•Avoid Conflicts of Interest and a Too Narrow Focus in Developing Cost Reductions
Many companies have experienced putting in cost reductions that seemed to cause higher costs. How does that occur, and how can it be avoided?
Vendors of all kinds of products and services describe enormous cost benefits . . . but rarely offer guarantees that should cost benefits will occur. Beware of such potential conflicts of interest where selling you more may not help you. Outsourcing has proven to be a new business model for many that eliminates that problem. The outsourced supplier...
•Avoid the Big Cost-Cutting Mistake -- Hurting Sales
When is a cost reduction a cost increase? When the cost reduction drives too many customers away!
Whenever you read in the financial press about a company making a large cost reduction, try to remember whether or not the same firm has done this before in recent history. Chances are that the latest announcement is just the latest in a series of such cuts. If layoffs and facility shut-downs are such a good idea, why didn't the company make all of the changes sooner? The usual answer is...
•Be More Skeptical About Cost Reduction Tests
Most business people use the same level of skepticism about everything they consider. Some are always optimistic that things will work out. Some are always pessimistic. Most people are somewhere in the middle. When a problem selecting the right choice is difficult enough, you will probably find that being very skeptical is the right route. How can you learn to be skeptical if that is not your usual way of thinking?
Although legal concepts can often conjure up the unpleasant connotations...
•Before Planning a New Business Model, Check on the Values Your Organization Holds
A strong consensus on good values builds a foundation upon which to implement and innovate with business models. Values encourage taking the right kind of innovative actions in a cooperative and effective way. Values also shape the direction that business model innovation takes. The best companies find that values help them identify potential employees and future leaders. Finally, broadly inclusive values help to stimulate innovation and support from partners, suppliers, customers, end...
•Before Testing Cost Reductions, Be Sure That Performance for Customers Will Improve or Be the Same
Consider how subtle your performance-protecting task can be in picking out cost reductions. A well-known office products company looked for ways to create a more responsive, efficient sales force. Based on a test in one sales office, the company changed from having a desk and space for each salesperson and put in a hoteling concept that encouraged salespeople to spend all of their time out of the office calling on customers and solving their problems. As a result, office costs dropped....
•Benefits: Locate Business Model Concepts to Bake a Bigger Pie through Investing
Your first round of business-model-improvement tests will show you a variety of ways that you can create a positive momentum in creating competitive advantage. Implementing the successful results of those tests will impel you forward like a rocket attached to a test sled.
The best business-model improvements similarly create and direct such unstoppable progress towards a stronger industry position. You will be so busy once you are employing these improvements that many important tasks may...
•Change the Way Your Offerings Are Used to Expand Consumption with Pricing
You cannot change your business model to better use pricing until you find a concept that expands your competitive advantage, regardless of what competitors do. Let's look for that important breakthrough concept.
Although we have been focusing on the potential value of the right pricing tests, please realize that those are actually very hard to do well. Only if the demand elasticity is very great will you be able to tell the different between one pricing structure and another. Also, beyond...
•Develop a Better Business Model Faster by Analyzing Past Performance as Though These Were New Tests
A famous quote says that "Those who ignore the past are doomed to repeat its mistakes." No one wants to do that.
However, finding lessons from a company's past is becoming harder and harder to do. Fearing law suits and wanting to save on storage space and costs, many companies frequently trash all of their older records. We all know that success has many fathers while failure is an orphan. So discussing corporate history is often of little use. What can a leader do to unearth and...
•Eight Questions That Deliver Valuable Profit-Improving Cost Cuts
These questions are designed to extend your thinking in more creative ways to reduce costs in constructive ways.
How can our business model be changed to both increase revenues and cut costs much faster than our competitors?
By starting with a focus on expanding revenues, you are much less likely to fall into the trap of working on volume-reducing business model alternatives.
How can we get suppliers to pay us?
This is a more aggressive variation on getting resources for free. If the...
•Evaluate Successful Business Model Improvement Tests for Implementation
How can you get innovation into the market faster? It's hard to innovate until you have a successful test. How many tests will succeed? As few as none, and probably no more than ten percent.
So, unless you are testing at least ten opportunities initially, you may initially find nothing to implement. Should you have fewer than ten items to test, you need to go back looking for more proposals. A typical experience is finding appropriate proposals for about a third of the opportunities....
•In Evaluating Cost Reducitons, Look at Total Cash Flow Costs Rather Than Accounting Costs
Business people know that their job is to earn a profit above the cost of the capital they use. To do that, you often have the choice of spending an imaginary dollar to save a real one and vice versa. Which should you choose?
I favor reality over the imaginary, as most people do. Cash is the reality, and the accounting is the imaginary.
Accounting is a homogenized, convenient way to learn how a company did in overall profitability. The more detail in which you examine accounting-based...
•Lessons for Nearsighted Optimists
I was born optimistic. But it wasn't unfounded optimism: Rather it was optimism based on seeing better ways to proceed.
From the earliest age, I could see easy ways to improve on what the adults around me were ignoring. Take choosing a driving route, for instance. Most people simply went the way they had gone before whenever the mood struck them.
Plan your route with a map and pick a time when others are not driving, and the same trip can go faster and easier. Once you see the real...
•Life Improves at 60
When I turned 60, an unexpected event occurred that inspired me to write this article. Since the age of 10, I had worn contact lenses to correct for my extreme nearsightedness.
But in the last few years, that solution had begun to work less well. After turning 56, I found myself wearing reading glasses a good bit of the time to do my work. I developed glaucoma about the same time and had to use eye drops that left my eyes sore, swollen, and dry.
Contact lens wearing became increasingly...
•Locate Ideas to Create More Profitable Sales from Adjusting Prices
Most companies set prices to optimize profits at similar selling volumes. In either price-elastic markets or where marginal costs are low, that is a mistake.
Further, many companies look only at their own prices rather than what it costs a customer or end user to acquire and employ the offering. While not every offering can be vastly more attractive at a lower total cost to the customer or end user, many will. Companies need to vastly increase their testing to identify opportunities to...
•Make Fast Progress on Several Fronts at Once in Ways that Serve Customers
Most CEOs will tell you that if you can get the right people together and turn them loose on a problem or opportunity, great results will follow. The same CEOs often complain that it's getting tougher and tougher to find and keep such people, and that the markets for the company's products and services are becoming more commodity-like.
Several companies have taken this employee recruitment and satisfaction problem so seriously that they place the need for employees to feel happy about...
•Monitor Your Business Model Tests to Validate Assumptions and Learn about the Unexpected
Why stay with an old business model, when you could have a better one? This takes identifying an idea you want to try. Next, you need to validate that idea. You are now ready to test your best ideas. By running more than one test at a time, you speed the chance that you will verify a good idea.
You want to get into the market fast with your improved business model. Freeing up resources from tests that are failing can help you do that. How can you speed up the process of making those resources...
•Outsourcing as a Core Part of Your Business Model
Who do you trust to help provide for your customers? Many companies only like to trust those who work on the company premises. While that approach increases the potential access to information, it may also deliver higher costs than being more trusting of outsiders.
Most studies of best practices show that companies operate in most areas at around the level of average, with some serious advantages and deficiencies in a few areas. Why not turn your challenges over to people to are...
•Pick High Potential, High Probability Cost-Reduction Tests
"Every day, in every way, I'm getting better and better."
-- Emile Coue¢
"Look ere ye leap."
-- John Heywood
Okay, let's reduce costs and put together a new business model. Let's assume we've got lots of proposed tests to help us do this. Which ones should we choose?
Imagine that you are in the business of taking eco-tourists on whale watching trips. You have been doing lots of thinking about how you can improve your business model. Almost all of your costs are tied up in the boats...
•Profitable Ways to Expand Consumption Through Innovative Pricing
If you break even on an offering, you can't afford to charge less. But where you do make a profit, reducing your profit per unit may be useful to increasing your overall profits. What are the situations you should look at for?
First, you need to think about situations in which having customers buy more of your products and services would cost you very little. In doing this evaluation, be sure to consider what your actual costs would be rather than just what your standard costs tell you they...
•Provide Price Incentives for Customers to Help You Lower Costs
In these days of global competition, the customer is more in charge than ever. That doesn't mean that you need to offer services that cost you a fortune: Better designed pricing can be a great help.
Let's consider an industrial example. A commodity manufacturer of building materials studied its customers in terms of how the mix of products they ordered affected profits.
The company had a unique manufacturing process that made it cheaper than competitors to produce higher volumes of identical...
•Redirect Your Cost Savings into the Most Productive Investments
As difficult as it to find better cost-based business models, these challenges are much smaller in scope than are requirements of redirecting the bulk of the cost reduction benefits into providing more desirable and attractively priced and delivered offerings to customers. This latter point is poorly understood in all but a few companies, yet its importance is paramount in establishing and improving upon a better business model. Focusing on converting cost reductions gains into the greatest...
•Reducing Your Cost of Capital Gives You a Discount on Everything You Buy
How would you like it if you could get an additional discount off of almost everything you buy, after having negotiated your best deal? That's what reducing your cost of capital (especially your cost of equity) can do for you.
Most CEOs are delighted if their company's stocks can sell around the industry average price/earnings ratio. If they can do better than that, they are even happier and will usually avoid using the stock to buy anything in order to protect the multiple. Both views are...
•Use Innovative Pricing to Reduce Costs and Increase Demand for Your Offerings
Mention innovative pricing to gain more profit, and most people think of charging more for "extras." I got a new set of glasses this week. The lenses only cost $59, but they tried hard to sell me an "anti-glare" coating for another $50. Based on what I know about coatings, this probably costs $0.10 to apply. I'm on to that kind of so-called innovative pricing. No, thank you!
Lower prices instinctively feel to most people like a way to shave their profit margins, and drown in the resulting...
•Use Price Changes to Make Your Offerings More Appealing in Non-Price Ways
In many product categories, having a somewhat higher price is part of establishing a quality image in the minds of those who buy and use the product. Companies which price their products based on costs will often miss this point, and hurt sales volume by having prices that are too low. How can you use price and non-price methods to enhance the sales and profits of your offerings?
In the 1970s, Kentucky Fried Chicken usually offered two kinds of chicken, one produced according to Colonel...
•Use Price to Deliver Strategic Management of Emerging Technologies
If you are like most executives, you've got some work going on to create the proverbial better mouse trap. A lot of companies succeed in designing the mousetrap, but don't catch too many mice. Somebody else usually moves the mice first. How can pricing be used to control that situation better?
In Silicon Valley and in technical companies everywhere, you hear stories about how Apple and Microsoft "borrowed" from the Xerox Palo Alto Research Center. I remember that time well because our...
•What's the Potential for Your Life?
? I head a project to telescope 400 years of normal progress into 20 years. Through the project, you can learn to make breakthroughs. What are the potential benefits for you?
If the modest trend in increased life-span for 60 year-olds were to continue for another four centuries, 60-year-olds would have average life expectancies of 120 years of age!
If marriage and child-bearing occur at young ages, someone who has 30 descendents at 80 could have 62 descendents at age 100 . . . and 126 at...
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