by Pat Bodin
To be a business enabler, you must be able to reach from Blue down to Red so that they can support your project. And you need to reach up to Green to obtain their protection and funding so you can be successful in your project. Green’s principal value is growth. In commercially-focused organizations, growth is revenue and profitability. The other side of that coin is survival. Not survival in the sense of job security, but at the very macro level: survival of the organization itself.
Care
Because of those principal motivations, what each color cares about is different. The Red person cares about the element itself; in the information technology world, we would call that a system. Red cares about routers and servers and code.
Blue cares not about the system, but about the processes that use the system. Blue also cares about the people who need the system—the users.
Green owns the business model. The business model defines the go-to market and is the basis for the overall customer journey. Thus, Green cares most about the organization’s customer or consumer. In healthcare, that would be the patient or the physician. For banking, it’s the commercial or the retail client.
Challenge
If you think about business as a 400-metre hurdles race, each color faces a different type of hurdle:
Green is confronted by an uncertain future. If you are trying to talk to Green people, focus on uncertainty, because that’s their challenge. Companies are vying for supremacy, markets are changing, industries are undergoing transformation, and consumer preferences are developing. These pressures create uncertainty and Green leaders spend most of their time responding to that uncertainty.
Blue’s challenge is achieving value in business projects as quickly as possible: time to operational value.
Red people face the challenge of relevance. How do we impact other people’s lives? How do technologists use their tactical role to impact the enablers, or to become the enablers? The answer is that they must positively aid their organization.
These challenges are the most important cultural distinction between Red, Blue, and Green. Understand what your coworkers throughout the organization are facing. Their everyday concerns may not be yours and that’s okay. Seek to view the world through their eyes for a moment, then speak from that perspective.
SECTION III.
UNDERSTAND GREEN
Chapter 10.
Business Model Canvas
LEGO
Back in 2003, LEGO was the eighth-largest toy company in the world. They had been around for just over 75 years making plastic bricks for kids, but they were on the brink of collapse. They had been a worldwide favorite of children for many years but because of their strategic decisions in the late 1990s, they were forced to reevaluate.
What went wrong? Well, they listened to every management theorist in the world on how to innovate and they did it all. LEGO had diversified into video games and theme parks, but in so doing had overextended itself. The Green people who were responsible for creating LEGO’s vision and culture had failed at their job. An organization can’t typically address many new markets with many new products; LEGO certainly couldn’t, anyway.
Jørgen Vig Knudstorp, who became their CEO in 2003, realized that LEGO had lost its way; they had forgotten why it existed. It is critical to a global organization that it has an understanding of why it exists and to focus solely on that value. This reason is called a value proposition; it is the why, it is the purpose. After some self-reflection, LEGO came up with their value, which was “to teach children problem solving skills, which is a critical 21st century skill.”11 That is what they were missing! Problem-solving skills is the goal; therefore, LEGO sets should contain parts and pieces that force children to think about how to put stuff together. Now LEGO’s products are aimed at a single value proposition: We teach children problem solving skills.
How is LEGO doing today? It’s a juggernaut. LEGO is the second-largest toy company, and—based on blocks—the largest construction company in the world. It produces 15 billion blocks a year. They don’t just sell toys, they have encouraged buyin from educational systems who offer things such as LEGO Robotic Camps and LEGO Engineering Camps. There are regional LEGO Leagues which have robotic competitions for children. Plus, the LEGO Batman movie came out in February 2017, commended by critics, loved by fans, and hailed by some as one of the best Batman movies ever. LEGO today is an incredibly successful company because it recovered its why, its purpose, its value proposition. Today, due to a very focused value proposition and thousands of Blue people that execute that strategy each day, LEGO has become a breakaway success after just 90 years!
We in IT often focus on the building blocks of our jobs, the specifics of what we do. But that commoditizes our work. The company could outsource your job and get the same building blocks done. See, hooking up a network is of no value to your company until you explicitly connect it to the value proposition. You can’t think only about LEGOS. You must connect the dots between what you do and what the company needs. Your leadership doesn’t buy what you do—they buy why you do it. That’s why they pay you: because you help them achieve the why.
Business theorist and consultant Alexander Osterwalder wrote the book Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, which explains how the various aspects of your business fit together into a whole. Green strategists think about this big picture regularly, because Green is in charge of strategy. Red never thinks about the big picture, as Red is too busy delving into a single component. Blue does not naturally live in the realm of the business model but understands it and can use it to connect with Green. To connect with Green, you must speak the Green language—and the Green language is all about the business model.
I like Osterwalder’s work, but have changed some elements to make it better fit this context. Here’s my modified version of the Business Model Canvas.
Value proposition
Beginning at the center, the initial point in any business model is your value proposition. What can you promise and deliver to the customer? Here are some potential elements of your value proposition:
• Newness – we offer the newest way of doing XYZ; e.g., new and improve dishwasher soap
• Performance – we are the best at the task; e.g., the fastest PC
• Customization – we will customize our system to fit your precise needs; e.g., a custom suit
• Dependability – we will get the job done reliably; e.g., Rolls Royce engines have a hundred-year track record of excellence
• Design – our product looks better than our competitors’ products; e.g., the original Apple iPhone vs. other smartphones at that time
• Brand – our name adds value to our product; e.g., Rolex, Harley-Davidson
• Price – we are the cheapest option; e.g., EasyJet in Europe, on which airline I once flew my family of five from London to Rome for $200 total
• Cost reduction – we are cheaper than your current way of doing things; e.g., Software as a service (SaaS) has decreased the large amount of money I used to spend on traditional application software
• Guarantee – we reduce your risk in buying from us; e.g., Nordstrom’s guarantee – if you don’t like it you can return it, no matter what
• Skill acquisition – we teach you how to do something; e.g., LEGO teaches children problem-solving skills
Here are some possible value propositions.
• Healthcare: “We have top-rate physicians who deliver treatments in a multitude of specialties with access to specialized equipment (proton therapy machines, etc.) that provide the best possible patient care.” (Reduced Risk and Top Performance)
• Property Management: “We are the largest real estate services firm in the world with over five million square feet of property under management in over 100 countries. Our 70,000 employees in 400 global offices have the expertise to provide all of your commercial real estate needs.” (Reduced Risk, Cost Reduction, Depe
ndability, and Brand)
• Pharmaceutical: “Improving the quality of life through research driven initiatives that deliver critically needed therapies for the global health community. (Newness and Design)
• Consumer Data Source: “We are the leading source of critical information so customer can make better decisions.” (Reduce Risk and Reduced Cost)
• Specialty Store (Hardware): “We provide the widest product selection coupled with our team’s expert knowhow that allow our customer’s home renovations to be successful every time.” (Risk Reduction, Cost Reduction, Price, and Brand)
Your organization’s value proposition likely includes one or more of those elements. Can you grab a piece of paper and write it down, right now? If not, you need to search it out. Maybe you have been working with your product for so long you’ve forgotten what it is for. You might find it hard to express just what it is that your organization does.
If you work for a US publicly-traded company that must comply with Securities and Exchange Commission (SEC) regulations, look for the value proposition inside your company’s Form 10-K. (A Form 10-K is an annual report required by the United States SEC that gives a comprehensive summary of a company’s financial performance.) Section 1 or Item 1 explains what the business offers—the value proposition. For example, look at the first page of Coca-Cola’s 10-K, linked to in the footnote of this sentence.12
If you’re in a private company, check out your large competitors. Any of them who are public must submit a Form 10-K, and you can find their value proposition as a starting point for your own. Also look up your own organization’s annual report, as that may contain a statement of your value proposition. If your organization is held publicly in one of the global exchanges, London Stock Exchange, Euronext, Japan Exchange, etc., they will need to comply with security regulations in those countries and submit to standard reporting. Most annual reports will disclose the nature of your company’s business and provide important insight.
Another way to gather this understanding is to talk to your company salespeople. Ask them, “What do our customers like about us? Why do they buy from us?” Salespeople have to communicate the organization’s value every day.
What you read in the 10-K or hear from the salespeople may be a generic value proposition that your competitors could use too. You should narrow it down so that it is specific to your company. Go back to the salespeople and say, “I read such-and-such in our competitor’s 10-K. How do we respond to that? Why are we still a better choice?” Those questions will further define the unique value you offer.
Now, if you work for a very large company like Berkshire Hathaway—a conglomerate—you want to work out the business model for the division you work for. Berkshire Hathaway owns GEICO, BNSF Railway, and Pampered Chef. You can bet those three have quite distinct business models. If you work for GEICO, the business model for all of Berkshire Hathaway will be much less applicable to you than the business model of GEICO alone.
Most technologists work in organizations whose value proposition does not include technology. Coca-Cola has over 100,000 employees, many of whom fill tactical roles—but its value proposition has everything to do with drinks and nothing to do with technology. BNSF railroad needs technologists, but offers rail transportation. Are you in a situation like this? You work in the background, providing tactical support. Knowing the organization’s value to its average customer is especially important for you. Understand that you do contribute to that value, just a few steps removed. To communicate with Green, you need to talk in the context of the value proposition.
The business core
At the core of the value of any business is this question of purpose. What is our meaning? Why do we exist? These are really questions about value. And the question of value at the level of strategy determines the behavior of the business at the level of operations and at the level of tactics.
• at the level of operations: How do we act?
• at the level of tactics: What do we do?
Simon Sinek, a marketing author and speaker touches on this concept of why you exist through his very popular TED talk on how great leaders “start with why.”13
Ask most people about their job and they tell you their job title or tell you a general account of what they do. “I am a kindergarten teacher,” or “I am a software engineer,” or “I am a manager”. For instance, say it’s 1997 and I work for Hewlett-Packard: I’ll tell you, “I make computers.” Ask Steve Jobs in 1997 what he does, and he’ll say, “I think different.”
That “Think Different” slogan traces back to the early 1980s, when IBM used the slogan “THINK.” Jobs hijacked that slogan, using it in that famous “1984” Super Bowl commercial. The point was, “We at Apple are people who think differently. Are you that kind of person? Then you’ll want to buy what we make.” That’s not a typical sales message. Normally you hear, “Here’s what we have on the shelf.” Apple said, “Here’s why we have anything on the shelf at all.”
Apple is successful in part because it starts with why. Back in 1997, HP was a more successful company; Apple was on the verge of collapse. But Steve Jobs returned and helped Apple find its way again. Apple released the iMac in 1997, the iPod in 2001, the iPhone in 2007, and the iPad in 2008. Today in 2017, they closed last fiscal year at $217 billion in revenue, almost 25% net income. Apple is the strongest company that has ever existed and that is not solely because of what it has done. It’s because Apple has focused on why it does what it does.
Customer
Your value proposition and your customer are tied together. If you work at LEGO, your value proposition is “We teach children problem-solving skills.” Only certain people care about that. Who are those people? Parents, grandparents, educators, and others who care about minds of children ages 3–12. That is the heart of your consumer base and you need to know that before you start building out the rest of your business model.
Within the broad category of customers are multiple groups. Market segmentation places customers into these groups, which are often called “niche markets.” For instance, a bank offers its services both to individuals and to retail clients.
After first determining your value proposition and then identifying your customer, you can transition to channel and relationship. Your customer’s identity determines the channel and relationship that will be most effective; thus, channel and relationship come right after it. In short, channel deals with the creation of a bond with the customer, and relationship deals with sustaining that bond.
Channel
A channel is a “means employed to distribute goods or services from producers to consumers.”14 So, your channel is how you deliver your value proposition to your customer.
Channels are commonly divided into direct and indirect channels. A direct channel is one that your company owns; a sales force, for example, or your website’s e-commerce platform. Amazon sells most of its wares through a direct channel: Amazon. com. Apple sells many devices through its own stores, another direct channel.
Apple also partners with companies like Best Buy to sell its devices in Best Buy’s stores. This is an indirect channel, because Apple does not own Best Buy. In Europe, where Apple has few stores, it uses this “partner model” or “affiliate model” extensively. Wholesalers, intermediaries, and resellers all belong to an indirect channel.
How your organization gets to market impacts how your organization creates value. To be relevant, you must understand channels.
Relationship
The relationship is the sustaining part. How do you want to interact to sustain a relationship with your clients?
In banking today, the relationship between younger clients and their bank is primarily online. The channel is an online portal. How do banks sustain that relationship? With accessible ATMs everywhere so the young people can easily access their money.
You can see how this affects a bank’s business model. A single branch location costs multiple millions o
f dollars while many young people would be just as happy with an ATM. The bank might not be able to do away with branches entirely, but it could adjust its ratio of branches to ATMs.
Customer support call centers are another kind of relationship-sustainer. When you have trouble with the company’s product you call customer support and, hopefully, get off the phone happy.
The relationship that apps like Dropbox sustain is largely self-service, with email or phone support as a backup.
You want to sustain the relationship with the customer for long-term partnership and mutual profitability.
• Let’s summarize thus far with LEGO’s business model.
• Value proposition: We teach children problem-solving skills
• Customers: Parents of children ages 3–12
• Channel: Online; retailers
• Relationship: theme parks, video games, movies, packaging, camps
Revenue streams
Value proposition, customer, channel, and relationship work together to create revenue streams in a commercial-based model.
Two common types of revenue streams are transactional and recurring. Historically, in IT infrastructure, we sold devices transactionally. A company would purchase infrastructure for their computer environment for the next three to five years. It was a large capital spend up front, then very little for the next few years. That’s called transactional selling. Today, most businesses are looking for a recurring monthly revenue stream. They may rent equipment instead of selling it, or offer monthly maintenance plans.
Figure out which revenue streams your company has so that you can tie your work into them. In a commercial company, the question that you are trying to figure out is, “How does our organization make money?” Because if you can tie what you do into how your organization makes money, that makes you valuable.
