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Introducing ‘focus and leverage’ – the value algorithm of the internet era

Anyone pitching a business idea or designing a new service needs to understand the economics of mature internet technology

Say you’re a venture capitalist, an angel investor, a dragon, a government policymaker, or even a politician, and you’re listening to someone pitching an idea. You’re there to decide one thing – whether this business idea is any good or not. They appear to have done their market research, they have thought about the customer journey, it looks compelling, they’re on top of all the buzzwords, and the numbers add up. So do you charge in?

While once your decision-making process might have been based on a mix of sector knowledge, past experience and hunch, in 2018 it doesn’t feel that simple. That’s because the question of whether a business idea is any good or not relates closely to how you explain its positioning in relation to what’s on offer “out there” in the internet economy.

Indeed, when you look under the hood, business ideas that remain fresh and relevant for the customer, and do this sustainably and/or profitably, all use the internet in a particular way: they all focus remorselessly just on the area where they add unique value – and leverage the rest.

Focus and leverage

Successful businesses do this because the economics of mature internet technology simply penalise those who insist on trying to do everything themselves. For example, while Netflix streams its movies from content delivery sites based locally to its customers, enabling a fast, buffer-free streaming experience, it stores everything else in the Amazon Web Services cloud, enabling it to scale much more quickly and eliminate redundant capacity – the sustainable and profitable bits. 

The company focuses on the place where it generates value – optimising its customers’ viewing experience – and leverages the rest, such as delivering flexibility, scale and efficiency. Netflix’s optimising of focus and leverage adds up to a successful business model. Indeed, the movies themselves are now largely created via a focus and leverage algorithm.

“Focus and leverage form two halves of any compelling modern value proposition”
Mark Thompson, Cambridge Judge Business School

Companies that focus on creating content (such as Lionsgate), leverage a complex array of other, internet-based services that include publishing tools and video production (such as Pixelfish); content management and production services (perhaps Ascent Media); video platform enablers (maybe Ripcode); and monetisers (such as VideoEgg), before their content finally reaches the consumer via aggregation portals (such as YouTube). 

For each of the many thousands of players in this industry – large and small – success is as much about understanding and leveraging the best internet-based services as it is about what you actually do inside your organisation.

A brutal test

As an algorithm, focus and leverage constitutes a simple and often brutal test for value. Indeed, finding the biting point between the two is an invaluable business skill. For example, like many automotive organisations, Ford has learned to leverage common back-end components, such as a drive train or chassis, across different models where possible.

During its stewardship of Jaguar, however, it learned just where its biting point was when suspicious customers noticed the appearance of plastic switchgear more appropriate to a Ford on some expensive Jaguar marques. The result was a need to dial down on leverage – in this case, re-use of standard, common components – and recalibrate its understanding of focus to those activities where it generated value in the eyes of the customer.

Read more about internet-era business

Achieving the optimal biting point between focus and leverage is even more critical for organisations in 2018, however. This is because of the sheer array of internet-based infrastructure, platforms and services available to leverage – so maximising flexibility, scalability and efficiency – but also because of the vast amounts of data these services generate which can help us focus on doing things our customers find valuable.

For example, instead of train operators directing you to a website to claim for a late-running train service, which is their current focus, correct leveraging of widely available train information, social media, payment portals and SMS would enable them instead to text you apologetically, informing you that your account had automatically been refunded.

This simple train example demonstrates how determining the correct focus – and thus the value of what an organisation is doing – is only possible by also considering the available leverage. Focus and leverage form two halves of any compelling modern value proposition.

Service design

In turn, this acknowledgment holds interesting implications for radical innovation and service redesign. You can’t design a new service, or redesign an existing service – and thus determine your focus – without knowing what the customer need is. Yet you can’t really understand what the customer need is before being aware of the opportunities to leverage. 

Simply “doing user research” isn’t enough. Many train passengers who were unaware of this internet-based infrastructure wouldn’t be able to articulate this new focus – apocryphally, Henry Ford was supposed to have quipped: “If I’d asked people what they wanted, they’d have said faster horses.”

There’s also the issue of incentives. In this example, train companies may want to keep it difficult for customers to obtain refunds – that is, to leverage less, and hope that travellers continue to accept inferior value. In the internet age, those who understand leverage are thus empowered to demand better focus from those who serve them.

The inescapable implication is that as the service designer, you need to understand that “the user need” is only partly about listening to what users say is important to them. Equally important is a grasp of emerging, internet-based infrastructure and services, and of existing use cases for these – and an understanding of the unfolding feedback relationship between the two. That is, as a new leverageable service appears, so your focus adjusts accordingly. 

Whether you’re designing a service, pitching or investing in a new business idea, building your new business, or transforming a legacy business, focus and leverage should be your “true north”. They are inescapably the value algorithm of the internet era.

This was last published in November 2018

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Interesting use of the Ford/Jaguar example. Saab went the other way, stubbornly refusing to use parts from its parent GM or highly modifying them (especially the drivetrains) to the point where they were effectively bespoke. This created a situation where the cost per unit for the new Saab 9-5 was so astronomically high it actually cost Saab to put them on the road. Too much focus on being 'different' drove them (no pun intended) out of business. 
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