Friday, December 23, 2005

Geoffrey Moore, strategy and business models

In the December issue of Harvard Business Review, Geoffrey Moore has an article entitled  Strategy and the Stronger Hand where he talks about two distinct models of businesses.   While I generally agree with some of what Geoffrey has to say in this article, it  brought to mind another set of articles by Chris Anderson at Wired, where he talks about "The Long Tail".  In Geoffrey's view there are two kinds of company: those with a complex systems model (IBM comes to mind) and those with a volume model, e.g. Dell.  The rest of the article focuses on the differences in the value chain for each type of business and the potential pitfalls of one business model merging with the other.  In "The Long Tail" fit into this scenario, Chris talks about the many niche markets that can be very profitable.  Where does this fit into the Moore article?  Well it does not fit in directly, since Chris talks more about companies that fit the volume model.  But it got me thinking about the smaller niche companies that fit the "complex systems" model.  Companies that do not do billion dollar deals but form part of a complex system in the Moore model.  Does the success of such a company depend on finding the right alliances so that it can be part of a complete solution?  Is there a place for a smaller specialized company to be highly profitable on its own?  My opinion is that in todays market, such a company can fill the following two roles: 
  • A disruptive role, where the company throws a wrench into the entire fabric of the value chain that Moore describes.  Under this model for the parts of the process that the company fills the customer will be willing to pay a premium for the product.  The end-to-end solution provider then has two choices (1) to either understand that for a particular niche they can't provide the solution or (2) work with the disruptive force to ensure that the customer has the best user experience.  This would be the ideal situation for the niche company, but a potentially risky one
  • A collaborative role where the company builds itself  up to be part of an end-to-end solution.  This would require a  product that easily fits into existing end-to-end solutions and, very likely, an alignment with a complex systems provider.  This is a lower risk solution and one that many companies probably aspire to.

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