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Chessboard2Strategy and execution are the 2 critical elements that drive a business.  However, leaders often struggle even with defining—let alone devising and executing—an effective strategy.  Many of those who are responsible to deal with it fall short of describing how they typically employ it.  This failure takes its roots from the fact that there is no clear path associated with strategy.

Strategy is about making sound decisions about unforeseen problems.  It’s about selecting the right options—about matters that are often quite ambiguous today but have great significance in the future—based on thorough contemplation, detailed analysis, and creative ideas.  Broadly speaking, strategy encompasses these 3 main elements:

  • A vision and direction
  • A certain position or pattern
  • A deliberated Strategic Plan to achieve strategic goals and vision

Great strategists execute their plans, analyze the results, evaluate their actions, and perform course correction based on the outcomes.  They are not afraid of even revamping their approach entirely.  Senior leaders should clarify their understanding of the concept of strategy and draw attention to the importance of differentiating between the 3 distinct types of strategies before formulating their own course of action:

  1. General Strategy
  2. Corporate Strategy
  3. Competitive Strategy

Let’s delve deeper into the 3 types of strategy.

General Strategy

General Strategy indicates how a specific objective will be achieved, with well-thought-out plans.  The focus of this type of Strategy is on ends (objectives and results) and means (the resources we have to achieve the objectives).  Strategy and tactics combined bridge the gap between ends and means; where Strategy deals with deploying the resources at our disposal while tactics govern their utilization.  A pattern of decisions and actions marks progress from the starting point to achievement of objectives in General Strategy.

Senior executives need to deliberate on the following questions before devising their General Strategy:

  • What do we do?
  • Why are we here?
  • What kind of business are we?
  • What kind of business do we want to become?
  • What is our purpose? What are the results we seek?
  • What is our existing Strategy, is it explicit or tacit?
  • What Strategy and plans may bring about the results we want?
  • What resources we have at our disposal?
  • Are there any constraints in terms of resources that limit our actions?

Corporate Strategy

Corporate Strategy describes what a company does, the purpose of its existence, and what it aims to become.  Corporate Strategy focuses on choices and commitments concerning the markets, business, and the organization.  Corporate Strategy classifies the markets and the businesses in which a company will operate.  This type of strategy is typically decided in the context of defining the company’s mission and vision.

A detailed assessment of the existing strategy, market, competition and environment is critical for devising the Corporate Strategy.  Strategists indicate that there are critical elements that should be factored in while formulating Corporate Strategy.  These elements include product or service offerings, resources, marketing and sales approaches, manufacturing capabilities / capacity, customers, distribution channels, technology, type of market and its requirements, and revenue and profit goals.

While formulating Corporate Strategy, senior executives should consider and seek answers to the following questions:

  • What is our existing Corporate Strategy?
  • Is our Corporate Strategy explicit or tacit?
  • What are the critical assumptions that make our existing strategy viable?
  • What is going on in the market—in terms of social, political, technical and financial environment?
  • What do we seek to accomplish in terms of our growth, size, and profitability targets?
  • What markets we are eyeing to compete in?
  • What businesses we intend to operate in?
  • What locations and geographies will we compete in?

Competitive Strategy

Competitive or Business Strategy specifies for an enterprise the core reason on which it contests its rivals.  It depends on an organization’s competences, advantages, and disadvantages compared to the market and the rivals.

Interested in learning more about the General, Corporate, and Competitive Strategies? You can download an editable PowerPoint on The 3 Distinctions of Strategy here on the Flevy documents marketplace.

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Manufacturing1Manufacturing today entails immediate yet informed decision making.  However, with increasing levels of sophistication and production, senior leadership often has limited time to make optimum decisions pertaining to the number of unanticipated issues surfacing from time to time.  These issues—if not managed properly and timely—can lead to defects and wastes.

Top global enterprises are utilizing innovation and creative ways to enable prompt decision making.  Specifically, they are using Internet of Things (IoT) to effectively handle critical aspects of manufacturing.  Successful implementation of a Manufacturing IoT system facilitates in automating key tasks, decisions and processes; curtailing scrap and rework; and enhancing productivity.

People often object to implementing an IoT system by citing other important projects that they are already undertaking and the resource and time constraints as pressing hurdles.  To work around these limitations, manufacturers can engage 3rd party consultants having proven expertise in end-to-end successful IoT, Asset Tracking, and manufacturing systems deployment.

Implementing a Manufacturing IoT System leverages immense benefits, including:

  • Enhancing the ROI of other programs under way.
  • Streamlined and Process Improvement and Robotic Process Automation help prompt informed decisions.
  • Managing materials efficiently.
  • Adjusting to customer requirements.
  • Avoiding costly mistakes and rework.

However, harnessing IoT necessitates careful deliberation and planning.  The core requirements to effectively implement a Manufacturing IoT system can be segregated into 2 broad categories:

  1. Functional Requirements
  2. System Requirements

Functional Requirements

Functional Requirements (FR) describe the system or its components.  FR provide a description of services that the Manufacturing IoT system must offer.  FR for Manufacturing IoT may include:

  • Control Assets and Administer Asset Properties
  • Track Assets Movement
  • Setup Locations
  • Maintain Equipment Duty Cycles for Maintenance
  • Record Raw Material Shelf Life
  • Maintain Asset Family and Digital Thread
  • Extend Material Shelf Life
  • Enable Cutting and Kitting
  • Asset Search and Filter
  • Maintain Assets Events
  • Record History of Events
  • Generate New Assets
  • Record Cured Kits
  • Document Assets
  • Allow Synchronization with Current Systems
  • Generate Real-time Production Maps
  • Enable Integration with Cut Planning Optimization Systems
  • Allow Production of Passive RFID Tags Internally
  • Create Customized Alerts

System Requirements

All systems require availability of certain software resources, functionalities, or other hardware components.  These prerequisites have to be met in the design of a system.  Typical System Requirements for manufacturing IoT may include:

  • User Authorization
  • Quick installation
  • Usability
  • Integration to Next-generation IoT Platforms
  • Radio-frequency Identification (RFID) Ability

Let’s delve deeper into some of the Functional Requirements for now.

Control Assets and Administer Asset Properties

The system should be able to manage multiple assets and add new assets.  It should be capable of:

  • Creating asset properties, e.g., name, ID and shipment date.
  • Editing property labels and show / hide asset properties.
  • Automatically adding materials’ expiry date, “remaining exposure time,” “tool autoclave cycles left,” and “tool usage time left.”

Trace Assets Movement

The IoT system should be able to:

  • Follow assets location from one site to another during the manufacturing process.
  • Allow integration of MAT with RFID and other floor sensors to gather real-time assets’ location and condition data.
  • Enable asset location reporting manually, through barcode, or hybrid (barcode and RFID).

Setup Locations

The system should maintain:

  • Asset data from multiple sites (locations).
  • Assets movement to and fro various sites, reported using RFID or other sensors.

Maintain Equipment Duty Cycles for Maintenance

The IoT manufacturing system should record all maintenance needs and maintenance activity performed on an asset.  Specifically it should:

  • Keep data on all tools available at various sites with their duty cycles for preventive maintenance.
  • Maintain record and generate reports on maintenance activity preformed on a specific tool.

Record Raw Material Shelf Life

The IoT manufacturing system should:

  • Automatically calculate raw material and work in process exposure time and date of expiration.
  • Maintain assets’ shelf life and generate automated screen notifications, alerts, emails, or SMS.

Interested in learning more about the details of other Functional and System Requirements of a Manufacturing IoT system? You can download an editable PowerPoint on Manufacturing: Internet of Things Implementation here on the Flevy documents marketplace.

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Value Trap1Changing industry ecosystems and competition today demand from the organizations to undergo strategic shifts.  The purpose of a company is undergoing Business Transformation from serving the interest of shareholders to serving all stakeholders that influence the organization.

Shareholders are often considered the only stakeholders that invest in a business.  Senior management needs to be cognizant of the importance of shareholders as well other stakeholders who create value for the organization.  They should work on building a collaborative Organizational Culture and paying heed to the welfare of all those groups that play a role in organizational growth.

This warrants a thorough evaluation of all stakeholders, their long-term interests, and Value Creation—or Value Destruction—potential for the organization.  But first, this calls for finding answers to the following key questions:

  • Who creates the most value for the organization?
  • Who among the stakeholders typically secure the best deals from the organization?
  • Who is the victim of having the worst deals from the organization?
  • Who among the stakeholders is potentially untrustworthy?
  • Are there any intermediaries or stakeholders fulfilling their personal agendas?

Answering these questions is critical for the executives, otherwise they may risk falling into Shareholder Value Traps.  Recognizing and understanding stakeholder value traps while the managing stakeholders‘ various interests helps executives achieve shared and individual long-term goals.  These 5 common traps prevent stakeholders’ interests to get integrated with the interests of the organization and destroy the value of a company if overlooked:

  1. Ignoring cash-flow driving stakeholders while distributing cash
  2. Miscalculating reaction from stakeholders
  3. Supporting under-performing units
  4. Conceding to willful vulture capitalists
  5. Misjudging intermediaries role in transactions

Let’s discuss 3 of these stakeholder traps individually.

TRAP 1 – Ignoring cash-flow driving stakeholders while distributing cash

Shareholders are often treated as the critical drivers of long-term cash flows.  However, they are often short-term cash flow generators, whereas other stakeholders who provide their input for the organization in the form of their competencies and experience deliver long-term value.  These real contributors should be given top priority when distributing cash on earnings.  Underestimating or failure to identify the real long-term cash-flow generators can be a fatal value trap for an organization.

TRAP 2 – Miscalculating reaction from stakeholders

Another trap that most executives fall victim to is discounting potential backlash from weak stakeholders upon unfair distribution of cash / incentives.  Mining value from these victims to support shareholder disbursements can be equally detrimental, as annoyed stakeholders—with the help of social media and NGOs—, legal battles, and financial penalties can devastate a firm’s reputation and financial health.

TRAP 3 – Supporting under-performing units

Senior executives and boards at some organizations foster free riders—stakeholders that sap more benefits from the enterprise than the business they generate—at the expense of long-term value shareholders.  Free riders include an under-performing department close to the board, or a dwindling business unit that is part of a profitable section and whose financials are not categorized separately.

Continued support to these free riders is often at the cost of allocating resources to other potentially more profitable ventures, and this practice has led many companies to losses and even bankruptcies.

Interested in learning more about the Stakeholder Value Traps, types of organizational stakeholders, and strategies to stay clear of the Stakeholder Value Traps?  You can download an editable PowerPoint on Shareholder Value Traps here on the Flevy documents marketplace.

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Stock Image 2 - Digital Facilitation PrimerIn the wake of global pandemics when meeting face to face is not possible, it’s about facilitating workshops digitally, designing a formal agenda, and utilizing digital tools to ensure a productive virtual meeting.  Digital Collaboration Platforms have been pivotal in the current scenario.

As a matter of fact, Digital Collaboration platforms have become a new norm and have forever transformed business work environment.  Digital Facilitation tools are extensively used by facilitators, Change Management consultants, Organizational Development practitioners, and learning professionals as a way to collaborate on workshops, events, change initiatives, and learning programs.

Digital Workshop Facilitation can be categorized into the following 3 major types:

  1. Virtual Facilitation

In this type of Digital Facilitation, a group collaborates remotely in real time but from different locations.  Common tools used are Zoom, GoToMeeting etc.

  1. Asynchronous Facilitation

In this facilitation method, a facilitator leads participants remotely at a different time and place. Common tools include Email, Slack etc.

  1. Face-to-Face Facilitation

In Face-to-Face facilitation, a facilitator interacts with a group of people in the same workshop space, in person.  Digital tools can be used in such a setup instead of flip charts and sticky notes.

The new scenario brings forth new challenges in workshop facilitation that necessitate robust principles, methods, and tools for the future work environment to run smoothly.  Understanding and adhering to the following best practices and principles in Digital Workshop Facilitation helps in attaining effective results just like face-to-face workshops:

  1. Specify well-defined guidelines and expectations.
  2. Form an assured environment to enable discourse.
  3. Ensure effective interaction before, during, and after a workshop.
  4. Ensure all voices are heard.
  5. Document the conversations.
  6. Alter the moderation approach based on the participants’ level of understanding.
  7. Seek comments and iterate.

Let us delve a little deeper into some of the principles:

1. Specify well-defined guidelines and expectations.

The remote nature of digital workshops limits the element of reacting to audience’s lack of attention.  This warrants clear instructions regarding ground rules, both in writing and orally to compensate for this disadvantage.  Participants need to use precise language in asking questions and answering them.

Instructions on technology and tools usage should be reiterated from time to time.

2. Form an assured environment to enable discourse.

Trusting participants in a virtual setting is difficult if you do not know them.  It is the digital facilitator’s job to create conversation security in different ways.  Spending time on icebreakers or other pre-engagement activities may ease the discomfort.  Providing quick and positive feedback to those who actively contribute encourages shy participants and creates a positive environment.  Informing the participants on how meetings are being documented and information on who has access to this documentation can reassure participants.

3. Ensure effective interaction before, during, and after a workshop.

Digital Facilitation platform can be used ahead of a meeting to help participants familiarize with each other, disseminate the agenda, initiate discussions, or obtain helpful information from the participants, such as questions, skill levels, ideas, etc.  Digital Collaboration Platform should be the center of post-workshop activities, e.g., sharing documents, closing agendas, answering additional queries, and extended discussions.

4. Ensure all voices are heard.

Digital Workshop tools can facilitate participation of people who in a traditional workshop setup will not be able to participate due to dominance by a few individuals.

Interested in learning more about the Digital Workshop Facilitation principles, methods, and tools? You can download an editable PowerPoint on Virtual Work Digital Facilitation (Primer) here on the Flevy documents marketplace.

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LO Stock image 2Large manufacturers are often reluctant to share knowledge with suppliers.  However, supplier networks are considered a great source of gaining competitive edge by Learning Organizations.

A Learning Organization is founded on innovation, free flow of ideas, and a consistent focus on transforming the ways of doing business in order to achieve the desired results.  For instance, Toyota out-performed its competitors in the 2000s era by incorporating the principles of Learning Organization in its culture and sharing technology and knowledge with its suppliers.  This resulted in less defects, lower inventory levels, and improved labor productivity for its suppliers and higher profits for Toyota.

Specifically, Toyota became a Learning Organization by developing the infrastructure and inter-organizational processes that enabled quick and free flow of explicit and tacit knowledge to its supplier network.  The Learning Organization at Toyota features 3 inter-organizational processes, which became foundational to its approach to Supply Chain Management:

  • Supplier Associations
  • Consulting Groups
  • Learning Teams

Let’s dive deeper into these processes.

Supplier Associations

Supplier Associations were setup by Toyota, initially, to share information, valuable experience, and to extract feedback.  The knowledge-sharing mechanisms that Toyota’s Supplier Associations employ include high-level sharing of explicit knowledge within the supply network regarding production plans, policies, and market trends.  The Supplier Associations hold bimonthly/monthly meetings to discuss key topics that include cost, quality, safety, best practices, and social activities.

These Supplier Associations enable suppliers to build relationships in Toyota at higher levels which was not a common practice in the industry.  This resulted in tremendous improvements in supplier performance due to explicit information and experience-sharing, which ultimately benefited Toyota to achieve excellence.

Consulting Groups

By establishing Consulting Groups in the 1960s, Toyota started the practice of providing free consultation regarding valuable production knowledge to its suppliers through experts.  This was accomplished through the creation of Operations Management Consulting Department (OMCD) in Japan in the 1960s and Toyota Supplier Support Center (TSSC) in the U.S. in 1992.

By developing the Consulting Groups infrastructure, Toyota’ consultants spent significant time at their supplier sites free of charge, helping them resolve problems in the Toyota Production System (TPS) implementation.  Suppliers, in turn, were encouraged to share their project results and open their operations to one another.  This explicit sharing of results and knowledge enabled other suppliers to replicate best practices and benefited Toyota by negotiating Target Pricing with its suppliers.

Learning Teams

Learning Teams—the 3rd pillar of a Learning Organization—were pioneered by Toyota in 1977 by organizing its suppliers into Voluntary Study Groups in Japan or Plant Development Activity (PDA) groups in the U.S.  The Learning Team collaborated voluntarily on production and quality management.

 The Learning Teams were—and still are—responsible for determining a theme and spending time addressing each member’s problems related to that theme, making the members learn significantly by having outside pair of eyes look at their problems.  This helped Toyota’s suppliers’ network achieve effective tacit knowledge transfer, explore new ideas and applications of Toyota Production System (TPS), transfer valuable lessons learnt to all stakeholders, and enhance production quality.

Toyota follows a deliberate step-wise path to create Knowledge-Sharing Networks.  These Knowledge-Sharing Networks are an invaluable resource for enhancing both overt and implicit information and experiences for the organization.

Key dynamics of Toyota’s Knowledge-Sharing Networks involve creating a non-threatening one-on-one relationship with suppliers through the Suppliers Association in the form of financial as well as valuable knowledge-sharing assistance.

Interested in learning more about the dynamics of Toyota’s Knowledge-Sharing Networks, the fundamental barriers to learning, and their implications on the suppliers and the manufacturer?  You can download an editable PowerPoint on Learning Organization:  Supplier Networks here on the Flevy documents marketplace.

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Crisis 2Financial crisis, adverse supply shock, technological disruption, or natural hazards and disasters significantly affect global businesses.  Recessions caused by these global incidents and problems have serious outcomes on commodity prices, stock markets, economies, and even countries.

A Downturn can be described as a contracted business cycle with a significant decline in economic activity across markets with subsequent drop in spending, GDP, real income, employment, and manufacturing.  Downturns cause inflation, decline in sales revenues and profits, and cutbacks on R&D and other crucial expenditures.  The scenario challenges businesses because of tightening credit conditions, slower demand, layoffs, and general insecurity.

The organizational readiness to manage and curtail the adverse effects of downturns is the top agenda for the senior executives.  However, the uncertain nature of an economic crisis often triggers rash responses or even inaction.

Any haphazard responses or inaction can make recovery of an organization from a downturn costly later on.  Downturn management necessitate a calculated approach to confront the uncertainties, anxiety among the employees, and to unlock opportunities out of such crisis.  An effective approach to deal with the downturn crisis encompasses 2 key phases:

  1. Stabilize
  • Determine Exposure
  • Minimize Exposure
  1. Capitalize
  • Invest for the Future
  • Pursue M&A Opportunities
  • Redesign Business Models

Let’s dive deeper into the 2 phases.

Stabilize

This phase entails a series of actions to safeguard the organization from downturns and maintain the liquidity required to sustain the period of uncertainty.  Leading organizations take downturns as an opportunity to deploy planned yet urgent, high-priority interventions to maintain standard functioning of the enterprise.  They carry out careful analysis to appraise and curtail the risks of exposure.  Key steps required to stabilize the organization during a downturn include:

  1. Determine Exposure
  2. Minimize Exposure

Determine Exposure

This step demands a methodical assessment of risks associated with exposure.  This necessitates evaluating various scenarios and their impact on the organization as well as on the industry.  The step helps in ascertaining the units that are more susceptible to downturn risks and warrants prompt action.   The analysis of various scenario assists in highlighting and communicating the rationale—for interventions required to manage the downturn—to the people across the organization.

Specifically, the step involves initiating 3 fundamental actions:

  • Conduct Scenario Analysis
  • Quantify Impact
  • Analyze Competition

Minimize Exposure

Once the executives have determined the impact of downturn exposure on their business, it’s time to work on reducing the exposure from crisis risks.  An understanding of the effects of a downturn exposure on the business helps the senior executives discern the most appropriate method to subsist and make the most of their organizational performance during the downturn.

In order to subsist and minimize downturn exposure risks senior leadership needs to maintain enough liquidity and access to capital to make sound investments in future, keeping a check on cash flows by generating weekly / monthly cash reports, cutting down or delaying discretionary spending, carrying out interventions to improve fundamental business, improve business processes, and maintain the organization’s market value and positive outlook for the investors.

Specifically, the executives have to work on achieving these 3 objectives:

  1. Protect Financials
  2. Protect Existing Business
  3. Maximize Valuation.

Capitalize

The Capitalize phase focuses on growing the business and making the most of the economic situation.  Leading organizations prudently manage downturns with greater diligence and immediate, well-thought-out response.  Downturns do not preclude executives from investing in critical interventions.  Most investments take time to fruition and postponing crucial investments may put an organization on the back foot when economic conditions normalize.

To capitalize on these hard times, senior executives need to carefully think about and prioritize the various investment options and endeavors critical for improving productivity and revenue, consolidate the business through mergers or acquisitions, hold back spending on projects with unclear results, shelve the endeavors that do not have a key role in future success, and invest in developing their people.

Specifically, they should chart out 3 key actions to take advantage of the crises and emerge rejuvenated after these tough times:

  1. Invest for the Future
  2. Pursue M&A Opportunities
  3. Redesign Business Models

Interested in learning more about the phases and key actions required to manage Downturns?  You can download an editable PowerPoint on Downturn Management and Transformation here on the Flevy documents marketplace.

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CostingCost-based Pricing is fast becoming a relic of the past and being substituted by the concept of Target Costing.  Target Costing is referred to as an organized process to determine the cost at which a proposed product must be developed so as to generate profits at the product’s anticipated selling price in future.

In highly competitive markets such as FMCG, construction, healthcare, and energy, prices are determined by market forces.  Producers cannot effectively control selling prices.  The only control, to some extent, is over costs, so management’s focus has to be on influencing every component of product, service, or operational costs.

Target Costing is a proactive Cost Planning, Cost Management, and Cost Reduction practice.  Costs are planned and managed out of a product and business early in product life-cycle, rather than during the later stages.  The fundamental objective of Target Costing is to make the business profitable in any competitive marketplace.  Target Costing is widely used in several industries e.g. manufacturing, energy, healthcare, construction, and a host of others.

Some key features of Target Costing are:

  • Seller is a price taker rather than a price maker.
  • The target selling price incorporates desired profit margin.
  • Product design, specifications, and customer expectations are built-in while formulating the total selling price.
  • Cost reduction and effective cost management is the corner stone of management strategy.
  • Target Cost has to be achieved through team collaboration during activities such as designing, purchasing, manufacturing, marketing, and other activities.

Target Costing presents the following advantages over other product pricing techniques:

  • More value delivered to customer since the product is created keeping in mind the expectation of the customer.
  • Approach to designing and manufacturing products is market driven.
  • Competitive Advantage gained through process improvement and product innovation.
  • Drastic Process Improvement, which creates economies of scale.
  • New market opportunities converted into real savings to achieve the best value for money rather than to simply realize the lowest cost.

The Target Costing process comprises 3 main phases.

  1. Market-Driven Target Costing
  2. Product-Level Target Costing
  3. Component-Level Target Costing

 

Let’s discuss the 3 phases briefly.

1. Market-Driven Target Costing

In this phase, Selling Price is determined by analyzing the entire industry value chain and all functions of the firm.  The focus of this costing phase is on analyzing market conditions and determining the company’s Profit Margin in order to identify the “Allowable Cost” of a product.

In this phase, the desired profit level is set on the basis of firm’s strategy and financial goals, and is deducted from Selling Price to obtain Allowable costs.  Intensity of competition, nature of customers, similar product introduction by competitors, and level of customer sophistication are the key factors influencing Market-driven Target Costing.

2. Product-Level Target Costing

In this phase, Allowable Cost only gives a ball-park figure of cost saving to be achieved.  It has to be translated into Achievable Target Cost.  This type of costing concentrates on designing products that satisfy the company’s customers at the Allowable Cost.  The cardinal rule of Product-level Target Costing is to never exceed the Target Cost.

The objective of this Target Costing phase is to create intense but realistic pressure on the product designers to reduce costs.  Product Strategy (number of products in the line, frequency of redesign, degree of innovation) and product characteristics (complexity, magnitude of up-front investments, and duration of product development) are the key factors affecting Product-level Target Costing.

3. Component- Level Target Costing

The Component-level Target Costing settles the price at which a firm is willing to purchase the externally-acquired components being used in its product.  This phase involves a cross-functional team that is tasked to reduce costs across all functions such as designing, purchasing, manufacturing, marketing, and other activities.

The components cost history serves as the starting point for estimating the new component-level target costs alongside optimal selection of suppliers.  A supplier-focused strategy is the key factor that influences Component-level Target Costing.

Interested in learning more about how the Target Costing process works and its key steps? You can download an editable PowerPoint on Target Costing here on the Flevy documents marketplace.

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Change1

Transformation from a product-based model to a platform model is a dream for many executives.  More and more product companies are now shifting into a platform model.  The drive behind such a shift is the huge success of platform companies—e.g., Amazon, Google, and Apple.  These organizations started out as a retailer, search engine, and iPod manufacturer respectively, but later transformed into platform models.

However, bringing this transformative vision into reality is anything but straightforward.  Research into successful platform businesses reveals that this necessitates a robust approach comprising the following 4 critical phases:

  1. Attractive Product and Customer Base
  2. Hybrid Business Model
  3. Rapid Conversion
  4. Identify and Seize Opportunities

Let’s dive deeper into the first two phases of the approach, for now.

Attractive Product and Customer Base

A platform model is not a remedy to resuscitate products that are on a downward slide.  It necessitates an attractive product that offers a significant customer base and value to help improve customer loyalty and resist rival offerings.  The critical mass of customers also allows the platform company to create value for—and attract—third parties that are crucial for the platform to flourish.

Qihoo 360 Technology, a large internet firm in China, commenced its operations in 2006 by selling an antivirus software, 360 Safe Guard.  To build a broad user base and to gather customers’ feedback on improving the product, the company started giving away the product free.  The company maintained a list of malware as well as a “whitelist” of programs that were safe for the users.  The critical mass of customers allowed Qihoo to:

  • Quickly identify viruses on scanning computers
  • Improve the antivirus
  • Introduce new products
  • Attract new customers
  • Create new platforms
  • Attract 3rd-party software companies to make Qihoo a channel for reaching customers.

Hybrid Business Model

The notion that an organization has to embrace either a product-based or a platform-based business model is far from reality.  Although, both the product-based and platform-based business models need a framework to assign dedicated resources and manage operations, however, Business Transformation from a product-based model to a platform-based model gets simplified utilizing a hybrid approach.  A product-based business model calls for organizations to have differentiated products catering to customers’ needs, to create value.  Whereas, a platform-based business model creates value by linking users to 3rd parties and charging fees for using the platform.  The focus of Platform models is on:

  • Inspiring mass-market acceptance
  • Increasing the number of interactions rather than meeting specific customer needs
  • Connecting users and 3rd parties to create competitive edge instead of relying solely on product differentiation (product model).

For example, Apple converted itself from a product model to a platform model within a year after the launch of the first iPhone.  Initially, Apple reacted defensively to any hacking attempts and precluded 3rd party apps on the iPhone, but then decided to create an open platform, and launched the App Store.  The hybrid model and platform mindset created additional income streams and significant revenue for Apple.

Rapid Conversion

To make a product and business model profitable, the conversion of product users into platform users is of utmost importance.  To enable this, an organization needs to develop its platform in such a way that it should present enough additional value for the customers to adopt it and become its users.  Three key elements are critical to accomplish this:

  • Deliver adequate value
  • Launch connected products consistent with the brand
  • Allow 3rd parties to perform upgrades

If the platform does not offer adequate value for the customers they are not going to embrace it the way they do to a great product.  Similarly, addition of new offerings that are coherent with the brand has a strong correlation with new platform adoption.  New offerings gain traction from a firm’s image and strengthen the brand further.  Likewise, allowing 3rd parties to make upgrades, improve product offerings, and develop the platform further helps in rapid conversion, additional revenue, and growth.

Interested in learning more about the phases of the approach to Products-to-Platforms Transformation?  You can download an editable PowerPoint on Products to Platforms Transformation here on the Flevy documents marketplace.

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ScalabilityScalability is defined as possible meaningful changes in magnitude or capacity.  In business terms, it’s the capability of a system to enhance productivity upon resource augmentation.  Scalability provides an organization the capabilities to develop compelling value propositions—that are hard to imitate by the rivals—and achieve profitable growth even in the wake of external threats, cut-throat competition, stringent laws, or financial downturns.

Today’s challenging business ecosystems and economic outlook demand from the enterprises to develop novel and Scalable Business Models that are able to leverage positive returns on investments.  To accomplish this, leaders need to identify and eradicate any capacity issues, enhance collaboration with existing partners, build new partnerships, or develop platforms to work with their opponents.

Executives should invest in scaling options only when they are sure to boost returns.  They have to be quick to exit a business when returns on investment to scale backfire.

5 Patterns of Business Model Scalability

Benchmarking a number of successful organizations reveals that their Business Models were flexible enough to sustain internal and external pressures.  Business Model Scalability hinges on aligning the strategic partners and Value Propositions to serve the customers.

To drive Business Model Innovation (BMI), leading organizations consistently display 5 critical patterns of Business Model Scalability:

  1. Operate with multiple distribution channels
  2. Eliminate typical capacity limitations
  3. Outsource capital investments to partners
  4. Allow customers and partners assume multiple roles in the business
  5. Create platform models

Operate with multiple distribution channels

Successful businesses achieve scalability by selling through multiple distribution channels.  Well-known businesses—e.g., Google and Apple—have extensively studied and implemented adding additional distribution channels.  By avoiding cannibalization of sales through existing channels, this has allowed them to spread overhead costs and profit from increased sales.  Additional channels help businesses expand clientele and uncover new opportunities.

Eliminate typical capacity limitations

Scalability necessitates finding ways to overcome capacity limitations that hamper various industries.  Well-known companies achieve scalability by overpowering any limitations that constrain various businesses.  Successful companies are not inhibited in any way by physical or material constraints—including deficiencies related to manpower, capital, warehousing, systems, technology, or capacity.  For example, managing costs related to creating R&D facilities and innovating new products that often impede the entire pharmaceutical industry.

Outsource capital investments to partners

Top businesses achieve scalability by transferring or sharing cash flow and working capital requirements with the partners.  They optimize their capital and cash flow limitations and prioritize their crucial investments.  They adopt Business Models geared toward creating open platforms that allow them to shift these expenditures to their strategic partners.

Allow customers and partners assume multiple roles in the business

Scalable businesses work in conjunction with their strategic partners and customers.  They offer multiple roles to them and leverage mutual resources for growth of their businesses.  They collaborate with each other through joint ventures or through informal mechanisms—e.g., core platforms—which they utilize to share distribution methods, loyalty programs, and resources.  They have a “laser” focus on the factors that are of value to their customers, and develop (and enrich) their value propositions based on that.

Create platform models

Top businesses build platform-based Business Models that work on the principles of partnership and scalability.  They use their platform-based Business Models to foster relationships with and convert their rivals into partners—by letting them share their platform and generate incremental revenues, for instance, through benchmarking data and “ease of use” sales.  Visa Inc. is an example of how businesses connect with shoppers using Visa’s credit card platform.

Scalable Business Models are more likely to generate rapid returns.  However, these Business Models demand utilization and alignment of capabilities that the organization, its strategic partners, and customers possess.  Execution of the patterns of Business Model Scalability involves categorizing key resources and initiatives required to enable synergistic collaboration and superior product / service offerings.

Executives can make use of these 3 potential levers to achieve Business Model Scalability that provide an implementation roadmap for both novel or revamped Business Models:

  1. Determine potential strategic partners
  2. Brainstorm a scalability plan
  3. Select viable and scalable Business Model options

Interested in learning more on the 3 potential levers to scalability?  You can download an editable PowerPoint on Business Model Innovation: Scalable Business Models here on the Flevy documents marketplace.

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Learning n Development

Survival of a business in this digital age largely depends on its ability to timely embrace Digital Transformation.  Digital Transformation entails using Digital Technologies to streamline business processes, culture, and customer experiences.

In order to compete today—and in future—and to enable Digital Transformation, organizations should work towards fostering a culture of continuous learning, since Digital Transformation depends on learning and innovation.  The organizations that holistically embrace this culture are called “Next-Generation Learning Organizations.”

The next generation of Learning Organizations capitalize on the following key variables; Humans, Machines, Timescales, and Scope.  These organizations incorporate technology in enabling dynamic learning.  Creating Next-Generation Learning Organizations demands reorganizing the entire enterprise to accomplish the following key functions to win in future:

  1. Learning on Multiple Timescales
  2. Man and Machine Integration
  3. Expanding the Ecosystem
  4. Continuous Learning

Learning on Multiple Timescales

Next-Generation Learning Organizations make the best use of their time.  They appreciate the objectives that can be realized in the short term and those that take long term to accomplish.  Learning quickly and in the short term is what many organizations are already doing, e.g., by using Artificial Intelligence, algorithms, or dynamic pricing.  Other learning variables that effect an organization gradually are also critical, e.g., changing social attitudes.

Man and Machine Integration

Rather than having people to design and control processes, Next-generation Learning Organizations employ intelligent machines that learn and adjust accordingly.  The role of people in such organizations keeps evolving to supplement intelligent machines.

Expanding the Ecosystem

The Next-generation Learning Organizations incorporate economic activities beyond their boundaries.  These organizations act like platform businesses that facilitate exchanges between consumers and producers by harnessing and creating large networks of users and resources available on demand.  These ecosystems are a valuable source for enhanced learning opportunities, rapid experimentation, access to larger data pools, and a wide network of suppliers.

Continuous Learning

Next-generation Learning Organizations make learning part and parcel of every function and process in their enterprise.  They adapt their vision and strategies based on the changing external environments, competition, and market; and extend learning to everything they do.

With the constantly-evolving technology landscape, organizations will require different capabilities and structures to sustain in future.  A majority of the organizations today are able to operate only in steady business settings.  Transforming these organizations into the Next-Generation Learning Organizations—that are able to effectively traverse the volatile economic environment, competitive landscapes, and unpredictable future—necessitates them to implement these 5 pillars of learning:

  1. Digital Transformation
  2. Human Cognition Improvement
  3. Man and Machine Relationship
  4. Expanded Ecosystems
  5. Management Innovation

1. Digital Transformation

Traditional organizations—that are dependent on structures and human involvement in decision making—use technology to simply execute a predesigned process repeatedly or to gain incremental improvements in their existing processes.  The Next-generation Learning Organizations (NLOs), in contrast, are governed by their aspiration to continuously seek knowledge by leveraging technology.   NLOs implement automation and autonomous decision-making across their businesses to learn at faster timescales.  They design autonomous systems by integrating multiple technologies and learning loops.

2. Human Cognition Improvement

NLOs understand AI’s edge at quickly analyzing correlations in complex data sets and are aware of the inadequacies that AI and machines have in terms of reasoning abilities.  They focus on the unique strengths of human cognition and assign people roles that add value—e.g., understanding causal relationships, drawing causal inference, counterfactual thinking, and creativity.  Design is the center of attention of these organizations and they utilize human imagination and creativity to generate new ideas and produce novel products.

3. Man and Machine Relationship

Next-generation Learning Organizations (NLOs) make the best use of humans and machines combined.  They utilize machines to recognize patterns in complex data and deploy people to decipher causal relationships and spark innovative thinking.  NLOs make humans and machines cooperate in innovative ways, and constantly revisit the deployment of resources, people, and technology on tasks based on their viability.

Interested in learning more about the other pillars of Learning?  You can download an editable PowerPoint on Digital Transformation: Next-generation Learning Organization here on the Flevy documents marketplace.

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