Business Model Innovation and Banking Wal-Mart-style
Via Steve Wunker c/o Innoblog: “Business Model Innovation in Wal-Mart’s approach to banking”
This is an interesting case of applied business model innovation (perfectly fitted for a coming consulting and coaching assignment I am currently preparing for), that shows many traits of disruptiveness (for the banking incumbents, that is):
Wal-Mart is pushing new banking offerings, starting with the under-served, offering basic services, etc. But you can bet that they won’t stop there, and why should they. Commodity banking is an industry ripe for disruption.
Wal-Mart’s announcement this week that it is forging ahead with banking services […] The company’s move is firmly in line with how it approaches new markets, but the approach is quite distinct from how US financial services firms have traditionally functioned.
Wal-Mart is circumventing its recent lobbying defeat by partnering with an array of third party firms, such as GE, to provide a wide array of services such as debit cards, low-cost check cashing, and money transfers. It will use its brick-and-mortar infrastructure to great effect, but will also leverage the convenience of banking while you shop and its reputation for offering excellent value (in a market where pricing can be more than a little opaque). The focus of its effort — for now — will be on the unbanked, including immigrants.
The firm is laying the foundation of a highly disruptive business. It will offer simple banking services, without the frills of branches, nicely-dressed staff, and drive-through tellers. While consumers may give up these now-standard features of the banking experience, they will gain convenience, value, and access (including the ability to set up basic accounts without all the Know Your Customer paperwork that hinders many who are currently unbanked). Wal-Mart is attacking a market that most banks don’t value very highly, and on turf where the firm’s asset and brand advantages give it a clear Right to Win. These are all harbingers of success.
While I like this analysis very much I prefer to differ with Steves proposed approach to business model innovation. For me, business model innovation and design offers many more levers than merely “working backwards from the value proposition”:
Business model innovation has become a fashionable term of late, but it is harder to execute than many firms perceive. It must start with the customer value proposition, and then work its way through to the profit system and the firm’s resources and processes. Unfortunately, many firms get this backward, fixing the profit system, resources, and processes in place, and thereby severely constraining the type of business model innovation that can occur. They would be well-served to chart their current model in a disciplined fashion, recognizing the divergences that must happen for the company to thrive in the new competitive environment. Then, they can systematically liberate the constraints that remove degrees of freedom from their desired response. It is not easy, but if it were then it wouldn’t be so profitable.
But this is only a minor disagreement, as the other elements are right on (oh yes, “it is harder to execute than many firms perceive”). This calls for professional business model consulting help … doesn’t it?
