My friend Kay Plantes (see www.Plantescompany.com/blog) and I are working on a new workshop focused on understanding and using business models as a way to grow your business. One of the aspects of any business model is the underlying Profit Model and how it is used to drive strategy. Consider the following:

• Harley Davidson: do they sell a bike or a life style?
• Healthcare: They profit when people are sick. What if they profitted from healthy people?
• Twitter: I know what they do, but what are they selling?
• Panasonic Factory Automation: What if they sold “productivity” instead of equipment?
• Higher Education: They are built on “hours consumed.” What if they billed according to “knowledge in-use?”

Kay and I are interested in your “profit conundrums.” Please add to our list.

The April 20, 2009 issue of Business Week lists the twenty-five most innovative companies in the world — and McDonald’s is #19. Surprising? Well, if you equate innovation with end-products, I guess it’s a bit surprising. However, if you think of the scope of innovation as encompassing your entire business model, then it’s not so surprising. It’s a lesson in how leading companies stay in the lead. Sometimes your products are the focus of innovation; sometimes the operation that creates your products is the focus of innovation.

Think about McDonald’s Big Mac for a bit. It’s been around for decades and any tinkering with the product (secret sauce, anyone?) may do as much harm as good. So where’s the room for innovation? How about supply chain? What might it take to keep a winning product affordable to it’s loyal customers?

And here’s another thought regarding innovation — look at the restaurants and the ability of McD’s franchisees to innovate in a lot of little ways. On a cold winter’s morning I really like going out of my way to the neighboring McD’s where the operator has this delightful area with a fireplace and comfortable chairs and dark paneling. That didn’t come from a corporate innovation board, it came from someone who thought about innovating the total customer experience.

Next time you go to McD’s for a burger and fries, look around and think about the innovations that made this American staple such an American staple. Think about their total business model. Now go back to your office and think about “little innovation.” What might you do to make your business an American icon?

Michael Porter, the Harvard prof,  became the guru of strategy with his seminal books in the early 1980s. During the dot-com bubble of the late 1990s he was considered passe; but he turned out to be right. And the current economic downturn is more fodder for his fertile mind. The following comes from an interview he did with INSEAD. http://knowledge.insead.edu/StrategyCrisisMPorter081011.cfm?vid=97

“The worst mistake in strategy – and it’s a particularly bad mistake in a slowed economic downturn – is to compete with your competitors on the same thing. You want to find a different kind of value that you can deliver to a different set of customers. Strategy is fundamentally about how you’re going to deliver unique value.”

Delivering value is accomplished through a business model that is both efficient and differentiated. During these times you have to consider the totality of answers to the follwing questions:

• Do you have the right target customers?
• Is your value promise meaningful to your target customers?
• Is your value promise differentiated and defensible?
• Can you deliver the total offering effectively and efficiently?

Oh, in case you were wondering the same list of questions applies to both your company and to you. Employers buy your services. Should they continue to do so? What differentiates you from all the other people who could do your job?

What did your customers want from you last year? What do your cunstomers want from you today? What will your customers want from you tomorrow? Has it always been the same and, moreover, could your customers count on you to deliver?

Strategy and marketing discussions have long included the subject of “our value proposition.” And, truth be told, our value proposition was usually internally focused and often meant “we’ll try.” It was kind of soft.

What customers want is a value PROMISE that they can use to make decisions as to where to spend thier money. Not sure of the difference? What’s the value proposition of the Post Office regarding package delivery? What’s the value promise of FedEx regarding package delivery? See the difference?

A value promise may be words to you, but it is the major purchase criteria used by your customers? Does it change during “tough econimic times?” Absolutely! Ask Starbuck’s. An early value promise was “You will be seen as cool and hip if you’re seen carrying our coffee cup.” (or something like that.) During tough economic times we forego “cool and hip” and look for other promises.

So here’s your opportunity to “play consultant.” If you were asked to give advice to Starbuck’s regarding a new value promise, what would you say?

After you fix Starbuck’s, think about the value promise your company needs to provide to your customers. Want to make it personal? What’s your value promise to your employer? Is it a promise or a proposition?

We are currently in very tough economic times and here is a basic question. Do you just have to “work harder” or is this a time to pause and rethink your basic business model and your relationship with your customers?

Take a look at Denny’s restaurants. This past Tuesday they gave away 2 million Grand Slam breakfasts. All told, it cost Denny’s about five million dollars to do this. You could be a cynic and call this a gimmick. Or you could think about Denny’s business model and consider the impact that this give-away had on their relationship with their target customers. Some will take it as a freebie; others will see a reason to be loyal to a company that bought them breakfast when they were out of work.

When your customers are hurting do you ignore them or do you see an opportunity to improve your relationshipwith them. Think about it.

I just finished reading Beyond Price (Plantes and Finfrock) and was taken with their use of the term “value promise.” Now I’ve been banging around business for years and have often heard (and used) the term “value proposition.” Doesn’t replacing the word proposition with promise make this a much stronger statement? “Proposition” is nice and soft and full of good intentions. “Promise” is hard-nosed and goes way beyond good intentions.

Think about your internal and external customers. What have you promised them? Uncomforable with that quesiton? Maybe your services are not as good as you think they are. Go ahead, promise them something. I double-dog-dare-ya!!

Apple, a “computer company,” launched the iPod phenomenon by combining music and computers and consumer electronics. Sony, the icon of portable music in the 1980s and 1990s owned a computer company, a record company and a consumer electronics company. Why didn’t they see the potential that Apple saw?

What combinations of assets (skills, knowledge, products,etc) do you own that you should combine before a competitor does?