Mega Patterns: Effecting Multiple Industries for Extended Times

Patterns cutting across multiple industries for extended times can be referred to as "Mega" patterns. Here we explore:

No ProfitBack to ProfitConvergenceCollapse of the MiddleDe Facto StandardTechnology Shifts

No Profit

The most prevalant business pattern is where once profitable businesses have become profitless. Two preconditions lead to the no profit pattern:

  • An overabundance of the same business design within an industry with every player competing in the same way.
  • A profit crutch has been removed, resulting in the normal action of commoditized business design: driving all the profit away.

The conditions for no profit have been increasing due to three facors:

  • Globalization of competition has eliminated the possibilities for price management.
  • Customers are more aggressive and knowledgeable, creating more effective price negotiations.
  • New and innovative business models attack industry leaders by "cherry picking" the profitable customers, leaving the unprofitable ones.

What do you do when you're in a No Profit pattern?

Walk away or invent a new way to do business.

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Back to Profit

Although it occurs less frequently than the no profit pattern, it succeeds when business design innovation brings the business back to sustained profitability. In the back to profit model, at least one player changes the rules of the game and creates new kinds of value in the industry.

Commoditized businesses generally assume a sameness about their customers, under-recognizing the variability in what is important to different customer groups.

What do you do when you want to create a Back to Profit pattern?

Look hard at your customer base to identify their unmet needs.
Build a new business model to meet those needs.

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Competitors from previously distinct industries start competing for each other's customers. What convergence battles may you be facing?

  1. Supplier convergence — Occurs when regulatory change or a customer desire for bundling enables suppliers to create one stop shopping.
  2. Product convergence — The functionality of two different products or technologies evolves over time to the point where they overlap and address the same customer need.
  3. Complementor convergence — Cross-industy alliances that drive out competitors

If you find yourself in a convergence pattern:

  • Expand your radar to see the full set of competitors who are starting to compete for your customers. It will be far larger than your traditional competitors.
  • Develop and exploit a new formula for competitive success since the way to win in a convergence contest will be different than the way to win in your home market.

What do you do when you're in a Convergence pattern?

Know the new rules of competition, define your best opportunity space and become it's leader.
If you partner, act early and aim to partner one step higher than your rank in the nonconvergence world;
and put the high-end partner in charge of significant parts of the new business.
Seal your space off by consistenly improving the deal you deliver to your customers.

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Collapse of the Middle

Value migrates away from the middle ground toward the extremes. Two trends are appearing:

  • Product performance-based differentiation is shrinking.
  • Information performance-based differentiation is growing.

The product-centric business design, no matter how soundly positioned in product terms, is beaten by low-cost, high-customization business designs on the one hand, and superior solutions on the other. The information extremes beat the information middle. What does that mean for your business model?

  • Offerings must employ customer-level customization. This requires customer priority information management.
  • Superior solutions require customer process information management.

What do you do when you're in a Collapse of the Middle pattern?

Exploit new value propositions which are made possible by information economics and utility.
Organize your company business design around an information-based value proposition.
Be the first to go to the extremes.

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De Facto Standard

The role of standards in business have changed. Today they tend to serve a much more useful role for the customer:

  • To assure customers of quality.
  • To provide performance levels.
  • To give customers product interoperability across suppliers.
  • To give customers a medium that fosters usage-related productivity and communication.

But, for the industries that adopt them, they tend to commoditize the suppliers who adopt them, freeing customers from the performance side of the price/performance equation to focus solely on price. When a de facto standard enters an industry, it becomes critical for companies who want to maximize their value growth to own or partially own industry standards rather than to simply produce products according to those standards. The key skill for profitability becomes the art of optimal coalition building.

Think about whether you could create a standards coalition around:

  • Industry-level reference performance that only your product can achieve.
  • Intellectual capital on how products could become interoperable across suppliers.
  • Whether your standard can be shaped to facilitate cross-user productivity and communication.

When a company establishes its technology as the de facto standard; customers enjoy the economic benefits of compatibility, past investments retain future value, and competitors start to write their business plans around the strategy of the company that owns the de facto standard.

What do you do when your products face a De Facto Standard?

Create the standard or align with the emerging standard early.
Work on creating the next standard.

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Technology Shifts

Technology inventions bring increased functionality, better costs, faster cycles and innumerable other benefits to customers and companies. However, some new technologies change the strategic landscape in ways that fundamentally reshape the business playing field, moving all players out of their accustomed positions. The current fundamental technology shift is being triggered by the Internet.

What do you do when you're in a Technology Shift?

Go to where the power will be.
Explore the information capabilities of your business enabled by the Internet.

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Page content is based upon Profit Patterns, written by Slywotzky, Morrison, Moser, Mundt and Quella, published by Times Business, Random House, copyright © 1999 Mercer Management Consulting, Inc.