I'm back to working on a business model for the next economy and have been thinking today about different kinds of enterprise architectures. Here's the four that do a good job for me of sorting out the characteristics I'm focused on at the moment:
Commission architecture: Lots of enterprises make a percentage off what they sell. They compete on price and appeal to those customers looking for a bargain. Because they are focused on the percentage they are making, they run a lean operation. They are prone to the deceit and exploitations that we've recently witnessed among brokers of mortgages, derivatives and credit swaps. They cannot provide extra service to the vast numbers they make a small markup off of. They would say "you're already getting a bargain, we cannot listen to you".
Production architecture: Many other enterprises produce deliverables for their market of consumers. They compete on the quality of what they offer and appeal to customers looking to get what they pay for. They operate production facilities to deliver their product/service mix consistently, perhaps even by Six Sigma standards. They are prone to feature creep and indulging consumer excesses like the manufacturers of SUV's and oversized pickup trucks. They would say "we're delivering what the market demands, take it or leave it".
Persuasion architecture: Relatively fewer enterprises influence new customers to take the risk and try out their value proposition. They make offer support for buyers facing a complex range of issues prior to making purchase. They may put out a freemium deal where the free starter kit is good to go and only a small percentage buy the premium version. They may customize what they sell to each customer's preferences. They are prone to "give away the store" in the process of enticing new buyers to come on board like those pizza retailers who offer too many discount coupons to break even.
Participation architecture: The internet is revolutionizing this possible approach to enterprise design. Businesses can be platforms where potential customers show up, sign in and contribute. They maintain profiles for each individual and places to share among themselves. Those that join in talk up this place that understands how potential customers can contribute ideas, guide decisions and spread the word. While this crowd has little or no respect for proprietary content, copyrights or walled gardens, they are thrilled to make a difference by sharing the value they experience. These enterprises are prone to go viral and to scale rapidly after a slow start. They would say "here's what we've heard as we've listened to you give us so much valuable input to consider. Thanks!".
I wondered as I read this where apple would fit in. I can see them fitting into each category depending on their their product. For example, the itunes definitely are participation as customers are able to choose only those tunes they want and contribute to the rating of specific tunes.
ReplyDeleteOn the other hand, their iphone, with a set product and phone carrier would seem to fit into production architecture. The fact that it is so expensive because of its intention of creating a "quality" product demonstrates this.
The Mac, on the other hand, appears to fit into the commission architecture. The goal of the Mac's has always been to produce at an "affordable" price to capture the market.
My point is, I think there are multiple structures/strategies based on the business goals in any given corporation.
Thanks for thinking about this, Virginia. I like the possibility you raise of large companies with lots of products fitting into all the models. Here are some added thoughts about Apple along those lines:
ReplyDeleteApple was famous for not opening their OS code to any and all developers back in the early days of their rival: Microsoft developing Windows. Apple is currently repeating that closed approach to developers of apps for the iPhone. Those are instances of rejecting participation architecture and insisting on production instead.
Apple's "Genius Bar" in their retail stores seems like persuasion architecture to me. Nothing is being sold in those conversations and much help is given out that generates brand loyalty and persuades fence sitters to join the Mac world.
The agreements established with the music industry to offer single tracks for sale at their iTunes store seems like the start of participation architecture. Allowing customers opportunities to upload playlists and add content to the iTunes site, as you mentioned, also fits that architecture. However, the imbedded DRM restrictions that prevent downloaded music from playing on non-iPod MP3 players seems like commission architecture to me.
Your comment got me thinking that the value of this framework I've been using, may not be it's categorizing of business models, but rather it's ability to explain wide variations in customer engagement, loyalty, buzz etc.
Thanks again!
I agree. I think it also can also be used when your products have a wide deviation in tangibility. I'm wondering if this could be extended to the analysis of the target market (does the customer demand choice, low prices, quality, support systems, is the product tangible or tangible for the customer, what are their purchasing habits-brand loyalty or brand jumper).
ReplyDeleteYes, extending it to an analysis of a target market seems wise to me. The Forrester Group's Groundswell book emphasized that need to explore how prone to engagement the potential customers are. There are many buyers out there perfectly happy with the "no choice but a low price" offer.
ReplyDeleteThanks for taking these thoughts further.