© 2014-2019 Edwin Korver, CEO – CROSS SILO BV – all rights reserved – MOBILE +31-(0)6-52341111
Registered at BOIP.INT i-DEPOT 094029 (3.0), 095482 (3.1), 103610 (3.2), 105496 (3.3), 106619 (3.4), 110465 (3.5), 115384 (3.6)
WHAT IS THE ROUNDMAP™ ─ ROUNDMAP is a holistic framework designed to drive commercial excellence based on sustainable business growth and situational readiness. The framework perceives an operation from the bottom-up, starting at the Ultimate Level of Truth™, i.e., the entire frontline operation, to allow the organization to discover, design, develop, and deliver products, services, and experiences that continue to match fast-changing customer needs and expectations. To grow sustainingly, companies need to forge strong customer bonds, collect and democratize relevant data, build cross-functional teams, and incite an overall commitment to its purpose while embracing a mindset of continuous change.
WHO IS IT FOR ─ Companies that fail to achieve their growth aspirations and are looking for ways to overturn disappointing commercial outcomes but have trouble identifying or eliminating the causes of poor customer performance. As well as companies that want to launch products more quickly and more often and look for an integrative approach toward customer engagement.
WHAT ARE THE BUILDING BLOCKS – We first described the integrated, bilateral customer lifecycle, leading up to the Customer Carousel™ from which the Business Model Matrix™ and the Business Model Compass™ emerged. The Cycle of Disruption™ complements the four models that shape the foundation of the ROUNDMAP™ framework (see images below).
ULTIMATE LEVEL OF TRUTH™ – If frontline employees fail to acquire, create, retain, and extend enough customers at a profit, then, regardless of the systems, culture, strategy, skills, resources, or products, the entire operation will crumble. In the case of a design-thinking approach toward product development, a high level of customer engagement can make all the difference.
FOUR MODELS – The framework encapsulates the following models:
For your convenience, we’ve divided the homepage into four color-coded sections:
- Growth-related: Growth Aspirations, Growth Activation™, Customer Dynamics, Specialization, and silos.
- Customer-related: Customer Carousel™, Ultimate Level of Truth™, Mapping Composition, and ValueHub™.
- Strategy-related: Business Model Matrix™, Elemental Business Models, and Strategic Playbook.
- Progress-related: Business Model Compass™, Shifting and Regeneration, and Business Transformation.
MIND THE GAPS
Concerns over technological disruption, globalization, growing inequality, and the environment are ubiquitous. Despite these challenges, we believe businesses can sustain growth at an affordable cost, not just to the business but to society and the planet as well, if the (growth) gaps are closed.
Our motto: Profit is good, if no harm is done.
ROUNDMAP™ is a creation of Edwin Korver, CEO of CROSS-SILO BV, THE NETHERLANDS
CLOSING THE (GROWTH) GAPs
Studies show that 80% of organizations fail to achieve their desired growth targets in terms of revenue and profitability. Closing the growth gap ─ the gap between growth aspirations and growth activation ─ is one of the applications of the ROUNDMAP.
A growth gap may occur due to:
- Inadequate considerations of the opportunities for growth, i.e., the attainability of growth.
- The limited capacity of the organizational infrastructure to support successful execution, i.e., the serviceability of growth.
- Adversarial forces inside or outside the organization ─ think of Porter’s Five Forces.
- So-called growth traps ─ deeply embedded assumptions that can lead firms into misconceptions about growth.
- Fleeting competitive advantages ─ reducing the growth cycle, forcing firms to rotate through the cycle much more quickly.
To appreciate a level of growth that is attainable and serviceable, we’ll have to make sure that any misconceptions about growth (red line, often caused by inadequate market research) are removed from the equation. This will give us the green line. If current growth (blue line) does not match the green line, we’ll need to consider what causes the growth gap. Additionally, we may need to account for a measure of Growth Cycle Reduction due to fleeting competitive advantages as it makes no sense to work toward a discontinuous future.
By analyzing the operation, ROUNDMAP Certified Professionals will be able to reveal what causes the gap. This leads to an actionable plan which may include changes to be made to the infrastructure, business strategy, business model, market segmentation, partnerships, revenue streams, marketing strategy, cross-functional collaboration, individual mindsets, or the customer development process.
Sustainable GROWTH ACTIVATION
We refer to our approach to business growth as Sustainable Growth Activation – this approach intends to identify and eliminate growth gaps and growth traps while exploring new opportunities for growth and to create an environment in which it can thrive.
Both McKinsey and IFF* encourage senior executives to pay equal attention to the three horizons of growth (see figure below). Our perception of growth is slightly different. We perceive growth as situational ─ depending on internal and external forces ─ which led to the belief that Situational Growth has four activation stages:
- Exploiting Growth ─ Defend and exploit ‘business as usual’ (similar to horizon 1).
- Extending Growth ─ Adapt to changing customer demand and market circumstances (similar to horizon 2).
- Exploring Growth ─ Build new lines of business through innovation (similar to horizon 2).
- Emerging Growth ─ Transform from an ‘end-of-life’ towards new viable business options (similar to horizon 3).
(*) We’ve derived the term Growth Activation from the term Marketing Activation (the execution of the marketing mix as part of the marketing process) and Customer Activation (motivating customers to move to the next stage of their lifecycle faster than they would on their own).
The Three Horizons of Growth framework has two sources. One is a collaborative effort by the IFF (International Futures Forum), published in the book Three Horizons by Bill Sharpe. The other source points to McKinsey, published in the book The Alchemy of Growth by Mehrdad Baghai et al.
MiND THE GAPS
If you are familiar with the book In Search of Excellence by Peters and Waterman (1983), you won’t be surprised to learn that the way responsive businesses operate today resembles the eight management principles mentioned in this book ─ after all, we’re a long wave (Kondratieff) further down. If you’re not familiar with the book, you’ll need to understand that these organizations are extremely nimble and entrepreneurial, highly disruptive, and often very effective ─ they are true frontrunners.
Their growth cycles look pretty much like this (every cycle represents a separate venture with its own core business):
ROUNDMAP™ is a framework directed at closing the gap between a firm’s (future) growth aspirations and its actual commercial performance ─ by verifying and enhancing projected revenue streams, business models and strategies, eliminating organizational barriers, and boosting the front-line operation.
ROUNDMAP™ is a creation of Edwin Korver, CEO of CROSS-SILO BV, THE NETHERLANDS
THE ULTIMATE LEVEL OF TRUTH
We’re convinced that the employee-customer interaction is at the core of any successful business operation. This is where new opportunities emerge and threats can be identified quickly. Studies confirm unequivocally that an integrative approach towards the customer development process leads to substantially better performance (up to 765%; Kotter and Heskett, 2011).
Obviously, for the customer development process to perform well, a firm needs to have the right products and services, and address the right audience with the right messages using the right channels while making sure that the entire operating line is up to the task to serve our customers’ needs with poise.
THE SILO SYNDROME
What is keeping most companies from reaching a level of excellence is the degree of fragmention due to specialization ─ leading to mental and functional silos, tunnel vision, internal competition, and even turf wars. These negative effects tend to obstruct the creation and delivery of value while frustrating customer experiences, ultimately deteriorating commercial performance.
When you start with a fragmented leadership team, leading to separate groups rooted in their values, beliefs, symbols, and taxonomies, the execution of the business strategy will undoubtedly be crippled. If additionally, departments hoard relevant customer data, reluctant to share it with others, the mission could be at grave risk.
We’ve identified several ways to break down the silo-mentality, such as the introduction of customer roundtables, appointing cross-functional liaisons to build cross-functional teams, defining inciting rallying goals and objectives, and so on.
ROUNDMAP™ is an integrative framework on Customer Dynamics. Customer Dynamics is a theory on company-customer relationships that describes the ongoing interchange of information and transactions between customers and organizations. It goes beyond the transactional nature of the interaction to look at emotions, intent, and desires. It views interactions as a chain of events rather than single-point occurrences. Customer dynamics is a subset of organizational dynamics, which domain is primarily about organizational behavior and development and secondarily, HRM and strategic management.
The following figure demonstrates how we perceive the customer dynamics, relative to Michael Porter’s value chain model:
Image above: We see Customer Dynamics as a firm’s intermediate primary activities (to the left). By ‘intermediate’ we mean those activities that exist in between the firm’s back-office and its customers, enclosing both the business-touching as well as the customer-touching functions of the customer development process.
This unique arrangement made it easy to outline the SWOT-model (Strengths, Weaknesses, Opportunities and Threats), as well as the Backstage and Onstage Competitive Advantages, relevant to defensible differentiation.
The name ROUNDMAP™ is composed of the words ‘roadmap’ and ’roundtrip’ ─ for good reason:
While ROUNDMAP™ focuses on strategy execution and frontline performance optimization, other frameworks are generally cost-oriented. To increase operating income both aspects ─ cost and performance ─ should be considered.
ASSIGN TO THE ROUNDMAP CIRCULAR
What should you expect in terms of commercial outcomes from adopting the integrative approach of the ROUNDMAP™ strategic and executive framework?
Although the effects of the deployment of the ROUNDMAP™ methodology will depend on the specific circumstances, the authors of HumanSigma suggest that increased engagement, which is one of the goals of the ROUNDMAP, will produce results ‘that far exceed companies’ expectations’. Kotter & Heskett’s extensive research on the effects of culture on performance even showed a 765% net income improvement over 11 years (~22% YoY-growth, between 1977-1988).
"More Engaged Employees"
"More Engaged Employees and more Engaged Customers"
"More Collaborative and a less Adversarial Culture"
You may have noticed that these impressive growth numbers aren’t the result of better marketing, sales, or customer service, rather from a culture in which employees are given the opportunity, skills, systems, and trust to be able to commit themselves to offer customers the value they deserve and take full responsibility for it. We call this customer excellence.
While the ROUNDMAP™ is the go-to framework for maximizing the performance of value delivery and the customer development process, it does require certain prerequisites. To create the appropriate conditions the ROUNDMAP™ integrative framework offers an effective approach allowing the firm to transcend past performances.
THE SPECIALIZATION TRAP
To understand the difference between an integrated and a fragmented operation, we’ll need to explain the concepts of the division of labor and specialization, which began in the past century.
DIVISION oF LABOR
The division of labor is one of the hallmarks of capitalism. Before Henry Ford’s advancement of the assembly line for automobile production, cars were primarily produced by craftsmen or artisans. Every member on the team had a very good working knowledge of virtually all aspects of car manufacturing. With the assembly line, a small team of people designed the car and assembly process, while a larger team of unskilled workers built the cars.
Consequently, the Industrial Revolution brought specialization from the division of labor, by standardizing and allocating work, which brought increased productivity. This specialization, however, decreased self-sufficiency and people became increasingly interdependent on one another, leading to fragmented structures (silos), a limited sense of responsibility and a narrow scope of awareness.
While Taylor sought to optimize industrial efficiency, ultimately leading to robots replacing much of human labor, few will realize that a similar scientific management approach to increase employee productivity has also been applied to today’s customer development processes.
To illustrate this, we’ve created a schematic illustration of the customer creation line (process):
Are you confused to see how customers are passing by stationary frontline employees, on an imaginary conveyor belt, similar to how products, like cars, passed stationary factory workers for over a century?
This is in fact how most creative processes are organized today. And it should come at no surprise that this approach leads to employee disengagement, similar to how industrial compartmentalization led to disengaged factory workers.
Margaret Heffernan: “The problem is that efficiency works very well if you know exactly what you are going to need. But when the anomalous or the unexpected comes along then efficiency is no longer your friend ─ especially when the unexpected becomes the norm”. So how are we going to deal with the unexpected if we’re being controlled by algorithms that steer us towards a future that isn’t very likely to happen?”
HENRY FORD: 370% eMPLOYEE TURNOVER
Apparantly, Henry Ford did not believe factory workers needed to bother with the final product and would be more than happy to do repetitive work routinely. However, Ford underestimated the effect this had on people: employee turnover rose to 370%. In 1913 Ford hired more than 52.000 men to keep a workforce of only 14.000. Even today, the automotive industry’s track record on hiring and retention is ‘unacceptable’.
As suggested by Harvard professor and celebrated scholar Shahshan Zuboff there is a third arrangement: the assembly line of surveillance capitalism. According to Zuboff, companies like Google and Facebook offer free access to their platforms and services in exchange for a user’s behavioral data which allows these companies to predict their future behavior. This data is then sold to advertisers as ‘qualified leads’ to market their products and services against.
THE SILO SYNDROME
Best-selling author and entrepreneur Ricardo Semler identified the negative effects of industrial compartmentalization on the level of engagement of factory workers. However, by dividing the frontline operation into separate teams and departments, we’ve adopted a similar form of siloization and as a consequence led office workers to become disengaged as well.
END THE TURF WARS
When interdepartmental turf wars obstruct the exchange of information, because of resentment and cynicism between teams, blocking cross-functional solutions and creating inefficiencies throughout, the business will fail in its mission.
Silos tend to obstruct effective communication between separate teams and departments, stall innovation, lower employee engagement, increase resistance to change, and thereby decrease operating performance.
LACK OF EMPATHY AND COMMITMENT
Employee disengagement will result in a lack of empathy for and commitment to a customer’s cause. Departments and individual workers become self-centered, entrenching the silo effect, and inevitably hurting customer performance. This goes back to the business strategy: instead of trying to be the best, leading to machismo, tribalism, fragmentation, and friction, we should strive for uniqueness, appealing to our creativity and our sense of purpose and meaning.
JOHN P. KOTTER: OPTIMIZED FOR EFFICIENCY
John P. Kotter, Emeritus at Harvard Business School, stated: “Any company that has made it past the start-up stage is optimized for efficiency rather than for strategic agility—the ability to capitalize on opportunities and dodge threats with speed and assurance”, while adding to it, “The very structure we have created to operate efficiently and effectively today gets in the way of what we need to do to innovate for tomorrow”, therefore, “Organizations need a ‘second operating system’ that works in tandem with the traditional hierarchy, the original “operating system” that the organization depends on to get day-to-day tasks completed and out the door.”
CROSSING THE SILOS
We are not suggesting to break down the silos: they come naturally. We merely propose to cross the silos and embrace a stakeholder-focused, collaborative and meaningful mode of operation.
To advance from a siloed to an integrated customer development process, we’re suggesting to build a bridge, a fourth department: Success. This department needs to be assigned with the task to pro-actively assist customers in achieving their objectives sooner, bringing them nearer to the company, and in the process increase the significance of future relationships.
While it makes sense to want to create more one-off customers as part of a product-centric business model to increase market share, in most other cases ─ provided we want the business to be more profitable ─ we need customers to return more often and spend more money throughout the extended customer relationship.
Therefore, the focus should be on getting customers to return, or at least refer. There is a bonus: it is at least 5x times less expensive to retain a customer and get them to repurchase than it is to acquire a new customer.
UNIFIED CUSTOMER PROFILE
To improve value creation and delivery each frontline employee should have access to a unified customer profile to be able to act on relevant emotions, intent, and desires. Customer feedback needs to be shared continuously, preferably at a weekly Customer Roundtable, to advance from a discrete to a collective sense of achievement.
It would be naive to expect an organization to make an instant leap, from a fragmented to an integrated mode of operation. It requires a radically different mindset, involving trust, commitment, agency, and accountability, as well as cross-departmental information systems.
However, it can be done and it is worth your time and effort. For it has been proven time-and-time again that silos stifle organizations, depriving stakeholders of the full potential.
“In order for collaboration to take place, managers must their silos and their perceptions of power.”
Once you have the right processes and systems in place, developed a collaborative mindset based on a shared vision, and established cross-functional teams that understand the customer dynamics, you’ll appreciate the high level of detail we’ve put into describing the entire customer lifecycle process.
We found that the customer development process has changed in a number of ways:
- Brands need to be purposeful: “It is the story you tell, not the product you sell”.
- The moment of purchase should no longer be perceived as the end goal, rather a beginning.
- Marketing communications is no longer about sending/signaling, rather a reciprocal process.
- Buying motivation throughout the buying cycle shifted from rational to emotional triggers.
- Customer creation should no longer be regarded as a separate, rather as an integrative process.
- Customer onboarding has become a critical component of a customer retention strategy.
- Customer extension, driven by significance, is a bridge in customer lifecycle management.
- Innovations can either extent (sustain) or prematurely end (disrupt) a revenue stream.
- Employee-customer engagement drives customer loyalty and the customer lifetime value.
- Customer expectations vary on their point of reference: know who you are dealing with.
A MEANS TO AN END
Common practice dictates that customer creation focuses on enticing a customer to purchase. We believe this is a gross misjudgment: purchase is merely a means to an end ─ it is a transition from a Moment of Truth (brand-initiated touchpoint) into an Understanding of Trust™ (customer-initiated commitment). And only if we are able to follow through and satisfy the needs of the customer, we may transform the bilateral engagement into an Alliance of Trust™.
However, most traditional marketing and sales funnels describe ‘purchase’ as a final stage while a few models add ‘satisfaction’ and ‘advocacy’ ─ without describing how to reach those extended stages or who is responsible for it.
Before the age of digital, marketing communications was mostly a unilateral process, often referred to as ‘sending’. Due to the rise of the Internet, mobile devices, and social networks customers can now actively engage in the buying process, driving bilateral company-customer communications. Yet, most purchase funnels still perceive the process as unilateral.
Due to the amount of information that is now freely available to everyday customers, customer activation shifted from an emphasis on rational triggers (product/price) to emotional triggers (experiences). As a result, Emotional Intelligence (EQ) and emotional engagement has become most prevalent in customer journey practices, as has Customer Experience design.
To incorporate these changes into a modern buying cycle, we’ve created the Customer Carousel™. It contains:
- 4 Customer Development Stages ─ Acquisition, Creation, Retention, and Extension.
- 4 Frontline Departments ─ Marketing, Sales, Delivery, and Success.
- 8 Moments of Engagement ─ Brand-initiated touchpoints.
- 8 Moments of Reflection™ ─ Implicit, explicit, and tacit customer responses to the touchpoints.
To describe this arrangement, we’ve introduced the term Customer Carousel™. We belief firms shouldn’t focus too much on the customer’s journey, instead focus on signaling the gains that they have to offer ─ the customer’s decision-making process is driven by the gains while most customers tend to avoid pains (Prospect Theory).
By using the proper channels and creating responsive touchpoints, companies may be able to influence their prospective customers wherever they may be and whatever point/frame of reference they may have.
We’ve created several drawings to explain the arrangement of the Customer Carousel™, however, for now we’ll discuss it using a more familiar linear timeline. Just be aware that the ROUNDMAP™ has a circular layout.
On the bottom half of the figure you’ll find the brand-initiated touchpoints or Moments of Engagement (MoE, AACCEESS or Double Aces), as well as the Prompts that drive it. While on the upper-half you’ll find the customer’s journey, identified by the Moments of Reflection™ (MoRe, AIDA-AHHA). In between is a color-coded wave, representing the Ultimate Level of Truth™.
The figure illustrates how customers respond to brand-initiated touchpoints (MoE) as they pass through the Customer Carousel™. By extending the customer process with a fourth department, Success (red), the likelihood of retaining more customers (getting them to return more often and spend more over the course of the customer lifetime) increases significantly.
According to Zappos, 75% of their daily purchases come from returning customers.
Although we’ve chosen to explain the arrangement of the Customer Carousel by using a linear timeline, you’ll need to realize that the actual motion is circular (360-degrees) while over time this creates a helix (see image to the right).
However, it is a two-sided process: the brand and the customer are both engaged in the process, thereby creating a double helix ─ much like a DNA-string.
PETER DRUCKER: PURPOSE OF BUSINESS
Despite Peter Drucker suggestion that “The purpose of business is to create and keep a customer”, few companies actually have a customer retention strategy ─ even though an increase of 5% retention rate raises profitability by 25-95% (Harvard).
And: “Because the purpose of business is to create a customer, the business enterprise has two – and only two – basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.”
ULTIMATE LEVEL OF TRUTH
Now let’s have a look at how to position the entire framework: from strategy, chaining, business model, value position, marketing strategy, and all the way down to the employee-customer interaction.
As shown in the figure below, we perceive the bilateral Customer Carousel™ as the Ultimate Level of Truth™ ─ the level in the organization that ultimately detemines the outcomes of the business strategy.
We’ve created an image to explain where we position the Customer Carousel relative to the strategy execution (cross-structure), the performance (cross-silo), and customer intelligence (cross-market):
As we discussed earlier, the Customer Carousel™ is a double helix ─ as the brand touches onto suspects, prospects, and leads, the objective is to transform them into customers. But beware, after the customer was on-boarded, their expectations and frame of reference will evolve over time. Or as the Greek philosopher Heraclitus used to say: “Everything changes and nothing remains still. You cannot step twice into the same stream of water.”
ROUNDMAP™ is covering three structural levels: (1) Business Strategy, (2) Strategy Execution, and (3) Performance. In the figure below you can see how these three levels are laid out in the system.
LAYOUT OF THE SYSTEM
At first glance the ROUNDMAP might look overly complex, not allowing you to see the forest for the trees which can be discouraging. However, you’ll need to perceive it as a three-in-one mapping system. If we unbundle the system you’ll see it is composed of directional (strategy), executional (operation), and performance (interaction) components.
These three layers are intertwined: it makes no sense to measure customer performance without being aware of aspects like a mission statement, objectives, goals, business model, strategy, tactics, or market circumstances.
We believe you are now ready to take a peek at the ROUNDMAP.
One final remark: we’ve designed the layout as a hub-and-spoke, with the value hub in the middle, while the spokes represent the 8 stages that customers typically go through ─ not necessarily in a fixed order.
VIEW THE ROUNDMAP (PDF)
Prior to constructing the ROUNDMAP, we created the ValueHub™ theory which in retrospect correlates to Michael Porter’s Value Chains and (later) Value Streams.
In 2012, we were invited to sit at a table to help a local radiostation adapt itself to the digital age. During this meeting, we described how we perceive the role of a modern radio station which in effect was ‘the collection, curation, presentation, and distribution of relevant content, from multiple input-sources to multiple output-channels.’
We soon realized that the same description could also be applied to ‘the procurement, creation, delivery, and capture of value’, In fact, what we described was the ValueHub™ Orchestration Model ─ in more detail here (part 1) and here (part 2).
As such, another way of explaining why we divided Porter’s primary and secundary activities into three separate dynamics is by perceiving the entire value orchestration process (see figure below):
The image above: Typically, creation comevalue s at a cost (credit), driven by the business dynamics. Value delivery, on the other hand, creates revenue (debit), driven by the customer dynamics. The result (margin) ─ what can be captured as value to offset the costs of the value orchestration process ─ is determined by the market dynamics.
As we have seen with the rise of digital platforms, markets can be restructured to allow value to be created and captured in innovative ways. In process improvement, the ValueHub Orchestration model relates to the SIPOC/COPIS model, originated in the late 1980s and continues to be used in Six Sigma and business process management.
ROUNDMAP™ intents to help firms, whether for-profit or non-profit, that are faced with disappointing customer performance – due to siloization or otherwise – and are looking for ways to improve operating outcomes. ROUNDMAP™ suggests to focus on cross-functional collaboration, create more meaningful and purposeful value, build longer-lasting differentiation, advance business modeling, and shift to proactive customer services; all leading up to increased customer loyalty.
“Customer centricity is a strategy that aligns a company’s development and delivery of its products and services with the current and future needs of of customers in order to maximize their long-term financial value to the firm.”
BUSINESS MODEL MATRIX™
We’ve just looked at the overall composition of the ROUNDMAP. After having created the Customer Carousel™, we found that the traits of two known business models ─ Product Centricity and Customer Centricity ─ correlated with marketing and sales, respectively. This opened up a whole new way of perceiving business models.
COMPLEMENTARY BUSINESS MODELS
Prior to the ROUNDMAP™, there were two known business models: Product Centricity and Customer Centricity. Product Centricity matured during the industrial age, during which the scientific management movement thrust worker productivity while cutting down on costs through economies of scale, accelerating practices that sought to increase market share.
In 1996, Don Peppers and Martha Rogers published the book ‘The One to One Future‘, a radical rethinking of marketing. The authors suggested to ─ instead of marketing standardized products to the largest group of people possible ─ focus on the needs of a select group of customers and try and fulfill more of their needs. This later became known as Customer Centricity.
By pairing Product Centricity to an emphasis on Marketing (influence at scale) and Customer Centricity to a focus on Sales (influence at scope), we wondered if the remaining departments/stages of the Customer Carousel™ ─ Delivery and Success ─ could be matched to (yet unknown) business models?
By adding two dimension ─ ‘serviced used’ versus ‘products sold’ and ‘scale’ versus ‘scope’ ─ we were indeed able to add two new business models, Resource Centricity and Network Centricity ─ thereby giving birth to the Business Model Matrix™.
Business Model Matrix™ provides a single framework of four Elemental Business Models™, ranging from Product Centricity to Network Centricity. Whether you want to leverage your ROI from a Share of Market or a Share of Transaction (Facebook/Uber), or otherwise, is part of your strategic heading, while an additional choice of value disciplines offers further means of differentiation.
Previously, a business was either focused on growing market share (product-centric) or gaining a larger share in the customer’s wallet (customer-centric). But these two models did not account for the rise of the platform economy, servitization or the sharing economy. The framework was incomplete.
After matching Marketing to Product Centricity and Sales to Customer Centricity, we were able to identify Delivery with what we call Resource Centricity and Success with what we refer to as Network Centricity. This then became the Business Model Matrix™.
© 2014-2019 Edwin Korver, CEO Tenfore BV – all rights reserved – MOBILE +31-(0)6-52341111
Registered at BOIP.INT i-DEPOT 094029 (3.0), 095482 (3.1), 103610 (3.2), 105496 (3.3), 106619 (3.4), 110465 (3.5), 115384 (3.6)
ELEMENTAL BUSINESS MODELS
The Elemental Business Models™, identified by Edwin Korver, each has a distinct dynamic. Complementary to Don Peppers’ graphical representation of product and customer centricity (the AS-A-PRODUCT business models to the left), we added two new graphs to complete the series.
Leverage greatly determines the business model. Prior to the Business Model Matrix™ business literature recognized two levers: Share of Market (blue) and Share of Wallet (green). We pride ourselves for having completed the set.
The leverage of a resource-centric business model, Share of Utilization, comes from an ROI on deployable resources. For instance, if you deploy a car in a car-sharing concept, the objective is to utilize the car to its maximum capacity (Car2Go).
On the other hand, if you offer a ride-sharing platform ─ a network-centric business model ─ your objective isn’t to plan for capacity but to get as many riders and ride-hailers together to facilitate rides and obtain a Share of Transaction (Uber).
A product-centric business model focuses on gaining market share to profit from economies of scale, while a customer-centric business model focuses on a select group of customers that are likely to increase spending.
A resource-centric business model is all about planning for capacity by utilizing a syndicated resource, while a network-centric model aims to grow participation of an aggregated network to capture a share of transactions.
ROUNDMAP STRATEGIC PLAYBOOK
To understand the level of sophistication of the ROUNDMAP™, we have created a strategic playbook, explaining some of the most noticeable traits of each of the four Elemental Business Models™.
Whether you aim to profit from economies of scale (product-centric) or from planning for capacity (resource-centric), or something else, is entirely up to you. However, each business model has concurring dynamics that are hard to ignore.
For instance, a product-centric business model demands for campaign-based marketing, while a network-centric business models benefit mostly from word-of-mouth. A resource-centric business should emphasize the service chain, while a product-centric one could do with nothing less than an excellent supply chain.
This led to the creation of the ROUNDMAP™ Strategic Playbook:
There is so much more to this. If you want to learn more, subscribe to our newsletter (below) or apply for an Inner Circle Membership to access exclusive content and to attend the ROUNDMAP™ Introduction Course.
ASSIGN TO THE ROUNDMAP CIRCULAR
PLANNING FOR SUCCESS
Choosing the right business model and value discipline is critical to success. Airbnb’s market valuation ($38 billion in 2018) is higher than Hilton and Hyatt combined, yet it has no hotels. The new AS-A-SERVICE business models have proven to be extremely scalable. We should expect many others to follow the lead of disruptors like Airbnb, Facebook, Uber, Netflix, Amazon, and Alibaba.
“I know firsthand the complexities of leading an enterprise through business and technology transformation. It takes intense focus, a strong drive, and a clearly communicated to inspire and take an organization from where they are, to where they need to be - or where they want to go.”
BUSINESS MODEL COMPASS™
We’ve discussed the Integrated Customer Lifecycle (Customer Carousel), Business Strategy, and the Elemental Business Models. Now let’s have a look at how we can change our heading to adapt to the world around us, or discover a new path for others to follow.
BUSINESS MODEL DEVELOPMENT
We believe business models can develop into two specific directions:
- Business Model Regeneration (= evolutionary)
- Business Model Shifting (= revolutionary)
Business Model Regeneration is an evolution of an existing Elemental Business Model™ ─ driven by advancing technology, new rules and regulations, etc. For instance, the traditional supermarket is a product-centric business model, focused on growing and defending market share, while the online supermarket is a contemporary (digital) regeneration.
Business Model Shifting is a revolvement to the next Elemental Business Model™ in the Business Model Matrix™. Shifting is, therefore, the most transformative of the two. The best way to explain ‘ shifting’ (or revolving) is by looking at IBM:
In 1974, IBM – known as Big Blue – started to move away from battling over market share by focusing on a select group of high-spending customers, allowing the company to maintain its high standards and price levels. However, in 1993 it found itself in dire straits, reporting a $5 billion loss, the highest in American corporate history.
Desperate to turn the ship around, IBM could have lowered its prices or introduce a B-brand. Instead, the company decided to shift its focus to high-end integration services and acquired the consultancy branch of PwC to fill a huge capabilities gap. One decade later the company had not just overcome its perilous situation but tripled in size.
Over time, IBM had shifted from a product-centric to a customer-centric business model. While under Louis Gerstner Jr. it had shifted to a resource-centric business model – monetizing on its highly skilled workforce of integrators and consultants.
However, in 2017 the company again reported a $2.6 billion loss. They will need to fill another capabilities gap to become a network-centric business, which is the next logical path in the Business Model Matrix.
BUSINESS MODEL SHIFTING VERSUS REGENERATION
If we put the two together, business model shifting and business model regeneration, this is the way to perceive it:
As you may have noticed, shifting (color-coded) is by far the most transformative of the two. If has a huge impact on the organizational dynamics (people and strategy) and, therefore, any decision to shift the business model shouldn’t be made lightly.
TRADITIONAL VERSUS CONTEMPORARY
We may perceive that the Sharing Economy is something completely new while in fact it isn’t. If you ever took a plane, train or taxi, you were essentially sharing a resource. However, technology has significantly improved the convenience of hiring a resource, by taking away the central dispatch function, which allowed its market potential to grow exponentially.
What about the Platform Economy? Over two thousand years ago, traders and buyers met along the Silk Road, a series of trade routes between China and Europe. Facilitating a digital platform (marketspace) is similar to setting up a traditional marketplace. However, as virtual markets are no longer limited by physical constraints, value can now be distributed far more widely than ever before (Facebook, Uber, eBay, Taskrabbit, Producthunt, etc.).
Before optimizing the customer lifecycle process, we’ll need to consider where we’re at and what we are facing. It makes no sense to increase marketing or sales efforts if customer expectations, i.e., their frame of reference has changed dramatically due to far superior value propositions by competitors.
BUSINESS MODEL COMPASS™
Whenever the business enterprise is faced with disruption ─ a premature discontinuation of revenue streams ─ it can either initiate change (defend) or a transformation (disrupt others). However, if the business is stil largely undisrupted, it has a choice between Optimization (improving operating performance) and Innovation (improve product value).
Prior to adopting the ROUNDMAP, you’ll, therefore, need to assess the situation with regards to market circumstances, (historic) performance indicators, in-house initiatives, disruptive exposure, operating agility, individual/corporate mindset, etc. Depending on the organizational readiness and the situation you’re confronted with determines the Situational Readiness™.
Underneath you’ll find the Business Model Compass™, containing four stages of Situational Readiness™:
CYCLE OF DISRUPTION™
To understand the impact of (often technological) disruption, we’ve created the Cycle of Disruption™ consisting of four stages: Activation, Acceleration, Alteration, and Adaptation ─ inspired by the theories of recurring Business Cycles (Expansion, Crisis, Recession, Recovery) by Kitchin, Juglar, Kuznets, Schumpeter, Perez, and Kondratieff.
As you have may noticed, the Business Model Compass™ and the Cycle of Disruption™ are complementary: if a business has a choice and decides to ‘doing better things’ (BMC) it will enter the arena of the Cycle of Disruption ™ as a technological innovator.
Based on an elaborate assessment, ROUNDMAP™ Professionals will be able to expose the Situational Readiness™ of your company relative to market conditions while providing insights into what could be a more lucrative heading.
DESIGN FOR Experience
Depending on the Business Strategy, value (equity) is derived from a focus on one of four Elemental Business Models™. For instance, brand value is firmly related to a product-centric business, while an excellent customer service experience will be most critical to a resource-centric model.
Experience Design (ED) has been at the forefront for some years now. However, few realize ED has to be tailored to the business model. For instance, in the case of a product-centric business model, the focus should be on building brand experiences (Coca-Cola), while in the case of a Resource Centricity it is mostly about user experiences (convenience).
Customer Experience, in our view, isn’t the all-encompassing experience. It is the main driver in case of a customer-centric business model, in which a group of comparable customers – for which the business can fulfill similar needs – means more to the business than others. They are their preferred customers and customers need to experience this.
DIGITAL BUSINESS TRANSFORMATION
We’ve looked at business models and how firms can either respond effectively to disruption or be the disruptor (break-through innovator). And how ‘trying to be the best’ leads to machismo and tribalism, sabotaging cross-functional solutions and diminishing customer experiences.
Considering all this, what are the odds that digitalization by itself transforms a business?
DIGITAL IS NO HOLY GRAIL
A business does not transform simply because it adopts fancy digital technology, like artificial intelligence, big data analytics, micro-services, or some other bag of tricks. These are change-initiatives, intented to increase productivity and profitability.
Regardless, Digital Transformation should be understood as Digital Business Transformation, provided the intention is to actually transform the way the business operates based on a vision of the future (Netflix video streaming vs. Blockbuster video stores).
The biggest challenge is not to raise the level of digitalization, but to transform the mindset of the people inside the company. To get them involved, engaged, and committed to delivering significant value to increase customer loyalty.
RESEARCH McKINSEY - Why Digital Transformations Fail (2018)
70% of Digital Transformation (DT) initiatives fail, according to a recent McKinsey study. Indicating a humongous amount of money and time wasted (900 billion out of 1.3 trillion USD over 2017) , let alone the opportunity costs.
RESEARCH KPMG - the truth about customer loyalty (2019)
What keeps consumers loyal to their favorite brands (source: KPMG):
- Product Quality – 74%
- Value for Money – 66%
- Product Consistency – 65%
- Customer Service – 56%
- Easy Shopping Experience – 55%
- Product Assortment – 55%
- Pricing – 54%
You may have noticed that few of these aspects are tied to digitalization. In a sense, it is business-as-usual: you’ll still need to offer great quality, at the right price, during each sales cycle, supported by great customer service, to retain more customers.
However, as more information became available to the average consumer, we did notice a significant shift in buying behavior from rational to emotional triggers. Also, companies that pioneered with more convenient digital shopping experiences did give rise to higher customer expectations and as such, forced other companies to follow their lead.
RESEARCH FORRESTER (2019)
Successful businesses realize that the complete customer experience is more important to their ROI than focusing only on specific channels. Adobe commissioned Forrester Consulting to conduct an online survey with 1,269 marketing, advertising, customer experience (CX), digital, and analytics business leaders.
According to the research, experience-driven businesses:
- report 1.7x higher customer retention, repeat purchase rates, and average order values.
- are 1.6x more effective in turning loyal customers into advocates.
- have 1.5x happier employees with greater satisfaction at the individual, team, and department level.
- report 1.4x revenue growth, an average growth rate of 15% compared to 11% among other companies.
However, these numbers are compliant with research from Kotter & Heskett (2011), in which they examined the effect of cross-silo collaboration and a less adversarial culture on company performance between 1977 and 1988 ─ way before the experience age. We’ve addressed these numbers in the blue section – besides the research by Towers Watson (2011) and Gallup (2008).
We know from research that avid employee and customer engagement has a definite positive effect on the bottom line. Effects that were attained long before (1977-1988) we were accustomed to concepts like customer experience or design thinking.
We’ve seen digital gurus contribute similar positive effects exclusively to digital initiatives. However, as digital is fast becoming the new normal, experts are now convinced that it is high-touch, not high-tech, that will make all the difference.
Indeed, most customers have adapted new buying rituals, driven by social, mobile, and digital technology, which has provided them with access to previously unattainable information, both biased and non-biased. However, KPMG research confirms that customers still want the same thing as they did 100 years ago: quality, value for money, consistency, and service. And because of the saturation of rational triggers, the shift towards emotional triggers emphasizes the need to raise customer compassion.
Furthermore, product development will need to remain aligned with actual customer demand and customer expectations while offering experiences that are appreciated, differentiating, and defendable, using methods like Design Thinking, Agile/LEAN, Six Sigma, and Experience Design. Customer feedback is most critical, hence the need to build strong Alliances of Trust™.
What has shifted, and quite dramatically (taken from a business viewpoint), is the emphasis on retaining more customers ─ as opposed to acquiring new customers ─ driven by a shift from as-a-product to as-a-service business models. As such, we’ve found the adoption of Customer Success Agents, pro-actively onboarding customers, most striking.
Meanwhile, globalization and digitalization forced some industries to restructure; at first, by taking away the middleman, later by transforming supply chains into digital platforms. Companies will need to adapt to these changes while some may even be able to create new business models, offering new opportunities for capturing and signaling value.
We live in exciting times. While the future may seem daunting, it still has to be written ─ leaving each and everyone with the opportunity to create the future they desire. What is your vision of the future?
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Margaret Heffernan is a former CEO of five businesses, author of five books in which she explores business and effective leadership, and a part-time lecturer