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Business Model Wars - A one day program

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One Day Program for Teaching Business Model Wars.

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Business Model Wars - A one day program

  1. 1. Business Model Wars How the digital revolution is impacting long term performance and growth of all organizations A One Day Training Program for Deloitte Professionals 2014 and 2015
  2. 2. Agenda History 10:30 - noon Research 1-2:30 pm Application 3-4:30 pm Alignment 4:30 – 5:00 pm 2 3 4 5 Introduction 9-10:00 am1 The history of business models How business model leads to profit, growth, and value The five steps; Case study Who to talk to, what to say, what products to offer. Digital disruption; Forbes Research; our new PoV Copyright: OpenMatters LLC
  3. 3. Digital changes everything Copyright: OpenMatters LLC
  4. 4. Our PoV connects risk, performance, & business model Enterprise Risks Enterprise Value Business Models Mental Models What leaders know and value about disruptive technologies… …drives how organizations spend and make money… …which drives long term performance and growth… …and related and attendant risks Disruptive technologies Copyright: OpenMatters LLC
  5. 5. Let’s start by defining mental and business models Mental model Business model What leadership… • Believes is important • Has developed their own skills • Gives time and attention • Measures and reports How a company… • Spends capital • Hires people/builds skills • Engages with customers • Generates long term growth & performance Copyright: OpenMatters LLC
  6. 6. There are four mental models… Software and IP (IQ) Networks and big data (SQ) PPE and products (PQ) People and services (EQ) The digital divide Copyright: OpenMatters LLC
  7. 7. …drives how organizations spend and make money… Developing and selling intellectual property Building and managing networks Making, marketing, and selling things Hiring and billing people’s hours The digital divide Copyright: OpenMatters LLC
  8. 8. …which creates four business models… Knowledge- based Software, Biotech and data firms Network- based Social and commercial networks Industrial- based Manufacturers, retailers and distributors Services- based Consultants, financial services firms Our Value-Risk Matrix The digital divide Copyright: OpenMatters LLC
  9. 9. Examples of companies Information Network Physical Services The digital divide Copyright: OpenMatters LLC
  10. 10. Exercise: what is your clients mental model? 1. Consider clients’ mental models 2. Create a post-it with their name on it 3. Place the post-it on one of the quadrants 4. Understand what this means for how they allocate capital Software and IP Networks & big data PPE and products People and services Copyright: OpenMatters LLC
  11. 11. Mental models Copyright: OpenMatters LLC
  12. 12. Agenda History 10:30 - noon Research 1-2:30 pm Application 3-4:30 pm Alignment 4:30 – 5:00 pm 2 3 4 5 Introduction 9-10:00 am1 The history of business models How business model leads to profit, growth, and value The five steps; Case study Who to talk to, what to say, what products to offer. Digital disruption; Forbes Research; our new PoV Copyright: OpenMatters LLC
  13. 13. Technology Time Industrial Revolution ~1800 Services Revolution ~1975 Information Revolution ~1990 Digital Network Revolution ~2010 New business eras are driven by disruptive technologies of the time Copyright: OpenMatters LLC
  14. 14. Business types have different key attributes Industrial Services Information Digital/ Network Key assets Key competencies Key industries • Relationships • Network • Knowledge • Software • IP • Skilled employees • PPE • Consumerism • Mobility • Engagement • Research & development • Communication • People services • Manufacturing • Distribution • Social software • Big data • Software • Biotech • Energy • Transport • Retail • Financial • Healthcare • Insurance Copyright: OpenMatters LLC
  15. 15. Different business types scale in different ways Industrial Services Information Digital Make one, sell one Hire one, sell one Make one, sell many Many make, many sell Business model Copyright: OpenMatters LLC
  16. 16. Industrial Revolution Began a new era: • Away from Agriculture • Focused inside on manufacturing and internal processes… • New financial and operating measures • Physical output • Asset utilization • ROA Digital Revolution Beginning a new era: • Away from Information • Focused outside on social and commercial networks and the big data produced… • New financial and operating measures • Network size • Crowdsourcing • Value of all intangibles Information Revolution Began a new era: • Away from Services • Focused inside on intellectual property, digitizing content and insights… • New financial and operating measures • Creative output • R&D • ROI New eras, new business models, new assets Services Revolution Began a new era: • Away from Industrial • Focused inside on hiring and training employees to provide services… • New financial and operating measures • Revenue/employee • Customer satisfaction Industrial Revolution ~1800 Services Revolution ~1975 Information Revolution ~1990 Digital Revolution ~2010 • Key Asset: CapEx • Key Asset: Human capital • Key Asset: IP • Key Asset: Network / relationships Copyright: OpenMatters LLC
  17. 17. Industrial Revolution Make one, sell one • Focus: High fixed costs, Field (Institutional) sales; big accounts • Key Industries • Manufacturing • Transportation • Energy • Key Competencies • Finance • Manufacturing • Distribution Digital Revolution Many make, many sell • Focus: Even lower fixed costs, higher gross margins; Inbound marketing (consumers) • Key Industries • Online marketplaces • Social software • Big data • Key Competencies • Consumerization • Mobility • Engagement Information Revolution Make one, sell many • Focus: Lower fixed costs and higher gross margins: Blended sales; SMB • Key Industries • Enterprise software • Biotechnology • Publishing • Key Competencies • Enterprise Technology • IP development • Content New business models, new economics, new assets Services Revolution Hire one, sell one • Focus: Shift of capital from CapEx to salary; customer intimacy • Key Industries • Finance • Enterprise Software • Publishing • Key Competencies • Recruiting and training • Customer service • Lifecycle support Industrial Revolution ~1800 Services Revolution ~1975 Information Revolution ~1990 Digital Revolution ~2010 Copyright: OpenMatters LLC
  18. 18. Technologies NewerOlder Low High Growth and Value 4 Business Types based on Technology and Assets Used Result: Different business models, different growth and profits…. Industrial Services Information Network Copyright: OpenMatters LLC Digital Divide
  19. 19. …and Enterprise Value premiums… 4 8 1 2 Theoretical Long Term Multiple of Revenues Based on Business Model The digital divide Copyright: OpenMatters LLC
  20. 20. …and related and attendant risks Intellectual Property & Code Risks Reputation & Cyber Risks PPE & Product Quality Risks Employee Training & Client Risks The digital divide Copyright: OpenMatters LLC
  21. 21. Exercise Goal Understand your clients business model to determine how they allocate their capital Goal Key questions and exercises • Let’s look at Amazon versus Best Buy as example • What is the mental model of your clients? • What is the value of your clients’ intangible assets • What are those intangible assets? • What are the risks of not knowing? Copyright: OpenMatters LLC
  22. 22. FY12 Intangibles value $5B Revenue 45,085 GM% after COGS, Fulfillment 23% Technology and Content 0 SGA% 21% Operating Margin % (.3%) Market Value $8,909 Price To Revenue 0.18 Total Assets 16,787 Total Liabilities 13,072 Intangible Assets (Market) 5,194 Intangible Assets (Acquired) 862 Physical & Financial Assets 15,925 FY12 Intangibles value $106B Revenue 61,903 GM% after COGS, Fulfillment 15% Technology and Content 4,560 (7.5%) SGA% 13% Operating Margin % 1.1% Market Value 114,808 Price to Revenue 2.23 Total Assets 32,555 Total Liabilities 24,363 Intangible Assets (Market) 106,616 Intangible Assets (Acquired) 2,552 Physical & Financial Assets 30,003 Source: OpenMatters LLC The market value indicates $107B of assets to be preserved (Amazon) or $5B that could be increased (Best Buy)
  23. 23. The market understands the value of intangible assets • Typically, market value is considered to be the present value of future discounted cash flows • Despite being relatively same sized “retailers” ($45B and $60B), and both delivering operating margins (~1%), the market views Amazon as 7x more valuable • So why does the market believe Amazon’s future cash flows will be so much higher than Best Buy’s? Ø The Business Model, clicks are more scalable than bricks Ø The management team, and all the employees (human capital) Ø The customer, Amazon uses technology to build intimacy (customer capital), while Best Buy has to maintain physical/store property • Recognizing that both companies have strong Brand and Reputation, the Market gives Amazon credit for over $100B in other intangible assets Copyright: OpenMatters LLC
  24. 24. Exercise: Think about your clients’ intangible assets • Use finance.yahoo.com to compare book value to market value • Market Value is found under Key Statistics • Use the company’s 10K to complete the rest of the information on the worksheet • Write down the intangible assets that you think make up the difference between the two and map those assets by quadrant Copyright: OpenMatters LLC
  25. 25. Company name: Revenue GM% after COGS, Fulfillment Technology and Content SGA% Operating Margin % Market Value Price To Revenue Total Assets Total Liabilities Intangible Assets (Market) Intangible Assets (Acquired) Physical & Financial Assets Exercise worksheet: Valuing intangible assets Software and IP Networks & big data PPE and products People and services Copyright: OpenMatters LLC
  26. 26. List of intangible assets, risks, and opportunities Copyright: OpenMatters LLC
  27. 27. Agenda History 10:30 - noon Research 1-2:30 pm Application 3-4:30 pm Alignment 4:30 – 5:00 pm 2 3 4 5 Introduction 9-10:00 am1 The history of business models How business model leads to profit, growth, and value The five steps; Case study Who to talk to, what to say, what products to offer. Digital disruption; Forbes Research; our new PoV Copyright: OpenMatters LLC
  28. 28. 0.62 0.37 0.31 0.00 Physical Svcs Info Network Average COGS/Revenue 0.01 0.00 0.16 0.06 Physical Svcs Info Network Average R&D/Revenue 0.15 0.29 0.28 0.41 Physical Svcs Info Network Average SG&A/Revenue Note: Based on analysis of the S&P 500 Source: Capital IQ data pulled October 2013,; Revenue is LTM Leaders allocate capital differently based on their mental model Copyright: OpenMatters LLC
  29. 29. Note: Based on analysis of the S&P 500 Source: Capital IQ data pulled October 2013,; Revenue is LTM Result: Network business models grow faster… 8.4 5.8 13.4 17.5 Physical Svcs Info Network Avg. Revenue CAGR ’10-’12 The digital divide Copyright: OpenMatters LLC
  30. 30. Note: Based on analysis of the S&P 500 Source: Capital IQ data pulled October 2013,; Revenue is LTM …produce higher profit margins… 0.15 0.09 0.23 0.24 Physical Svcs Info Network Average Profit Margin 0.23 0.22 0.29 0.38 Physical Svcs Info Network Average EBITDA/Revenue Copyright: OpenMatters LLC
  31. 31. 2.0 2.7 5.0 8.2 Physical Svcs Info Network Average Price to Revenue Ratio Note: Based on analysis of the S&P 500 Source: Capital IQ data pulled October 2013,; Revenue is LTM …And generate significant enterprise value premiums! The digital divide Copyright: OpenMatters LLC
  32. 32. 0.00 2.00 4.00 6.00 8.00 10.00 1975 1980 1985 1990 1995 2000 2005 2010 2013 Average P/R Ratio by Business Model Historically Network Information Services Industrial Network Information Physical Services *Digital CAGR is ’80 – ‘13 Note: Based on analysis of the S&P 500 Source: Capital IQ data pulled October 2013,; Revenue is LTM CAGR ’75 –‘13 8.7%* 2.7% 4.5% 3.4% Further, trend is accelerating… premiums paid are widening Copyright: OpenMatters LLC
  33. 33. Investors pay more than $18 for each $1 of revenue Investors pay less than $1 for each $1 of revenue 80% of companies are physical and services businesses 0 20 40 60 80 100 120 140 160 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18+ Distribution of S&P 500 Number of companies that fall within each range 80% of companies have P/R less than 3 Copyright: OpenMatters LLC
  34. 34. Exercise Goal Understand your clients long term growth, profits and enterprise premiums by assessing their Price/Revenue Multiples Goal Key questions and exercises • Each of you have received the ACE spreadsheet • Pick one of your clients, if you have none on the list you may select one • Estimate the P/R ratio for the client • Put a post-it note on the spectrum Copyright: OpenMatters LLC
  35. 35. Estimate your client’s P/R ratio based on business model 1. Write client names on post-its 2. Estimate P/R ratio 3. Place post-its on the scale on the white board 4. We will provide the actual P/R ratio 5. Discuss the difference Client 4 Network 8 Client 1 Physical 2 Client 3 Info. 5 Client 2 Services 3 High Low The digital divide Copyright: OpenMatters LLC
  36. 36. Agenda History 10:30 - noon Research 1-2:30 pm Application 3-4:30 pm Alignment 4:30 – 5:00 pm 2 3 4 5 Introduction 9-10:00 am1 The history of business models How business model leads to profit, growth, and value The five steps; Case study Who to talk to, what to say, what products to offer. Digital disruption; Forbes Research; our new PoV Copyright: OpenMatters LLC
  37. 37. There is certainty that technology is driving change and that clients must adapt Enterprise Risks Enterprise Value Business Models Mental Models Bill showed how disruptive technologies impact mental models…. …and how leaders spend and make money Megan showed impact on growth, profits and enterprise value… This module is going to focus on risks and case study. Henry previewed how disruptive technologies impacts every industry Copyright: OpenMatters LLC
  38. 38. Does this approach connect with your view or risk? ? Copyright: OpenMatters LLC
  39. 39. Commercialization: 5 steps to Better Growth and Performance Strategy Finance Technology Operations Measurement Five steps to de-risk a business model Copyright: OpenMatters LLC
  40. 40. Exercise Goal Understand that the largest risk is not adapting to the certainty of digital disruption for a potential client Goal Key questions and exercises • Break into 4 groups to look at a real client: Joslin • Group Assignments: Build business models for the following • Work together to help define Joslin’s future strategy • Group 1: Finance • Group 2: Technology • Group 3: Operations • Group 4: Measurement Copyright: OpenMatters LLC
  41. 41. Exercise: Design the vision for Joslin none none $40M building $50M cash 27K patients 950 employees $80M in revenue $12M in losses The digital divide Today: Joslin Diabetes Center Vision: Joslin Way Copyright: OpenMatters LLC
  42. 42. What steps should Josslin take in each area to realize this vision? Strategy Group 1: Finance Group 2: Technology Group 3: Operations Group 4: Measurement Gather executive team, do P/R exercise and envision organization as a digital organization Conduct a complete inventory of unmeasured, intangible assets and risks related to all ‘assets’ (tangible & intangible) Determine which technologies are necessary to monetize intangible assets and mitigate risks (e.g. reputation) Identify the right people and processes necessary to deliver a ‘digital first’ business model Measure and report outcomes of all initiatives and integrate non-traditional reporting KPI’s from digital efforts Copyright: OpenMatters LLC
  43. 43. Recommendations for Joslin Copyright: OpenMatters LLC
  44. 44. Agenda History 10:30 - noon Research 1-2:30 pm Application 3-4:30 pm Alignment 4:30 – 5:00 pm 2 3 4 5 Introduction 9-10:00 am1 The history of business models How business model leads to profit, growth, and value The five steps; Case study Who to talk to, what to say, what products to offer. Digital disruption; Forbes Research; our new PoV Copyright: OpenMatters LLC
  45. 45. Working session • We will split into four working groups, which will each tackle one of the following topics: 1. Who at the client do you target? 2. What does the client-facing lab look like? 3. How do we structure a strategy engagement? 4. How does this align with existing Deloitte services? • You will have 30 minutes to discuss and develop ideas within your working group • Each group will then read back out to the lab, ~10 minutes per topic • Last topic: which clients do we target (20 min) Copyright: OpenMatters LLC
  46. 46. List potential clients Copyright: OpenMatters LLC
  47. 47. What resources do you need to succeed with these clients? Copyright: OpenMatters LLC
  48. 48. Feedback on the day Copyright: OpenMatters LLC
  49. 49. Business Model Wars How the digital revolution is impacting long term performance and growth of all organizations A One Day Training Program for Deloitte Professionals 2014 and 2015

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