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Firm of the Future
      Media and Analysts



                                        Ed Kless
Senior Director, Partner Development and Strategy
                              ed.kless@sage.com
                                       @edkless
What is a Business Model?
 How your firm creates
value for customers, and
 how you monetize that
          value.
“Disruptive
 threats come
inherently not
    from new
   technology
but from new     Andy Grove, Founder,
    business                     Intel


     models.”
Peter Drucker



 “The customer never buys a
   product. By definition the
customer buys the satisfaction
  of a want. He buys value.”
Experience Curve
Undifferentiated Differentiated




                                                                            Provide
                                                                            knowledge
                                                                 Perform
                                                                 Services
                                                Make
                                                products
                                  Extract
                                  Commodities


                                   Market                  Pricing           Premium
Professional Service Firm
Four Assertions

  1) Growth without profit is perilous
  2) Nonrival assets have more leverage than
     rival assets
  3) Effectiveness is always and everywhere
     more important than efficiency
  4) Value-led pricing is superior to cost-plus
     pricing for capturing value
Four Defenses of Timesheets


1) Pricing
2) Productivity
3) Cost accounting
4) Project management
Professional Knowledge Firm

              Professional Knowledge Firm

               Capital                            Pricing on
Profit   =                X   Effectiveness   X
             management                            Purpose
Two Business Models

              Professional Knowledge Firm

               Capital                            Pricing on
Profit   =                X   Effectiveness   X
             management                            Purpose


 ↑              ↑                  ↑                 ↑
From Revenue
   to Profit
The Market Share Myth




     Richard Miniter
$40,000




$35,000



$30,000



$25,000



$20,000



$15,000



 $10,000
                  Value
  $5,000      Price

      $0   Cost
Baker’s Law


Bad customers drive out
    good customers
From Capacity
  to Capital
Four Forms of Capital
• Financial

• Intellectual

• Structural

• Social
Rival Asset




     Non-Rival Asset
How Knowledge Workers are Unique
• They own the means of production
• Firms need them more than they need firms—
  balance has shifted
• Office is their servant, not their master
• Effectiveness is far more important than
  efficiency
• Judgments are more important than
  measurements
• Ultimately, they are volunteers
From Efficiency
to Effectiveness
The Antithesis of Efficiency

•   Continuing education
•   Knowledge management/CKO
•   Total Quality Service (Ritz-Carlton)
•   Mentoring and coaching
•   Networking
•   Business development
•   Social media
•   Pricing on purpose
What you can
measure you can
   manage.
  The McKinsey Maxim
“The only way to look into the
  future is use theories since
conclusive data is only available
        about the past.”

        Clayton Christensen
The Big Three
• HSDs

• Turn around time

• Value Gap
Value Gap
From Cost-plus
 to Value-led
Warren Buffet


“The single most important decision in evaluating
  a business is pricing power. If you’ve got the
power to raise prices without losing business to a
competitor, you’ve got a very good business. And
   if you have to have a prayer session before
raising the price by 10 percent, then you’ve got a
                 terrible business.”
The 5 Cs of Value
 • Comprehend the key value drivers for
   customers
 • Create value for customers
 • Communicate the value that you create
 • Convince customers that they must pay
   for value
 • Capture value with effective price
   strategies
A 1% increase change in, yields

12.0%                                              11.0%

10.0%

8.0%                                   7.3%             7.1%

6.0%                                       4.6%
                         3.7%
4.0%      2.7%               2.5%
              1.5%
2.0%

0.0%
        - Fixed Costs   + Revenue     - Variable   + Price
                                         costs
                        McKinsey    AT Kearny
The Smile Curve
Ed’s IT Smile Curve
A Tale of Two Theories


      The Labor Theory of Value




      The Subjective Theory of Value
Salaries + Overhead + DNI
        Expected Hours

       = Hourly Rate



Precise, but precisely wrong
Cost-led Pricing



Service    Cost   Price   Value     Customer




Customer    Value    Price   Cost    Service



             Value-led Pricing
Eight Steps to Pricing on Purpose
 ①   Conversation with customer
 ②   Pricing the customer, not the services
 ③   Developing and pricing options
 ④   Present options to customer
 ⑤   Option selected codified into an FPA
 ⑥   Proper project management
 ⑦   Utilize change requests
 ⑧   Perform after action reviews (AAR)
Five Ts to Offering Options
  1)   Terms
  2)   Technology
  3)   Timing
  4)   Talent
  5)   Training
Baron Joseph
    von Neinbach’s Model

     WA HF PF
C
B
A
Behavioral Economics
Charles
Revson, Founder, Revlon



“When it leaves the
factory, it’s lipstick. But
when it crosses the counter
in the department store, it’s
hope.”

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Firm of the Future - Media Edition

  • 1. Firm of the Future Media and Analysts Ed Kless Senior Director, Partner Development and Strategy ed.kless@sage.com @edkless
  • 2.
  • 3. What is a Business Model? How your firm creates value for customers, and how you monetize that value.
  • 4. “Disruptive threats come inherently not from new technology but from new Andy Grove, Founder, business Intel models.”
  • 5. Peter Drucker “The customer never buys a product. By definition the customer buys the satisfaction of a want. He buys value.”
  • 6. Experience Curve Undifferentiated Differentiated Provide knowledge Perform Services Make products Extract Commodities Market Pricing Premium
  • 8. Four Assertions 1) Growth without profit is perilous 2) Nonrival assets have more leverage than rival assets 3) Effectiveness is always and everywhere more important than efficiency 4) Value-led pricing is superior to cost-plus pricing for capturing value
  • 9. Four Defenses of Timesheets 1) Pricing 2) Productivity 3) Cost accounting 4) Project management
  • 10. Professional Knowledge Firm Professional Knowledge Firm Capital Pricing on Profit = X Effectiveness X management Purpose
  • 11. Two Business Models Professional Knowledge Firm Capital Pricing on Profit = X Effectiveness X management Purpose ↑ ↑ ↑ ↑
  • 12. From Revenue to Profit
  • 13. The Market Share Myth Richard Miniter
  • 15.
  • 16. Baker’s Law Bad customers drive out good customers
  • 17. From Capacity to Capital
  • 18. Four Forms of Capital • Financial • Intellectual • Structural • Social
  • 19. Rival Asset Non-Rival Asset
  • 20. How Knowledge Workers are Unique • They own the means of production • Firms need them more than they need firms— balance has shifted • Office is their servant, not their master • Effectiveness is far more important than efficiency • Judgments are more important than measurements • Ultimately, they are volunteers
  • 21.
  • 23. The Antithesis of Efficiency • Continuing education • Knowledge management/CKO • Total Quality Service (Ritz-Carlton) • Mentoring and coaching • Networking • Business development • Social media • Pricing on purpose
  • 24. What you can measure you can manage. The McKinsey Maxim
  • 25. “The only way to look into the future is use theories since conclusive data is only available about the past.” Clayton Christensen
  • 26. The Big Three • HSDs • Turn around time • Value Gap
  • 28. From Cost-plus to Value-led
  • 29. Warren Buffet “The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”
  • 30. The 5 Cs of Value • Comprehend the key value drivers for customers • Create value for customers • Communicate the value that you create • Convince customers that they must pay for value • Capture value with effective price strategies
  • 31. A 1% increase change in, yields 12.0% 11.0% 10.0% 8.0% 7.3% 7.1% 6.0% 4.6% 3.7% 4.0% 2.7% 2.5% 1.5% 2.0% 0.0% - Fixed Costs + Revenue - Variable + Price costs McKinsey AT Kearny
  • 34. A Tale of Two Theories The Labor Theory of Value The Subjective Theory of Value
  • 35. Salaries + Overhead + DNI Expected Hours = Hourly Rate Precise, but precisely wrong
  • 36. Cost-led Pricing Service Cost Price Value Customer Customer Value Price Cost Service Value-led Pricing
  • 37. Eight Steps to Pricing on Purpose ① Conversation with customer ② Pricing the customer, not the services ③ Developing and pricing options ④ Present options to customer ⑤ Option selected codified into an FPA ⑥ Proper project management ⑦ Utilize change requests ⑧ Perform after action reviews (AAR)
  • 38. Five Ts to Offering Options 1) Terms 2) Technology 3) Timing 4) Talent 5) Training
  • 39. Baron Joseph von Neinbach’s Model WA HF PF C B A
  • 41. Charles Revson, Founder, Revlon “When it leaves the factory, it’s lipstick. But when it crosses the counter in the department store, it’s hope.”

Editor's Notes

  1. *Because of the psychology of anchoring, the more you ask for the more you get.*This has been demonstrated in almost 50 years of experiments by behavioral psychologist, many of which are featured in the new book, Priceless.