The Core, The Critical, The Liquid
from Business Models to Liquid Organizations
During the first phase of the lockdown, Little Italy offered DIY kits that enabled customers to cook its Italian specials at home. The offering was such a hit, that the chain was encouraged to start Acasa, a gourmet grocery delivery service of ingredients used in their restaurants.
The above is one of the many examples of how the business models are evolving in this pandemic situation. Let’s not forget, the transition has been happening for many years now. We have seen the good old restaurant business evolving from a pure dine-in experience to a hybrid of dine-in and takeout, and in the current avatar, just as a delivery only model.
What make a business model work?
It is a difficult question, as there are too many variables at play. We are surrounded by good and bad business models. A great business model is obvious, at least in the hindsight. And, the same is true for a bad business model too.
So how do we define a business model? Every business model rests on three key questions and they are:
- Who is your customer?
- What value are you creating for them?
- And how do you make money from the value exchange?
The last question is the holy grail which defines the survival of a business in the long run. The other two questions are very subjective as they are a set of assumptions or hypotheses, but are nevertheless equally critical.
Business Models: The Core and Critical
Lot of businesses fail and more often than not, a lack of demand is not really the reason for failure. This means that the core offering was spot on, but the critical aspects which connects the product with the customer failed. The premise of this essay is set on defining “the core” and “the critical” of a business model, and how they can be leveraged for future-proofing businesses.
Let’s look at Netflix as a case in point. Netflix has two parts of its business model. One is focused on creating content and the other is focused on delivering the content. If you ask anyone around, what do they like in Netflix? Most of the responses will revolve around content — content quality, wide selection, etc., and then people will talk about the convenience aspect. You can clearly identify that content is the core and delivery of the content is a non-core activity, but still critical. So, what did it do?
Instead of spending resources on building a proprietary streaming infrastructure, Netflix turned to AWS (Amazon Web Services). AWS had already established itself as a fast, stable and secure partner and was a perfect fit for delivering on Netflix’s critical need. This allowed Netflix to focus its resources on its core offering, which was content selection and the overall usability experience of the platform.
Liquid Organizations: Need of the Hour
In today’s disruptive times when businesses can be upended overnight, nimbleness and adaptability are virtues which are not optional anymore. Prof. Arun Sharma of the Miami Business School has described a form of organization which is best suited for the current times, as “Liquid Organization”*.
We are well aware of what liquidity means in a business parlance. It is ascribed to the availability of money (cashflow) which allows organizations the flexibility to experiment and steer their businesses more efficiently. Liquid organizations go beyond that:
- They are built for speed and agility, which allows them to accelerate and decelerate in any direction
- They are ambidextrous in nature and can take advantage of existing competencies (exploitation) while simultaneously discovering and harnessing new opportunities (exploration)
- Lastly, the employees of a liquid firm are also ambidextrous, as they can work in multiple functional areas
Liquid Organizations in Action
One of the most difficult industry is the Airlines industry. There has been a massive rise in air traffic over the years and yet we find airlines going bankrupt time and again. Yes, there is indeed competition, and the margins are thin as well, but this has also helped the industry evolve than what it was a few decades back. In essence, it’s a highly liquid industry.
How does an airline work? The key elements of running an airline are the personnel (crew), operations (on ground, baggage handling, maintenance, food services) and systems (reservations). An airline doesn’t really need to own all the elements. You can lease an entire fleet of aircrafts, your operations can be completely outsourced and just own the crew. This allows a greater flexibility to the players in the industry, who in turn can focus on their core value creation activity. Low cost airlines such as Southwest (US) and Indigo (India) are a case in point.
Not Just for Large Players
The principles of liquid organization are not just for large players, but for smaller players as well. In the case of unorganized retail players (neighbourhood stores), which is again a highly liquid industry, many elements of running a store can now be outsourced. If a store signs up on a delivery platform such as Dunzo, it enables the store to have access to a mini-POS (point of sale) along with delivery services. This in turn enables the store to be more efficient and also expand its physical reach.
To sum up, it is critical for businesses to identify the core and critical elements of its business model and combine them with the principles of a liquid organization to future-proof themselves.
References:
- * A conversation on Liquid Organization | Dr. Shalini Lal & Prof. Arun Sharma: https://youtu.be/1btAZPdPtak
- https://www.theliquidorganization.com/
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