Business model innovation (changing the who, what, when,
why, where, how, and how much that are involved in
delivering for-profit offerings or nonprofit benefits) can
dramatically expand profitability while growing an
organization's ability to serve its customers or
beneficiaries. Let's look at a simple example of how the
choice of "when" you operate affects growth and cost
performance.
A young married couple, Mr. William and Ms. Dorothy
Hustead, bought a small store in a tiny town near the South
Dakota Badlands. From 1931 to 1936, they struggled through
the Depression serving the town's 326 impoverished
residents.
One day in 1936, Ms. Hustead, bothered by the sound of cars
on the nearby highway heading for Mount Rushmore, persuaded
her husband to expand their business to serve these
travelers. Mr. Hustead put up signs on the highway to draw
visitors to their store, making a unique appeal. The signs
said, "Free Ice Water . . . Wall Drug."
In those days before automobile air conditioning was
common, that offer was a powerful appeal. Beginning from
this humble expansion of its customer base, Wall Drug now
serves more than 20,000 visitors a day during the summer in
its Wall, South Dakota, store and many more on its Web site.
When the Offering Is Provided
If Wall Drug had begun 24 hour a day operations in the
early 1930s, that action would have added costs for
electricity and staff, but probably little more volume. The
town's residents knew that they could buy from the only
pharmacy in town during the day. If they had an emergency
need in the night, they could always knock on the door at
the Hustead's house.
After the highway signs began to attract a larger customer
base, being open longer hours did begin to pay off.
Likewise, the Wall Drug Web site wouldn't make as much
profit if it were open less often than 24 hours a day,
every day of the year.
Profit-making businesses can run tests to see when sales
volume increases enough to pay for added overhead,
operating, and capital costs.
A nonprofit organization will often see great enhancements
to benefits received by beneficiaries from being open more
hours, when additional donated goods and services and
volunteers are available. For example, in a food
distribution charity working poor families may be able to
reduce pickup costs by timing trips to match daily commutes
to and from work when the distribution centers are open
before and after normal working hours. Like the for-profit
organizations, the demand for such expanded hours can be
tested and the benefits received compared to the added
electricity and other added operating and overhead costs.
Obviously, the potential for recipients taking excess goods
and reselling them is present, and that risk will have to
be managed. An electronic card system, similar to that used
in university cafeterias, might be used to monitor
frequency of access and quantities taken.
The added costs of being open more hours are almost always
much lower than for regular hours. Why? Many of the base
costs of land, building, equipment, management, marketing,
and reporting are covered during the hours the organization
is open already. To be open more hours is often little more
expensive than adding a few more employees. Nonprofit
organizations with enough volunteers may only see some
added utility costs.
The exception to this rule of thumb is if perishable items
are involved where low volume may mean throwing out lots of
materials or finished goods. For instance, selling coffee
late at night can be a loser if most of the brewed coffee
is thrown out rather than sold to customers or given away
to nonprofit beneficiaries.
As a result, changing when you are open can make an
enormous improvement to your volume while reducing your
costs compared to what you deliver. As an example, many
medical practices for obstetrics and gynecology find they
can add many more patients by being open before and after
normal working hours so that working patients can come in
on their way to or from work. Making this shift may simply
be a matter of rescheduling the physicians in the practice
so that some start early and others start late.
How can you change the hours your organization is available
to serve customers or beneficiaries in lower-cost, more
helpful ways?
Copyright 2007 Donald W. Mitchell, All Rights Reserved
----------------------------------------------------
Donald Mitchell is chairman of Mitchell and Company, a
strategy and financial consulting firm in Weston, MA. He is
coauthor of six books including The 2,000 Percent Squared
Solution, The 2,000 Percent Solution, and The Ultimate
Competitive Advantage. You can find free tips for
accomplishing 20 times more by registering at:
====> http://www.2000percentsolution.com .
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