The 7C Principle Designing Business Models Developing Strategies

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1 White Paper The 7C Principle Designing Business Models Developing Strategies Dr. Oliver Greiner Dr. Tim Wolf

2 1. The 7C Principle We at Horváth & Partners have been working for many years now with our successful 7C Principle, developed in-house based on the extensive experience of our consultants, to systematically analyze and develop business models. Seven dimensions are needed to scrutinize a business model. At the heart of the 7C Principle lies the strategic core. This comprises all the fundamental decisions of a company, including defining the product portfolio, selecting the target customers and markets and utilizing core competencies. All the other elements orbit this strategic core and need to be examined carefully to identify and define the ways they interact with one another. 1.1 Strategic Core The core of every company can be found in the products or services it offers. Hence, when assessing the future viability of a business model, we first have to answer a simple question: Which products or services do I wish to offer in which country and to which consumers? perception Strategic core Human capital interface Strategic core Strategy pattern at Google: Simplicity of products Concepts for the future Cooperation partner Value chain The supreme discipline of product development: When search engines were first being developed, Google rigorously adhered to the principle of simplicity for the user. What was perhaps seen in the beginning as being too simple soon turned out to be a factor which distinguished Google from its competitors. In the following sections we will present the main aspects of the dimensions of the 7C Principle, giving several examples from companies to illustrate each dimension. We have called the strategy chosen by the companies for the particular aspect being described strategy pattern. Strategy patterns can be found through all imaginable sources of information (press releases, articles, journals, project experience etc.). Strategy pattern at Hochtief: Global networks success factor for complex solutions The execution of international construction projects is a complex challenge. Countless companies and experts are needed and must be coordinated for implementation. As a rule, it is not economically feasible to complete such projects without the involvement of regional companies. This gives rise to the question of how a company can remain competitive worldwide as prime contractor for such projects. Hochtief combines a global network of experts with its experience along the real estate lifecycle. Here, services encompassing all aspects of the world of construction play a decisive role for the business model and make an above-average contribution to group earnings. Horváth & Partners

3 1.2 Perception Every product or service promises to provide a specific benefit. What, however, do they have in common within the business model what is their shared value proposition? The customer perception dimension answers this question. Alongside the promised value proposition, customer perception also includes how the company is positioned (e.g. high end vs. low end of the market), how the brand is modeled to support that positioning, and which policy decisions are taken in terms of corporate design. interface perception Strategy pattern at Hugo Boss While we used originally only to be able to buy Hugo Boss products in department stores, the manufacturers of designer fashion from Metzingen, Germany, discovered the value of direct sales through dedicated, company-owned stores back in the in 1990s. This enabled Hugo Boss to better position its own brands and increased the company s control over pricing policy in its own sales channels. 1.4 Value Chain Strategy pattern at Sixt How do business models differ between car rental companies? At Sixt, shaping customer perception plays a key role. Sixt is known for its aggressive and surprising advertising which ensures it enjoys high brand recognition. The value chain is a classical perspective of corporate design. Defining the company s activities along the value creation chain is a key element of the business model. Here, we have to scrutinize such aspects as degree of vertical integration, locations, procedures, logistics concepts, IT infrastructure and organizational form. 1.3 Interface How do companies interact with their customers? All business model decisions which influence direct customer contact are taken in the customer interface. This includes not only sales channels but also customer loyalty models, the earnings model, pricing policy and customer service. Value chain Horváth & Partners

4 Strategy pattern at Zara The recipe for success at Zara is as simple as it is resounding: The company is characterized by deep vertical integration. This enables Zara to react to changes in the market more rapidly than the competition. Zara needs only three weeks from idea to sales. Ultra-modern design, quick and flexible production and centralized logistics are the core characteristics of Zara s value chain. 1.5 Cooperations The ability of companies to cooperate plays a central role in the increasingly globalized and dynamic markets of today. Which alliances, affiliations, M&A strategies and types of cooperations with suppliers should a company pursue? 1.6 Concepts for the Future Tackling today the issues which will secure our success tomorrow. There are seemingly endless possibilities for companies to invest their money to safeguard their future. Which technologies, procedures or concepts does a company need to invest in? Which principles should be adhered to in development? How is the idea creation process organized (internal, external, open network, alliance )? The concepts for the future dimension provides a structure to answer these and other relevant questions. Concepts for the future Cooperation partner Strategy pattern at Star Alliance Star Alliance was founded in 1997 with the aim of expanding the existing network of routes and facilitating the reduction of costs by sharing capacities through strategic cooperations and code-sharing with other airlines. Partners in North/ South America, Europe and Asia/Pacific enable Star Alliance to offer a one-stop shop for access to a network spanning the entire globe. Strategy pattern at Apple From its very beginnings in 1976 until the end of the 90s, Apple remained only a niche provider of software, PCs and notebooks with a market share of 3%. It wasn t until the introduction of the ipod that Apple achieved the breakthrough. While the company did not invent the portable mp3 player, nevertheless it was still able to create a future-oriented, irresistible business model around the ipod and seize 75% of the market for digital music players. 1.7 Human Capital The most important factor in every business model is human capital. But what distinguishes the human capital in your company from that at IKEA and Toyota or your direct competitors? What skills does my business model require? Which culture should my company live? What employee structure does my business model need? What is the relation between national and international managers? These and other underlying issues are dealt with in human capital. Horváth & Partners

5 2. Thinking in Business Models Brilliant business models have always regarded challenging market changes as opportunities and actively shaped those changes. Human capital Strategy pattern at dm At the drugstore chain dm they believe their staff are their most important asset. The founder, Götz Werner, sets great store on creating and maintaining a management culture which enables employees to develop and teaches them to think independently and take responsibility for their actions. Accordingly, trainees who are known at dm as learnees are given the responsibility for trainee branches, stores which are run and staffed by trainees for several weeks. In 1996, Michael Dell began to question the established sales model of the PC industry when, as a manufacturer, he contacted the consumer directly and thus was able to bypass several stages in the sales chain. The success was overwhelming. In 1993, Puma escaped its demise by establishing a new business model. The success story of the trend-setting company is a glowing example for successfully designing a business model and has rewarded the company s shareholders with fantastic share price increases. Würth, Fielmann, Hilti and the no-frills airlines are further well-known examples of companies which have identified and developed approaches which had previously not existed in their industries. Their pioneering work has made them leaders today. Yet, it is not always ground-breaking business models which lead to corporate success. To think in such terms would be too constricting. Companies have also celebrated commercial success without having revolutionary business models but by having ones which satisfy the needs of the market wholly and unreservedly. The power to implement is the key to success for these companies. This is why Horváth & Partners pursues a two-pronged approach when it comes to strategy: Be different : The strength of the concept underlying the strategy is enhanced by structured and creative work on the business model. Be better : Timely and prompt alignment of strategy work for the time after concept development secures successful implementation. Horváth & Partners is one of the most highly-regarded consulting firms for providing support in strategy implementation. Horváth & Partners

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Founded in 1981 and headquartered in Stuttgart, Germany, we have offices at locations in Germany, Austria, Hungary, Romania, Saudi Arabia, Switzerland and the United Arab Emirates.

6 Imprint/Contact Editor Horváth & Partner GmbH Phoenixbau Königstr Stuttgart Tel.: Horváth & Partners Management Consultants Horváth & Partners are independent, international management consultants with over 600 highly qualified employees. Founded in 1981 and headquartered in Stuttgart, Germany, we have offices at locations in Germany, Austria, Hungary, Romania, Saudi Arabia, Switzerland and the United Arab Emirates. Moreover, Horváth & Partners are a proud member of the Cordence Worldwide global management consulting partnership, which strengthens our ability to undertake consulting projects in important economic regions of the world with the highest professional expertise and precise knowledge of local circumstances. Our core competences lie in the fields of Corporate Performance Management and Performance Optimization both for the entire company and for the business and functional areas of Strategy, Organization, Sales, Operations, Controlling, Finance and IT. Horváth & Partners stand for project results which create sustainable benefit, which is why we accompany our clients through the entire process from developing the business concept through to anchoring via integration into processes and systems. Dr. Oliver Greiner Head of Competence Center Strategy, Innovation & Sales ogreiner@horvath-partners.com Dr. Tim Wolf Competence Center Strategy, Innovation & Sales twolf@horvath-partners.com 6

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OPEX Insights. Just as Predicted! How Advanced Analytics Revolutionizes Field Service Management in the Telco Industry. OPEX Insights Just as Predicted! How Advanced Analytics Revolutionizes Field Service Management in the Telco Industry 2018 www.horvath-partners.com Just as Predicted! How Advanced Analytics Revolutionizes