We have talked with a number of companies that are standing up risk programs.
Many companies are driven by ISO 9001:2015 and Risk Based Thinking. Others are driven by US Federal risk requirements. Some are driven by Ebola contagion fears. Some are driven by cyber security and homeland security requirements.
An issue that comes up quickly is whether the risk program should be strategic or tactical? For iSO 9001:2015 compliance, a tactical approach is often deployed. In others, a strategic approach is pursued.
RISK DRIVEN BUSINESS MODEL
One client recently wanted to architect, design, deploy, and assure a risk driven business model. Very interesting approach.
Where did they get this idea? Karan Girotra and Serguei Netessine just wrote the Risk-Driven Business Model (Harvard Business Review Press, 2014). I’ll try to describe this counter-intuitive book.
The authors focus on a new type of innovation called Business Model Innovation (BMI). Two classic examples of BMI are Zipcar and Toyota lean. Both changed the competitive structure of their market segments. Toyota lean and production systems changed the ways autos are made. Zipcar model of renting cars by the hour changed the business model for owning and renting cars.
The authors do not focus on product based innovation but on business model innovation, which offers more competitive differentiation and margin advantages. it’s major advantage is that once BMI has been established and is part of the company’s DNA, then it is difficult to be be replicated or stolen.
IT’S ALL ABOUT ASKING THE RIGHT QUESTIONS
The authors believe by focusing on risk and reframing business questions, you can change the business model to disrupt established ways of doing business and lead with a sustainable competitive advantage.
How is this done? Change the decisions you make in your business, when they are made, who makes them, and why they are made. The result is you will have better risk information that is aligned with your business model.
The book is a disruptive look at business. I had a hard time with it due to its simplicity. We have been taught that a breakthrough product along with reengineered processes are the way to innovate and generate revenue.
Let’s look at a few BMI example of critical questions:
- What: Zipcare asked what would happen if the rental and ownership business could be disrupted specifically through hourly vehicle rentals.
- Who? Amazon at first was in the facilitation retail business. Amazon matched buyers and sellers and retained a percentage. Amazon asked who could do it better. Now, Amazon provides wonb to tomb fulfillment retaining revenue at each step.
- When? Toyota changed the auto industry business model by asking when. thus leaning the entire just in time its value chain.
- Why? This one question is challenging all companies as they inquire how legacy products, systems, processes, and technologies can be improved or simply eradicated because they don’t add value..
SO, HOW DO YOU DO IT?
Ideas are easy. Successful application is where it’s really tough. Devil is in the details. So, try these 3 steps:
- Identify the key decisions that are made with your current business model.
- Map out and Pareto the critical risk decisions, consequences, and inefficiencies that lead to poor decisions.
- Change the decision making patterns that would result in a new business model for you.
We recommend this book because it points to the future of risk based business. Business Model Innovation may be the future of strategic consulting as well as operational excellence.
Bio:
Greg Hutchins PE and CERM (503.233.101 & GregH@QualityPlusEngineering.com) is the founder of:
CERMAcademy.com
800Compete.com
QualityPlusEngineering.com
WorkingIt.com
He is the evangelist behind Future of Quality: Risk®. He is currently working on the Future of Work and machine learning projects.
He is a frequent speaker and expert on Supply Chain Risk Management and cyber security. His current books available on all platform are shown below:
