Blue Bubble Ceiling

International Business Model Transformation: How this Company Turned a Failure into a Success [in 7 Moves]

Wouldn’t it be great if you could take a money-losing business out of your own international portfolio and turn it into a profitable one? Wouldn’t it be even better if you could extend its success to a dozen countries, with a very limited investment, in a two-year time?

How would you define your objectives? How would you choose the right team? What would your priorities and approach be?

If you are an entrepreneur, a manager or a business consultant and you are facing a somewhat similar challenge, stay tuned, and you may get some useful hints.

The story I’m about to tell you is based on a real case. As such, it is not intended to describe a one-size-fits-all method. Still, my intention here is to make you reflect on contextual similarities and differences with other real cases that you may be aware of or that you may be personally facing right now. My hope is that you’ll get at least some kind of learning from it.

And, yes, this story has a happy ending.

International Business Model Transformation - The Story

The Story

After long years of one-business, one-country successes, this B2B services company has started diversifying and growing internationally, by means of acquisitions. It is now reflecting on its achievements.

In particular, the second largest of its lines of business is dramatically underperforming. To make it even more complicated, results are inconsistent, volatile and hard to predict across different country markets. Reasons for success or for failure are unclear.

As a result of incomplete post-merger integration, more than ten countries operate a variety of heterogeneous and apparently inconsistent models. Country-by-country market conditions are hardly known at central level.

Rather than an organically designed building, the business looks more like an assemblage of business models having little to share with each other. Although results vary from country to country, the overall balance for the business line is heavily negative.

It’s time to do something. Let us see how our case developed, from goal setting to governing a successful international business.

International Business Model Transformation - Move 1: Setting Clear Objectives

Move 1: Setting Clear Objectives

The underperforming business line, as we said, is under the spotlight. The company’s top management believes that, besides reversing negative performances, setting up clear and international business model rules and guidelines would bring in at least three advantages:

    1. Providing a shared language and a communication framework, to quickly “read” actual practices and performances;
    1. Orienting local managers towards improved results by setting clear expectations upfront;
  1. Establishing a straightforward and convincing cross-country positioning of the business, especially when facing large international customers.

Having these three strategic objectives in mind, a team is now needed to carry on a transformation project.

International Business Model Transformation - Move 2:Building a Business Transformation Team

Move 2: Building a Business Transformation Team

The company CEO is the first character of our story. She hires a new global head for the business line – let’s call him Jack – to steer it away from troubled waters.

Jack’s vision about how things should work is clear. His solid market knowledge and his sales experience make him qualified for the job and a credible interlocutor of the top management. On the other side, Jack’s strong interpersonal skills will help him in winning business people’s confidence throughout the change process, at an international level.

Building a Successful Team

Jack gathers a small and well-assorted task force to participate to his endeavor. He calls Amy to join him. Amy is an experienced, hands-on operations manager coming from the field.

The team wouldn’t be complete without Bill, the person who told me this story in the first place. Bill is a project manager and a former management consultant. He’s got a strong methodology mindset, a structured approach to problem solving, and a deep and diversified international background.

The first decision to be taken is about where to start from. Again, the company top management will provide a key hint.

International Business Model Transformation - Move 3: Prioritizing, with an Eye to the Broader Target

Move 3: Prioritizing, with an Eye on the Broader Target

Besides being the largest revenue generator, one of the countries involved is also responsible for the largest net cash outflow. Total revenues even fail to equal the biggest cost component, i.e. personnel. It quickly becomes evident that this country is the priority.

Broadening the Point of View

Despite the widespread sense of urgency, however, the team doesn’t forget that the ultimate goal is international by scope. So, before digging deep into their immediate priority, they decide to invest two full weeks in a round of remote interviews with a sample of the other countries.

The intended objective of the preliminary interview round is to quickly produce a first, high-level picture of the main commonalities and differences across the existing business models.

The team spends some time to prepare an interview guide, which they will use consistently with all the analyzed country businesses. Rather than just sending out a questionnaire, they prefer to hear stories from the live voice of the local business managers they interview. To keep costs low, though, they choose to do so via video conference.

The sample of countries which participate to the interview round is chosen with a view to capture the largest possible degree of variability. One geographically dispersed and one concentrated country. One mature and one emerging market. One large and one small local team.

Comparative Understanding

The interview round allows the team to reach at least a broad understanding of the many different models being operated under a common denomination. They also get a first-level comparative understanding of the main factors that determine differences.

As it turns out, some of the differences appear to be induced by objective environmental and market variables, while some others are the result of discretionary management choices at a local level.

Then, as soon as the team has completed the international overview round, the first real challenge is to fix the prioritized country. First analyze, then redesign its business model.

International Business Model Transformation - Move 4: Doing a Good First Job

Move 4: Doing a Good First Job

Before moving into design, Jack, Amy and Bill make a thorough analysis of the “as-is” business model in the first country. They base their approach on two distinctive pillars. On one side, they conduct deep, in-person interviews with selected key people at all levels of the organization. On the other, they use a solid conceptual framework to collect and organize results in a meaningful manner.

Pilot Business Model Analysis

The conceptual framework the team uses is Alexander Osterwalder’s and Yves Pigneur’s Business Model Canvas (BMC). This very same framework is suitable for both business model analysis and for its redesign.

It is not my purpose here to give a full explanation of the Business Model Canvas framework. I’ll just point out that it is a practical and intuitive way to divide the key aspects of a business model into nine main components. These nine building blocks allow to describe both the “front stage”, or client-facing peculiarities of a business, and its “backstage”, i.e. its functioning mechanisms. In a nutshell, the what and the how of value creation and capture.

Simplifying Business Model Design

After a thorough analysis of the starting point, the team use the same framework to blueprint the desired target business model.

At this point, while still starting from the nine building blocks of the Business Model Canvas, in a further effort to make results even more intelligible by a broader audience, the team then concentrate their attention on five specific focus areas. These include:

    1. the value proposition,
    1. the organization structure,
    1. business processes,
    1. the data model,
  1. and information systems.

Business Model Design in Practice

To make an example, let’s take one key business model feature: the decision to structure the organization into three specialized divisions. Each of the three divisions is focused on one defined and specific area of expertise. As a consequence, clients that need different areas to be covered, will have to get in touch with multiple points of contact. This choice directly affects both “front stage” and “back stage” components of the business model.

In particular, value proposition, customer segments and the way customer relationships are managed belong to the first, or front stage, category. On the other side, the way people are organized, how sales and operations processes and information systems are designed and configured as well as the underlying data model belong to the second, or back stage, category.

Change Management and Management Change

As soon as the new design is ready, the team works on the transition to the new model. Change management activities take place and the business is quickly reorganized according to the new guidelines.

Meanwhile, a new local manager has been hired to lead the business in the first country. She will make it grow according to the newly established model.

Jack and his team can now proceed to the next steps of their international business challenge. And the very next one will be the definition of a truly global model.

International Business Model Transformation - Move 5: Bottom-Up or Generalizing Results

Move 5: Bottom-Up or Generalizing Results

The first country implementation has worked as a pilot test and as a design laboratory for the new business model. With that experience in mind, Jack, Amy and Bill take the model piece-by-piece and revise it critically.

Design, with Flexibility

The team tries to figure out, at the best of their capacity, what would work and what would require adaptation to work elsewhere. Different market conditions, company sizes, regulatory constraints and maturity are some of the elements that they take into account.

Rather than a monolithic construct, the international business model is made up of three layers, implying a certain degree of flexibility:

    1. The first layer includes the foundational aspects and the core, mandatory features that are deemed essential to the very identity of the business across all countries;
    1. The second layer defines alternative choices as a function of known contextual conditions that may vary marketwise;
  1. The third layer includes generic guidelines for choices that can be left to the discretion of the local business managers.

Flexible Design in Practice

We can explain this sort of “stratified” modeling approach in more concrete terms. Let’s take into account the divisional model that we’ve mentioned before:

    1. The core layer defines the global list of possible specialized divisions, their main internal organization rules, their standard names, the related management reporting dimensions and minimal information systems requirements;
    1. The intermediate layer defines how the number and size of actually implemented divisions can vary from country to country, as a function of market demand, business size, and maturity;
  1. The third layer defines recommended growth patterns for division startups and career paths for key roles in the organization. These are mere indications and can be overridden by local country management rules and HR policies.

The Test of the Market

Having a model doesn’t mean you have to apply it mechanically and regardless of specific market conditions. Moreover, model flexibility is a good starting point, but even a flexible model must undergo a market test, before you can say it works.

Jack wants to act as a serious value generator: his aim is always directed at the customer. He knows that the model, after its initial definition, is still just a theoretical construct, built up in a reasonably short time.

The final international business model will be an emerging consequence of its application to the real world. The team is now eager to test it in new markets and a big part of the work is still there to be carried out.

International Business Model Transformation - Move 6: Top-Down or Scaling the Model

Move 6: Top-Down or Scaling the Model

Besides the initial pilot country, the company operates in ten more. These need to be aligned to the international model.

Road Map

Jack and his team prepare a roadmap. Priority setting now takes into account two factors: The first is the contribution of each country to global revenues, and the second is project logistics. In fact, the team being small and geographical distances being large, travel need to be carefully planned.

The model scaling approach is quite straightforward, and can be roughly summarized in three steps:

    1. engagement,
    1. training,
  1. follow-up.

Rolling-out

First, Jack engages the country manager and the local business manager. He illustrates the content of the project, the reference model, the expected benefits and the timeframe. They also identify the key people that will act as focal points in subsequent phases.

The second step is about training people. Peter, a guy from the IT department, has now come on board and is part of the team. While the main focus of training sessions is on how to successfully apply the new business model, Peter’s job is to explain how to leverage the functionalities of the newly configured information systems in day-by-day operations.

After the first training wave and after allowing some time to “digest” the new way of working, the team delivers one or more follow-up sessions. The number of the sessions depends on the countries’ feedbacks and on usage data extracted from the information systems.

The sequence is repeated for each of the ten countries. This modular “roll-out” approach allows working with two to four countries in parallel at a time. By now, the team is traveling a lot around the world.

The Importance of the Method

Meanwhile, Bill, the project manager, has changed his role from an active part of the game to an observer. He is particularly interested in verifying the effectiveness of the method, its strengths and its weaknesses. He is also working to formalize it, in a way that it can possibly be reused for similar jobs with other businesses of the group.

This is not a one-way game. Each new country implementation contributes to enriching the understanding of the business, with new experiences and best practices. The model depicts a living organism. One that needs to be governed.

International Business Model Transformation - Move 7: Governing the Model

Move 7: Governing the Model

As Jack, Amy and the new entry, Peter, deliver their training rounds across the countries, the need to move on, from implementation to governance starts emerging. Meanwhile, the first financial results are coming from the countries that have seen the earliest implementations of the new business model.

Evolutionary Governance

Following-up the adoption of the global model involves performing a number of activities, such as:

    • observing and measuring alignment,
    • reinforcing messages accordingly,
    • sharing good practices,
    • keeping an eye on market evolution,
  • updating the model.

The utility of the data model, one of the five focus areas defined during the design phase, becomes evident here. It facilitates “reading” the newly rolled-out businesses and measuring their results.

Identified gaps between theory and practice lead to one of two outcomes: either the message about the model is reinforced and the local business fills the gap or, if good reasons are recognized behind the gap, the model itself is adjusted to encompass the new variant. Sometimes, this kind of adjustment provides the occasion to share a new good practice among other countries that turn out to be in similar conditions.

Another factor determining the evolution of the business model is the observation of significant changes in the external environment.

Far from being a mere attempt to preserve a new level of stability, the whole governance process is one of continuous adjustment for the better.

The Centrality of Language

The above mentioned governance activities imply intense two-way communication between the center and the peripheral businesses. It turns out that a common language has been established, thanks to the very formalization of the model. The newly introduced vernacular proves a formidable enabler in model adoption.

A dozen countries can now produce simple standardized reports that everybody can make sense of. In most cases, they use shared information systems and operate common procedures, without major misunderstandings in their application and without feeling penalized by the typical rigidity of centralized governance models.

Three years after its implementation, the model is now generating a net positive cash flow at an international level. Revenues have now reached 150% of their value at the start of the work. Countries operating the model for longer are the same that show the best performances.

At the company headquarters, the top management has started considering extending the application of the newly developed methodology to other businesses in the group.

International Business Model Transformation - The Takeaway

The Takeaway

Let’s now review the sequence of seven steps followed by Jack and his team. This is easier done if we group the seven steps into three parts or phases: setup, execution and governance.

Summarizing Approach and Results

In the project setup phase, the dedicated team:

    1. Set clear objectives upfront;
    1. Hired a team with a good cross-functional mix of skills and a strong degree of cross-cultural awareness;
  1. Quickly gained a first level of understanding of the bigger picture; doing this with a view to prevent major rework in the subsequent generalization of the model;

In the execution phase, they:

    1. Gave priority to one country and did a good job there;
    1. Generalized the results in the form of a formalized flexible model;
  1. Rolled-out the model, knowing that this often involves challenging business as usual;

In the governance phase, they:

  1. Initiated model governance, by following-up change, sharing good practices, and incorporating field-generated hints into the model itself.

International Business Model Transformation - Approach Summary & Timeframe

Besides the overall purpose of reversing the negative performances of the business line, let’s also recall the initial objectives that had been associated to the introduction of a business model. These were:

    1. Providing a shared language and a communication framework, to quickly “read” actual practices and performances;
    1. Orienting local managers towards improved results by setting clear expectations upfront;
  1. Establishing a straightforward and convincing cross-country positioning of the business, especially when facing large international customers.

Evidence suggests that at least the first two objectives have been definitely reached. On the other side, evaluating the success on the third point will require a longer period of observation.

What Methods for Complexity?

Now, retrospectively deducing the general validity of a method from one success case can be a tempting hobby. A self-convincing exercise in the first place, and secondly a self-selling one. As for me, I tend to be wary of those who try to persuade me of their theories based on alleged cause-and-effect relationships between their actions and their successes.

Reality is that there are always a number of plausible determinants of the success or the failure of a business transformation initiative. In fact, modern organizations are complex socio-technical systems. We cannot reduce them to a set of linearly interacting parts.

We will never really know which has been more important: whether the rigorous application of a structured method, the inspirational effect of a committed and trustworthy team, or the charisma of a leader. Or else the self-reinforcing loops arising among all of these factors.

Nevertheless, if I had to face a similar case, there are at least a few points I would definitely borrow from this story I’ve told you, and save for future use. These are:

    • Context dependence – what works in one place, whether geographical or metaphorical, won’t necessarily work the same way elsewhere;
    • Dynamic adaptability – what works today, even if conditions look the same, won’t necessarily work the same way tomorrow;
    • Centrality of language – before being able to fully communicate something, you need to give names to the concepts you want to use;
  • Market-first – no business idea is good in itself, or, as Steve Blank brilliantly put it in a 2010 blog post, “no business plan survives first contact with the customer”, and the market will always be the ultimate referee of your game;

Finally, allow me to briefly trespass the border of opinion and belief, just to say that the effort of building trust and of acting as givers can profoundly influence the outcome of a business initiative such as the one I have just described.

I’ve told you my story because I believe that it contains a number of useful hints. Every business is a different case, and it would be plain wrong assuming that what has worked so well in a certain context would automatically lead to success elsewhere. With the necessary adaptations, though, you might find at least some elements of the approach that has proven successful in that context effectively applicable to a number of similar ones.

International Business Model Transformation - Bonus Track: Do You Really Need One Model?

Bonus Track: Do You Really Need One Model?

I can only presume that, among those of you who had the patience to stay with me to this point, a fundamental doubt may have arisen in your minds. The latent question that may be, more or less consciously, puzzling you is: do you really need one model?

Have I read your mind?

Well, I want to be straight and clear: my answer is “no”.

Expanding a bit on this, I would add that it depends on the context and on your objectives. The business world is full of success cases in which the the model shrinks down to a few accounting and reporting rules, and a code of ethics. On the opposite side, you may find companies that rigidly impose one model, without any adaptation to market conditions, even if this implies renouncing to a share of the business in favor of a simplified center-periphery information exchange.

Within an ideal continuum between stiffness and near-anarchy, in order to choose your “whats”, you will have to answer your “whys”.


Has this story made you think of some personal experience of yours? Would you be able to list one similarity and one difference with any of your cases? Feel free to use the comment space below to share your remarks.

Also, what is the element of the approach, among the ones described, that you would most likely want to replicate in your case? Use the same comment space to let me know.


Credits & Sources:

    • The text of this post has been originally published on this website
Posted in International Business, Transformation and tagged , , , , , , .

Leave a Reply

Your email address will not be published.