Patterns, Extended Version (book)

Question 1

Add-On

Answer 1

Additional charge for extras

What?
- free to choose to customise their product according to their individual preferences or disregard superfluous extras.
- optional features

Value?
- customers pay a hefty premium for extra features

______________________________________________
When to apply Add-On?
- well suited for hard-to-segment markets, where customer preferences often diverge vastly
- often for consumer products, where different levels/versions are insufficient
- also B2B context when multiple decision makers are involved
- help certain technologies and accessories break through to the market
_______________________________________________

Questions to ask:
- Can we provide a basic product to which customers can be price sensitive and then add on services?
- Can we lock our customers in so that they will buy the Add-On products from us?

Question 2

Affiliation

Answer 2

Your success is my success

Value?
- influences the sales channels and revenue generation of vendors
- business model for resellers

How?
- customer receives an identifier that allows the vendor to recognise the referring reseller
_______________________________________________
When to apply Affiliation?
- prerequisite is a strong ecosystem and passionate customers
- good when you know what kinds of customers you want to attract
- good option if you cannot afford a direct sales force
_______________________________________________
Questions to ask:
- Can we capitalise on new customers and retain them in the long run?
- How do we choose the best possible partners for our affiliate network?
- What competencies can we offer our partners to create a superior joint-value proposition?
- How can we create customer loyalty to our ecosystem?
- How do we handle backlash from customers if our partners do not deliver on their service?

Question 3

Aikido

Answer 3

Convert competitors’ strengths to weaknesses

What?
- products or services that are radically different from the industry standard

Value?
- occupy a position that is diametrically opposed to that of its competitors, obviating the need for direct confrontation with them
_______________________________________________
When to apply Aikido?
- requires a lot of courage, thinking outside of the box
- can work in any industry
- careful to heed any signs that no longer on the right path –> market checks are essential
_______________________________________________
Some questions to ask:
- Do we have a lead customer who will follow us into the fray if we adopt the Aikido pattern?
- Is the lead customer representative of the target market or so visionary that others are unlikely to follow suit?
- Can we overcome all the obstacles we meet in order to change the rules of the game?

Question 4

Auction

Answer 4

Going once, going twice… sold!

What?
- buyers never have to spend more than they can afford or are willing to pay for a product

Value?
- products can be allocated more efficiently across the market
- to ensure that vendors get min. what they consider acceptable, some set a reservation price
_______________________________________________
When to apply Auction?
- flexibility and vast possibilities for implementation
- own products or create marketplace
- highly scalable
- works well if it creates more transparency for standardised products
- also for selling highly specialised products (if enough traffic)
_______________________________________________
Some questions to ask:
- How can we achieve a unique selling proposition that will allow us to steal customers from the big established players such as eBay and Alibaba?
- Can we generate high reach for market players?
- How do we maintain a competitive advantage in a highly competitive landscape?
- How can we ramp up the number of market players quickly and efficiently?
- How can we uphold our reputation and certify that transactions are completed correctly?

Question 5

Barter

Answer 5

Tit for tat

What?
- serves as a useful tool to boost a brand by introducing more new potential customers to certain products (eg baby food)

Value?
- exchange relies solely on goods or services, without the involvement of money
_______________________________________________
When to apply Barter?
- full of potential for businesses with complementary partners
- have to think totally outside the box and approach highly dissimilar partners
_______________________________________________
Some questions to ask?
- Is there a mutual interest in the relationship - that is to say, in acquiring consumers without competition?
- Is there a complementary service or product that supports our product?
- Have we considered brand spill-overs from our new partner?
- Are we able to implement the Barter deal within a reasonable cost framework?
- Is the question of culture relevant, and do we have a similar corporate culture?

Question 6

Cash Machine

Answer 6

Coining money with negative working capital

Cash conversion cycle = Inventory conversion period + receivables conversion period - payables conversion period
(timespan between spending and collection of cash)

Value?
- generates additional liquidity that can be used eg in settling debts or making new investments
- company can lower its interest payments or speed up growth

How?
- needs generous payment terms of goods with suppliers
- make sure customers pay promptly
- keeping the time goods are kept in inventory as short as possible (eg through build-to-order strategy or short stock turnover)
_______________________________________________
When to apply Cash Machine?
- works well for company with build-to-order or generous payment conditions with suppliers
- wait as long as possible to pay your suppliers, while getting customers to pay as quickly as possible
- only feasible if offerings have a high perceived value for your customers
- may want to combine with Subscription pattern #48
_______________________________________________
Some questions to ask:
- Can we effectively pay suppliers only after receiving payments from our customers?
- What benefits can we create for the customer by establishing a build-to-order process?
- Will we be able to renegotiate contracts with suppliers?
- Is it possible for us to postpone finishing our products and services until they have been paid for?

Question 7

Cross-Selling

Answer 7

Killing two birds with one stone

What?
- deriving more value from a single source, thus saving on the cost of searching for additional products
- instils sense of security

Value?
- opportunity to leverage existing resources and competencies such as sales and marketing

How?
- leverage existing resources
- maintain customer satisfaction with the new products
_______________________________________________
When to apply Cross-Selling?
- great potential where a simple, low-margin product or service addressing a basic need can be combined with high-margin products
- consumer goods, convenience of customers
- B2B where highly specialised products can be bundled with other products or services (often paired with Solution Provider #47)
–> bundles address customers’ desire for one-stop shops
_______________________________________________
Some questions to ask:
- Can the product be bundled to the advantage of customers?
- Is the perceived customer value of Cross-Selling high enough?
- Is there a natural need to bundle the products from the customer’s POV?
- Can we achieve consistent pricing of these products?
- Are the market entry barriers against potential new competitors high enough?

Question 8

Crowdfunding

Answer 8

Taking finance by swarm

Value?
- unique opportunity to broaden circle of investors and therefore increase chances of obtaining advantageous financing conditions for project
- free advertising for its creator and may have positive effect on subsequent success of the product

How?
- limit the influence of professional investors
- starts with announcement that raises awareness
- backers receive some sort of project-specific reward
_______________________________________________
When to apply Crowdfunding?
- both companies and individuals
- access to crucial zero-interest financial resources, validation for ideas early on, feedback critique and comments from interested people
- good when have an appealing idea you believe is supported by a lot of people willing to put their money where their mouth is
_______________________________________________
Some questions to ask:
- Is the idea exiting enough to raise the needed capital?
- Should we offer a reward to funders, either monetary or in kind, and how can we ensure that it complies with applicable laws and regulations?
- How do we protect our intellectual property?
- Can the crowdfunders become our new customers, or even product fans?

Question 9

Crowdsourcing

Answer 9

Exploiting swarm intelligence

Value?
- extend company’s sources of innovation and knowledge
- open up possibilities to develop cheaper and more effective solutions
- discovering more about customer wishes and preferences for future products

How?
- open call that inform external actors
_______________________________________________
When to apply Crowdsourcing?
- any company can implement it during the ideation phase, but only if the company is already innovative
- leverage innovation potential by getting help
- intensify your relationship with customers
- via Crowdsourcing platform providers
_______________________________________________
Some questions to ask:
- Can we foster a community that will be interested in generating new ideas for us?
- Can we frame our problems specifically enough for the crowd to respond to them?
- Have we stablished clear and transparent criteria with which to select the best ideas?
- Can we define and communicate the process clearly?
- Are we equipped to manage social media dynamics such as evaluation process group dynamics?

As Crowdsourcing platform provider:
- Is there a real market for the selected topic and/or community?
- Will we be able to attract companies and the relevant crowd?
- Have we checked the revenue model carefully?

Question 10

Customer Loyalty

Answer 10

Incentives for long-lasting fidelity
(usually card-based loyalty programme)

What?
- physical products or rebates on future purchases, goods offered at discounted prices to loyal customers, designed to entice them to return to the store frequently

Value?
- company profits from sales that it would not have been able to make otherwise
- incentive for customers to make additional purchases, given that the rewards generally cover only part of the price of new products or services
- customer data, record of the individual customer’s shopping behaviour (can be analyzed)(Leverage Customer Data #25)
_______________________________________________
When to apply Customer Loyalty?
- has become something of a necessity
- bc of the customer-centric culture that comes with it
- winning and retaining customers is both art and science that everyone should strive to master
_______________________________________________
Some questions to ask:
- Which channels are the most suitable to engage with our customers and build loyalty? How can we best address our customers?
- How can we interact with them and better understand their needs?
- Can we give something back to our customers that is of value to them?
- How can our customers become fans? Could we as a company interact with our fans the way sports clubs do?

Question 11

Digitalisation

Answer 11

Digitising physical products

What?
- entirely new offerings to the digitised old ones, offered to customers with a moderate amount of effort

Who?
- new customer groups through faster-paced upscaling and easier access

Value?
- revenue logic, digital infrastructure allows new value-capturing mechanisms

How?
- existing business can be reproduced online as well as some of the business processes and functions relocated to the internet
_______________________________________________
When to apply Digitalisation?
- can be applied to all sorts of data and knowledge-driven products
- crucial for time-critical offering (eg news)
- keep in mind power of complementary offerings and other partner organisations (to address fast-paced change regarding digitally-enabled value propositions)
_______________________________________________
Some questions to ask:
- Which parts of our product offering would derive value from including software?
- Which parts of our value proposition may be digitalised?
- Can we create and capture value from Digitalisation?
- When and where will this pattern make sense for us?
- Which other developments in our and/or adjacent industries took place regarding Digitalisation?

Question 12

Direct Selling

Answer 12

Skipping the middleman

What?
- more personal sales experience, the company can better understand customers needs and find new ideas for improving offerings
- better service for customers promptly from the company (esp. for products with extensive explanation needed)

Value?
- elimination of retail profit margins, savings can be passed on to the customer
- more accurate control of sales information and uniform/consistent distribution model

How?
- products are made available directly by the manufacturer/service provider, rather than via intermediary channel
- more control of sales info and uniform/consistent distribution model
_______________________________________________
When to apply Direct Selling?
- widely established
- keep tabs on customers and track their changing needs
- optimise internal coordination of sales with marketing/production/others
_______________________________________________
Some questions to ask:
- What is the value of increased customer intimacy?
- Can we outcompete existing retail companies?
- Can we create and capture value to compensate the high sales costs?
- How must we train our sales force to ensure that every aspect of the sales process is well managed?

Question 13

E-commerce

Answer 13

Online business for transparency and savings

What?
- sale of goods and services as well as customer service and support
- market transparency, reviews from others
- large, overwhelming offering that can be filtered

Value?
- customers receive individualised advertisements and recommendations
- company is able to reach many more customers with minimal additional cost

How?
- buying and selling products/services via electronic systems
- electronic offerings with customer service and support
_______________________________________________
When to apply E-Commerce?
- almost any B2C transaction can be conducted online
- in B2B, improves cost efficiency and reduces transaction costs
_______________________________________________
Some questions to ask:
- Will introducing E-commerce allow us to create value for our customers, or reduce our costs?
- Can we codify information relevant for our customers and put it online?
- Does going online leverage our unique selling proposition, or will it incapacitate our competitive advantage?

Question 14

Experience Selling

Answer 14

Products appealing to the emotions

What?
- experiences and impressions are created, providing customers with an encompassing experience rather than simply product functionality

Value?
- company actively shapes customers’ observable environment (differentiation)
- customers are more loyal and willing to buy more at a higher price (given related experiences included)

How?
- managing all activities affecting customers’ experiences in concert (promotions, retail design, sales personnel, product functionality, availability, packaging)
- customers must obtain the same experience no matter from which branch
_______________________________________________
When to apply Experience Selling?
- retail industry has done well
- differentiate yourself from competitors, forges direct bond with customers by providing holistic experience
_______________________________________________
Some questions to ask:
- How can we create experiences for customers that truly reflect what our brand stands for?
- How will we get everyone in our company on the Experience Selling bandwagon?
- How do we create an emotional connection along the customer journey?
- How do we clearly define the experience our product offers?
- How can we create positive emotions and actually convert them into purchases?

Question 15

Flat Rate

Answer 15

“all you can eat” - unlimited consumption at a fixed price

What?
- unlimited consumptions for customers, with full control of their costs

Value?
- financially sound for business, if customers who exceed the normal rates of use are balanced out by those who use the service only sparingly
_______________________________________________
When to apply Flat Rate?
need these 3 criteria:
- manageable costs (eg Internet business with low marginal costs)
- customers are exposed to diminishing marginal utility
- flatrate is more cost-efficient than billing customers for every outlay
_______________________________________________
Some questions to ask:
- Is the average customer still within the calculated margin?
- Do we want to increase our market share and grow at the possible cost of reduced profits?
- Can we protect ourselves from customers abusing our offer?
- Have we checked the price elasticity of demand?
- Have we taken the loss of price differentiation as a potential asset into account?

Question 16

Fractional Ownership

Answer 16

Timeshare makes for efficient usage

What?
- possibility of purchasing products or services that they otherwise might not be able to afford
- more efficient use of assets when shared by several customers

Who?
- wider circle of potential customers

Value?
- reaching wider circle of potential customers
- total sums received should be larger than Direct Selling would have been

How?
- company will oversee the maintenance of the asset as well as the rules/regulations governing the association
_______________________________________________
When to apply Fractional Ownership?
- industries where customers are willing to share assets
- becomes more viable and even appealing as assets increase in value
- classically aircraft or real estate industries
_______________________________________________
Some questions to ask:
- Can we devise an appropriate sharing scheme that minimises the risks for customers when sharing assets?
- Is dividing ownership likely to make our product more affordable to customers?
- How do we best split usage rights for our products in respect of contracts and transactions?
- Have we included simple and robust exit clauses for those customers who wish to sell their ownership shares?

Question 17

Franchising

Answer 17

All for one and one for all

What?
- franchisee gains access to a proven business model with all its performance and differentiating features
- entrepreneurial risk is much smaller than that of independently developing a novel business idea
- can take advantage of franchisor’s expertise (professional development, in-depth process knowledge, brand spill-overs)

Value?
- expand business geographically very quickly without having to muster all the resources itself or carry all the risk

How?
- Franchisor sells the right to use their business model to franchisees
_______________________________________________
When to apply Franchising?
- consider, if already built up important assets such as knowledge / brand strength and want to leverage these to grow fast with limited risk
_______________________________________________
Some questions to ask:
- Are our competencies and assets attractive enough to persuade potential franchisees to play by our rules?
- How do we multiply our business and realise our growth potential with limited risk?
- Are we equipped with adequate standardised processes and IT systems to support our business model and strengthen our partners?
- Are we able to legally and/or technically protect our codifies knowledge in order to safeguard against imitation?
- How do we ensure that franchisees stay with us?

Question 18

Freemium

Answer 18

Choosing between free basic and paid premium versions

What?
- offering of a basic version of the product/service free of charge while the premium version is made available against additional payment

Value?
- free version establishes a large initial customer base, from which hopefully enough customers will later want to go premium
- Conversion rate (ratio of paying to non-paying customers) should be good, so that premium members will cross-subsidise the free members (cost of offering the basic product should be very low)
_______________________________________________
When to apply Freemium?
- popular with Internet-based businesses with marginal production costs and benefit of external network effects
- to test user acceptance of new software releases or business models
- works better when coupled with strong customer focus
_______________________________________________
Some questions to ask:
- What do our customers need as a base product/service?
- How can we improve our customers’ experience by valuable upgrades?
- Can we somehow lock our customers in?
- What functionalities provide added value and increase customers’ willingness to pay for our additional premium product or service?

Question 19

From Push to Pull

Answer 19

Customers create a value vortex

What?
- demand-driven selling

How?
- “customer is king” paradigm, make it central to all decisions within the enterprise
- need to have flexible and responsive value chain
- pull strategy in all aspects of the business, eg in product development processes
- specific marketing to pique customers’ interest and bring them to actively make suggestions

(wieso nicht value: inventory costs go down and non-value-adding activities are eliminated?)
_______________________________________________
When to apply From Push to Pull?
- challenge entire value chain and eliminate waste that creates no value for the customer
- can be applied regardless of industry
- for manufacturing companies, biggest potential for application is at front end of value chain (production and logistics)
_______________________________________________
Some questions to ask:
- Do our production and logistics systems need to be more flexible?
- Are we currently stocking excess inventory?
- Are we able to truly focus on our customers in every activity of our company?
- Can our suppliers cope with just-in-time production?
- Are our suppliers qualified enough to manage pull production?
- Will this pattern help us to be more flexible?
- Which value chain activities need to be explored first?
- Would centrally planning our activities limit our endeavours?

Question 20

Guaranteed Availability

Answer 20

Assured access to the product solution

What?
-Reduce costs incurred by breakdown of technical machines or equipment by ensuring almost zero downtime (often with Flat Rate #15)

Value?
- build strong long-term relationships with customers bc they value steady availability

How?
- providing replacement equipment and machines, as well as provision of repair and maintenance services
______________________________________________
When to apply Guaranteed Availability?
- especially in industry where availability is crucial, as well as in B2B context
- need to be able to adept at handling expertly and unforeseen customer crisis
_______________________________________________
Some questions to ask:
- Can we afford to adopt this business model? Manage inventory sufficiently well and maintain surplus equipment to be exchanged for damaged items?
- How can we limit the downside risk of technical product failure?
- How can we speed up maintenance and recovery procedures operationally?
- How should we design penalties to handle the downside risks of product failure?
- Could we deal with the potential financial and/or reputational fallout if we were to fail to deliver on our Guaranteed Availability promise?

Question 21

Hidden Revenue

Answer 21

Seeking alternative sources

What?
- attractive free or low-priced offerings
- many customers will be willing to watch a few ads if this means that they get a better deal on the goods/services

Who?
- integrate advertisements into offering, thereby attracting customers to the advertisers who found it

Value?
- alternative source of income supplements or wholly replaces the revenues generated by conventional sale of products

How?
- primary source of revenue is derived from third party who cross-finances the attractive free or low-priced offerings made to customers
_______________________________________________
When to apply Hidden Revenue?
- very hard to assess today, also bc customers are increasingly wary of Hidden Revenue
- still is very popular in advertising and customer data trading
_______________________________________________
Some questions to ask:
- Can we separate customers from revenue streams?
- Can we commercialise our assets by other means?
- Will we be able to keep our existing business relations and customers even if we tap into additional Hidden Revenue streams?

Question 22

Ingredient Branding

Answer 22

brand within a brand

What?
- positive attributes of the ingredient product are transferred to the end product and increase its desirability in the eyes of consumers

How?
- ingredient product is advertised as a notable feature of the final product, so that customers see “a brand within a brand” when viewing the end product
- increased brand awareness reduces possibility of substituting products by others, gives company more bargaining power in its dealings with the manufacturer of the end product
_______________________________________________
When to apply Ingredient Branding?
- products with high brand awareness and are of high quality
- esp. when ingredient product is synergistic with or complementary to the final product
_______________________________________________
Some questions to ask:
- How can we make sure that the ingredient brand doesn’t overshadow the final product?
- How can we keep competitors from using the same ingredient product and causing our product to become generic?
- How do we differentiate ourselves from original equipment manufacturers (OEMs) and assembly companies?

Question 23

Integrator

Answer 23

Involvement all the way down the line

Value?
- reduce transactional costs by tailoring the value chain to the industry’s needs and processes
- more efficient value creation and faster reaction times to market changes

How?
- company controls most or all parts of the supply chain
- obviates delays through dependence on third-party suppliers, with consequent decrease in costs
- shorter transportation times / better coordination of intermediate products
- BUT cannot capitalise on specialisation
_______________________________________________
When to apply Integrator?
- focusing on the downstream value chain
- customer increasingly demands one-stop solutions
- to be successful, needs a broad knowledge base and risk losing depth and specialisation
_______________________________________________
Some questions to ask:
- Is vertical integration more profitable and sustainable for us?
- Will we derive value from integrating other activities in terms of complexity management, IT systems and technical competence?
- Do the advantages of integration exceed the downsides associated with a lesser degree of specialisation?

Question 24

Layer Player

Answer 24

Benefiting from specialised know-how

What?
- company serves a number of market segments of several industries

How?
- focus on one or just a few activities within a value chain
- often able to influence and develop standards within its specific field to its own advantage

(typical customer is Orchestrator #34)
_______________________________________________
When to apply Layer Player?
- maximise potential inherent in specialising and becoming leader in your particular area of expertise
- in particularly competitive environment, specialisation may be right bc of focus solidly on a core area of expertise and nurture/build strengths
_______________________________________________
Some questions to ask:
- Are we knowledgeable enough to spot changing trends and rapidly tailor our business to market needs?
- Do economies of scope play an important part in our area of specialisation?

Question 25

Leverage Customer Data

Answer 25

Making use of what you know

Value?
- customer data as a profitable resource
- powerful tool to aid decision making

How?
- main activities centre on the acquisition and analysis of data
- value creation process is at the center and focuses on customer data, tap into with appropriate tools
- analyze individual profiles that may contain up to a thousand attributes
- helps with securing competitive edge, identifying potential savings, carrying out real-time market analyses, generating more effective advertisements and discovering dependences
_______________________________________________
When to apply Leverage Customer Data?
- works very well with Hidden Revenue streams (#21)
- can often be leveraged when dissimilar businesses are combined
- have to evaluate how wish for privacy can affect your business
- regulations hinder full exploitation of the business Model (data privacy has to be given up explicitly by customers)
_______________________________________________
Some questions to ask:
- Can we create value from our customers’ data without losing them or endangering our basic business?
- Are there other means by which we can commercialise our customer relations assets?
- Can we retain our business relations and customers if we leverage customer data?
- Do we get an agreement with customers to use their data? If yes, at what price?

Question 26

Licensing

Answer 26

Commercialising intellectual property

Value?
- a means to diversify the company’s revenues and risks
- products/services often experience higher and more rapid rates of diffusion, drives up brand recognition and customer loyalty (why)
- prods./services are likely to be disseminated far more quickly which leads to more sales, BUT license fees are usually lower than if the IP were sold outright.
- freedom to focus exclusively on research and development

How?
- commercialising the rights of intellectual property
- doesn’t need additional competencies to R&D such as production and marketing
_______________________________________________
When to apply Licensing?
- best applied in knowledge- and technology-intensive contexts
- option to monetise prods/technologies that are not core of business
- solid patents are prerequisite!
- tool to raise product/brand awareness and speed up global distribution
_______________________________________________
Some questions to ask:
- Which products or solutions are not at the core of our business and could be licensed out to other companies?
- What is the strategic effect of providing access to our technologies to our competitors?
- Are out patents strong enough to safeguard us from partners developing their own solutions?
- Would we increase our product or brand awareness by Licensing the product out to partners?
- What is the scope of Licensing, eg exclusive, regional? What are the payment modalities, eg per cent of turnover, fee per sold product, flat fee?

Question 27

Lock-In

Answer 27

Forcing loyalty with high switching costs

Value?
- prevention of interoperability between himself and competition to keep customers dependent is actively strengthening customer loyalty and promoting future repeat purchases

How?
- customer may need to invest in new technologies (eg operating system) or obliged to work with particular insurance salesperson
- eg with a Razor and Blade (#39)
- Contracts mandating use of particular supplier
- invested assets that require specific follow-up purchases
- technological restrictions such as compatibility or patents
- considerable switching costs eg from required training and classes offered by specific provider
_______________________________________________
When to apply Lock-In?
- (1) writing contracts with tough termination
- (2) technologically, creating product-/process-based effects preventing customer from easily switching
- (3) economically, creating strong incentives
- important aspect is commercial shelf-life of product, switching costs become lower the shorter this is
- ability to resell a product or to offer a range of additional products
_______________________________________________
Some questions to ask:
- Do we have legal, technological or economic means by which to retain our customers?
- Can we successfully implement the Lock-In pattern without damaging our reputation and losing potential customers?
- What soft and indirect mechanisms can we use to lock our customers in - for example, creating additional customer value?

Question 28

Long Tail

Answer 28

Little and often fills the purse

What?
- selling small quantities of a very large range of products
- customer can browse among much broader and more vibrant range of products

Value?
- although narrower margins and lower volume sales of individual products, profits are significant over the wide range sold in the long run
- in this model, mass and niche products can generate equal shares in revenue (sometimes niche even larger)
- differentiation through selling niche products and tapping into alternative source of regenue

How?
- cost of selling niche product must not be substantially greater than that of selling a blockbuster product
- good search and recommendation systems so customer can find right niche products without difficulty
- to help reduce costs, customers could design products themselves (eg with Mass Customisation #30 and User Design #54)
_______________________________________________
When to apply Long Tail?
- have to usefully apply knowledge of complexity and be able to keep complexity costs below those of competitors (difficult)
- esp. with highly specialised or individualised offerings
_______________________________________________
Some questions to ask:
- Would our customers derive added value by getting everything from us?
- Are we better at managing complexity than our competitors?
- Can our processes and IT systems handle a massive number of products?
- Can we handle back-end processes such as purchasing, order processing, logistics and IT?
- Have we identified the complexity drivers for product diversity, and are we able to manage them in a stable and sustainable manner?

Question 29

Make More of It

Answer 29

Multiply competencies outside your core business

What?
- know-how an resources sold to third parties

Value?
- accumulated specialist knowledge and spare capabilities can be monetised and new expertise built up
- reputation as “innovation leader” from others, positive long-term effect on sales

How?
- offering know-how and resources to third parties as a service
- old and new expertise can improve internal processes and revitalise the core business
_______________________________________________
When to apply Make More of It?
- core competencies as a gateway to new market opportunities, hard-to-imitate and pave way to new markets
- identify which technologies/processes/skills contribute to core competencies
- examine markets where competencies can be applied in new and innovative ways
_______________________________________________
Some questions to ask:
- Do we really know our core competencies?
- Are they truly unique and hard to imitate?
- Can we draw analogies to different industries where we can use our core competencies?
- Have innovation experts in our new target market cross-checked the potential inherent in our core competencies?
- Have we tested our assumptions about the target market, its characteristics and its attractiveness in terms of facts and external expertise?

Question 30

Mass Customisation

Answer 30

Off-the-rack individualism

What?
- customisation of products with the same efficiency as traditional mass production
- buy bespoke products without having to pay significantly more than for basic product

Value?
- customisation or products with same efficiency as traditional mass production
- differentiation from mass-producing competitors
- closer relationships with customers and emotional connection, that is projected from product onto the company as a whole

How?
- standardised modular product architectures
_______________________________________________
When to apply Mass Customisation?
- relevant in all industries, for products and services
- must have necessary back-end systems to cope with ensuing complexity
- esp. good with industrial automation
- the more intelligent the value creation process, the easier it will be to marry individualisation with exonomies ot scale in mass production
- eg 3D printing
_______________________________________________
Some questions to ask:
- How can we tailor our products and services to different customer tastes and expectations?
- How can we increase flexibility in our value chain process?
- In which areas of our business will customers value customisation the most?
- Can we modify our back-end systems to efficiently handle Mass Customisation?
- How can we automate our processes?

Question 31

No Frills

Answer 31

Whatever, as long as it’s cheap

What?
- usual value proposition trimmed town to minimum
- savings in costs are passed down to customers, significantly lower prices

Who?
- reach a much larger target audience and ideally the masses

Value?
- very profitable once it has taken off in the mass market

How?
- consistently adjust all processes to minimise costs
- standardise offerings to get economies of scale and utilise production capacities
- eg through Self-Service (#45) in distribution
_______________________________________________
When to apply No Frills?
- in markets with cost-conscious customers eg emerging markets and their “frugal” products
- work best if you can take advantage of economies of scale and reduce costs by using standardised products, processes and services
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Some questions to ask:
- Which customer requirements can we bundle and standardise to reduce variety?
- Where do we really need to differentiate?
- How can we think outside the box created by our over-engineered society and target extremely cost-sensitive emerging markets?
- Wehre and how can we eliminate waste and reduce costs in the value chain?
- How can we generate exonomies of scale in purchasing, production, R&D and distribution?
- Can we radically redesign our processes in order to save costs?

Question 32

Open Business

Answer 32

Leverage collaborative value creation

Value?
- leave profitable niches for potential partners within the model to enable them to engage in independently gainful business activities
- improve efficiency, gain a share of new markets and/or secure strategic advantages
- win-win solution should be achieved with goals existing between own profitability and partners’ objectives

How?
- inclusion of outside partners into normally closed value creation processes such as R&D
- systematic identification of areas in value creation processes where other parties can contribute their own resources or existing resources in new/innovative ways
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When to apply Open Business?
- key element for future growth and competitive advantage in increasingly connected world with converging industries
- develop entire ecosystem to create value that independent companies could not
- to function, all partners must generate sufficient revenue and benefits from the collaboration!
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Some questions to ask:
- What value-added offerings can we provide customers by partnering with other firms?
- Which areas in our company would benefit the most from outside knowledge and partners?
- What roles should the various partners play and where do we position ourselves in the ecosystem?
- How will we split revenue between partners?
- How can we all benefit from the ecosystem?