All companies have a value chain at the service of customers. They perform a series of activities – one after the other – to offer clients a result. If you do the same activities and in the same manner as your competition you´ll get the same results.
The same value chain cannot address the needs of different customer segments. Once you have decided which customers to serve and which needs to address, you must configure the processes and activities performed within your company in order to achieve the maximum satisfaction in key elements for your selected customers, at the lowest cost as possible.
You must review each and every one of the activities carried out by your company and ask yourself:
Why do we do this activity?
Does it add value?
Can any of them be cut without loss for the customer?
Must an activity be enhanced or modified to in order to add more value for the customer?
Are there any expensive disposable activities?
Intuit sells account management software for small companies. They faced a target customer who was lost when doing their personal bookkeeping on a computer. Unlike other software development companies, they created a technical team to support the final customers. Not only that; in order to improve the software, they put the same programmers in telephone assistance so that they could see for themselves where the programs failed, and upon hearing the problems directly from customers they were able to put themselves in their shoes and fix them, getting the calls to gradually decrease and the software to become increasingly simple and reliable.
Everything counts, since a business model is a complete package of activities. The goal is for them to fit together and strengthen each other so that they can complement each other: the cost of one activity decreases due to the performance of another, or the value of a particular one increases as a result of how another one is being carried out. Interdependence is the key, the pieces must be consistent and complement each other.
Seek to find those activities in training, planning, manufacturing, sales, service, metrics, rules in the form of processes, etc. that are not aligned with your goal: addressing a customer´s specific issue while being, at the same time, very profitable.
Optimize the way employees collaborate through the design of work processes. FedEx, for example, solved the needs of those customers who needed to receive packages as soon as possible by building infrastructures to deliver them in a quick and efficient manner in a single day and integrating the key processes to achieve this.
While strategy is deciding how to compete, in which playing field and for which clients, a business model defines which specific activities are carried out and how they´re performed in order to make said strategy effective and, at the same time, make the most profit. A business model describes how an organization creates, delivers and captures value.
A good business model requires choosing some activities and discarding others, establishing specific routines (habits), choosing a way to work and rules of behavior and designing progress metrics that allow for constant improvement in the right direction.
Charles Schwab studied the Stock Market brokerage industry´s value chain and understood that not every customer wanted to pay for each and every one of the elements in that value chain. While Merrill Lynch, Fidelity and all the other brokers had research in their value proposition, charging high prices for their service, Schwab saw there were clients willing to dispose of the research service and, in return, pay much lower prices.
It´s critical how activities relate to each other. This is why, when you shape your business model, you must focus on your whole offer and on the client´s experience. Always question the business model by looking at it from the customer´s perspective.
