The big question on every executive’s mind is: Where to find future growth? Whether the question is an urgent one or driven by a regular strategic planning cycle, without future growth a business can not sustain for long. In this post we’ll look at growth horizons and venture design while introducing the Ark of Commerce™ and providing context to the ROUNDMAP™ framework.
Horizons of Growth
You may remember the image (below) when we discussed Growth Activation™ ─ to illustrate how multiple horizons of growth will help plan for sustained growth. To warrant short-term growth (horizon 1), we’ll need to defend and extend our streams of revenue while managing the core operation.
Before these revenue streams become restrained, we’ll need to make sure new lines of business can emerge (horizon 2), often relying on the existing core. Additionally, we’ll need to explore viable business options ─ even if these require an entirely new core (horizon 3).
However, some companies have responded to these turbulent times by introducing a transient growth strategy: they’ve developed the capacity to launch a new line of business every 1 to 1.5 years and work relentlessly to mature these into viable ventures, causing growth cycles to overlap. This approach is known to as venture design, based on transient advantage.
This is how growth cycles of a venture-design business looks like:
WHAT's AT THE CORE?
Following the creation of the ROUNDMAP™, we wanted to describe how the body of knowledge relates to the business operation at large and to show that ROUNDMAP isn’t just an instrument to improve customer performance, rather an essential part of an integrative framework: from mission to strategy, to planning, to product design, to realization, and ultimately to sustaining growth.
If you look at the ROUNDMAP™ logo, you may have noticed a compass needle. This needle represents the purpose of the mission, i.e. the group of customers for which the business intends to create value. However, to reach this target audience, and to be able to respond effectively to changes in demand or adversarial forces, the business operation has to be able to ‘maneuver’.
This led to the idea to describe a business as a vessel, sent out on a mission to fulfill its purpose.
WHAT DRIVES THE ARK
To explain what drives the ark forward and allows it to maneuver, we consider three frameworks:
- BUSINESS MODEL – What value to create?
A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts.
- OPERATING MODEL – How to create and deliver that value?
Operating model is both an abstract or visual representation of how an organization creates and delivers value to its customers or beneficiaries as well as how an organisation actually runs itself.
- REVENUE MODEL – What and how much value can be captured?
The revenue model is a framework for generation revenues. It identifies which revenue source to pursue, what value to offer, how to price the value, and who pays for the value.
Ok, now let’s look in more detail to how we’ve arranged the components of the Ark of Commerce:
FOUR STAGES OF GROWTH
Firstly, we distinguish between four stages of growth (click on the image above; from left to right):
- Growth Scenario ─ Determining the strategy, objectives, and tactics to reach a rallying goal, a goal we all commit to ─ aligned with the corporate mission, vision, and purpose.
- Growth Distribution ─ The timely allocation of constrained resources (assets/people) and capabilities (technology/skills) needed to reach the aspired goal.
- Growth Activation ─ The way to effectively and efficiently put the allocated resources and developed capabilities to good use, i.e., to create the value we intend to deliver to our customers.
- Growth Realization ─ Deliver and capture value; measure actual growth against aspired growth.
Growth Planning and Growth Activation are separated by the Functions that need to perform the jobs ─ the primary and secondary activities, arranged in units (groups, departments, or divisions), also referred to as the value chain.
Secondly, to plan, activate, and realize business growth we’ll need to consider five Operatives:
- Resources – What is needed to do the jobs?
- Capabilities – Which jobs need to be done?
- Functions – What unit(s) do the job? (= the value chain)
- Processes – How is the job done?
- Services – How is the job admitted?
Each of these Operatives is linked to sub-operatives. Processes are determined by Policies and performed through Roles while Services are determined by Products and performed through Channels (of communication and distribution). And so on.
A special word of thanks to Mihai Ionescu for his valuable feedback.
PLAY THE ADVANTAGE GAME
A regular operation may consist of one Ark of Commerce, however, a typical venture-design business may have several smaller arks ‘in the water’, side-by-side, each one competing for profit and growth.
Experts noticed that when markets become more volatile and therefore unpredictable ─ due to fast emerging innovations ─ competitive advantages tend to flee faster. However, most incumbents tend to believe that any early-stage technology, process, or product won’t be as effective as something that’s been honed and polished for years. This proved to be a misconception ─ a superiority trap. If the upstart innovation matures, and in many cases it will, the incumbents are often too late to respond.
Instead of betting against the notion that sustainable competitive advantage is now the exception, not the rule, firms do wise to mitigate the risk of becoming disrupted by launching multiple ventures with speed and frugality. Until the new winners have emerged from the dust and the race for the best quality, with the best service, at the lowest price resumes.
This is how we would like to represent the two strategic advantage playbooks:
To the left is a single-core business operation, battling to defend its market position against new markets entrants, changing regulations, global competition, and technological disruption. To the right might be the best answer: starting a series of new ventures, each based on a vision of the future.
Is this response to market turmoil unique in history? Ofcourse not. According to the authors of the bestseller “In Search of Excellence” (1983), companies like Hewlett-Packard and Texas Instruments in the 80’s also formed small separate teams with a high level of autonomy, to launch new products with ‘speed and frugality’ ─ similar to venture design today.
How to use the ARK OF COMMERCE?
We believe the Ark of Commerce can be used as a playbook:
- By describing the current business model, operating model (resources, capabilities, functions, processes, and services) and revenue model.
- By describing any alternative business model, operating model (resources, capabilities, functions, processes, and services) and revenue model.
- Assess the gaps beween current and alternative growth scenarios (1 -/- 2).
- Decide which alternative growth scenario(s) to further explore as ventures.
- Assess the ventures based on short-term, mid-term, and long-term potential.
- Decide whether to spin-in or spin-out the ventures.
- Decide what to do with the current business model, operating model, and revenue model.
The best way to perform this exercise is by using a spreadsheet. Please contact your ROUNDMAP™ Certified Professional for further details.
Ark of Commerce VERSUS ROUNDMAP
Let’s see if we can bring the two, ROUNDMAP and the Ark, together.
Firstly, you now understand that the purpose of a business operation is to deliver value to a specific group of customers ─ the group of customers it sets out to target ─ and capture some of that value as profit.
Secondly, we’ve described on many occasions that the ROUNDMAP represents the frontline operation, which is the part of the operation that actually targets the customer.
As such, the Ark of Commerce™ is perpendicular to the ROUNDMAP™ (you may have noticed the blue and red line at the bow of the Ark) and therefore the two can be represented like this:
TESLA | GROWTH PAINS
Tesla’s mission is to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible. In 2013 Tesla stocks were believed to be overrated, implying Tesla would have to reach ‘321,000 vehicle sales a year by 2020, a 48% CAGR’ (growth rate). By introducing the Model 3, Musk was able to get the production numbers past the 321.000 vehicles mark, one year prior to what was perceived to be impossible in 2013. Allocating the required resources and acquiring the capabilties needed for large scale car production did prove to be a challenge while most of the processes and services today are still way below-market standards.
BONUS: Ways to Achieve GrowTH
Growth can be achieved in many ways, often combining several methods. In the example of Tesla, growth was achieved through segmentation: by developing a more expensive car for more-exclusive customers (at scope) and a cheaper model for customers in a lower price range (at scale).
These are 10 ways to achieve growth (there are more):
Exploiting market potential by increasing the scale of the operation ─ based on Economies of Scale.
Exploring various product lines simultaneously; using the same operating line ─ based on Economies of Scope.
Focusing on a select group of customers while exploring the opportunities to fulfull more of their needs ─ based on Economies of Sale™.
Improving (or shaping) the current operation to expand and extend growth through innovation and change-initiatives.
Transforming the current business model towards the next elemental business model ─ referred to as business model shifting.
Exploring various product lines simultaneously; using one or more operating lines.
Be one of the few suppliers that are capable to perform the job with excellence.
If you have a converting offer, international expansion could be a quick way to grow.
Achieve market share fast by accepting operational losses to gain first mover advantages or to determine the overall playing field: the Amazon-way.
Acquire other businesses to grow your own business more quickly.
Always be aware of the interrelationships between resources, capabilities, functions, processes, and services, especially if you plan to share elements between multiple units or divisions. These interrelationships may provide economic benefits, however, they could also lead to higher cost of coordination, compromise, or inflexibility (Porter).
There are many causes for not achieving the aspired growth, some of which we’ve addressed here ─ research demonstrates that a mere 20% of firms succeed in achieving their growth projections.
KODAK | FADING MEMORIES
Kodak was the first to explore the opportunities of digital photography. Millions of dollars were invested in developing the first digital camera while Ofoto was the first website that allowed customers to store and share their digital photos. Due to the enormous pricetag attached to a digital camera, Kodak did not expect digital photography to take off anytime soon and therefore kept its focus on celluloid films. A huge error of judgement. Merely 4 years after the introduction of the iPhone, the company had to file for bankrupcy. Kodak had not only failed to understand that the opportunities provided by digital, to share photos amongst peers on the fly, would displace traditional photo printing, but was also wrong to assume that their competitive advantages with regards to celluloid film would prevent them from being disrupted.