Example III
Strategizing a DTC Business Design for a publisher of specialty self-learning material
A 50MM+ € European publisher of specialty self-learning material had generated a highly profitable business over the past decades, focusing on book publishing accompanied with ancillary materials supporting various self and home-learning needs. However, digitalization and ever evolving changes in consumer behavior trends had started to erode the company’s profitability during the recent FY’s. After series of painful cost-cutting programs, in efforts to stabilize the skid, the long-time CEO of the company had approached retirement age and newly selected CEO had taken over. Profitability level of the company was now in control, however, the growth looked stagnant. With a mandate from the board, the new CEO was tasked to take the company on a new growth journey.
HKH Management Consulting (HKH) was tasked to advise the C-suite team and the board on reasons why growth was stagnant as well as to evaluate strategic options that the company had on the table. The HKH team of three partners approached the assignment with a multi-staged approach. Firstly, it was important to develop a common understanding of the client’s current business design, capabilities, marketplace dynamics, knowledge base, and customers. This step formed the baseline for defining a realistic work plan and deliverables for follow up tasks.
The activities in the first phase included an in-depth review and analysis of all available information such as; business plans, market research reports, customer profiles, industry analyses, third-party reports, relevant training materials, product information, customer service and billing process, product development and testing processes, and management team/board interviews. Out of this analysis, the HKH team delivered; 1) mapping of the client’s current business design, 2) an inventory and synthesis of client’s history (including underlying trends, performance, product mix, and customers), 3) an assessment of client’s capabilities, preliminary perspective on industry trends, and 4) an inventory of initial ideas and potential new business design(s) for the client. Additionally, a detailed work plan and deliverables for the follow-up tasks were provided.
The baseline for “common understanding” concluded that the client had developed a highly successful business narrowly focused on a specific niche in self-learning materials. While the performance had been impressive it was expected to deteriorate further, despite cost-cutting efforts, which were seen largely as ineffective in terms of long-term viability. Growth opportunities using the current business design were limited, the customer acquisition model was approaching saturation, and other dimensions for growth had been under exploited.
The client’s value proposition was being challenged by a diverse set of competitors (both new and old), as well as evolving marketplace trends. It was further concluded that the current allocation of resources and activities was sub-optimal, value had migrated to companies that were either mass market or focused on niche(s) indicating –“Collapse of the middle” – syndrome for the client. The client’s current organizational systems were facing significant issues, such as growth challenged by own legacy success and the organization not being perfectly aligned. The HKH team addressed that the client must take steps to extend the life of the current business design as well as to create new business design(s), combined with strengthening the current organization and its capabilities and to develop more comprehensive understanding of marketplace and customers (external environment) as basis for identifying real growth opportunities.
Secondly, the base for identifying new growth opportunities using new business design(s) was derived from a 5-point analysis that identified shortcomings in the following areas: customer selection and value proposition, value capture and profit model, scope, strategic control, and organizational systems. The client’s performance moving forward was driven by external as well as internal factors that could be classified under 1) customer behavior, 2) marketplace dynamics, 3) business design, and 4) organizational systems (including core competencies across human resources). After an insightful analysis highlighting the challenges of the current business model in these respective areas, the HKH team concluded that the client’s current strategic choice lacked the needed clarity and was not sustainable in the marketplace and in fact some of the assumed key strengths of the organization had become limitations.
Thirdly, at the recommendations stage, the HKH team provided the client with immediate near-term improvements directed towards the existing business design, such as enhancing internal communications to break silos, improving marketing and consumer understanding capabilities, fostering increased decentralized decision-making, and improving strategic planning capabilities. To realize real growth, the client needed to simultaneously identity successful new business design(s), while enhancing the current approach.
The recommendations for new business design(s) were analyzed using a 3-phased model of Value-Driven Business Design Methodology (strategic anticipation, business design, and value growth realization) with two specific tasks under each of the phases. Task 1) Value Migration Insights – what are the changing sources for competitive advantage and value creation in these sectors? (past, present, and future). Task 2) Future Value Space Mapping – what are the emerging and/or unexploited value spaces in the client’s targeted markets driven by and which business design(s) merit further research? Task 3) Strategic Business Design Choices – how much value will be created by each business design if successful, what is the likelihood for success for each business design, and which business design(s) best fits the client’s risk/return profile? Task 4) Key Capability & Needs Development – which capabilities are most critical to the success of client’s chosen business design, which of these does the client lack, and how to obtain them? Task 5) Consistent Organizational Systems – what key organizational systems must be created or changed for the client’s new business design(s) to succeed (people, processes, structure, infrastructure, and leadership)? Task 6) Accelerated Implementation – How can the client accelerate the speed at which it brings its new business design(s) to market (implementation sequence, change strategy, prototype & rollout processes)?
Case outcomes
As a result of the 16-week assignment the client was able to evaluate in detail the portfolio of options the HKH team provided. Based on some further financial scenario planning together with the help of HKH’s CBFP and M&A practice area, the client decided to pursue with two, closely linked options offering high degree of synergy between them, in terms of prototyping, “ground up” development process, and deployment, leading to various live environment “step-testing” schemes. Both DTC business designs enabled the client to differentiate itself competitively on the marketplace and to capture value deploying a connected strategy. Both strategic business designs consisted of two components 1) connected customer relationship (recognize, request, and respond), and 2) a connected delivery model (technology infrastructure, revenue model, and connection architecture). These designs would enable the client to drive up customer satisfaction (Willingness to Pay, WTP) and reduce costs impacting positively on the size of competitive advantage that the client was able to capture.
After a year of vigorous testing in the marketplace, reading and comparing KPI’s between the two designs, the client opted to proceed with one to full-scale deployment.