Design patterns #1 – unbundling

Jumbled up business models are all around us. Banks who focus on banking transactions and winning new customers, mobile phone companies who mix up selling phone plans with managing the telecommunications network, and world famous brands who do it all from designing the devices, controlling the applications that run on them and running the stores and distribution network that sell them. Vertical integration can be a complex juggling act. Unbundled business models look at these activities across three essential business model components:

  • Product Innovation: creative product designs need to get to market fast and hard if they are going to win market share. Creative cultures will go out of their way to provide the right vibes for their people to come up with the goods. Think soho warehouse offices with gumball machines and people in turtlenecks listening to jazz all day.
  • Customer Relationship Management: it costs a lot to win a new customer, so once you’ve got them it makes sense to hook them in for as much as you can. Cultures are around sales and customer service, with systems and people in harmony as they hunt down new prospects and upsell the ones they already have
  • Infrastructure Management: economies of scale, massive capital outlay and a constant drive to reduce costs and variability favour big players who are good at doing the same thing over and over again. Cultures focus on automation, quality, and consistency with little room for innovation or bespoke tailoring

Examples

The concept of unbundling has been around for a while, nicely summarised by HBR here as (i) attracting customers, (ii) developing products, or (iii) overseeing operations. Whilst it is possible to managed across all three areas, think Apple, some businesses can benefit from the separation:

Famous for their secrecy and their very high net worth customers, Swiss baking conjures up all sorts of images of deposit boxes stuffed full of gold bars and secret plans. From a business perspective this seems as good a place as any to assume that transaction processing is a key part of core business.

Business Model Generation gives the example of Maerki Baumann spinning off their transaction banking into Incore Bank (which they then sold as a service to other banks), and focusing solely on customer management and advisory. Amongst the benefits are a very clear change in customers (transaction banks serve other banks, not bank account holders), and a definite change in the culture of the organisation left behind (transaction banks drive for consistency, repeatability and automation whilst the customer facing bank focuses on customer handling and retention).

Next Steps

There can be some definite advantages to splitting up a business model into customer management, product creation, and infrastructure provision. The trick is in deciding when this will help. Here are some high level pointers:

  • Understand what the new business will do (resources in, activities, done, value proposition offered).
  • Understand how the new business will generate revenue (and what the costs will be).
  • Understand who the new business will serve and how (partners, customer segments, channels)
  • Challenge existing assumptions

Some changes are just too expensive and risky, others favour one stakeholder over another (e.g. will the infrastructure business come out on top?), and others are just imagined to be impossible because ‘that’s just the way we do things around here’. Be aware of these factors, and challenge your own assumptions from time to time.

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