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REBOOT World View

Digital Privacy and Collective Truth

“Big brother is watching you”, George Orwell, 1984

Tim Cook, CEO of Apple, said that privacy is “one of the top issues of the century” and that it’s important to put “deep thinking” into that to figure out how to “leave something for the next-generation that is a lot better than the current situation.” Cook said privacy “should be weighted” like climate change, another huge issue the world is facing.

This is the third of what I call the three big challenges. The first being ‘Decarbonisation and Biodiversity Regeneration” and the second is “Inclusivity and Fairness”. “Digital Privacy and Collective Truth” sits among these challenges; but, it is the third priority. It is also a priority that would not be agreed with across the world, in particular in non-democratic countries. This challenge is not captured among the UN SDG’s, however, it is captured in the World Economic Forum Global Risks Report 2020 on both technological and societal dimensions.

We are living in a surveillance world.  Something you will have read in George Orwell’s “1984”, or watched on “Black Mirror “ or some other dystopian science fiction movie or box set.  That world where virtually everything you do is tracked, monitored and then attempts are made to adjust your behaviour either by governments or corporates.

The most advanced mass infringement of personal privacy is China’s Digital Social Credit system.  Based on a cultural norm of monitoring individuals the Chinese have now turned to digital as the means for this.  The focus is on measuring trustworthiness of an individual and then rewarding or punishing them for trust violations.  Trust ranges from financial and legal trust to how you behave in public (eg. jaywalking, playing loud music, make reservations at restaurants and not showing up, etc.) and what you say.  You can lose points or gain points on your starting score and you can benefit or lose freedoms depending on your overall score.  As an example as of June 2019, 27 million air tickets and 9 million high speed rail tickets had been denied to citizens deemed dishonest.  It also affects your access to certain jobs and your children access to certain schools.  China leads this trend to monitoring; but, other countries are moving in this direction as governments get more and more access to personal information through governmental ID cards and digital records, and corporate data cooperation.

In the democratic world, the level of data gathering is no less.  It is just the use, and abuse, of the data is different.  As well as potentially overreaching use by governments, there is a massive issue in the corporate use of information for profit.  The leaders in the data gathering, use and abuse of information are Facebook and Google.  Facebook and Google are the companies whose income is dominated by advertising revenues.   For Facebook about 97.9% of their revenues comes from ad revenue, and for Google it is about 83%.  They will only be successful longterm if they are able to help change your behaviour – shopping, travel, entertainment, socialising, voting and all other behaviours that might have an economic value to a company, government, organisation, group or individual. If digital advertising revenues are their engines for profitability then personal data is their fuel.    

Given that Facebook and Google’s core business models are built off customer data and their core source of their profitability is from taking advantage of the data they collect, what really are their strategies. Is Facebook’s mission to “Give people the power to build community and bring the world closer together”.  Is Google’s mission “To organize the worlds information and make it universally accessible and useful”.  Why do they need all this customer data and why do they need to do it without you knowing the extent of their data gathering, use and sharing.  The answer is that these aren’t really their strategies.  Both of their core strategies are to dominate the world of personal information and to maximise the profitability of that information – clearly this is not a publishable strategy for the public. It is the idea that the winner in the data race on consumers will achieve an unassailable position of power, control and profitability. They both just come at this from different positions as set out by where they started from.   

If you look more closely at them, their real executional strategies are:

  1. Be a witness to everything in as close to real time as possible.
  2. Collection of all data of everyone, and their context, that allows perfect (real time or delayed) predictability of any combination of individual, group and society based behaviours and actions.
  3. Addiction based, dopamine generating, continuous generation of information and interaction.
  4. Create consumer products to enable data collection that are ubiquitous, become essential and are irreplaceable. These include search, maps, social communities, marketplaces, mail, calendar, contacts.
  5. Optimize the opportunities for profit through individual and group behavioural modification achieved either directly or through the sale of information.
  6. Lock in competitive position by building asymmetry of knowledge, authority and power over all stakeholders; including, getting governments dependent on their data.
  7. Retain trust and legitimacy by Privacy of Intent through misdirection, misinformation and swarming (overwhelming the truth with alternative information).

At its core, this is a strategy of misleading users, data exploitation without user knowledge, and the theft of individual privacy and freedoms.  This will be their achilles heel! 

Microsoft, Amazon and Apple aren’t innocent; but, their dependence on advertising revenues is at a fraction of Facebook and Google.  Apple, led by Tim Cook, is the first of the big five tech companies to change their strategy on data.  This appeared to start around the time of the 2016 US election and the Facebook/Cambridge Analytica affair.  I expect Microsoft and Amazon to sheepishly, or hopefully boldly, also change their strategies.  Bold strategies from the three of them will help reset the agenda on data privacy within the tech and internet based world.  If not, let’s hope that it will be done by the attrition of GDPR (General Data Protection Regulation) and equivalent legislation, the escalation of lawsuits, multi-billion dollar fines and stakeholder revolt.  

The EU leads the way on privacy and hopefully other parts of the world will follow. The EU GDPR was a big step in moving in the right direction. Implemented in May 2018, it is a legal framework that sets guidelines for the collection, processing and use of personal information. The EU has set a maximum fine of €20m or 4% of annual global turnover – whichever is greater. This couples with the right to be forgotten or right of data erasure. In the US, progress has been slow and primarily driven at the state level, with California leading the way.

In January 2021 at the Computer, Privacy and Data Protection Conference (CPDP 21), Tim Cook in the opening speech said, “As I’ve said before, if we accept as normal and unavoidable that everything in our lives can be aggregated and sold, we lose so much more than data, we lose the freedom to be human.”  He also then said, “Together, we must send a universal, humanistic response to those who claim a right to users’ private information about what should not and will not be tolerated.”  He laid out four core principles for privacy – data minimisation, user knowledge, user access, data security.  The first three of these are at odds with current practices of virtually all companies with significant customer data.

Core elements of Apple’s shift include increased privacy protection through Safari, Maps, Photos, iMessage and Facetime, and Apple Pay.  In addition, they have just introduced App Tracking Transparency and App store privacy labels in the  IOS 14.5 operating system for smart phones.

Facebook CEO, Mark Zuckerberg said, during the company’s recent earnings call that “Apple has every incentive to use their dominant platform position to interfere with how our apps and other apps work, which they regularly do to preference their own. This impacts the growth of millions of businesses around the world, including with the upcoming IOS 14 changes, many small businesses will no longer be able to reach their customers with targeted ads.”  Mark Zuckerberg’s comments about targeting are fallatious.  Customer targeting does not require egregious collection and use of data.  Reasonable and transparent collection and use of data can be highly effective in reaching customers with targeted ads.  

An invasive and exploitive model of data collection and use looks something like what I have outlined in Figure 9-1. The level of knowledge that is gathered and interpreted from video, audio and text is completely intrusive. The only way to collect this information is without your full knowledge. It is the idea that if you dominate data collection, then you should be able to dominate behavioural change and therefore also profitability.

Figure 9-1

Both Facebook and Google, through combinations of their websites, links to other websites, ad platforms, technology integrations with other websites, web crawling, analytics, and other sources can collect an extraordinarily high level of all your behaviour across the web and they take information off the files on your computer. They also have other activities such as Google street mapping, where they have been caught downloading home information and computer files as they map your home. There will be many other sources such as information gathered from satellites and other third party sources.  

If you want to understand this more, I suggest you watch two movies, “The Great Hack” and “The Social Dilemna”.  For a simple description, there is Apple’s April 2021 recent communications called “A Day in the Life of Your Data – A Father-Daughter Day at the Playground”. There are also two interesting books, “The Age of Surveillance Capital” by Shoshana Zuboff, and “Privacy is Power” by Carissa Véliz.  These sources also talk about the issues of fake news, which I have dubbed the need for collective truth.

Collective truth, as I have defined it, is the need for the dominance of a common base of facts for all key societal events and activities where lies, misinformation, noise and conspiracy theories can materially affect decision making. This requires giving, and if necessary regulating, real responsibilities to all potential sources of mass dissemination of information.

Fake news is not new.  For decades, communist and fascist countries have created and controlled false narratives of life at home and life in other countries.  With the rise of the digital age, for these countries the opportunities for surveillance and control are much higher; however, there is also the need for more comprehensive generation of the narratives to in many cases overwhelm the truth.

One area where micro-targeting and fake news are used is in elections. Since 2016 the number tech ops groups from countries that have a mandate to help disrupt the election processes in countries has grown dramatically.  Vladimir Putin, in particular, has a clear focus on damaging the credibility of democracies by, among other things, influencing the outcome of elections.  Their involvement in the 2016 US Presidential elections being the prime known example.  

Clearly fake news is also not new in democracies.  With mass media and journalist requirements to validate the news they provide, historically it has in large been that the truth has risen to the top and overwhelmed the lies.  However in the US in 1987, the US FCC (Federal Communications Commission) abolished the Fairness Doctrine.  The Fairness Doctrine was a policy that required the holders of broadcast licenses to present controversial issues of public importance in a manner that was honest, equitable and balanced.  This abolishment paved the way for Rush Limbaugh to build his conservative radio station focused on entertainment, not truth, and established an enormous audience of 20 million listeners per week at his peak . The scale of his influence helped drive the partisan strategy of the Republicans and spawn the success of Fox News. 

Digital technology and social media companies have taken partisanship to new levels. The dangerous combination of micro-targeting and fake news has combined to help disrupt elections and fuel populism.  The movie documentary, “The Great Hack” illustrates how data mining and algorithms can be used to undermine individual liberty and democracy.  The ability to build alternative versions of the ‘truth’ through individualised and ideologically based uncensored newsflow is removing the ability to have voting from the same base of facts.  We can see the turmoil this created in the US 2020 Presidential elections.

Facebook and Google/Youtube are two of the critical platforms used to manipulate and change the behaviours of large groups of people, one person at a time.  Government and stakeholder pressure is mounting for these groups to behave in a socially responsible manner  – including blocking fake news where there can be material impact, eliminating all forms of hate speech and the ability to incite violence, and the blocking of foreign groups ability to interfere in elections through troll accounts.  Social media groups have been slow to respond; although, more recently as an example we have seen Donald Trump’s Twitter, Facebook, Instagram, Snapchat and Youtube accounts were disabled during and now post the 2020 US Presidential election.  

Governments are responding to this threat as they see fake news as a potential national security threat and a clear and present danger to social harmony.  They are increasingly focused on holding these companies accountable based on the editorial control of what information is pushed to individuals.  The companies are being asked or forced in some jurisdictions to identify and close troll accounts, to monitor, block and remove inappropriate content, and to abide by strict rules of information dissemination surrounding elections.  Once again, the EU is leading the way on regulating the behaviour of the tech industry. They introduced draft legislation in December 2020 proposing fines of up to 6% of turnover if they do not do more to tackle illegal and harmful content and reveal more about advertising on their platforms. The social responsibility requirements of these social media companies will only increase going forward.

Other stakeholders including employees, consumers and the court of public opinion are also forcing change.  Both Facebook and Alphabet have to regularly deal with their employees, or employee union in the case of Alphabet, and manage the public consequences of their statements.  They also have to engage with civil rights groups, hearings before government committees and public interest groups.   The topics range from collaborating with repressive governments, providing assistance to intelligence services, dealing with hate speech and incitements to violence, BLM and false information related to elections, to inappropriate sale of data and use of social platforms for mis-selling. 

The toxic combination of over collection and abuse of private information and fake news for any profit has to be addressed to provide the human right of digital privacy and the need for collective truth.  Without addressing this with some urgency the loss of privacy and allowance of the destructive use of fake news will become institutionalised and too complex to reverse.  The power of big tech not harnessed for social good is dangerous.  It is easy to forget the enormous economic and market power of Facebook and Google.  For Facebook the total number of active user accounts across their four platforms (Facebook, WhatsApp, Instagram, Facebook Messenger) is 7.3 billion.  Google on top of their 92% global market share of search have 2.3 billion YouTube active users. It may well be that anti-trust action by the EU and US focused on the potential break up or curbing of monopolistic powers of Facebook and Google may also affect their data domination strategies.

Addressing these combined challenges of digital privacy and collective truth is complex.  At the heart of digital privacy is the return of ownership and control of personal data back to the individual.  This is a fundamental part of the social contract that should be expected by the individual.  

GDPR and the right to data erasure in the EU is good progress but does not go far enough.  What really needs to happen to respect the fundamental right to privacy is that the control of personal data that is being used is put in the hands of the individual. This as much as anything is a technological challenge to create a model of data control that governments can then enforce.  

Tim Berners-Lee, the inventor of the world wide web, is now working on this.  He understands the dark side of surveillance capital and is focused on taking the internet and personal data to a sustainable place and remove the invasive data harvesting by governments and corporations.  He refers to this as “data sovereignty” which is to give individuals the power to control their data.  He has set up a company, Inrupt, to create a solution based on a technology, Solid, for organising data, applications, and identities on the web.

Inrupt plans to do this through a new system called “pods” – personal online data stores.  Pods work like personal data safes. By storing their data in a pod, individuals retain ownership and control of their own data, rather than transferring this to digital platforms. Under this system, companies can request access to an individual’s pod, offering certain services in return – but they cannot extract or sell that data onwards.

I do believe that the combination of Apple, Microsoft and Amazon could not only help build a system that worked but they have the combined necessary market power to drive the adoption of a true data privacy solution.  The addition of a proactive Google of course would make a massive difference as they with Apple effectively manage the app world.  Governments would have to be involved to oversee all the related issues of monopolistic power.  

The ambition of collective truth has its own complexities.  The core objective of this is to arrest the increase in partisan behaviour related to groups of people with their ‘own versions of the truth’ and the use of fake news or disinformation to poison effective discourse on material issues.  Post the US 2020 Presidential election, we are still in the position where the majority of Republicans believe the election was stolen!  The effectiveness of a democratic system is violated by voting based on lies.  Individual governments need to ensure public trust in the government and the political system.  As such, appropriate rules, regulations and monitoring of the conduct of elections is essential; and, part of this is solving how to ensure the integrity of information that voters rely on and use to decide how to vote.  To a large extent, this requires real focus on social media companies where the combination of individual targeting with the provision of fake news has been allowed.  Social media companies, are clearly media companies given that they push information to their consumers though algorithms.  They need to be held to account, along with all other major violators, for the mass provision of fake news. In February 2021, India set out guidelines to large social media companies like Facebook, Google and Twitter which will require them to remove any content flagged by authorities within 36 hours and set up a robust complaint redressal mechanism with an officer being based in the country. The pressure to solve this is building rapidly.

Collective truth is intertwined with the rights of freedom of speech and expression.  There are already many limitations and boundaries relating to libel, slander, obscenity, pornogragphy, incitement, classified information, copyright violation, trade secrets, food-labelling, non-disclosure agreements, the right to privacy and dignity, the right to be forgotten, public security and perjury. The justifications are linked to the principle of ‘harm’.  

This hornets nest of trying the get the optimal balance of the right to free speech and the limitations based on the principle of harm is not helped by a cancel culture. Limitations on research, discource and debate, and the narrowing of acceptable views, especially in University environments, will only slow down our progress. Restrictions need to be judged by looking at the combination of harm and materiality.

Actions must be taken on both digital privacy and collective truth before it becomes overly complex to reverse; and, governments have become too reliant on all the data access they have with the large tech companies. This is fundamental to the social contract with citizens and the effectiveness of the democratic form of government. Failure to address these issues can only be damaging in terms of loss of trust in the government and political process, increased social instability and rising partisanship.

In my tenth and final blog of this series, I will talk about the importance of appropriate policies and incentives to get beyond words to achieve financial commitment and action with urgency to hit targeted deadlines. The Paris Climate Agreement and the UN Sustainable Goals are bold and there is an enormous target of what needs to be achieved by 2030 to be successful.

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REBOOT Business Strategy

“You cannot avoid the responsibility of tomorrow
by evading it today”, Abraham Lincoln

Blog 15 of the Business Strategy Series

This is the final blog on the strategic framework and of the Business Strategy Series.  I will be continuing to write on related subjects.  I am also working on another series that will look at the roles and linkages of the market economy and the state – another critical subject as we work through these turbulent and challenging times.  A coordinated response between the market economy and governments is mission critical for solving our climate crisis and we can see how vital it is for other disruptions such as the pandemic we have now lived with for 6 months.  

The components in the strategic framework (Figure 15-1) that have been introduced are focused on helping business executives and their boards create a long term sustainable business that has a true purpose in society by delivering both economic returns to investors and impact to other stakeholders.  

Figure 15-1

To date we have discussed purpose and the delivery model.  In this blog, I want to talk a bit more about impact, strategic timeframes, sustainability and resilience.  I will then complete the discussion with a short piece on portfolio strategy.  

Starting with environmental/climate impact.   Through the ESG reporting requirements (Environmental, Social, Governance), companies are being asked to look at the environmental at both level 1 impact, which is the company’s direct impact, and level 3 impact which considers the full supply chain impact including product use.  Clearly, at the environmental level the specifics of each sector, and its supply chain, will have different environmental dependencies and different opportunities to create impact.  Key sectors such as energy, food, packaging, retail, manufacturing and fashion which have high resource use, significant energy and water usage, and large supply chains will have high environmental impact unless they have already taken action (Figure 15-2). The urgency to create full circular strategies and lead the way is most vital for these high dependency companies; although, that should not stop all companies from moving forward as well.  

Figure 15-2

Taking the view at the societal level, that the climate problem can be solved by just focusing on the major companies that are contributing to climate change, reduced bio-diversity, high water use, etc. is definitely insufficient if you look at the science.   Part of the solution is for the public to be also looking at their consumption and making it more in tune with the needs for environmental sustainability. So the full and necessary challenge is to create a major shift in how we all live and how businesses, the government and NGOs operate. 

As I noted in Blog 14, for companies delaying this shift to a societally responsible strategy will only result in an increasingly challenging shift for each year of delay as the need to hit targets by certain dates will not shift.  Each company in each sector needs to set ambitious and timely targets to make its contribution to this.  It is management’s, and the Board’s, challenge to ensure that the strategy they set meets both its economic needs and its responsible level of impact.  

In addition to the sector, the geographic footprint of a business has implications for the impact focus and targets that it sets (Figure 15-3).  For example, companies that have large supply chain footprints in the developing world need to be thinking much harder about its specific social impact goals that it wants to achieve.  Truly exploring the UN Sustainable Development Goals will help define these.  Business as usual in many parts of the world will perpetuate the fundamental environmental, social and economic challenges that need to be overcome.

Figure 15-3

A helpful approach to thinking about how to incorporate impact programs and goals into the business is to look at the leading companies that are already a long way into this journey to be a responsible company.  

One of the companies leading the way is Unilever, who have been focusing on this now for over 10 years.  They now report on their progress against their goals each year (Figure 15-4). 

Source: Unilever Website,
Figure 15-4

From their website, you will see that they have created specific time based targets that roll up to overall ambitious goals, they have linked them to the Sustainable Development Goals, they are tracking their performance over time and they are publishing their performance publicly.

Other good examples covering different sectors are IKEA, Patagonia, Interface, Orsted, Tata and Microsoft.

As noted in Blog 12, strategic timeframes need to be extended vs. the typical 3 to 5 year timeframe (Figure 15-5).  A longer term time frame needs to be added to consider fundamental impacts such as climate, major changes in technology adoption and putting in place the right components for resilience.  3 to 5 year thinking and short term ROI horizons will not ensure adequate thinking on the sustainability of a strategy.  

Figure 15-5

Linked to this, it is critical that there is a proper review of the potential activities and events that change markets and/or generate new opportunities (See Figure 15-6 for examples).  These events will range from changing views on environmental responses required, SDG compliance, new regulations, a changing geo-political environment and of course the potential for massive impact from new and converging technologies.

Figure 15-6

More important than ever is to develop strategic scenarios that would be effective based on different views of what could happen in short, medium and longer term horizons (Figure 15-7).  The approach for doing this is to pressure test strategic options against different externalities and come up with some plausible scenarios to evaluate.  These scenarios need to be developed holistically and need to be comparable. The components of the scenarios should cover off customers, products/services and supply chains, investment, metrics, people, processes and technology. 

Figure 15-7

With a real analysis of alternative scenarios, the comparison should provide further clarity around the performance opportunities for the business as well as the risk parameters.  The true strategic options can be explored along the key dimensions of profitability/ROI, impact, implementation risk, meeting of key stakeholder needs, sustainability and resilience.  

This moves strategic thinking significantly on from a pure profit and shareholder only focus.  In the short run, realigning the business to survive this pandemic and be able to prosper in the post Covid world, having an organisation that is proactively progressing on gender and race issues, as highlighted by the ‘black lives matter’ and ‘me too’ movements, and making a real contribution to the global climate/environmental targets that need to be met are big topics in most board rooms, and with investors, employees and customers.  These challenges need much more than tactical reactions, they are strategic and structural challenges that will inevitably require some major changes to most businesses in terms of how they operate, who they do business with, where they invest, and what performance targets can be expected.  

The overall strategy and each of the components should fit coherently into the strategic framework (Figure 15-8). Continuous evaluation of the components of the strategy over time and looking for ways to continuously improve and refine the strategy is equally as vital as the initial setting of the strategy. As the rate of change in the world accelerates, dynamically adjusting/refining the strategy and improving execution is mission critical. Speed and agility are much more important than a singled minded short to medium term focus on efficiency.

Figure 15-8

The final subject, I want to touch on is the implications of this in a company with a portfolio of businesses. Investors and stakeholders will be looking at the overall economic and impact performance of the business. Non-performing business units within the portfolio will have an overall effect on the attractiveness of the business to investors, employees and other key stakeholders.

The proposed approach to evaluate a portfolio of businesses is a four step process (Figure 15-9). Firstly, evaluate the portfolio of businesses from an economic perspective. Secondly, overlay the environmental impact of the businesses on to the economic performance of each of the businesses. Thirdly, look at the full alignment of the set of businesses against sustainability impact which will include social and economic impact. Finally, look at the portfolio options from a resilience perspective. This review should be done considering the realistic potential scenarios of each of the businesses.

Figure 15-9

Now looking at each of these components in a little more depth. Starting with the stand-alone economic strategy, we have the traditional grid looking at business position vs market attractiveness (Figure 15-10). Both components of the strategy should be looked at from a short, medium and longterm perspective. Business position is the combination of profitability, market position, and ability to maintain performance over time as markets change and evolve. Market attractiveness is the combination of size, growth and the economic attractiveness of the market. The grid should be fairly self explanatory. If you have a strong market position in an attractive market then you ideally want to stay in the market and should be willing to invest and grow your position. Whereas, if you have a weak position in an unattractive you would rather manage the business for cash or divest from the market and reinvest the capital in more attractive businesses.

Figure 15-10

Moving on to the Environmental overlay (Figure 15-11), this takes the overall position from the economic strategy grid in Figure 15-10, Business Attractiveness, and matches it against the Environmental Attractiveness of the business. High environmental attractiveness has a low or positive environmental footprint within the timeframe of meeting the targets set by the Paris Climate Agreement and the environmental focused SDGs. For many businesses, the key target is the year the company will achieve a Net Zero carbon emissions equivalent level 3 footprint (ie. including the full supply chain of the business).

Overall, unattractive businesses, unless you have clear sight on how to transform them, should be harvested and/or sold. If an unattractive business is also very unattractive from an environmental perspective, such as a coal business, it is more likely that this should be divested as attracting investors and raising funds in your overall business will tend to be more challenging. In an equivalent way, if you have a small business with real potential in an environmentally attractive sector it may well be that you should be diverting your investment capacity into this business to build it. An interesting set of companies to watch on these dimensions will be BP, Shell and Exxon. Both BP and Shell have committed to reach a Net Zero CO2 emission target by 2050. It is not yet clear that they have strategies set out on how to achieve this; but, what is clear is that they will be redirecting their cash generation to the renewables sector where they have much smaller strategic positions. It has been a broad set of stakeholder pressures, including collapsing share prices, that have driven the adoption of these strategic commitments.

Figure 15-11

The third component of a portfolio review is the review of the alignment of impact overall with the business portfolio options (Figure 15-12). Although, climate impact tends to get the lion share of the attention from the press, economic and societal impact are vital components of the SDGs, and in many business and geography combinations, as you can see in Figure 15-3, they may be more important than climate impact. The food sector, including food retailers, are a great example of this with their broad geographically spread supply chains.

Figure 15-12

Finally, having evaluated the businesses, and their strategic options, in an overall and comparative context, the final step is to compare realistic combinations of businesses from a portfolio perspective. In particular, given the businesses have been evaluated against the three areas of impact, the portfolio options should be looked at from an economic return vs. a risk diversification perspective (Figure 15-13). The risk assessment is against the longterm sustainability and resilience of the portfolio scenarios. Adjusting a portfolio to reduce risk has real value, as we have seen in this pandemic. The potential benefits of a tight focus of businesses in terms of sector, geography, supply chain, efficiency and commonality of disruption risks may not be justified from a sustainability and resilience perspective. As I have noted before flexibility, adaptability, and diversification can provide real value to the business overall.

Figure 15-13

This brings to a conclusion, the series on Business Strategy. I hope you have found it thought provoking and useful; and hopefully, it will help you make a difference in your business and create a deeper impact in the world around you.

I will continue to write blogs to delve in deeper to sectors and subjects that will explore strategy and sustainability in a deeper context. As noted in the about section of my blog, REBOOT is not just about business, it is about the need for structural changes, or a new operating system, across all areas connected to our lives and our world.

Please continue to follow, share, engage in conversation, contribute and also reach out to me if you want to talk about this further. I can be reached through LinkedIn.

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REBOOT Strategy

REBOOT Business Strategy

“It always seems impossible until it is done”, Nelson Mandela

Blog 14 of the Business Strategy Series

In this second blog describing the strategic framework (figure 14-1), I will cover off talking about the delivery model which is the strategic component behind the purpose of the business that drives both the economic and impact model of the business.

Figure 14-1

The delivery model aligns the customer proposition with the delivery components that are comprised in a circular strategy, to address climate and environmental impact, and the social strategy that focuses on economic and social impact (Figure 14-2).

Figure 14-2

Behind all businesses are the dimensions of customer – product fit.  The three key strategic pieces of this comprise a powerful proposition to the customer, ensuring the proposition is differentiated from its competitors, and focusing on a market segment that is attractive or ideally large and growing. 

Achieving and sustaining a differentiated customer proposition is critical to success.  To this end, having an intense and ongoing understanding of a business’ existing and potential customers in terms of purchasing decision making and behaviours, usage and post-usage behaviours, and the factors that will drive emotional engagement are vital.  We can see the potential components of a proposition (Figure 14-3) and the ways to differentiate are growing over time. The newer dimensions include differentiating over environmental sustainability and responsibility, the business model as discussed in Blog 9 of this series including channels to market, and a number of technology based dimensions.

Potential Components of a Value Proposition,
Figure 14-3

In many ways, the bigger challenge is sustaining differentiation vs. the initial achievement of a differentiated proposition.  Success attracts copycats.  New technology or technology convergence invites disruption.

There are a number of components businesses need to have in place to succeed in sustaining differentiation.  Firstly, superior customer knowledge of existing and potential customers.  Secondly, and closely associated, is superior CRM (customer relationship management) capabilities.  The purchasing and usage experience of a product or service drives customer retention, which results in repeat buying and referrals.  Relentlessly improving this experience will be even more critical going forward as the environmental movement drives longer life products and higher levels of service.  Thirdly, the collection and use of data, including competitive information.  Fourthly, having innovation capabilities and agility to continuously improve, react to problems and opportunities, and to integrate major changes as new technological capabilities. Speed and agility in many sectors are mission critical for success.  Finally, none of the other dimensions matter if you do not have the financial capacity to progress on these factors and withstand competitive pressures.  

Now let’s move on to look at environmental impact.  To truly embrace environmental impact and set ambitious targets from an attitudinal, operational and strategic perspective you need to look at your business through the eyes of a circular strategy.  My first exposure to this concept was over 15 years ago when I read ‘Cradle to Cradle: Remaking the Way We Make Things’ by William McDonough and Michael Braungart, where they presented an integration of design and science that provides enduring benefits for society from safe materials, water and energy in circular economies and eliminates the concept of waste.

The book put forward a design framework characterized by three principles derived from nature.  Firstly – “Everything is a resource for something else. In nature, the “waste” of one system becomes food for another. Everything can be designed to be disassembled and safely returned to the soil as biological nutrients, or re-utilized as high quality materials for new products as technical nutrients without contamination”. Secondly – “Use clean and renewable energy. Living things thrive on the energy of the solar system. Similarly, human constructs can utilize clean and renewable energy in many forms – such as solar, wind, geothermal, gravitational energy and other energy systems being developed today – thereby capitalizing on these abundant resources while supporting human and environmental health.”  Thirdly – “Celebrate diversity. Around the world, geology, hydrology, photosynthesis and nutrient cycling, adapted to locale, yield an astonishing diversity of natural and cultural life. Designs that respond to the challenges and opportunities offered by each place fit elegantly and effectively into their own niches.”  

The circular economy is most easily visualised by Figure 14-4 below.

Figure 14-4

One of the real champions of this approach are the Ellen MacArthur Foundation who have been working with major corporations to rapidly and dramatically reduce the carbon footprint and environmental impact they are having on the planet.  Their mission is to accelerate the transition to a circular economy. The Ellen MacArthur Foundation works with business, government and academia to build a framework for an economy that is restorative and regenerative by design.  Figure 14-5 identifies the main components of the thinking within a circular strategy.

Figure 14-5

The starting point for developing a circular strategy is to know where you currently stand in terms of both economic cost and environmental impact (Figure 14-6). This sets the business’ starting point.

Figure 14-6

Secondly, explore ways that you can add value and revenue growth by making changes to your business model.  Getting the right business model is critical to align with a circular strategy.  As I noted in Blog 9 of the series there are many alternative business models that can be explored.  Below in Figure 14-7 are some examples of business models of some newer businesses.

Figure 14-7

Achieving a full circular strategy in product based businesses is a major commitment of time, energy and resources.  This also requires full alignment across all parts of the business and its supply chain.  Defining the end point allows the business to define the journey and time frame to achieving it in order to deliver on the financial performance and meet the impact requirements of a responsible business.

Integrated with the circular strategy, a business needs to overlay a social strategy, which includes economic impact.  I believe the acid test of a strong social strategy is whether or not, or to what extent, the company is contributing in its own way to reducing inequality, ensuring inclusivity, and contributing to future generations of all children being better off.  This is positive impact.

The constituents of a social strategy are the customers, employees, people within the supply chain and communities which are touched by the business (Figure 14-8).

Figure 14-8

The social strategy can impact on many of the SDG’s (Figure 14-9) including ‘responsible consumption and production’, decent work and economic growth’, ‘quality education’, ‘good health and well-being’, ‘gender equality’, ‘reduced inequalities’, and ‘clean water and sanitation’.

Figure 14-9

The impact focus of the social strategy will range from compliance with core principles such as anti-slavery, fair trade and gender equality, to specific proactive stances against behaviour that violates the core values of the businesses, or finding areas where the business can add some real specific value (Figure 14-10).

Figure 14-10

Most recently, we have seen the incident with Patagonia who removed its advertising on Facebook in a “Stop Hate for Profit’ campaign.  Alex Weller, Patagonia’s marketing director for Europe said, “It’s no secret that social media platforms have been profiting from the dissemination of hate speech for too long.  Facebook continues to be the most resistant of all the social media platforms to addressing this critical issue and so that’s why we decided to take action against it specifically.” Since Patagonia’s stance others like Adidas, Verizon, Coca-Cola and Unilever made similar moves.  Patagonia has said that it will stay the course and stand by this commitment for as long as it takes.  We will see the strength of the stance of other companies as time passes.

Overall, companies need to think about what their social balanced score card should look like (Figure 14-11).  

Figure 14-11

Just as with the other components of the thinking requiring short, medium and long term views, so does the organisational thinking.  This organisational thinking for the organisational components per the McKinsey 7S model (Figure 14-12) needs to be matched against both the time horizons and the alternative strategic scenarios in order to be properly assessed.

Figure 14-12

Critically, to get each of the organisational components right there needs to be clarity on the performance requirements (Figure 14-13) of the organisation.  Arguably, if there are some big strategic shifts in the business as a result of also needing to drive impact, then there will likely be some material changes required to the organisational needs of the business and linked to this the incentive structure to drive alignment. 

Figure 14-13

Finally, as the environment changes, the sector evolves and the company learns, there will need to be continuous adjustments to the strategy and the components of delivery in order the achieve both the economic and impact goals of the business.  Integration and alignment of these components is critical as well as continuous feedback across the cascade of components with appropriate adjustments (Figure 14-14).

Figure 14-14

In final blog of this series, I want to talk in more depth about impact, strategic time frames, sustainability and resilience. I will also finish off with a short discussion on portfolio strategy for companies with multiple businesses.

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REBOOT Business Strategy

Blog 13 of the REBOOT Business Strategy Series

This is the first blog discussing a new strategic framework relevant for the world we now live in.  To date, I have covered off some background on how the world is getting increasingly complex from a societal, environmental, technological and disruption perspective; and the implication of this is a need to look at business strategies from a system based perspective so that business are aligned with economic, society and environmental goals.  Critically, linked to this are that the general consensus on these goals globally are best defined by the 2015 UN Sustainable Development Goals for 2030, which also link in with the 2015 Paris Climate Agreement.

The next section then went on to cover off 8 gaps in traditional strategic thinking that need to be covered off for a strategy in the 21st century.  These gaps were driven by deep interconnections of a business with their environment, which is not just their business sector.  These interconnections are vital to understand as there is continuous change and ongoing disruptions that are and will be affecting a business.  These factors include societal and economic factors as we can see now with the Covid 19 pandemic and ‘Black Lives Matter’ movement, the impact of new technologies, and most importantly the need to globally address the challenges of climate change and other key environmental issues. 

This new framework tries to create a shift in how we think about our business, away from just profitability for shareholders to goals that are also aligned other stakeholders including the public, consumers, suppliers, communities and governmental interests.  It is worth noting that investors are now requiring this shift given that the long term interests of businesses are for a sustainable world and they can see real business risks on the horizon from climate change.

The traditional stand alone thinking (Figure 13-1) can be summarised by, firstly, a virtually exclusive focus on the shareholder as Milton Friedman had summarised,”the social responsibility of business is to increase its profits”. Secondly, an industry and competitor analysis as defined by Michael Porter’s five forces analysis matched to an understanding of the business’ internal capabilities.  Thirdly, profit and market based key metrics.

Figure 13-1

A  new system based framework needs alignment from the business through to the economy, society and to the environment (Figure 13-2).

Figure 13-2

To create alignment a business needs meaningful purpose that aligns with the business on delivering against both its own economic goals as well as creating impact (Figure 13-3).  This is the challenge of strategy design, to cover the needs of both profitability and impact.  

Figure 13-3

Clearly, this can add complexity as the performance measures are now broader; however, it also creates opportunity and new ways of differentiating and competing.  For deeply entrenched players in the market who have adverse impact on the climate/environment, they are going to have to think about how they will use their resources and market position to evolve to a new sustainable strategic position and focus.  For the younger and nimbler companies, they will need to think about how to use their speed and flexibility to create a stronger positioning ahead of their key competitors.  If you are already there, then take advantage of your position.

A key part of this system-based framework is that it is relevant for all types of organisations whether in business, government or as an NGO.  Clearly, each type of organisation, as with each business, has to be clear on their economic model and what their impact targets are in order to get clear on what delivery model they need.  In the government and with NGO’s, they will have very different sources of funds; but, in any event they need to solve a sustainable financial model to survive rather than to make a profit.  A governments whole raison d’être should be impact; although, for many of us it may well be that their targets and metrics of achievement are unclear!  

Surrounding these triangles are three components that need to be full addressed within a strategy (Figure 13-4).  Firstly, having a clear view of the key stakeholders of the business.  Secondly, the business must be built to last – it must be sustainable.  This means the business must be able to continuously deliver value to it customers, it must deliver the right economic performance for investors, and it must provide the appropriate impact for other stakeholders. And, the business must be able to adjust, adapt and move forward in a way that this continues over time.

Thirdly, the business must be resilient and thus have the capability to withstand and manage through different scenarios of disruption from the 5 types of macro forces – societal, environmental, economic, technological, and geo-political – to the core challenges specific to the   

Strategic Framework
Figure 13-4

There are six tests of a business strategy:

  1. Is the business Purpose Driven?
  2. Can the business create real differentiated value for its target customers over time?
  3. Can the business perform at a level to attract and retain investors?
  4. Does the strategy integrate generating economic, social and environmental impact at ambitious levels for key stakeholders?
  5. Does the business strategy create sustainability and resilience?
  6. Does the strategy have ambitious and achievable triple bottom line metrics covering profit and impact targets?

At the heart of a business lies its purpose.  It is the driving force and acid test of all business decisions.  It is what attracts and retains employees, customers, other participants in the supply chain and investors.  Sitting above the strategy are three components Vision, Mission and Values.  There are a lot of different views about how to define vision and mission, and sometimes they are combined; so to clarify, I have created definitions that fit with this strategic framework.

Figure 13-5

Within this strategic framework, the purpose defines how the world will be a better place as a result of the business.  The first component of the purpose is the Vision.  The Vision is the business’ view of the better world that the industry or sector will contribute to.  The Mission is the part of the vision that the company is targeting to fulfil.  I like to describe the Mission as the North Star that the company wants to be continuously moving towards.  Finally, the Values defines behaviourally how the Company‘s operates – what drives it, what motivates it, and how it will behave with its employees, customers, suppliers, communities, society and environment.  The combination of the vision and mission should be something that engages, and gains agreement from, all key stakeholders.

Here are some examples of the vision and mission, or a combined statement, for purpose driven companies.  

Orsted

Our vision is a world that runs entirely on green energy.

Mission: “We want to be a company that provides real, tangible solutions to one of the worlds most difficult and urgent problems.”

This is a Danish Company that started life as a state owned organisation focused on coal and oil.  Most recently it has been recognised as ….

Within this strategic framework, the purpose defines how the world will be a better place as a result of the business.  The first component of the purpose is the Vision.  The Vision is the business’ view of the better world that the industry or sector will contribute to.  The Mission is the part of the vision that the company is targeting to fulfil.  I like to describe the Mission as the North Star that the company wants to be continuously moving towards.  Finally, the Values defines behaviourally how the Company‘s operates – what drives it, what motivates it, and how it will behave with its employees, customers, suppliers, communities, society and environment.  The combination of the vision and mission should be something that engages, and gains agreement from, all key stakeholders.

Here are some examples of the vision and mission, or a combined statement, for purpose driven companies.  

Orsted

Vision: “Let’s create a world that runs entirely on green energy.“

This is a Danish Company that started life as a state owned organisation focused on coal and oil.  Their current primary focus is on offshore and on shore wind farms. Most recently it has been recognised as the most sustainable company in the world in the Corporate Knights 2020 Global 100 Index.

Novo Nordisk

“Our purpose is to drive change to defeat diabetes and other serious chronic diseases such as obesity and rare blood and endocrine disorders. We do so by pioneering scientific breakthroughs, expanding access to our medicines and working to prevent and ultimately cure disease.“

How many other pharmaceutical companies have a missions to ultimately cure diseases where it derives all its revenues from?

Unilever

Vision – “to make sustainable living commonplace.”

Mission – “To add vitality to life. We meet everyday needs for nutrition, hygiene and personal care with brands that help people feel good, look good and get more out of life.” 

Tesla

Mission: “To accelerate the world’s transition to sustainable energy“

We all know Tesla for it’s pure electric vehicles; however, it now has a full suite of energy products that incorporate solar, storage and grid services.

Ikea

Vision: “To create a better everday life for the many people”

“Our business idea supports this vision by offering a wide range of well-designed, functional home furnishings products at prices so low that as many people as possible will be able to afford them.”

Microsoft

Mission: “To empower every person and every organization on the planet to achieve more”

“Our platforms and tools make small businesses more productive, multi-nationals more competitive, nonprofits more effective and governments more efficient. They improve healthcare and education outcomes, amplify human ingenuity, and allow people everywhere to reach higher.”

Patagonia, an outdoor clothing company, has had a sustainable mission since the beginning and has self imposed an earth tax of 1% of revenues for support activities to save the planet.  It has a very broad mission, “we’re in business to save our home planet”

It has defined it values in a different way to most companies that state the obvious ones of honesty, integrity, etc.  Their values are more action oriented, very honest,  and I think much more engaging:

“Build the best product – Our criteria for the best product rests on function, repairability, and, foremost, durability. Among the most direct ways we can limit ecological impacts is with goods that last for generations or can be recycled so the materials in them remain in use. Making the best product matters for saving the planet.

“Cause no unnecessary harm – We know that our business activity—from lighting stores to dyeing shirts—is part of the problem. We work steadily to change our business practices and share what we’ve learned. But we recognize that this is not enough. We seek not only to do less harm, but more good.

Use business to protect nature – The challenges we face as a society require leadership. Once we identify a problem, we act. We embrace risk and act to protect and restore the stability, integrity and beauty of the web of life.

Not bound by convention – Our success—and much of the fun—lies in developing new ways to do things.”

With a broader awakening of Boards and executive teams, as well as investor pressure, we should expect an increasingly rapid shift to much more purpose driven vision, mission and values? The companies not moving in this direction will inevitably be left behind.

The overall strategic framework tries to achieve 3 core objectives. Firstly, to ensure the business is systemically integrated into its economic, social and environmental situation context. Secondly, provide absolute clarity that the business is also focused on impact as well as profit to meet the needs of all key stakeholders. Finally, to have a true longer term perspective that considers both resilience and sustainability.

In the next two blogs, I will fill out the other components of the framework.

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“Innovation is seeing what everyone has seen and thinking what nobody has thought”, Dr. Albert Szent-Györgyi (discovered Vitamin C)

Blog 9 of the Business Strategy Series

The natural subject to follow on from customer – product fit is to explore business models.  The business model definition in the context of this discussion is, the economic model for profitability that joins the value proposition to the target customers with the delivery model of resources and processes that need to be combined to meet the customer need, and to build and grow the business.

It is critical to understand that the three components, the value proposition, the set up to deliver the value proposition and the economic model are all intertwined. As an example, in the US you might ask how does everyone seem to own a car and regularly get a new car. Surely, with the level of debt in America, most people don’t have the available cash to buy a new car!  The answer is that if you combine lease financing with a car you can expand the market by reaching a whole set of customers with limited or no savings, who can make payments out of their monthly pay.   In the case of General Motors (GM), you have GM the car manufacturer and GM Financial the lease provider.  The combination of the two provides the value proposition of a new car based on monthly payments and drives the overall profitability of GM from both product margins and financial margins from the  leases.  

A more modern example is AirBnB who are the biggest providers of rooms for short term accommodation.  They do this without owning any real estate.  They have crowd sourced the rooms, they then pay for them and resell them on a variable cost basis. AirBnb effectively then takes an intermediary margin to drive the economics of their business.  Both of these examples show how the economic model is an integral part of the value proposition and also dramatically affects the scale opportunity for the business.  Business model innovation, with innovation within the economic model, is a critical component in the development of new successful businesses.

There are five key economic dimensions of the business model that I will explore.  The first dimension is who pays. Is it the customer who pays for the product or service or does someone else pay – these are direct or indirect models.  One of the earliest versions of the indirect model is a newspaper or magazine that is free, and all the revenues are made from ads placed in that media.  The companies placing the ads are indirect beneficiaries of the consumer business if the ads generate revenues for the advertiser.  

Today two of the FAANGS (5 prominent American technology companies – Facebook, Apple, Amazon, Netflix, Google) have a core model that the consumer does not pay.  They are Facebook and Google.  These two companies make most of their money from the placement of ads in the web pages of their consumers.  In these digital models there are also opportunities to make money off the consumer data that they collect.  The reality of these economic models, although it may not be obvious, is the user of the service is the product and the economic customer is the advertiser or purchaser of consumer information.   The internet spawned a large movement towards this model; although, many companies have found that ad revenues alone are not enough and a hybrid model is usually required.

The second dimension is the economics of revenue growth.  There are two fundamentally different types of revenue focus, product focused (transaction oriented) and customer relationship driven.  The economics of the two models are very different and best suited for different situations.  In the transactional model, the sales, marketing and service costs related to the sale are covered within the profit margins of the product/service sold.  In the economic profile of a customer relationship focus, the upfront costs of finding a customer are often expensive; however, as long as you capture customer information and are able to market to them subsequently the follow on marketing and sales costs to a customer can be very low.  If this is matched with a product offer that you have reasonable expectations you can generate recurring revenues, and ideally growing revenues over time, then you would be willing to lose money on the first purchase and make the profit up in subsequent purchases.  

In the early days of Amazon, there was always wonder at how the economics of Amazon made sense as they were unprofitable for years. If you look at it from a customer relationship perspective it was clear that when you have a high growth curve your focus is on new customer acquisition and each new customer at the beginning of their relationship is a loss maker.  Jeff Bezos clearly believed from books and then adding new product categories that the lifetime economics of a customer would be positive and this was a critical part of his economic model.  

The third dimension is revenue payment model.  There are a number of payment timing approaches in a model which include individual purchase, periodic purchases (unstructured buying over time) and subscription payments.  

Figure 9-1

These three dimensions are captured in Figure 9-1.  The indirect model of who pays is captured in the ‘Free’ column.  In the free column, if a customer never makes a payment then the revenues for the organisation needs to be collected from interested intermediaries.  In the grid, you can see that for digital companies that involve high frequency of use, often the right model is customer focused and subscription payments.  In contrast for non digital, companies such as FMCG companies and physical retailing where it is difficult to capture a name and efficiently use it, they will tend to be product focused.  Many of them try to become more relationship oriented by adding a loyalty program to a standard offer.

Often, there are companies that use a freemium model in the digital world.  A freemium model of a no cost low specification software application can often be an effective way to create a low cost of customer acquisition by offering a free trial product and then by watching their behaviour to trigger opportunities to upgrade the customer to a paying version of the product.  Spotify uses a variation of this model, where you can use Spotify for free if you are willing to put up with a regular flow of irritating adverts.  To get rid of this negative experience and then enjoy the full benefits of Spotify you take on a subscription.  From a Spotify perspective the ad revenues for a free customer is an offset to the customer acquisition costs for creating a subscription customer.  Spotify understands the large network benefits of having as many customers as possible using their service, so freemium pricing is a critical component of their strategy to be a leader in this sector.

This matrix, product vs. customer focus, and the revenue payment model are the two standard ways that most companies look at their business model.  

Many companies are now adding additional dimensions to their thinking about what the right proposition is to the customer and how the financial models works for the business.  The fourth dimension relates to how the product/service to the consumer is financed in relationship to the payment from the customer.  In this dimension, the standard approach is that the consumer pays the full value of the product or service at the time of purchase.  In this context, the company needs working capital financing for the product until a customer comes along.  

At the other end of the spectrum, the company will build up a product offer for the market by working as an intermediary effectively selling other peoples products.  The company may pre-buy inventory for resale, or crowd source product (eg. AirBnB) where they only buy a product or service when there is a need.  Crowd sourcing is a working capital and asset light model and the key is to solve how to add value in the middle as an intermediary.  Many people will refer to these businesses as market platform businesses. 

The final approach within this financing dimension, is what I have call provider financed.  In this case, the company has financed the asset and then provides the product as a service so the company only gets full financial coverage on the asset from multiple uses and/or multiple customers.   This can help significantly expand the market by taking out the affordability issue in the use of the product or service.    This is also known as an asset sharing model. 

With the focus now moving towards climate and environmentally friendly businesses, business models that are focused on high asset utilisation should have an important role in our lives going forward.  One of the sectors, where this is often talked about is the auto industry.  It is clear that cars are used only a small fraction of the time that they are available for use.  It is thought that if cars were in a high asset utilisation model, then we might only need about 10% of the cars currently in circulation.  This movement may also accelerate with the shift to autonomous driving vehicles.  

This leads us to the fifth and final dimension within business model that I want to focus on.  With the drive towards making businesses climate friendly, and the growing recognition that asset sharing is an interesting opportunity  for both the customer and the asset owner, there is a growing movement away from asset ownership towards ‘use’ and ‘result’ focused business models.  

Once again within the automotive industry, we can see examples of each of these three models (Figure 9-2).  At the product focus end of the spectrum are the automotive manufacturers which include Toyota, VW, BMW, Mercedes, GM, Ford, Fiat, Renault, Peugot and the new entrant Tesla.  In the service focus part of the market, there are all the rental car companies and then new entrants such as Zipcar.  Zipcar is a highly convenient rental service to use the car as you want.  The service features include highly convenient pick up and drop off, a clean car, a full tank of gas/petrol, insurance and simple payment with all inclusive pricing.  Many consumers in urban environments are shifting to not owning a car and just paying per use.   At the results focus end of the spectrum, you have taxis and more recently Uber, and equivalent crowdsourced point to point personal transport service providers.   

Figure 9-2

If you were a large car manufacturer today, or a major player in the supply chain, facing a shift to electric cars, all the climate pressures, the emergence of crowd sourced / asset sharing companies, and in the medium term the growth of autonomous driving vehicles, what would your strategy be?

The mapping of the asset financing dimension and the product-service dimension provides and interesting look at the strategies of different companies (Figure 9-3).  An interesting business model to look at is Microsoft Office 365.  Microsoft has shifted from selling Work, Excel and Powerpoint as individual products or bundled as one off purchases to a subscription model with additional bundling of other services. This has helped to transform their business and economics.  They now have a product suite that is an integral part of their ‘cloud first’ strategy that provides a steady monthly flow of income, plus conversion to high proportion of direct sales to capture margins and only nominal additional marketing costs per existing customer for further potential sales.  This model also helps to open up additional innovation and cross selling opportunities off their cloud platform.  Uber and AirBnb in the marketplace and result box in the grid were able to build multi-billion dollar businesses by leveraging off other peoples assets and driving very simple user experiences.

Figure 9-3

One of the masters of business model innovation is Amazon.  Amazon has built a business fortress with innovative use of business models (Figure 9-4). Amazon uses different combinations of business model components for each business. They go well beyond just looking at simple business models and create advantage from multi-factor business models.

All their businesses are customer relationship oriented and collect customer data.  The B2B businesses have leveraged off and enhanced the home shopping infrastructure.  Each business has carefully focused on how to drive drive growth, optimize the use of cashflow, and generate the long term profitability requirements of the business with a compelling customer proposition.

Figure 9-4

Going forward, it will be very difficult for anyone to compete directly against Amazon.  They have a relentless focus on customers and on how to drive continuous growth and improvement in the relationship they have with them, and they are innovation and execution obsessed.  Finally, they know how to use their scale with data, with the range of product and services they provide, and the efficiency of their infrastructure to their advantage.  It is no wonder that there is talk about the monopolistic market position that Amazon sits in.  

Clearly, there are other factors to explore that drive a business model, including different types of pricing, such as freemium and yield management pricing, and the selection of channels to market, which also have an impact on market size and growth potential, pricing and the cost structure of the business.

There is a real trend of businesses to move from simple business models to multi-factor business models. Different combinations of dimensions will create a business model with different financial characteristics and different market size and growth opportunities. The models create different financial profiles in terms of:

  • Upfront cash to get the business started and operating
  • Ongoing working capital and growth financing
  • Time to self sustaining economics
  • Resilience – reliability and predictability of future revenue streams, ability to handle economic disruptions, etc.
  • Market size and market growth potential

From a climate and impact perspective it is also critical to identify a sustainable business model. It is essential to explore models that will reduce waste from the traditional product delivery model of take – make – waste, towards a no waste model of being focused on maximising the life of a product/service and optimising the utilisation through reselling, remanufacturing, asset sharing, and finally optimised recycling.

Exploring different business model components is an essential piece of the innovation focus within a business. Creatively looking at whether adding further dimensions to the business model, as Amazon have, or fully switching to a different model, as Microsoft with Office 365 have, is a vital part of business strategy.