Yesterday with my colleague Carl Haggerty (who collaborated with me on this blog post) I attended a very intriguing session about Business Model analogies by the Gartner analyst Dave Aron. This may sound like quite an abstract topic in the current local government climate but I think there are strong possibilities that it might turn out to be one of the more relevant ones once all the dust has settled: I could be off-beam here but only time will tell.

Anyway, the basic premise of the session was that there are relatively low-risk ways to innovate in business that regularly give relatively good results. I think this might be important in the current financial climate where some of our business units are facing very substantial budget cuts and will have to give the same or better results with much less money. It also chimes in with an impression we have that innovation is not something that happens in an internal silo but needs to be distributed to become everyone’s responsibility.

So what is this magic method? Simply strip the value provided by a business down to it’s core and look for analogies in other industries that have a similar business model to yours. Examples of this kind of thinking abound – apparently Henry Ford got the idea for his production line by looking at a butcher’s “disassembly line” and this inspired him to create the first auto factory, and the Gutenberg printing press was inspired by a wine press. When doing this we are looking for stuff that is somewhat safe that has been tried – and succeeded – in other situations. We are looking for ways to get superior performance with lower levels of effort and risk.

The process was illustrated with three examples that all showed a different facet of the use of business model analogies:

Whitbread – applied advances in airline IT (such as online check-in, revenue and yield management) to their Premier Inn business
TokioMarine & Nichido – a large Japanese insurance company: they took ideas from 7-11 Japan around customer relationship management and started a channel management information and comms programme.
APM terminals – a large shipping company that build/operate shipping terminal facilities. Their CIO noticed that risk profile was similar to pharmaceutical companies and implemented ideas from the pharmaceutical “pipeline”, a standard stack based on simulations that enables faster build of facilities and quicker return.

According to Aron there are 4 times to look for analogies:
1)    when there are unresolved problems
2)    when the business model changes
3)    if you have unexploited assets (informational, staff, or other resources)
4)    if you need to step up IT’s contribution to innovation in the business. (I think this one was in the presentation entirely because of the audience aron was speaking to!)

Three types of analogy
1)    customer and product analogies – similar customers or product/service relationships (the Whitbread example)
2)    structural – consider value chain, market position, supplier relations (TokioMarine)
3)    strategic – who wins in the same way? who has same strategic risks? (APM)

According to Aron there are three further types of strategic analogy – customer intimacy, operational excellence, and product leadership

This is all quite theoretical so far. What about practical steps?

The first thing to do, according to Aron is to define your enterprise: ask “what are we like”?
–    customer/product (who? segments?)
–    shape of the value chain? who has power?
–    how do you win? which processes generates most value? key risks, assets etc?)

continually scan for innovations: who are the heroes?
–    build a database of companies that have done interesting or exciting things
–    classify them
–    what is it that is innovative?

look for matches: which are the best fit?
–    slide on structural similarities

create a team that uses analogies smartly
–    increase staff diversity
–    horizontal networking
–    use of external advisors

what can go wrong?
avoid pitfalls:
–    superficial analogies (be rigorous!)
–    taking the analogy too far (anchoring)
–    analogies that evoke unfavourable reactions (reframe them)