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 [...]
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:
- Attractive Product and Customer Base
- Hybrid Business Model
- Rapid Conversion
- 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.
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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Scalability 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 [...]
Scalability 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:
- Operate with multiple distribution channels
- Eliminate typical capacity limitations
- Outsource capital investments to partners
- Allow customers and partners assume multiple roles in the business
- 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:
- Determine potential strategic partners
- Brainstorm a scalability plan
- 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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Supply chain thinking used to be limited to the managers of a few global companies—companies that were struggling to coordinate internal information and materials. This, however, led to an exciting boom in cross-business coordination based on Supply Chain Management concepts. Today, the field has broadened and shifted over time. Current supply chain trends—differentiation, outsourcing, compression, [...]
Supply chain thinking used to be limited to the managers of a few global companies—companies that were struggling to coordinate internal information and materials. This, however, led to an exciting boom in cross-business coordination based on Supply Chain Management concepts.
Today, the field has broadened and shifted over time. Current supply chain trends—differentiation, outsourcing, compression, and collaboration—are being used to restructure supply networks and improve coordination. As more companies integrate their networks, capabilities are improving. The levels of product customization and business complexity are also increasing. As this continues, Supply Chain Management is being used in new ways to create uniquely defined customer relationships anchored on appropriate Customer-centric Design.
The field of Supply Chain Management will continue to influence companies. The best way to understand the impact of a long-term trend is to examine how the trend has changed the way executives view their businesses and what issues they choose to focus on.
Rationale Behind Supply Chain Management
Supply Chain Management is the design, planning, execution, control, and monitoring of supply chain activities. It is the management of the flow of goods and services. Essentially, Supply Chain Management addresses the fundamental business problems of supplying products to meet demand in a complex and uncertain world.
Conceptually, Supply Chain Management draws on the value chain concept of business strategist, Michael E. Porter. It conveys the idea of looking at the supply chain issue at the multi-company level.
As the global business environment becomes more complex and competitive, there have been shorter product life cycles and greater product variety. Due to this, it has increased supply chain costs and complexity. The birth and growth of outsourcing, globalization, and business fragmentation has resulted in a crucial need for supply chain integration. Coupled with advances in information technology, this has led to the creation of greater opportunity for Supply Chain Management.
Why is Supply Chain Management essential at this time? There is now an increasing need to create net value, build a competitive infrastructure, leverage worldwide logistics, synchronizing supply with demand, and measure performance globally. Only Supply Chain Management has a systematic process to satisfy these increasing demands.
With the increasing application of Supply Chain Management, there have been shifts in the view of management and influencing Strategy Development.
The 6 Core Pillars of Supply Chain Management Thinking
The 6 Core Pillars of Supply Chain Management Thinking are the major shifts that have redefined management’s view which is far different from traditional Supply Chain thinking.
The first Core Pillar is Multi-company Collaboration. This is the shift from cross-functional integration to multi-company collaboration. Traditionally, Supply Chain thinking was focused on integrating within their companies. But with the new Supply Chain Management perspective, the focus now is on integrating across companies to coordinate and improve supply.
With the shift in thinking, what is asked now is how do we coordinate activities across companies, as well as across internal functions, to supply products to the markets. This is a great deviation from the traditional thinking which ask how do we get the various functional areas of the company to work together to supply product to our immediate customers.
With the first Core Pillar, we get to achieve significant breakthroughs. There are lower supply chain-related costs and improved responsiveness within a chain of companies.
The very essence of Multi-company Collaboration is rethinking how organizations align goals and make decisions.
The other Core Pillars are Market Mediation, Demand Focus, Product Design Influence, Business Model Innovation, and Customized Offerings. Each core pillar is considered an enabler that has a vast impact on Supply Chains.
Interested in gaining more understanding of the 6 pillars of Supply Chain Management (SCM) thinking? You can learn more and download an editable PowerPoint about the 6 Pillars of Supply Chain Management (SCM) Thinking here on the Flevy documents marketplace.
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Strategic Supply Chain Planning is the “Pegasus of Strategy.” It can soar, but it also needs to keep its feet on the ground. Companies with a global supply chain now need to introduce its strategic left hand to its operational right hand. To make planning more valuable, its strategic supply chain planning needs to combine [...]
Strategic Supply Chain Planning is the “Pegasus of Strategy.” It can soar, but it also needs to keep its feet on the ground.
Companies with a global supply chain now need to introduce its strategic left hand to its operational right hand. To make planning more valuable, its strategic supply chain planning needs to combine strategic planning with its tactical supply chain planning. The importance of aligning strategic direction to the supply chain has become of utmost importance.
Senior Managers formulate strategies to maximize shareholder value. Supply chain planners run optimization models to minimize costs. If scenario planning is combined with supply chain planning, the best of both worlds is achieved. The company can expect to achieve a long-term competitive advantage.
Strategic Supply Chain Planning provides the framework in selecting projects that best support the organization’s supply chain objectives and strategies. It plays an essential role within the Planning Spectrum.
The Planning Spectrum
Within the Planning Continuum are 3 decision-making models of importance to the business.
The range of Strategic Planning approaches across the Planning Spectrum depends on the fundamental changes it is focused on. Strategic Planning, Strategic Supply Chain Planning, and Tactical Supply Chain Planning differ in terms of scope of decision making, decision horizon, flexibility to act, and possible tools to use.
Let us take a look at Strategic Planning. In Strategic Planning, its scope of decision making covers the entire nature of the business. This means that the planning scope covers the reevaluation of the business model.
When undertaking Strategic Planning, there are several tools that can be used. Organizations may use the Framework Analysis or lower-level analysis that may entail the use of spreadsheets. Dynamics tools and other simulation tools may also be used.
If we look at the Strategic Supply Chain Planning, its scope of decision making is more focused or directed. This is undertaken to determine whether there is a need to open or close plants and distribution centers. It is used to determine whether there is a need to modify capacity, change product offerings even the decision to manufacture in-house or to outsource it. Strategic Supply Chain Planning is more directed towards a specific area.
Once Strategic Supply Chain Planning has been undertaken, it is appropriate to follow this up with Tactical Supply Chain Planning. It is at this point wherein organizations now have to plan out and determine which plant should produce what product over the coming months depending on the demand forecast.
When undertaking the Planning Spectrum, it is best to understand the scope of decision making of each planning approach for organizations to achieve the best results.
Other Organizational-based Tools
The 3 Planning approaches have demonstrated effective use of organization-based tools to maximize results and impact. One is the use of Optimization Models for Strategic Supply Chain Planning. The Optimization Model has been known to have been applied effectively by corporations such as Baxter International, Inc., Pet Inc., and GM.
Baxter International, Inc. has been successful in using SAILS or Strategic Analysis of Integrated Logistics Systems. It has been used to evaluate consolidated approaches. Pet Inc was able to used SAILS to assess supply chain synergies from 2 potential acquisitions.
The use of the Optimization Model in Strategic Supply Chain Planning and Tactical Supply Chain Planning differs both in design and use. Hence, it is essential for organizations to have a good understanding of the Planning Spectrum to effectively integrate to use the Optimization Model.
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Execution has become the new watchword in Boardrooms. As organizations fail to effectively implement strategies, the importance of execution has risen to the forefront. Essentially, the first step in resolving these dysfunctions is to understand how the inherent traits of an organization influence and even determine each individual’s behavior. Organizations must also understand how collective [...]
Execution has become the new watchword in Boardrooms. As organizations fail to effectively implement strategies, the importance of execution has risen to the forefront. Essentially, the first step in resolving these dysfunctions is to understand how the inherent traits of an organization influence and even determine each individual’s behavior. Organizations must also understand how collective behavior affects company performance.
The idiosyncratic characteristics of an organization can be codified using the DNA. When the DNA of an organization is purely configured, unhealthy symptoms and counterproductive behaviors are demonstrated.
Understanding the DNA and the Organizational DNA Framework
DNA has been used as a family metaphor to codify the idiosyncratic characteristics of a company.
The Organizational DNA Framework examines all aspects of company architecture, resources, and relationships. It ensures that managers focus their efforts on reinforcing what works in the organization and modifying what does not. It helps companies identify and expose hidden strengths and entrenched weaknesses.
In identifying unhealthy symptoms and unproductive behavior, the Org DNA Profiler is used as a tool. It allows management to gain insight into what is and is not working deep inside a highly complex organization.
The Org DNA Profiler, as an Assessment tool, was used to fix problems by identifying and isolating them. Launched in 2003, the Org DNA Profiler measures an organization’s relative strength in 4 Building Blocks on the basis of individual employees’ responses to 19 questions.
What Type of Organization Do You Have?
When diagnosing and overcoming organizational impediments, there is also a need to identify the type of organization that you have. There are 7 broad types of organizations; each organization fitting a certain type.
There is a Resilient Organization. A Resilient Organization can adapt quickly to external market shifts. It can remain steadfastly focused on and aligned with a coherent business strategy. Resilient Organizations can anticipate changes routinely and addresses them proactively. They can attract motivated team players and offers a stimulating work environment, resources, and authority to solve tough problems.
However, there is also a disadvantage when it comes to Resilient Organizations. Resilient Organizations have the tendency to be overly adapted toward one direction or the other.
Another type of organization is the Just-in-Time Organization. The JIT Organization demonstrated an ability to turn on a dime when necessary, without losing sight of the big picture. They can manage to hold on to good people and performs well financially. A Just-in-Time Organization is a stimulating and challenging place to work.
While this may be a good place to work, it can also have its disadvantages. A Just-in-Time Organization is not proactive in preparing for impending changes. In fact, it has not made a leap from good to great. As such, it tends to miss opportunities by inches rather than miles. It celebrates successes that are marginal rather than unequivocal.
The third type of organization is the Military Organization. This type of organization succeeds through sheer force of will of top executives. However, it has a shallow and short-lived middle management bench.
There are 4 other types of organizations. There can be the Passive-Aggressive Organization, the Fits-and-Starts Organization, the Outgrown Organization, and the Overmanaged Organization.
The Passive-Aggressive Organization is considered the most prevalent of all types of organizations. The Outgrown and Overmanaged Organizations, on the other hand, are those that are often considered unhealthy.
The intricacies and defining characteristics of the 7 types of organizations are effective in creating specific interventions to enhance performance and execution. Knowing and understanding the types of organizations can better assist organizations in the analysis of their DNA and guide them in undertaking Business Transformation or Strategy Development.
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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 [...]
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:
- Learning on Multiple Timescales
- Man and Machine Integration
- Expanding the Ecosystem
- 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.
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:
- Digital Transformation
- Human Cognition Improvement
- Man and Machine Relationship
- Expanded Ecosystems
- 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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Most organizations are unhealthy. Only organizations that are recognized to be Resilient, Just-in-Time, and Military can be described and relatively free from dysfunction. Yet, only 27% of the responses gathered from the Org DNA Profiler showed a healthy profile. The Org DNA Profiler is a short online self-assessment tool launched on December 9, 2003. It was [...]
Most organizations are unhealthy. Only organizations that are recognized to be Resilient, Just-in-Time, and Military can be described and relatively free from dysfunction. Yet, only 27% of the responses gathered from the Org DNA Profiler showed a healthy profile.
The Org DNA Profiler is a short online self-assessment tool launched on December 9, 2003. It was used to measure an organization’s relative strength in 4 key areas, on the basis of individual employees’ responses to 19 questions. From a total of 4,007 completed assessments collected, there were 6 Organizational Behavioral issues that were prompted. These issues can still be turned around by undertaking the appropriate step.
The 6 Key Issues on Organizational Behavior
Organizational Behavioral Issues are observations on the prevalence of dysfunctions among business organizations.
- Most organizations are unhealthy. More than 60% of the organizations are either Passive-Aggressive, Fits-and-Starts, Outgrown, or Overmanaged.
- Organizational DNA changes as companies grow. Small companies report more Resilient and Just-in-Time behaviors. They become more centralized and demonstrate Military traits as they grow. Once annual revenues cross the $101B threshold, decentralization occurs. However, often this is undertaken badly.
- Attitude determines attitude. There are sharp differences between senior management and lower-level personnel. A disconnect exists between the organizations that senior executives believe they have established and the organizations they are actually running.
- Non-executives feel micromanaged. Junior managers feel a lack of maneuvering room compared to senior managers who view their self-professed involvement in operating decisions as good.
- Decision rights are unclear. More than 50% of the respondents believe that the accountability for decisions and actions in their organizations was vague.
- Execution is the exception, not the rule. Less than 50% of the respondents agreed that important strategic and operational decisions are quickly translated into action in their organizations.
It is expected that all organizations have behavioral issues. However, unlike humans and other organisms, organizations can change their DNA by adjusting and adapting their building blocks and resolve these issues. There are just processes that organizations must take into consideration to effectively address these behavioral issues and turn them around for the benefit and advantages of the organization.
The Need to Unlearn, Learn, and Relearn
It is advisable for an organization to continue to analyze its organization as it grows into and occasionally out of dysfunction. This can be done by using a 4-step evolutionary process.
Step 1: $0 – $500 Million. The first step or Step 1 generally demonstrates characteristics depicting Resilient or Just-in-Time profiles.
Organizations at this level are effective at executing and adapting to changes in the environment. They are generally younger small companies that are attuned to and aligned with the vision and strategy of the founders. They are known to be able to adapt more nimbly to market shifts.
Step 2: $500 Million – $1 Billion. The second step is an evolutionary phase where organizations are starting to experience the adverse effect of growth in terms of size. This is basically the stage where Military profile has reached its peak in revenue segment. These are the organizations that are bureaucratic, slow, and overly politicized. At this point, expanding middle management starts to second guess and interfere in lower-level decision making.
Step 3 is where organizations are becoming too large and step 4 is returning back to a Resilient profile. The 4-step evolutionary process reflects the stages of development of organizations as they start from being small to being large and complex. It is a reflection of the issues they are encountering at each step of development that they are in. Knowing where they are at this point will enable an organization to better undertake their Strategy Development in a most effective approach.
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Identifying what the market wants is a critical issue for most executives. Likewise, the decision on how much to charge for a product is also crucial for planners. This is where Market Research comes to rescue. One of the Marketing Research methods that researchers most commonly employ is the Conjoint (Trade-off) Analysis. Conjoint Analysis helps [...]
Identifying what the market wants is a critical issue for most executives. Likewise, the decision on how much to charge for a product is also crucial for planners. This is where Market Research comes to rescue.
One of the Marketing Research methods that researchers most commonly employ is the Conjoint (Trade-off) Analysis. Conjoint Analysis helps in identifying product features that consumers prefer, discerning the impact of price changes on demand, and estimating the probability of product acceptance in the market.
In contrast to directly inquiring from the respondents about the most important feature in a product, Conjoint Analysis makes the survey participants assess product profiles. These product profiles comprise various linked—or conjoined—product features, therefore the analysis is termed “Conjoint Analysis.” Conjoint Analysis simulates real-world buying situations where the researchers statistically determine the product attributes—that carry the most impact and are attractive to the participants—by substituting the features and recording the participants’ responses.
The Conjoint Analysis Approach
The Conjoint Analysis is useful in creating market models to estimate market share, revenue, or profitability. The Conjoint Analysis is widely used in marketing, product management, and operations research. The Conjoint Analysis approach entails the following key steps:
- Determine the Study Type
- Identify Relevant Features
- Establish Values for Each Feature
- Design Questionnaire
- Collect Data
- Analyze Data
1. Determine the Study Type
The first step of the Conjoint Analysis involves ascertaining and selecting from a number of different types of Conjoint Analysis methods available. This should be determined based on the individual requirements of the organization.
2. Identify Relevant Features
The next step of the Conjoint Analysis entails categorizing the key features or relevant attributes of a product. For instance, setting the main product attributes in terms of size, appearance, price.
3. Establish Values for Each Feature
After selecting the key features of the product, the next step in Conjoint Analysis is to choose some values for each of the itemized features that have to be enumerated. A combination of features in different forms should be chosen to present to the participants. The presentation could be written notes describing the products or in the form of pictorial descriptions.
4. Design Questionnaire
The basic forms of Conjoint Analysis—practiced in the past—encompassed a set of product features (4 to 5) used to create profiles, displayed to the respondents on individual cards for ranking. These days, different design techniques and automated tools are used to reduce the number of profiles while maintaining enough data availability for analysis. The questionnaire length depends on the number of features to be evaluated and the Conjoint Analysis type employed.
5. Collect Data
A statistically viable sample size and accuracy should be considered while planning a Conjoint Analysis survey. It is up to the senior management to decide how they want to gather the responses—by taking the responses from each individual and analyzing them individually, collecting all the responses into a single utility function, or dividing the respondents into segments and recording their preferences.
6. Analyze Data
Various econometric and statistical methods are utilized to analyze the data gathered through the Conjoint exercise. This includes linear programming techniques for earlier Conjoint types, linear regression to rate Full-Profile Tasks, and Maximum Likelihood Estimation (MLE) for Choice-based Conjoint.
Types of Conjoint Analysis
There are a number of Conjoint Analysis types available for the marketing researchers to choose from, including:
- Two-Attribute Tradeoff Analysis
- Full-Profile Conjoint Analysis
- Adaptive Conjoint Analysis
- Choice-Based Conjoint Analysis
- Self-Explicated Conjoint Analysis
- Max-Diff Conjoint Analysis
- Hierarchical Bayes Analysis (HB)
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Organizations can change over the years. Change may happen because that is what the customers expect or it is because the organization gets to have even the most coveted skills. Despite the changes, there are those that stay the same—the organization’s brand, its unique culture, and its shared lexicon. These are the underlying organizational and [...]
Organizations can change over the years. Change may happen because that is what the customers expect or it is because the organization gets to have even the most coveted skills. Despite the changes, there are those that stay the same—the organization’s brand, its unique culture, and its shared lexicon. These are the underlying organizational and cultural design factors that define an organization’s personality. Metaphorically, these are called Organizational DNA. The Organizational DNA can indicate whether the organization is strong or weak in executing strategy.
Today, execution has come to a fore as organizations fail to effectively implement strategies. Organizations now realize that it must first resolve this dysfunction by understanding how the inherent traits of an organization influence and even determine each individual’s behavior. The idiosyncratic characteristics of an organization can be codified using the DNA. When the DNA of an organization is purely configured, unhealthy symptoms and counterproductive behaviors are demonstrated. High performing organizations have shown that there are precepts that they closely follow to ensure that their Organizational DNA is in order.
The 10 Principles of Organizational DNA
The 10 Principles of Organizational DNA are the precepts upon which high-performance companies are built on.
Let us take a look at 5 of the 10 Principles of Organizational DNA.
- Organizations always identify with 1 of 7 behavioral patterns regardless of industry and geography. Enterprise-wide behavior can either be passive-aggressive, overmanaged, outgrown, fits-and-starts, just-in-time, military-precision, or resilient. The complication here is that companies can face and conquer even the most pernicious performance problems by changing personalities. When this happens, it is crucial that the company must be ready for any problems that may arise as a result of the change in personality type. The inability to address these problems may be detrimental to the organization. Changing personality is not easy. It must be well-studied and strategically planned.
- Companies contain a mix of personalities. Business units fall under different archetypes, particularly in major acquisitions. At this stage, it is possible that a resilient organization may have a division that matches the fits-and-starts profile, characterized by smart entrepreneurial talent. However, despite that, it may lack the collective discipline necessary.
- There is a strong connection between personality type and strategy execution. In the survey conducted, 48% of the respondents fit a profile that is distinguished by weak execution. Passive-aggressive organizations may have people who pay lip service to results but they may consistently undermine some necessary efforts.
- Strong execution can be sustained. Organizations with a strong execution archetype cannot afford to be complacent. Leaders must continually seek feedback from the market, encourage and act on criticism from customers and frontline employees, and take action to address minor issues. These must be done before any problem gets bigger.
- The combination of building blocks determines the organization’s aptitude for execution. Organization DNA is made up of 4 building blocks. These are decision rights and norms, motivation and commitments, information and mindsets, and structure and networks. Complications may come in when companies decide to improve execution. At this point, building blocks must be considered and these must be considered as a whole and not individually.
The other 5 core principles of Organizational DNA are essentially necessary. Even the company with the most desirable profile, the resilient organization, must continually stay at the top of the game. Hence, it is essential that organizations must adopt the most appropriate behavioral pattern and personality to be able to build high-performance organizations. Strategy Development must be able to integrate into the organization’s Business Transformation the 10 core principles of Organizational DNA.
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A commonly quoted statistic is that 80% to 95% of the cost of a product is determined by its design and is therefore set before the item enters manufacturing. This assumption suggests that the dominant focus of Cost Management should be during Product Development and not during Manufacturing. However, contrary to a widely held assumption, companies [...]
A commonly quoted statistic is that 80% to 95% of the cost of a product is determined by its design and is therefore set before the item enters manufacturing. This assumption suggests that the dominant focus of Cost Management should be during Product Development and not during Manufacturing.
However, contrary to a widely held assumption, companies can integrate a variety of Cost Management techniques not only in the design phase but throughout the product life cycle. This is to ensure that there is a substantial reduction in costs. In fact, companies achieving Operational Excellence and competing aggressively on cost might consider the adoption of some form of an Integrated Cost Management Program that spans the entire product life cycle.
An organization must have a good understanding of Integrated Cost Management and the 5 Cost Management Strategies that they can use to reduce costs but still attain the desired level of functionality and quality at the target costs.
The 5 Cost Management Strategies
The 5 Cost Management Strategies play a crucial role in the company’s integrated approach to Cost Management.
The 5 Cost Management Strategies can be applied throughout the product life cycle with one technique used during the product design and the rest during manufacturing.
- Target Costing. This is a technique applied during the design stage. Target Costing is best used when the manufacturing phase of the life cycle of a product is short.
- Product-specific Kaizen Costing. This is a technique applied during the early stages of the manufacturing phase. It enables the rapid redesign of a new product to correct for any cost overruns. The primary rule in Product-specific Kaizen Costing is that the product’s functionality and quality have to remain constant.
- General Kaizen Costing. The third Cost Management Strategy, this technique is applied during the manufacturing phase. It focuses on the way a product is manufactured with the assumption that the product’s design is already set. This technique is effective when addressing manufacturing processes that are used across several product generations.
- Functional Group Management. This is the technique that is applied in the production process. Functional Group Management consists of breaking the production process into autonomous groups and treating each group as a profit instead of a cost center. The switch to profit as opposed to cost allows groups to increase the throughput of production processes even if changes result in higher costs. It enables the change in mindset that functional group management induces.
- Product Costing. The 5th Cost Management Strategy, this is the technique that coordinates the efforts of the other four techniques. It does coordination work by providing the other four techniques with important, up-to-date information.
Target Costing vis-a-vis Kaizen Costing
Kaizen Costing as known as continuous improvement costing. It is a method of reducing managing costs. Kaizen Costing has a similarity with Target Costing but it also has its differences. (Note: Kaizen is the Japanese term for Continuous Improvement and often tied to the philosophy of Lean Management.)
Both Kaizen Costing and Target Costing can achieve results with lower resources. This is basically their similarity. On the other hand, the differences lie in their usage and involvement.
Target Costing is used on the design stage and requires the involvement only of designers. On the other hand, Kaizen Costing is used during the manufacturing stage and requires high involvement of employees. The general idea of Kaizen Costing is to determine target costs, design products, and process to not exceed those costs.
Interested in gaining more understanding of these Cost Management Strategies? You can learn more and download an editable PowerPoint about 5 Cost Management Strategies here on the Flevy documents marketplace.
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