customers’ needs. What does the job for the customer? Essential activities should not be outsourced. Hilti for example could not do without R&D and manufacturing the tools, although it starts making a lot of money by leasing the tools. Manufacturing is still key. On the other hand Apple can outsource production, as the key differentiators are not so much the technology but rather software, design and marketing.
SAP became big because it decided to focus on the writing the software and partner with consulting companies like Accenture for deployment. What are really your key activities and processes? Which one do you perform best and which one could you outsource? Which are most critical to your business? Which assets are most valuable to your business? Think about people, technology, equipment, information, channels, exclusive access to partnerships and alliances, brands,…
McDonald’s for example put its main assets, the stores, to good use by expanding into the coffee business with McCafé. EasyMotion uses its main assets, the cars, not only to make revenue by renting them out, but additionally by selling them as advertising space. Hilti not only sells its assets, but rents them including additional services. How could you use your assets differently?
No. 25 Look at completely different industries
The first way to business reinvention I offered in part 1 was to challenge industry assumptions. The last one is about looking at completely different industries. Other industries can teach you a lot about how to reorganize your business model. Think about how a logistics company could turn to a organ transport company to get inspiration on how to deliver goods really fast. Which industries could you turn to, that face similar challenges? You might also want to look at substitute industries: what makes customers trade between your industry and another one? Think about airlines, railways and the car for example. Why would a customer chose one over the other?