Asking the right questions. Seeking the relevant information.

Iterative Path

jackLet us play a card guessing game. I have a standard pack of 52 cards. I pick one at random and ask you for the chances it is a Jack. That is not that difficult. It is 1/13.

But it is not any standard pack of cards. We do not know how many cards in it. In fact we do not even know if there are any Jacks in it. It is like those card dispenser contraptions that spit out a card, except of unknown size. An acceptable answer is, “I don’t know”, because the problem is not frequentist probability question. The problem space has switched from risk to uncertainty.

But we can’t end it there. What if we need to find out to help with a business decision? After all, our output as a leader is decision making- make that informed decision making under uncertainty. So we have to…

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mPOS: Addressing new customer segments! A case of blue-ocean strategy!

In an attempt to better understand and apply the blue-ocean strategy, I decided to test the framework on a rapidly evolving market – the payment’s industry.

The solutions in the payments industry can be broadly classified into categories: those addressing emerging economies and those addressing developed economies. It naturally follows that the value propositions of the payments solutions in these two segments are quite apart and hence the associated value networks differ as well.

Here, I take a look at the developed economy market and specifically into a trend that has attracted several firms – mobile point of sale (mPOS).

In its simplest form, mPOS can be described as a payment-terminal (like the traditional credit card terminal) on your phone! Well it literally is that – pay using a mobile device (Smartphone/Tablet) and use funds from the traditional card accounts (magnetic stripe cards and the chip & pin EMV cards). Vendors like SumUp and Square Inc. are good examples.

The surge of companies in this space indicate a rapidly evolving technology area wherein there is yet to be a dominant technology. But it has seen innovative business models and new value propositions.

The key elements of the traditional credit card terminal used at retail outlets have the following characteristics:

Key elements

Value to customer

Upfront cost A significant fixed cost is involved to procure such a device (Anything between $150 to $1000 per terminal depending on product specifications)
Enrollment processing time This involves enrolling with payment solution providers and fulfilling a barrage of legal requirements to get the process started.
Pricing structure complexity In addition to an initial fixed cost, there are monthly maintenance charges that could be accompanied with long term agreement charges and other complex pricing structure.
Transaction volumes The high fixed cost and complex pricing structure necessitate a certain number of transactions to break even.
Payment authorization End users that swipe their cards through these terminals feel secure due to pin-entry provision.
Fraud prevention It follows that both front-end and back-end systems must complement to avoid fraudster from abusing the payment systems.
CRM information CRM software and other middleware solutions can enable merchants to pull out relevant sales information transacted through the payment terminal

The value curve for the traditional credit-card terminal industry would look as below:

Traditional Credit Card Terminals - Key Elements and its relative offering level
Traditional Credit Card Terminals – Key Elements and its relative offering level

Vendors likes SumUp and Square Inc. have however reversed this curve, and brought to the fore the mPOS dongle that extends the ubiquitous Smartphone (& tablet) into a payment terminal. Taking advantage of the app-store eco-system it provides merchants with a basic application for usage and also allows merchants to create customized apps to exploit the backend services. Merchants can take this a step ahead to analyze the sales data & customer preferences and thus derive business intelligence. All this comes at zero additional charges – the dongle comes for free – and in short turnaround time.

The grid below indicates the application of the Four-Action Framework (ERRC) – depicting a change in priorities of the key elements identified before, in addition to additional elements provided by the new offering.

Four Action Grid - mPOS
Four Action Grid – mPOS

Eliminating the high fixed investment and cutting down the enrolment process drastically, these vendors have been able to attract a new customer segment – micro-merchants – those that traditionally stayed away from the card-terminal and primarily dealt in cash.

mPOS vendors maintain a simple revenue model – charging a fixed percentage of sales revenue (typically 2.75% as of today). mPOS thus met the unmet need of a previously ignored segment of customer. An analogy I can think of here is text-based mobile banking (like M-PESA) in emerging economies – it met the banking needs of the un-banked customers in such geographies.

The value curve of the mPOS solution is overlay-ed on the previous chart as shown below:

mPOS vs. Traditonal Payment Terminal value curve
mPOS vs. Traditonal Payment Terminal value curve

Clearly mPOS is an interesting proposition for the payments industry. While the use of this ‘cool’ gadget may sync with the brand image of some merchants, there is need for caution. mPOS vendors must seek to address concerns, if any, of consumers reluctant to type in their PINS into a merchant’s phone or tablet!

Product Manager: The messenger of the market!

I came across this presentation on the Pragmatic Marketing website about a year back and thought of sharing this on the blog here.

The author, Steve Johnson, presents an extremely interesting articulation of the Product Management role in technology companies – “A product manager is a messenger of the market”.

He also presents interesting insights into the role of product managers accelerating the adoption of agile methodologies. A must read for those interested in career options in product management.

The Fit for Growth℠ approach & Business Model Innovation

This post is based on my reading of “Fit for GrowthSM Framework for Telecom Operators: Aligning Capabilities, Costs, and Structure” by Martin Reitenspiess, Christine Rupp, Hannes Gmelin, and Chady Smayra, via Booz & Co.

It is an attempt to reconstruct the proposal made in the publication by drawing analogies to other pieces of work. This publication (from April 2013) from Booz & Co proposes a “Fit for Growth” framework to transition from price-based competition strategy to differentiation strategy. Not surprisingly the industry in question, Telecom, is industry characterized by the following observations:

  • Stagnating market due to saturation of primary revenue sources
  • Declining margins accompanied by price competition
  • Substitute OTT (over-the-top) technologies hurting the basic product offerings
  • Shift in consumer behavior demanding higher capital investments in technology upgrades

The figure below depicts the three tier approach proposed by the framework (the process above) and my simplistic interpretation of each step (the process below)

Fit for Growth Approach (by Booz & Co)
Fit for Growth Approach (by Booz & Co)

I couldn’t help but relate this approach to Business model innovation and its representation using the Business Model Canvas. One possible business model representation as described in Business Model Generation is the decoupling of Operations, Customer Relationship Management & Product Innovation.

Business Model Canvas (Source: Business Model Generation)
Business Model Canvas (Source: Business Model Generation)

An organization keen on business model innovation could use the Fit for Growth Framework and communicate the same using the business model canvas representation.

Once the leadership team decides to assess the ground realities of its business and charts out the current business model, it needs to take a call on which of the three aspects it will focus on. It naturally follows that leveraging current competencies is essential & management commitment to additional investments nurturing the key capabilities is imperative.

While additional funding may be secured from external sources, internal cost cutting is a long preferred approach. However this time, as the article suggests there are two ways of doing this. Firstly make ‘cost effective operations’ a way of life, not a one-time business exercise and more importantly identify rightly the good costs vs. bad costs. Secondly, the desired strategic focus area in tandem with the assessment of the current business model will bring out non-core area expenditures – seeking ways to cut costs dramatically in these avenues will go a long way in making a lean cost structure. My analogy between the proposed framework and business model innovation is depicted below:

Fit For Growth (& BMI)
Fit For Growth (& BMI)

The article has extremely interesting insights for this approach to seeking growth. However, I am in a fix about one specific observation. Exhibit 2 in the original article quotes “Experience Players” to be least profitable.

I would rather argue that experience players focus on the “customer experience” & hence should succeed in driving demand and raising the ‘willingness to pay’ among customers, while lowering non-core costs. Having said that, wouldn’t such a player also have a larger share of the industry profit pool?

Your thoughts?