Manage-Wise

Adopt value-improving ideas

Business concepts are only as good as your ability to apply them to your own situation. How many good ideas have you been exposed to that your organisation still doesn’t use? Since business model innovation is too important to suffer that fate, let’s begin our exploration of business model innovation secrets by looking at greater benefits at the same price and cost.

If you company’s management already agreed it had a good idea for an improved business model, you would probably be working on implementing that idea. Ask most people to think about what a better business model than the current one would look like, and they draw an initial mental blank. The resulting blank stare you see is all the evidence you need that the company’s business model innovation slate is empty. How can you move beyond what you know you should do to create new ideas for better business models?

Let’s start by simplifying the task. While most minds boggle at coming up with new business models, almost everyone can provide valuable observations about unmet customer needs and ideas for serving them that can be used as ingredients for better business models.

Think about the last time you unsuccessfully looked for a misplaced object. What did you do? Chances are you kept re-examining the same places. If you didn’t find it in a particular place the first time, is it likely to be there the second time? Or the third? Your passing gaze may have briefly focussed on other areas, but they remained unsearched. When you expanded your search to these other areas, you found what you were looking for. Eureka! You enjoyed your success and a great sense of relief.

Drawing on that experience, you will find that your odds of success with business model innovation are also increased if you begin by looking in places where you have not yet searched.

Improved customer value

Adding value for customers and end-users at the same or lower price is a place where relatively few companies search for business model improvements. Why? A company’s quest for improved customer and end-user value is almost always tied by management to either justifying a higher price or a higher profit margin.

If neither outcome seems likely to occur, few continue to look carefully at such choices. For example, discount furniture retailers with large stores that are open in the evenings and offer immediate deliveries from extensive inventories have been around for thirty years.

Skipping improvements that don’t support higher prices is a mistake because many people who haven’t started using your products don’t think your value is good enough.

By looking at only your current customers, you are missing the larger number of people who could be encouraged to buy. Give some people who don’t already use your offering a chance to try them, and then ask them to tell you how to make improvements to attract their business.

If adding value for customers and potential customers is not thoroughly considered, you can imagine how much less well examined is the opportunity to add value for customers’ customers. For instance, if you design jets, how do you go about considering the impact of your design on fragile air freight, such as Central American flowers shipped in a cargo hold?

The customer’s customer

A good way to stimulate ideas is to spend time with the customers’ customers, observing how they use your company’s and your customers’ offerings. Listen to these people describe their needs and problems.

Once the jet designers focus on flowers by talking to growers and florists, they can begin to measure how their jet’s design might extend or shorten the flower’s freshness. It’s normally dry and cold in the cargo holds, but the flowers need high humidity and cool temperatures to maintain their freshness. And freshness isn’t enough; you also have to maintain their attractive appearance. Flowers in cold cargo holds can develop unsightly blemishes.

Take that fundamental evaluation one step further back, and look at customers’ customers’ customers. For example, how will a cargo plane’s design affect the profits of the retail florists who purchase the Central American flowers? There is only the most remote likelihood that much thinking and testing has occurred to consider these customers. For instance, there’s a lot of consumer concern about international flower growers applying harmful pesticides that are banned in the US. To attract more customers for florists, perhaps holds need to be designed to accommodate inexpensive in-flight fumigation, using more environmentally sound chemicals.

Continue this process until you reach the end-users. How does air freight transportation affect their enjoyment of flowers in ways not yet considered? For instance, do cargo hold container sizes mean that stem have to be trimmed to shorter lengths than flower fanciers prefer for long-stemmed roses?

Then go to the final dimension and listen to those who are indirectly affected by your offerings through intermediary customers.

With regard to imported flowers, this indirect influence might touch those who are harmed by crop-destroying pests and dangerous insecticides that arrive in the flower shipments.

When you perform this analysis, you will probably see that only a tiny portion of the value-adding opportunity has ever been considered in your company.

So, how do we break out of the mental harness of looking for benefits that “justify” higher prices as easily and as profitably as possible?

Well, first you need to know what customers and end-users want the most.

What customers are looking for

Submerged in a glut of mostly undesirable and unwanted offers for indifferent goods and services they don’t care about, purchasers find themselves too often choking on product faults and abrasive service that grate on their nerves and try their patience. Let’s look at a better way to profitably serve customers. We will start by listening to them talk about what they are already looking for.

What are customers already looking for that’s hard to find and valuable to them? That question can be hard for you to answer, and even harder to deliver profitably.

Guessing certainly doesn’t work. Leave your preconceived ideas behind when you ask questions.

Professor Martin V. Marshall’s marketing management students at Harvard Business School once learned how hard it can be to try to figure out what customers want by trying to answer his question, “How do you think I choose an airline for trips to Europe?” Hundreds of incorrect guesses followed.

Price wasn’t it because it was similar among airlines. Food wasn’t the issue because he did not eat the food. Movies weren’t a factor because he never watched them. Frequent flyer miles didn’t exist yet, so that wasn’t it. Parking at the airport wasn’t important to him. He carried on bags, so the size of the overhead bin wasn’t his issue.

His bags were small, so the size of the overhead bin wasn’t significant. Interestingly, the proposed answers were focused on just the sort of characteristics that airlines emphasise in their advertising.

Undoubtedly, the market research questions used to create the advertising copy were similar to the students’ answers.

Excerpt from ‘The Ultimate Competitive Advantage’ by Donald Mitchell and Carol Coles. Reproduced with permission © 2005, Tata McGraw-Hill Publishing Company Limited.
E-mail: vishwanath_mum@tatamcgraw-hill.com