CRAFTING THE GRANDMASTERS
ROUNDMAP™ is an Integrated Business Framework (IBF) encompassing Advanced Business Modeling, Adaptive Strategy, Agile Customer Development, and Attractive Positioning; to drive sustainable growth2.
1) We encourage you to continue reading if your organization needs a staff member that has the mental, social, and moral capacity to inspire, direct, lead, manage, guide, advice, govern, innovate, and transform the entire organization across the functional, mental, and data silos.
2) Sustainable growth means growth that is repeatable, ethical, and responsible for current and future communities. And it’s key to the long-term success of any business. (Forbes)
To face today’s environmental, social-economical, and political challenges, in a predominantly digital and global marketplace, firms need to prepare themselves nonstop for change. Business-as-usual is a luxury few can afford. In fact, for the next 5-10 years, business-as-unusual will be the norm as we evolve through a technology-driven, long-wave business cycle.
Harvard’s Heidi Gardner has found that: “As innovation hinges more and more on interdisciplinary cooperation, digitalization transforms business at a breakneck pace, and globalization increasingly requires people to work across national borders, the demand for executives who can lead projects at [the disciplinary] interfaces keeps rising.”
According to a Harvard/Yale Lecturer: “Breadth of perspective and the ability to connect the proverbial dots (the domain of generalists) is likely to be as important as the depth of expertise and the ability to generate dots (the domain of specialists). [..] The world, to put it bluntly, has changed, but our philosophy around skills development has not. It’s time to rethink our love affair with depth. The pendulum between depth and breadth has swung too far in favor of depth.”
ROUNDMAP’s Grandmaster Program isn’t about becoming a jack of all trades. It is about increasing your capacity to help determine what’s best for the firm while moving forward.
By acknowledging that top-level executives’ main priority is to manage the ongoing business, while corporate governance officials primarily look backward companies need to ask themselves: Who’s looking forward?
We’ve seen how detrimental it can be when CEOs rely largely on signals of potential threats and opportunities to reach the top in time and undisturbed to determine the future of the business.
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ROUNDMAP™ is an integrated business framework, incorporating advanced Business Modeling, adaptive Business Strategy, agile Customer Development, and attractive Positioning, which offers founders, executive, and non-executive board members, and business consultants a wider perspective on the defining aspects of the business to help steer the company in the right direction during times of transformative change.
Let’s have a look at some of its components.
1.1 - INTEGRATED BUSINESS FRAMEWORK
By superimposing the models we’ve created onto the initial Customer/360 Canvas, validating its straightforward yet potent arrangement, we managed to create an integrated framework, incorporating all primary and secondary business functions: from marketing to customer success, from defining a corporate vision to executing the mission, and from developing a product to driving the business cycle.
Let’s have a look at the foundation of the ROUNDMAP™ Integrated Business Framework, named The Venture Wheel™:
The outcome of any business venture is a ‘turn of the wheel’, meaning there are no blueprints for success, no certainties, and no guarantees. If you want to have the right vision, pick the right business model, select the right strategy, develop the right products, persuade the right customers, deliver in the right way, and keep the right customers, ‘all’ you have to do is to determine what ‘being right’ is. And although you can be right on some aspects, to be successful, you have to be right on all aspects.
The Venture Wheel™ is part of a comprehensive integrated business framework. named ROUNDMAP™, that will help ensure the success of your business venture, step by step, or 8 steps in total:
- DISCOVER – What’s the future like?
- DEFINE – What’s the business model like?
- DESIGN – What’s the strategy like?
- DEVELOP – What’s the product like?
- DRIVE – What’s the customer like?
- DELIVER – What’s the commitment like?
- DIRECT – What’s the experience like?
- DERIVE – What’s (the) success like?
We’ve adopted a ship’s steering wheel as the symbol of The Venture Wheel as there are only two directions to steer the venture into: turning the wheel to starboard (clockwise, green) implies repeating the cycle (revolve; business-as-usual), while turning the wheel to port (anticlockwise; red) indicates repairing the cycle (evolve; do whatever it takes, re-pair the product/market fit).
If you need to repair the cycle up to the Customer Carousel, you are looking for a realignment with customer demand or behavior. When you need to go back to the Product Carousel, you may need to adapt or innovate. If innovation or adaptation doesn’t fix declining growth, you may need to go back even further, to redesign the entire value chain or even rethink (transform) the business venture.
Additionally, you may increase or decrease the speed of your strategic execution, however, speed is never a substitute for relevance. To rapidly grow market share, both aspects are required (among others, such as brand identity, customer desire, trust, and pricing).
1.1.1 - COMPONENTS FRAMEWORK
To explain the relationships between the various models of the framework, we’ll discuss each part separately.
1.1.2 - COMPONENTS EXPLAINED
The Business Venture Design process is the startingpoint of the ROUNDMAP™. We call it the Business Roadmap. It is a map to discover, design, develop, and direct new business ventures. It incorporates the Business Model Matrix™ to help choose the primary business model and its descendants, such as the value position and the marketing strategy. It also encourages to describe the firm’s vision, mission, purpose, and values.
To thrive, the business enterprise needs the capabilities and resources to deliver differentiating value, that is perceived relevant to a group of customers, at a price, with a level of quality, continuity, and integrity.
The first cycle is the Business Carousel™, i.e., the business lifecycle. It describes the steps of how a business venture comes to be, following a process called Customer Development, from its rise up until its demise. It is greatly determined by the corporate vision while driving the business strategy.
A vision isn’t merely a picture of the company in the future. It is a destination, allowing the firm to attract the right people and resources, to align the team, to determine its progress, and to prioritize actions while providing meaning to the day-to-day activities. However, a vision should not be set in stone: it is meant to evolve over time.
To thrive, the business enterprise needs to focus on creating and delivering value that is desired by a group of customers while the business venture needs to remain both feasible as well as viable.
The second cycle of the ROUNDMAP™ framework is the Product Carousel™, i.e., the product lifecycle. It is greatly determined by the corporate strategy (the products that allow the business to grow) while driving the purpose of the business (to serve a group of customers with products they want at a price they are willing to pay).
To thrive, the business enterprise needs products and services that differentiate from the competition while continuously looking out for new ways to improve quality, consistency, and productivity.
The third cycle of the ROUNDMAP™ framework is the Customer Carousel™, i.e., the customer lifecycle. It is driven by purpose while detemining the corporate mission (the operational aspects of the business).
Purpose provides meaning to whatever is being pursued by the organization. Aspects like storytelling, brand identity, loyalty, and impact require the purpose to be both inspirational as well as identifiable, so customers are drawn to it and feel compelled by it.
To thrive, the business enterprise needs to focus on satifying a sizable group of customers by delivering value that is distinctive, relevant and significant to them while aiming for increased customer loyalty.
The fourth cycle is the Growth Carousel™, i.e., the growth strategy. It is driven by the vision and determining the mission. Growth depends on achieving customer satifaction, as well as creating a perception of future value to drive long-term engagement.
Mission comes from the Latin verb ‘mittere’, meaning ‘to send’. While defining the vision is a leadership affair, the mission is the responsibility of management. Beware: without a vision, managers won’t be able to ‘send’ anyone in the right direction. Customer engagement can be crucial to the success of the business enterprise.
Growth is an evolutionary process, following mechanisms of change and variation while being exposed to market forces. Based on third-party models such as SWOT, PEST, and Porter’s Five Forces, the company needs to collect customer feedback and perform regular market analyses to develop its growth strategy.
To thrive, the business enterprise needs to grow by either selling more units, enhancing its products, extending its portfolio, increasing its share of the market, changing its pricing strategy, or otherwise.
Previously, a business was either focused on growing market share (product-centric) or obtaining a larger share of the customer’s wallet (customer-centric). However, these two models did not account for (the rise of) the platform economy, servitization or the sharing economy. The framework was, therefore, incomplete. After matching a focus on 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™. More information can be found here.
1.1.3 - WHY CAROUSEL
We prefer using the word ‘carousel’ over cycle because contrary to the perception of lifecycles, carousels allow a progression in both ways: forward and backward. Or as Don Draper so eloquently formulated it in the Mad Men series: “[A carousel] is a time machine. It goes backward and forwards. It takes us to a place where we ache to go again. It’s not called the Wheel. It’s called the Carousel. It lets us travel the way a child travels. Around and around and back home again. To a place where we know we are loved.” Since business growth depends greatly on the spenditure of loyal customers, brands need to create a place where customers know they are loved.
1.2 - EVOLUTIONARY MODELS
Next to the Business Roadmap (further down) and the Customer/360 Canvas (as shown on top of this page), the framework incorporates a series of evolutionary models, so-called Carousels. Why evolutionary? McKinsey’s Thomas J. Peters and Robert H. Waterman, the authors of one of the Best Business Books of All Time, “In Search of Excellence” (1983), found that a truly adaptive organization reflects Darwinism. The concept is built on the principles of natural selection, random variations, and reproductive processes.
Because of the circular layout, the following models may appear the same; however, each has its own well-defined application:
1.3 - ONE SINGLE FRAMEWORK
Michael Porter managed to describe the entire Value Chain and explained how competitive advantages set businesses apart. Peter Drucker defined many aspects of business management in great detail. Ken Blanchard enlighted the world with his views on leadership. In contrast, we tried to bring it all together into one single framework, encapsulating the main business functions while revealing four primary business models. Whether this representation is 100% accurate might not be the right question to ask: We need an integrated framework if we want to direct the business sustainably into future, across the silos, cultures, and egos to help it survive this most complex and chaotic era.
1.4 - STEADY VERSUS TRANSIENT STATE
In systems theory, a system or a process is in a steady-state if the variables (called state variables) that define the system’s behavior or the process are unchanging in time. It is safe to say that no business can sustain itself in a steady-state, as change is constant.
A steady-state situation is the domain of specialists, people with a depth of expertise, and the ability to generate dots.
A business is 99,99% of its existence in a transient-state of steady change. This is explained by the continuous generation, diffusion, accumulation, and substitution of innovations by economic agents as time moves on. This regular (and accelerating) phenomenon causes movement and crises in economic structures as measured by growth rates of countries, regions, sectors, and companies.
A transient-state is the domain of generalists, people with the breadth of perspective and the ability to connect the proverbial dots.
Volatile markets demand that businesses assume a transient state; however, it is not a very efficient or productive state. That’s why firms need to assume a seeming-steady-state (S3): it’s more cost-effective and productive to plan for stability than plan for variability. However, stakeholder perception ─ that the firm ignores change and works toward a discontinuous future – may need to be managed.
Balancing between steady-change and planning for seeming-stability is an art that requires both depth of expertise as well as a breadth of perspective. That’s why we set out to create the ROUNDMAP™ framework and cultivate Grandmastership™.
1.5 - THIRD-PARTY MODELS
Besides the models we’ve created, we fully encourage you to use third-party models, systems, or frameworks such as SWOT, Ansoff’s Growth Strategy Matrix, BCG’s Growth-share matrix, Porter’s Value Chain theory, Porter’s Five Forces, Kaplan’s Balanced Scorecard, Osterwalder’s Business Model Canvas, McKinsey’s Three Horizons of Growth Model, PEST analysis, STP model, DOI model, and PR Smith’s SOSTAC model. We don’t mean to deny, dismiss, or displace any of them: they’ve prevailed because they still offer valuable insights.
To learn more about all of these models and their application and use the ROUNDMAP™ MetaFramework within your organization or as part of your business practice, you’re invited to apply for a formal ROUNDMAP™ Certification Program.
MIND THE GAP
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 can be meaningful, provided that it serves a purpose.
2.1 - CLOSING THE 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 opportunities.
- Fleeting competitive advantages ─ reducing the growth cycle, forcing firms to rotate through the cycle much more quickly.
2.2 - GROWTH PROJECTIONS
To appreciate a level of growth that is both attainable as well as serviceable, we’ll have to make sure that any misconceptions about growth, the growth traps, often caused by inadequate market research, are removed from the equation. This will give us the green line. If current growth does not match the green line, we’ll need to consider what causes the growth gaps (the misconfigurations).
By assessing the operation, ROUNDMAP Certified Professionals will be able to reveal what causes these gaps. This brings forth 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.
2.3 - STANDING AT THE EDGE OF A CLIFF
While the Corona crisis may be a once in a lifetime occurrence, shock effects are far from exceptional. During one of our assignments, we identified a single point of failure (SPoF) in our customer’s value chain: the company sold 90% of its merchandise via one channel. We were able to convince the CEO to mitigate the risk and offered to transform the out of date website into a fully integrated webshop. When the SPoF gave way, revenue dropped by 90% and everyone panicked. But we came prepared and sales rebounded within days.
About 10 years before the event, we had to deal with a similar shock effect ourselves. As a serviceprovider, we rented a large number of server racks in a datacenter, some IP-space, and an internet uplink; all from one supplier. When we received a call from the datacenter that our supplier had filed for bankruptcy, all hell broke loose. It took five days and nights of relentless efforts and a lot of capital, to untangle our operation and make it out of this trap alive. It was a tough lesson to learn but since then, SPoF’s are a red alert on our radar.
2.4 - EQUITABLE GROWTH
As forementioned, ROUNDMAP is designed to drive sustainable growth. The difference between sustaining and sustainable growth is that sustaining growth means to keep growth at a certain rate, regardless of the costs, while sustainable growth is the ability to sustain growth at a rate that doesn’t require the firm to sell its stakeholders short ─ we prefer to call this EQuitable Growth.
EQuitable Growth aims to:
- Identify and develop growth opportunities,
- Identify and mitigate threats/risks,
- Close growth gaps (misconfigurations),
- Elimate growth traps (misconceptions),
- Account for interruptions (scenario planning and simulation),
- Uncover what makes a brand or product relevant (now) and significant (future),
- Increase awareness of a firm’s Corporate Social Responsibility,
by means of:
- Encouraging experimentation with active senior-level sponsorship,
- Assuring a growth mindset with steadfast cross-company alignment,
- Reskilling the workforce to match the rules of the digital economy,
- Rethinking the business model to create a better future for all stakeholders,
- Repurposing resources to allow idle capacity to be put to good use,
- Replicating succcessful business models to create new lines of business,
- Designing nimble and agile operating lines.
2.5 - HORIZON MODEL
Both McKinsey and IFF* encourage senior executives to pay equal attention to ‘Three Horizons of Growth’ (Horizon model):
- Horizon 1 = ‘Keeping the lights on‘ ─ driven by optimization and sustaining innovation (change).
- Horizon 2 = ‘Building future ventures‘ ─ driven by disruptive innovation, operating in known markets.
- Horizon 3 = ‘Imagining the future‘ ─ driven by disruptive innovation, entering uncharted waters.
See image below:
2.6 - SITUATIONAL GROWTH™
Our perception of growth is slightly different. We believe growth should be seen as ‘situational’ ─ given the internal and external forces ─ which has led to the belief that Situational Growth™ (compare: Situational Leadership) has four ways of manifesting itself:
- EXPLOITING GROWTH ─ Exploit existing product-market centers: Improve-or-Die.
- EXTENDING GROWTH ─ Sustaining innovation and adaption: Compete-or-Die.
- EXPLORING GROWTH ─ Disrupting existing markets or products: Disrupt-or-Die.
- EMERGING GROWTH ─ Resurface from an ‘end-of-life’ operation: Leap-or-Die.
During each of these manifestations, a growth gap could occur: we may overlook profitable revenue streams, try to exploit the wrong ones, or start change-initiatives while we should initiate transformation, and so on.
In reality, these manifestations run together. The primary concern of management has to be to run existing product-market centers as cost-effective as possible, ensuring predictable outcomes (high quality, a responsive customer service, etc.). However, things are bound to turn south, sooner rather than later. Besides extending and defending revenue streams, it is the responsibility of leadership to encourage creatives and support innovators operating at the edges (Red Monkey, Jef Staes) of the organization to explore new opportunities for growth.
Situational Mastery™ focuses on the internal and external factors that influence the overall performance of the business, while Situational Leadership® focuses on the relationship between leaders and followers, to increase individual Performance Readiness. Together, these two frameworks largely determine a firm’s potential for Situational Growth™.
2.7 - MIND THE GAPS
Growth gaps are often the result of a series of misconfigurations. We’ve addressed some of these gaps in more detail here: Mind the Growth Gaps. It is important to realize that every gap has an adverse effect on the desired outcome that will not go away until it’s identified and dealt with. Compare: Growth traps are misconceptions about growth opportunities.
2.8 - VENTURE DESIGN
Even if you are not familiar with the (eight) principles of excellence, mentioned in In Search of Excellence by Peters and Waterman (1982), you shouldn’t be surprised to learn that the way successful companies operate today resembles those that were researched by the authors. Indeed, as the renown economists, Schumpeter and Kondratieff uncovered, history tends to repeat itself in so-called business cycles.
The organizations that were deemed ‘excellent’, such as Texas Instruments, IBM, McDonald’s, and Hewlett-Packard, were extremely nimble and entrepreneurial, had a strong culture, were customer-driven and human-centric, highly disruptive, and often very effective ─ they were true frontrunners; much like their present counterparts, Microsoft, Google, eBay, Amazon, Netflix, and Tencent.
Today, we’re seeing a similar approach, driven by fleeting competitive advantages, which is now referred to a Venture Design (VX):
The VX-approach is to intentionally set out to conquer a market, based on opportunities for growth that have not been explored before ─ by anyone. It doesn’t perceive the core competences as a holy grail. On the contrary, employees are allowed to explore any opportunity, as long as it serves a real customer need and is highly scalable.
Compared to the Horizon Model: these brave companies choose to ignore Horizon 2 and jump straight in Horizon 3, with Agility, Creativity, Determination, and Courage (AC/DC).
In Systems Theory: “A system is said to be in a transient state when a process variable or variables have been changed and the system has not yet reached a steady state.” In other words: a system is in a transient state as long as it is in a change state.
Before you jump on the VX-bandwagon, consider the fact that a multi-core operation does increase complexity dramatically. More on this subject can be found here: Where to find future growth?
ROUNDMAP™ is an integrated framework to assess, design, manage, align, and optimize business ventures ─ by identifying new revenue streams, by assessing current revenue streams and business models, by eliminating gaps and barriers, and by boosting the front-line operation.
3.1 - THE ULTIMATE LEVEL OF TRUTH
Research confirms that the employee-customer interaction that occurs during each customer lifecycle is at the core of a successful business operation. It is the ONLY level at which a company is able to identify opportunities (and threaths) and capture enough value with which to offset the cost of value creation and delivery. We, therefore, call this level The Ultimate Level of Truth™.
Furthermore, studies confirm that an integrative approach toward the customer development process leads to a substantially better commercial performance (up to 765%; Kotter and Heskett, 2011). However, research also confirms that teams within organizations have become extremely disconnected. This is exceedingly harmful to the execution of the business strategy, as idenfied by creators of the Balanced Scorecard, while it also undermines the prospect of offering seamless, personalized, and meaningful customer experiences.
Obviously, a firm also needs to have the right products and services in place, address the right audience with the right messages, using the right channels while making sure the operation is truly up to the task to serve customers’ needs with poise.
3.2 - 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 significant value while frustrating customer experiences; ultimately deteriorating commercial performance.
When you start with a fragmented leadership team, leading to separate groups, each rooted in their own 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 round tables, appointing cross-functional liaisons, build cross-functional teams, defining inciting rallying goals and objectives, and so on.
3.3 - ROUNDMAP DEFINITION
The name ROUNDMAP™ is a composition of two words: roadMAP and ROUNDtrip.
3.4 - SYSTEMS DYNAMICS
ROUNDMAP™ is designed from an approach known as systems theory, an interdisciplinary study of systems: ‘A system is a cohesive conglomeration of interrelated and interdependent parts, whether natural or human-made. Every system is bounded by space and time, influenced by its environment, defined by its structure and purpose, and expressed through its functioning. A system may be more than the sum of its parts if it expresses synergy or emergent behavior.’
To explain the systems dynamics ─ the aspect of systems theory as a method to understand the dynamic behavior of complex systems ─ that are relevant to venture design we’ve created a flowchart, the ROUNDMAP™ Business Roadmap (see PDF for more info). A business roadmap is a high-level plan, defining an overarching strategic objective and caputuring the major steps planned for achieving that objective, as well as a communication tool that helps communicate the business’s strategy.
For instance, 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.
3.6 - STAGES
To (re-)design a business venture, or to consider multiple business ventures and to determine the gaps between (current and new) business ventures, Edwin Korver has developed an intelligent Business Roadmap as part of the ROUNDMAP™ framework.
The ROUNDMAP™ Business Roadmap consists of five stages:
STAGE 1 – DISCOVER
(NEW) VENTURE ─ Q: What is your dream about? What is your hypothesis? Did you validate the product/market fit?
STAGE 2 – DESIGN
BASE PLAN ─ Q: What are the key components? What is your value proposition? What is your key differentiation?
GAME PLAN ─ Q: What is your production strategy? Who are your key partners? What is your go-to-market strategy?
STAGE 3 – DEVELOP
ACTION PLAN ─ Q: What resources and capabilities are needed? What is your marketing strategy?
STAGE 4 – DIRECTION
OUTCOMES ─ Q: What are your key performance indicators? What do they tell you?
RESULTS ─ Q: What economies of scale/scope work in your favor? What share have you obtained?
STAGE 5 – DIVIDEND
RETURNS ─ Q: Have you reached your aspired goals? Is your mission still aligned with your vision?
3.7 - STEPS
Let’s look in more detail and discuss the ROUNDMAP™ Business Roadmap step-by-step:
STAGE 1 – DISCOVER
The VENTURE stage is our first step ─ as we could have learned from Steve Blank’s first book, The Four Steps to the Epiphany: Successful Strategies for Products that Win ─ indicating that we should follow a four step process, referred to as Customer Development, to increase the likelihood of launching successful products and avoiding common pitfalls ─ customer discovery, customer validation, customer creation, and company building.
The last part of Blank’s four step process ─ company building ─ is the our next step, the BASE PLAN. If the Customer Development Method does not apply to your situation, you may skip this stage and start from stage 2, the BASE PLAN.
STAGE 2 – DESIGN
The BASE PLAN describes the principles of the business venture and looks at three aspects:
ORGANIZATIONAL DYNAMICS ─ Culture Line ─ Q: What do we intent to achieve, how and why?
BUSINESS MODEL ─ Added Value Line ─ Q: What’s our business model and go-to-market strategy?
BEHAVIORAL DYNAMICS ─ Trend Line ─ Q: What are the trends in customer buying behavior?
The output acts as the starting points for the GAME PLAN:
OPERATING MODEL ─ Business Line ─ Q: What products, material, and suppliers are key to our business model?
REVENUE MODEL ─ Customer Line ─ Q: What’s our distribution model and customer strategy?
STAGE 3 – DEVELOP
Next, the output of the GAME PLAN needs to be fed into the ACTION PLAN:
BUSINESS DYNAMICS ─ Operating Line ─ Q: What’s needed to create and deliver value?
CUSTOMER DYNAMICS ─ Front Line ─ Q: What’s needed to develop the customer lifecycle?
MARKET DYNAMICS ─ Activation Line ─ Q; What’s needed to influence customer behavior?
STAGE 4 – DIRECTION
Now that we’ve designed the business venture, we’ll need to measure the OUTCOMES:
BUSINESS PERFORMANCE ─ Business Intelligence ─ Q: What’s the cost per unit?
CUSTOMER PERFORMANCE ─ Customer Intelligence ─ Q: What’s the margin per customer?
MARKET PERFORMANCE ─ Market Intelligence ─ Q: What’s our share of the market?
Next, we’ll need to determine the RESULTS:
OPERATING RESULTS ─ Expenses line ─ Q: What’s the total and distribution of the expenses?
COMMERCIAL RESULTS ─ Revenue line ─ Q: What’s the total and distribution of the revenue?
STAGE 5 – DIVIDEND
And finally, what are the RETURNS:
RETURN ON VENTURE ─ Bottom line ─ Q: What’s result of the entire business venture?Culture
P.s.: The activities in the ACTION PLAN are aligned with Porter’s Value Chain Theory. The arrangement of the dynamics in the ACTION PLAN makes it easy to consider the SWOT-model (Strengths, Weaknesses, Opportunities and Threats), as well as the Backstage and Onstage Competitive Advantages relevant to defensible differentiation.
3.8 - CANVAS
We will soon provide a printable and online canvas that will allow you to perform a ROUNDMAP™ Business Roadmap exercise.
3.9 - VALUE HUB THEORY
Napoleon Hill wrote in Think And Grow Rich that to achieve our goals, i.e., to get things flowing, we need (to create) a value differential. You may have noticed the +/- signs in the scheme above. We use it to explain where the ‘value differentials’ reside.
Imagine that your efforts to create value ‘charge’ your Business Dynamics. If you can find a customer in the market with a need for that value, the potential for a value differential may emerge. However, to inspire a customer to buy you’ll need them to be close enough for a spark to cross over ─ don’t ‘touch’ because touchpoints are merely a figure of speech. After all, you don’t want their hair to look funny.
Since the activities involved in discovering, acquiring, serving, and retaining customers are so distant from running an operating line, the Customer Dynamics act as a go between of the Business Dynamics.
More about the Value Hub Theory can be found here.
3.10 - DIFFERENT VIEWPOINTS
The three dynamics of the ROUNDMAP™ ACTION PLAN also provides us with different viewpoints. For instance, we may aspire a large share of the total addressable market (TAM), however, without a capable operating line to service the target market and an assertive frontline operation to obtain (SOM) it, we’re likely to get disappointed. Or, we may assume that we’re in full control of our brand’s identity, however, the image of the brand will ultimately be determined by (all of our interactions with) our customers.
What should you expect in terms of commercial outcomes from adopting the integrative approach of the ROUNDMAP™ strategic and executive framework?
4.1 - EXCEEDING EXPECTATIONS
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 objectives of 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 a period of 11 years (~22% YoY-growth, between 1977-1988).
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.
4.2 - REACTIVE VERSUS PROACTIVE
Author Jan Bommerez is clear about it: if people are allowed to proactively assist customers to help them achieve their objectives, sooner rather than later, employee motivation, passion, pleasure, and trust will rise. However, if employees are only allowed to react to problems, stress will take over and employee motivation, passion, pleasure, and trust will tumble ─ increasing sick leave and employee turnover. The trick is to manage each process from a perspective of a desired future, instead of from a distressed state of problem-solving.
4.3 - SYNERGY IN A COMPLEX SYSTEM
Organizations are complex systems in that they are able to solve things as a whole, that none of its parts is capable of doing by itself. This is called synergy. Swiss mathematician and sociologist Dirk Helbing and his group found that the dynamics of a flock of birds, which can be seen as a typical complex system, can be described using merely three rules:
- ALIGNMENT ─ Each bird aligns its flight with the average flight direction of the local flock (the part of the flock close to it).
- COHESION ─ Each bird moves towards the average position of the local flock.
- SEPARATION ─ Each bird tries to avoid local over-crowding and predators.
The behavior of a flock is part of its strategy: to protect each individual from predators. Within organizations, large groups of individuals are bound to show similar behavior, however, when members are unaware of the mission or don’t understand their part in it, they will become disconnected. You might have heard of the expression ‘Birds of a feather flock together’: people with similar backgrounds will herd into smaller groups ─ creating organizational silos ─ to protect each other while some may even perceive other ‘flocks’ as predators. It isn’t hard to see that those disconnected and unaligned organizations will have a hard time achieving their mission.
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.
5.1 - 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.
The ‘division of labor’ is often attributed to Taylor, however, it was Adam Smith in An Inquiry into the Nature and Causes of the Wealth of Nations (1776) who had made a similar case one century earlier while Plato (424-347 BC) had introduced the concept. Plato believed that ‘only through specialization [..] can disunity between people be erased and a just state is established’. Although all three man made a similar case, their intended application of the concepts of specialization and division of labor differed: Plato described how to run a stable state, Smith on how to run an effective economy while Taylor used the concepts to run an efficient production line.
5.2 - SCIENTIFIC APPROACH
5.3 - INDUSTRIAL EFFICIENCY
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):
5.4 - FRONTLINE PRODUCTIVITY
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 (!)
Apparently, 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’.
5.5 - SURVEILLANCE CAPITALISM
As suggested by Harvard professor and celebrated scholar Shahshan Zuboff there may be 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.
6.1 - 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.
6.2 - 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 that “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.”
ACROSS FUNCTIONAL 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.
7.1 - INCREASE SIGNIFICANCE
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.
7.2 - RETURNING CUSTOMERS
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.
7.3 - 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.
7.4 - TRANSFORMING THE CULTURE
It would be naive to expect any organization to make an instant leap from a highly fragmented operation to a cross-functional, collaborative one. However, it can be done and it is worth the effort as silos stifle organizations, hamper innovation, and deprive stakeholders of its full potential.
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.
8.1 - SHIFTS IN CUSTOMER DEVELOPMENT
We found that the customer development process has changed significantly in recent years and in many ways. Not just because of globalization and digitalization, but also due to rising concerns over matters like income inequality, our environment, and climate.
Let’s review just some of these changes, although there are many more:
Technically, your mission is your purpose. However, customers demand more than a mission statement explaining what it is you do, how you plan to do it, and to who it may concern. They want to know why you do what you do. What drives you, what passionates you, or what keeps you awake at night. They need to know whether you’re equitable to your stakeholders and care about our planet. With the rise of social media public scrutiny is intimidating, so whatever you do, don’t pretend to be what you’re not. They’re bound to find out and destroy your reputation.
Common practice dictates that customer development is mostly about driving a customer to a moment of purchase. This is unsound: purchase is not an end, it is the start of a relationship that is based on an Understanding of Trust™ and confirmed by a contract to which both parties are commited.
Only if you follow through, as promised and expected, the relationship may develop into an Alliance of Trust™ which could lead to a long-lasting relationship. However, most marketing and sales funnels describe ‘purchase’ as a final stage while a few models have added ‘satisfaction’ and ‘advocacy’, without describing how to reach these post-purchase stages or who is responsible for it.
Before the age of digital, marketing communications was mostly a unilateral process, often referred by 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 communications.
Yet, most purchase funnels still perceive the customer journey as a one-sided process. It is not: from a customer’s point of view, it is a decision tree while from a brand’s point of view it is an influencing tree. As we will explain further down, the buying process is best seen as two separate ribbons, that may become entangled for as long as it is beneficial to both parties.
Due to the amount of information that is now freely available to each and everyone, customers already know most of what is to know about your product and your reputation. Customer activation, therefore, needs to shift, from an emphasis on rational triggers to emotional triggers, i.e., all signals and sensory stimuli customers can experience about your product or brand.
As a result, Emotional Intelligence (EQ) and emotional engagement have become prevalent in customer experience management.
The frontline operation has become extremely divided with numerous specialists, each focusing on a fraction of the 360-degree puzzle. It should come at no surprise that individual employees have become entirely disconnected from the overall customer development process and often have no clue what customers experience during each of their interactions with the organization at large.
As more and more companies make the shift from as-a-product to as-a-service business models, the revenue model is also changing from one-off purchases to subscription-based services. While customer churn hasn’t been of much concern to product-centric brands, in case of subscription-based services it is absolutely vital that customers extend their subscriptions.
To reduce customer churn ─ and increase employee engagement to raise customer loyalty ─ brands now resort to Customer Success, a kind of proactive customer support practice. Customer Success efforts commence just prior to or shortly after the moment of purchase.
Customer Lifecycle Management involves many steps, however, one step has been overlooked by most: Significance. Significance supersedes Satisfaction and even Happiness. While Satisfaction and Happiness look backward, Significance looks toward the future. Why should a customer maintain a close relationship with you? What future value do you have to offer them? Why would they want to associate themselves with your brand?
If you want to build strong customer bonds, you’ll need to provide customers (implicitly) with favorable answers to these questions.
It should come to no surprise that we live in an age of technological disruption. Technology that was developed in the previous century is now phasing out, while new (digital) technology is rapidly gaining traction. If your core operation still relies on old systems, or your
business model is out-of-date, chances are that your revenue streams will soon be prematurely discontinued.
Since your business relies on revenue, this disruption could become fatal. While product innovation could provide a temporary edge over the competition, outdated business models may require your organization to make a complete turnaround.
As mentioned before, the customer journey isn’t a one-sided process: it involves two parties, your brand, represented by its employees, and the customer. If you want to drive loyalty and advocacy, you’ll need to get both your customers as well as your employees engaged in the process.
Customer expectations greatly determine Customer Satisfaction, Happiness, Significance, and Loyalty. However, each customer has a
different point (or frame) of reference, meaning, their expectations may vary greatly. While one customer may be thrilled because your customer service desk was quick to solve an issue, others may not be so impressed and demand that you proactively help them to obtain as many benefits as soon as possible from what it is they purchased from you.
8.2 - INTEGRATED PROCESS
To incorporate these changes into a modern buying cycle, we’ve created the Customer Carousel™.
The Customer Carousel is the ’roundtrip’ part of the ROUNDMAP framework and contains:
- 4x Customer Development Goals ─ Acquisition, Creation, Retention, and Extension.
- 4x Frontline Departments ─ Marketing, Sales, Delivery, and Success.
- 8x Moments of Engagement ─ Brand-initiated touchpoints.
- 8x Moments of Reflection™ ─ Measurable responses by customers to these touchpoints.
Instead of focusing on creating the perfect customer journey, we believe companies should focus on providing more insights into the gains of their product (Prospect Theory) and adhere to a very simple 4-step response to each touchpoint (f.i., “More info”, “Order now”, “Keep me informed”, and “Not interested”). This way ─ provided brands use the right channels and responsive touchpoints ─ firms will be able to drive their prospective customers forward. Remember the KISS-formula: Keep it simple, stupid.
8.3 - TIMELINE
Since the customer life cycle is a cyclical process, as suggested by the term, a circular layout may be difficult to grasp at first sight. Therefore, to introduce you to the steps, we’ve created a more familiar linear timeline. First, let’s have a quick look at it:
On the bottom half of the figure, you’ll find the brand-initiated touchpoints or Moments of Engagement (Attraction, Awareness, etc.). Beneath each Moment of Engagement you’ll find a Prompt (1-8) that determines its position and meaning in the life cycle process. While on the upper-half you’ll find the Moments of Reflection™ ─ the measeable responses of customers to the touchpoints. In between is a color-coded wave, representing the Ultimate Level of Truth™.
The figure illustrates how customers respond to the brand-initiated touchpoints as they pass through the Customer Carousel™. By extending the frontline operation with a fourth department, Customer Success (marked in red), the likelihood of retaining more customers ─ getting them to return more often and spend more over the course of their customer life time ─ increases significantly.
According to Zappos, 75% of their daily purchases come from returning customers (successfully extended).
8.4 - RELATIONSHIPS AS A DOUBLE HELIX
Although we’ve chosen to explain the arrangement of the Customer Carousel™ to you by using a linear timeline, please remember fact that the actual motion is circular (360-degrees). Over time this creates a helix (see image to the right), indicating a customer circling around the brand.
However, since it is a two-sided process, engaging the brand as well as the customer in the process, it is actually a double helix ─ much like a DNA-string. In a more abstract way, the Customer Carousel™ is about estabilishing a product-customer fit, as part of the product-market fit, that creates a double helix.
A product-market fit is the degree to which a product satisfies a strong market demand.
Product-market fit is a first step to building a successful venture in which the company meets early adopters, gathers feedback and gauges interest in its product(s).
8.5 - FROM CYCLES TO WAVES
In fact, a product-market fit is exactly that: two interwoven strands, one of demand and one of supply, held together by for the most part emotional bonds. While we could consider customer relationships as a mere consequence of our actions, convictions, or even as strokes of luck, we should place them in perspective. Afterall, cycles are a series of occurrences that occur over time, destined to repeat itself ─ given the right circumstances and conditions. Let’s consider the Customer Carousel™, the customer lifecycle, over time:
By plotting the steps of the Customer Carousel™ on a timeline, you can see that we need to invest in the relationship (downward movement) before we can capture value from it (upward movement), following tipping point #1, i.e., the moment of transaction.
In a similar way Product Carousel™, Growth Carousel™, and Business Carousel™ can be plotted over time while we need to consider that the Customer Carousel™ is the shortest wave (spanning across the lifetime of a customer relationship) and the Business Carousel™ the longest (spanning across the lifetime of the business venture). More can be found in our online programs.
In general terms:
- Business Carousel™ is about developing the business venture over time.
- Product Carousel™ is about developing the product-market fit over time.
- Customer Carousel™ is about developing the customer-product fit over time.
- Growth Carousel™ is about developing the strategy to grow over time.
PETER DRUCKER: PURPOSE OF BUSINESS
Despite Peter Drucker‘s 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 a mere 5% of the customer retention rate could raise profitability by as much as 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 where to position the entire framework: from strategy, chaining, business model, value position, marketing strategy, and all the way down to the employee-customer interaction.
9.1 - EMPLOYEE-CUSTOMER ENGAGEMENT
If frontline employees fail to acquire, create, retain, and extend enough paying customers at a profit, then, regardless of the resources, infrastructure, capabilities, skills, talents, processes, services, systems, culture, business model, or products, the entire operation will fail. To emphasize the gravity of employee-customer engagement to drive sustainable growth, we regard the entire frontline operation, represented by the Customer Carousel™, as the Ultimate Level of Truth™.
9.2 - THE OVERALL PICTURE
We’ve created an image to explain where we position the Customer Carousel (and The Ultimate Level of Truth™) 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.”, a philosophy more commonly known as Panta Rhei.
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 arranged in the system.
10.1 - 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 the business strategy (strategy line), strategy execution (operating line), and performance (customer line).
10.2 - INTERTWINED
Obviously, the aspects of each of these layers, Strategy, Execution, and Performance, are to a large extend interrelated and interdepedent: it makes no sense to drive Customer Performance without being acutely aware of related matters such as the firm’s Vision, Mission, Goals and Objectives, Business Strategy, Competitive Advantages, or Customer Expectations. Everything is connected in a series of loops.
10.3 - REVISIT THE ROUNDMAP
We believe you are now ready to have look at the ROUNDMAP™ canvas. 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 ─ in any order they see fit.
VALUE HUB THEORY
Prior to constructing the ROUNDMAP™, we created the Value Hub™ theory which in retrospect correlates to Michael Porter’s Value Chains and (later) Value Streams.
11.1 - VALUE HUB THEORY
In 2012, Edwin Korver was invited to sit at a round table to help a local radiostation adapt itself to the digital age. During this meeting, he described how they should perceive the role of a (modern) radio station. Which in effect was ‘the curation of relevant content, collected from multiple sources and then published via multiple channels, to please an audience’. All they needed to do was to describe and organize their internal processes to be able to collect, curate, and package content in such a way that it pleased their digital media users.
He soon realized that the same description could also be applied to any business. All he had to do was replace ‘content’ by ‘product’. In fact, what he described was the Value Hub™ Orchestration Model which we’ve described in far more detail here (part 1) and here (part 2).
As such, another way of explaining why we divided Porter’s Value Chain ─ consisting of primary and secondary activities ─ into separate dynamics is by perceiving the entire value orchestration process (see figure below) as a value hub:
11.2 - NOTES
In general, the creation of tangible value comes at a cost (credit) which is driven by the business dynamics. Value delivery, on the other hand, creates revenue (debit) which is driven by 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 Value Hub 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.
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.
12.1 - NEW 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 (persuasion at scale) and Customer Centricity to a focus on Sales (persuasion at scope), we wondered if the remaining departments/stages of the Customer Carousel™ ─ Delivery and Success ─ could also be matched to (yet unknown) business models?
By adding an extra dimension ─ ‘serviced used’ versus ‘products sold’ next to the ‘scale’ versus ‘scope’ dimensions ─ we were indeed able to describe and pair two new business models, Resource Centricity and Network Centricity, thereby giving birth to the Business Model Matrix™.
12.2 - BUSINESS MODEL MATRIX™
Business Model Matrix™ provides a single framework of four Primary 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.
12.3 - PRIOR TO THE MATRIX
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™.
More information on the Business Model Matrix™ can be found here.
PRIMARY BUSINESS MODELS
The Primary 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.
13.1 - CREATING LEVERAGE
Leverage greatly determines the growth potential of a 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 to have completed the set with two additional types of leverage: Share of Utilization (yellow) and Share of Transaction (red).
It is important to emphasize that these levers aren’t particularly ‘new’, however, they gained traction due to the rise of digital technology which took away most of the physical barriers that previously limited the growth potential of the underlying business models.
13.2 - DRIVING GROWTH
A product-centric business model is based on generating customer demand driven by product development in order to profit from so-called economies of scale ─ in general, these types of companies looking to increase and defend their Share of Market.
A customer-centric business model, on the other hand, is driven by customer development. Your objective is to fulfill more of the needs of a select group of customers that are more likely to spend more and thereby allow you to increase your Share in their Wallet.
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, your objective is to increase the utilization of the car, limited by its maximum capacity (Car2Go).
If you offer a ride-sharing platform ─ which is a network-centric business model ─ your objective is to bring together as many riders and ride-hailers together into one ‘space’ to increase the likelihood of a ride to occur from which you can obtain a Share of Transaction (Uber).
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 Primary Business Models.
14.1 - BUSINESS MODEL DEPLOYMENT
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 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. See the image below. If you want to learn more, subscribe to our newsletter or apply for an Inner Circle Membership to access exclusive content and to attend the ROUNDMAP™ Introduction Course.
14.2 - PLANNING FOR SUCCESS
Choosing the right business model and deployment model 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.
BUSINESS MODEL DEVELOPMENT
We’ve discussed the Integrated Customer Lifecycle (Customer Carousel), Business Strategy, and the Primary 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.
15.1 - BUSINESS MODEL DEVELOPMENT
We believe business models can be developed into two directions:
- BUSINESS MODEL REGENERATION (= Evolutionary)
- BUSINESS MODEL SHIFTING (= Revolutionary)
15.2 - BUSINESS MODEL REGENERATION
Business Model Regeneration is an evolution of an existing Primary Business Model ─ often driven by advancing technology. For instance, the traditional supermarket is a product-centric business model, focused on growing or defending market share, while Amazon’s Go cashier-less grocery stores are simply a contemporary regeneration (digital evolution) of a traditional business model.
We’ve created a slide to illustrate business models regenerate: ROUNDMAP™ Business Model Regeneration in Action
15.3 - BUSINESS MODEL SHIFTING
Business Model Shifting is a revolvement (clockwise) to the next Primary Business Model in the Business Model Matrix™. Shifting is, by far, 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.
15.4 - SHIFTING VERSUS REGENERATION
If we put the two together, business model shifting (revolution) and business model regeneration (evolution), this is a way to perceive it:
As stated before, shifting (the color-coded cycle) is by far the most transformative of the two. It has a huge impact on all of the dynamics (organizational, business, customer, and market). A decision to shift the business model shouldn’t be made lightly. A regeneration (dashed cycles), on the other hand, is often limited to change and innovation and, therefore, much less drastic.
15.5 - OLD BOUNDARIES REMOVED
You may perceive that the Sharing Economy is exemplary of the Digital Age, however, it isn’t. If you ever took a plane, train, or taxi, you were essentially sharing a resource. However, digital technology removed the need for a physical dispatch location which greatly improved the ease with which to hire a resource. This has allowed resource-centric businesses to grow rapidly which attracted others to the scene.
What about the Platform Economy? Well, remember the Silk Road from your history lessons? Hundreds of marketplaces had emerged along the trade routes between China and Europe. Facilitating a digital platform, often called a marketspace, is very much similar to setting up a traditional marketplace. However, without the physical constraints, marketspaces (or platforms if you will), now have a sheer unlimited reach, offering network-centric businesses an opportunity for exponential growth (Facebook, Uber, eBay, Taskrabbit, Producthunt, etc.).
Before optimizing the customer lifecycle, 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 from competitors.
16.1 - SITUATIONAL ANALYSIS
If the business enterprise isn’t facing disruption (premature discontinuation of current revenue streams) it generally focuses on:
- OPTIMIZATION (= increased efficiency; fragile, doing things better)
- INNOVATION (= increased effectiveness; antifragile, doing better things)
In the simplest of words: the business enterprise can either decide to increase its performance or redude costs to make more profit (optimize), or choose to offer additional value (innovate).
However, if the business enterprise is faced with disruption, it needs to shift its focus to:
- ADAPTATION / CHANGE (= increased robustness; fragile, doing things better)
- TRANSFORMATION (= increased resilience; antifragile, doing better things)
Simply put, the business may choose to offset the competition (change its products, processes, or business model), or reinvent itself and its entire operation (transform).
16.2 - READINESS TO CHANGE
Before applying the ROUNDMAP, you will need to assess the actual business situation, both external as well as internal, including:
- Externalities, from producing or consuming the product, that may harm the image of the brand,
- Internalities, following the decision to consume the product, that may harm the image of the brand,
- Changes in competitive forces, such as new market entrants or threats of substitute products,
- Changes in customer behavior, such as a preference to work remotely. For instance, Fujitsu announced to reduce its office space by 50% by shifting 80.000 of its 140.000 employees to work primarily remote,
- Side effects of public scrutiny, for instance, side effects from the Me-too movement or the Black Lives Matter Movement.
- Changes in disruptive exposure, f.i. due to technological advancements, political choices, social change, or environmental concerns,
- The ratio between risk-seeking and risk-aversion amongst senior leadership members,
- The attitude toward creatives and innovators and the existence of an applied support structure,
- The intensity, rigidity, and frequency of interrelationships and interdependencies throughout the organization and beyond,
- The level of collaboration, cooperation, and commitment.
After you’ve assessed the business situation, you’ll need to consider their likely (or unlikely) effects on the course of the business, thereby creating scenarios that allow the business to benefit from or mitigate against these effects.
Underneath you’ll find the Growth Carousel™, containing four ways to react to a given situation.
16.3 - BUSINESS CAROUSEL™
To understand the impact of (often technological) disruption, we’ve created the Business Carousel™ (was Cycle of Disruption™) consisting of four stages: Assumption, Adaptation, Acceleration, and Assimilation ─ inspired by the theories of recurring Business Cycles (Expansion, Crisis, Recession, Recovery) by Kitchin, Juglar, Kuznets, Schumpeter, Perez, and Kondratieff.
16.4 - COMPLEMENTARY MODELS
As you have may have noticed, Growth Carousel™ and Business Carousel™ are complementary: if a business decides to transform it will enter the arena of the Business Carousel™ as a technological innovator. It will still need to drive adoption to be able to displace old technology, however, its heading will be regarded as disruptive.
Based on an elaborate assessment, ROUNDMAP™ Professionals will be able to reveal the Situational Readiness™ of your company relative to market conditions while providing insights into what could be a more lucrative heading.
The slide (PDF) can be found here.
Depending on the Business Strategy, value (= equity) is derived from a focus on one of four Primary 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.
17.1 - DESIGN THINKING
Experience Design has been at the forefront of business for a couple of years. However, few realize that customer experiences have 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).
We’ve identified four conceivable experiences:
- BRAND EXPERIENCE ─ Related to Marketing and core to Product Centricity
- CUSTOMER EXPERIENCE ─ Related to Sales and core to Customer Centricity
- USER EXPERIENCE ─ Related to Delivery and core to Resource Centricity
- SHARED EXPERIENCE ─ Related to Success and core to Network Centricity
17.2 - CUSTOMER EXPERIENCE
Customer Experience (CX), in our view, isn’t the all-encompassing experience some say it is. We believe it is a 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 and, therefore, customers need to experience this.
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?
18.1 - 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, intended to increase productivity and profitability.
Regardless, Digital Transformation should be understood as Digital Business Transformation, provided the intention is to 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.
18.2 - WHY 70% OF DIGITAL TRANSFORMATION FAILS
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.
18.3 - THE TRUTH ABOUT CUSTOMER LOYALTY
What keeps consumers loyal to their favorite brands appears to be all but digital, according to recent reserach by 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 by offering more convenient digital shopping experiences did give rise to higher customer expectations and as such, forced other companies to follow their lead.
18.4 - HOW EXPERIENCES DRIVE GROWTH
Successful businesses realize that an overall 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 look very similar to research by Kotter & Heskett, conducted between 1977 and 1988 (published in 2011), in which they examined the effect of ‘cross-functional collaboration’ and ‘a less adversarial culture’ on company performance. We’ve addressed these numbers in the Performance Boost section, next to corresponding research by Towers Watson (2011) and Gallup (2008).
Another thing to consider is that research suggests that 97% of customer experience initiatives fail to produce results, while others confirm that CX programs seldom produce tangible results ─ contradicting Forrester’s research (Adobe benefits directly from an emphasis on CX).
19.1 - SUMMARY
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, rather than high-tech, that will (continue) to make the difference.
Indeed, customers have developed 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 has 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, followed by transforming marketplaces into marketspaces. Companies will need to adapt to these changes while some may even be able to create new business models, offering yet unknown opportunities for creating, delivering, and capturing value.
We live in exciting times. Although the future may seem daunting, it still has to be written ─ leaving each and everyone with the opportunity to create the future they desire. The key question here is: What is your vision of the future?
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