Firm of the Future - Media Edition

Firm of the Future Media and Analysts Ed KlessSenior Director, Partner Development and Strategy ed.kless@sage.com @edkless

What is a Business Model? How your firm createsvalue for customers, and how you monetize that value.

“Disruptive threats comeinherently not from new technologybut from new Andy Grove, Founder, business Intel models.”

Peter Drucker “The customer never buys a product. By definition thecustomer buys the satisfaction of a want. He buys value.”

Experience CurveUndifferentiated Differentiated Provide knowledge Perform Services Make products Extract Commodities Market Pricing Premium

Professional Service Firm

Four Assertions 1) Growth without profit is perilous 2) Nonrival assets have more leverage than rival assets 3) Effectiveness is always and everywhere more important than efficiency 4) Value-led pricing is superior to cost-plus pricing for capturing value

Four Defenses of Timesheets1) Pricing2) Productivity3) Cost accounting4) Project management

Professional Knowledge Firm Professional Knowledge Firm Capital Pricing onProfit = X Effectiveness X management Purpose

Two Business Models Professional Knowledge Firm Capital Pricing onProfit = X Effectiveness X management Purpose ↑ ↑ ↑ ↑

From Revenue to Profit

The Market Share Myth Richard Miniter

$40,000$35,000$30,000$25,000$20,000$15,000 $10,000 Value $5,000 Price $0 Cost

Baker’s LawBad customers drive out good customers

From Capacity to Capital

Four Forms of Capital• Financial• Intellectual• Structural• Social

Rival Asset Non-Rival Asset

How Knowledge Workers are Unique• They own the means of production• Firms need them more than they need firms— balance has shifted• Office is their servant, not their master• Effectiveness is far more important than efficiency• Judgments are more important than measurements• Ultimately, they are volunteers

From Efficiencyto Effectiveness

The Antithesis of Efficiency• Continuing education• Knowledge management/CKO• Total Quality Service (Ritz-Carlton)• Mentoring and coaching• Networking• Business development• Social media• Pricing on purpose

What you canmeasure you can manage. The McKinsey Maxim

“The only way to look into the future is use theories sinceconclusive data is only available about the past.” Clayton Christensen

The Big Three• HSDs• Turn around time• Value Gap

Value Gap

From Cost-plus to Value-led

Warren Buffet“The single most important decision in evaluating a business is pricing power. If you’ve got thepower to raise prices without losing business to acompetitor, you’ve got a very good business. And if you have to have a prayer session beforeraising the price by 10 percent, then you’ve got a terrible business.”

The 5 Cs of Value • Comprehend the key value drivers for customers • Create value for customers • Communicate the value that you create • Convince customers that they must pay for value • Capture value with effective price strategies

A 1% increase change in, yields12.0% 11.0%10.0%8.0% 7.3% 7.1%6.0% 4.6% 3.7%4.0% 2.7% 2.5% 1.5%2.0%0.0% - Fixed Costs + Revenue - Variable + Price costs McKinsey AT Kearny

The Smile Curve

Ed’s IT Smile Curve

A Tale of Two Theories The Labor Theory of Value The Subjective Theory of Value

Salaries + Overhead + DNI Expected Hours = Hourly RatePrecise, but precisely wrong

Cost-led PricingService Cost Price Value CustomerCustomer Value Price Cost Service Value-led Pricing

Eight Steps to Pricing on Purpose ① Conversation with customer ② Pricing the customer, not the services ③ Developing and pricing options ④ Present options to customer ⑤ Option selected codified into an FPA ⑥ Proper project management ⑦ Utilize change requests ⑧ Perform after action reviews (AAR)

Five Ts to Offering Options 1) Terms 2) Technology 3) Timing 4) Talent 5) Training

Baron Joseph von Neinbach’s Model WA HF PFCBA

Behavioral Economics

CharlesRevson, Founder, Revlon“When it leaves thefactory, it’s lipstick. Butwhen it crosses the counterin the department store, it’shope.”

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Firm of the Future - Media Edition

by Ed Kless

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