New IT Business Models and Value Creation stimulated new ideas for innovative business models, e.g. o Business-to-business e-marketplaces o DSL services o Web-based consumer markets
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o Universal connectivity through mobile platforms, social networking and location-awareness technology
These are stimulating new ideas for innovative business models, e.g.
o Service Oriented Architectures and Software As A Service
o Mobile platform based consumer markets for “apps” (high-volume, low-cost products on mobile platforms, often considered as potential competitors to open source)
o New “ecosystems”, e.g. e-publishing with content producers, distribution channels, end user platforms
How much value will be created by and for the participants in this modern day Cambrian Explosion?
In the late 1990s new IT infrastructures were emergingo Broadband technology
o Universal connectivity through the Internet and the World Wide Web
These stimulated new ideas for innovative business models, e.g.o Business-to-business e-
marketplaces
o DSL services
o Web-based consumer markets for everything from groceries to fashion
When I took office, only high energy physicists had ever heard of what is called the Worldwide Web.... Now even my cat has its own page. - Bill Clinton
Management often lacks the financial discipline and processes for evaluating technology investmentso “64% of the CIOs interviewed did not have to defend their IT
spending against budget and did not undertake any follow-up to determine whether IT projects failed or succeeded” *
o No idea of whether they are making efficient use of capital and producing Economic Profit rather than merely accounting profit – recall the enormous “burn rates” of the IT pre-Cambrian era
A CEO’s opinion:o “If business goals are clear, a way to determine the value
technology creates should exist. The inability to determine at the outset the impact an investment has on the business is an early warning sign of failure.”
o “Imagine trying to make your investment decision if you can’t calculate its Net Present Value”
* Source: “How IT spending is changing”, McKinsey Quarterly
Information technology is easily replicatedo It is easily accessible and evolving at a rapid
rate
o Any advantage gained quickly erodes as competitors catch up
As much as 85% of technology investments goes into infrastructure (think Clouds, mobile platforms, …), which is an easily replicable commodity, with only 15% funding front-end innovation
Even front-end innovation is often easily and quickly replicatedo How long did it take to replicate the first Intel
chip technology?
Even front-end innovative software products and services are often easily replicated (SaaS, “apps”, iPads, …)
o Creating entirely new markets by inventing something (iPad?)
There are many ways to enhance profitabilityo Increase efficiency of current activities
o Increase prices
o Outsourcing to lower cost suppliers
o Exit unprofitable products
But can both be achieved at the same time?
o What determines the ability to achieve both growth and profitability is not doing these things simultaneously, but rather their effect on the common bond that unites them
The first strategy for increasing customer focus is to improve what you offer customers to distinguish it from competing offerso But it is easy to add features without adding
benefits
o Study: 80% of companies thought they were delivering a superior customer experience – only 8% of their customers agreed
o New technologies can bring new benefits, but it is not always a new function that brings the most benefit from a new technology – Nokia, then Apple delivered customer benefit through fashion
Expanding product lines with variants can be a way to reflect differences across customerso But unless it materially adds to customer benefit, it
will likely lead to a proliferation of low-volume lines
The 90% Club proliferated products without real competitive advantage
If growth is all that matters, then you must introduce more products – at least, it seems that wayo But introducing profitable products is extremely difficult,
requiring genuine competitive advantage
o Adding unprofitable products is relatively easy!
In 1996 Amazon carried nothing but bookso By the end of 1999, Amazon had expanded into 25 online
businesses, from DVDs to household tools
o Only after investors pressured for earnings did they slow down
Without real competitive advantage in terms of customer benefit, product proliferation will not support profitable growth
Entering new markets because they look good to you – rather than because you look good to themo Companies who search for revenue
based on the size and growth of new customer markets usually find that a weak position in a fast-growing market is less rewarding than a strong position in a slower-growing one
o See Microsoft’s move into the web portals market, growing at more than 30 percent per year – MSN, a weak entry, actually lost share year over year
New mobile platforms are creating new publishing ecosystems (markets) – who are the “Me, too!” entries?
The 90% Club constantly added new customers at the expense of profitably expanding relationships with existing customers
o Too many companies find it easier to add new customers than to expand relationships with existing, profitable customers
Telecom equipment makers in the late 1990s provided an exampleo In the late 1990s, the market for telecom was growing at
more than 20% per year.
o Many traditional equipment makers did anything possible to attract new ISP customers (free accounts, etc.)
o When the crash came, not only did they have many new, unprofitable customers, but: the old, profitable customers were complaining of bad service and went away
If customer focus naturally leads to improving features and adding product lines, it also leads to thinking about “value for money”o But this connection may lead to using a discount
in price (typical on the Net, mobile platforms) rather than a premium in customer benefit to push up market share
o The discounting itself isn’t the trap – it is discounting when the benefit of your offering isn’t any higher than any others!
o The gains from such approaches are usually transitory at best
Confusing Time to Market with customer benefito Time to market is one of the biggest red herrings in
IT
o First of all, there are countless counterexamples. Microsoft was a successful second mover for decades. Then after ten years of promoting tablet PCs … Apple took over in weeks
o Second, arriving to market fast with no superior customer benefit will bring only short-lived advantages
Time to market can be useful, but not for the reasons usually giveno It’s not because you “get a jump” or “earn more
revenues”
o It’s because you get a chance to find out what the customer really wants