Do you know what business you are in? The answer may surprise you!

Starting with the most basic question

It may surprise you that sometimes the most basic questions could have the biggest impact on the complex business transformation you are about to undertake. One of those basic questions is the surprisingly innocuous question: What business are you really in? Most of us don’t ask this question because we take it for granted that we know what business we are in.

A new lens to view any business

I created the performance impact vs adoption matrix shown in Figure 1 to provide a new lens into the nature of the business we are in. Allow me to first orientate you to this new lens by explaining the axis of the matrix. On the vertical axis, you have Singular performance impact. This means you have an outsized, usually 5x advantage in 1 to 2 areas. This could be speed or cost or quality over price. A good example of an outsized advantage is the bicycle.

When the bicycle was first invented, it didn’t have brakes. The brakes came later on. This was possible as the advantage of cycling versus walking was a 5x difference in performance, and thus focusing on the wheels, paddles and steering to produce this 5x performance improvement comes first, as it would be sufficient to cause many new customers to adopt it, versus walking. This is what we now call a minimum viable product or MVP.

If there is a similar outsized advantage possible in your business, then you have the possibility of a large singular performance improvement. Otherwise, you only have small performance improvements.

On the horizontal axis is the ease of adoption and use by customers. Here, learning curves, migration requirements, etc., become important because the bigger the learning curve and migration effort, the larger the barriers to entry and switching costs, for new and existing customers respectively.

First off, you don’t want to be in the blue square in the lower left quadrant. There isn’t sufficient value generated here to compete. Here, you don’t have 1 to 2 things that can give you a 5x advantage, but you also have easy defection. In other words, your product or service is mostly undifferentiated.

On the upper left quadrant, you have the industries that have a large singular breakthrough. The bicycle would have occupied this quadrant.

On the upper right quadrant, you have companies or industries that also have a similar breakthrough as those in the upper left quadrant, but they also need to worry about ease of adoption and use, because of significant complexity in use and adoption. Electric cars need charging stations and take longer to charge versus cars with internal combustion engines. It’s not as convenient as pumping petrol. This is what I call the transformational quadrant.

Finally, we have the businesses in the lower right quadrant. Here, there isn’t any singular performance impact you can find that is 5x large and adoption is more difficult, e.g., starting a new relationship, learning, adopting, and adjusting to a new interface, or redoing existing payments. This is the experience quadrant.

Some examples to illustrate

Let’s illustrate how the performance impact vs adoption matrix works with some example companies. First example is bike sharing in the Insufficient Value Quadrant.

Background:?Mobike and Ofo are two China bike-sharing companies that set up operations in Singapore in 2017. Mobike had 25K and Ofo 90K bikes at its peak. Ofo raised US$866M in March 2018 from backers, including Chinese e-commerce behemoth Alibaba Group. Both ceased operations in 2019.

Opportunities & Challenges:?Bikes were indiscriminately abandoned. Bikes were not properly maintained. The business is country-bound, asset-heavy and hard to recoup based on the mismatch between price the customer is willing to pay and the capital costs. Expanding globally too quickly before being profitable in their home countries caused additional challenges.

Singular Performance Improvement:?Singapore’s transport system is highly developed, with an interconnected network of buses, mass rapid transit, ride-hailing, and taxis. The bike-sharing are not appealing to commuters going to work, but customers at leisure. Customers who bike to work in Singapore tend to be serious biking enthusiasts with their own bikes. These factors meant that no large singular performance improvement exists in bike sharing in Singapore.

Ease of Adoption & Use:?There is virtually no cost of switching and using another bike sharing company’s service, except downloading another app, which wasn’t a problem, as all providers made this simple, so as to get more customers.Thus, it was also hard to build any form of long-term loyalty.

Taken together, these factors meant that bike-sharing in Singapore offered insufficient value. Had the new entrants performed this analysis, they may have decided not to enter the Singapore market.

Next, an example in the breakthrough quadrant illustrated by the introduction of the iPod Nano. This example also illustrates that not all breakthroughs need to be totally new. A breakthrough can be just a simple change in one component, as this example illustrates.

Background:?Apple introduced the first-generation iPod (M8541) on October 23, 2001, with the slogan “1,000 songs in your pocket”. They went on sale on November 10, 2001. The first iPod had a monochrome LCD (liquid-crystal display) screen and featured a 5GB hard drive capable of storing 1,000 songs encoded using MP3 and was priced at US$399. Among the iPod’s innovations were its small size, achieved using a 1.8" hard drive, whereas other HDD-based competitors were using 2.5" hard drives at the time, and its easy-to-use navigation, which was controlled using a mechanical scroll wheel (unlike later iPods, which had touch-sensitive scroll wheels), a centre select button, and four auxiliary buttons around the wheel. The iPod had a rated battery life of ten hours.

Opportunities & Challenges:?In 2001, most people listened to music on CDs, and CDs made up 80% of music sales. The Apple iPod not only allowed you to download a CD’s worth of songs on your iPod in 10 seconds, but in April 2003 Apple launched iTunes which allowed you to buy individual songs for $0.99 each. This was followed by iTunes for Windows, which made the promise of “1000 songs in your pocket” available to anyone with an iPod.

The iPod classic had one weakness; in that you couldn’t use it well when jogging or exercising as it would skip since it used a hard disk for storage.

Singular Performance Improvement:?In Sep 2005, Apple released the iPod Nano, which featured two models, one with 2GB and another with 4GB Flash memory. Apple sold 1 million iPod Nanos in just 17 day, helping Apple achieve a billion dollar record profit in 2005. From then on, the iPod utilised memory chips for storage from Samsung, Toshiba and others. Later iPod Nano models would feature 16GB capacity. The iPod with the largest storage capacity was the iPod Touch which features a 256GB storage and is the only iPod available for sale today. Later versions of the iPod Nano extended battery life to 24 hours.

Ease of Adoption & Use:?There is no end-user adjustment between the iPod Classic and Mini which featured a hard drive to the iPod Nano flash memory. Despite issues with battery sparking, battery expansion through prolonged use that could break the display, and scratches developing on the LCD screen after use, the iPod Nano went on to become a huge success for Apple.

The next quadrant is the transformational quadrant, where there are 1 to 2 large singular performance improvement impact available but also severe adoption and migration issues. A good example is the electric vehicle (EV) and our example is none other than Tesla.

Background:?While EVs have significantly less parts (20 versus 2000) than automobiles powered by fossil fuels (ICE), building a new vehicle from scratch, with new software, evolving battery technology and high volume, high quality production is nevertheless a significant challenge.

Opportunities & Challenges:?Tesla has struggled with quality issues as it has scaled its production from tens of thousands cars a year to 500,000 in 2020. On social media, customers have documented numerous problems with new Teslas, including large gaps between body panels, poor paint jobs and chipped glass. For its new Model Y, Tesla plans to replace 70 components glued and riveted into the car’s rear underbody with a single module made using the world’s biggest aluminium casting machine in its new factory in Brandenburg, near Berlin.

Singular Performance Improvement:?At a US average cost of US$3.158 per gallon of petrol, US$100 will get you 950 miles on an ICE and 3226 miles on an EV, assuming electricity costs an average of $0.137 cents per KWh. This is 3.4x better. With the current Ukraine war, and its impact on oil prices, this is now closer to a 5x performance difference (not taking into account that there will also be an increase in fossil-fuel generated electrical power). Maintenance is also lower, as there are fewer parts, and the battery can last between 21–35 years based on average miles driven.

Ease of Adoption & Use:?EVs require charging stations. Pumping petrol takes a few minutes as there is excellent infrastructure built up over the years. Whilst Tesla Superchargers can recharge a vehicle’s battery up to 80% in just about 40 minutes, there are approx. 150,000 fuelling stations in the US compared to just 16,585 Tesla Superchargers. On a normal charger, it can take between 4–8 days to charge the Tesla Model 3 to 100% capacity.

Companies in the transformational quadrant need to design the ecosystem required to support their innovation or transformation, as well as focus on the breakthrough nature of their business. Doing one without the other won’t work.

Our final example is in the experience quadrant. In fact, most incumbent businesses are in this quadrant. But they hear so much about the handful of breakthrough and transformational companies that they often forget that they are in the experience quadrant. This quadrant is characterised by the absence of any 1 or 2 things that you can do that will create a large performance impact. Many hyper-competitive and commoditized industries are in this quadrant. Our example is the digital bank, in this case the millennial digital bank, TMRW by UOB.

Background:?TMRW is the first mobile-only bank designed for young professionals (YP) and YP families in ASEAN. TMRW was launched in March 2019, in Thailand, a challenger bank with a DNA focused on being simple, engaging and transparent. In August 2020, TMRW Indonesia officially launched.

Opportunities & Challenges:?What’s unique about TMRW is its departure from the traditional business model of consumer banking. Its focus is on engagement and experience instead of just on products, on quality instead of quantity in terms of customers and transactional activity, and on driving the cost of acquisition down sharply by improving the Net Promoter Score (NPS?).

Singular Performance Improvement:?No single feature (other than giving unsustainable benefits) will make a customer defect from his current bank as the standards of the major local and foreign banks in ASEAN are high. Instead, combining multiple points of friction and irritation, e.g., poorly designed user-interface, complex and slow onboarding, inability to grant credit, poor service, etc., is necessary to attract.

Ease of Adoption & Use:?There is a medium to high switching cost to becoming the primary or secondary transactional bank. Regular automated transfers and salary crediting will have to be re-initiated. Customers will have to re-learn a new user-interface. This high switch cost poses both an opportunity; in that there is usually sufficient value in making the end-to-end journey better, simpler and faster but also a challenge in that most people don’t want to switch unless the experience is sufficiently better, which they won’t know, till they switch to experience it.

Figure 3 illustrates some well-known companies and which quadrant they occupy.

In the breakthrough quadrant, there are the usual world-famous examples. With Netflix, it’s videos on tap without penalties. With the LED light bulb, an 8W LED outputs as much in light as a 60W light bulb. A 7x savings in your power bill annually, for 5x the price, but lasting 3x longer. For companies in this quadrant, its usually easy to describe your competitive advantage in a short sentence. So, one tell-tale sign that you aren’t in the breakthrough quadrant is the inability to state your breakthrough proposition in a single, simple sentence.

The transformational quadrant also contains many world-famous companies. But some like Ikea are not as evident. Flat-pack furniture has a big breakthrough in cost but requires extreme talents in both design and process, to produce the same product globally, and not cross the line that results in consumers getting confused with complex assembly. Ikea provides assembly services for just this reason.

Most financial services are in the experience business and thus in the experience quadrant. The Apple iMac it may surprise you, occupies the experience quadrant. Apple is a design and experience company obsessed with detail. Every experience company must be obsessed with detail. If most incumbent companies are in the experience quadrant, then what does it take to succeed? An obsession with the fine details needed to string together many small imperfections into a great overall experience. This requires a company to pay attention to the small details that matter but also to invest in continuous process improvements. Some personal computing companies who don’t have sufficient attention to detail and process prowess may find themselves crossing over to the insufficient value quadrant, where price and scale may be their only competitive advantage.

To find out more about Performance Impact vs Adoption, click here to take a look at the allDigitalFuture Playbook (taP), which is described in Driving Digital Transformation. If you are about to undertake an enterprise-wide transformation or innovation, get the playbook from amazon.sg or allDigitalFuture.com/store, which offers your step-by-step guide with more than 60 action learning exercises.

To receive training on taP, one of the first holistic approaches to enterprise-wide digital transformation and innovation, go to this link at the National University of Singapore (NUS).