The 4 questions that will define your company

I was recently recommended an excellent book "The Risk-Driven Business Model" by Janson Yap, the Managing Director of Deloitte South East Asia and Innovation Practice Leader. The book was written by Insead Professors, Serguei Netessine and Karan Girotra who suggest that it suffices to ask 4 questions to redefine the business model of your company.

Working across a global industry landscape for the past 20 years, I have often seen companies look for technological answers, when newly innovated products have trouble getting traction. Too often is it dismissed that the problem may reside within the business model itself. As a result, products that might have succeeded are judged as failures, because they didn't have the right business model to support them, either before or after their launch. Unfortunately, business model innovation rarely emerges as a source of the potential solution.

Netessine and Girotra suggest that there are two levers for business model innovation based on the key risks in our business models today: 

1. information risk, and
2. incentive alignment risk 

They define information risk as a feature of the business model that requires you to make a decision without sufficient information. Often, the time between when you make a decision and when you have enough information to make the decision defines information risk. 

Incentive alignment risk arises when the incentives imposed by the business model or organisational structure lead to actions that clash with the broader interests of the value chain.

They propose that by changing what decisions are made, when they are made, who makes them and why they are made, anyone can come up with a better way to manage information flows and incentive risks... and it works.

In business we have 4 levers for survival:

1. Market Share
2. Revenue Growth
3. Costs
4. Efficiencies

In this post, I will take one example from each and see how it can apply.

1: Market Share

Looking at your current organisational go to market model, take the time to identify key decisions across your value chain. Now map out the risks and inefficiencies that these decisions create in order to identify those that are going to have the biggest impact. For example, think about the incentive alignment risk example - marketing vs. operations. Is your Marketing team incentivised for maximising sales (investing cost) while your operations team are incentivised for reducing cost? This is an incentive alignment risk example. This addresses the WHY.

Now look at how you can change the decision pattern associated with these decisions to create a new superior sales model that defies the risks that would otherwise have created inefficiencies. 

2: Revenues

Now look at your product roadmap. Today most product roadmap decisions are made internally through consultation with a company's sales teams, customer service teams and the R&D teams.

What if, instead of prioritising those decisions internally, you gave the opportunity to your existing customers, who can now look at the demanded new feature sets and vote on them.

You could then prioritise development based on the "expressed consumer intent" - or in this case the most number of votes - in order to capitalise on the expressed market appetite and new pre-qualified upsell revenue opportunities presented by the new features. This modifies the WHEN.

3: Costs

Now think of the time value of your money. If, for example, as a tech company, you struggle with slow collections and bad debt from customers, you might decide to move your company to a SaaS model and move your pricing to a prepaid model with annual or monthly upfront payment in advance. This is a change in the WHAT.

4: Efficiencies

Finally, think about how the company makes decisions on customer support. It makes sense to consider that the customer support team is likely to know best, the needs of your existing customers, rather than your sales teams. Therefore, delegating the decision to the best-informed party in the company or to the party, better able to tolerate associated risks, will help to reduce inefficiencies.

This addresses the WHO.

These are just 4 very simple examples that Netessine and Girotra provide in their book that show you how you can adapt your business model to not only survive, but also thrive. 

I encourage you to do these exercises for your own company and see the opportunities for results.

I also encourage you to read the book, where the Professors lay out the basic frameworks that can help you to accelerate your results. 

For my portfolio of companies and others that I advise, the use of this framework for business model innovation is certainly helping to make the case for ongoing value creation.

For more information go to https://www.defineyourcompany.com. You can also speak to Serguei Netessine or Janson Yap and his team at Deloitte SEA if you need some support on the business model innovation process.

Note that the summary of the book was delivered with the authorised permission of Serguei Neteessine.

A worthy read.

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For more on this topic, check out my other recent LinkedIn Influencer posts on the innovation or start up agenda.

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About Leesa Soulodre: 

Managing Partner and Director of RL Expert Group, an international reputation risk management think tank and consulting practice and Asia Associate of the Reputation Institute.  An Innovation Advisor to the European Commission and to the University of Illinois Urbana Champaign Advanced Digital Science Centre, Singapore. Board Advisor to Belgian PR Software firm, Prezly, Korean Fashion Analytics firm FashionMatch, and the US Sports Analytics firm, Autoscout.

As a serial en/intrepreneur, Leesa has worked for 20 years on the cutting edge of strategy, communications, technology, cyber security and risk consulting. She has advised more than 400+ multinationals and their start-ups in 19 sectors across Europe, Asia Pacific and the Americas. She has led companies with turnovers from $4M to $14B USD into new markets and has shared the exhilaration of one IPO, numerous exits and the hard knocks of lessons learned.

Connect: Leesa Soulodre, Managing Partner RL Expert Group