Google has a multi-sided platform business model where it provides:
Google subsidizes its Search, Web site and AdSense users with the revenue stream it receives from AdWords.
I am a big fan of Lending Club. I started investing some money there about a year ago to learn about it and couldn’t help myself from funding a few new loans each month. It is addictive! Before I know it I had saved a few thousand dollars.
So far I have not had any non-performing loans so the returns are very good. As soon as a loan goes south the returns will become very bad. Until then, I am hooked.
I would classify Lending Club as a Two-Sided Market business model. They provide the platform and bring together investors and borrowers.
Lending Club recently sold Union Bank loans. Is this the unbundling of banking? Or just Union Bank trying to compete with me?
The Financial Times reported that in mid-2013 the US lenders Titan Bank and Congressional Bank announced that they would begin facilitating personal loans through Lending Club.
Consumers are becoming more open-minded about receiving financial services from non-banks. See the 2014 North America Consumer Digital Banking Survey by Accenture.
Digital Bank notes that:
More on this in Industry Trend: Social Finance.
Lulu.com is interesting to me for two reasons.
First, bloggers can select content from their blog and publish it. I dream of having time to do this! Maybe after I retire…
Secondly, Lulu.com is an example of the Long Tail business model. Mass customization. Sell less of more.
I always talk about industry and technology trends as being an important input to strategy. It seems a bit vague so I have decided to create a new series that catalogs the major trends affecting the banking industry.
A key technology trend is utilizing applications, storage and compute power from the cloud. A key word here is “utilizing“. The benefits of a utility are lower costs and increased agility. These benefits come from software defined environments, cloud operating environments, and the API economy. Security and regulatory constraints are forces but these are not trends (I assume these will be resolved to the benefit of the cloud computing trend) so I will not account for them here.
So the first technology trend that I want to start covering is cloud computing. Banks must adopt a strategy that leverages the strategic, operational and development agility that comes with cloud adoption. Architects in the banking industry must be informed about cloud computing standards.
My advice would be to implement any new major systems (core banking, CRM, channels) in the cloud.
Traditional corporations are abandoning legacy systems and moving to the cloud. Banks should too–Some have already done so successfully in Africa and Australia.
I will add to this post over time. For now let me just offer another bread crumb here.
Cloud is closely related to the following banking industry trends, which I will surely blog about:
The Cloud Computing trend is also closely related to the Big Data trend.
I found an interesting post titled Competing in a World of Software-Defined Everything by Chuck Hollis, a frequent blogger on cloud computing, about a new product cycle named “Learn, code, monetize”.
Chuck suggests that going forward organizations will compete primarily based upon know-how. Expertise and the unique understanding of how to apply it to gain a competitive advantage in some business is core to the value of the organization. The ability to code human expertise into computer systems then becomes a key differentiator. Companies must focus on improving their ability to
The organization who can go through the learn, code, monetize cycle the fastest wins.
This is driving companies to abandon legacy computing environments (slow cycle) and move to cloud computing (fast cycle).
According to Wikipedia, Service design is the activity of planning and organizing people, infrastructure, communication and material components of a service in order to improve its quality and the interaction between service provider and customers.
www.servicedesigntools.org/ provides an open collection of tools useful in service design.
Service design tools are useful in all of the layers in the How it All Fits Together diagram. In strategy, high level customer journey maps can illustrate the strategic intent of the target business model. In design, the vision of the customer experience and the experience of key internal users can be illustrated in a powerful illustration that everyone can understand, criticize, and rally around. The transformation process can be informed by the vision and requirements for the customer experience. In production, people can understand how things are supposed to be experienced by the customer and why. They can operate it all more in line with its intent and pass back more informed feedback, pain points, and new insights.
Strategic guiding principles are derived from experience, situational or positional analysis, or from researching best practices and industry or technology trends.
For example, an IT strategist for an organization might read in an analyst report that dramatically fewer banks are providing mobile apps for Blackberry devices and create the following guiding principles:
In the above example, the strategy is to:
These kinds of strategic principles are created to guide changes to the operating model and assess the operating model against the business and IT strategy. I cover my views on these and other kinds of strategic guiding principles here.
Market research or organizational experience must confirm the existence of customer micro-segment(s) that can be engaged with this strategy and the micro-segment must be abstracted into a set of personas or archetypes.
Service design (i.e. a customer journey map) must have uncovered usage scenarios where certain features are valuable to these targeted Blackberry users. The strategy must be presented to diverse stakeholders in a manner in which they can fully absorb it and their input must be incorporated back into the strategy.
The entire strategy is based upon assumptions about technology and the environment which, assuming they are true at all, might change drastically and quickly.
My point is, guiding principles lack the richness to function as a strategy. Guiding principles are one output of a strategy process which help to guide and assess the strategy implementation process, but they are not a strategy in and of themselves. If you have not documented the strategy, then you can not assess the principles. They are just rules devoid of rationale which, themselves, introduce new risks to the organization if not incessantly questioned, defended and tweaked.
Take, for example, the motherhood guiding principle: “Provide access to all banking services consistently across all channels“. By itself the principle is difficult to envision or question. Do we expect full mortgage application submission to be a popular feature on ATM? Are our ATM interfaces not already daunting enough? How will a hurried queue of customers feel if they cannot get cash because someone is laboring through a mortgage application on the only ATM in the area? What is the strategic thinking and what competitive advantage are we expecting to materialize? How can a broad set of stakeholders envision the target state and provide feedback based upon their unique knowledge and experience?
Principles are general rules or maxims that have repeatedly proven successful when followed.
There are guiding principles for just about everything. I know of the following kinds of guiding principles for strategy:
Note that in the above the first two overlap with the second two. They are not all mutually exclusive.
Strategic guiding principles are both a key input and key output of business and IT strategy processes. Guiding principles that the organization has accumulated over time are reassessed in light of a modified mission and changing environment. New strategy is restated in the form of guiding principles to constrain the operations of business and IT. Strategic principles provide guidance when designing the operating model and allow the operating model to be assessed to determine alignment to the business and IT strategies.
Principles meant to guide the formulation of business strategy are frequently taken from military strategy. They are general in nature (as opposed to being specific to the organization’s strategy). Bernard Boar lists the following such principles in The Art of Strategic Planning for Information Technology:
Principles meant to guide the implementation of a business strategy are typically very specific to the strategy itself. These are generally called principles but stretch the definition given in the first line of this post. I give examples if this kind of principles here.
I started my journey to understand target operating models (TOMs). It didn’t occur to me to first understand what is an operating model until I tried to understand the big picture and how everything fits together. Note to self: Before writing a TOM go back and review operating models.
A target operating model (TOM) envisions how the business will operate in the future. Creating a TOM requires two primary prerequisites:
The TOM envisions how a new (transformed) organization will operate that is substantially different from the way the organization operates today.
Some published material that I have enjoyed reading is in the reading room at OperatingModels.com.
In particular, I like the following documents:
We spend a lot of time creating target operating models (TOMs)–sometimes prematurely in my view. A telling fact is that businesses create TOMs without anything in writing about the existing operating model or business strategy.
When I learned about target operating models I, thankfully, first grounded myself in what an operating model is, why it is important and how it is used. Some published material that I have enjoyed reading is in the reading room at OperatingModels.com.
In particular, I like the following documents:
The Intro to TOMs provides a simple diagram about operating models that I think explains the purpose and use of operating models nicely.
They also have a book on operating models but the essential content has been replicated into the TOM document. I suspect that is because no one downloads the operating models book. Why bother with an operating model when you can create a target operating model!
My advice is to read the book on TOMs but focus on the part about operating models.
Another book worth sharing is “Defining your Operating Model: Designing a Foundation for Execution“. The key points are:
integration.They provide a 2×2 grid that breaks down into 4 operating models:
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