(Marketing) Master Taking the Affordable Risks to Reduce or Eliminate the Big Risks
No commentsBy Donald Mitchell
Almost every successful business model innovator I have studied told me that their company nurtured an environment in which there is great latitude to take small risks on personal initiative, and great care in avoiding big risks that could set the company back. A major benefit of such cultures was to stimulate large amounts of innovation occurring without explicit direction, encouraged by people simply following their curiosity.
You can jump start the process of business model innovation by stimulating curiosity. As helpful as that jump start approach is for making progress and providing perspective, you want to make your organization’s continuing focus on business model innovation as natural and free-flowing as possible. Encouraging affordable risks that reduce or eliminate big risks is essential to that transition toward enjoying the rewards of everyday business model innovation.
Let’s look at how this shift in risk-taking perspective has been created by business model innovators:
(1) Each company seemed to have identified its biggest risks as the first step. Here’s how they usually did it.
(a) Start by mentally doubling or tripling your sales while increasing your profits more rapidly.
(b) Then, ask yourself what the company would have to succeed at doing in order to reach those higher levels of performance. In most cases, new products and services will be part of the picture. In many circumstances, achieving a much higher level of performance along some dimensions for customers will be part of the opportunity. Combining these new activities in ways that build on the company’s effectiveness, with little likelihood of detracting from it, seems to be important.
(c) Next, ask what risks could cause poor performance in accomplishing those key tasks. In doing this thinking, start from the customer’s perspective rather than a financial viewpoint or spreadsheet.
What you may find is that the customer has problems that aren’t being addressed. For example, Allmerica Financial had been a traditional full-line mutual insurance company based on Worcester, Massachusetts. When John F. O’Brien arrived from Fidelity Investments in 1989, he saw that the company’s customer-owners weren’t getting the best deal.
The company refocused itself on providing equity-based insurance products, operating more efficiently, and demutualizing the company. While that focus initially meant helping build retirement stakes for variable annuity owners, the vision behind the change has led the company today to explore how to become a superb low-investment risk resource as retiring Baby Boomers start to spend their savings in retirement.
In the case of Allmerica, the company initially lacked the skills, cost-base, and licensing to pursue what customers needed most. The gap was so wide that the company did not attempt to plan where it wanted to go initially.
Instead, it began by reducing the biggest risks (such as providing obsolete services with high cost structures) while encouraging skill development and innovation (to get experience with call center management necessary for equity-based financial products, for example, Allmerica began by providing the 800 number call center service for 1-800-FLOWERS for a time).
(2) Invariably, the second step (often almost simultaneous with the first) was to examine how to instill more, faster, more focused, and better innovation and decision-making in the company. Often, this direction dovetailed nicely with an observed need for more innovation. The primary reason that most big companies grow slowly is too little experimentation with new ideas. Experts, such as Gary Hamel in Leading the Revolution, argue that every successful innovation begins with 1000 ideas, which are turned into 100 innovation proposals, that become 10 tests, which should yield one implemented success.
By contrast, many companies try to get one innovation out of one idea. While there’s a slim chance that approach will work, it’s highly unlikely. The best way to get more innovations is to be sure that there are lots of ideas in the pipeline and that low risk and low cost ideas proceed rapidly towards experimentation and testing. Top management’s job is to enable and encourage this kind of more wide-open experimentation to become natural and easily lead to the next step in turning the successful experiments into reality.
A good example of this approach is to tell people who work in the company that they will be evaluated in part on the ideas they generate and appropriately develop and test. The measurement will be on the appropriateness of their activity, rather than the ultimate success of their efforts.
(3) A typical final step was locating what low cost and low risk activities would reduce or eliminate the big, unaffordable risks. For example, if part of the company was not profitable enough and losses could snowball, what did the company’s choices look like for improving that area short of shutting down or selling the operation?
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through and receive tips by e-mail through registering for free at
http://www.fastforward400.com .
Improve Your Business Model Concepts While Testing Specific Changes
By Donald Mitchell
How can you get your new business model into implementation faster without taking a lot of unnecessary risks?
Relax. While the experiments and tests are occurring, you can be thinking about the best course for your company.
A good place to start is to understand more about the elements that successful business models contain. Then, you can compare where you are with those patterns. The contrasts that come from this comparison will show you where more thinking can produce other ways to make progress while your tests of specific concepts are being conducted.
The most successful business models contain the same important elements, and you need to think about those elements in order to look for and check on ideas for improved business models.
First, the best business model in an industry creates many more resources for its stakeholders than it consumes itself in a ratio that is higher than what competitors offer.
Think of this as creating more financial as well as nonmonetary benefits for all those who come into contact with the company. The greater the ratio of benefit to stakeholders, the better the model.
Cytyc is a good example of such a company. As a start-up, the firm pioneered a new form of Pap smear test that is much more accurate than its predecessor. If a woman has cervical cancer and the disease is discovered early, she can always be cured.
Previously, many women who had cervical cancer received the erroneous information that they did not have cervical cancer when they did (and thus received no treatment) and they did have the cancer when they didn’t (and were frightened by an incorrect test result, and may have received unneeded treatment if a repeat test result was also faulty). The health, economic, and psychological benefits of the improved test to the women having the tests are obvious.
The cost of treating the early stages of this cancer is also much less expensive than having the patient get worse or die. This means that the demands on insurers and health care providers are less. Those who pay for health insurance will also have lower premiums. The community also benefits by having these women live longer, healthier lives as people others care about and rely upon in personal, family, and working relationships. Those who care about the woman also benefit from avoiding worry and having to do less to help her deal with her health issues.
Second, each stakeholder perceives that they will benefit more by encouraging the success of this business model than by supporting any other, or by ignoring the company which operates the best model.
When the competitive advantage among business models is very large in favor of each current and potential stakeholder, the company’s best interests become the individual stakeholder’s best self-interest as well. This circumstance can reverses the usual tension among a company’s stakeholders’ interests.
Haemonetics’ business model offers an example of providing a clear benefit to many stakeholders. Haemonetics is a global company engaged in the design, manufacture and marketing of automated blood processing systems. The company developed a business model vision of making safer and more economical blood components available when needed.
In the late 1980s and early 1990s, there was worldwide concern about transmitting viruses such as HIV through blood transfusions from donors. One of the technologies invented by the company, intra-operative autotransfusion, addressed this issue. Intra-operative autotransfusion allows for salvaging and washing of the red cells (a critical blood component) that would otherwise be lost by a patient during surgery. As a result, such patients are less likely to need red cells that are not their own in high-blood-loss surgeries.
In recent years, the company has followed this business model vision to address growing shortages of donated blood components. One solution was to offer a new intraoperative salvage device that can be used in a broader range of surgeries for patients to receive their own blood products. Another solution has come from introducing systems that allow blood centers to collect multiple units of needed blood components from a single blood donation without harm to the donor. With the new blood donation technology, costs are reduced, safety can be improved, and donors get the satisfaction of helping more people
There are many stakeholders involved with Haemonetics’ technology, including the patient, the patient’s family and friends, the hospital, blood donors, or other patients needing blood. For each of these, there is a clear benefit from a business model that makes safe and economical blood components available when needed.
Third, the best business models also seek to equitably share the economic benefits they generate with all stakeholders. Doing so creates a trust that permits people with otherwise widely differing interests to want to protect and support the business model.
Timberland is a good example of this approach. The footwear and apparel company sees its role as serving its stakeholders, and shares that perspective visibly and persuasively. Jeff Swartz, the company’s third CEO from the founding family, puts it this way. “Doing good and doing well are linked.”
He sees customers and consumers not as passive recipients of what the company provides but as “citizens” with a stake in the company who should be given every opportunity to tell what they want. Employees are not “hired hands” to be ordered around, but “paid volunteers” who come to work because they believe in what the company is doing. As part of this ethic, the company provides 40 paid hours of time a year for employees to do volunteer work. They apply this time to projects they care about.
Suppliers have to meet standards of quality on the products, and how they produce them. For example, Timberland wants to be sure that its products are not produced by child labor. Shareholders should get good financial results and the satisfaction of owning a stake in a company whose values they can be proud of. Mr. Swartz also sees his role as bringing the community into the company.
As two examples, Timberland provides day care on premises and also is a national supporter of City Year, a national youth service organization located in 13 cities around the United States. Many Timberland employees also work on City Year projects.
Company-sponsored volunteerism goes in so many directions, that Mr. Swartz doesn’t even try to keep track of all the activities it supports. While many other companies espouse these kinds of positive values, Timberland makes sure there is no mistake about its intent in order to be sure that resources its fine business model creates are shared fairly.
Fourth, the company’s business model would take a competitor many years to duplicate or exceed by any means currently available or potentially possible. In a world where competitive leads seem to be getting shorter and shorter, this sounds impossible. But the best business models have this core characteristic.
Invacare is a good example of this approach. The company started as a manufacturer of wheelchairs and expanded its business model to become the most efficient and easy-to-work-with, high-quality provider of almost everything you need when you go home from the hospital.
By combining product superiority and diversity with low costs in manufacturing and distribution through home medical equipment (HME) providers, the company’s business model could only be displaced by exceeding each element simultaneously. The company’s business model advantages have become so significant that other companies are hiring Invacare to handle their distribution. Each time that happens, the potential to overtake the Invacare business model is reduced.
To further increase its advantages, Invacare is starting to build a consumer brand image to create further preference for its offerings. Since many of these products are reimbursed by health insurance and Medicare, forms handling and interaction with health care providers are significant challenges that HME providers service well.
Having the HME provider as a customer lets Invacare build on the customer’s location advantages as well. Invacare has established a Web site to direct inquires to these stores in order to make them more successful in developing consumer business.
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through and receive tips by e-mail through registering for free at
http://www.fastforward400.com .
Marketing Techniques For Your Success In Business
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