Push Me, Pull You — Dueling Business Models

Through the three hundred-year reign of the Industrial Age, businesses “pushed” their products and services onto consumers. Limited choice accompanied by considerable marketing hype was enough to make the consumer buy. It was a sellers’ market. Now, thanks largely to the Information Age, consumers are evolving into customers who can select what they want from a variety of providers. It is becoming a buyers’ market. But further changes are afoot. As customers get more they expect more, especially in terms of their business performance, their quality of life, and the welfare of the planet. Customers are beginning to “pull” solutions toward them rather than take what is “pushed” at them. Just like the challenges confronting the two-headed llama in Dr. Doolittle’s menagerie of strange animals, the implications of “push” or “pull” on business strategies are enormous. The differences between a business model intended to push products and services to consumers vis-à-vis a model built in support of customers pulling solutions into a shared reality are significant. While many companies will be impacted by this switch from “push” to “pull,” few will be prepared for the transition.

As indicated in the diagram below, there are numerous dynamics at play in the understanding and application of the push and pull business models. Can any business traditionally steeped in a push model operate concurrently with a pull model? It’s a question well worth consideration. There are no quick and easy answers. Read on…

See “Business Flow and Business Models-v14Apr2006” in “John Deere” folder
See “Business Flow and Business Models-v14Apr2006” in “John Deere” folder

Distance to the Customer Revisited

A previous post explored the relationship between the dissipating Industrial Age and the emerging Relationship Age in terms of “distance.” During the height of the Industrial Age, many products and services were built, packaged, and delivered according to rigid, standardized specifications. While individual customers may have had some leeway in personalizing their purchases, all too often the range of possibilities were narrowly prescribed by the provider. Basically, consumers were pressed into a mold that kept them at a “distance” from providers and in a position to have to accept whatever product configurations providers offered. This enabled businesses to take advantage of certain “economies of scale” and improve operating efficiencies which reduced their costs, improved margins, and led to lower prices and greater competitiveness. Successful marketing campaigns generated more sales and revenue. The resulting profits were distributed to shareholders and used to grow the business through investments in people and their research and development. It was a simple formula for sustainability!

The advent of the Information Age began to challenge this formula. Advances in communication and information technologies opened doors to opportunities previously unknown or unavailable. Consumers became more aware of and had greater access to a wider range of product and service possibilities. In effect, as consumer expectations became more specific and refined, they became customers no longer content to take only what was offered by a limited number of providers. Gone were the days when if they wanted a unique, customized package they had to be willing to pay an exorbitant price – an option out of the question for most during the Industrial Age. Now, it was becoming routine to get exactly what one wanted at a reasonable price by comparative shopping in a larger universe of providers.

Businesses were also taking advantage of the Information Age. Formerly, the buying characteristics and specific business and lifestyle needs / wants of individual customers were not discernible. What market analysis was done came at great cost and with little granularity in the results leaving businesses to make gross generalizations about consumer interests within broadly defined markets. However, just as communication and information technologies gave customers more choices in providers, businesses used these same technological advances to learn more about their current and prospective customers. Lack of distinction among market groups has given way to proliferation of well-defined market niches and segments. While developing accurate and complete profiles on individual customers in mass markets remains a goal still in the future, the gulf is closing and the distance between the customer and the provider is shrinking.

Application of Intelligence, Innovation, and Knowledge

Regardless of the industry or circumstance, businesses imbue intelligence, innovation, and knowledge into their deliverables. Whether for professional or personal use, when customers make purchases they are buying know-how. The narrowing customer-business gap is shifting the point at which customers expect intelligence, innovation, and knowledge to be applied and where businesses must be forthcoming and effective at imparting it.

During the Industrial Age intelligence, innovation, and knowledge were instilled in products and services at the moment of their invention then distributed widely into large market areas. In the Information Age, developments in technologies enabled products and services to be combined in different configurations that yielded much better performance, reduced prices, and a wider selection of possibilities for the customer to choose. In effect, the application of intelligence, innovation, and knowledge shifted from solely in the products and services to their combinations.

Companies successful at making this shift purposefully designed the interfaces between various product and service lines so that the highest level of efficiency, effectiveness, and value occurred with those products and services from the same company. Perhaps the most obvious example of this is Microsoft. Starting with a simple operating system that became the standard for the vast majority of PCs, Microsoft continued to develop an array of supplementary software packages that interfaced easily with its own evolving operating system. This powerful combination of products and services proved to be a huge barrier to entry for competitors and Microsoft became the dominant player in the industry within a very short period.

As technology advances even further, the point of application for intelligence, innovation, and knowledge moves along with it. This shift goes past individual products and services or combinations of them to include multiple combinations from a diverse selection of providers. It is fueled in large degree by the breakdown in barriers that separate the product and service lines of one company with those of another, especially among competitors. The elimination of boundaries directly challenges the Industrial Age paradigm wherein companies attempted to keep their parts, components, and assemblies proprietary, non-standard, and separate from those of other companies in order to leverage internal investments and resources. The Information Age paradigm is leading to widespread adoption of comprehensive, industry-wide standards such as ISOBUS in the agricultural equipment arena, and the integration of two previously incompatible and competitive products into one as with Apple’s beta version of Boot Camp, which enable Macs to run Windows operating systems and software natively. This is the advantage that comes from being able to fluidly mix and match product and service offering from a multitude of companies.

Who Is the Integrator?

While seamless combinations of products and services are certainly a major step forward for customers striving to improve their businesses and quality of life, they still require the customer to analyze requirements, consider alternatives, make selections, and deal with the consequences one way or the other. Basically, the customer is still the “integrator” – the one who puts a solution or system altogether at the end as businesses compete among themselves for the right to provide the various pieces. In an environment that went from offering few choices to one harboring an infinite variety, life went from the seemingly simple to the extremely complex.

This growth in complexity comes at considerable cost in terms of time, energy, creativity, and money for the customer managing a business or personal interests. As a result, responsibility for integrating complete and comprehensive solutions for customers is quickly moving from the customer to the business. The nexus for delivering intelligence, innovation, and knowledge is still on the move. It is beginning to cover the full range of customers’ businesses or personal endeavors, the processes and tools they utilize, and the groups, entities, and individuals with whom they interface and interact. Companies that once “pushed” individual and combinations of products and services are now being asked to “partner” with a single customer, focus together on that customer’s business / lifestyle model, and “pull” a solution to it from the myriad possibilities within a supportive network / web. The Relationship Age is dawning!

While this evolution is predictable and straightforward, it is difficult to carry out. Usually, companies do one and not the other. Even when they start with the more traditional push model and dedicate a portion of their business to the pull model, they will eventually isolate one from the other or jettison one and leave the other. One of the most recent companies to make such a transition is IBM. In 1991, IBM was known for its computer hardware and consulting business. Mainframes and PCs constituted core businesses within IBM’s portfolio. Then, in 1991 IBM started another division, IBM Global Services, focused on developing and delivering total solutions in response to the needs of customers’ businesses. Today, IBM Global Services generates nearly $50 billion in revenue – over half of the total revenue for the entire corporation. To accentuate how challenging it is to maintain both business models, in 2005, IBM completed the sale of its PC division to Lenevo, a subsidiary of Legend Holdings in China. After being in PC design and production from the inception of the industry, IBM was now out of this business. And its Global Services arm continues to grow.

Companies think because they are offering integrated product and service packages of varying degrees of comprehensiveness and coverage they are using a pull model. This is not the case. Most companies continue to use variations of the push model wherein individual products and services are blended into certain combinations which are integrated with other combinations to increase appeal to the customer. When the number of additional features and functions included in the package reaches the point where the customer feels the deal is better than competitive offerings, the customer buys. No matter how sophisticated the bargaining process is between sales agents for the company and the customer, it remains a ‘here’s-what-I-have-to-sell-what-is-it-going-to-take-for-you-to-buy’ transaction – the customer is still the integrator.

Businesses that use the pull model begin with the customer’s business or personal interest “portfolio” – the critical mix of conditions and expectations within which the customer develops plans, takes action, and pulls a solution to it. The businesses are intimately aware of the customer’s business model. As such, they know how an opportunity fits into the customer’s portfolio; and they have the customer’s confidence that they can pull a powerful solution into place and put it into play. The customer trusts that the provider’s intelligence, innovation, and knowledge in large systems thinking and behavior is sufficient to bring about an appropriate solution in response – one that is so much BETTER than the customer’s approach that there is no need for the customer to second-guess the provider. The company becomes the integrator. The customer is relieved from managing a substantial level of complexity and can apply new-found time and energy into other areas of opportunity or interest.

An Opportunity Looking for a Place to Happen

At the outset of this posting I asked, can any business traditionally steeped in a push model operate concurrently with a pull model? Yes, but only to the degree that the business is willing to invest in a one-on-one working relationship with a customer — one of the hallmarks of the budding Relationship Age — to the point that the customer trusts that the business is the better integrator. It is a negotiated “partnership,” not a bargaining agreement.

How would one know the difference? An example might help. In May 2000, the German Bundestag passed the Renewable Energy Sources Act. Amendments to the act went into effect in August, 2004 that opened the door for numerous business opportunities for those in agricultural production. As the name of the act suggests and its content describes in detail, development of renewable energy sources for electric power generation is a major focus of the measure. One of the renewable sources encouraged is bioenergy, which includes biogas and biomass. Given the growing interest in biogas, there is a high likelihood that for some in organic agriculture in Germany a significant percentage of their business portfolios would be enriched by a biogas production component. Studies show how German producers can extract a distinct advantage by integrating biogas production in their overall operations.

This is an opportunity for businesses to emerge that provide customers with comprehensive organic agriculture portfolio solutions “pulled” from a broad-based network of product and service providers. A list of companies involved in biogas / bio-energy listed by Renewables Made in Germany is telling: not many companies are shown; those who are offer products and services related to the technology associated with bio-energy; those with established reputations as integrators using pull-based models are not listed. This is a heretofore unrealized business opportunity. The company that shows up with a viable, trusted process of engaging customers who are in agriculture production to improve their business portfolios by drawing upon deep support networks to pull a solution into play will win. So far businesses in this market are pushing their products and services. The customer is relegated to an age-old role of an integrator. How much longer? Time is drawing short. Let’s watch and see what transpires over the next few months!

Originally posted to New Media Explorer by Steve Bosserman on Sunday, April 16, 2006

Getting Close to the Customer

This past month, I had the opportunity to work with people across several units within a client organization and develop a strategic framework to inform their planning for future initiatives and projects. Some of the concepts and ideas we explored were related to topics I have introduced in previous posts here and here. This posting draws upon a couple of the diagrams we developed as a way to open the door to the future a bit further and peek into what’s inside.

In Figure 1 below, technology is plotted against society and economy. The vertical axis represents a trend that continues to influence humanity in all aspects: technology becoming faster, smaller, stronger, more integrated, and more intelligent by the day, hour, second. As technology advances, it displaces people from production – from making things. This was the impetus for the Industrial Age wherein mechanization displaced craftsmanship. It started the Information Age with its emphasis on integration and the globalization of production to those areas where human competency and capacity can be found for the lowest cost. And it will precipitate the Relationship Age wherein a wide range of relationships among people utilizing things is supported rather than being a means through which people are occupied making things and are kept apart from one another. This emphasis on relationships leads to increased localization at a community level.

As indicated in the horizontal axis, society and economy changes as these different ages unfold. The Industrial Age created jobs requiring specific skills. People learned skills / trades at school and entered the workplace where their skills were honed by experience on the job. Job opportunities represented income opportunities. Jobs, like the businesses that defined them, were mobile, starting, ending, expanding or moving from location to location depending on the economic circumstances in one area versus another. Where the jobs went, so did the people as it was relatively simple to relocate. People chased the chance to make things!

The Information Age began to shift the emphasis from physical production to the virtualization of production: distributed resources and capabilities, processes and tools, and real-time communication and networks. While work was still packaged as jobs, the nature of the work was rapidly changing – and still is. Having a defined set of tasks outlined on a job description pasted in a box within the hierarchy of an organization chart is no longer the guideline for the work required. Instead, people are expected to communicate across organizational boundaries, participate in open networks to stay abreast of changes in their work context, and form ad-hoc, multi-disciplinary teams focused on taking timely advantage of various opportunities as they emerge. Rather than being rewarded for doing the job, they are rewarded for adding value through collective effort. Competencies in convening and leading teams, being an effective team member, making meaning out of seemingly disparate pieces, identifying opportunities and advancing them in actionable ways, and fostering alignment across diverse groups to gain greater leverage are critical aspects in a person’s portfolio. This portfolio is marketable and portable; and like job mobility of the Industrial Age, the portfolio of the Information Age is mobile. Just ask the person sitting next to you on the airplane!

The Relationship Age has yet to get underway, although we can see vestiges of it on the periphery. As the virtualization of production continues and technology displaces even more people from the act of making things, the relationships among people becomes virtualized. By taking advantage of the same technologies that are virtualizing production, a person’s portfolio becomes virtualized and the competencies and capabilities contained within it can be delivered to anywhere from anywhere at any time. This changes the whole concept of where a person lives and works. Work becomes localized and community-based even though the delivery of that work may be anywhere in the world. A person begins to consider community affiliations for reasons other than job or work assignment. Commitment to a community can be longer term when the job or work does not cause one to be uprooted. Civic responsibility and being of service to the community takes root. Community infrastructures are strengthened and service endeavors are expanded. The dependence on larger regional and federal support structures dissipates. This is an entirely different model for living and one that has yet to be developed much less institutionalized. What will such changes mean to society, governance, economics, etc.? A “brave new world” unfolding, but what kind of brave new world will it be?

These questions are more rhetorical than answerable, but they do set the stage for a more accessible and pertinent topic – the relationship to the marketplace. The diagram below is a variation on the previous chart. The ever ubiquitous technology remains entrenched on the vertical axis driving the shift from the Industrial Age to the Information Age to the Relationship Age. However, the horizontal axis, society and economy, focuses on the transition from producing things to generating information to delivering service as the three “ages” are experienced.

There is now a point to all this activity: the marketplace. How our relationship to the marketplace changes during the transitions through these “ages” is of particular significance. During the Industrial Age the concept was to produce things and people would buy simply because the goods were available and they had the means to buy them. There was a deliberate distance from the purchaser and the producer. “Make it and they will buy,” was the attitude.

In the Information Age people have more information about products and services and they have more choices. Furthermore, they have the opportunity to switch from a set of individual products performing single functions to one product capable of doing multiple functions. The term used is “convergence.” Also, they can opt for products and services that are tied together into systems more powerful and capable as a whole than the sum of the contributions from each. The term “integration” is used to describe this phenomenon. The combination of convergence and integration changes the relationship to the person buying it. Rather than being viewed as a distant and generalized “consumer” who will buy anything made, the purchaser becomes a customer with highly individualized expectations and means requiring specific “solutions” in order for the sale to be made. The need to “know the customer” becomes paramount in this situation and brings the business closer to the customer.

It also brings people closer together either virtually or physically. Value is determined by how well one can understand the needs of a customer and package a solution that responds to those needs. As the position of the “we are here” circle and “x” on the chart indicates, we are just starting to move into that overlap between industrial age thinking and information age thinking about the customer rather than the consumer. Over the next span of time, the value quotient will increase in size based on a closer relationship with the customer as exemplified by the “we are heading here” point.

Underlying the relationships of people to people and people to solutions is the concept of delivering service. The more we leave making things and shift to utilizing things our value to one another will be in how well we facilitate the integration of things to people in really useful solution packages. To know what people truly need will require knowing how people live and how they aspire to live – that means living in their communities, understanding their circumstances, and being part of their solutions rather than seen as part of their problems. Once again, this is an entirely different model. What does it mean? How would it work? Questions without answers for now, but since human nature abhors a vacuum, we’re working on the answers to fill the void!

Originally posted to New Media Explorer by Steve Bosserman on Sunday, March 5, 2006

A Solutions Triptych, Panel I: The Portal

In business, the term “solutions” has a particular meaning. It refers to the results of conversational transactions wherein the needs and wants of a customer are identified and appropriate responses are made through a business (or multiple businesses) that satisfies those needs and wants for which the business is compensated. These appropriate responses are “solutions” in that in the moment they solve the problems of previously unmet needs and wants.

Conversational transactions between customers and business are conducted through a portal that connects “someone” having needs and wants with “something” that constitutes a solution. This concept of a portal is characterized in the diagram below as the overlap between what something and someone are not and what something and someone are. The relationships of solutions to customers are rarely anything to anyone. Instead, they are specific. While it is helpful to know what is not a viable solution and who is not a likely customer, at some point a match between someone and something must happen or the transactions will not be fruitful.

As a result, it is in the best interest of a business to know the needs and wants to which it will respond with solutions. To know them is to know the customer and to know the customer is to know the market. As we all know, businesses whose compensation is less than the cost of providing the solution are not in business for very long barring subsidization. Knowing what a solution costs is critical to business success. Along with this is the need to know what type of solution portfolio best fits a business given its culture.

Needs and wants are met by solutions of different types. For instance, if a person wants to improve the quality of their sound system they can upgrade their speakers with a new set and are satisfied with the difference they hear. In this case they are interested in a component solution. However, a person may want to make an even more substantial improvement in the sound quality by replacing all components with more advanced, integrated alternatives. In this instance, they are more interested in an equipment system solution. Some circumstances lead to an even more comprehensive approach. In building upon this example of a home entertainment system, a person may be designing and building a new home at which point it is no longer just a matter of the equipment system alone, but the layout of the space in which that system will be installed. In other words, their interests move toward a total solution.

Solutions are fractal in that depending upon the starting point, the continuum of component – system – total solution can be indexed along a scale of increasing complexity. Determining where on this complexity scale a company wants to be is critical for its strategy and organization design. As the diagram indicates, the connections through the portal vary in size depending on choice. A tendency toward component solutions places more focus on a portfolio of specific and relatively independent products and services that flow through a narrow, well-traveled pathway in the portal. The trade-off is a higher degree of similarity / commonality with the offerings of competitors; the portfolio is commoditized and competitive environment is head-to-head. A tendency toward total solutions opens the portfolio to include customized packages of integrated products and services. The pipeline between customer and business is enlarged with more opportunities. Attention must be given to the performance of the whole, which invites an entirely different type of challenge. But the pay-off comes in differentiation from competitors, which certainly carries an advantage in many circumstances.

Originally posted to New Media Explorer by Steve Bosserman on Monday, September 26, 2005