Why Your Company Must Have a Design Culture (FT Press Delivers Elements)

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By enabling new business models to exist and thrive, digital has created the opportunities exploited so well by start-ups and with only limited success in traditional businesses. It has therefore become crucial to understand the difference between business and operating models, and the role that the former can play in the digitization of a business. Based on a three-year research program with Wharton, OpenMatters identified four distinct business models showing how companies serve and interact with their customers, to create differential value.

The Network Orchestrator model drives volume allowing massive economies of scale whilst customer data is a source of insight for innovating new adjacent services but also a source of advertising revenues. While traditional companies have been asset builders or service providers, the digital age has enabled newer models of technology creator and network orchestrator. Based on recent OpenMatters research, we can see from Figure 2 that the technology creator and Network Orchestrator business models can offer significantly greater ROI.

However, they have delivered significantly greater performance across a number of dimensions over the period:. They have moved away from traditional, fixed and linear industry value chain delivering "products", to a multi-sided and cross-industry value chain delivering "customer outcomes". Understanding roles both within and outside the ecosystem is a central element of business strategy. Such digital, platform-based business models are changing the way businesses of all kinds are evaluated by the market because their sources of competitive advantage e.

So, should all organizations become pure-play Network Orchestrators? The answer is no, even if this were possible.

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While many traditional organizations operate a single business model, the vast majority being Asset Builders, many others combine complementary business model types. For example:. Successful organizations are following this hybrid approach: indeed, the top five global companies today Apple, Alphabet, Microsoft , Amazon and Facebook blend business models, with network orchestration as a key part of the mix see Figure 3.

To build successful business models incorporating network orchestration, organizations need to manage and leverage the power of their respective ecosystems in their multi-sided value chain, not for their own sake but because it makes good, financial business sense.

So, how do European companies fare? From the findings we can see European sectors are evolving at different speeds. Very few incumbent business model innovators exist today in Europe: Schibsted, Zalando, and SAP are part of a very small set of Top European companies who are evolving significantly. All the same, some European incumbents are investing in more dynamic business model portfolios, incorporating Technology Creator and Network Orchestrator elements. Within each sector are companies who have combined business models to address specific needs and contexts.

This means they are adapting to the digital economy by increasing the synergies across their existing businesses. This translates into growth and higher profit margins through better differentiation, more satisfied customers, greater efficiency and higher return on capital employed. Manufacturing organizations have made significant moves towards incorporating network orchestration. Most media companies face significant threats to their core business model of advertising-funded broadcasting and content production. In a bold response to the threat of digital-first competition, German independent ProSiebenSat.

An increasing number of European retailers have started to adopt Network Orchestration.

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French electronics retailer Darty introduced a third-party marketplace in , dramatically increasing the choice of goods it can now offer its customers, significantly grown traffic to its website, and has benefited from twice the margin on goods sold through the market compared with its traditional business.

The hospitality industry is waking up to its network orchestration role. In a bold move to catch up, Accor invested heavily in network orchestration, opening up its booking system to third parties, acquiring the room rental marketplace OneFineStay and concierge service provider John Paul. Other hotel chains are following a similar acquisition strategy, with Wyndham Worldwide buying LoveHomeSwap in The major automotive manufacturers have started to embrace network orchestration by investing in or buying service orientated digital business platforms, ride-sharing and ride-hailing businesses.

Recent talk about greater industry-wide collaboration and potentially merging certain digital operations makes a lot of sense. We can see several examples of network orchestration success in telecoms. For example Nordic Telenor invested in online classifieds businesses as part of its new digital strategy, and BT Global Services created a highly innovative cloud services platform note 11 but these are exceptions.

Telco talks about an enterprise IoT opportunity, but focuses on connectivity rather than ecosystem-enabling platforms. So there is work to be done. European banks are beginning to understand the role of network orchestration, forced partly by open banking regulation "PSD2".

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Ping An from China last year took this accolade due to the success of its digital ecosystem management strategy which is enabling it to stay more central to customers lives by leveraging others. Many examples of successful network orchestration come from start-ups who think differently about how to serve markets.

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One example is Houzz, an online platform for connecting home owners with professionals for interior design and other household improvements. As the examples illustrate, no organization needs to completely transform; however they do have to incorporate digital-platform-based business models into the heart of their strategy. To do so requires a portfolio approach which incorporates technology creator and network orchestration while still depending on current business models, driving synergies between old and new models for differentiation, innovation, cost efficiency and better delivery against customer needs.

Delivering an integrated portfolio approach requires mindset change at the highest level. Even as traditional organizations re-define themselves in customer outcome terms Ford and BMW use "mobility" and Toyota, "human movement" for example , how can any Corporate Board be sure that its mental models have adapted to the portfolio approach? The starting point is to understand the existing mental models of the leadership team.

How do they see the world in terms of the company purpose, and the way it creates and captures value? Do they see themselves as delivering a product defined by a linear value chain or a customer outcome with an ecosystem of partners? Once mindsets are understood and strategy set, attention needs to turn to the measurement models required in support. This provides a basis for setting strategy around new sources of business value. Network Orchestrators focus on business outcomes, relying on intangibles such as knowledge Airbnb or relationships Facebook , or ecosystem assets Uber as well as new "non-management" and "non-ownership" competencies related to facilitating a network of individuals and their individual assets and relationships.

So, how much value do board members ascribe to intangibles for example?


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And how clear are board members on where network orchestration can drive the most profitable parts of the future core business? In Europe, we have found very few, if any, incumbent organizations who have been able to both understand but then act upon that understanding in a compelling way. As a consequence, once mindsets are understood and strategy set, attention needs to turn to the measurement models required in support.

Incorporating new business models into a traditional company portfolio might raise alarm bells: how to be sure a new business model will take off, and how to measure its progress? In other words, how are new business models being funded? We can see this as a virtuous circle, as organizations prepared to put money behind new business models are more likely to generate returns.

Conversely of course, organizations paying lip service to new models without sufficient funding in their annual budget planning cycle may well fail to gain value. Which is why, while not all senior executives will be involved directly, they must understand and wholeheartedly support these activities. Looking outward, business leaders need also to measure and report what matters to investors — growth, versus cash flow and earnings.

Shareholder acceptance of investment and dividend policy decisions can create a major obstacle, particularly for asset-intensive industries paying a high yet perceived low risk dividend yield. Even if convinced of the benefits of any business model change, it can be daunting to persuade investors and the management team that it makes sense. As new business models start delivering value, they spawn operating models which can also be improved and optimized using digital technology. This process is necessary to reduce overproduction.

This helps achieve the goal of minimizing waste muda , not overburdening people or the equipment muri , and not creating uneven production levels mura. Quality takes precedence Jidoka. Any employee in the Toyota Production System has the authority to stop the process to signal a quality issue. Although Toyota has a bureaucratic system, the way that it is implemented allows for continuous improvement kaizen from the people affected by that system.

It empowers the employee to aid in the growth and improvement of the company. Included in this principle is the 5S Program - steps that are used to make all work spaces efficient and productive, help people share work stations, reduce time looking for needed tools and improve the work environment.

Without constant attention, the principles will fade. The principles have to be ingrained, it must be the way one thinks. Employees must be educated and trained: they have to maintain a learning organization. Teams should consist of people and numerous management tiers. Success is based on the team, not the individual. Toyota treats suppliers much like they treat their employees, challenging them to do better and helping them to achieve it.

Toyota provides cross functional teams to help suppliers discover and fix problems so that they can become a stronger, better supplier. Toyota managers are expected to "go-and-see" operations. Without experiencing the situation firsthand, managers will not have an understanding of how it can be improved.

The process of becoming a learning organization involves criticizing every aspect of what one does. The general problem solving technique to determine the root cause of a problem includes:. In , Dr. In his book Liker calls the Toyota Way "a system designed to provide the tools for people to continually improve their work.

The first principle involves managing with a long-view rather than for short-term gain. It reflects a belief that people need purpose to find motivation and establish goals. The next seven principles are focused on process with an eye towards quality outcome.

Operations Management in Manufacturing

Following these principles, work processes are redesigned to eliminate waste muda through the process of continuous improvement — kaizen. The seven types of muda are 1 overproduction; 2 waiting, time on hand; 3 unnecessary transport or conveyance; 4 overprocessing or incorrect processing; 5 excess inventory; 6 motion; and 7 defects.

The principles in this section empower employees in spite of the bureaucratic processes of Toyota, as any employee in the Toyota Production System has the authority to stop production to signal a quality issue, emphasizing that quality takes precedence Jidoka. The way the Toyota bureaucratic system is implemented to allow for continuous improvement kaizen from the people affected by that system so that any employee may aid in the growth and improvement of the company. Recognition of the value of employees is also part of the principle of measured production rate heijunka , as a level workload helps avoid overburdening people and equipment muri , but this is also intended to minimize waste muda and avoid uneven production levels mura.

These principles are also designed to ensure that only essential materials are employed to avoid overproduction , that the work environment is maintained efficiently the 5S Program to help people share work stations and to reduce time looking for needed tools, and that the technology used is reliable and thoroughly tested. Human development is the focus of principles 9 through Principle 9 emphasizes the need to ensure that leaders embrace and promote the corporate philosophy.

This reflects, according to Liker, a belief that the principles have to be ingrained in employees to survive. The 10th principle emphasizes the need of individuals and work teams to embrace the company's philosophy, with teams of people who are judged in success by their team achievements, rather than their individual efforts. Principle 11 looks to business partners, who are treated by Toyota much like they treat their employees. Toyota challenges them to do better and helps them to achieve it, providing cross functional teams to help suppliers discover and fix problems so that they can become a stronger, better supplier.

The final principles embrace a philosophy of problem solving that emphasizes thorough understanding, consensus -based solutions swiftly implemented and continual reflection hansei and improvement kaizen. The 12th principle Genchi Genbutsu sets out the expectation that managers will personally evaluate operations so that they have a firsthand understanding of situations and problems. Principle 13 encourages thorough consideration of possible solutions through a consensus process, with rapid implementation of decisions once reached nemawashi.