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BusinessModelWarsHowthedigitalrevolutionisimpactinglongtermperformanceandgrowthofallorganizations
AOneDayTrainingProgramforDeloitteProfessionals
2014and2015
Agenda
History10:30- noon
Research1-2:30pm
Application3-4:30pm
Alignment4:30– 5:00pm
2345
Introduction9-10:00am1
Thehistoryofbusinessmodels
Howbusinessmodelleadstoprofit,growth,andvalue
Thefivesteps;Casestudy
Whototalkto,whattosay,whatproductstooffer.
Digitaldisruption;ForbesResearch;ournewPoV
Copyright:OpenMattersLLC
OurPoV connectsrisk,performance,&businessmodel
EnterpriseRisks
EnterpriseValue
BusinessModels
MentalModels
Whatleadersknowandvalueaboutdisruptivetechnologies…
…driveshoworganizationsspendandmakemoney…
…whichdriveslongtermperformanceandgrowth…
…andrelatedandattendantrisks
Disruptivetechnologies
Copyright:OpenMattersLLC
Let’sstartbydefiningmentalandbusinessmodels
Mentalmodel
Businessmodel
Whatleadership…• Believesisimportant• Hasdevelopedtheirownskills• Givestimeandattention• Measuresandreports
Howacompany…• Spendscapital• Hirespeople/buildsskills• Engageswithcustomers• Generateslongtermgrowth&performance
Copyright:OpenMattersLLC
Therearefourmentalmodels…
SoftwareandIP(IQ)
Networksandbigdata(SQ)
PPEandproducts(PQ)
Peopleandservices(EQ)
Thedigitaldivide
Copyright:OpenMattersLLC
…driveshoworganizationsspendandmakemoney…
Developingandsellingintellectualproperty
Buildingandmanagingnetworks
Making,marketing,andsellingthings
Hiringandbilling
people’shours
Thedigitaldivide
Copyright:OpenMattersLLC
…whichcreatesfourbusinessmodels…
Knowledge-based
Software,Biotechanddatafirms
Network-based
Socialandcommercialnetworks
Industrial-based
Manufacturers,retailersanddistributors
Services-based
Consultants,financial
servicesfirms
OurValue-RiskMatrix
Thedigitaldivide
Copyright:OpenMattersLLC
Exercise:whatisyourclientsmentalmodel?
1. Considerclients’mentalmodels
2. Createapost-itwiththeirnameonit
3. Placethepost-itononeofthequadrants
4. Understandwhatthismeansforhowtheyallocatecapital
SoftwareandIP
Networks&bigdata
PPEandproducts
Peopleandservices
Copyright:OpenMattersLLC
Agenda
History10:30- noon
Research1-2:30pm
Application3-4:30pm
Alignment4:30– 5:00pm
2345
Introduction9-10:00am1
Thehistoryofbusinessmodels
Howbusinessmodelleadstoprofit,growth,andvalue
Thefivesteps;Casestudy
Whototalkto,whattosay,whatproductstooffer.
Digitaldisruption;ForbesResearch;ournewPoV
Copyright:OpenMattersLLC
Technology
Time
Industrial Revolution ~1800
Services Revolution ~1975
Information Revolution ~1990
Digital Network Revolution ~2010
Newbusinesserasaredrivenbydisruptivetechnologiesofthetime
Copyright:OpenMattersLLC
Businesstypeshavedifferentkeyattributes
Industrial
Services
Information
Digital/Network
Key assets Key competencies Key industries
• Relationships• Network
• Knowledge• Software• IP
• Skilled employees
• PPE
• Consumerism• Mobility• Engagement
• Research & development
• Communication
• People services
• Manufacturing• Distribution
• Social software• Big data
• Software• Biotech
• Energy• Transport• Retail
• Financial • Healthcare• Insurance
Copyright:OpenMattersLLC
Differentbusinesstypesscaleindifferentways
Industrial
Services
Information
Digital
Make one, sell one
Hire one, sell one
Make one, sell many
Many make, many sell
Business model
Copyright:OpenMattersLLC
IndustrialRevolution
Begananewera:
• AwayfromAgriculture
• Focusedinsideonmanufacturingandinternalprocesses…
• Newfinancialandoperatingmeasures• Physicaloutput
• Assetutilization
• ROA
DigitalRevolution
Beginninganewera:
• AwayfromInformation
• Focusedoutsideonsocialandcommercialnetworksandthebigdataproduced…
• Newfinancialandoperatingmeasures• Networksize
• Crowdsourcing
• Valueofallintangibles
InformationRevolution
Begananewera:
• AwayfromServices
• Focusedinsideonintellectualproperty,digitizingcontentandinsights…
• Newfinancialandoperatingmeasures• Creativeoutput
• R&D
• ROI
Neweras,newbusinessmodels,newassets
ServicesRevolution
Begananewera:
• AwayfromIndustrial
• Focusedinsideonhiringandtrainingemployeestoprovideservices…
• Newfinancialandoperatingmeasures• Revenue/employee
• Customersatisfaction
Industrial Revolution ~1800
Services Revolution ~1975
Information Revolution ~1990
Digital Revolution ~2010
• KeyAsset:CapEx • KeyAsset:Humancapital
• KeyAsset:IP • KeyAsset:Network/relationships
Copyright:OpenMattersLLC
IndustrialRevolution
Makeone,sellone
• Focus:Highfixedcosts,Field(Institutional)sales;bigaccounts
• KeyIndustries• Manufacturing
• Transportation• Energy
• KeyCompetencies• Finance
• Manufacturing• Distribution
DigitalRevolution
Manymake,manysell
• Focus:Evenlowerfixedcosts,highergrossmargins;Inboundmarketing(consumers)
• KeyIndustries• Onlinemarketplaces
• Socialsoftware• Bigdata
• KeyCompetencies• Consumerization
• Mobility
• Engagement
InformationRevolution
Makeone,sellmany
• Focus:Lowerfixedcostsandhighergrossmargins:Blendedsales;SMB
• KeyIndustries• Enterprisesoftware
• Biotechnology• Publishing
• KeyCompetencies• EnterpriseTechnology
• IPdevelopment• Content
Newbusinessmodels,neweconomics,newassets
ServicesRevolution
Hireone,sellone
• Focus:ShiftofcapitalfromCapEx tosalary;customerintimacy
• KeyIndustries• Finance
• EnterpriseSoftware• Publishing
• KeyCompetencies• Recruitingandtraining
• Customerservice• Lifecyclesupport
Industrial Revolution ~1800
Services Revolution ~1975
Information Revolution ~1990
Digital Revolution ~2010
Copyright:OpenMattersLLC
Techno
logies
New
erOlder
Low HighGrowthandValue
4BusinessTypesbasedonTechnologyandAssetsUsed
Result:Differentbusinessmodels,differentgrowthandprofits….
IndustrialServices
Information
Network
Copyright:OpenMattersLLC
DigitalDivide
…andEnterpriseValuepremiums…
4 8
1 2
TheoreticalLongTermMultipleofRevenuesBasedonBusinessModel
Thedigitaldivide
Copyright:OpenMattersLLC
…andrelatedandattendantrisks
IntellectualProperty&CodeRisks
Reputation&CyberRisks
PPE&Product
QualityRisks
EmployeeTraining&ClientRisks
Thedigitaldivide
Copyright:OpenMattersLLC
Exercise
Goal
Understandyourclientsbusinessmodeltodeterminehowtheyallocatetheircapital
Goal
Keyquestionsandexercises• Let’slookatAmazonversusBestBuyasexample• Whatisthementalmodelofyourclients?• Whatisthevalueofyourclients’intangibleassets• Whatarethoseintangibleassets?• Whataretherisksofnotknowing?
Copyright:OpenMattersLLC
FY12 Intangibles value $5B
Revenue 45,085
GM% after COGS, Fulfillment 23%
Technology and Content 0
SGA% 21%
Operating Margin % (.3%)
Market Value $8,909
Price To Revenue 0.18
Total Assets 16,787
Total Liabilities 13,072
Intangible Assets (Market) 5,194
Intangible Assets (Acquired) 862
Physical & Financial Assets 15,925
FY12 Intangibles value $106B
Revenue 61,903
GM% after COGS, Fulfillment 15%
Technology and Content 4,560 (7.5%)
SGA% 13%
Operating Margin % 1.1%
Market Value 114,808
Price to Revenue 2.23
Total Assets 32,555
Total Liabilities 24,363
Intangible Assets (Market) 106,616
Intangible Assets (Acquired) 2,552
Physical & Financial Assets 30,003Source:OpenMattersLLC
Themarketvalueindicates$107Bofassetstobepreserved(Amazon)or$5Bthatcouldbeincreased(BestBuy)
Themarketunderstandsthevalueofintangibleassets
• Typically,marketvalueisconsideredtobethepresentvalueoffuturediscountedcashflows
• Despitebeingrelativelysamesized“retailers”($45Band$60B),andbothdeliveringoperatingmargins(~1%),themarketviewsAmazonas7xmorevaluable
• SowhydoesthemarketbelieveAmazon’sfuturecashflowswillbesomuchhigherthanBestBuy’s?Ø TheBusinessModel,clicksaremorescalablethanbricksØ Themanagementteam, andalltheemployees(humancapital)Ø Thecustomer,Amazonusestechnologytobuildintimacy(customercapital),whileBest
Buyhastomaintainphysical/storeproperty
• RecognizingthatbothcompanieshavestrongBrandandReputation,theMarketgivesAmazoncreditforover$100Binotherintangibleassets
Copyright:OpenMattersLLC
Exercise:Thinkaboutyourclients’intangibleassets
• Usefinance.yahoo.com tocomparebookvaluetomarketvalue
• MarketValueisfoundunderKeyStatistics
• Usethecompany’s10Ktocompletetherestoftheinformationontheworksheet
• Writedowntheintangibleassetsthatyouthinkmakeupthedifferencebetweenthetwoandmapthoseassetsbyquadrant
Copyright:OpenMattersLLC
Company name:
Revenue
GM% after COGS, Fulfillment
Technology and Content
SGA%
Operating Margin %
Market Value
Price To Revenue
Total Assets
Total Liabilities
Intangible Assets (Market)
Intangible Assets (Acquired)
Physical & Financial Assets
Exerciseworksheet:Valuingintangibleassets
SoftwareandIP
Networks&bigdata
PPEandproducts
Peopleandservices
Copyright:OpenMattersLLC
Agenda
History10:30- noon
Research1-2:30pm
Application3-4:30pm
Alignment4:30– 5:00pm
2345
Introduction9-10:00am1
Thehistoryofbusinessmodels
Howbusinessmodelleadstoprofit,growth,andvalue
Thefivesteps;Casestudy
Whototalkto,whattosay,whatproductstooffer.
Digitaldisruption;ForbesResearch;ournewPoV
Copyright:OpenMattersLLC
0.62 0.37 0.31 0.00
Physical Svcs Info Network
Average COGS/Revenue
0.01 0.000.16
0.06
Physical Svcs Info Network
Average R&D/Revenue
0.15 0.29 0.28 0.41
Physical Svcs Info Network
Average SG&A/Revenue
Note: Based on analysis of the S&P 500 Source: Capital IQ data pulled October 2013,; Revenue is LTM
Leadersallocatecapitaldifferentlybasedontheirmentalmodel
Copyright:OpenMattersLLC
Note: Based on analysis of the S&P 500 Source: Capital IQ data pulled October 2013,; Revenue is LTM
Result:Networkbusinessmodelsgrowfaster…
8.45.8
13.4
17.5
Physical Svcs Info Network
Avg.RevenueCAGR’10-’12
Thedigitaldivide
Copyright:OpenMattersLLC
Note: Based on analysis of the S&P 500 Source: Capital IQ data pulled October 2013,; Revenue is LTM
…producehigherprofitmargins…
0.150.09
0.23 0.24
Physical Svcs Info Network
Average Profit Margin
0.23 0.220.29
0.38
Physical Svcs Info Network
Average EBITDA/Revenue
Copyright:OpenMattersLLC
2.02.7
5.0
8.2
Physical Svcs Info Network
Average Price to Revenue Ratio
Note: Based on analysis of the S&P 500 Source: Capital IQ data pulled October 2013,; Revenue is LTM
…Andgeneratesignificantenterprisevaluepremiums!
Thedigitaldivide
Copyright:OpenMattersLLC
0.00
2.00
4.00
6.00
8.00
10.00
1975 1980 1985 1990 1995 2000 2005 2010 2013
Average P/R Ratio by Business Model Historically
Network
Information
Services
Industrial
Network
Information
Physical
Services
*Digital CAGR is ’80 – ‘13Note: Based on analysis of the S&P 500Source: Capital IQ data pulled October 2013,; Revenue is LTM
CAGR ’75 –‘13
8.7%*
2.7%
4.5%
3.4%
Further,trendisaccelerating…premiumspaidarewidening
Copyright:OpenMattersLLC
Investorspaymorethan$18 foreach$1ofrevenue
Investorspaylessthan$1 foreach$1ofrevenue
80%ofcompaniesarephysicalandservicesbusinesses
0
20
40
60
80
100
120
140
160
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18+
Distribution of S&P 500
Number of companies that fall within each range
80% of companieshave P/Rless than 3
Copyright:OpenMattersLLC
Exercise
Goal
Understandyourclientslongtermgrowth,profitsandenterprisepremiumsbyassessingtheirPrice/RevenueMultiples
Goal
Keyquestionsandexercises• EachofyouhavereceivedtheACEspreadsheet• Pickoneofyourclients,ifyouhavenoneonthelistyoumayselectone• EstimatetheP/Rratiofortheclient• Putapost-itnoteonthespectrum
Copyright:OpenMattersLLC
Estimateyourclient’sP/Rratiobasedonbusinessmodel
1. Writeclientnamesonpost-its
2. EstimateP/Rratio
3. Placepost-itsonthescaleonthewhiteboard
4. WewillprovidetheactualP/Rratio
5. Discussthedifference
Client4Network
8
Client1Physical
2
Client3Info.5
Client2Services
3
High
Low
Thedigitaldivide
Copyright:OpenMattersLLC
Agenda
History10:30- noon
Research1-2:30pm
Application3-4:30pm
Alignment4:30– 5:00pm
2345
Introduction9-10:00am1
Thehistoryofbusinessmodels
Howbusinessmodelleadstoprofit,growth,andvalue
Thefivesteps;Casestudy
Whototalkto,whattosay,whatproductstooffer.
Digitaldisruption;ForbesResearch;ournewPoV
Copyright:OpenMattersLLC
Thereiscertaintythattechnologyisdrivingchangeandthatclientsmustadapt
EnterpriseRisks
EnterpriseValue
BusinessModels
MentalModels
Billshowedhowdisruptivetechnologiesimpactmentalmodels….
…andhowleadersspendandmakemoney
Meganshowedimpactongrowth,profitsandenterprisevalue…
Thismoduleisgoingtofocusonrisksandcasestudy.
Henrypreviewedhowdisruptivetechnologiesimpactseveryindustry
Copyright:OpenMattersLLC
Commercialization:5stepstoBetterGrowthandPerformance
Strategy Finance Technology Operations Measurement
Fivestepstode-riskabusinessmodel
Copyright:OpenMattersLLC
Exercise
Goal
Understandthatthelargestriskisnotadaptingtothecertaintyofdigitaldisruptionforapotentialclient
Goal
Keyquestionsandexercises• Breakinto4groupstolookatarealclient:Joslin• GroupAssignments:Buildbusinessmodelsforthefollowing
• WorktogethertohelpdefineJoslin’s futurestrategy
• Group1:Finance
• Group2:Technology
• Group3:Operations
• Group4:Measurement
Copyright:OpenMattersLLC
Exercise:DesignthevisionforJoslin
none none
$40Mbuilding
$50Mcash
27Kpatients950employees$80Minrevenue$12Minlosses
Thedigitaldivide
Today:Joslin DiabetesCenter
Vision:Joslin Way
Copyright:OpenMattersLLC
WhatstepsshouldJosslin takeineachareatorealizethisvision?
Strategy
Group 1: Finance
Group 2: Technology
Group 3: Operations
Group 4: Measurement
Gather executive team, do P/R exercise and envision organization as a digital organization
Conduct a complete inventory of unmeasured, intangible assets and risks related to all ‘assets’ (tangible & intangible)
Determine which technologies are necessary to monetize intangible assets and mitigate risks (e.g. reputation)
Identify the right people and processes necessary to deliver a ‘digital first’ business model
Measure and report outcomes of all initiatives and integrate non-traditional reporting KPI’s from digital efforts
Copyright:OpenMattersLLC
Agenda
History10:30- noon
Research1-2:30pm
Application3-4:30pm
Alignment4:30– 5:00pm
2345
Introduction9-10:00am1
Thehistoryofbusinessmodels
Howbusinessmodelleadstoprofit,growth,andvalue
Thefivesteps;Casestudy
Whototalkto,whattosay,whatproductstooffer.
Digitaldisruption;ForbesResearch;ournewPoV
Copyright:OpenMattersLLC
Workingsession
• Wewillsplitintofourworkinggroups,whichwilleachtackleoneofthefollowingtopics:
1. Whoattheclientdoyoutarget?2. Whatdoestheclient-facinglablooklike?3. Howdowestructureastrategyengagement?4. HowdoesthisalignwithexistingDeloitteservices?
• Youwillhave30minutestodiscussanddevelopideaswithinyourworkinggroup
• Eachgroupwillthenreadbackouttothelab,~10minutespertopic
• Lasttopic:whichclientsdowetarget(20min)
Copyright:OpenMattersLLC