|Image source : marketreportgazette.com|
07 October 2019
Content is king in the digital domain. Let us make this top class.
Content utilizes whitespace, headings, short paragraphs, and relevant images to make the page easier to absorb and increases the user’s time on the page. Here, innovation has actually created values for almost everyone. Let us understand this and step into digital transformation.
Business Model Innovation and tranformation is all about finding new and better ways to create value for customers and extracting value for firms as well as their business partners. Suppliers and distributors can also benefit from this.
This can be seen from the example of Toyota, which though a generalist, started focussing on competitive advantages through economies of scale.
Value extraction strategies would also need to work on balancing and/or trading off between profitability, growth and risk.
For this, a company may need to forgo short term profitability to grow market share so that this provide higher levels of longer term profits. It can reduce risk by enhancing customer experience and engagement. It could be done through product innovation and differentiation.
This is how markets evolve.
Ingraining an ‘organizational capability’ in creation of value is indispensable while competing in global markets. The questions underlying value creation are whom to cater to and how to do it. This of course, in todays world, has a global dimension.
In the automobile industry, for example Henry Ford focussed on productivity. His approach led to a business model where the competitive advantage of lower costs and prices resulted in greater market share and greater economies of scale.
The Japanese, who entered late in the global market, had a different approach. They focused on reliability and quality to deliver value and eventually introduced solutions such as service guarantees and extended warranties to enhance customer switching costs and loyalty. We share some insights we have learnt in the process of studying them.
Innovation, Renovation and Continuous Improvement and Integration
Simply put, anything that offers benefit is value and different firms are the sources of different value. For instance in the technology domain, Intel, GSK, and Boeing create value on technology, research and engineering dimensions. Dell, Indigo or Flipkart rely on efficiency and speed as the major determinants of value. Some others like Coke, Microsoft Windows, Google and Porsche rely on customer experience, aspiration and sheer hedonistic brand appeal as value drivers in the marketplace. All of this is a good thing to invest in.
Create Future Value
During the second half of 2013, even though its operating income went up, the stock value of Apple came down. In the same period, Google had positive growth on both the metrics. Both the firms differ on product portfolio – one is a hard product based firm (i-Phone, i-Pad) and the other predominantly is a software (Android) and service based firm (search, ads). They both compete on OS. We know both of them have a different story to reveal
Investors are fundamentally interested in future returns. So firms should strive to create future value.
Anticipate the Future
When someone asked the famous Canadian player, Wayne Douglas Gretzky the secret of his success, he said, “I skate to where the puck is going to be, not where it has been”. This means anticipating the future. In the business context; we have to be where the action is. Currently the action is in the Asian markets and not in Europe or the US. One needs to capitalise on this.
Further, value creation in dynamic. Competitive environments require commitment of resources to help develop assets and investment in process management capabilities.
Insight 4: Nurture Off-Balance Sheet, Market-based, Intangible Assets
In all companies, especially the major ones, 25 percent of the value is visible on balance sheet and 75 percent of the assets like value of the brand, value of customers, value of our distribution networks, value of human capital and value of intellectual property rights. These are not visible on the balance sheet. As a firm if we nurture only the assets that appear on the balance sheet, this is sure to invite trouble. We need to learn the art of managing off-balance sheet market based intangible assets. For instance, Flipkart’s valuation is based on future earnings from its customer base. They utilise their warehousing networks and delivery/logistic capabilities.
Insight 5: Market-Based Assets and Eco-Systems: Collaborate to Compete
The web has created many new ecosystems now. Two decades ago, Microsoft as a firm had actually collaborated with competitors to grow. Collaboration in the form of pre-installation by Dell, HP and the IBMs of the world and oriented Microsoft into a B2B firm. From this, they forced application developers to focus more on the Windows platform which owned a massive consumer base using the Windows OS.
Insight 6: There is no such thing as Global Strategy
Brands as platforms aid growth and expansion. Today, the world is moving from longer-cycle to shorter cycles and tangible dimension to intangible dimension. We need to recognise and use this to our advantage.
Insight 7: Different Horses for Different Courses
To cope with differences in products and markets, we need to accommodate varying product and go-to-market strategies. This requires that firms apply different business models all over the world. Different approaches are required in each market.
This is what shall also give us results.
Insight 8: Leveraging Market Disruptions
The Indian e-commerce market, had its own set of growth pangs. Initially, the Indian consumer would pay only after physical inspection of the product. Here, Flipkart initially copied Amazon’s e-retailing model but ran into resistance from the Indian consumer for whom seeing a product before purchase and the option of paying by cash instead of credit card was important. After this, Flipkart adjusted it’s go-to-market model and made appropriate changes in the order-delivery system, turned this disadvantage (higher costs due to the need to decentralise warehousing) into an advantage – via same day localized delivery. To overcome distribution bottle necks, the firm recruited approximately 40,000 local delivery agents who would deliver the goods on two wheelers. This definitely worked to their advantage.
Insight 9: Revise Business Models from Developed West to Emerging East
With a shift in centre of gravity to Asia, companies have the advantage of large and growing local markets and can enhance their market position based on pricing and cost advantages which in turn rest on process and product simplification and scale.
Insight 10: Innovate in Emerging Markets for Emerging Markets
Innovation is no longer a story of cheap hands copying Western products. The value creating processes for targeting emerging markets might involve innovating in pricing and making the product affordable
Insight 11: Opportunity Cost – the Biggest Risk is not Taking Risks
Each decision, especially on investment does have an impact on the firm’s position in a specific geographic market. Usually, companies in the West spend too much time in evaluating markets, thereby postponing risks. It is better we study the scenario and plunge in. For, the biggest risk is NOT taking risks to invest in market growth opportunities.
Insight 12: Redefining Markets – From Products to Services and Solutions
At an individual level typically the capacity utilization of a car, that we could call an asset, is roughly about 4% (assuming we drive 30 minutes to work and the same 30 minutes to come back which translates to 1 hour out of 24 hours). A good use of the car would then be to rent it out or we using rented cars, which is what is happening today.
These innovations is really opening our mind set to a new way of thinking. We need to do this to stay in the dynamic world of today. This is how we can use content to create a brand with value.