Sometimes, What You See Is NOT What You Get
In an earlier article on the challenges of managing changes to a firm’s business model, I described the experiences of a manufacturer of capital equipment that had introduced a new service offering.[i] The experience wasn’t a pleasant one, as unexpected challenges appeared from multiple quarters. An executive from that firm, summarizing the learning that accompanied the experience, offered the following observation: “I didn’t even know what our business model was, but I’ve learned my lesson—whatever it is, beware of making changes to it.” His advice is definitely worth keeping in mind.
Recently, we worked with a distributor with a long-established and market-leading position in its segment, including a strong base of suppliers whose products were included in their catalog and a solid roster of loyal customers. For a variety of reasons, mostly related to emerging competition from overseas manufacturers who were entering their market at a very low price point, this distributor decided to develop and introduce a private label offering in certain product segments. Its goal was to ensure that its catalog included a ‘good-better-best’ product spectrum broad enough to provide an alternative to those new offerings.
At a first glance, this initiative looked to this firm as though it fit into the ‘current products, current market’ segment of the growth matrix first developed by Igor Ansoff in the 1950s.[ii] In fact, the product lines involved were ones that had been in this distributor’s catalog for decades, and the customers that were the sales targets were unambiguously on the roster of “usual suspects.”
The distributor therefore thought this was a relatively straightforward growth initiative, certainly less demanding than ones that involved either new products or new markets or, even higher on the degree-of-difficulty scale, both new products and new markets.
An executive from this distributor later noted: “Sometimes, what you see is NOT what you get.” He went on to reinforce the recommendation of the executive from the capital equipment company quoted earlier, saying, “What we missed was how many changes would be required to our business model to be successful with this private label offering. Most of our previous experiences in broadening our product line or moving into new markets were a walk in the park compared to the challenges we faced this time around, all due to the new elements to our business model that we had to master as a result of this initiative.”
This firm’s experience is not unique. In many industries, other firms have struggled as a result of new business model dimensions that were introduced by a strategic plan, even in instances in which the product line and market being served were very familiar. A firm that shifted from print product delivery to electronic product delivery described similar pains in implementing that transformation. Another grocery retailer described the introduction of ready-to-eat meals as “demanding beyond belief in terms of what we had to learn that we hadn’t anticipated”. In both of those instances, and in many other cases, the problems were associated with business model elements more than any other factor.
One lesson to emerge from these experiences is the importance of hearing lessons from other environments that can help to anticipate and address the changes required to implement growth strategies involving new business model elements. In the case of the distributor described above, it had failed to tap what was in retrospect an obvious source of insights, namely the manufacturers whose products were already in their catalog.
The executive quoted earlier provided this perspective: “What we missed was that our suppliers handled a substantial number of issues that our firm didn’t have to address. I guess we just thought those things took care of themselves. We learned otherwise very quickly, when the only one available to address the issues was us. Like all learning experiences, this one wasn’t particularly fun.”
The sources of insight aren’t always as readily available as was the case for this distributor, but the benefit from identifying and tapping into experience and expertise is substantial for firms implementing changes to their business model, even when other elements of the strategy like product and customer are very familiar. The insights that can emerge from effective efforts to hear lessons from other environments can make such changes go far more smoothly and avoid start-up disruptions that have the potential to derail an otherwise good growth concept.