kodak Archives and Blog Posts - Entrepreneurs with Denis Oakley

Entrepreneurs with Denis Oakley

I HELP BOLD LEADERS TRANSFORM THEIR BUSINESSES AND THE INDUSTRIES THEY COMPETE IN

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Developing the Business Model Canvas in New Directions

For the last five years I have been designing, developing and improving business models for clients using the business model canvas. For a simple tool it has a vast amount of subtlety and complexity buried in it. In that it is like Go, which I still remain a novice despite my best efforts.

Unlike company financials or other tools the business model canvas offer the possibility to deeply understand how a company makes money, and why it is not. We are looking at the skeleton and how the whole body moves, rather than it’s acne or the locks of rapidly greying hair.

I wanted to use this post to briefly describe where I have taken the business model canvas over the last year and where it can go in the future.

The basic business model canvas shows the underlying business model of the company. Set out on a single page of A4 it allows anyone to quickly understand the company and what is important to it.

Developing the Business Model Canvas in New Directions
An Electricity Utility Business Model Canvas

Using the 9 segments of the business model we are able to make claims such as. Company X makes money by delivery value Y to customer group P and generates revenue by K.

A number of people have then taken the canvas and plugged sales and costs into it to give a sense of how money flows through the business model and is created and or destroyed.

Business Model Canvas and Performance

My focus has been on looking at performance. There are many existing KPIs inside companies and these can often be mapped onto the business model canvas. The result is an instant appreciation of how well the business model, as opposed to the company, is performing.

Because everything in the business model canvas can be seen as a system failure, analysis becomes as lot easier. Improvement plans can deliver more. For example sales performance can be low due to a poor value proposition which is caused by inadequate access to key resources.

Developing the Business Model Canvas in New Directions

Business Model Canvas and SWOT Analysis

This performance based approach looks at the company in static terms. Of course the competitive environment is ever less static so another tool that I’ve developed working with customers is looking at the the threats and challenges that they face. Using the business model canvas we are able to go well beyond traditional SWOT analysis.

This is effective because you see where and how the impact is on the model rather than thinking that ‘company’ has a strength or weakness. It is a lot more granular and as a result can be far more easily addressed by leaders.

Developing the Business Model Canvas in New Directions

Business Model Canvas and Competitive Analsysis

The latest work that I am doing is using the business model canvas for competitive analysis. For many companies data comes back from the sales and marketing teams that a competitor is doing X. This is the what.

What we are able to understand as we probe them with the business model canvas is the why? Done correctly it enables us to simulate how a competitors management team is thinking about their key problems and consequently helps us to understand why they are doing what they are doing. This makes the what easier to disrupt or counter.

These are all linked in my 5 Step business model innovation workshop

Where Next with the Business Model Canvas?

One of the areas that I am fascinated with is business model depreciation. Every business model depreciates. How can we measure the rate of depreciating and the risk of catastrophic depreciation? Is it even quantifiable?

Another area that I’m looking at is how companies transition from one business model to another. IBM has famously done it multiple times. Kodak, infamously almost managed it, and then failed spectacularly (it sold 40% of all digital cameras at one point).

Finally the business model canvas offers lots of opportunity to be the core dashboard for running a company. Here I’m looking for companies willing to experiment a bit and find out what the best ways of doing this are. If this sounds interesting let me know

Are you an Entrepreneur?

Are you copying a business model?

Are you creating a new one?

I can help you get it right

Review YOUR BUSINESS MODEL

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How to Survive Business Model Disruption

This is a short presentation that I did for a utility company on how to survive business model disruption and how to address it from within the confines of an existing business model.

I’ve included the slides and a video talk through of them (they may not be exactly the same version) as I practiced my delivery.

The big ideas on “How to Survive Business Model Disruption” are as follows:

  • Business Models have a finite life span
  • When disrupted the replacing business model is significantly more profitable than the existing one
  • Business model ≠ Company
  • changing the business model is limited by the innovatability of the people in the company and it architectural rigidity
  • Companies built on network effects are massively vulnerable to business model disruption

Business Models have a Finite Life Span

This should be fairy obvious but it isn’t. For many new innovations and business models it is clear that they are new and things are changing. Look at how taxis and streaming videos have been disrupted by Uber and Netflix bringing in new business models in the last few years.

Other business models have hung around for a while and so it seems like they are here to stay forever. Google and Facebook’s advertising based business models are examples. The business models of energy companies and utilities are others.

In all cases it is not a question of whether but of how long. Kodak famously had a business model that lasted over 100 years. It was a dominant player in both the film and camera industries from 1886 to 2005 and yet it lost 97.5% of its value in less than 5 years.

The question is how long a business model will last? There will be more thoughts on that in a later post.

New Business Models are More Valuable

Existing business models have a known value. You can look at the balance sheets and profit and loss statements and get a very clear idea about how valuable they are. For example pre 1990 you could sum the P&L statements of all taxi companies and get a sense of how valuable the industry was.

Now with Uber and Lyft IPOing you can see how the market values their business model and it is about 10X more valuable. Similarly when Rockefeller changed the oil production and distribution model, or when Google changed the search business models they created 100x the existing value.

Part of this is often to do with the fact that the economy has grown and modern business models enable more users and suppliers to be connected providing both a larger pie and a larger slice of it. However there is some observation bias here as we don’t tend to think too much about business models that disrupted and then failed. Napster, Spotify and the music industry could be a counter example

Business Model ≠ Company

The longer a company has been around without significant change in its business model the more likley that it is to consider the company synonymous with the business model. For example a water utility, say Severn Trent which used to supply me with water when I lived in the UK, can easily believe that the company exists to collect water, purify it, deliver it and then treat the sewage. That’s the business model that it has used to deliver its mission for 100 years.

Is it the only possible business model to deliver that vision? No. Many companies, IBM and HP, come to mind, have changed their business models multiple times over the last 70 years as they have sought to adapt to market disruption and changes in their business model.

Innovability and Architectural Rigidity

Lots of companies see the problems in the future and attempt to innovate out of them. Some of the companies that I know that spend most on innovation and trying to find new business models include mobile phone companies, fixed line telecom companies and utilities. They see a massive amount of change coming and need to find ways to survive their cre businesses being disrupted.

In many cases they do have innovative ideas. However they are let down by 2 factors.

First there aren’t enough change makers in the company (and if this is a problem for you do reach out as change making capacity can be significantly improved). So forcing change on people who don’t want to be changed is a tough call and normally dooms the business.

The second is that most managers are rewarded for competence and that means doing what we do cheaper and better. That increasingly makes structures and systems rigid and resistant to change. Kodak made the first digital camera in 1976 and had a 40% of the digital camera market as late as 2005 but couldn’t change what it was and how it did things in order to compete with the consumer electronic giants.

How to Survive Business Model Disruption
1991 Kodak Digital Camera with Nikon F3 Body

Vulnerability of Network Effects

The final thought was that many of the most valuable companies of the past 100 years have been built on network effects. So have many of the leading tech companies. This allows rapid growth and decreasing unit costs as they deliver more value.

What is critical is that surviving on network effects is very fragile. As users start to move away from the company the value disintegrates faster every day as Friendster discovered. The loss of every additional customer hurts more. That then can rapidly kill a company with a bloated cost base or which is not well configured to serve a reduced user layout. Business model disruption happens slowly then quickly, to riff off Hemingway’s phrase.

Does your company need think about how to survive business model disruption?

I’m happy to deliver this talk on how to survive business model disruption live, on site or at a webinar for your leadership team or employees to help start the change process and give people an understanding of why change is important and the costs of not changing.

Are you an Entrepreneur?

Are you copying a business model?

Are you creating a new one?

I can help you get it right

Review YOUR BUSINESS MODEL

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Three Ways to Respond to Business Threats

respond to business threats

The modern business environment is constantly changing, driven by five major business threats. In this article I look at several different ways of responding to business threats and changes in the environment. How you respond to business threats is very context dependent – both with respect to your company and the threats that you face. 

Doing Nothing

This is the most popular approach when managers respond to business threats. Doing nothing as a response to business threats is popular because of the risk and uncertainty businesses face. For example. You know that there are new entrants. What is uncertain is how effective they will be. Will they change the market or will it swallow them up? Deciding to use limited resources now to respond to the threat may be premature and have a significant impact in terms of lost opportunity. 

The problem that you face with this approach is that you are like a frog in gradually warming water. If the temperature is slowly rising there is no point where it is obvious that an alarm should be triggered and action should be taken. No response to a business threat is often a bad response.

In fact what tends to happen is that only in the later stages of a business threat emerging do many businesses realise how severe it is going to be. Back in the day when I was a railway engineer there were two incredibly useful rules. 

First was that the earlier you plan and prepare for something the less effort you have to put in later on. A design change made on day 1 is almost costless. The same design change made 3 years later when construction has started can be a $100 million problem

Second was the idea of passive provision. This is the idea that we know that something will happen sometime in the future. So we’ll adjust our design now to make it easier to deliver then. So for example if we think that in 15 years train lengths will increase by 50m we’ll design the signalling around the increase platform length. Then the platform can be extended with no impact on the rest of the railway system.

Even if we do nothing we should be looking ahead and seeing how we can design out the future impact of threats on our business. We also have to hope that our long range planning and the threat are working on the same timescale. 

Doing It Better

When a threat to a business model appears on our horizon one of the most effective tool sets that managers have is ‘doing it better’. A common response to a business threat is to treat the symptoms and not the cause. Most managers and leaders are appointed on the basis of their skill at execution. They are good at optimising and managing a stable system. 

Given a decrease in sales the first set of options on the table are to start looking at the sales process and how to increase the sales. As more understanding is gained about why sales have fallen marketing and operations are pulled in to help reduce costs or present the value offering better. 

In good times this is a humming process. Every year operational managers are expected to improve productivity – deliver more output for reduced input.

That only works when the game remains the same. In terms of operational strategy managers are focusing on how to make incremental change rather than step changes. The approach is to do more better.

As Henry Ford pointed out – customers really wanted better horses. Responding to the automobile threat by building horses that could canter for longer and needed less grain and grooming to stay in tip top condition would not have had a significant impact on the Model T sales. Many livery stables in London and New York may have tried that approach

Doing It Differently

The third approach to responding to business threats is to start doing things differently. Many companies see the writing on the wall and believe that their core business is going to be destroyed. Or they believe that they will be able to take advantage of one of the many threats and create far more value by pivoting.

The larger the company the harder this is to do. The biggest reason is that by changing the business model there is a huge risk of losing sales from the existing business model before the sales from the new business model arrive. if they ever do.

Nokia was one company that took this approach. it realised that it’s traditional wood and rubber products were commodities and that the threat of electronics was a huge opportunity. As it exploited this opportunity it became one of the largest technology companies in the world. Then it died because it was’t aware of the smartphone threat and could not respond fast enough to it, as this article about RIM suggests

Another example is that of Kodak which correctly anticipated the move to digital and the decline in its core photographic film business. Being a chemical company at heart the transition to a digital company was hard (I still have a kodak digital camera gathering dust in a forgotten drawer) and it failed to change it’s business model to replace it’s dwindling revenues and eventually entered bankruptcy

How Do You Respond To Business Threats

How are you responding to threats to your business? Which approach is best? Why do you use the approaches that you do?

You may be interested in this survey about which business threats managers are most worried by

Three Ways to Respond to Business Threats