The next businessHow changing economic environment impactswealth creation
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Put simple: The next business
Konstantyn
Nov. 2009
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new wealth growth points
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new rules and tools
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Who are
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Chapter #1
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Chapter #3
Legacy business instruments
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What next?
Chapter #4
Chapter #5
New business instruments
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#1 Economy: players that matter
Put simple: The next business
Konstantyn
Aug. 2009
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Simple modelThe economy is as com-plex as our life. Though, big moves in economy are always reserved to big players. There are just a few big players. If big shifts happen, a simple model can des-cribe, help to under-stand and predict eco-nomic development. Simple models compris-ing of a few players and their interactions en-able strategic and proactive business planning.
a few players
USA 71%Canada 60%
Germany 54%South Korea 48%
China 37%
Private domestic consumption, % of GDP, 2008
Source: Janamitra Devan, Micah Rowland, and Jonathan Woetzel McKinsey Global Institute
1. Consumermajor market force
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2. Supplierserves to consumer’s needs,but follows its own interests
CostsEarnings-
PROFIT=
The supplier’s foremost interest is profit. There are two methods to improve profit. Increase earnings or decrease costs. Focus on one target is essential while in a competitive race.
2A. Manufacturingfocus on the most efficient
transformation of resources
Supplier
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costs
Manufacturing focuses on the costs. Costs reduction equals the most efficient resource transformation into a plurality of products. The core competences are production methods, labor utilization and natural science.
2B. Marketing/Salesfocus on pleasing the consumers
Supplier
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earnings
Marketing focuses on the earnings. Earnings increase equals sales of the same mass produced product to a plurality of individuals. The core competences are requirements management, custo-mization, advertise-ment, distribution.
3. Market controller
Financial system change
Federal Reserve
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Market controller regulates the process of goods exchange between consumers and suppliers. Particularly, it controls the exchange medium = money. The amount of money supplied to the market impacts behavior of both consumer and goods supplier.
#2 The recently dominant business model
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The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
1981Financial system change
Source: Peter Stella, International Monetary Fund, The Federal Reserve System Balance Sheet What Happened and Why It Matters, 2009
Last time the general business model was forced to modify thirty years ago. Since the year 1981 an access to easy-to-get credit was granted. The volume of money consumed by the economy nearly doubled. The additionally released credit money were not necessarily matched by the goods. This became a source of excess money.
Financial system changed
2008
x GDP US credit market assets
1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006
2
3
4
1
the way to drive wealth creation
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America’s New Beginning: A Program for Economic Recovery, Feb 18,
The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
Federal Reserve primarily pours money into consumer market. Consumers have more money for disposal than earned. There were certain reasons for doing this.
Financial system change
Primary upload model
Consumer’s bonanzaas primary money upload model
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money flow
The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
The business target “get the money” results in the hunt for the excess money. Being first in line (here chasing after consumers) equals bigger pie. A big part of service is the process of product customization.Customization helps to sell mass produced products into plurality of individuals.
Financial system change
Primary upload model
Industry shifts priorities
Source: Directorate-General of Budget, Accounting and Statistics
70%
50%
30%
10%
1952 1962 1972 1982 1992 2002
GDP sector percentages
service
industry
Consumer is truly King/Quinn
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The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
Earnings-side (delivering immediate value for consumers) factors were taken under magnifying glass. Costs-side pro-duction factors had less managerial attention. They were frown out of the list of core compe-tences. Malfinancing, off-shoring.
Financial system change
Primary upload model
Neglect cost
factors
Industry neglects costssome core competences vanish
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480k0 120k 240k 360k
1k
2k
3k
4k
4.5k7.5k
8.5k
manufacturingsale and trade
professional servicesfire
administrativeservices
recreation & hospitality
agree, mining, energy
health careeducation
Efforts: employee equivalent/company 1991- 2005
Lack of local competence: Number of foreign affiliates 1999- 2005
construction
Source: McKinsey Global Institute, 2009
Industrial efforts in the past two decades
The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
The upload scheme works until credit is becoming cheaper over time. It allows to refinance previous debts and cover inefficiencies. Refinance for lower interest and win. Interest(2000) – interest(2004) = profit.
The leading interest rate driver is Federal Reserve Rate. It approached it’s bottom limit (the rate is effectively zero) in 2008. No further refinancing is available unless you endanger the wealth.
Financial system change
Primary upload model
Focus on sales
Neglect cost
factors
Excess costs covered by refinancing
How long will it work?
1981 20091989 1994 1999 20041984Ba
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Game over
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the business modelof the last three decadesis effectively done
Source: Federal Reserve statistical release, G.17, 2009 annual revision
Consumer goods
#3 Legacy business instrument examples
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The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
1diversity proliferation
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“Any-One” economy
Any flavor, any time, any place delivery. One device, one function, one time use design.
The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
2production offshoring
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Service-oriented economy
More focus on marketing and consumer design, less on production and tools
The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
aggressive sales3
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Push-over-pull , age of abundance
Unsophisticated consumer has more money to disposal than time to decide what to buy.
Marketing being business unit at the money stream begot business.
#4 What comes next?
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Konstantyn
Aug. 2009
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opportunities
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Optimism check up
Help Industry
Financial system change
Primary upload model
Neglect cost
factors
Focus on sales
upload scenario 1
The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
In this scenario industry has no real incentives to please the customers any more. It slows the necessary changes down. More show than go. Stricter governmental regu-lations are essential to keep industry in check. There are incentives to sell complex products. Production of those products is problematic. Result: bad product quality and no warran-ties. Stale mate eco-nomy. Restricted con-sumption.
Hallmarks:sophisticated consumer,sneaky supplier delivers old shoe with new label,minute wealth increase if at all, values shift
upload scenario 2Build Infrastructure
Financial system change
Primary upload model
Focus on sales
The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
Also supported by Obama administration. Examples: investment in transport infrastruc-tures, health-care IT infrastructures, etc. The probability of more stress on this scenario is low. It requires new (forgotten) competenc-es. Typical results: back-shoring, in-house pro-duction, more students in engineering. Better control over long-term product/service quality.
Hallmarks:sophisticated consumer,marketing-centered businesses die-off,wealth increases slower than used to be
upload scenario 3Scary the crowd
The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009
The scenario utilizes the effects of world-wide deflation and/or mass hysterics. That is people as well as businesses save and stack money in unusual quantities bas-ed on gains in deflation economy or scared by the wave of failing (in their perception) insti-tutions and danger of coming challenges. Banks decrease leverages. It isn’t pro-life scenario and thus not sustainable.
Hallmarks:business as usual,expensive banking regulations ,people are scared to death by any available reason
Financial system change
Primary upload model
Focus on sales
Neglect cost
factors
#5 New business instruments to win
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Konstantyn
Aug. 2009
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“All-in-One” economy
Consumer has no access to easy money. Hard won money will be spent wisely. Multi-functional products with low TCO per function will be preferred.
Complex products1
simple and obvious productsgoing to be extinct
Jack Trout’s
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Back to basicsThe stress on particular instrument is not clear until a dominant scenario evolves
2
event marketing
directmarketing
promotion
public relations
advertising
tele-marketing
directsales guerilla
marketing
participatorypush
mas
spe
rson
al
Source: Pinko Marketing
Pull-over-push, age of scarcity
Sophisticated consumer has more time than money to spend.
participative sales3
Advertisers
establish/use trust
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The future of business
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What is your opinion?
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what do future successful businesses do?
1. _____________________
2. _____________________
3. _____________________
4. _____________________
5. _____________________