CM: What are the biggest risks facing business models today?
Slywotzky: Over the past 10 to 15 years, the level of risk in the environment has risen dramatically. A third of the 500 largest corporations lost 60 percent or more of their market value during that period. Most of those losses of value stem from strategic risks — changes in what customers want, changes in competition, the loss of brand power, and the destruction of industry margins.
There are seven or eight major categories of strategic risks that repeatedly catch companies unaware. As a result, many companies spend most of their time recovering value lost rather than creating new value for their investors and their customers.
CM: Can you give us an example of a company that has executed well in managing its risk?
Slywotzky: One of the classic examples of understanding and then turning around client risk can be found in the automotive industry and the development of the OnStar system. It had great technology, a great value for the customer, but the key was asking one tough question: "What are three very different business models that we can develop to take this offering to the market?" That one question, forcing the team to look at three different business model options, made all the difference between success and failure.
CM: What can companies do to better manage risk?
Slywotzky: In most cases, companies spend 95 percent of their energy getting the technology and the product right, and there's very little energy left over for asking the business model question.
Successfully beating project risk means designing the business as carefully and astutely as we design the product. The result can be a ten- to fifteenfold increase in the value of a project relative to a base case.
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