As you consider the type of value you want to add to your
business model, you should also think in terms of what the
longer-term consequences are. Otherwise, you may create
short-term solutions that offer limited benefits.
For example, adding new variations on a fad toy, like a
hula hoop, will extend its life. Yet, at some point, the
fad will be over no matter what you do. The rewards of
offering those variations will not continue to expand into
the future.
By comparison, other improvements may have a geometric
effect over time, especially in rapidly growing markets.
For instance, EMC decided in the mid-1990s to make sure
that all of its storage products and software would work
with any server platform or operating system at no extra
charge. This change made it easier for a customer to
attach EMC's storage to their existing servers, and made it
less likely that EMC would lose a customer account in the
future after a new server vendor made a temporary or even
permanent inroad.
During the period when most other electronic storage was
not so flexible, EMC rapidly gained market share while
charging higher prices for its products, as its customers
highly valued this flexibility.
The most far-sighted companies consider how having a
benefit for customers in one area can be used to create an
important benefit in yet another area. For instance,
Paychex began as a company that provided reliable, low-cost
payroll services for small companies.
Paychex's leaders began to realize that many other services
that small companies need depend on having accurate payroll
records. Whoever is providing those records can do the best
job also in those other areas, saving customers lots of
time, money, aggravation, and government fines.
As a result, Paychex offers a whole range of
record-development and record-keeping services related to
employees that are built from the payroll database that was
its initial product line. Many of the company's customers
buy all of Paychex's services because of the accuracy and
time-saving benefits that its integrated systems provide.
Ultimately, the most valuable benefits are those which are
built on knowledge that cannot be duplicated in any other
way. For example, Ecolab began in the business of providing
cleaning chemicals for manufacturers, institutions,
restaurants, and other service providers.
For restaurants, Ecolab learned that it was more important
to restaurants to keep good relations with the health
inspectors than it was to simply have good cleaning
supplies. As a result, Ecolab expanded its offerings to
include the chemicals to sanitize everything in a
restaurant.
With its knowledge of the chemicals, Ecolab also added ways
to improve and maintain the equipment to make better use of
the chemicals. Later, the firm also defined itself as being
in the pest elimination, janitorial, floor care, water
treatment, and management advice businesses.
In each area, Ecolab carefully measures its customer's
experiences to locate what the best practices are.
Combining the expertise from these perspectives and many
customers that Ecolab has developed in each of these areas,
the company can show a customer how to save lots of money,
get better results, while paying normal prices for its
chemicals and services.
The cost reduction benefits are often a large multiple of
what Ecolab's products and services cost. Compare that
happy situation to the alternative of the immediate and
long-term costs of a restaurant's harmed reputation due to
having a facility closed down because of a health problem.
Imagine how much worse this problem is for the large
restaurant chains.
No local provider of any one of these services can hope to
provide a more effective combination of solutions than
Ecolab does. No new entrant can hope to gain the knowledge
that Ecolab has to create valuable, custom solutions at
regular prices.
As a result Ecolab is often the first choice of restaurant
chains. The added exposure to similar activities in other
end use markets (such as food manufacturing, as a similar
space for restaurants) provides even more chances to learn
and create customer benefits.
Having seen how well this expanded business model applies
to restaurants, Ecolab has duplicated this knowledge-based
benefit-development process for other types of customers.
Hospitals were an early and natural extension of this
concept.
As you can see, Ecolab is beginning to develop many of the
characteristics of an ideal business model.
Copyright 2008 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 seven books including Adventures of an
Optimist, 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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