business models

The final stage in globalizing is less a step and more a long march. After adopting a global mindset and giving their commitment teeth, executives must make a series of organizational changes–large and small–required to execute on their global strategy. To succeed on the global stage, a company must align its organizational realities with its lofty ambition.

Improving the organizational attributes required to compete globally often takes the best part of a decade, particularly for large complex enterprises. Samsung’s Chairman Lee was forced to realign most aspects of the group’s business model to deliver on his commitment to global leadership. When transforming their company to compete globally, owners and executives should focus on five key aspects of the organization: Strategic frames,  Along with the Samsung case described in an earlier post, CEMEX (a leading global cement producer), provides another example of transforming an organization for global competition

Strategic frames refer to what managers see when they look at the world, and include definition of market, focal

Many managers consider innovation the best way to increase revenues, cut costs and beat rivals. In the current recession, they find themselves constrained by a lack of resources, and must sell to price-sensitive customers unwilling or unable to pay a premium for the latest whiz-bang technology. Where can managers turn to learn how to innovate despite these constraints? The answer is not to round up the usual suspects when the topic of innovation arises: Microsoft, IBM, Sony, Samsung and Nokia for example.

All excellent companies, of course, and rightly admired for their ability to remain on the frontier of unpredictable industries. All resource rich. Managers can learn many things from technology leaders, but how to innovate on shoestring is not one of them. Leaders in technology-intensive industries such as

People use mental maps to guide action. In turbulent markets, however, these maps quickly grow outdated. To update their maps as circumstances change, leaders need information that has four critical characteristics. My last three blogs have discussed the importance of real time, unfiltered, and shared data. This post argues that holistic data is critical to spot opportunities and threats in volatile markets.

Holistic data integrates information from multiple sources, functions, or perspectives to present a

Companies often respond to market shifts by accelerating activities that worked in the past, a tendency I call active inertia. Like a driver whose car has its back wheels stuck in a rut, managers press on the gas hoping to pull out, but instead dig themselves deeper.  Hardened commitments mark the well-worn grooves that channel behavior into historical patterns.

Companies fall prey to active inertia when their hardened commitments channel their response to market changes into existing grooves. Below are some warning signals that indicate executives at your organisation may be locked into their historical commitments and susceptible to active inertia, should the environment shift.

The newspaper industry is collapsing, after decades of gradual decline. Unfortunately at this point,  incumbents have few good options.  No one knows the future, but my hunch is most traditional newspapers and weekly magazines in the US and UK will disappear, while others will hang on eking out minimal profits. A handful of survivors will continue to create economic value, probably limited to publications with outstanding quality, a clear point of view, and a distinctive voice (think the Economist, New Yorker, Financial Times, Wall Street Journal).

The decline and fall of the newspaper industry holds important insights for executives in other industries–including pharmaceuticals, law firms, and fast-moving consumer goods–that may be suffering from the early stages of dry rot.  In particular, managers in these industries can avoid five mistakes that newspaper executives made as digital media began to erode customers’ willingness to pay for traditional print products.

The downturn has exposed flaws in business models, such as newspapers. Identifying basket cases after they have collapsed is easy, but by then it is too late to save them. The trick is to spot the weak spots in a damaged business model before it collapses, while management has the resources and time to fix it.

Long immersion in an industry can blind executives to flaws in their strategy and business processes. Managers can use a simple exercise to counteract the tendency to take an industry’s practices for granted.  Imagine ten years from now, your industry’s dominant business model has collapsed. You write a cynical blog post explaining why the business model collapsed. Don’t shoot for balance but instead emphasize the weak spots that killed the industry.  Below are a few examples of this analysis for some business models that look healthy right now, but collapse from dry rot in the future.

The decline of business models resembles the process of dry rot, which eats away at a building’s timber, such that it looks solid but is in fact susceptible to collapse. Business models decline when they no longer create economic value, and this decline typically occurs when customer’s willingness to pay decreases. Thus the main indicator of decline is falling prices exceed reductions in costs to produce the good. Slipping prices are the best, but not the only indicator of dry rot. Below are five symptoms to help you assess whether your company’s business model may be at risk of decline:

The gradual decline of a business model is often followed by an abrupt collapse. The decline and fall of an outmoded business model resembles the slow advance of dry rot. Dry rot is the deterioration of wood, in a building for example, which occurs when a fungus eats away at the cellulose that gives wood its hardness. The decay proceeds imperceptibly over time as the fungus erodes the timber’s solidity. In the advanced stages of dry rot, a wooden building can appear perfectly sound, but remains susceptible to collapse at any moment.

Most companies are suffering in the downturn, but they are not all suffering in the same way.  For some firms the downturn is their only problem–a serious one to be sure, but also transient. For others, however, the recession reveals more fundamental structural problems with their business model or ability to execute. For these firms, the recession is a challenge, but not the root cause of their woes.  Before setting a course of action, managers must assess whether their situation is good (strong execution on sound business model), bad (poor execution of good business model), or downright ugly (business model is broken).

Leading in turbulent times

This blog is no longer active but it remains open as an archive.

Don Sull is professor of management practice in strategic and international management, and faculty director of executive education at London Business School. This blog is dedicated to helping entrepreneurs, managers, and outside directors to lead more effectively in a turbulent world.

Over the past decade, Prof Sull has studied volatile industries including telecommunications, airlines, fast fashion, and information technology, as well as turbulent countries including Brazil and China, and found specific behaviours that consistently differentiate more, and less, successful firms. His conclusion is that actions, not an individual’s traits, increase the odds of success in turbulent markets, and these actions can be learned.