Think outside profit, build a solid base for your business
Sep 15 2014
I believe that extending the relationships with customers should not just be used for making profits, but also to drive innovation in terms of delivering even more value to them. This “outside-in” perspective can actually trigger major business model changes in this era of transient competitive advantages.
Take for instance the case of banking industry. Google, Apple and Alibaba are the new competitors for banks. It is estimated that by 2020 one third of bank’s business will be taken away by non-banking competitors. The traditional business of banks being a payment and financing institution will soon get disrupted. Customer service related issues would be more and more prominent with Apple, Google and Amazons of the world taking over some of these value chain elements of banks. Even with regulatory protection, banks may soon become backend utilities if they don't do anything to change this competitive scenario.
This is the era of rapidly changing preferences. Customers are not bothered about who solves their problem. If they want to have an item to fulfill a need, it does not matter whether it is being met by an Amazon, Google Wallet or his own bank. Companies need to know the changes that are taking place rapidly around them and this needs the constant touch with the customers to understand where the preferences are shifting. Like so many management jargons, is CRM becoming extinct? I am not too sure unless your company is using this along with the available data analytics to prepare your business to experiment and innovate for winning in the transient advantage economy, as Rita McGrath, my partner for India for strategy consulting.
There is no need to emphasise the holistic nature of business models, their link to business strategy, their relevance to both startups and existing companies seeking to reinvent themselves. At the centre of all this today should be the customers themselves. Everything you do for your business should be centred around this group and with certain processes planned on them; your business will never lose its orientation.
Business models are described as the architecture or blueprint by which a company will operate, suggesting a broad range of components. A typical business model should have nine parts: key activities, key resources, value proposition, customer and relationships, value chain, channels, cost structure and revenue streams. When it comes to customer relationships, you must ask four key questions: how do we get, keep and grow customers? Which customer relationships have we established? How are they integrated with the rest of our business model? How much are the costs?
Our consulting services in business model innovation with Rita McGrath follows many principles but most prominent is the idea of arenas and jobs to be done for customers. First, companies do not compete on industries any more but in meeting a job to be done for customers in different geographies, what we term arenas. The job to be done is essentially how customers seek the outcome to a problem or need they have and which all companies they may approach for the same.
Innovation comes from thinking outside the box in terms of how to get the job done for customers in new ways. Our idea to drive this process is based on the outside-in approach. A strong business model builds in switching costs, is relationship oriented, has a strong network effect, solves an ongoing customer problem, enhances the customer experience and involves co-creation wherever possible.
It will be interesting to see how the relationships offer a platform for developing new business models. Imagine a model based on the roles played by different segments in business and perhaps companies can actually make customers do part of the work to drive the fulfillment. When planning to compete in an existing arena, it is best to play by unconventional ways when role re-definition might serve as the basis for a new business model.
The changes in behaviour by customers are rapid and the jobs to be done are being served by many others in different ways. Just as in the example of banks mentioned earlier, in order for banks to compete effectively perhaps banks may want to enter into the pre and post the financial transaction situation. They may want to advise customers when to buy what and how. Like some of the banks are already doing in some countries with technology at their side.
(The writer is the CEO and MD of CustomerLab Solutions)