Michael Porter has been one of the most prolific creators of business model analysis tools over the past 40 years or so. I am sure many of us have studied the Porter Five Forces or Porters Theory of Competitive Advantage in MBA’s or marketing degrees. However compelling and sensible these models are I have always found it difficult to make assessments between similar but independent business models for a single company. Using Porter, how do you assess the probability of success of one business model compared to another, particularly when the models are fundamentally different? As an old friend used to say, “it’s like comparing apples with kangaroos”. So, any differentiation can be somewhat abstract and difficult to quantify in real terms.
Like many people in leadership roles in business, I have looked at many models and techniques to help me make decisions. Here are a few you may have heard of… Boston Matrix, GE Matrix, Kepner-Tregoe Driving force analysis and Business Model Canvas. Although all of these are valuable tools they still don’t answer the question above about how you can compare apples with kangaroos. How can we say when creating one business model that it is superior to another, particularly when they are in different markets? Worse still, how can we compare two companies in different markets with different business models? As an investor, what makes one company better than another? How does she decide which company should be supported and which one should be left alone?
Many years ago, I was the founder of a software systems company which had remarkable growth. It went from just me to 140 people over 5 years. Like many similar companies in the software systems area we were reliant on the development of bespoke product development typically through Government tendering. As many people know, when tendering is a part of the business you do get quite good at doing o it but achieving better than 30% success at winning tenders is difficult and very expensive. So for a small but growing company with a limited budget for developing new business, what do you do? You have a limited tendering budget and know that you cannot afford to overspend. How do you ensure you do get higher rates of success? The key is often not about winning more work; but reducing the number of losses. If you can still tender for the same number of projects but get 70% instead of the normal 30% then your growth will take off without wasting lots of money on bid costs. It also gives you the capacity to bid a few more tenders if you have funds available. This is what we achieved at the company. We introduced an analytical tender assessment tool along the lines of the Porter model which provided qualitative measures allowing us to compare disparate opportunities. We could now compare apples to kangaroos. Better still we could also develop tactics and strategies on how to improve the apple or the kangaroo and make them more winnable. This model, when implemented with a full-scale gating process, provided a tool for management to make decisions on what tender was supportable and which ones were not based on the probably of winning or achieving a particular strategic objective. I called this Opportunity Management.
Over the past 5 years I have been looking at developing the Opportunity Management model further and applying it in the commercialisation area. Such a tool helps with comparing business models and also in assessing the differences between those disparate businesses seeking investment. As such it helps investors, advisors and the company itself on its commercial viability and ways that can be improved. I called the model COSMIC – standing for Commercialisation Organic Systems Model for Integrated Cells which can be displayed and analysed as a Canvas providing the fundamentals of a business and its business environment. As such it brings together the Porter models, Business Model Canvas, Lean Canvas and others into a single simple to understand model of how various business elements relate to each other. Although this is good and helps many people, the real innovation is the scoring system or Litmus Test which allows for a company to be assessed against the ‘Ideal Company’. When this Litmus Test is applied it gives a business a particular score allowing the company to then determine strategies to improve the score. This provides the mechanism whereby two disparate business plans can be compared against each other. When used skilfully it enables a company to determine a number of growth strategies. Investors can review and determine return on investment and probably success factors.
The opportunity management model has been tested for the past 25 years and was successful in a number of major companies including BAE Systems and GEC. Cosmic has been used in over 20 companies over the past few years and has likewise proven itself to be an effective management tool for Investors and for companies alike.