First Look: Feb. 9
Ready to do business in a developing economy? Don't just focus on its market size or growth potential. It's better to first scope out opportunities to build or improve efficient business operations such as credit-card systems, intellectual-property adjudication, and data research firms, according to Winning in Emerging Markets: A Road Map for Strategy and Execution, a new guide set for release this spring from Harvard Business Press.
Identifying and filling such "institutional voids" is key to long-term success, write the authors, HBS professors Tarun Khanna and Krishna G. Palepu, who are experts on strategy and governance in emerging markets worldwide. Khanna is faculty chair for HBS activities in India and the author of Billions of Entrepreneurs: How China and India are Reshaping Their Futures and Yours (2008). Palepu is the School's senior associate dean for International Development.
Focusing on opportunities in the U.S. education sector, Senior Lecturer Stacey M. Childress highlights exciting innovations over the past decade in Transforming Public Education: Cases in Education Entrepreneurship. This just-released book uses 18 case studies to explore trends in education entrepreneurship, along the way explaining how to assess possibilities and constraints, evaluate impact, and recognize the challenges ahead.
— Martha Lagace
Working Papers
The Architecture of Complex Systems: Do Core-Periphery Structures Dominate?
| Authors: | Alan MacCormack, Carliss Baldwin, and John Rusnak |
|---|
Abstract
Any complex technological system can be decomposed into a number of subsystems and associated components, some of which are core to system function while others are only peripheral. The dynamics of how such "core-periphery" structures evolve and become embedded in a firm's innovation routines has been shown to be a major factor in predicting survival, especially in turbulent technology-based industries. To date, however, there has been little empirical evidence on the propensity with which core-periphery structures are observed in practice, the factors that explain differences in the design of such structures, or the manner in which these structures evolve over time. We address this gap by analyzing a large number of systems in the software industry. Our sample includes 1,286 software releases taken from 19 distinct applications. We find that 75%-80% of systems possess a core-periphery structure. However, the number of components in the core varies widely, even for systems that perform the same function. These differences appear to be associated with different models of development—open, distributed organizations developing systems with smaller cores. We find that core components are often dispersed throughout a system, making their detection and management difficult for a system architect. And we show that systems evolve in different ways—in some, the core is stable, whereas in others, it grows in proportion to the system, challenging the ability of an architect to understand all possible component interactions. Our findings represent a first step in establishing some stylized facts about the structure of real-world systems.
Download the paper: http://www.hbs.edu/research/pdf/10-059.pdf
Quality Provision, Expected Firm Altruism and Brand Extensions
| Author: | Julio J. Rotemberg |
|---|
Abstract
This paper studies quality choice in a model where consumers expect firms to act altruistically. It is shown that, under plausible assumptions regarding this altruism and the reaction of consumers to firms that demonstrate insufficient altruism, existing firms (or brands) can face a larger demand for new products than new entrants. Moreover, the failure of new products can reduce the demand for a brand's existing products even if the quality of these existing products is well understood by consumers. The model provides an interpretation for the dependence of the success of brand extensions on the "fit" between the original product and the extension. Lastly, the model can explain why a "high-end" firm that is expected to care only for its most quality-sensitive customers can have an advantage in introducing a product relative to a firm that is expected to be more widely altruistic.
Download the paper from SSRN ($5): http://papers.nber.org/papers/w15635
Publications
Transforming Public Education: Cases in Education Entrepreneurship
| Author: | Stacey Childress |
|---|---|
| Publication: | Cambridge, Mass.: Harvard Education Press, 2010 |
Abstract
Based on a popular education entrepreneurship course at Harvard Business School, Transforming Public Education organizes 18 case studies into modules that reflect the predominant opportunities pursued by social entrepreneurs focused on public education in the United States over the last decade. The book offers an overarching framework for creating and evaluating social ventures as well as summaries of the potential for impact and the challenges in a number of opportunity areas.
Purchase the book: http://www.hepg.org/hep/book/113/TransformingPublicEducation
Transforming Public Education: Instructors Guide
| Author: | Stacey Childress |
|---|---|
| Publication: | Cambridge, Mass.: Harvard Education Press, 2010 |
Abstract
Companion teaching and module notes for Transforming Public Education: Cases in Education Entrepreneurship.
Winning in Emerging Markets: A Road Map for Strategy and Execution
| Authors: | Tarun Khanna, Krishna G. Palepu, and Richard Bullock |
|---|---|
| Publication: | Harvard Business Press, forthcoming April |
Abstract
The best way to select emerging markets to exploit is to evaluate their size or growth potential, right? Not according to Krishna Palepu and Tarun Khanna. In Winning in Emerging Markets, these leading scholars on the subject present a decidedly different framework for making this crucial choice. The authors argue that the primary exploitable characteristic of emerging markets is the lack of institutions (credit-card systems, intellectual-property adjudication, data research firms) that facilitate efficient business operations. While such "institutional voids" present challenges, they also provide major opportunities for multinationals and local contenders. Palepu and Khanna provide a playbook for assessing emerging markets' potential and for crafting strategies for succeeding in those markets. They explain how to spot institutional voids in developing economies, including in product, labor, and capital markets, as well as social and political systems; identify opportunities to fill those voids, for example, by building or improving market institutions yourself; and exploit those opportunities through a rigorous five-phase process, including studying the market over time and acquiring new capabilities. Packed with vivid examples and practical toolkits, Winning in Emerging Markets is a crucial resource for any company seeking to define and execute business strategy in developing economies.
Pre-purchase the book: http://hbr.org/product/winning-in-emerging-markets-a-road-map-for-strateg/an/13216-HBK-ENG?N=4294958505%204294934481
The Architecture of Platforms: A Unified View
| Authors: | Carliss Y. Baldwin and C. Jason Woodard |
|---|---|
| Publication: | Chap. 2 in Platforms, Markets and Innovation, edited by Annabelle Gawer. Cheltenham, UK and Northampton, Mass.: Edward Elgar Publishing, 2009, paperback edition |
An abstract is unavailable at this time.
Opening Platforms: When, How and Why?
| Authors: | Thomas R. Eisenmann, Geoffrey Parker, and Marshall Van Alstyne |
|---|---|
| Publication: | Chap. 6 in Platforms, Markets and Innovation, edited by Annabelle Gawer. Cheltenham, UK and Northampton, Mass.: Edward Elgar Publishing, 2009, paperback edition |
Abstract
Platform-mediated networks encompass several distinct types of participants, including end users, complementors, platform providers who facilitate users' access to complements, and sponsors who develop platform technologies. Each of these roles can be opened—that is, structured to encourage participation—or closed. This paper reviews factors that motivate decisions to open or close mature platforms. At the platform provider and sponsor levels, these decisions entail 1) interoperating with established rival platforms, 2) licensing additional platform providers, or 3) broadening sponsorship. With respect to end users and complementors, decisions to open or close a mature platform involve 1) backward compatibility with prior platform generations, 2) securing exclusive rights to certain complements, or 3) absorbing complements into the core platform. Over time, forces tend to push both proprietary and shared platforms toward hybrid governance models characterized by centralized control over platform technology (i.e., closed sponsorship) and shared responsibility for serving users (i.e., an open provider role).
Purchase the book: http://www.e-elgar.co.uk/Bookentry_Main.lasso?id=13257
Too Many Cooks Spoil the Broth: How High Status Individuals Decrease Group Effectiveness
| Authors: | Boris Groysberg, Jeffrey T. Polzer, and Hillary Anger Elfenbein |
|---|---|
| Publication: | Organization Science (forthcoming) |
Abstract
Can groups become effective simply by assembling high status individual performers? Though an affirmative answer may seem straightforward on the surface, this answer becomes more complicated when group members benefit from collaborating on interdependent tasks. Examining Wall Street sell-side equities research analysts who work in an industry in which individuals strive for status, we find that groups benefited—up to a point—from having high status members, controlling for individual performance. With higher proportions of individual stars, however, the marginal benefit decreased before the slope of this curvilinear pattern became negative. This curvilinear pattern was especially strong when stars were concentrated in a small number of sectors, likely reflecting suboptimal integration among analysts with similar areas of expertise. Control variables ensured that these effects were not the spurious result of individual performance, department size or specialization, or firm prestige. We discuss the theoretical implications of these results for the literatures on status and groups, along with practical implications for strategic human resource management.
The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies
| Authors: | Maria Guadalupe and Julie Wulf |
|---|---|
| Publication: | American Economic Journals: Applied Economics (forthcoming) |
Abstract
This paper establishes a causal effect of product market competition on various characteristics of organizational design. Using a unique panel-dataset on firm hierarchies of large U.S. firms (1986-1999) and a quasi-natural experiment (trade liberalization), we find that competition leads firms to flatten their hierarchies: firms reduce the number of positions between the CEO and division managers and increase the number of positions reporting directly to the CEO. The results illustrate how firms redesign their organizational structure through a set of complementary choices in response to changes in their environment. We discuss several possible interpretations of these changes.
Managing Risk in the New World
| Authors: | Robert S. Kaplan, Anette Mikes, Robert Simons, Peter Tufano, and Michael Hofmann |
|---|---|
| Publication: | Harvard Business Review 84, no. 10 (October 2009): 68-75 |
An abstract is unavailable at this time.
Preview the article: http://hbr.org/2009/10/managing-risk-in-the-new-world/ar/1
Behavioral Aspects of Price Setting, and Their Policy Implications
| Author: | Julio J. Rotemberg |
|---|---|
| Publication: | In Policymaking Insights from Behavioral Economics. Boston: Federal Reserve Bank of Boston, 2009 |
Abstract
This paper starts by discussing consumers' cognitive and emotional reaction to posted prices. Cognitively, some consumers do not appear to make effective use of price information to maximize their consumption-based utility. Emotionally, prices can induce regret and anger among consumers. The optimal responses of firm's prices to these reactions can explain why firms charge prices below marginal cost for many goods and why they keep their prices rigid. This explanation of price rigidity has the advantage of being consistent with the observation that the typical size of price increases is nearly invariant to inflation. Lastly, the paper turns to some government policies regarding prices that appear to have some consumer support. It argues that both laws against price gouging and laws regulating the terms of mortgages may have support because consumers recognize that many people do not optimize their consumption effectively and because they are angry at firms that take advantage of this. These attitudes can also explain consumer support for monetary policies that maintain a low level of average inflation.
Cases & Course Materials
NovoCure Ltd.
William A. Sahlman and Sarah Greene Flaherty
Harvard Business School Case 810-045
Venture capitalist William Doyle must raise $35 million for a portfolio company with a promising, novel cancer therapy, just as global capital markets are imploding in the fall of 2008. NovoCure, Ltd., has developed an electrical-field-based therapy, called Tumor Treating fields, for the treatment of cancerous tumors. The therapy has shown significant efficacy with no side effects after five years of testing in human patients. Doyle believes NovoCure has the potential to become an important company with a major new cancer therapy platform but must complete pivotal (Phase III) clinical trials and receive FDA approval. Doyle's venture capital firm, WFD Ventures, has invested $25 million in three rounds to fund pilot clinical trials for glioblastoma and other non-small cell lung cancer, and the first pivotal clinical trial for glioblastoma. Additional financing is needed to proceed with the strategically important second pivotal trial. In the fall of 2008 Doyle was negotiating the final terms of an investment by two prominent hedge funds when the liquidity crisis caused the hedge funds to withdraw from the transaction. Dole must now reevaluate his options for securing the needed financing for this promising young company.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/810045-PDF-ENG
Zara: Managing Stores for Fast Fashion
Zeynep Ton, Elena Corsi, and Vincent Dessain
Harvard Business School Case 610-042
Pablo Isla, the CEO of Zara, wanted to improve operational efficiencies in managing its store network. In particular, he wanted to improve labor productivity at the stores. He considered outsourcing certain store operations to third parties, changing the way store managers were compensated, and creating formal operating procedures for store operations. But he knew he had to be careful. Could an emphasis on improving labor productivity hurt other aspects of store operations?
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/610042-PDF-ENG
Tired of hiring your competitor's rejects?
You can’t build a great business around average employees. Ask yourself, “Where have your great employees come from?” My guess is that “cream” rose to the top rather than you stole the person from your competition.
Watch a video to learn how to build great talent instead of settle for other’s castaway employees:
51 Fatal Business Errors #1 from Jim Muehlhausen on Vimeo.
Video highlights: Hiring your Competitor’s Rejects
- Give up on hiring experienced people
- Goal is to create a highly-repeatable process to recruit future superstars
- Find or create a test to discover the aptitudes you need
- Create an automated or semi-automated process to screen candidates such as a video FAQ
- Have a solid training program in place once they are hired
- Real-world example from manufacturer
If you will change your hiring and training practices, you can substantially improve your business model. The best business models find ways to develop talent rather than steal great people from other companies.
Investing in Improvement: Strategy and Resource Allocation in Public School Districts
| Published: | February 10, 2010 |
| Paper Released: | January 2010 |
| Author: | Stacey Childress |
Executive Summary:
The operating environments of public school districts are largely void of the market forces that reward a company's success with more capital and exert pressure on it to eventually abandon unproductive activities. HBS senior lecturer Stacey Childress describes the strategic resource decisions in 3 of the 20 public school districts that she and colleagues have studied through the Public Education Leadership Project at Harvard. The stories in San Francisco, New York City, and Maryland's Montgomery County occurred largely before the districts faced dramatic decreases in revenues, though they show the superintendents facing budget concerns near the end of the narratives. Even so, the situations share common principles that superintendents and their leadership teams can use to make differentiated resource decisions—reducing spending in some areas and increasing it in others with a clear rationale for why these decisions will produce results for students. Key concepts include:
- Given the rarity of strategic approaches to resource allocation described in the examples, it is clear that district leaders need more guidance and tools to help them make better decisions and manage the consequences, particularly when they are under enormous fiscal pressure.
- Back your strategy with a resource plan—otherwise it is not a strategy.
- Don't get trapped by the dogma of decentralization.
- If leaders alienate influential stakeholders when budgets are flush, it will be even more difficult to preserve key strategic investments during financial crises.
Abstract
This working paper offers concrete examples of improved productivity and efficiencies at the district level, drawing from the author's experience working with districts and developing such case studies for Harvard Business School. Childress makes the point that given the rarity of the strategic approaches to resource allocation, district leaders need more guidance and tools to help them make better decisions and manage the consequences, particularly when they are under enormous fiscal pressure. 32 pages.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: January 2010
- HBS Working Paper Number: 10-057
- Faculty Unit: General Management
Business Model Trend #4- Too Few Geniuses, Too Many Drones
Technology has allowed businesses to automate processes to such a large extent that under-educated and under-skilled employees have little value other than hand-tasks that machines cannot do. Fifteen years ago, I highly skilled customer service representative was a valued employee. Today, companies have created a workflow process that allows anyone of average skill to perform almost as well as the superstar. Simply say the magic words as they appear on screen. No need to think about it; the computer already knows the right thing to say.
In this example, the rank and file employee has been relegated to a slot filler. However, the genius that wrote the workflow process is invaluable. Through technology and improved business tools, one person can leverage their “genius” over hundreds of average folks.
This very example was demonstrated in the George Clooney movie “Up in the Air.” George Clooney racked up 10 million air miles carting his special talent around the world. Then, in steps the 23-year old college hotshot with her radical business model changer. Instead of sending the hotshot to fire people in person, she created a video-based process handled by a customer service rep reading from a script. It may seem cold, but it did work.
Her new business model replaced a highly-skilled, highly paid, and expensive travel budgeted George Clooney with an ordinary customer service rep sitting at a desk in Omaha. Clooney’s position probably cost $500,000 a year fully burdened. Her business model probably cost $50,000 per year and could do more work with less talent because the travel was removed.
Computerization has made what used to be exceptional talent rather ordinary. As technology improves faster than employee skill, the “bar” for what an excellent or super-talented employee looks like will be much, much higher. Therefore, the number of people that will be truly talented under the new definition will continue to dwindle.
Competition for the truly gifted will intensify. Savvy business model architects will understand this dynamic and reward average skill with average pay but reward the few geniuses with exceptional pay and rewards.
The Architecture of Complex Systems: Do Core-periphery Structures Dominate?
| Published: | February 11, 2010 |
| Paper Released: | January 2010 |
| Authors: | Alan MacCormack, Carliss Y. Baldwin, and John Rusnak |
Executive Summary:
All complex systems can be divided into a nested hierarchy of subsystems. However, not all these subsystems are of equal importance: Some subsystems are core to system performance, whereas others are only peripheral. In this study, HBS professor Carliss Y. Baldwin and coauthors developed methods to detect the core components in a complex software system, establish whether these systems possess a core-periphery structure, and measure important elements of these structures. The general patterns highlight the difficulties a system architect faces in designing and managing such systems. Results represent a first step in establishing stylized facts about the structure of real-world systems. Key concepts include:
- Core-periphery structures dominate the sample, with 75-80 percent of systems in the sample possessing such a structure.
- It is significant that a substantial number of systems lack such a structure. This implies that a considerable amount of managerial discretion exists when choosing the "best" architecture for a system.
- Variations in system structure can be explained, in part, by the different models of development used to develop systems.
- Legacy code is rarely rewritten, but instead forms a platform upon which new systems are built. With such an approach, today's developers bear the consequences of design decisions made long ago.
Abstract
Any complex technological system can be decomposed into a number of subsystems and associated components, some of which are core to system function while others are only peripheral. The dynamics of how such "core-periphery" structures evolve and become embedded in a firm's innovation routines has been shown to be a major factor in predicting survival, especially in turbulent technology-based industries. To date however, there has been little empirical evidence on the propensity with which core-periphery structures are observed in practice, the factors that explain differences in the design of such structures, or the manner in which these structures evolve over time.
We address this gap by analyzing a large number of systems in the software industry. Our sample includes 1,286 software releases taken from 19 distinct applications. We find that 75-80% of systems possess a core-periphery structure. However, the number of components in the core varies widely, even for systems that perform the same function. These differences appear to be associated with different models of development - open, distributed organizations developing systems with smaller cores. We find that core components are often dispersed throughout a system, making their detection and management difficult for a system architect. And we show that systems evolve in different ways - in some, the core is stable, whereas in others, it grows in proportion to the system, challenging the ability of an architect to understand all possible component interactions. Our findings represent a first step in establishing some stylized facts about the structure of real world systems. 37 pages
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: January 2010
- HBS Working Paper Number: 10-059
- Faculty Unit: Finance
Business Model Trend #3- Create Recurring Revenue
Winning business models of the future will use membership models such as: home repair clubs, weight loss clubs, computer repair clubs and hundreds of other recurring revenue models to make their sales more predictable and profitable.
Of course, to create a business model with recurring revenue, you must have a suitable customer base and product. However, many business owners believe that recurring revenue is only for health clubs. Many business models have creatively used recurring type payments that are not memberships. Examples include:
- Web applications such as salesforce.com
- Coffee clubs
- Book clubs or Columbia house CD club
- Audible.com uses credits instead of cash
- Home warranties and extended auto warranty business models are effectively prepaid repair bills
Creative business owners will find ways to create a business model that has recurring revenue vs. a sell-deliver-resell business model.
Business Model Trend #2- Stakeholder Transparency
Winning business models will use the web to lower costs and add value. There are three primary methods by which this can be accomplished:
1. Giving customers access to information.
How many customers are calling your company for pricing, manuals, and information that could be posted on the web? If only 1/5th of an employee is devoted to this task, think about how much money that costs? You can pay for a lot of computer programming with that cost. The web changes you make will be permanent and last for years. Machines are always cheaper than men. Providing transparency for information on the web is a great way to improve your business model. Below is a sample screenshot from the UPS.com website. The entire tracking menu is customer self-service. UPS provides access to internal information and greatly reduces customer service cost. In fact, UPS determined that a phone call to customer service cost over $2 while a web request cost only pennies.
Think how ATMs did this for banks. ATMs made banking more convenient and allowed banks to be open longer hours with fewer employees. ATMs gave customers the ability to self-service instead of being forced to wait in line while a trusted bank employee punched the computer buttons. Having a bank employee access the information was nothing but an unnecessary toll booth. ATMs completely changed the business model for banks.
2. Sales automation
You simply cannot sell the same way you did in the 1990s. Who’s to blame? It’s closer to what’s to blame. The answer will surprise you: TIVO. TIVO taught us a) we don’t need to be a slave to the TV network’s schedule. We can easily watch what we want when we want. We are not in control, not them; and b) we do not need to subject ourselves to advertising. TIVO has radically changed our thinking. We now understand that advertising is something we have the right to opt out of. Interruption marketing is dying.
Here’s an example: It’s 1975 and you want to buy a Mercedes. You are looking for information. What do you do? Well, you probably go to the dealer and walk through the front door and “expose” yourself as a prospect. You might as well raise your hand and say, “Hi, my name is Bob Smith and I am a prospect for a new Mercedes. Would you please subject me to a sales call so I can get the information I want.” In the old days, the vendor was in control. Effectively, the vendor withheld information the buyer needed in exchange for a sales call. Vendors withheld pricing, specifications, and the like so the buyers would HAVE TO expose themselves.
Today is a far different story. Ask yourself, how do you buy that Mercedes today? You go on the internet and virtually build the car. You probably are half-sold on the Mercedes before you ever visit the dealer. Where is the “selling” in this scenario? The selling isn’t done by a salesperson. It’s done through progressive disclosure of information on the web. What has radically changed in the world of selling is that if you refuse to give prospects information, they will refuse to expose themselves as a prospect. You will lose the business and never know it.
That’s the bad news. The good news is that it is cheaper than ever to prospect and sell if you leverage technology. This technology is video and the web. Proper use of video can be more effective than an expensive sales person. Click here to see an interesting example of how to use video to replace expensive and ineffective cold calling.
3. Flexible outsourcing. .
Aside from buying an expensive building or machine, nothing is more costly than an employee. You have training cost, lost productivity, vacations, under capacity, over capacity, and many more issues. Business models of the future will utilize more outsourcing, contract workers, off-shoring, temporary staff, consultants, and the like. These business models will be needed as the government relies more and more on business to provide ever-increasing benefits to employees. This added burden will make having full-time employees more costly and cumbersome. Creative business models will find a way to work with flexible staff so the expense of product/service deliver can be better matched with revenue. For a business model to be successful, it must have a flexible cost structure. The most effective way to create a flexible cost structure is to make payroll and human cost as variable as possible. The best business models will find a way to do this.
What’s the cost of your job?
In this uncertain economy, it seems like many folks are looking for a lifeboat to jump into. In particular, the unemployed and underemployed seem to be grasping for a life preserver. This group seems to believe that a job is the answer to their prayers.
As a lifetime entrepreneur, I have learned that the least security you can have is in a job. You are only as secure as your employer. You are only as secure as your boss’s mood. You are only as secure as many factors beyond your control.
Entrepreneurs have learned that it is far better to be in control of your own destiny than to entrust it to someone else. Sure, there are long nights and some worry. How is that any different from a jobholder? The only difference is that the business owner can control the outcome better than the jobholder.
Why I am writing this? Well, I think we need an entrepreneurial revival. Americans need to ditch their jobs and take control of their destinies. Ask yourself this, “Is it free to get a job?” Most people think and act like jobs are no-cost because they don’t have to pay to get them.
What does it cost someone to stay at home for a year watching TV waiting for a job to open up? It costs twelve months of family expenses with no corresponding income. Most Americans could spend $50,000 starting a business and be in the exact same position a year later. The only difference being that they could own an asset called their business vs. the liability known as their boss.
Just food for thought: ask yourself, “How much is your job search costing?”
Business Model Trend #1: Flexible Business Models
Winning business models of the future will be flexible. By this, I mean that these businesses will be able to double sales with one-third the number of employees. This may sound impossible, but it is not. Remember Armor All, the tire shining product. In the 1990’s, Armor All did over $300 million in sales with only five employees. By outsourcing all non-essential elements of their operation, Armor All created a business model that was quickly scalable up and down. Their business model enabled them to create rapid growth in sales without rapid growth in employees.
There is nothing wrong with having employees. However, let’s face it, complexity of a business rises with the number of employees. If you can grow sales without growing employees, your business will be much easier to run. Some businesses require an employee-intensive business model. However, a non-employee intensive model is a better model in most cases.
Below are examples of different industries and their respective sales per employee. Ask yourself, would you rather be in an industry with three million dollars sales per employee or one with one hundred thrity five thousand dollars sales per employee?
Specifically, industry #35, package delivery, only generates $135,098 per employee. UPS is included in this category. An average driver makes $24.69/hour plus the cost of benefits. By the time a truck, on-board computer, and other items are added, the cost per driver easily excceds $100,000 per employee.
There is nothing wrong with UPS’ business model. However, it is more difficult to be successful in a business model with such a small gap between revenue and cost. Particularly if that cost is something inflexible like payroll.
| Fortune Magazine | ||
| July 20, 2009 Edition | ||
| Rank | Industry | Sales per Employee |
| 1 | Petroleum Refining | $ 3,044,000 |
| 2 | Wholesalers: Health Care | $ 2,027,600 |
| 3 | Energy | $ 1,360,705 |
| 4 | Diversified Financials | $ 1,307,001 |
| 5 | Food Production | $ 1,268,695 |
| 6 | Trading | $ 1,025,257 |
| 7 | Health Care: Insurance and Managed Care | $ 1,001,605 |
| 8 | Insurance: Life, Health (stock) | $ 960,056 |
| 9 | Utilities | $ 910,711 |
| 10 | Insurance: Property and Casualty (Stock) | $ 753,100 |
| 11 | Mining, Crude-Oil Production | $ 697,695 |
| 12 | Shipping | $ 666,363 |
| 13 | Banks: Commercial and Savings | $ 653,314 |
| 14 | Chemicals | $ 639,935 |
| 15 | Telecommunications | $ 522,884 |
| 16 | Entertainment | $ 515,563 |
| 17 | Metals | $ 490,863 |
| 18 | Pharmaceuticals | $ 483,817 |
| 19 | Network and Other Communications Equipment | $ 471,031 |
| 20 | Tobacco | $ 445,043 |
| 21 | Motor Vehicles and Parts | $ 439,042 |
| 22 | Industrial Machinery | $ 411,165 |
| 23 | Household and Personal Products | $ 377,281 |
| 24 | Beverages | $ 345,714 |
| 25 | Food Consumer Products | $ 340,879 |
| 26 | Building Materials, Glass | $ 336,281 |
| 27 | Airlines | $ 327,138 |
| 28 | Aerospace and Defense | $ 304,323 |
| 29 | Engineering, Construction | $ 298,990 |
| 30 | Computers, Office Equipment | $ 292,773 |
| 31 | Electronics, Electrical Equip. | $ 282,660 |
| 32 | Food and Drug Stores | $ 279,669 |
| 33 | Specialty Retailers | $ 279,386 |
| 34 | General Merchandisers | $ 189,092 |
| 35 | Mail, Package, and Freight Delivery | $ 135,098 |
Learn more about all forms of business models at http://businessmodelinstitute.com
4 Upcoming Trends for Business Models
All business models go stale over time. Just look at Blockbuster, TCBY, Encyclopedia Britannica, IBM, Kmart and many more that have been forced to change their business models. In the case of IBM, they have very successfully modified and morphed their business model and stayed ahead of problems.
For many other companies mentioned, they were slow to change their model and the consequences were significant. Below you can find links to the four biggest trends in small business models. Ignore them at your own risk!
Business Model Trend #1: Flexible Business Models
Business Model Trend #2: Stakeholder Transparency
Business Model Trend #3: Creating Recurring Revenue
Business Model Trend #4: Too Few Geniuses, Too Many Drones